Paylocity Holding Corp

NASDAQ:PCTY

Earnings Call Transcript 2021-Q4

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Paylocity Earnings Results Call for the Fourth Quarter of Fiscal 2021. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Ryan Glenn, Vice President of FP&A and Investor Relations. Please go ahead.

[Ryan Glenn, executive]

Good afternoon, and welcome to Paylocity's earnings results call for the fourth quarter of fiscal '21, which ended on June 30, 2021. 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 and 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 is 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 measures 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, Toby and I will be virtually attending the Citi Global Technology Conference on September 13 and the Jefferies Software Conference on September 15, and we will be in person at the HR Tech Conference on September 29 in Las Vegas. Please let me know if you'd like to schedule time with us at any of these events. With that, let me turn the call over to Steve.

[Steven Beauchamp, executive]

Thank you, Ryan, and thanks to all of you for joining us on our fourth quarter and fiscal '21 earnings call. We finished the year with strong momentum as Q4 and fiscal '21 results came in ahead of our guidance. Our sales team had an excellent quarter, and we exited the fiscal year with 28.2% revenue growth in the fourth quarter.

Adjusted EBITDA for the fourth quarter was $37.3 million or 22.2% margin and exceeded the top end of our guidance by $2.8 million. For fiscal '21, adjusted EBITDA was $170 million or 26.7% margin despite the COVID-related headwinds and near 0 interest rate environment.

Despite a very challenging environment driven by COVID-related restrictions, our sales team had a strong year, and we ended fiscal '21 with 28,750 clients compared to 24,450 at the end of last fiscal year, an increase of 18%. The 18% increase in clients in fiscal '21 was also aided by very high client satisfaction as revenue retention once again remained greater than 92% and at its highest level in a number of years.

Our value proposition of providing the most modern and comprehensive product suite in the industry continues to resonate in the marketplace. New business starts and first-time appointments continue to gain momentum, and we're very pleased with the execution of our sales team across all market segments. This strong sales execution is driving Q1 and fiscal '22 revenue guidance to the highest levels we've seen in a number of years.

Building off this strong momentum, we've expanded our sales force for fiscal '22 by adding new sales reps, while at the same time, investing in training initiatives and marketing and channel programs to drive productivity. Sales reps have increased by 18% from 498 in fiscal '21 to 588 in fiscal '22, and I'm pleased that we're fully staffed heading into the new year.

As we move past the pandemic and into a more normalized environment, Paylocity's strong value proposition is also resonating with prospective employees. We're seeing a very strong pool of talented candidates across the business, including in sales, marketing and R&D. We plan to take advantage of this momentum as we staff up for fiscal '22 and beyond.

We also continue to invest in our channel initiatives, and we remain pleased with the consistency in our referral channel, which continued to deliver more than 25% of our new business in Q4 and full fiscal '21. In addition to an 18% increase in sales reps for fiscal '22, we remain committed to continuing our investments in digital marketing and digital lead generation to support our go-to-market motion.

Our products focused on the modern workforce continue to see utilization growth. In Community, we saw an average of over 25,000 announcements per month, and our monthly unique visitors doubled during fiscal '21 with hundreds of thousands of user interactions per month as reactions and comments from employees led the way. As Community continues to grow, we see thousands of groups being created that allow for discussion and collaboration.

We see increasing potential in the use case as many groups created are centered around a team. We are looking to enable better team engagement and collaboration as a space to get work done and have already started leveraging this internally.

In addition to the growth in Community, survey usage increased significantly in fiscal '21 with an average of more than 1 million surveys launched each month, and premium video usage surpassed over 0.5 million videos played across the product suite. Our learning management product has similarly seen significant growth with over 200,000 learning courses being completed per month by employees with nearly 90% engagement on all video content recorded and uploaded, leveraging our video product. We believe this continued momentum further demonstrates how video content across the suite is a powerful communication tool.

