Paycor HCM(US:PYCR)2023-11-11 18:45Financial Data and Key Metrics Changes - The company reported total revenues of $144 million, representing a 21% year-over-year increase [113] - Recurring revenue grew 16% year-over-year, slightly above guidance, driven by an increase in the number of employees on the platform and the amount charged per employee per month [113] - Adjusted operating income increased more than 50% to $16 million, with margins of 11.1%, up over 200 basis points from 8.8% last year [115] - Adjusted gross profit margin improved to 78.3%, more than 140 basis points higher than the prior year [18] Business Line Data and Key Metrics Changes - The average customer size increased to 83 employees per customer, up from 78 a year ago, with stronger growth in enterprise customers [113] - The number of employees in the mid-market and enterprise segments grew 11% year-over-year, while growth in the micro segment remained flat [114] - The effective PEPM increased by 6% year-over-year to more than $17 for the quarter [17] Market Data and Key Metrics Changes - The company has more than 2.5 million employees on its platform, up 9% over the prior year across more than 30,800 customers [113] - The labor market growth was 2%, marginally outperforming the company's assumption of 0 to 1% [113] Company Strategy and Development Direction - The company is focused on execution, scaling the business, and driving margin expansion, with a strong demand environment and higher top-of-funnel demand than a year ago [20] - The company is shifting upmarket, with clients purchasing more complete solutions, leading to an increase in average deal size and attach rates [16] - The company announced a new go-to-market channel leveraging interoperability with technology firms, aiming to disrupt legacy in-house solutions [110] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand environment, stating it remains solid and consistent with previous quarters [43] - The company anticipates total revenues for the second quarter to be between $154.5 million and $156.5 million, representing 18% growth at the high end of the range [21] - Management noted that the embedded HCM partnerships will increasingly contribute to revenue growth in the second half of fiscal 2024 [5] Other Important Information - The company generated $11 million of interest income on average client funds of just over $1 billion at an effective rate of about 425 basis points [21] - The company received several culture excellence awards for promoting DE&I practices and employee well-being [112] Q&A Session Summary Question: Changes in recurring revenue linearity and enterprise pipeline - Management indicated no real change in expectations regarding the enterprise pipeline and timing of go-lives [25] Question: Cross-selling cadence and market segments - Management reported strong cross-selling across all enterprise sizes, with talent management outperforming the rest of the portfolio [26] Question: Broker channel performance - Management expressed optimism about the broker channel, noting it contributes around 50% to overall bookings [28] Question: Embedded HCM solution opportunity - Management confirmed that the embedded HCM solution contributed about 1 point of employee growth this quarter and has potential for higher growth in the future [33] Question: Sales and marketing expense trends - Management stated that sales team productivity is consistent with expectations, and retention has remained stable year-over-year [35] Question: Demand environment relative to pre-pandemic - Management confirmed that the demand environment remains strong and consistent with previous quarters [43] Question: Generative AI client interest - Management noted early interest in generative AI functionalities, with potential revenue opportunities still being assessed [44] Question: Recurring revenue growth rate fluctuations - Management explained that the recurring revenue growth rate has been consistent, with some lumpiness due to new service rollouts [48] Question: Pricing contribution to revenue - Management indicated that pricing actions typically contribute about one-third of PEPM growth [100] Question: Guidance for recurring revenue acceleration - Management noted that the guidance implies a 2-point acceleration in recurring revenue in the second half of the year, driven by partnerships and same-store sales [104]