Good day, ladies and gentlemen, and welcome to the Paylocity Holding Corporation First Quarter 2015 Fiscal Year Results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to Peter McGrail, Chief Financial Officer. Sir, you may begin.

Good afternoon, and welcome to Paylocity's earnings results call for the first quarter of 2015, which ended on September 30, 2014. I’m Peter McGrail, CFO, and joining me on the call today is Steve Beauchamp, Chief Executive Officer 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 on our Web site under the Investor Relations tab. Before beginning, we must caution you that today's remarks in this discussion 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 both GAAP and 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 Web site at www.paylocity.com under the Investor Relations tab and filed with the Securities and Exchange Commission. The non-revenue financial measures we will discuss today are non-GAAP unless we state the measures as GAAP. With that, let me turn the call over to Steve.

Thank you, Peter, and thanks to all of you for joining us today. Peter will review our financial results in detail, but let me share a few highlights from our first quarter. Our first quarter was again healthy across all of our key metrics as demand for our cloud-based unified payroll and human capital management solutions continues to grow. Total revenue was up 39% year-over-year while recurring revenue grew 40%. Adjusted recurring gross margin increased to 69% for the quarter, up from 65% the same period last fiscal. The majority of the adjusted gross margin expansion was driven from the purchase of one of our resellers completed last quarter. Recurring revenue represented 95% of total revenue this quarter, up from 94% a year ago. Revenue retention continues to exceed 92%, which is best-in-class for a company targeting midsized firms. We also recently hosted our annual client conference in October with nearly 600 users, up from approximately 450 users last year. Adjusted EBITDA was slightly better than breakeven for the quarter and reflected our increased spending on sales and marketing and research and development. We increased our sales and marketing spend by 58% year-over-year as we believe the midmarket is in the very early innings of a multiyear transition to SaaS-based payroll and human capital management solutions. Our sales organization had another very good quarter, as our new sales hires begin to ramp up productivity heading into our fall selling season. As mentioned on our last conference call, we are incrementally investing in marketing initiatives to further develop our referral network of 401k advisors, insurance brokers, third-party administrators and HR consultants that recommend our solution and provide our sales force with highly qualified referrals. These marketing initiatives include events, seminars and the development of broker-specific content on topics such as healthcare…

Thanks, Steve. Let me walk through the results and provide a bit of color as well as review some of the key aspects of our financial model. Revenue; total revenue was 31.1 million, which represents a 39% increase from the same period in the prior year. As you may recall, our revenues have two major components; recurring and non-recurring. Our recurring revenue has historically represented about 94% of our overall revenues and is separated into two categories; recurring fees attributable to our cloud-based payroll and HCM software solutions and interest income on funds held for clients. For the first quarter, our total recurring revenue of 29.5 million was up 40% from the year ago quarter and represented 95% of our total revenue. Recurring fees were up 41% in the quarter the same percentage as the year ago quarter. Interest revenue was up modestly 3% year-over-year as declining rates were offset by balance increases. Our nonrecurring revenues are comprised of implementation services and other and primarily consist of implementation fees charged to new clients for professional services provided to implement and configure our payroll and HCM solutions. Implementation services and other revenue was 1.6 million for the quarter, up 26% from the year ago quarter. Within our implementation services and other revenue category, payroll start-up revenue was particularly strong, and as Steve mentioned, we were very pleased with our sales results for the quarter. Our agreements with clients did not have a specified term and are generally cancelable by the client on 60 days or less notice. Even without fixed-term agreements, our annual revenue retention rate, which is always calculated on a trailing 12-month basis, has been consistently greater than 92% for several years and remains so in this quarter. As we’ve noted in the past, we believe this is best-in-class…

Thank you. (Operator Instructions). Our first question is from Justin Furby of William Blair & Company. You may begin. Justin Furby - William Blair & Company: Hi, great, great quarter. I had a couple of questions. I know the competitive landscape doesn’t really change much in this industry, but I’m just curious as you think about outside of the big service bureaus, if you look at the regional guys as a percentage of the times that you’re taking away business, how often does that – remind us how often that comes up? Is that sort of number three behind you called ADP, Paychex? And has that percentage been – Steve, sorry go ahead.