Lastly, the Paylocity Modern Workforce Index, or MWI, which analyzes, scores and tracks a company's progress in delivering a more engaging experience to their employees, has been instrumental in driving client conversations, and we're very pleased with the traction this tool is seeing in the marketplace. Our commitment to product development continues to be recognized in the market with Paylocity ranking high on the G2 Crowd Summer Grid reports during fiscal '21, included being listed as a leader in 12 product categories in addition to be recognized in the mid-market and enterprise segments.

The success we've had as a company would not be possible without the dedication and commitment of more than 4,000 employees who worked hand in hand with our clients through a very challenging year. The strong culture at Paylocity also continues to be recognized as we were once again named a certified Great Place to Work while also ranking ninth in Fortune 100 Fastest-Growing Companies list.

The impact that the pandemic had on our employees, clients and communities reaffirm Paylocity's commitment to being a leader in social and environmental responsibility and corporate governance. And we have programs in place across our business to deliver on that commitment. Our Diversity Leadership Council strives to create an environment that is focused on diversity, equity and inclusion, and we've created a required unconscious bias training program for our employees, which we also made available to our clients in our learning management product.

Additionally, our employee resource groups are organized to give employees the chance to build community and connections, voice their ideas and perspective, personally develop and grow and shape our culture to make a difference at work and in our local communities. I encourage you to review the newly launched Corporate Social Responsibility section of our website, which further outlines our commitment and efforts on this very important topic.

I would now like to pass the call to Toby to review the financial results in detail and provide fiscal '22 guidance.

[Toby Williams, executive]

Thanks, Steve. Before I review our results, I would like to congratulate Steve on recently receiving another Glassdoor Employees' Choice Award, which honors the top CEOs in 2021 among large companies. Congrats, Steve, very well deserved.

Total revenue for the fourth quarter was $167.5 million, an increase of 28.2% with recurring and other revenues up 28.8% from the same period last year. As Steve noted, our sales team had a strong quarter, and we were pleased to come in $4 million above the top end of our revenue guidance.

For the year, recurring and other revenues were up 15.7% and total revenue was up 13.2%. For the fourth quarter, our adjusted gross profit was 69.5%, and for the year, it was 70.5%. 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 14.5% of revenue in the fourth quarter compared to 16.3% in the year ago quarter. Full year total research and development investments were 14.7% of revenue compared to 14.3% in fiscal '20. On a dollar basis, our year-over-year investment in total R&D increased by 16.3% in fiscal '21 when compared to fiscal '20. We continue to believe our investments in R&D provide us with valuable product differentiation and the ability to drive future growth.

On a non-GAAP basis, sales and marketing expenses were 25.2% of revenue in the fourth quarter and 22.9% for fiscal '21. On a non-GAAP basis, G&A costs were 14% of revenue in the fourth quarter versus 15.5% in the same period last year. Full year G&A costs were 13.1% of revenue as compared to 13.8% in fiscal '20, and we remain focused on consistently leveraging our G&A expenses on an annual basis.

Our adjusted EBITDA was $37.3 million or 22.2% of revenue for the quarter, which exceeded our guidance by $4.3 million at the midpoint. Our adjusted EBITDA for the year was $170 million or 26.7% of total revenue. We remain committed to progressing towards our adjusted EBITDA target of 30% to 35% of revenue once we return to a more normalized environment.

Briefly covering our GAAP results. For Q4, gross profit was $108.4 million, operating income was $9.1 million and net income was $11.9 million. For the full year, gross profit was $416.3 million, operating income was $58 million and net income was $70.8 million.

In regards to the balance sheet, we ended the year with cash, cash equivalents and invested corporate cash of $206.7 million. We're pleased with our performance in Q4, which included another strong quarter for our sales team while also identifying opportunities to demonstrate scale in operational and G&A costs, and we're happy with the progress we made to that end in Q4.

