Paycor HCM - Q2 2023

Transcript

Speaker 0

As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to VP of Investor Relations, Rachel White. Rachel, please go ahead.

Speaker 1

Good afternoon, and welcome to Paycor's earnings call for the Q2 of fiscal Year 2023, which ended on December 31. On the call with me today are Raul Villar Jr, Pacore's Chief Executive Officer And Adam Mandy, Pacor's Chief Financial Officer. Our financial results can be found in our press release issued today, which is available on the Investor Relations section of our website. Today's call is being recorded and a replay will be available on our website following the conclusion of the call. Statements made on this call include forward statements related to our financial results, products, customer demand, operations, impact of COVID-nineteen on our business and other matters.

These statements are subject to risks, uncertainties and assumptions and are based on management's current expectations as of today and may not be updated in the future. Therefore, these statements should not be relied upon as representing our views as of any subsequent date. We also will refer to certain non GAAP financial measures and key business metrics to provide additional information to investors. Definitions of non GAAP measures and key business metrics And a reconciliation of non GAAP to GAAP measures is provided in our press release on our website. With that, I'll turn the call over to Raul.

Speaker 2

Thank you, Rachel, and thank you all for joining us to discuss Paycor's fiscal 2nd quarter results. Paycor's modern open platform with differentiated tools for leaders in industries continues to resonate with clients and win in the market. Further expansion as we scale. Based on these robust results and our optimistic outlook for the remainder of the year, We are once again raising our guidance, which Adam will discuss in more detail. Our go to market motion Leverage influential broker relationships and continue to grow our average deal size.

We are ahead of schedule with sales hiring and already achieved the low end of our 20 plus percent seller headcount growth target for the year. We like our sales staffing level and we'll continue to evaluate additional hiring in the second half. By providing the insights and tools required to source, attract, develop and retain their employees. And evaluates leadership effectiveness by gathering feedback on how well they coach, optimize and engage their team. Given the continued tightness in the labor market, our clients' top priority remains finding and retaining talent.

This quarter, we closed the Telenia acquisition and began beta testing Paycor Smart Sourcing, which leverages AI Interest among our client base has been robust and early feedback is extremely positive. With the addition of Paycor Smart Sourcing, Our full suite of solutions is $44 PePAM and is the most comprehensive ATM offering available in the SMB market. Our platform's modern architecture enables rapid integration of point solutions such as Telenia that provide deeper functionality than traditional suite providers. Modern interoperability solution with a broad array of partners for our clients. We are incredibly proud Paycor was distinguished as a top workplace USA by Energage for the 3rd year in a row.

Energage's Top Workplaces program has a 15 year history of surveying over 20,000,000 employees that are proven to predict high performance against industry benchmarks. This award underscores our commitment To exemplify the cultural best practices that impact associate engagement and business performance. Let me close by reiterating how confident we are about Paycor's outlook. The labor market remains tight As non farm payrolls continue to increase, job openings are at elevated levels and workforce participation remains low. Modest changes in unemployment or job openings are unlikely to materially impact our business as most of our revenue growth is derived from new business And the market is still in the early stages of adopting modern cloud based HCM solutions.

Furthermore, HCM is highly defensible as our value proposition is mission critical to attracting, paying and retaining great talent, while also driving a compelling return on investment for our clients. Lastly, I would like to thank all Paycor associates For their efforts through this calendar year end, especially our implementation, support and success teams, I'll turn the call over to Adam to discuss our financial results and guidance.

Speaker 3

Thanks, Raul. I'll discuss our Q2 results, then share our outlook for the Q3 fiscal year. As a reminder, my comments related to financial measures are on a non GAAP basis. We had another strong quarter delivering total revenues of $133,000,000 up 29% year over year and recurring revenue growth of 22%, marking the 5th consecutive quarter of 20 plus percent revenue growth. We exceeded the top end of our revenue guidance by 4 and significantly outperformed our adjusted operating income guidance as we continue to scale the business.

