Paylocity Holding Corp

NASDAQ:PCTY

Earnings Call Transcript 2023-Q1

[Operator]

Good day, and welcome to Paylocity Holdings Corporation First Quarter 2023 Fiscal Year Results Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] Please be advised today’s conference is being recorded.

I would now like to hand the conference over to your speaker, Mr. Ryan Glenn, Chief Financial Officer. Please go ahead, sir.

[Ryan Glenn, Chief Financial Officer]

Good afternoon, and welcome to Paylocity’s earnings results call for the first quarter of fiscal 2023, which ended on September 30, 2022. I’m Ryan Glenn, Chief Financial Officer. And joining me on the call today are Steve Beauchamp and Toby Williams, Co-CEOs 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 their 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, Steve and I will be attending the Needham Virtual SaaS Conference on November 17, and Toby and I will be attending the Credit Suisse Technology Conference in Scottsdale on November 29 and the Needham Growth Conference in New York on January 11. Please let me know if you’d like to schedule time with us at any of these events.

With that, let me pass the call over to Steve.

[Steve Beauchamp, Co-Chief Executive Officer]

Thank you, Ryan, and thanks to all of you for joining us on our first quarter fiscal 2023 earnings call. Our strong sales momentum continued into fiscal 2023 with recurring revenue growth of 35.7% as our differentiated value proposition of providing the most modern software in the industry continues to resonate in the marketplace. Total revenue was $253.3 million or 39.4% growth over Q1 of last year and exceeded the top end of our guidance by $12 million.

In September, we held our annual Elevate Client Conference, where we hosted a record 4,000 clients, prospects and partners for more than 100 virtual and in-person sessions over the course of two days. The prevailing topic throughout the conference was the need to leverage software tools to connect employees, processes and data more efficiently across an organization. The theme of connected HR has become increasingly important for companies as it remains difficult to find, attract, train and retain top talent in a tight labor market.

At Elevate, we highlighted several new product enhancements across our suite that are specifically focused on driving a more modern connected HR experience at both the employee and company level. For employees, new tools within communities, such as the ability to create announcements through a mobile device, add multiple attachments and schedule postings in advance, will ensure clients are able to engage with their employees wherever and whenever they want.

Within Premium Video, our new video hub offers a centralized location for managing, reviewing, editing and sharing engaging content, both company-wide and within a specific team. Lastly, our newly released My Insights feature allows clients to create, edit and save multiple dashboards, each dedicated to drilling down into a specific data set or use case.

At Elevate, we had the opportunity to connect with clients that are leveraging many of these solutions to drive a more tightly connected HR experience, including a financial services client with 300 employees who is saving over $200,000 from operational improvements informed by our data insight tool and a manufacturing client with over 1,000 employees that is driving a 70% reduction in employee turnover through a combination of community, surveys and impressions.

The strong momentum across our business continues to be recognized by third parties as Paylocity was recently named an overall leader for all 12 HRIS product categories in the G2 Fall 2022 Grid Report. This marks the 16th consecutive quarter where Paylocity has achieved the leader ranking and includes recognition across all segments. A big thank you to our employees, clients and partners for helping create the best Elevate Conference we’ve had to date, and we can’t wait to see everyone back again next year.

I would now like to pass the call to Toby to provide further color on the quarter.

[Toby Williams, Co-Chief Executive Officer]

Thanks, Steve. The desire of our clients and their employees to drive a more connected HR experience continues to be reflected in key utilization metrics across our modern workforce solutions, including community, where in Q1, we once again saw strong growth in the number of posts, announcements and comments. We also continue to see similar trends in terms of content creation across both our Premium Video and Survey products as clients look to increasingly connect with their employees through more engaging mediums. Collectively, these trends continue to provide a catalyst for our significant sales momentum, driving strong sales execution across our entire market in Q1 and setting us up for a strong fiscal 2023 as we head through selling season.