In regard to client-held funds and interest income, our average daily balance of client-held funds was $1.7 billion in Q4. We're estimating the average daily balance will be approximately $1.7 billion in Q1, and we assume an average yield of approximately 5 to 10 basis points in the first quarter.

Before reviewing guidance, I'd like to provide some additional context on the current operating environment. As Steve mentioned, we continue to be pleased with the performance of our sales team this past quarter and over the last fiscal year. In regard to the ongoing impact of COVID-19, within Q4, we saw a notable increase in client workforce levels in each of April, May and June, with July also seeing further improvement.

Finally, I'd like to provide our financial guidance for Q1 and full year fiscal '22. For the first quarter of fiscal '22, total revenue is expected to be in the range of $171.5 million to $175.5 million or approximately 26% to 29% growth over first quarter fiscal '21 total revenue. And adjusted EBITDA is expected to be in the range of $37.8 million to $40.8 million. And for full year fiscal '22, total revenue is expected to be in the range of $790 million to $795 million or approximately 25% growth over fiscal '21. And adjusted EBITDA is expected to be in the range of $209.5 million to $213.5 million.

In conclusion, we are pleased with our Q4 results, and we remain committed to investing in the business to ensure we are well positioned to drive future growth. We're also pleased to guide fiscal '22 to 25% revenue growth at the midpoint, our highest revenue growth guidance to start a fiscal year since August 2016.

Additionally, the combination of strong revenue growth and adjusted EBITDA margin represented in our full year guide returns us to above the rule of 50 in fiscal '22.

Operator, we're now ready for questions. Thank you.

[Operator]

[Operator Instructions] Your first question comes from the line of Scott Berg with Needham & Company.

[Scott Berg, analyst]

Congrats on a great quarter. I guess let's start off with the overall demand environment. We continue to hear the customer demand kind of down market in your core areas is really strong right now. How would you say customer appetite is for buying products kind of across your product set, though? Is it really just maybe replacing core HR and payroll? Or are you really seeing customers, I don't know, trying to buy the entire suite upfront?

[Steven Beauchamp, executive]

Yes. I think we're seeing both. So demand overall is pretty strong just in terms of looking at activity from number of appointments that we're having or number of new sales that we're bringing on board. And then as we look at the products that people are buying, we're definitely seeing more popularity in the places that we called out. So all of our modern workforce initiatives, surveys, LMS, obviously, communities (sic) [ Community ], a free product, but we're getting great utilization there. But that's been a big part of the conversation and the differentiation. It's a real tight labor market, I think as everybody knows. And so being able to have products to engage with employees is really resonating.

[Scott Berg, analyst]

Got it. And then from a follow-up perspective, kind of along the same line, I know you all have invested more heavily over the last couple of years to sell more back into the base. Any kind of color commentary on how those efforts are going in, in the last quarter?

[Toby Williams, executive]

Scott, it's Toby. Yes, I mean, I think you're right. We've definitely put a little bit more muscle and more investment into our team that sells back into the customer base. And I think all the same things ring true with what Steve just said in terms of those products, which are -- most of which are a little bit newer, resonating with our customer base as much as they are with new sales.

And so I think we're pretty pleased with the penetration we're able to drive back into the customer base with those newer products. I mean it's definitely a smaller part of the overall new sales and smaller part of the overall revenue. But we're pretty pleased with the demand we've seen there.

[Operator]

Your next question comes from the line of Terry Tillman with Truist.

[Joseph Meares, analyst]

This is Joe Meares on for Terry. I wonder what you're seeing on the broker side with regards to existing brokers. Any opportunities to expand the broker network? And then do you think, over the course of the next 12 to 24 months, that this part of the revenue, this could expand as a portion of overall revenue?

[Steven Beauchamp, executive]

Yes, we've been really consistent in the broker channel. So even throughout the pandemic, we've been greater than 25% of our new business from broker referrals, which I think we were really pleased with because a lot of those visits prior to the pandemic were happening face-to-face. We are back to some face-to-face activity, but a lot of it is still happening virtually from a broker perspective. And so being able to deliver above that 25%, we're really pleased with.