The majority of revenue growth continues to be from new business wins. 90% of our revenue is derived from companies with between 10 to 2,500 employees, where we continue to see outsized growth. Effective PePAM increased 11% year over year, which includes cross sell as well as pricing initiatives such as the conversion of our clients to our latest product And it also includes the impact of higher bundle adoption at the point of sale. In addition, we're pleased with the progress we're seeing across our program as we continue to expand our interoperability platform. The number of employees on our platform increased to more than 2,300,000, up 9% over the prior year and we exceeded 30,000 customers.

Our average customer size increased to 78 employees at the end of Q2, basis, organic customer growth has been essentially flat following strong growth earlier in calendar 2022. The mid market and enterprise segments increased 11% year over year and net retention continues to trend favorably. Half year over year as we continue to scale the business. Sales and marketing expense was $42,000,000 or 32 percent of revenue, comparable to levels a year ago. We continue to strategically expand our sales teams and marketing programs, primarily in Tier 1 markets.

We like the current level of spend and continue to evaluate investments to ensure to focus on efficiently enhancing our modern platform to deliver on our leader strategy, whether it's through organic development, partnerships or acquisitions. G and A expense was $19,000,000 or 14.5 percent of revenue, down 1.5% from 16% in the Q2 of 2022. Operating income increased to $18,000,000 or 13% profit margin, up more than 300 basis points from the 10% last year, Even while continuing to expand investments in sales and marketing and R and D. Shifting to the balance sheet and cash flow. This quarter free cash flow was a $3,000,000 spend compared to a negative $7,000,000 last year.

We remain on track to deliver on our plan to be free cash flow positive for the full fiscal year. We closed the quarter with $72,000,000 in cash and no debt. Turning to client funds. This quarter, we generated just under $8,000,000 of interest income on average client funds of about $1,000,000,000 an an effective rate of just over 300 basis points. In terms of our outlook for the second half of the fiscal year, we remain optimistic on the HCM demand environment.

Employee growth among existing customers for the balance of the year. For the Q3, we expect total revenues of between $155,000,000 $157,000,000 or 20 8% growth at the high end of the range and adjusted operating income of between $35,000,000 $36,000,000 For the full year, we expect revenues of $539,000,000 to $545,000,000 or 27% growth at the top end of the range. And we anticipate adjusted operating income of $75,000,000 to $78,000,000 With respect to interest income, we expect our effective rate We increased marginally in the Q3 to about 3 30 basis points. At today's rate, we expect interest income will be in the range of $28,000,000 to 30,000,000 for the full year on average client fund balances of just over $1,000,000,000 We still plan to reinvest a portion of interest income as we've discussed this year to accelerate our product road map and expand our marketing programs and invest in infrastructure. However, we will look to drop any incremental interest income beyond that to the bottom line, which will increase our full year outlook on margin and cash flow.

Overall, we're pleased with our strong quarterly performance and ability to raise guidance again. We've driven increased profitability 3 consecutive quarters. Our differentiated platform focused on leaders continues to win in the market. As a mission critical application, we believe in the durability of the category and our opportunity to continue capturing share with the expanding $32,000,000,000 HCM market.

Speaker 0

Our first question today is coming from Gabriela Borges from Goldman Sachs. Your line is now live.

Speaker 4

Hi, good afternoon. Thank you. Raul, you mentioned all of the ways in which your business continues to perform in this environment. So I figured I'd ask the question directly. Are you seeing any negative impacts or offsets because of the macro?

Speaker 2

To date, we haven't seen any changes in our Overall demand environment, things have been fairly consistent, and they've been fairly consistent across all of our sales segments. So to this date, we've seen strong demand.

Speaker 3

Hey, Gabriela. The one thing I would say is that we've just seen a little bit more softness in that organic Customer growth in that sort of micro segment, really small segment under 20 employees. Besides that, there's really nothing else that we're seeing.