In addition to our recurring revenue growth, interest income on client funds continues to rise as a result of the sustained interest rate increases from the Federal Reserve. Given the large market opportunity in front of us, the strong execution of our sales team and the success we’re seeing in product usage and adoption, we plan to reinvest a portion of this upside back into key areas of the business, including people, product and marketing, to help drive future growth. We remain committed to continuing our investments in digital marketing and our channel initiatives, which once again delivered more than 25% of new business in Q1 as well as incremental product investments as we continue to innovate and deliver the most modern platform in the industry.

We continue to see strong demand across our target market, and we’re very pleased with the momentum in our sales team coming into selling season. From a macro perspective, while we have seen a modest increase in workforce levels through October of this fiscal year, the rate of increase has leveled off, which we have reflected in our Q2 and fiscal 2023 guidance.

The strong culture at Paylocity continues to be recognized externally as we receive the Great Places to Work certification for 2022 and were named to Fortune’s Best Workplaces in Chicago, Built In’s Best Places to Work in Chicago and the Best and Brightest Companies to Work For in the nation. Echoing Steve’s comments, I would like to thank all of our more than 5,000 employees for a great start to fiscal 2023.

I would now like to pass the call to Ryan to review the financial results in detail and provide updated fiscal 2023 guidance.

[Ryan Glenn, Chief Financial Officer]

Thanks, Toby. Total revenue for the first quarter was $253.3 million, an increase of 39.4%, with recurring and other revenues up 35.7% from the same period last year. As Steve noted, our sales team had a strong quarter, and we were pleased to come in $12 million above the top end of our revenue guidance.

Our adjusted gross profit was 72.1% for Q1 versus 70.5% in Q1 of last year, representing 160 basis points of leverage as we continue to focus on scaling our operational costs while maintaining industry-leading service levels.

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 dollar basis, our year-over-year investment in total R&D increased by 44.9% when compared to the first quarter of fiscal 2022, and we remain focused on making incremental investments in R&D throughout fiscal 2023 as we continue to build out the Paylocity platform to serve the needs of the modern workforce.

In regards to our go-to-market activities, on a non-GAAP basis, sales and marketing expenses were 23.9% of revenue in the first quarter, and we remain focused on making incremental investments in this area of the business in fiscal 2023 to drive continued growth. On a non-GAAP basis, G&A costs were 12.0% of revenue in the first quarter versus 13.1% in the same period last year, and we remain focused on consistently leveraging our G&A expenses on an annual basis.

Our adjusted EBITDA for the first quarter was $66.6 million or 26.3% margin and exceeded the top end of our guidance by $8.6 million and represented 90 basis points of leverage versus Q1 of fiscal 2022. Briefly covering our GAAP results, for Q1, gross profit was $168.7 million, operating income was $7.1 million and net income was $30.4 million.

In regards to the balance sheet, we ended the quarter with cash and cash equivalents of $65.5 million and no debt outstanding. Additionally, in August, we increased our liquidity through expanding our existing revolving credit facility to $550 million. We’re pleased with our performance in Q1, which included another strong quarter for our sales team while also identifying opportunities to demonstrate scale and operational G&A costs, and we’re happy with the progress we made to start the year.

In regard to client-held funds and interest income, our average daily balance of client funds was $2.1 billion in Q1. We are estimating the average daily balance will be approximately $2.2 billion in Q2 with an average annual yield of approximately 170 basis points. On a full year basis, we are estimating the average daily balance will be $2.4 billion with an average yield of approximately 190 basis points. Additionally, please note that our guidance includes the impact of this week’s 75 basis point interest rate increase, and it assumes 25 basis points to 50 basis points increase in December, but does not currently include any changes to interest rates in calendar 2023.

Finally, I’d like to provide our financial guidance for Q2 and full fiscal 2023. For the second quarter of fiscal 2023, total revenue is expected to be in the range of $257 million to $261 million or approximately 32% growth over second quarter fiscal 2022 total revenue. And adjusted EBITDA is expected to be in the range of $63.5 million to $66.5 million. And for fiscal 2023, total revenue is expected to be in the range of $1.122 billion to $1.127 billion or approximately 32% growth over fiscal 2022. And adjusted EBITDA is expected to be in the range of $336 million to $340 million, which represents 220 basis points of leverage over fiscal 2022.