I think going forward, that continues to be kind of our target. It's a good mix in terms of self-generated and broker referrals. We feel good about getting that mix kind of across our target market segment. And we've got a lot of initiatives pointing at the brokers that will allow us to expand the number of relationships that we have, but also deepen the relationships with existing providers who send us referrals on an annual basis.

[Joseph Meares, analyst]

That's helpful. And then just as a follow-up, it sounds like demand overall is strong, but I'm just wondering if with the way that the Delta variant is playing out, if the demand is consistent across different parts of the country or if you're seeing any pockets of -- that are fast or slow right now?

[Steven Beauchamp, executive]

We certainly -- when you look at through the last year, we certainly saw some differences in places which shut down. We'd see demand being impacted in those markets like early on in places like New York and California. And then as those markets opened up, we would see a little bit of accelerated activity.

I think at this point in time, it's pretty much improving across the board. And one of the reasons we feel very bullish in terms of how things look is that our sales teams are able to do well across the size segments that we serve and across all geographies. Like everybody, we all worry about what the impact of Delta could be. If we have to go back to virtual, we're pretty adept at doing that in terms of selling. We feel like we've got good momentum. We feel like there's some pent-up demand in terms of people maybe not moving in certain industries for a while. And so we're hopeful that we can continue the momentum despite some of the increases in Delta.

[Operator]

Your next question comes from the line of Mark Marcon with Baird.

[Mark Marcon, analyst]

Congrats. Great quarter, great year, particularly considering the circumstances. I'm wondering, can you talk a little bit about the revenue performance, both for this quarter and for the guide, with regards to a couple of aspects in terms of the number of employees per client. Just within the existing base, how much of an increase did you end up seeing in terms of the employees per client? And what sort of revenue impact did that have?

And then secondly, with the full suite that you have, there are certain elements that really appeal to some larger clients. I'm wondering what you're seeing in terms of the average size of client, particularly in this last quarter.

[Steven Beauchamp, executive]

Yes, I'll start with the second question first. So we have been targeting at the top end of our market segment. And many times, we go well above 1,000 employees. We've got customers, 5,000 employees on our platform. We don't limit our sales organization. We're looking for the right fit. And you're correct, we've been adding some interesting capabilities that make us even more competitive at the top end or beyond our target market. And we've seen good success.

I think if you go to last year, we were calling out those larger kind of more enterprise-like clients as being a really nice growth driver even in COVID. I think what's happened more recently is we're seeing acceleration in our core mid-market and even at the low end of our market. And so we now feel like we're firing on all cylinders. And then I'll let Toby talk a little bit to how we view the pace for -- on our platform contributing to revenue growth.

[Toby Williams, executive]

Yes. Mark, I mean, I think what we've seen is in building off of what we would have said on the last call, I mean, we saw strength and momentum coming back on a month-to-month basis all through Q4, and we've seen continued momentum there through July as well.

And I think the right way to think about that in terms of the magnitude is we would have described the impact to our revenue growth through the course of the last -- through COVID, the last year, year plus as in most cases, in most quarters, a double-digit headwind. And I think we said we -- on the last call that we saw that coming down. And I think we would have described that for Q4 as being sort of a low single-digit headwind. So certainly progress, positive progress for sure.

[Mark Marcon, analyst]

Great. And then can you talk a little bit about the solutions like Community, video, the surveys? It sounds like the engagement levels are really high. Can you just talk about what that's doing for client retention rates within the clients that are using it? What's the attraction in terms of positioning with potential new clients and just monetization opportunities?

[Steven Beauchamp, executive]

Yes. So I think prior to COVID, we were marching down this path of really creating modern features that really kind of extended how we might traditionally view an HCM product. And so we've had Community in the market for a while. We've had peer-to-peer recognition, a product called Impressions in the market for a while.

