Ladies and gentlemen, thank you for standing by, and welcome to the Paylocity Q1 Fiscal Year 2021 Earnings Conference Call. At this time, all participants' lines are in a listen-only mode. After the speaker' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ryan Glenn, Vice President of FP&A and Investor Relations. Thank you and please go ahead, sir.

Good afternoon, and welcome to Paylocity's earnings results call for the first quarter of fiscal year 2021, which ended on September 30, 2020. I'm Ryan Glenn, Vice President of FP&A and Investor Relations, and joining me on the call today is Steve Beauchamp, CEO of Paylocity; and Toby Williams, CFO of Paylocity. Today, we will be discussing the results announced in our press release issued after the market closed. A webcast replay of this call will be available for the next 45 days on our website under the Investor Relations tab. Before beginning, we must caution you that today's remarks, including statements made during the question-and-answer session, contain forward-looking statements. These statements are subject to numerous important factors, risks and uncertainties, which could cause actual results to differ from the results implied by these or other forward-looking statements. Also, these statements are based solely on the present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in the forward-looking statements. For additional information, please refer to our filings with the Securities and Exchange Commission for the risk factors contained therein and other disclosures. We do not undertake any duty to update any forward-looking statements. Also, during the course of today's call, we will refer to certain non-GAAP financial measures. We believe that non-GAAP measures are more representative of how we internally measure the business, and there's a reconciliation schedule detailing these results currently available in our press release, which is located on our website at paylocity.com under the Investor Relations tab and filed with the Securities and Exchange Commission. Please note that we are unable to reconcile any forward-looking non-GAAP financial measure to the directly comparable GAAP financial measure because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort. In regard to our upcoming conference schedule, Toby and I will attend the 2020 RBC Capital Markets Virtual Conference on November 17, and Steve and Toby will attend the 23rd Annual Needham Virtual Growth Conference on January 12. Please let me know if you'd like to schedule time with us at either of these events. With that, let me turn the call over to Steve.

Thank you, Ryan, and thanks to all of you for joining us on our first quarter fiscal 2021 earnings call. We are off to a nice start in fiscal 2021, all things considered, with first quarter total revenue of $135.8 million, an increase of 7.2% versus the same quarter last fiscal year and coming in $2.3 million above the midpoint of our guidance, despite continued COVID-related headwinds. Recurring and other revenue grew by 10.7%, and we continue to be pleased with our sales performance across each of our segments, amidst a still challenging macroeconomic environment. While we are not fully back to the significant over performance we saw in the first nine months of last fiscal year pre-COVID when we saw a 40% year-over-year increase in started sales, we continue to be pleased with our new sales activity and have gained momentum coming into selling season. September came in even stronger than July, which was one of our best sales months ever, and October was our single best new sales month in our history. Our sales teams have successfully pivoted to a virtual selling environment over the last two quarters, and we are very pleased with the effectiveness of these efforts and overall sales activity levels. Our success in virtual selling has been driven by improved website performance and digital lead generation, use of video throughout the sales cycle, as well as an increased multimedia connection points, including podcast and webinars. Channel referrals, primarily from benefit brokers and financial advisors, once again represented more than 25% of new business for the first quarter, led by increased use of virtual broker connection activities, events and virtual gatherings that help us maintain the strong source of referrals. Adjusted EBITDA for the first quarter was $30.9 million or 22.7% margin, which exceeded the…

Thanks, Steve. Before reviewing our results, I would like to congratulate Steve on recently being named one of the 25 highest-rated CEOs during the COVID-19 crisis in the US by Glassdoor, coming in at number 11. Congrats, Steve, well deserved. On our results, total revenue for Q1 was $135.8 million, an increase of 7.2%, with recurring and other revenues up 10.7% from the same period last year. As Steve noted, we were pleased to come in $2.3 million above the midpoint of our guidance despite the anticipated COVID-19-related and interest rate-related headwinds. Our adjusted gross profit was 69.4% for Q1, down from the year ago period, given the COVID-19 and interest rate-related revenue headwinds. We continue to make significant investments in research and development and to understand our overall investment in R&D, it is important to combine both what we expense and what we capitalize. On a combined non-GAAP basis, total R&D investments were 17.3% of revenue in Q1, and on a dollar basis, our year-over-year investment in total R&D increased by 21.8%. On a non-GAAP basis, sales and marketing expenses were 24.5% of revenue in Q1, as we remain focused on making incremental investments in this area of our business in fiscal 2021. On a non-GAAP basis, G&A costs were 13.6% of revenue in Q1 versus 15% in Q1 of last fiscal year, and we remain focused on consistently leveraging our G&A expenses on an annual basis. Our adjusted EBITDA was $30.9 million or 22.7% of revenue for the quarter, which exceeded our guidance by $10.9 million at the midpoint. We remain committed to progressing towards our adjusted EBITDA target of 30% to 35% of revenue once we return to a normalized macroeconomic environment. Covering our GAAP results, for the quarter, gross profit was $86.4 million, operating income was…