Speaker 4

Excellent. The follow-up that I have is on how you're thinking about normalized growth. I know that very consistently now You've been doing north of 20% recurring revenue even on more difficult comps. So how do you think about potentially getting to 25%? How do you About potentially accelerating your hiring further, are there puts and takes that could potentially put you back down to 15% that are out of your control?

So Just a little bit more on how you think about normalized growth.

Speaker 3

Yes, I mean the way that we think about it is that it's about the broader demand environment, our ability to grow the sales organization at pace and do it well, so that we continue to drive the profitability and the overall return out of that investment across the sales channel. And we feel like there's sort of a natural limit in terms of that 20%, 25% headcount growth, which is what we've been targeting for the last couple of years. And As we think about our ability to grow faster than that, we just haven't seen we've seen that operationally, it's just a little bit more complex or there It becomes a point of diminishing returns. And I think that there's so in that 20% plus range for us right now is where we feel Comfortable in terms of building that sustainable sales engine to drive that growth. And then the opportunity will be to expand that sales organization and the efficiency of that spend even further.

So with the way that we talked about it A couple of years ago and over the last 2 years now has really been about being consistent in the sales execution, developing this engine in

Speaker 2

Gabriel, is that we'll continue to add Peppem along the way. So we really think about it as 2 key components to drive consistent long term growth as our ability to continue to add sales headcount and our ability to continue to expand our peplum and our average deal size. And so we feel confident we've made great progress moving into the 20 plus percent range and we're to continue to execute and focus and obviously we want to continue to improve our performance over time.

Speaker 4

It all makes sense. Thank you.

Speaker 0

Thank you. Your next question today is coming from Samad Samana from Jefferies. Your line is now live.

Speaker 5

Hi, good evening. Thanks for taking my questions. So maybe first for Adam or Raul, either one. Just the effective PEPM growth of 11% year over year, really strong. I know you mentioned a few factors, Adam, such as higher bundle adoption and good cost out.

But I'm curious if you can maybe help us think about in the quarter, Which of those factors had the greatest contribution and if that's any change from what you've seen in the last few quarters?

Speaker 3

Yes. Hey, Yes. I mean, what we see is that it's really the combination of 3 key things like we mentioned, right, the conversion in that subscription We see higher adoption of the point of sale. We see pricing initiatives as well that go into that. And quarters.

It's been fairly consistent, close to a third across each of those items. So there's not one item that necessarily sticks out 1 or the other. It's been pretty consistent and we've seen really good execution across those three dynamics.

Speaker 5

Great. And maybe for you. It sounds like hiring is for sales is on track to where you're expecting. Maybe could you touch on that and just sales productivity? How is that metric trending, Especially as you onboard more and more at a large scale.

Speaker 2

Yes. So hiring It has been really strong. Retention has been excellent, which has really helped us to get into a really solid staffing Perspective. In productivity, as we would expect, our new people produce at a lower rate And they slightly drag down the overall productivity, based on the outsized hiring. But by and large, Beyond 2 years.

So we feel really good that the flywheel is working. We're onboarding people successfully and we're focused on execution.

Speaker 5

Great. Super helpful. Great to see the results.

Speaker 6

Thank you. Thanks.

Speaker 0

Thank you. Next question is coming from Bhavan Shah from Deutsche Bank.

Speaker 7

Looking back on new sales in the quarter, was there any change in composition of those deals, say in either size, industries or modules bought? And yes, start there.

Speaker 2

Yes. Thanks, Nick. I would say, again, we had consistent results across all segments. I would say that we saw Stronger results above 500 employees than traditional. So the product is really shifting And we're seeing a lot of traction upmarket, which is newer for us than maybe others.

