Daniel Jester: Great. Thank you very much.
Operator: Thank you. [Operator Instructions] And our next question comes from the line of Jason Celino with KeyBanc Capital Markets. Your line is open. Please go ahead.
Jason Celino: Great. Thanks. And I think this might be the first time you’ve mentioned being the modern HR platform, resonating with Gen Z customers specifically. Would you say this focus is a trend that others are also pursuing? Or is this a differentiator that Paylocity is leading on?
Steve Beauchamp: That’s a good question. Well, I think, obviously Gen Z is a growing part of the workforce, and that will continue to be the case. I think the other call out is Gen Z often has very different demands on HR departments. And those demands are things like they really want to be able to have a voice in decisions that are made. They want to understand how things are being – they want things to be communicated in a much more realtime basis. They really like a multimedia type approach to be able to understand what is really going on. And they really what to know what the organization culture is and their values, because the reality is still a very tight labor market, and they have options from a job perspective, and they don’t have a problem looking from one to the other.
And so organizations have to spend a significant amount of time not only on things like compliance and making sure payroll is right, making sure you’re onboarded, but really trying to find connection, really developing career paths, making sure there’s training opportunities. And so if you think about all of those challenges that all the HR teams have, many of the products that we have built over the last several years have really tried to provide unique capabilities for HR departments to be able to handle the dynamic nature of a multigenerational workforce that everybody is dealing with in a tight labor market. And so I think that message has resonated for the last several years, and I think it certainly does today. And we wanted to just call it the fact that many of our features including our mobile app and the ratings and the intuitive nature feedback – the intuitive nature of the product has really gotten us great feedback in terms of how customers are managing the growing Gen Z population.
Jason Celino: Okay. Great. And then maybe just a quick one for Ryan. I think it sounds like the workforce levels moderated in line with what you expected last quarter. But the Q4 guide for recurring revenue also continued to take in further moderation in the workforce levels? Thanks.
Ryan Glenn: Yes, yes, I think that’s correct. So Q3 came in consistent with expectations, which was some level of further moderation and then we did bake in beyond that, some additional moderation in Q4. And given I think that there is still some uncertainty out there from a macro standpoint, we did not update that assumption. We’ll obviously see how that plays out, but that is the expectation going into Q4 from a guidance standpoint.
Jason Celino: Perfect. Thank you.
Operator: Thank you. [Operator Instructions] And our next question is going to come from the line of Alex Zukin with Wolfe Research. Your line is open. Please go ahead.
Aleksandr Zukin: Hey guys, thanks, uh, for taking the question. Congrats on the best payroll print this season. I guess maybe just two quick ones for me. First, can we put a finer point on what gives you the confidence or conviction that these longer sales cycles at the higher end of the market are a kind of a macro versus micro or competition dynamic?
Steve Beauchamp: Yes, it’s a good question. So what we really look at is we look at first the pipeline at the top end. And so first-time appointments, demo appointments that we’re having with prospects, and then we track the duration of all of the various stages in the sales cycle. And so when things are challenging from a macro perspective, things stay in each of those stages for longer. So if it usually took us 35 days to go from one stage to the next, and all of a sudden it’s taking us 55 days that’s an indicator. And as long as you’re not losing them off the bottom and your win rate is staying relatively similar, that’s how we really kind of come to the conclusion that there’s some macro uneasiness going on there. And so that’s really what we’ve seen there’s initiatives that you try to drive towards that, right?
You get more teams involved with that. You really try to understand what an organization’s concerns might be. You try to help move them along through the funnel. So it’s not like there’s nothing we can do about that. And that’s what we called out last quarter. Sometimes it’s training reps to be able to have to manage those situations, making sure all the right people at the prospects are involved in the decision. And we’ve done a lot of that over the last quarter. And we feel like those initiatives are absolutely going to have an impact. And even if the market stays a little bit soft in terms of people making decisions. We feel like we’ve got the right solution. We’re getting the right feedback. We like the win rates that we’re driving. And we’ve got initiatives driving back to the team, so they’re just going to be better at handling it.
Aleksandr Zukin: Got it. That makes sense. And then the second question is it’s going to be a little bit long winded, but bear with me. If you look at the last kind of time you guys talked about that $2 billion target and that 20% growth rate. Yes, you kind of had you getting there roughly in fiscal 2026. And now if you think about the exit growth rate for Q4 and kind of playing that through the numbers that roughly has you getting there in about one year later. So is it fair to assume that like you’re looking at the growth rate of your overall business as like a large growing x and the kind of core growing y. And that moderation in that large growth rate is what’s driven that kind of one year out – or to push that target one year out or help us understand maybe if we kind of again break it apart into those two categories, how to think about it?
Steve Beauchamp: Yes. I think we would really look at the growth rate across our different segments have been fairly uniform on a go-forward basis. We did call out the fact that it was faster for several years, but it’s really kind of getting in line with kind of our core segment as well as the larger upper end. I mean I think this is a little bit of a function of being a $1.4 billion business hitting scale, sometimes – even though there’s a large market opportunity, it’s a competitive market, and it can and it can be more challenging to be able to grow at that same rate when you were half the size. And so we’re still prioritizing growth. We’re still going to focus on doing everything we can to be able to grow as fast as we can.