Thank you. And our first question comes from the line of Brian Peterson with Raymond James. Your line is now open. Alexander Sklar - Raymond James & Associates, Inc.: Great. Thank you. This is Alex Sklar on for Brian. We obviously heard a lot on the product side coming out of your Elevate Conference. I wanted to ask about some of the early feedback from your sales force coming out of the virtual conference this year. How have the product releases been received? And it sounds like you've done a lot on the virtual sales enablement front. Is there any more tweaking still to be done on that inside sales motion or do you think you've had enough time past here where we should continue to see sales velocity improve from here? Thank you.

Yeah, I'll take the last part first. We've been really pleased with the performance of the sales team and the switch to complete virtual selling. I think, as a reminder, our sales folks did operate from their home offices to start with. They were definitely used to being on-site with customers, and so there definitely was a bit of a transition, but they were used to being remote. And a lot of the process was already very virtual, including the implementation process. So it was a shift for us. The team has done a great job, really. We certainly moved some of our marketing focus to digital, and that's been very effective. The team themselves has really done a great job using some of the video capabilities to interact with clients asynchronously throughout the sales process. So I would say that we've made big improvements there. We're really happy with the sales momentum. It doesn't mean you can't always get better. I think that's always our mentality, but we're really pleased with the trajectory for the sales team as a whole. I think to your first question, I do believe that our focus on being the most modern platform, products like Community, the addition of Premium Video, all really resonates well in the marketplace. And the recent experience of people in the pandemic having to have more employees work from home is just further acceleration in that trend. Alexander Sklar - Raymond James & Associates, Inc.: All right. Great. Thank you. And one for Toby, just really significant EBITDA beat this quarter. I'm just wondering if you could help parse out if there was any piece of that upside around planned investments that just haven't materialized yet and are still to come or just better-than-expected revenue performance and efficiency gains. Thanks.

Yeah, it's a good question. And I think it's a little bit of a few different things, some of which you mentioned. I think there is some level of timing there, certainly some revenue overperformance, which drops right down. And then I think there's some elements of just the environment which we've seen also from a cost sort of reduction or cost control standpoint relative to T&E being a lot lower and things like that. So I think it's a mix of those types of elements in the quarter. Alexander Sklar - Raymond James & Associates, Inc.: All right. Great. Thank you.

Thank you. And our next question comes from the line of Mark Marcon with Baird. Your line is now open. Mark Steven Marcon - Robert W. Baird & Co., Inc.: Hey, good afternoon and congrats on the results. Wondering if you can just talk a little bit about the headwind that you are seeing right now if you compare it on a per employee basis, just how much of the – how much – you mentioned – you noted it's a double-digit drag. But can you be a little bit more precise with regards to how much of a drag you're seeing, both from the combined effect of the lower interest rates as well as the lower number of employees per client?

Yeah. So the double-digit impact from COVID is really ex interest. So we obviously break out interest revenue. So you can see directly what that impact is from the reduced rate cuts. But excluding the impact from interest rates, on recurring revenue and other, we're seeing about a double-digit impact, and most of that double-digit impact is really coming from the fact that clients have less employees on the platform. And so that's directionally, I think, the way to think about it. There's always other things in there that make up the difference, but I would be mostly focused on the fact that our clients just have less employees on the platform. And we saw a little bit of growth in that number in October, but it's very, very small and mild. And if you look at it over the last few months, it's fairly flat to just slightly up. Mark Steven Marcon - Robert W. Baird & Co., Inc.: And how are you thinking about the fall in terms of the number of employees per client? I'm imagining in areas like Chicago, where restaurants are going to be dealing with the colder weather. There might be some that are going to be a little bit more challenged. How much of an impact are you expecting there?

Yeah. So I think we're trying to avoid forecasting the pandemic in our numbers because that obviously would be very challenging. And so, as Toby I think said in the prepared remarks, we took what we saw in October into consideration and then we looked at the rest of the quarter and assumed a relatively flat environment in terms of putting together our guidance. Mark Steven Marcon - Robert W. Baird & Co., Inc.: Okay. And then with regards to just the uptake with regards to Premium Video, I know it's really early days, but what are you seeing from that? How's the response been?

