Paycor IPO launches, CEO explains what's next

Paycor HCM's CEO shares what the IPO means for its customers and plans to use the investment for R&D and sales expansion as it expands in the SMB market.

Paycor HCM Inc. launched its IPO, with its stock trading for the first time Wednesday. It initially raised $425.5 million with some 18.5 million shares. CEO Raul Villar Jr. said the firm would use the money to invest in research and development and expand its sales reach.

The Cincinnati-based firm will remain focused on the SMB market. It has 28,000 customers and $338 million in annual revenue, according to the IPO. Villar was appointed CEO in 2019.

In this Q&A, Villar explained what follows Paycor's IPO, including upcoming features to help customers better engage -- and retain -- employees.

What does the Paycor IPO mean for your customers? 

Raul Villar Jr.: We will continue to invest in our differentiated technology that enables our customers' leaders to build winning teams. We are focused on that. And then, secondly, we will continue to enhance our sales coverage across the U.S.

Will it lead to more investment in product research and development?

Villar: Yes, of course, significantly. That's the cornerstone of Paycor. We continue to enhance our platform and add new feature functionality to meet the marketplace's needs.

What's the most significant need of your customers at this moment? 

Villar: Customers are looking for tools to engage employees. Now that we have a dispersed workforce and employee churn -- turnover is at an all-time high across the U.S. -- [customers are] looking for tools that enable them to set goals, coach, engage their employees and provide recognition, feedback and training opportunities. Employees are the most important part of anyone's business. 

The quit rates are high in many industries, but especially among hourly workers in restaurants and hospitality. What are you doing specifically to help customers to reduce those quit rates -- through your workforce management, engagement, benefits and other tools? 

Villar: It's a combination of things. But first and foremost, on-demand pay is something that folks in those industries are looking for. We are incorporating that into our platform this quarter. And then, as I mentioned earlier, just the ability to engage with employees and provide recognition where appropriate are the kinds of tools that people in those industries use from Paycor. 

Employees are seeking better schedules and more flexibility. Is that something that you're working into your workforce management tool?

Villar: We have robust scheduling functionality that enables employees to swap shifts and coordinate their own calendars. It enables the leaders to see what's going on and optimize the overall workflow for the organization. It benefits both the leader, who has simplified scheduling capabilities, and the employees, who can swap shifts in real-time through their mobile device. We find that to be popular with a lot of our clients.

Paycor HCM CEO Raul Villar Jr., NASDAQ
Paycor HCM CEO Raul Villar Jr. stands in front in NASDAQ's sign.

In your IPO, you argue that the pandemic is forcing a strategic shift in HR to more automation and increased employee engagement. How is this affecting product direction, especially the automation part of it?

Villar: All of us, 16, 17 months ago, were forced to work from home and be untethered. It was a shift in buyer behavior in the HCM category, where doing HCM over the cloud became something that was demanded. People didn't want to go to the office and didn't want to connect the old-fashioned way; they wanted to leverage the cloud tools. Most of our end users were using Zoom and FaceTime to connect with their families. And so, moving to a cloud HCM solution no longer seemed like it was complicated; it was easy.

The shift to automation from your perspective is about getting people to move off their legacy systems to a cloud system. How do you define the ROI for your customers once they do that? Are they able, for instance, to reduce their HR staff?

Villar: It's a combination of things. Some are able to reduce staff, or more importantly, reallocate that staff to things that are more important for their business. Secondly, we look at ROI in terms of engagement across the organization. We are focused on building winning teams and helping leaders to be more effective. It's a combination of things. 

Your IPO had some interesting data about the size of the market. You have 28,000 customers, serving almost 2 million employees. You are primarily focused on firms of 10 employees to 1,000. You describe this SMB market as having 1.3 million businesses with between 10 to 1,000 employees, totaling more than 61 million employees. How do you plan to expand your market reach? What will you do better than your competitors?

Villar: As cloud adoption continues to accelerate, we're going to see continued acceleration. The combination of continuing to differentiate our product and expanding our sales coverage will drive significant growth for Paycor. 

You have noted increased interest by customers in people analytics. What's driving that? What are your customers most interested in finding out?

Villar: People are trying to understand whether their employees are effective or not. And that's critical. And we provide real-time insights into the associates' engagement level. As an example, a manager can do a quick poll survey and ask their employees three or four key questions on a topic -- maybe it's on return to work and in their favorability to do it or not. And they'll get through our AI engine a rapid readout and sentiment analysis instantaneously. So not only do we provide the survey tools, we provide the answers for the leader. They don't have to sift through the comments; they get the sentiment.

We're laser-focused in the SMB space. There's so much opportunity.
Raul Villar Jr.CEO, Paycor HCM

Will you try for larger customers, moving into, for instance, Workday's territory?

Villar: No, we're laser-focused in the SMB space. There's so much opportunity.

Let me ask you about your own business. Quit rates are generally high. How are you dealing with that, and how are you handling the return office? What are your plans? 

Villar: Like every company, we're managing employees as effectively as we can, trying to provide them choice in the return to work. We are a virtual-first company. Our employees can choose whether they want to work from home or work from the office. It has enabled us to attract talent from across the country. It has enabled us to put our associates in a position where they're winning; they're getting to choose the work environment that best suits them and their families. And we think that's a winning formula for us.

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