And that's

Speaker 8

the primary dynamic that we saw this quarter. I mean, essentially, all

Speaker 2

of our The primary dynamic that we saw this quarter, I mean, essentially, all of our segments are operating as designed and we saw a little more take, in that 500 space. From a module perspective, Talent continues to fly off the shelf and we're seeing high attach rates and we actually charge for it. So it's been a great opportunity for us and we're really excited about it. It's differentiated And it's winning in the market.

Speaker 7

Great. And then just with the success of some of the sports partnerships that you've had, how are you thinking about your marketing investments going forward?

Speaker 2

Yes. From a marketing perspective, obviously, the sports partnerships have provided some great We're getting significant awareness, and it's really been a positive for Paycor as the whole and helping us as we expand nationwide. I would say we're continuing to focus You know all facets of the marketing engine and really looking to continue to help streamline entry into all these new markets. And so we're really focused on connected TV and driving ads through that. We're focused on continuing to increase You know our traffic online and so I think all of those things are helping drive top of the funnel awareness.

We're Record impressions, record traffic to paycor.com and record leads. So we feel really good that the actions that we've taken and the marketing team has done an amazing job, driving brand in these big relationships and making sure that we're maximizing our ROI on them.

Speaker 7

Great. Thank you.

Speaker 0

Thank you. Next question is coming from Terry Tillman from Truist. Your line is now live.

Speaker 6

Hey, good afternoon, Raul, Adam and Rachel. Thanks for taking my questions. I guess the first question is just, Raul, I think you said in your prepared remarks It was a record bookings. Is that for 2Q or is that for any quarter?

Speaker 2

It was a record for 2Q.

Speaker 6

Got it. Okay. Thanks. And I was curious about Tier 1 markets. Any specific callouts, whether it's TFC markets, Texas, Florida or California or any other Tier 1 markets that kind of stand out in terms of kind of where you are versus what your expectation was and I'm curious in those markets since you've had some time now, what are win rates in new seller productivity like in those Tier 1 markets

Speaker 2

Yes. So we've seen significant growth, over 100% growth And as a whole, our win rates for our new sellers are on par with the win rate for our overall sales organization. So the sales operation team is doing a fantastic The job of getting people up to speed on our value proposition and enabling them with the tools required to be successful out of the gate. So that's a real

Speaker 0

Thank you. Next question today is coming from Brian Bergin from Cowen. Your line is now live.

Speaker 9

Hi, it's actually Jared on for Brian tonight. In terms of year to date net revenue retention performance, how does that compare year over year? In terms of your FY 'twenty three guide, does that embedded change relative to FY 'twenty two?

Speaker 3

So the net retention has been performing well. I would I'd say it's been fairly consistent quarter over quarter. It's been trending well. And yes, Q1 of last year, while 1 quarter isn't necessarily a good metric here on net retention. Q1 of 'twenty two actually was rather low for us as we were going in sort of Growing over some of the COVID challenges.

So on a year to date basis, it's technically up, but it's been really consistent over the last, Call it 5 quarters now. So we feel good about the net retention and of course our expectations around that are included in our guide.

Speaker 7

Okay, great. And then

Speaker 9

in terms of the calendar 1Q form filings, are you expecting a year over year tailwind related to those form filing activity? And anything Different there in the compare this year either quarter on quarter on year on year basis to be mindful in terms of that outlook?

Speaker 3

Yes. I mean, I'd say that it's looking like it's going to be fairly consistent with where it was last year. We were wondering if we were going A little bit of an acceleration, but it's been really consistent with where I would sort of expect it to be from pre COVID levels. So it looks like it's normalized well. And And I think that it's driven more dynamically by overall employee retention, right, for our customers, our customers' employees which has been maybe a little bit more consistent this year and back in line with pre COVID levels.

So nothing I don't think that we would expect anything to look different As it has materially from any of the prior sort of pre COVID years.

Speaker 9

Great. Thank you.

Speaker 10

Thanks, Jared.