In conclusion, we are pleased with our Q1 results, and we’re pleased to raise fiscal 2023 guidance to 32% revenue growth at the midpoint which, in combination with the adjusted EBITDA margin represented in our full year guide, places us above the Rule of 60 in fiscal 2023.

Operator, we are now ready for questions.

[Operator]

Thank you. [Operator Instructions] And our first question will come from the line of Scott Berg with Needham & Co. Please go ahead.

[Scott Berg, Needham & Co.]

Hi everyone, congrats on a fantastic quarter and thanks for taking my questions. A couple here, first of all, impressive revenue beat in the quarter, your best percentage beat, as I can tell, in at least five years, and you maintained 36% recurring revenue growth against a five-point more difficult comp, so that was great. But how should we think about the strength in the business stay? Is this purely related to volume in terms of number of deals that you’re out there and winning? It continues to be really, really strong? Or is there a mix around maybe ARPU and customer size, with your added focus targeting larger customers today helping you benefit that growth?

[Steve Beauchamp, Co-Chief Executive Officer]

Yes. So, I think overall, it’s really coming from the strength and execution in our sales team. And that comes from the two places you talked about, adding new customers to the platform, still the biggest driver for us, and we’re having really good success across all the markets that we serve in terms of being able to do that. And I think the second point you bring up is average revenue per customer has been increasing, and we continue to get momentum from that. And that happens in a couple of different ways.

First, having new products and selling more of those products both back to existing customers and new customers. And then, on top of that, the upmarket initiative that we’ve been talking about over the last year continues to be successful. So, you see some of those larger clients having an impact to that average revenue per customer as well.

[Scott Berg, Needham & Co.]

Got it. Helpful. And I guess someone’s got to ask the macro question at least. Even a couple of reports I have tonight and others over the last two weeks, SMB in certain areas has certainly shown some weakness out there. You all service the market that’s kind of SMB. I think the low end of the enterprise is squarely in what part of that segment. You all aren’t seeing any pressure there? Are you seeing any changes that might be interesting to call out? The numbers suggest no, but I had to ask it.

[Steve Beauchamp, Co-Chief Executive Officer]

Yes. No, it’s obviously an important question in this type of climate. What I would tell you from a demand perspective, obviously, we’re really happy with the results, and we’ve got a lot of sales momentum inside our selling season right now. As you know, January is a big time for starts. So no evidence of slowdown from that perspective. And then I think the other part is looking at our clients. And as we mentioned in the prepared remarks, we did have a little bit more employees on the platform when you look at kind of a same-store sales measurement, although that has slowed pretty significantly versus prior periods. But it is still slightly positive. And so it seems like the clients that we have are pretty resilient at the moment.

[Scott Berg, Needham & Co.]

Great. That’s all I have. Thanks for taking my questions.

[Operator]

Thank you. One moment for our next question. And that will come from the line of Brad Reback with Stifel. Please go ahead.

[Brad Reback, Stifel]

Great. Thanks very much. Steve, on that last point around sort of clients adding employees moderating, are there any specifics around geographies or verticals? Anything you can dig into there?

[Steve Beauchamp, Co-Chief Executive Officer]

So our client base is pretty diverse with over 30,000 customers, really representing all industries. We do try to slice it and dice it and look at it in different ways. There’s really not much to call out at all realistically. It’s been pretty consistent across the board. There are some variations in the industries that you kind of might expect, but it is relatively small. And overall, as we looked at the current situation, we included that in the guidance. So, we certainly didn’t think that, that was going to change going forward, and it’s, overall, pretty moderate, fairly flat.

[Brad Reback, Stifel]

That’s great. And then switching gears, the credit facility that you guys entered into in August, maybe some thoughts around the strategic rationale there.

[Toby Williams, Co-Chief Executive Officer]

Yes. I think just from our perspective, we had put the original credit facility in place a few years back and just what was there as part of the capital structure as we have continued to grow and scale the business. And I think what you saw us doing was reflecting nothing more than sort of an update of that, reflecting the growth that we’ve seen in the business. So, we upsized that, but I think rationale is the same, no different. And it was upsizing that, I think, somewhat opportunistically just given the growth and the size and scale of the business.