First of all, I would say the competitive environment has been pretty consistent, so I would not note any specific changes in the environment. As we look at the percentage of business, we still get the majority of our customers from ADP and Paychex. The regional and local guys wouldn’t be roughly the third source after that and that has been the case for many years and is consistent in the quarter. Justin Furby - William Blair & Company: Okay. And when I look and just speak to the pricing environment, just curious, it seems like they’re pretty challenged and what do you typically see from them, from a pricing perspective? Are they pretty aggressive?

Yes, I think we see that group of all the local and regional players across the country being typically the most aggressive from a pricing perspective. That is certainly one point of differentiation. The investment level that we’re putting into our product is what we really emphasize when we’re competing against the local and regional players who typically certainly never have the same level of scale to be able to invest into the product. So it typically is a little bit more aggressive from a pricing perspective. Justin Furby - William Blair & Company: Okay. And then maybe you covered on this and I apologize because I jumped late onto the call, but the new guys that you brought on, the new cohort of sales rep, can you talk a little bit about how you’re feeling about them kind of early days as you move into kind of your important seasonal booking period?

Yes, so just to remind everybody, we typically hire a number of new sales people in the spring and early summer and it is our goal to try to go into our fiscal year at our kickoff meetings with as close to a full staffing as possible. We were able to do that this year, which we were very pleased with. So some of these new reps are still fairly new. It does take us a good six months before we start seeing them to ramp to a normalized level of volume. And so I think we’ll be able to give you a much better sense of how they’re doing post January and once we see kind of January sales coming in, but so far so good from our perspective. Justin Furby - William Blair & Company: Great. Thanks very much, guys. I appreciate it.

Thank you. Our next question is from Peter Lowry of JMP. You may begin.

Great. Thank you. Let me echo the congratulations. So I love the focus on customer satisfaction and I wonder, Steve, as you’re sort of exceeding our expectations on growth lagging a bit on service, do you need to slow your growth to make sure that the customer experience doesn’t suffer?

So it’s a good question. Well, first I would point to the fact that we’ve had pretty consistent growth rates over time. So we’ve been doing this level of growth for many years would be the first point. We are very much focused on customer service and we take that very seriously, and it’s actually a big key point of differentiator. And if you look at the fact that we’ve kind of been able to exceed 92% revenue retention for many, many years consistently, I think we’re doing a great job from a service perspective. It’s something that is always a challenge with any growth environment, but we’ve got a great team focused on it and we get very good feedback from our customers from an overall satisfaction level.

Great. And as I look at the midpoint of the guidance range, I think it’s sort of 33% down from 39% if I’m doing my math right. Is that just conservatism or what point would you make there?

Yes, I think we’re going to a very busy time of year for us from a sales perspective, so obviously January is a big start time, so we’ve got three quarters left. We only have one quarter behind us and so from our perspective, we do have to sell and set up most of the customers in that same given quarter. So we do have very good visibility because of our high revenue retention, but keep in mind it’s a high transaction environment. We’re bringing on a lot of customers. So this is something where we look at where we are at the start of each quarter and then give guidance in terms of where we think is a reasonable spot where we’re going to end up. And if there is over-performance, it will likely come from better than expected new sales.

Great. And then last one from me. I mean generally payroll companies, even the non-SaaS ones, seem to be doing great this year. What would you attribute that to?

Yes, I think there’s some macro trends going on in the marketplace from a compliance perspective. I do think you’d probably hear all of the companies talk about how ACA or healthcare reform has created complexity for many businesses to be able to handle. With 2015 on the horizon, I think there’s a lot of businesses looking at their existing systems, evaluating if they have the right tools to be able to manage that complexity going into 2015. We certainly have found that more companies are at least interested in having those conversations because of that complexity. So I think everybody in this industry as a whole is certainly racing to be able to provide the best solution for that. We were one of the earliest companies with our healthcare module in the marketplace and so we’ve been actively talking about healthcare reform in the market for well over a year.

Great. Thanks very much.

Thank you. Our next question is from Terry Tillman of Raymond James. You may begin.

