Brian Peterson: Understood, we get color there. And maybe just on the PEPM expansion, we are seeing more this quarter. How do we think about kind of the annual pace of PEPM expansion over a long-term basis? Thanks guys.
Adam Ante: Yes. I think that we are probably in a more normal range, so in the sort of mid to upper-single digits from that 6% or so. And it’s going to depended on how pricing trends over the next couple of years. We are continuing to see opportunity to expand our pricing through additional services and expanding the suite. So, we are wrapping all of that together. And then again, you are going to see a little bit more of this pressure from – versus where we have been recently with the addition of some of the embedded channel and a little bit more in the upper market of the Enterprise segment. But I think that sort of 6%-plus to 6%, 8% range probably makes sense for us.
Brian Peterson: Thank you.
Operator: Thank you. Our next question is from the line of Mark Marcon with Baird. Please go ahead.
Mark Marcon: Good afternoon and thanks for taking my questions. I also have questions on the embedded solution. Can you just give us some more examples of the types of software partners that you are partnering with? And how does it work in terms of the relationship with the client? The platform is going to be with their brand. And so I am wondering how does customer service work? How does pricing work? How does the revenue share work? And how should we think about the margin implications?
Raul Villar: Mark, it’s Raul. Thanks for the 16 questions. I appreciate it. I will try to remember them all. So, I think when you think about it from a targeting prospecting perspective, think about vertical software stacks across many different types of industries that are going to market and delivering either a ERP or a workforce management tool are two good examples. And what they are really looking for is something sticky and predictable inside the stack. And so that’s what we are offering. And so a lot of great targets for us are in that, call it, $10 million to $250 million in revenue that are looking to expand PEPM inside their base, looking to increase their stickiness. And so there is a whole bunch of tech companies that fit that model.
Many of them are PE-backed that we think are really attractive and excited about this type of opportunity. As far as the combination of who does what, that’s configurable by partner. Obviously, the payroll and HCM product is ours and we’re going to integrate it into their application. But ultimately, who does the implementation and who does the service, that really has an impact on the economics, right? And so we’re flexible based on the partner needs. And that’s how you should think about it. Adam, anything you would add?
Adam Ante: Yes. I mean on the revenue model, it’s going to be pretty straightforward in terms of – we will build the partner and the partner will go to market with whatever their own pricing strategy is. So whether they want to build it into their own pricing or bundle it out separately, there is no revenue share.
Mark Marcon: Great. And then as we’re moving up market in terms of size of clients, how should we think about the fee gross profit margin exclusive of the float, how should that trend?
Adam Ante: I mean the gross profit margin across many of our segments is fairly consistent, actually. So what we see is that once you get out of the sort of sub-10 employee, sub-15 employee range, the gross margin tends to be fairly consistent. And then it’s really about the sort of services and the amount of products that our customers are buying really will ultimately determine the overall margin of that client because payroll ends up being the majority of where the operating cost goes into supporting the client between tax service and operations and general support management.
Raul Villar: Yes, Mark, I think what’s exciting for us is, from the beginning, and you were with us at the IPO, our objective was to continue to shift up market. And our new bookings this quarter the average size is double our current employee base. So we’re significantly outpacing on average. Our pay sizes moving up market. And so we’re really excited about the progress that the sales team has made, the product team has made and the operations team has made to be able to support that ecosystem.
Mark Marcon: Thanks, Raul
Operator: Thank you. Our next question is from the line of Siti Panigrahi with Mizuho. Please go ahead.
Unidentified Analyst: Hey, this is Phil on for Siti. When you guys look at the workforce levels across your customer base, are there any particular verticals that you’re seeing weaker or stronger levels? Any kind of color would be helpful.
Raul Villar: Yes, Phil, obviously, we’re a broad solution that serves all industries. However, that being said, in the four industries that we are focused on, I would say, we’ve seen strength in food and beverage in professional services over the quarter and slight moderation in manufacturing and healthcare. But on the average, it’s delivered our expected outcome.
Operator: Thank you. Our next question is from the line of Mark Murphy with JPMorgan. Please go ahead.
Arti Vula: Hey, guys. Congrats on the quarter. This is Arti on for Mark Murphy. First question is, if you guys have seen any kind of divergences. I know you guys said the demand overall has been steady and solid, but any divergence in terms of segment geography and market or kind of any other dimension? Thanks.
Adam Ante: Hye, Arti. Yes, I mean, not really. It’s been fairly consistent, right? As we’ve looked at the macro market and you look at broader non-farm payroll growth, trending down, but still very steady, a little sequential decline. And I think we’re seeing similar – I mean we’re seeing – it’s really similar to that. And so consistency over the last couple of quarters haven’t seen any big divergence really in any of the markets or definitely not inside of the portfolio.
Arti Vula: And then just as a quick follow-up. As you guys are kind of moving into the Tier 1 cities and being pulled up market, any changes in who you’re seeing in competition or win rates or anything along those lines?
Raul Villar: No, win rates are consistent. And from who we see, we still see ADP, Paylocity, Paycom, would be the three competitors we see the most in the market. ADP either as an incumbent or a competitor. But ultimately, those are the three we see that hasn’t changed. When we started our journey, they were all national providers in every market. And so there is no real market differentiation within HCM from that perspective.
Arti Vula: Got it. And the win rates across those three have been relatively stable as well?