[Brad Reback, Stifel]

That’s great. Thanks very much.

[Operator]

Thank you. One moment for our next question. And that will come the line of Terry Tillman with Truist.

[Robert Dee, Truist]

Great. Thanks so much for taking the questions. This is Robert Dee on for Terry. Starting off here on the mobile side of things, roughly what percentage of Paylocity’s full platform capabilities can now be carried out on a mobile device? And how does mobile development fit into the overall research and development cycle? And then I have one follow-up. Thanks.

[Steve Beauchamp, Co-Chief Executive Officer]

Sure. So, you think about it from both a manager and employee user. So, we’ve got millions of employee users on the platform. They use it for a wide variety of capabilities. And most of that activity today, more of that activity happens on mobile than it does on the web. And they can do pretty much anything they can do on the web on mobile. When it comes to the administrator and the HR administrator, there’s definitely capabilities they take advantage on our mobile application, but if you’re thinking about bigger, more complicated things, running payrolls, managing your payroll, you’ve got customers who have to do complex approvals and workflows, a lot of that still occurs on the web, mostly because of preference in terms of where you can actually most efficiently get that done.

But part of our strategy long term is to continue to invest in mobile first and everything that we build can be done on your phone. And increasingly so, we’re seeing more and more of our clients, employees and managers do most of their activities from a mobile perspective. So that continues to be an area of an R&D investment going forward.

[Robert Dee, Truist]

Great. And then just following up, how should we think about the potential TAM surrounding newer automation capabilities such as fillable forms? Or is it still too early to tell? And in general, how are you all thinking about monetization in this area? Thanks.

[Steve Beauchamp, Co-Chief Executive Officer]

Well, we’ve had a great history of being able to not only create a differentiated product and really kind of modernize the experience for our clients, but also have new SKUs that we can monetize over time. And so we’ve more than doubled the amount of product that we can sell since our IPO. And we’ve got a pretty robust road map of new initiatives that we’re working on. And things like collaboration, the ability to automate your workflows, those are concepts that are going to be an important part of our new product strategy. We don’t have a habit of announcing those products until they’re ready and in market and till we actually get feedback from our clients. And we really believe strongly as client is a co-creator.

So, I think thematically, you’re on the right idea. Collaboration, workflows, automation is definitely there, and we are pretty excited about some of the initiatives we’ve got in flight. Our clients are taking advantage of some of the fillable forms capabilities. You see that often in our onboarding application is probably the primary place, but they’re also using that in workflows today.

[Robert Dee, Truist]

Great. Thanks. Congrats on the quarter.

[Operator]

One moment for our next question. And that will come from Patrick Walravens with JMP Securities.

[Owen Hobbs, JMP Securities]

Hi, Owen on for Pat. Congrats again on the strong quarter. So, I’m wondering about – a little bit about competition with cloud providers. Can you give us a brief update on the competitive landscape?

[Steve Beauchamp, Co-Chief Executive Officer]

Sure. I would say from a macro perspective, there’s not a lot of change. It is a competitive environment. We typically are competing against one, two, maybe even three different providers as we are winning deals and bringing clients over to the market. We see the biggest players the most, just like you would expect. I don’t think it’s any different than the market share that they have. We feel like we’ve got a differentiated value proposition. We’ve got modern capabilities that don’t exist in any of our competitive set, and we think that our ability to back that up and partner with our clients, that’s the key part to the value proposition. And we’ve been able to be very successful, obviously, with the revenue growth that we were posting here, not being able to win clients in all markets, but nothing new from a competitive perspective.

[Owen Hobbs, JMP Securities]

Awesome. Thank you. And then, I guess, kind of looking further back at 2008 and the Great Recession impact on Ultimate Software. We saw about four quarters of decreased growth in 2008 through early 2009. I was wondering if you thought that experience is kind of instructive or predictive for how Paylocity would handle a potential recession.