And were continuing to make investments. Obviously, good timing from an acquisition of VidGrid perspective, right at the start of the pandemic and integrating that into our suite, now our premium video product. And what we saw from the pandemic is really an acceleration of those trends.

So individuals, pre-pandemic, were having a hard time imagining themselves, recording themselves, imagine recording on a phone and sending out to all your employees or actually using video in an asynchronous fashion to be able to communicate with employees versus Zoom. And what we're finding is our customers are much more comfortable with that because they've spent so many hours in Zoom calls and communicating that way.

And the second part is it's a tight labor market right now, and there is a war for talent out there. And so making sure that you're engaging with your employees and communicating, connecting, gathering their feedback, training and develop them has really risen in importance within our client base. And so from that perspective, we have the products, we continued to add the features that our clients are asking for, we're constantly making releases based off their feedback so they get better and better and we're seeing the momentum.

A place like Community where we've had that product out in the market for several years, we're absolutely seeing clients who are taking advantage of Community turn over less than maybe our broader population. Because once every employee in the company starts touching and connecting with a product like that, it just makes it much more difficult to move to a competitor.

[Operator]

[Operator Instructions] Your next question comes from the line of Bryan Bergin with Cowen.

[Bryan Bergin, analyst]

Want to ask a question on demand and whether you've noticed any improvement in the pace of client decision-making when it comes to switching.

[Steven Beauchamp, executive]

Yes, I would say it feels more normal now. I don't know if we're all the way back. But during the pandemic, lots of things would happen in terms of new restrictions in that state would then take a project and put it on the shelf. We had issues with some of the HR administrators that were trying to actually implement our solution. And they may have had something happen in their personal lives that would delay them.

And so we were kind of working through that and always been quite friendly in making those decisions. And sometimes that would impact when they went live, other times it might delay start dates. We're not really seeing that in the market right now. It feels very much back to the way it was pre-pandemic from a time to first appointment to final decision and implementation cycles.

[Bryan Bergin, analyst]

Okay. And then just around product attach, can you comment around -- I know it's early, but penetration rates, where those stand for premium video and on-demand pay? Curious if you're seeing any greater interest for the on-demand pay offering? And then for premium video, is it trending the same way you would typically expect in past modules above it? How would you characterize that?

[Steven Beauchamp, executive]

Yes. So I would have thought a year plus ago that premium video would probably be a little bit slower in uptake because we're really trying to push people for a more modern way to connect and communicate with employees. Because of the pandemic and what I just went through earlier, we are seeing premium video on a very similar track to many of our other talent management products, which is really interesting.

On-demand pay continues to grow. We're happy with that. I mean an employee can log in, they can see real time exactly what they were throughout the payroll period. They can request that payment. They can do it frequently throughout the period and we're seeing that grow. It's been kind of a constant growth and probably not quite at the pace of some of our other products.

But we're still optimistic about the future and the opportunity that's there because the customers that have used it have given us really good feedback that their employees love that opportunity. And I think as you see the market for labor being tighter, that feature becomes something that we see heavy hourly workers demand from their employer.

[Operator]

Your next question comes from the line of Alex Zukin with Wolfe Research.

[Aleksandr Zukin, analyst]

Maybe just the first one. I want to kind of zero in on the guidance because clearly, this is the strongest guidance for a fiscal year you guys have ever given or -- since a long time ago. And I just want to kind of zero in on what gives you that confidence. Is it the demand environment? Is it the significant opportunity from larger cross-sell, upsell? Is it employment levels coming back? I just want to zero in because given the uncertainty that there still is a Delta, it is quite exemplary numbers.

[Steven Beauchamp, executive]

Sure. So I would tell you that any time that we give guidance, it really first starts with what do we think from a sales momentum perspective. And usually, our ability to hit or exceed that guidance is largely due to sales performance. We do have some new variables with COVID in terms of looking at the employees on the platform, which for us is generally a pretty consistent number and something that is fairly predictable.