Speaker 0

Thank you. Next question is coming from Scott Berg from Needham and Company. Your line is now live.

Speaker 11

Hi, everyone. Congrats on the nice quarter and thanks for taking my questions. I guess I have a couple. First of all, Payroll and HCM in general, at least demand for these solutions, kind of an all customer segment level seems to be holding up extremely well today and much better than the other software segments I think that most of us on this call cover. As you look at the kind of what's going on under the covers, any idea why in particular today is just Great HCM environment versus others that are seeing that softness.

Thanks.

Speaker 2

Yes. I think a couple of things. One is, it's like some of your other software Add more seats, so to speak. That's one. Secondly, I think the category of the whole has changed Over the last decade and it's really added some really powerful modules around recruiting, around attracting, around retaining employees.

And so in this hyper tight labor market, I think that's Ben, a big driver of accelerated demand. Secondly, cloud Our solutions in ATM kind of lag behind the adoption rate of some other solutions that you would cover. And so we didn't have this

Speaker 8

explosive demand out of the gate. And I think

Speaker 2

COVID has really helped open up the Cloud is something that can be helpful to their organization. So I think the combination of the cloud acceptance in our category, finance or traditional HR have really made the solutions more powerful and more attractive. And again, the 3 modern players in our space combined have somewhere between 8% 12% share. So there's a really big I have legacy solutions still available for us to continue to convert over to a more modern solution. And I think That's why you're seeing really strong demand across the board.

Speaker 11

Got it. Helpful. And then from a follow-up perspective, You mentioned your sales hiring is on track and you've already achieved the low end of your range. As you look at the placement of those individuals this year, I know Tier 1 cities have been the focus, but these hires, are you looking at putting them in Maybe different geographic locations or customer segments than what you were 6 or 9 months ago, just seeing if there's any slight change to your strategy relative to current demand trends you're seeing?

Speaker 2

No, I mean we're still really focused on the majority of the people we're hiring are focused on what we would call 50 to 1,000 segment, 50 to 2,500. And yes, we have pockets where we have reps And the fact that we're still while we cover the entire market, we have Sure. What we would consider optimal coverage. So we have a long runway to go. If we want to add heads, we can continue to do that.

And we'll look at different designs, Scott, whether it's 50 to 250 or 50 to 2,500 or 250 to 2,500. There's a lot of different ways and markets to look at it. And you don't want to be robotic in your approach to the market. So We'll look at all different options and our objective is to maximize our LTV to CAC.

Speaker 11

Great. Congrats again. That's all the questions I

Speaker 7

had. Yes. Thanks, Scott.

Speaker 3

Thanks, Scott.

Speaker 0

Thank you. Next question is coming from Brian Peterson from Raymond James. Your line is now live.

Speaker 3

Hey, guys. Thanks for taking the question. Just one for me. So it's actually a bit of a follow-up to Scott's question, but there's a lot of metrics that you have given in terms of Like what are you seeing in terms of the PePEM and the module adoption? I just kind of love to understand what you're seeing in terms of the opportunities that we should be expecting going forward?

Thanks, guys. Yes. Hey, Brian. Yes, I mean, when we look at the pipeline, I'm not sure that it looks any different than what we've seen And I think the big thing, of course, is everybody buys payroll, everybody gets the sort of HCM core platform. That's Table 6 now and part of that We're seeing in the Tilene acquisition, it's going to continue to expand that Towne solution and we're already seeing interest and really strong demand around that solution really early days.

So I think that's where we're seeing a lot of growth. We're seeing a lot of growth in the portfolio come from talent. We continue to see our enterprise segment and the larger end of Our customer segment looking for more talent solutions, which continue to drive that ADS up and continue to drive PePAM up, Where the payroll historically has been a lower part of that rate. So I think that's what we see. The same thing inside of our Pipeline, excuse me, is that, that continues to grow with more and more customers looking for talent solutions.

Speaker 6

Great. Thanks, Adam.