[Toby Williams, Co-Chief Executive Officer]

Yes. I mean I think the best sort of guidepost for anything like that is really what we’ve just come through from a pandemic perspective. I mean, obviously, the cause of the macroeconomic impact was different. But I think what you saw from us through the course of the pandemic was, first of all, commitment to our employees and our clients. And I think what you also saw from us was running the business fairly consistently with how we had been preceding the pandemic in terms of continuing to hire across the business, continuing to invest for future growth in product and sales and marketing and operations and really across the whole business.

So I think where we sit today, we feel like we just had a really strong quarter. We’re really pleased with the sales execution that we’re seeing, the competitive dynamics in the market that Steve referenced and the differentiation really resonating with our clients and prospects. And so I think despite any macroeconomic uncertainty, I think we would approach it in very much the same way we did throughout the course of the pandemic with a lot of consistency and continuing to invest in the business for future growth.

[Owen Hobbs, JMP Securities]

Awesome. Thanks so much.

[Operator]

Thank you. One moment for our next question and that will come from the line Samad Samana with Jefferies. Please go ahead.

[Jordan Boretz, Jefferies]

Hey guys. This is Jordan Boretz on for Samad. Steve, Toby, Ryan, thanks for taking my question. Congrats on the strong results. So I think the first question I want to ask is on the macro, as everyone has been kind of focused on. This morning, [indiscernible] came out showing a decline. The labor market remains pretty tight. So in terms of this past quarter, do you have any trouble hiring quota-carrying reps? How did that come in maybe versus expectations?

[Steve Beauchamp, Co-Chief Executive Officer]

Yes. So obviously, we continue to grow, and we’re looking for great people to join our teams, and that’s across the board. So sales certainly are hiring. It’s not our primary hiring season for sales. We typically really ramp that up after year-end, but opportunistically, we’re bringing people on all the time. I would say, across the board, including sales, we’re really happy with our ability to have a value proposition for employees that they’re excited about and getting really talented people to come onboard in a still fairly competitive market. So that includes places like research and development and sales and a lot of our teams that have to support our customers. So staffing levels are strong going into year-end, which is important because it’s a really busy time of year. And I think from a sales perspective, we’ve got a nice head start before we really start to ramp up hiring after year-end.

[Jordan Boretz, Jefferies]

Great. And then maybe this is for Ryan. If I take a look at the gross margins, your adjusted gross margins and I back out the contribution from float, it looks like the core gross margin of the business increased pretty substantially year-over-year. So I’m curious, can you maybe comment on what’s driving that strong expansion within the core business ex float?

[Ryan Glenn, Chief Financial Officer]

Sure. So I think, obviously, really happy with the increase in margin in the quarter, I think, about 160 basis points, including the impact of interest income and, to your point, some really nice leverage, even actual interest income. And I think for us, that is continued focus on scaling the business and driving leverage and efficiencies, automation in those teams, and we continue to drive against that game plan. So I think as we step back and look at the quarter’s results from a profitability standpoint, felt like we executed against our game plan of leverage in margin and G&A, and you saw the incremental investment in growth driving areas of business that primarily being sales and marketing and R&D.

[Jordan Boretz, Jefferies]

Great. Well, again, you guys, congrats on the strong results, and I appreciate the time.

[Ryan Glenn, Chief Financial Officer]

Thank you.

[Operator]

Thank you. One moment for our next question. And that will come from the line of Bryan Bergin with Cowen.

[Bryan Bergin, Cowen]

Hi, guys. Good afternoon. Thank you. I wanted to dig into the strong sales force execution. You really seem to have kind of reached another level here. So what do you attribute the notable step-up in this execution that you’re seeing?

[Steve Beauchamp, Co-Chief Executive Officer]

Yes. So I think it probably put it into two different categories. I think first and foremost, the product is really resonating in the marketplace. If you think of the challenges of today, being able to find, attract the people that you’re looking for, being able to retain them, it is still a challenging labor market. And so when you have tools that don’t just automate your processes but actually allow you to engage and drive a different culture and really create the right environment for collaboration, clients are seeing real value in that equation. And so I think it’s really helping us win from a product perspective. That’s number one.

I think number two, the sales team is really executing on all cylinders. And so that’s getting people hired and trained and making sure that they take that value proposition and can tell the story and create differentiation. And so it’s really a combination of having a great story to tell and having a sales force that is firing on all cylinders, as you mentioned.