We have seen a pretty significant return over the last few months. We're not all the way back to pre-pandemic levels. But because that gap is a little bit smaller, we feel fairly comfortable with the momentum that we have in the sales force to be able to put forth, as you mentioned, some of the strongest guidance we've had in the last several years.

[Aleksandr Zukin, analyst]

Understood. And then if I think about now in a kind of hopefully post-pandemic environment, how should we think of productivity improvements that you've seen in a remote selling environment? And from a competitive standpoint, when you think about the last year, people having hesitancy to make any big moves as they're in COVID and in the pandemic and that kind of loosens up, is there -- are there any vendors that you're seeing particularly stronger win rates against versus maybe over the past 12 months?

[Steven Beauchamp, executive]

I think we're in a bit of a unique position when you think of some of the products that we've introduced, things like Community, the premium video we talked about. A lot of the engagement-oriented products we think give us a really different value proposition really around the future of work and how we can play a role in that. And so we think that value proposition is resonating across the board.

No real call-outs in terms of doing better or worse against a particular vendor. More than anything, we're just feeling pretty good sales momentum across the board, kind of the small end of our market, midsize, the large end of our marketplace. We've got good unit traction in terms of volume that we're bringing on. And on top of that, we're getting higher average revenue per sale with some of these products. So no call-out from a competitive environment, it's probably up to us from an execution perspective.

[Operator]

Your next question comes from the line of Pat Walravens with JMP.

[Patrick Walravens, analyst]

Congratulations. It's great to see. So if you step back and look at the big picture, Steve, what would you say are the top 2 or 3 things that you want to work on for the next 12 months at Paylocity?

[Steven Beauchamp, executive]

Sure. Well, we still have a pretty large TAM and are relatively underpenetrated in terms of that TAM. And so you start to think about investments for the future, long term.

So one is it's a tight labor market. So staffing is really key, not just staffing kind of in the quarter, but for the year and beyond. And so we want to make sure that we can bring on great software engineers, great salespeople, great people in our implementation. And so there's a lot of activity going on right now from a hiring perspective in a highly competitive environment. And I've been really happy about how we've done in terms of bringing on talent. So that -- certainly, that's number one.

I think number 2 really goes to some of the product strategy that we have and extending our capabilities from a wider workforce perspective. We're really seeing great activity on our platform. And that activity, we think we can translate to additional use cases and really help our customers themselves to be great employers and really engage with employees and get the benefit of higher retention.

And so we really think that we're offering a great value proposition that goes well beyond just saving a little bit of time. And that's what I'm really excited about, the combination of bringing the talent on board and being able to extend our road map, offering our clients much more value than time savings.

[Patrick Walravens, analyst]

And I'm sure you don't want to give too much away, but do you want to give us a hint on sort of additional things you could do that you don't do today?

[Steven Beauchamp, executive]

I think we talked a little bit about it in the prepared script. One of the things that's become pretty obvious to us, the way customers are using our Community platform is they're interacting the groups that we have capability, they're interacting themselves as teams. And they're asking for additional capability in terms of what they would like to do with the team. We have all the data about the teams, the people, the positions, the supervisors. And so we're pretty interested with our same page acquisition, bringing incremental capabilities that certainly bleed into the collaboration space to be able to enable them to get their work done.

[Operator]

Your next question comes from the line of Samad Samana with Jefferies.

[Samad Samana, analyst]

It's great to see the strong outlook given all the uncertainties. So congrats on that. Maybe first, just -- I know you guys said you're still going to be hiring salespeople behind the opportunity that you're seeing. I'm curious, now that we're all kind of used to working from home, is it changing either the type of or the geography in which you're willing to hire a salesperson? Are there people that you're willing to hire that may not ever be back to physical office, so it doesn't even matter if they're targeting a region that they're never going to be in physically?

