Paylocity Holding (PCTY 0.48%)
Q4 2022 Earnings Call
Aug 04, 2022, 5:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, and thank you for standing by. Welcome to Paylocity Q4 2022 earnings conference call. [Operator instructions] I would now like to hand the conference over to your speaker Ryan Glenn, chief financial officer. You may begin.
Ryan Glenn — Chief Financial Officer
Good afternoon, and welcome to Paylocity’s earnings results call for the fourth quarter and fiscal ’22, which ended on June 30, 2022. I’m Ryan Glenn, chief financial officer. And joining me on the call today are Steve Beauchamp and Toby Williams, co-CEOs of Paylocity. Today, we will be discussing the results announced in our press release issued after the market closed.
A webcast replay of this call will be available for the next 45 days on our website under the Investor Relations tab. Before beginning, we must caution you that today’s remarks, including statements made during the question-and-answer session, contain forward-looking statements. These statements are subject to numerous important factors, risks and uncertainties, which could cause actual results to differ from the results implied by these or other forward-looking statements. Also, these statements are based solely on the present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in the forward-looking statements.
For additional information, please refer to our filings with the Securities and Exchange Commission for the risk factors contained therein and other disclosures. We do not undertake any duty to update any forward-looking statements. Also during the course of today’s call, we will refer to certain non-GAAP financial measures. We believe that non-GAAP measures are more representative of how we internally measure the business, and there is a reconciliation schedule detailing these results currently available in our press release, which is located on our website at paylocity.com under the Investor Relations tab and filed with the Securities and Exchange Commission.
Please note that we are unable to reconcile any forward-looking non-GAAP financial measures to their directly comparable GAAP financial measures 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, I will be attending the Wolfe Research TMT Conference in San Francisco on September 8, the Stifel Executive Summit in New Jersey on September 12, and the Piper Sandler Tech Conference in Nashville on September 14. Please let me know if you’d like to schedule time at any of these events. With that, let me turn the call over to Steve.
Steve Beauchamp — Co-Chief Executive Officer
Thank you, Ryan, and thanks to all of you for joining us on our fourth quarter and fiscal ’22 earnings call. Our sales team continued its strong execution in the fourth quarter with total revenue growth of 36.7%, marking our fourth straight quarter with more than 30% revenue growth as our differentiated value proposition of providing the most modern software in the industry continues to resonate in the marketplace. For fiscal ’22, total revenue was $852.7 million or 34.1% growth, our largest annual revenue growth since fiscal ’16. Our strong sales execution was driven both by adding new clients and increasing our average revenue per client.
We ended fiscal ’22 with 33,300 clients compared to 28,750 at the end of last fiscal year, an increase of 16%. The 16% increase in clients in fiscal ’22 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. Average recurring revenue per client was over $25,000 in fiscal ’22, compared to just under $22,000 in fiscal ’21, an increase of 16% as a result of increased employees on the platform and rising product attach rate across our client base. We continue to attach more products at time of sale and have realized increased success selling back into existing clients as our products focus on the most modern workforce resonate across our entire client base.
Additionally, community usage continues to increase with the total number of monthly users growing more than 40% in fiscal ’22, while video creation has increased by over 80% during the same period. These increasing levels of engagement are driving tangible business impacts for our clients with our proprietary Modern Workforce index, showing that higher engagement scores correlate with 15% lower turnover and faster headcount growth. Our commitment to product development continues to be recognized in the market, with Paylocity ranking high on the G2 Crowd Summer Grid reports during fiscal ’22, while Community, our social collaboration hub, was recently named the best culture building solution within the Employee Experience category of the 2022 HR Tech Awards. Our strong culture, industry-leading software and exceptional sales and operational execution would not be possible without the dedication and commitment of our employees.
As we close out a very strong fiscal ’22, I’d like to thank all of our employees for a fantastic year. I would now like to pass the call to Toby to provide further color on the quarter and fiscal ’22.
Toby Williams — Co-Chief Executive Officer
Thanks, Steve. The ability to attract and retain talent remains top of mind for our clients as the combination of a tight labor market and the challenges that come with managing remote, on-site and hybrid teams are driving increased demand for HR technology. These dynamics are reflected in increasing attach rates across our entire platform, particularly within our suite of Modern Workforce solutions, including recruiting, learning management, premium video and surveys. Overall, our differentiated value proposition of providing the most modern and comprehensive product suite in the industry continues to resonate in the marketplace.
The demand environment remains strong, and our sales teams executed very well in fiscal ’22. In Q4 and fiscal ’22, we saw strong sales execution across our entire market, driving healthy sales activity and setting us up for a strong fiscal ’23. Building off this strong momentum, we’ve expanded our sales force for fiscal ’23 by adding new sales reps, while at the same time, investing in training initiatives and marketing and channel programs to drive productivity, which saw steady improvement throughout the course of the year and now sits ahead of pre-pandemic productivity levels. Sales reps have increased by 18% from 588 in fiscal ’22 to 694 in fiscal ’23, and I’m pleased that we are fully staffed heading into the new fiscal year.
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 in full fiscal ’22. In addition to an 18% increase in sales reps for fiscal ’23, we remain committed to continuing our investments in digital marketing and digital lead gen to support our go-to-market motion. We continue to see strong demand across our target market, and we’re very pleased with the momentum our sales team has built headed into fiscal ’23. Additionally, from a macro perspective, key data points remain strong, including workforce levels at our clients, which increased each month in Q4 and into July.
The strong culture at Paylocity continued to be recognized externally this fiscal year as we were named to the Inc. Best Life Companies list, Fortune 100 Fastest-Growing Companies, Forbes Best Midsize Employers, Forbes Best Employers for Diversity and Forbes Best Employers for Women. Echoing Steve’s comments, I would like to thank all of our more than 5,000 employees for a fantastic fiscal ’22, which would not be possible without their dedication and commitment to our clients. I would now like to pass the call over to Ryan to review the financial results in detail and provide fiscal ’23 guidance.
Ryan Glenn — Chief Financial Officer
Thanks, Toby. Total revenue for the fourth quarter was $228.9 million, an increase of 36.7%, with recurring and other revenues up 36.2% from the same period last year. As Toby noted, our sales team had a strong quarter, and we were pleased to come in $9.4 million above the top end of our revenue guidance. For the year, recurring and total revenue growth was 34.2% and 34.1%, respectively.
And as Steve mentioned, fiscal ’22 represents our largest annual growth since fiscal ’16. Adjusted EBITDA for the fourth quarter was $59.3 million or 25.9% margin and exceeded the top end of our guidance by $6.8 million. For fiscal ’22, adjusted EBITDA was $237.8 million or 27.9% margin, resulting in leverage of 120 basis points versus fiscal ’21, despite the roughly 50 basis points of dilutive impact from the Blue Marble and Cloudsnap acquisitions. We continue to be pleased by our ability to drive exceptional revenue growth, combined with strong profitability.
On a combined basis, our 34.1% revenue growth plus 27.9% adjusted EBITDA margin puts us above the Rule of 60 for fiscal ’22. We continue to make significant investments in research and development. And 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 14% of revenue in the fourth quarter.
And on a full year basis, total R&D investments were 13.7% of revenue. On a dollar basis, our year-over-year investment in total R&D increased by 24.7% in fiscal ’22 when compared to fiscal ’21. We continue to believe our investments in R&D provide us with valuable product differentiation and the ability to drive future growth. On a non-GAAP basis, sales and…
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