Yeah. So we launched it to our sales force, and they're at this point in time largely selling for January. Obviously, we have clients start every week and almost every day, but they're largely focused on January. And so that's where we're really starting to see that message resonate. We also have some of our current clients, some of those that came to our client conference and raised their hand and said, I'd love to be able to use that, actually take advantage this. And you know what it really does is, if you think about some of the challenges of remote work, some of it is the Zoom fatigue of meeting after meeting after meeting, and the ability for you to be able to use video to communicate with your team, with a broader set of employees, I use it all the time to communicate to our company as a whole, you get much better take rate when they can digest that on their own schedule. And then we have obviously inserted into other use cases, recruiting for job positions as an example, onboarding new employees. And so the clients that have started using it, I think, are still early in that kind of life cycle of taking full advantage of it. But we've gotten really good feedback from them so far. Mark Steven Marcon - Robert W. Baird & Co., Inc.: Great. And then one last one, just what are you seeing just in terms of the highest level of activity, small-end, medium or large or bell bar?

Well, we came into the pandemic growing 40% year-over-year in terms of new sales. So we came in with a lot of momentum. It feels like we're heading back towards that same type of momentum as we're going into selling season. I think it's a little more across the board to be honest with you. Good strength in the units in that under 50 marketplace for sure, our core is really kind of that 50 to 500 and so they're doing well as well. And the more that we continue on to that 50 to 500, and so they're doing well as well. And the more that we continue to add to our product, then I think we do create even a little bit more of an advantage in that 500-plus. And so, our folks who are most experienced in dealing with some of those large prospects are also having great success. Mark Steven Marcon - Robert W. Baird & Co., Inc.: Great. Congrats.

Thank you.

Thank you. Our next question comes from the line of Bryan Bergin with Cowen. Your line is now open. Jared Levine - Cowen & Co. LLC: This is actually Jared Levine on for Bryan. So has there been any change in terms of where prospective buyers are coming from? And in terms of that, any differences in terms of employer size as well with that question?

Yeah. I would say no difference in terms of our focus on employee size. We're seeing customers across the entire size segment of our target market. And we still have a very small level of penetration in terms of the total opportunity. So think of us as 25,000 clients, 1 million-plus businesses in our target market. And so, we haven't necessarily seen our sales team shy away from the industries that you would think are affected. Maybe those are in hospitality and restaurants and travel related. Some of those customers, although they're smaller, are still potentially looking at moving platforms. But I would say, overall, the market is just so large that we've got an opportunity to basically horizontally focus on any industry, and that's really what we've been doing. Jared Levine - Cowen & Co. LLC: Great. And then one follow-up, did you experience an elevated level of out of business losses in the quarter compared to what you witnessed in 4Q?

I think not enough to call out. I think the easy way to think about it is COVID overall had that double-digit impact to us. Certainly, some of that is potentially some clients going out of business at a slightly higher rate. But I would say that's a pretty small portion of that. Jared Levine - Cowen & Co. LLC: Okay. Great. Thank you, and congrats on the results.

Thank you. Our next question comes from the line of Alex Zukin with RBC Capital Markets. Your line is now open.

Yeah, guys. Thanks for taking the questions. So just two quick ones. I guess, one thing we're trying to understand or better appreciate is, given the incremental on an aggregate basis, on a macro basis, kind of stronger employment trends or a bigger bounce back. Why is that – why is there a bigger disconnect between that and maybe some of the employment, the tailwinds that you would be seeing sequentially versus, let's say, an ADP or Paychex? And then I got a quick follow-up.

Yeah. I guess, I think, overall, we can tell you what we are seeing with our client base. And I think as we've looked at maybe some of the competitors that you're mentioning, there is a fair amount of consistency in terms of what I would call a quick little bounce back post – early – the spring when we really went down to the depths. And then as that bounce back happened, you kind of saw August, September and October, the mild improvements. And I think that's been fairly consistent kind of across the board in terms of kind of what we're seeing. Maybe it's a little different month-by-month by the customer group that you've got, but I think that's exactly what we're seeing in our client base. And it seems to be reflecting what you see from many of our competitors.

Got it. And then if you think about sales cycles and bookings trends, it sounds like they were sequentially better. But if you think about the – is it – are you seeing sales cycles actually shorten on a relative sequential basis or are you seeing them lengthen because less people are willing to switch providers in the midst of a pandemics? I'm trying to understand if are they better appreciative of your value prop and virtual selling is driving more people to buy faster or is it the unwillingness to switch?

Yeah. I guess, I wouldn't be as focused on how quickly it takes to get a customer to agree in that timeline. That has not changed that much. I guess, I understand the point of the question, which is if you're doing this virtually, maybe you could be more efficient, and you can run through these sales faster. But sometimes it takes customers time to make the decision. They might want to get the CFO to buy off on it. There's steps in the process that I think naturally have to happen and need to be scheduled. And so we haven't seen a big velocity increase. I think what we've seen as we moved into selling season, we're just running more appointments and more opportunities. And I think the message about being ready to connect with your workforce in a variety of different ways that might be different than what you thought of six or eight months ago is resonating.