[Steven Beauchamp, executive]

Yes, it's a good question. I would say when you think of the smaller end of our market, the under 50 employee segment, we think that's a real opportunity. We have inside sales teams prior to the pandemic that were focused on that, but admittedly relatively small. As we started to expand throughout the pandemic, essentially every person you're hiring ends up being an inside sales person for some period of time.

But in that segment, we absolutely hired people with the idea that you would stay inside long term and that being able to close business virtually can be more effective and efficient. I think as you move upmarket, the broker network becomes a really important part of the equation. Being in market, having a common set of customers that you can talk to them about and potentially having back to face-to-face events, we think is still critical. So we remain focused on hiring in market outside of the very low end.

[Samad Samana, analyst]

Great. And then maybe a question on M&A. I know the company has only done a handful of tuck-ins, but they've proven to be successful. I'm curious if there's any change in maybe the M&A appetite as you look forward and think about maybe accelerating the product road map?

[Steven Beauchamp, executive]

Yes, we're certainly open to it. Obviously, we've got a strong balance sheet and we've got a big opportunity in front of us. We're just highly selective is probably the right answer. If you look at our premium video product, at the end of the day, it feels like we actually built it from the ground up.

Now we didn't build the video recording capability. We've got a great team that we were able to acquire that already did that. But we really took the time to integrate the user experience, and it's just like we would have built it ourselves. And so keeping that user experience at the forefront as we continue to integrate something like Samepage is that exact same philosophy.

From a user perspective, it's absolutely going to feel like we built it. And sometimes when we acquire something, we have to rebuild components to make sure that, that happens, and we're very comfortable with that. So we're going to continue to look for opportunity to do that where we can get really talented people, be able to integrate them into our teams and then be able to deliver a product that advances the road map.

Hard to do that a ton of times a year and actually do that effectively. So it's certainly possible that we see some acceleration there. That's not necessarily a goal. It's purely opportunistic. But I think look at our prior history as a good indication of how we think about those and the type of opportunities we would look forward to in the future.

[Operator]

Your next question comes from the line of Brad Reback with Stifel.

[Brad Reback, analyst]

Steve, overall, how did you feel about rep productivity over the course of fiscal '21?

[Steven Beauchamp, executive]

I think throughout the pandemic, I use the word fairly resilient, and I think that's very true. We were able to sell more than the prior year. We certainly had more reps. But we didn't have the same productivity that we were seeing pre-pandemic. So pre-pandemic, as a reminder, we were hitting 40% year-over-year growth in sales. And then obviously, that took a hit and started to rebound and recover throughout the pandemic.

Sitting here today, you can see our forecast for next year, which we feel really good about, and that's with 18% more headcount. So we feel really good about the trajectory of productivity right now and our opportunity to kind of get back to the momentum that we had pre-pandemic. And certainly, driving productivity is absolutely part of our equation in terms of the growth formula.

[Brad Reback, analyst]

And then maybe one quick follow-up. As we look forward post pandemic, whenever that wraps up, do you think the structural growth rate of the market is better as people have sort of seen the challenges that the pandemic has brought on and the need to address them in a different way.

[Steven Beauchamp, executive]

Yes. There are certain parts of our suite that probably structurally aren't that different. So at the end of the day, everybody had to do payroll in some way, shape or form. So I'm not sure that maybe there's a little bit of pent-up demand because people didn't move and you've got something that frees up. But I think at the end of the day, a lot of those core products you kind of needed to have before.

Some of the newer stuff we have, we definitely are seeing more demand now. And I think we're probably early in that cycle of a customer saying, wow, this has been really hard to attract the talent I need. It's a tight labor market. Gen Z is demanding things from me that I never saw in prior generations. I need to think about my HR platform as being much more modern and go well beyond just compliance and time savings. And we think that those conversations will continue to accelerate over time and will create incremental opportunity for us to be able to add products like premium video that we probably would have never imagined 4 or 5 years ago.

[Operator]

Your next question comes from the line of Daniel Jester with Citi.