And at the same time, we think we can kind of balance all the profitability targets. And so I think it becomes a little bit more of a balanced story than just only growth. And we feel like that’s the right thing to do to deliver the most shareholder value.
Aleksandr Zukin: Got it. Perfect. Thank you guys.
Operator: Thank you. [Operator Instructions] Our next question comes from the line of Siti Panigrahi with Mizuho. Your line is open. Please go ahead.
Sitikantha Panigrahi: Thanks for taking my question and congrats on a good quarter. So Ryan, if I look at your Q3 sequential growth rate for recurring and other revenue 23%. That was better than last year Q3 whereas Q1 and Q2 sequential growth are way below last year. So in the Q3, was there any kind of annual price increase for form filing or any kind of pull forward of any go live? Or was there any inorganic revenue contribution like Trace or anything like that?
Ryan Glenn: No, nothing that we would call out from a onetime or unexpected source of revenue in the third quarter. I did get this question in some of the after quarters last quarter relative to sequential revenue. And I think where we sat guiding and I think February 7 or so. We obviously had a really good idea of what started in January. We had a very solid number from a W-2 and form filings perspective. And I think we’re able to take all that into account in the quarter. So certainly came in incrementally better than expectations. But on $366.8 million number, we’re really about $300,000 or so above the top end of the range. So incrementally better, yes, but relative to that size, I think we were certainly pleased with the results, but nothing I’d call out is material and onetime nature.
Sitikantha Panigrahi: And just to clarify that, when you say – is there any form filing this year was different, the reason I’m asking is the recurring versus form filing. I know you guys don’t split, but how should we think about when we think about next year, Q3? Was there any onetime big flow for form filing?
Steve Beauchamp: Yes. So this is Steve. So form filing is going to be built based off of the number of employees that you have in the previous calendar year. And if you think about that, that’s going to kind of grow with the number of employees on our platform. We’re also selling them a lot more product. So if anything, on a year-over-year basis, form filing typically doesn’t always grow as fast as the rest of our revenue. So it’s not actually a tailwind from a growth rate perspective. If anything, it’s a slight headwind. And there was nothing out of the ordinary this year.
Sitikantha Panigrahi: Correct. Thank you.
Operator: Thank you. [Operator Instructions] And our next question comes from the line of Matt VanVliet with BTIG. Your line is open. Please go ahead.
Matthew VanVliet: Hey, good afternoon. Thanks for taking the question. I guess as you look at the progress of some of the go-to-market corrections or strategies you put in place over the last several months and the improvement is clearly showing here. I guess sort of two parts. One, how much more do you feel like you have to go or just sort of get the reps and the time-based elements through the system there? And then maybe more importantly, how is this impacting your head count planning, especially on the sales front, not only through the end of this year, but as you’re planning fiscal 2025 and maybe how that shaped up in light of the improvements over the last few months.
Steve Beauchamp: I don’t think it changes our approach. I think we called out last quarter, we would be focused on productivity opportunities, the balance of this year and as we go into next year. So that’s been factored into our thought process around head count. We definitely think there’s opportunities there. We like some of the signs that we’re seeing in terms of early in those opportunities. I think the only call out I would say is if you think of our average sized customer you can sell that by the time they agree to go on its four to six-week implementation, all that revenue happens pretty quick. When you go up market and you’re kind of above 1,000 employees, you definitely can have people committing, call it, four to five or even six months ahead of time starting.
So you do – you have these initiatives. You start to see the value of those, you start to see that in terms of clients signing up, but the start dates obviously can be several months out. And so it does have a little bit of a longer time period between driving the initiatives, seeing the improvements and then actually being able to kind of recognize that revenue has started. And so if I’m sitting here today, I would tell you that our big Super Bowl every year is January. And so a lot of these large initiatives will have large clients start every month. But certainly, we are focused on driving improvements throughout the balance of this calendar year and getting ready so that we’ve got a great January of next fiscal year. And that is typically the cadence when you’re upper end of the market.
Matthew VanVliet: Okay. Very helpful. And then I guess just quickly on the uptake of additional products and sort of customers taking on more of the platform. Are you seeing any differing trends, whether it’s down market or upmarket in terms of customers’ willingness and desire to take on more product?
Steve Beauchamp: No. I think – I don’t think we’ve seen any real shift in that. I mean, I think we’ve been both happy with the amount of PEPY that we’ve been able to realize over time. I mean, even as we’ve driven that from 200 to over 550, your realization rate or realized PEPY has been at or north of 50%. I think that’s been fairly consistent. And I think part of the reason that’s the case is you get broad-based adoption across each part of the market. And I think that’s in the case over the last few years. And I think that continues to be the case as we think about fiscal 2024.
Matthew VanVliet: All right. Great. Thank you.
Operator: Thank you. I’m showing no further questions at this time. And I would like to hand the conference back over to management for closing remarks.
Steve Beauchamp: Sure. Thank you so much. Just wanted to say thank you to everyone for your interest in Paylocity, and I also wanted to give a special thank you to all of our teams across Paylocity and especially our operations team for a great job supporting all of our clients in the course of Q3. So thank you, everybody, and hope you have a great night.
Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