Perfect. Thank you, guys.

Thank you. And our next question comes from the line of Adam Borg with Stifel. Your line is now open. Adam Charles Borg - Stifel, Nicolaus & Co., Inc.: Hey, guys, and thanks for taking the questions. Maybe just on the Community product, I was hoping you could talk a little bit more about engagement has been trending and just further opportunities to monetize that product over time. I know you talked a little bit about integration with Premium Video. And then I have a follow-up.

Yeah. So our Community product, as a reminder to everybody, is really a social collaboration tool within our platform that's available to all of our clients for free. We've enhanced that product over time. So, we added an ask-the-expert capability where you can ask the HR department questions. We have a whole bunch of announcement capabilities that allow you to segment your audience and be able to reach your audience and look at analytics on the back end of how effective that's been. And so, as we've continued to enhance the product, we've definitely seen utilization increase. And then, of course, you take the impact of the pandemic, which also increased utilization. And so, I think clients are really taking advantage of that. I'd say the ability to run announcements, whether that's sending out videos, whether that is e-mailing announcements and being able to see people comment and react is probably the most popular feature in the product. Adam Charles Borg - Stifel, Nicolaus & Co., Inc.: That's really helpful. And then maybe just thinking back on some comments you made earlier about relative strength down market below 50, I was just curious, when you think about the buying patterns at the small end of the market, have there been any changes in terms of the types of the number of modules that these businesses have been selecting during the pandemic? Thanks again.

I would say down market community has become a more important part of the conversation than what we saw before because, oftentimes, with the smaller clients, they don't necessarily have maybe the time to go and pick four or five different products. So the idea of having a singular platform to be able to do everything in is I think it's powerful across our entire segment. It's particularly powerful in that under 50 marketplace. And so now they're trying to figure out how do I communicate in this ever-changing environment with people who are working from home and have different schedules and the ability to have everything in the employee's hand with the mobile app is really key and important. And so, I think that has resonated even more because of some of the changes that we've seen in the macro environment. Adam Charles Borg - Stifel, Nicolaus & Co., Inc.: Really helpful. Thanks again.

Thank you.

Thank you. And our next question comes from the line of Siti Panigrahi with Mizuho. Your line is now open.

Hey. I apologize if this has already been asked. This is Len DeProspo in for Siti. Just wanted to ask about characterizing the competitive landscape given ADP had said their retention rate has sort of improved and now Paycom is trying to go down marketing that under 50-employee segment. So I just wanted to see how you would characterize the competitive landscape? Thanks.

Sure. Yeah. So I think I'd go back to the fact that we've got about 25,000 clients. There's more than 1 million in our target market. And so I'm not sure slight changes like you're talking about in the competitive landscape we feel. We've seen our activity levels increase at a very healthy rate going into our key selling season. We've seen that across all of our size segments that we focus on. And so – and we're competing against kind of the same folks that we would normally compete against. And so I wouldn't say we see a big change in who we're competing with. We haven't seen a big change in terms of the players in the market or how effective we are against them.

Thank you. And our next question comes from the line of Arvind Ramnani with Piper Sandler. Your line is now open.

Hey, thanks for taking my question. I just wanted to ask about this competitive environment as well. From a product perspective, are you seeing some of the traditional players enhance the technology to become more competitive or you feel like your product enhancements, continued product enhancements is able to keep maintain the distance between the traditional players and your offering?

Yeah. So I would say, first of all, definitely a competitive environment. It's always been a competitive environment. And we certainly have competitors that have been in this business a long time and clearly are making investments in technology as well, which is why we go back to our investments in R&D and our ability to innovate and stay ahead of our competition. We think is really extremely important part of our strategy. And so I think the second part of your question is, yes, we do believe that we've got a lead in the marketplace. We do believe that we continue to gain share. We had 20-plus percent unit growth last fiscal year, and we're continuing to build momentum into selling season, so we're seeing our solution resonate.

Thank you very much.

Thank you. And I'm not showing any further questions on the phone line at this time. So, I will now turn the call back to management for any closing remarks.

Great. Thank you very much. Well, I'd like to just thank everybody for their interest as usual in Paylocity. And then, a quick thanks to all of our employees for all the hard work and effort that they've done, managing these challenging times and being there for our customers. I'm truly appreciative of everything that they've done for us and their continued effort and focus on making Paylocity a success. So with that, I hope everyone has a great night.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.