[Daniel Jester, analyst]

I joined a little late, so apologies if I ask something that someone already has. But Steve, you mentioned higher revenue per customer. Is that reflective of sort of bigger initial lands, better cross-sell, sort of more modules? Can you kind of pull that apart? And as we go to the next fiscal year, do you see anything changing in that mix of sales?

[Steven Beauchamp, executive]

So we've been on a path for, let's call it, the last 4 years, to do more sales back to the client base. I would tell you that we've incrementally grown that. Now I say incrementally. We've actually grown that relatively quickly, but starting from a very small base. And so that is incrementally a higher percentage of our total sales every year.

I think Toby mentioned earlier, it's still a small percentage of our total sales. But it is improving, and we're seeing good traction within our client base with some of those new products. The biggest driver is still the units that we bring on that are new and the fact that we're able to sell them more. And so from a land-and-expand perspective, we're definitely still heavily leaning on the land side of the equation.

[Daniel Jester, analyst]

Got you. And then Ted Gate is leaving. And I mean he's obviously been a big, strong partner of yours. Can you maybe just philosophically talk about like what kind of leader you think it's going to take to sort of take the product to the next level from that perspective?

[Steven Beauchamp, executive]

Yes, Ted has been with us for 8 years and has done an absolutely phenomenal job and has decided to leave and certainly take some time off, which is well earned, I think, in terms of everything he's been able to do for us. I think from my perspective, he's created a great team. That's the most important thing. And as all of you know, who worked for me for a while, I'm very involved personally in product and very involved with his team. And so he will definitely be missed and that's big shoes that we have to fill. But we want somebody that fits in culturally that can continue to focus on our goal to deliver the most modern platform. And he's left us with a team that's really strong and may require a little bit more of my time in the meantime until we find somebody, but I think we're going to be in pretty good shape from a product perspective driving that strategy forward based off who he developed and hired.

[Operator]

[Operator Instructions] Your next question comes from the line of Siti Panigrahi with Mizuho.

[Sitikantha Panigrahi, analyst]

First one, housekeeping item. So when you say 588 sales reps, could you give me the breakdown of that emerging market sales reps?

[Steven Beauchamp, executive]

Yes. We don't provide segment-based headcount by sales reps. But you could think about the largest group of those sales reps being in kind of our core market, kind of our mid major-sized customers and some customers that are focusing on the larger end and the smaller end in both the larger and smaller end being a smaller number. We also have an inside sales group as well that fits into that smaller end bucket as well.

[Sitikantha Panigrahi, analyst]

Okay. Okay. And then when you think of your investment, it looks like EBITDA margin is kind of flat year-over-year. So where do you plan to focus on this? Is it more on the R&D side? How should we think about that investment?

[Steven Beauchamp, executive]

So the first thing I would say is this year is an interesting year because the anniversary on COVID where we didn't have any travel and conferences, there's just -- we paused hiring for a while. So certainly, there was a bunch of things that we did to try to manage expenses through COVID. So anniversarying those does create a little bit of a challenge from a comparable perspective.

But on the flip side, we've been really happy about our investments we've been making in product, some investments we've been making in sales and marketing. It's taken us a while to ramp those up through COVID, and we've got really good momentum there. And so because we've got great sales momentum, we've got great momentum in the marketplace, we felt like this wasn't the year where we're -- #1 priority was focused on adjusted EBITDA, but to make sure that we take advantage of the momentum we've got in the marketplace.

And we certainly feel like that 30% to 35% is still a target that we will achieve from a longer-term perspective. And we will typically make progress to that on an ongoing basis. It's just this year, we think this is a year for us to focus on investment.

[Operator]

We have no further question at this time. I will now turn the call over back to the management for closing remarks.

[Steven Beauchamp, executive]

Great. Well, I want to thank all of you for your interest in Paylocity and of course, thank our 4,000-plus employees for helping us and our customers through a very challenging year. Hope everyone has a great night.

[Operator]

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