Speaker 2

Thanks a lot.

Speaker 0

Thank you. Next question is coming from Patrick Walravens from JMP Securities. Your line is now live.

Speaker 10

Hi, everyone. Thanks for taking the question. This is Owen on for Pat and congrats on the strong quarter. So I was interested in the interest income line and I I guess what was the what the mix was of investment back into the business versus straight to the bottom line previous to all these interest rate hikes?

Speaker 3

Yes. So when we were going into the year, we were expecting something in that sort of $12,000,000 range, dollars 12,000,000 to growing to $24,000,000 and we were targeting About half, looking to spend about half of that at that $20,000,000 to $24,000,000 range. And I think that there comes a limit where we just simply can't consume more or we don't like what the returns look like for that incremental investment. So we've been targeting about half, meaning that we would be maybe in that $10,000,000 to $12,000,000 range on a full year of investment or reinvestment of those interest And I think that's probably where we're going to end. So as we look at the increase to 30 in this case, we're not Certainly looking to I mean, we'll look for opportunities to invest it, but I don't think that we're going to see the opportunities that we're looking for.

And so that will sort of naturally fall down.

Speaker 10

Awesome. That's it for me. Thank you.

Speaker 2

Thank you, Alex.

Speaker 0

Thank you. Next question today is coming from Andrew Warren from Davidson, your line is now live.

Speaker 9

Hey, guys. Thank you. I was just curious how cross sell is doing with additional modules to existing customers if you have seen success there. And then kind of along with that, if you guys are seeing any success in getting price increases through?

Speaker 2

On the cross selling side, we continue to have strong success with our client sales team selling additional Obviously, they're really focused on talent as a primary driver. And so we've seen strong Growth there. We're going to continue to grow that team, thoughtfully, over time. And the team continues to play A big contribution to our overall growth and we're excited about where we are with them. As far as the pricing goes, I'll let Adam

Speaker 3

Yes. We try to be really intentional about those price increases and make sure they follow the value that we continue to deliver We've released a lot of product and developed a lot of great features that we've released to our customers as well as invested pretty heavily in our service and support organizations. And so We've been able to see pretty good take on those incremental price increases that we've been able to put into the portfolio. And of course, We're really intentional with it. We don't want to be jumping out constantly with them.

So it usually takes a couple of years before a client comes in before we look at price increases. And since the portfolio is growing quite nicely with a lot of new customers over the last couple of years, we've been able to revisit those prices pretty regularly.

Speaker 9

That's awesome. Thanks guys.

Speaker 2

Thank you.

Speaker 0

Thank you. Next Question is coming from Steve Enders from Citi. Your line is now live.

Speaker 7

All right, great. Thanks for taking the question here. I I guess I want to ask a little bit on the verticalization strategy and how that's been resonating in the quarter, anything to call out that's all particularly Kind of strong bookings, booking instruction here.

Speaker 2

Yes. So from a bookings perspective, we should think about it is, slightly over 50% of our mix is coming from the 4 key industries. For a little flavor, I would say, we had really strong results Special services and food and beverage and accommodations this quarter. And I would say healthcare Kind of was a little lagging behind this quarter. They're obviously growing over tougher comps from the previous years.

But that's how I would think We're really excited about the progress we've made. We continue to invest in the product differentiation and tools for implementation for our clients, so we can easily customize the tool for them for their specific industry.

Speaker 7

Okay. Got you. That's helpful. And I guess just a housekeeping question. Just on The 20 acquisition, I guess, what was kind of the impact in the quarter from a rev contribution and what's kind of embedded And the outlook there going forward?

Speaker 3

Yes. It's really immaterial to the P and L. So we see it's Well less than 1% of our overall revenue for the year, well less than that. So it's really more about the fantastic technology and getting that into our platform and we're going to be able to take that to market through our broader suite. But there's almost no impact to our financials.