[Bryan Bergin, Cowen]

Okay. And then just, I guess, where do you stand now in the penetration of some of the newer products, so Community Plus, Premium Video? Just into your total client base today, where have penetration levels gotten to?

[Steve Beauchamp, Co-Chief Executive Officer]

I think the way we like to think about that is if you take the total amount of product that we can sell, meaning if a customer bought everything, and you do the math based off of roughly our average client size, which we give you directionally, and you look at the total number of clients, you’re going to get to a number that’s, call it, approaching 60%, up to two-thirds in that kind of range of all available product that we can sell to our clients. And so we’re going to continue to add new product on top of that. And so we think there’s still a fair amount of runway to take that higher and sell exactly products that are newer, Surveys, Premium Video, Community Plus, and still get penetration into some of the products we’ve had for a while that can still go higher.

So our inside sales team is an area that we’ve invested in for several years now, and we continue to invest that at even a faster rate than the rest of our sales force. We still get most of our revenue from new customers, but that will continue to become a more meaningful part of our growth equation.

[Bryan Bergin, Cowen]

Okay, appreciate the color. Thank you.

[Operator]

Thank you. One moment for our next question. And that will come from the line of Mark Marcon with Baird. Please go ahead.

[Mark Marcon, Baird]

Hey, good afternoon and congratulations on the stellar results here. At Elevate, you had 4,000 prospects and existing clients, how many were prospects? And what was the element that ended up gaining the most attention that you’re most excited about with regards to prospects? And then what are you most excited about in terms of selling into the existing base right now that where they were really focused?

[Steve Beauchamp, Co-Chief Executive Officer]

Sure. So I think on your first question, we definitely cater that event towards current clients. There is a lot of content for current clients, both in terms of industry trends, what’s happening and then, of course, how to use our product to better manage their HR teams, create more engagement, culture. That’s really the idea, of really trying to connect that across all of the challenges that they might have in the business. We typically see less than 10% of the attendees would be prospects. It’s the kind of way to think about it. It’s usually people that are in the evaluation cycle and near the tail end and can see some value in that agenda. And we get a lot of newer customers that attend as well. So it was a great event for us. Virtually, we’ve been able to host even more people than we’ve been able to do in person and super successful. I think you had a second part to that question, too.

[Mark Marcon, Baird]

Yes. Of the existing clients, what are the modules that were gaining the most attention in terms of being added on? And how are you thinking about that in this key selling season? About going to, you said you increased your inside sales force. What are they most excited about selling?

[Steve Beauchamp, Co-Chief Executive Officer]

Yes. So I would say we’re definitely seeing increased product penetration rate across the entire portfolio. So it is not really being outstripped by just one or two different modules. But as you might imagine, some of the things that are newer are things that our customers might not necessarily knew we had. We’re definitely seeing things like video with higher penetration. The need to collect more feedback from our customers and our Survey product has also seen a nice uptick. Recruiting has been strong really for a while now. It’s obviously been a tough labor market. So that product gets even more important. But even things like onboarding and automating that, smaller clients are even seeing value in that whereas, when we released that three or four years ago, it was definitely towards the upper end of the market.

So it’s pretty across the board. And one of the challenges that you find is when you’ve got 30,000-plus customers, you’ve got to keep them educated and knowledgeable of all the new things that you’re creating, and Elevate becomes a good opportunity to do that.

[Mark Marcon, Baird]

That’s great. And then you acquired Blue Marble back in September of last year. How much did that end up contributing in the quarter? And what was the organic growth rate this quarter? And then how much of a contribution did you end up getting this quarter from an increase in terms of the number of employees per client within the existing base?

[Ryan Glenn, Chief Financial Officer]

Sure, Mark. I can take that. So as we talked about at the timing of the acquisition, the Blue Marble impact was less than 2% of revenue. So that was the impact on a full year basis. Obviously, this quarter, we had a full quarter impact of Blue Marble, whereas last year, it was just the one month. So that was incrementally helpful, but it’s in the one to two point range. And then from a macro standpoint, we did see some positive growth in workforce levels, as Toby had called out. And we haven’t called out exactly what that specifically was, but it was somewhere into the mid-single digits year-over-year, where that number has trended versus last year. So incrementally helpful, but it has leveled off.

