Mark Marcon: Great. Thank you.
Operator: Thank you. [Operator Instructions] Our next question comes from the line of Jared Levine with TD Cowen. Your line is open.
Jared Levine: Thank you. How did this January’s revenue retention compared year-on-year, even so it’s consistent, were there any underlying changes based on employer size segment or controllable versus uncontrollable churn?
Steve Beauchamp: Yes. So I think we really kind of give more of an update at the end of the year from a retention perspective. It was not something that we called out in the script. I think we see fairly consistent performance there. We did call out historically, everybody was kind of seeing record high retention after – right after COVID. People definitely didn’t seem to be moving quite as much. And we’ve certainly seen that return back to the pre-COVID levels, but I don’t think there’s any specific call out from a retention perspective.
Jared Levine: Got it. And then how would you anticipate the price you charge for your payroll software to change over the medium-term, if at all? Does the increasing access to payroll offerings through solutions such as embedded payroll represent a threat to pricing power?
Steve Beauchamp: I don’t think we’ve seen that competitively in the market really at all, particularly in the market that we serve. And you start to get to a slightly larger client size in the very micro small market, you might see more activity of that there. That’s probably not a place we play in as much. So no, that – we don’t see that as necessarily a factor.
Jared Levine: Great. Thank you.
Operator: Thank you. [Operator Instructions] Our next question comes from the line of Raimo Lenschow with Barclays. Your line is open.
Raimo Lenschow: Hey. Thanks for squeezing me in. I had two questions. You changed your full-year guidance on the revenue side a little bit, but EBITDA stayed the same. Can you talk a little bit about the action you are taking there to protect the profitability there? And then I have one follow-up. Thank you.
Ryan Glenn: Sure. I think – so I certainly feel good about where we’ve driven profitability so far this fiscal year. So in second quarter, over 600 basis points of leverage on adjusted EBITDA, 470 basis points, if you strip out the impact of interest income. So we have a number of programs across the business from a efficiency and scalability perspective, reducing manual processes and making sure that we’re really prioritizing spend and continue to be pleased with the output of those programs. And I think that has allowed us in a maybe more challenging year from a revenue standpoint to be able to maintain really strong profitability and in fact, actually take up margin for the fiscal year. So really happy. I think it just demonstrates the scalability and profitability of the business, and we’ve seen that both in adjusted EBITDA as well as in free cash flow.
Raimo Lenschow: Okay. Perfect. And the follow-up was on – you kind of mentioned in the script and in the prepared remarks, your leading position on the AI side. Like how does that play out? And how do you see the maturity of that solution? And how does it play out in sales cycles already? Is that already a differentiator? Where are clients in terms of the understanding? Thank you.
Steve Beauchamp: Yes, it’s a good question. I think we’re still very much in the early innings. And I think customers are also themselves trying to figure out how, in an HCM platform, AI can provide them benefit. And so we’ve been often first to market with many of the AI capabilities and we’re definitely seeing clients use it and you get tying into the LLMs and having writing assistance and job descriptions and community. You have a much better option for personalization across the platform, easier to create recommendations based off your historical data set. Think about that like schedule recommendations that we’ve launched. And we’ve got a long list of ideas that we can enhance customer value in terms of adding AI across the platform.
So that continues to be our approach versus any type of separate monetization by SKU. I also think there’s a big opportunity to really enhance the client experience. Clients do call and e-mail and we interact with them a ton. There’s a lot of different questions and answers. And so that’s an area that we continue to invest in as well as being able to provide much better, more personalized responses to our customers over time. And so I think we’ve got opportunities in both categories.
Raimo Lenschow: Okay. Thank you.
Operator: Thank you. [Operator Instructions] Our next question comes from the line of Siti with Mizuho. Your line is open.
Sitikantha Panigrahi: Thanks for taking my question. I want to ask about your Q3 guidance. If I look at your Q2 recurring and other revenue on a seasonality basis, like it only grew 2% sequentially versus last year, it was like 4.5%. But the way you are guiding for Q3, 22%, which is like same as last year. So did you see any kind of deals or go live that got pushed to Q3? Or are you seeing any kind of revenue contribution maybe from Trace? Or basically, I want to understand your confidence level with this guidance for Q3?
Ryan Glenn: Yes, nothing that I’d call out as far as onetime or any material movements in deals. I think Toby went through in his prepared remarks some of the challenges relative to January starts that we saw upmarket. We would have taken that into account and obviously, being on February 8, we’ve got a good sense of January starts and form revenue as well. So we’re able to take all that into account as we guided into Q3. So feel good about that guidance, but nothing I would call out as far as onetime in nature or specific movements within the months or quarters that would have impacted that.
Sitikantha Panigrahi: And the Trace, what kind of revenue contribution you expect from Trace acquisition?
Ryan Glenn: Immaterial to the year, so it has no impact on guidance.
Sitikantha Panigrahi: Great. Thank you.
Operator: Thank you. [Operator Instructions] Our next question comes from the line of Steve Enders with Citi. Your line is open.
Steven Enders: Okay, great. Thanks for taking the questions here. Maybe just to start maybe following up on the kind of seasonality dynamics for 3Q into 4Q. Still kind of assumes another three or four points down on the recurring and overall growth line. So I guess, maybe can you just give a little bit more detail on maybe what’s different in the assumptions for 4Q versus 3Q and kind of the delta in the growth rates between the two quarters?