Speaker 7

Okay, perfect. That's helpful. Thanks, team.

Speaker 0

Thank you. Our next question today is coming from Pat Walravens from JMP. Your line is now live.

Speaker 5

Great. Thank you and congratulations. Pat for Pat this time. Hey, Raul, as a follow-up, it caught my attention when you reeled off 3 metro areas that were doing particularly well. I think LA was one of them.

Like taking LA as an example, like what would make LA

Speaker 2

Hopefully, critical. The fact that we have continued to grow our sales team there, and this is we're entering the 3rd So we're starting to see that tenure build up in the marketplace. And when you add a really large dense marketplace that's been saturated on legacy solutions that are just looking for something modern. As we've entered there, we've seen a lot of strong success.

Speaker 5

And you said this was year 3?

Speaker 2

Yes. We really started in 2021 And this will be our 3rd fiscal year in July. We're about 2.5 years in. Yes.

Speaker 5

So I mean, what I'm getting at here is sort of the longevity of this growth trajectory you're on, right? So how many L. A. Type or big metro areas are there out there where you feel like you guys are just getting started?

Speaker 2

Yes, I mean, so if you think about it, we really manage the 50 metro markets and we break them into Tier 1, Tier 2 and Tier 3. And I would say Tier 1, which is the 15 largest, which includes L. A. And San Francisco and Miami, I would say we're in the early innings. We're about a 3rd of the way there.

And when you think about Tier 2 markets, which are the next 15 biggest cities in America, We have, again, tons of opportunity to continue to expand. We're slightly more covered there. And so For us, it's a long runway of continuing to add headcount, but also seeing that headcount mature through the tenure cohorts

Speaker 0

Thank you. Our next question today is coming from Mark Murphy from JPMorgan. Your line is now live.

Speaker 5

Thank you very much and

Speaker 12

I'll add my congrats. I was wondering first off if you can speak to the trend you're seeing with your own real time pay solution. I believe That one is a 3rd party solution called PayActiv. Anything just in terms of what percentage of payees in your system are using it or How much revenue is flowing around between Paycor and the 3rd party provider there?

Speaker 3

Yes. Hey, Mark. While we see good adoption or sort of continuing growth in the adoption, it's still just overall, I mean, the materiality is I mean, it's immaterial in terms of its impact on the revenue. So I think that we're expecting that this build is going to take years to get it to a point where the card Economics are really enabling any sort of real revenue impact. When we see clients adopt it, you usually see A couple of employees in a company using the card and then it takes some time for them to really start to get into actually using it somewhere that drives card economics.

What we see most of the time is that clients or employees are downloading it to their own pay card or they're taking the cash out right away versus using it on the And so the economics just sort of occur a little bit differently. So with that in mind, I mean, I just think that it's going to be a long runway to revenue there. I think the benefit is more In terms of it's a benefit to our customers to be able to enable for their employees. And so the customers feel good about it. There's not A huge cost to their employees.

And so it's a benefit that they can provide their employees that really just continues to give it's become table stakes almost because we put it into The core offering and a lot of competitors do too. But I don't expect it to be material to revenue for the foreseeable future.

Speaker 12

Okay. But Adam, if I understand the way you're describing that, but there is some interesting percentage of PEs that are Taking their cash out more often than the twice a month basis. I mean is that a fair way to think about it, right, whether they're taking cash out right away versus using it on the

Speaker 3

Yes, absolutely. I mean, there's definitely people using it for sure. It's a benefit to associates for sure.

Speaker 12

Yes. Okay. And then, Raul, regarding the focus that you've had for a long time now on the leaders within an organization, I'm interested in whether that is resonating perhaps in some new and different ways just because this unique type of environment that we where unemployment I think is at a 50 year low, wage inflation is so high. I mean companies must have Sort of a heightened interest in how they're leading, how they're managing, how they're retaining the workforce. Is that something I think that is kind of tangibly different for you in this environment?

