David Storms: Perfect. Thanks for taking my call.
Paul Walker: Hi, Dave.
David Storms: My first question — my first question is coming from Slide 16. Paul, you had mentioned the deeper snow that a lot of your clients are seeing. Would we expect that average annual client spend to be greater than the $77,000 going forward still or will that number come down as clients pare back the scope of what they’re asking from you guys?
Paul Walker: Yeah. Great question. I think — so that has a number that is a number, and we went into quite a bit of detail last quarter on this that has increased quite significantly over the years. And we would — I think we would expect that number to continue to increase. And the reasons for that are, one, as we mentioned a minute ago, even in the second quarter, more clients expanded, more clients added multiyear. We still — even on the tougher comp, we still grew services in the prior year. So I think all those things point to clients deepening their relationship with us, expanding our whole model is built, as you know, to land and expand. And I think another vector on that is just the relatively still low client penetration rate that we have as great as we’re doing and as much expansion has occurred to that number of $77,000, it wasn’t that long ago that it was in the $40,000s.
And so as much as that has grown, there’s still a tremendous amount of headroom even in the clients we have today, where we’re still just addressing roughly 10% of the addressable population. So I think we saw that expansion in the second quarter. We have a lot of headroom to grow and would expect that, that will continue to inch its way up.
David Storms: That’s very helpful. Thank you. My second question and Steve touched on this, but with operating SG&A steadily growing slower than revenue, which is a great sign. Is there anything specific to highlight what’s driving this or is that just more product of economies of scales and general increased efficiencies?
Steve Young: I think there are efficiencies we hope in many places in the company, but that decrease can be driven significantly by the fact that a lot of our costs are either fixed cost or grow at a rate slower than our revenue growth and expected revenue growth. So areas that are not client facing like, central overhead, all of those types of costs, we expect to grow at a rate lower — slower than revenue for quite some time. So we would expect to have our client-facing costs in SG&A grow at a rate pretty similar to our revenue growth as we support that as we support the growth and look for accelerating growth that Paul just talked about. But again, a lot of the back-end operations, we believe, are able to grow at a slower rate, and that will increase the — that will decrease the percentage of SG&A versus revenue as time goes on.
David Storms: All right. That’s very helpful. Thank you, Steve. One more for me — go ahead.
Steve Young: No. In fact, I would say that as we go — as our adjusted EBITDA, we expect to grow up into the targets that we’ve talked about in future years that growth is primarily the relationship of the fixed cost to revenue.
Paul Walker: I think what you’re also seeing Dave in here is that our cost to acquire a customer is actually not only less than the lifetime that customer, but even less than the first year value of that customer. And so, as we’re acquiring more customers that revenue is growing faster than the cost to even acquire them. So, I think the combination of all those factors is — maybe back to Nehal’s question is why also while revenue could be at one level and adjusted EBITDA can still be growing at the levels that we originally projected for the year end in the future.
David Storms: So really, it’s just a high strong execution. That’s great. Okay. One more, if I could. I know, Paul, you mentioned that your space now bringing on new client partners throughout the year. So it’s not as back loaded. Have you guys discussed or would you be wanting to give us a target on what new — number of new client partners would look like by the end of the year?
Paul Walker: So we don’t — I don’t have a number for you today. We were still — we’ve got — as you know, we’ve bulked up the number of recruiters a year ago so that we could get more — we could be more on top of hiring and hiring more people. We’ve made meaningful adds to our sales enablement capability to our management structure to support more client partners. So over time, we’ve gone from adding 10 a year to 20 a year to 30 a year. We’re expecting to continue to grow that. I don’t know exactly what the number will be at year-end. But consistent with what we’ve said in the past, we’re going to — we’ll add a significant number of client partners between now and the end of the year and into next fiscal year as well. We think in this environment that there’s an opportunity to get really great salespeople.
We’re doing well. We’re making investments in our business. We think that we can attract and win some really good talent. We want to make sure we get the best talent. And then once we get that best talent, we want to make sure that our system of supporting and ramping them gives them the very, very best chance of being really successful here and just want to match that up as well as we can over the next — the back half of this year, and that might extend a little bit into the first part of next year as well.
David Storms: That’s perfect. Thank you very much.
Operator: Thank you. Our next question comes from Samir Patel with Askeladden Capital Management. You may proceed.
Samir Patel: Hey, I wanted to ask a little bit about the new credit facility, $70 million is a pretty big amount, especially when combined with the cash on your balance sheet. Your largest acquisition to date, I think was which wasn’t really that big compared to that facility. So I was wondering, Paul, if you could just dive a little bit deeper into how you think about capital allocation. over the next few years, whether that facility or there is a nice to have in case or if there’s actually something you kind of tend to use it for?