Hi, guys. I’d like to keep the echoing of the congratulations and nice job on the quarter as well. I guess the first question, Steve, relates to the sales and marketing investments. This year, it sounds like it’s more of a dual focus. Obviously it’s feet on the street but also more of this just broad marketing spend and brand recognition and brand development. But on the sales coverage side, just to give us appreciation for just how much breadth you have and how much coverage. Are there still big holes across like the U.S. in terms of where you’re still not having good sales representation or do you feel like you’ve gotten past the point of having any notable territorial holes?

That’s a good question, Terry. I think from an overall sales coverage perspective, our strategy has been to hire the best people wherever we find them. I think the advantage of the model that we put in place is there is not a market in the country that we couldn’t put sales reps, so we’ve been obviously in the Chicago land area for the longest being our roots from here, and we could absolutely add reps to this marketplace if we found the right talented rep. So, at this point in time, we have at least [ceded] (ph) every single marketplace – every major marketplace across the country and we’re now in the process, as we add reps, which would really start to happen in earnest next spring, we would then look to backfill additional reps in each of those markets. And there’s certainly a lot of capacity sitting here right now to able to add a significant number of reps over years to come.

Well, building on the question, though, in terms of the third-party influencers, the 401k, the brokers, the TPAs, et cetera, as you continue to expand the opportunity with them in these qualified leads, could we see increasingly maybe – you don’t need as many sales reps in each given year and these lead generators can actually then just create that much more productivity with the existing sales force you have, or is it not at that point yet?

It’s a great question. We do think that it is a strategic advantage having a channel providing us these qualified leads. It is still certainly early in that cycle, but I think if you look at the history, we give you the number of reps that we have each year and you can see that we are actually gaining productivity per rep. I would tell you that that referral channel is a key factor in that equation but not the only factor. So we do think investing in this channel certainly will make us more scalable from a sales and marketing go-to-market strategy long term.

Okay. And my final question just relates to in your 10-K that you had filed earlier in the year, it looked like you updated the economics in terms of – if a customer was to buy the total of your offerings or everything on the price list, I think it’s $230 per employee per year. I think that was up from prior disclosure of $200. What is entailed in that? Is that simply just the two new products that you’ve introduced or have you increased some prices on some preexisting products? And then I’ll jump back in the queue. Thank you.

Sure. We do look at the per employee per year total of all of our products if we sold the customer everything. We made that change by looking at the new product that we introduced actually most significantly being Onboarding and that really drove kind of the large majority of that per employee per year available product sales.

Thank you. (Operator Instructions). Our next question is from Jim Macdonald of First Analysis. You may begin.

Good afternoon, guys, good quarter. Could you talk a little bit about the impact of channel leads? Has it been about the same this quarter or any impact that’s different?

So we have traditionally been able to generate – well, traditionally meaning last year, we generated over 25% of our new business from these channel leads. And we got a number that we’re going to give you kind of every quarter, but we certainly will update that on an annual basis. I would tell you that we do feel like the marketing efforts that we’ve been making have really been ingraining us in those channels and we’ve really got good momentum. So certainly without giving you a specific number, I’d tell you that we’re very happy with the amount of business that we’re getting from the channels.

Right. And your growth has been pretty consistent quarter-to-quarter. Is there any reason going forward to think that it may be harder to keep growth up at high levels in one quarter seasonally versus another quarter?

Well, I would say that we were able to have a nice beat this quarter and I would say that that was driven by over-performance from a sales perspective. And our ability to be able to continue to generate this level of growth requires our sales team to really execute obviously for us to onboard the clients and make sure they’re satisfied and then retain them. And so from our perspective, we have to do that every single quarter. The third fiscal quarter of the year is the biggest quarter from a new sales perspective and so that’s something that at this time of year, we’re ramping up volume and trying to make sure that we’ve got a great January of new sales. It’s also the busiest quarter for our customers with W-2s and retention. So if there was any cyclical nature at all to our business, then I would just say that that quarter from a new sales perspective obviously from a year-end work would be the quarter to focus on.

Great. And my final question, just any update on your New Jersey distributor and your thoughts there?