[Mark Marcon, Baird]

Terrific. Thank you so much.

[Operator]

Thank you. One moment for our next question. And that will come from the line of Dan Jester with BMO Capital Markets. Please go ahead.

[Dan Jester, BMO Capital Markets]

Yes. Thanks. Good evening and thanks for taking my question. So in the prepared comments, you talked about making some incremental investments using the benefit from higher float income to make them. Can you talk to us about sort of what that could be? Is that hiring? Is that advertising, top-of-the-funnel activities? And sort of what are the sort of the decision variables that you’re thinking about to deploy that incremental capital?

[Toby Williams, Co-Chief Executive Officer]

Hey Dan. Yes, I mean, I think we talked in the prepared remarks about that being comprised of investments in people, in marketing and product. And I think that’s pretty consistent with past situations where we’ve had a rising rate environment and decisions to invest back into the business to drive future growth. So I think consistent strategy, consistent deployment from an investment perspective there, and I think it is across all those areas. In some sense, it’s continuing to hire to support the growth of the business. Obviously, great quarter, and we’re pretty bullish on the year, and so it will be continuing to invest throughout the course of the year to support the growth of the business.

Certainly, we’ve talked previously about incremental investments in product and I think we have a long history of putting dollars back into our product teams and driving incremental PPI over the course of time. And then I think we’ve also talked about incremental investments in things like digital lead gen from a marketing perspective. And I think those are all of the types of things that we would look to deploy incremental dollars into as we look at the balance of this fiscal year.

[Dan Jester, BMO Capital Markets]

Got you. That’s very helpful context. I appreciate that. And then maybe just one for on Ryan. Stock-based comp in the quarter, very different than the trend that we’ve seen over the past year. Is there anything you can call out? Is this a new level that you should be thinking about? Or are there any onetime things going on there that you’d mentioned? Thank you.

[Ryan Glenn, Chief Financial Officer]

Sure. So I think there’s some timing elements within the quarter, for sure. We have expanded our restricted stock program to a broader array of our employee base. I think you’ll see that normalize a bit as the year goes on. Last year, I think SBC was about 12% of revenue. It may tick up slightly this year but not change materially. And I think as we look at some of the other elements around equity compensation, whether that is burn rate or overhang, I feel really good about where those fall versus our broader peer set. So you may see a slight tick-up with that expanded program, but beyond that, nothing I’d call out.

[Dan Jester, BMO Capital Markets]

Great. Thank you very much.

[Operator]

Thank you. One moment for our next question. And that will come from the line of Siti Panigrahi with Mizuho. Please go ahead.

[Unidentified Analyst]

Hi, this is Alex on behalf of Siti. I just wanted to ask, have you assumed the worsening of the macro environment in your guidance? And what would the unemployment rate need to go up to, to have a significant effect on your recurring revenue? And how much of the raise in FY 2023 revenue guidance assumed for the increase in full revenue? And I also wanted to ask, as you move upmarket, what competitors are you running into? And how does your differentiated solution help you win deals? And if the macro environment worsens, would you pull back more in S&M versus R&D?

[Ryan Glenn, Chief Financial Officer]

All right. You’re going to test my memory here. I’m going to do my best. But I think the first question was related to what we assumed in guidance from a macro standpoint. And I think consistent with how we’ve treated it historically, we’ve guided to what has been in front of us. So to Toby’s comments in the prepared remarks, we did see a bit of growth between July and October, although it certainly normalized from the increase we saw prior to that. So we took that into account. We did not assume a degradation going forward. And I think the way that I would characterize that is it would take a pretty significant downturn from a macro standpoint to materially impact our revenue results. I actually feel really good about the momentum with what our sales team has headed into selling season. We feel really good about where we are from a retention standpoint. So certainly something that we are watching closely. But feel like, as we watch that, there’s nothing that I would call out as a near-term risk, although it’s certainly something that we’re watching closely. Maybe if you can repeat the next part of the question.