Speaker 2

Clearly, talent is one of the biggest reasons why we win in Win rate is so strong. And we continue to invest in opportunities, whether it Was goal setting or most recently with smart sourcing help leaders find and source The dashboard really helps leaders understand where they are, how their employees are viewing them from a coaching perspective, From an optimization perspective, are they making them better? And then are they engaged? And are they going to stay longer? And It really provides people real time feedback from their associates in order to be a better leader.

And so Obviously, we believe that leaders drive associate engagement and associate engagement drives overall productivity for our clients. And If we can continue to help deliver that for our clients, they're going to be more successful. And so people are definitely Resonating to the message, and so we're excited about where we are, and we're going to continue to add more differentiated tools for frontline leaders

Speaker 0

Your next question is coming from Mark Marcon from Baird. Your line is now live.

Speaker 9

Good afternoon, Raul and Adam, and congratulations. Wondering if you can talk a little bit more about the strong success that you're having with the employers that have more than 500 Is there any difference in terms of the sales strategy, in terms of how you've targeted people? What is really standing out that's helping you in the upper end of your market?

Speaker 2

Yes. I think it's a combination of things. Obviously, as we put more focus on those prospects From a sales perspective, we're going to get more at that. The product itself Over the last few years has significantly added feature functionality where we're differentiating from our peers and we believe we have the most robust solution in HCM and our Peplum would demonstrate that. So ultimately, I think it's the feature functionality, the ease of use of the platform and our robust talent tools that are driving in that 500 plus market, so far.

Speaker 9

That's great. And then you did talk a little bit about your AI recruiting capabilities and Paycor smart sourcing. Can you talk a little bit about to what extent that's Helping particularly with a tight labor market and what you view from a longer term perspective, The implications of generative AI like chat GPT and the technology That is leaping forward in terms of both in terms of how you service your clients, but also

Speaker 2

Yes. I mean, Paycor Smart Sourcing is amazing Technology is an amazing addition to our portfolio. And we've already have clients in beta And we've already sold over 100 clients on Paycor Smart Sourcing Less than 45 days. And so we're excited about the prospects. People see the value.

It's a time saver. And it essentially, instead of asking a frontline leader to kind of view through Hundreds of LinkedIn profiles or resumes stacked in their desks, we do that work for them through AI and provide them a list They should start with 1st. And so it's a home run, and we're really excited about it. And we're going to continue to see more adoption. On our next call, we're going to be really excited to share the results.

I'm really confident about that. I think AI in General, there is tremendous opportunity across the entire HR platform, to leverage the data that We have to provide insights to our customers. So that's one our product team is continuing to evaluate and work on. And obviously, the team that we acquired across the other modules of our platform. Internally, obviously, there's plenty of opportunities to use that kind of functionality to improve the user experience, whether it be through essentially, we already have chat with A person, and now you can have chat without a person.

And so it's not a be all end all solution by That will help separate Paycor from the rest.

Speaker 9

Terrific. Thank you.

Speaker 10

Thank you.

Speaker 0

Thank you. Next question is coming from Jackson Ader from SVB MoffettNathanson. Your line is now live.

Speaker 9

Hi, guys. This is Kyle Deel on for Jackson. Just a quick one. I think, Adam, you had mentioned that there was no material change in labor or demand environment factored into your guidance. But in terms of the $30,000,000 float for the full year, does that take into account any future Rate hikes or is that kind of just where we are today?

Speaker 3

Yes, it's based entirely on where the rate environment is today. So yes, any increase in rates going forward would mean there's additional upside.

Speaker 9

Got it. Okay. Thank you.

Speaker 8

Thank you.

Speaker 0

We reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.

Speaker 2

Thank you again for joining us tonight. We're encouraged by the momentum in the Paycor business and remain laser focused on executing our We look forward to connecting with many of you over the next few weeks, and we wish you all a great evening. Good night.