So just to remind everybody, we have one reseller left and they operate in the New Jersey marketplace. And so we do have the option to acquire that reseller. It is at our option. We have not made any decisions yet in terms of the acquisition of that reseller. It’s a predefined formula and we certainly understand it. So as soon as we make final decisions on when and if we want to make that acquisition, then we would obviously make those announcements publicly.

Great. Thanks.

Thank you. Our next question is from Scott Berg of Northland Capital Markets. You may begin.

Hi, Steve and Peter. Congrats on a good quarter. A couple of questions.

Thanks, Scott.

First of all, on the new products. Onboarding is obviously a new product. You have analytics coming up. I wanted to get your opinion on how we should view attach rates for those. I know it’s early, but kind of in general, how are you thinking that those get sold with the current product suite going forward? Is this a significant opportunity in the near term or is this something that you think will take little time to ramp properly?

I think if you look at some of the new products, I’ll touch on a few of those couple that you mentioned. First, Onboarding, we are selling Onboarding as an add-on module to our new customers mostly focused on the new customers that we’re bringing on. Once again, we don’t have anybody really going back into the client base unless they’re requesting it at the moment. And we’ve had very good traction within our new client base with Onboarding, and I do think that over time we can get pretty reasonable penetration rates. There’s also something that we’ll look at bundling and packaging with various solutions over time to be able to continue to drive that higher. The other new product that you mentioned is analytics. In analytics, we don’t look at today as really a revenue opportunity. It’s really a differentiator in the marketplace. Our release in November is going to allow our customers to easily see kind of key insights into their workforce for things like employee turnover as an example, and then they’ll be able to drill down into the data and see what’s driving it. And so we think that’s going to be a big differentiator and moves it away from traditional reports to an interactive dashboard. And then the other, from a new product perspective, that I would mention is we talked about launching Web Benefits. And Web Benefits is really at an earlier stage than Onboarding. We’re going to get our first clients up and running on the platform this month. It’s not going to have a material impact this fiscal. But as we move into next fiscal and you think of the enrollment cycle next fall, we’re going to be in much better shape that that’s going to be a revenue driver for us next fiscal year. So that’s how we look at kind of the existing most recent new products.

Great. And then a follow-up question on that vein is how do you look at pricing or margin profile of those products? Should we consider them to be the same incremental benefits to your per employee per year model? And then from a margin perspective, my assumption is they probably carry higher incremental gross margins than what your model currently shows for recurring revenues or is I guess my perspective on that slightly incorrect?

I think that generally is the right perspective payroll. The nature of payroll requires a significant amount of work from an implementation perspective. There’s the balancing of the year-to-date bringing all the data over, so I think that would always be the product that – and every single customer has payroll. So there’s no question that that is going to carry a little bit more service for our customers than some of the others. So I think that’s generally a correct assumption but we do still require implementation resource for these other modules. They still require a level of servicing. It’s generally a little less than payroll and therefore a little higher margin.

Great, that’s all I have. I’ll jump in the queue.

Thank you.

Thank you. Our next question is from [Kash Rangan] (ph) of Merrill Lynch. You may begin.

Hi, guys. Thanks for taking my question and apologies if this question has already been asked. But I know that you did not really have a dedicated sales effort to up-sell some of your modules back in an installed base. Any changes on that front or more broadly, can you talk about what kind of fixes are you getting with attach rate for some of the new modules on top of the new business. Thank you.

Sure. Thanks, Kash. As I mentioned, we certainly don’t have a dedicated sales force calling back into the customers with some of the new modules or maybe even other modules we’ve had for many years at the moment. It does happen at times where a customer lets us know that they’re interested in a product and we’re able to handle that. I think at this point, as we look at this fiscal year, certainly we are focused on land. We want to add as many customers to the platform as possible. We think that’s a much bigger challenge than potentially expanding the product and solutions set that they each have. So at this point in time, we’re still focused on that. There may come a time either because we’re getting more feedback from our existing customers or because we’re adding a little less customers to our platform that will make that shift, but that’s not in the foreseeable future at the moment.

Got it. Thanks so much.

Thank you. I’m showing no further questions at this time. I’d like to turn the conference back over to Steve Beauchamp for closing remarks.

I’d like to take the opportunity to thank everyone for your interest in Paylocity, and hope everyone has a great evening.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. Have a wonderful day.