[Toby Williams, Co-Chief Executive Officer]

I’ll jump in on the last part, I think, in terms of the upmarket competitive landscape and then investments in the rest of the year given the macro. I think maybe hitting the macro point first. I mean, I think our perspective historically has been that we will continue to lean into sales and marketing investments and investments in products, which was your question. And I think that certainly is the case this year. We’re looking to deploy some incremental dollars there. And I think even in the face of macro downturn, as we saw in the course of the pandemic, we still look to invest in those areas. Those are really the growth-driving areas of the business. And on a longer-term basis, those are important investments for us.

And then in terms of the competitive environment, we’ve announced over the course of the last year or so, a slight push upmarket, which is really driven by our clients and prospects taking us there. It’s been a growing part of our business. And I think the competitive environment there, I don’t see it changing. Going back to Steve’s comments earlier, I haven’t seen any great shift in that over the last six months or so. So...

[Unidentified Analyst]

All right. Thank you. Yes.

[Operator]

Thank you. One moment for our next question. And that will come from the line of Robert Simmons with D.A. Davidson. Please go ahead.

[Robert Simmons, D.A. Davidson]

Hey, thanks for taking the question. I was wondering if you could talk about how Blue Marble is performing. Are you seeing it help you win new clients? Or are you cross-selling much into your existing base? And then how far along in the integration process are you?

[Steve Beauchamp, Co-Chief Executive Officer]

Sure. So if you go back to the original thesis, part of the idea of bringing Blue Marble onto our platform was the idea that people would be more open to working globally as remote work started to increase in popularity. And so what we see is clients that are predominantly in the U.S. are, on an increasing rate, have employees in different countries. And so that’s where Blue Marble really enters the equation because you can get them paid through Blue Marble software and the partners that we’ve got around the world that help us get that done. So we definitely have felt like that’s been a nice differentiation for those customers that have employees outside of the U.S.

We’re pretty integrated from a go-to-market perspective. A lot of our operation teams are continuing down that integration path. Product obviously, naturally takes a little bit longer because you’ve got different platforms you’re kind of connecting. It’s a fairly seamless experience for customers today, but there’s a lot we think we can still do to enhance that experience. And I still believe that over time, customers will have more and more employees internationally. So we’re very happy with the performance so far. I think there’s actually still a lot of opportunity in front of us, though.

[Robert Simmons, D.A. Davidson]

Got it. Great. And then can you talk about the impact of inflation on the business side of the equation?

[Steve Beauchamp, Co-Chief Executive Officer]

Yes. So I think the impact on inflation as much as it has a macroeconomic impact and potentially has an impact in terms of number of employees our clients will have, so if we hit a recession, in historical recessions, you’ve seen client’s not necessarily adding employees but maybe they’ve got fewer employees. And so that, because we get paid on a per employee per month basis, that directly impacts our revenue. You can obviously trace back to the pandemic, and that happened precipitously and then recovered, it would be much lower based off historical recessions. But that would be impact number one.

On the flip side, when you’re in a high inflation environment, you obviously know that the Fed tries to get inflation down by raising interest rates. And so we benefit from interest rates, which ends up being a bit of a hedge to the first impact. And the last thing I would say is people have to be able to still have employees. They have to be able to get payroll done. They’ve got HR processes that are must-do items, and they want them to be more efficient. So from a selling motion perspective, we’ve been pretty successful in prior recession environments, being able to kind of grow through that and still make sure that our value proposition is important to customers.

[Robert Simmons, D.A. Davidson]

Got it. Thank you.

[Operator]

Thank you all for participating in today’s question-and-answer session. I would now like to turn the call back over to management for any closing remarks.

[Steve Beauchamp, Co-Chief Executive Officer]

Yes. Just to wrap things up, I just want to thank everybody for all your interest in Paylocity. And of course, I take the other opportunity to thank all of our 5,000 employees for their hard work as we enter our busiest time of year. Thank you very much.

[Operator]

This concludes today’s conference call. Thank you for participating. You may now disconnect.