HR Tech Marketplace Health Check with TD Cowen

[00:00:08] Welcome everyone to another episode of HR and Payroll 2.0. I'm Pete Tiliakis and as always I'm joined by the legendary Julie Fernandez. Welcome Julie. Thanks Pete. And today we have a couple of guests. You know I'm itching to get to know them and to find out what's going on. So why don't you tell us who we have today? Yes, yeah. I'm super excited. These are two folks that I spent a lot of time trading, comparing notes with over the last several years and just love their perspectives and research.

[00:00:33] It is Brian Bergen and Jaren Levine, who are both financial analysts with TD Cowen and have some tremendous insights and a pulse on what's going on in the HR Tech Marketplace and the sort of adjacencies to that. So super excited to have you guys. So welcome Brian and Jared. Good to have you. Thanks for having us. Yeah, I appreciate it. Yeah. Look, we've had a thousand of these conversations and so like all of our conversations, we tried to see how we can bring those live.

[00:01:03] And share with the audience. And, you know, I know you guys have a tremendous, tremendous pulse of what's going on. And yeah, just can't wait for you to share it with our audience. So Julie, you want to do the honors? Yeah. You know, the first thing we always like to do is get to know you both a little better. So I'm going to pick on Jared first and just ask Jared, how did you end up in the space that looks at HR stuff? And yeah, so originally our background in terms of what we covered was more IT and business services.

[00:01:32] And we saw this as a natural adjacency to those areas, particularly on the business services side. And we kicked off our, you know, coverage with ADP and paychecks and then thought, you know, just we really enjoyed the space and found it interesting. Thought we, you know, broadened out even more and pushed into more of called the SAS space with the day fours, pay comms, pay lost cities and pay core here. And now we actually cover one of the public PEOs trying it as well. And that's kind of what's gotten us, you know, deep in the space for five plus years now.

[00:02:00] So, yeah. Yeah. And Brian, how about you? Did you just get tagged, tapped along and find it so exciting? You know, you didn't want to miss out or how did that work? Yeah. I mean, when you are in this seat, you're trying to help investors, mutual funds, hedge funds, pensions, corporates, identify areas of opportunity.

[00:02:20] And as Jared said, we had done other work in the technology services industry and the HCM industry and the payroll industry, certainly dynamic, certainly fragmented, some big names that Jared mentioned there and one that we saw an opportunity to dive into. So we had reused our technology backgrounds and actually both of us accounting backgrounds too, to then go and analyze the HCM space.

[00:02:44] Yeah. And are you guys both kind of fully in that space? Like that's the only, I don't know if you call it a category or not, right? But like that's, that's your world now? Yeah. So it's a couple. We got the, the, the, the consulting outsourcing tech services channel, the HCM payroll channel, and we also do FinTech and payments. And it's always growing too. We've got other stuff that we'll be working on going out here over the next year or two.

[00:03:09] Yeah. Yeah. Totally interrelated, right? Pete. I mean, oftentimes we're, we're seeing a lot of play between those spaces for sure. Exactly. That's exactly one of the things I want to talk about today. But one of the other things I wanted to do, maybe we should level set. Just talk a little bit about TD Cowan. I know Cowan from, from the research working with you gentlemen, TD Bank, obviously many people may, may know, may use.

[00:03:30] But tell us a little bit about the research and the work that you guys do and how it kind of differs from what industry analysts like myself do on the, more on the HR side, I guess you could say in my case. Yeah, sure. Maybe I'll give a background on the company and then Jared, you want to dig in on the, on the research side. Yeah. Yeah. For the company standpoint, we, you know, we've both been with Cowan for, for many years now and that was a public company by itself, but it was acquired nearly two years ago or actually almost the anniversary two years ago by TD.

[00:03:59] And, you know, we've rebranded a little bit, uh, TD Cowan, which is a division of TD securities, which is part of the broader TD bank group. And it really gives us just more of a, more of a balance sheet behind our name. And in our business, we do two main things, three main things, right? We research stocks. Um, we, um, try and help companies with their, uh, capital and, you know, between IPOs and various MNA activity. And we also do trading, right? For our clients.

[00:04:27] So those three areas are all interrelated and we do that across sectors and to do that. Well, we got to go deep in research. So Jared, you want to talk about the research angle? Yeah. So we focus specifically on individually publicly traded companies. So like ADP paychecks day for some of the large names you've probably heard of. Um, and then we do focus on broader industry trends that could touch on current public companies as well as potential future public companies that are, you know, currently private.

[00:04:53] Um, obviously this is a very vibrant, you know, private ecosystem within the HCM. So yeah, we try to go deep on just not just servicing the, you know, the current trends, but also predicting the future trends that some of these really, um, you know, uh, rapidly, uh, growing, uh, privates are trying to approach. Yeah. Yeah. You guys do a tremendous job. I have to be honest, man. I love, I love comparing notes with you and kind of talking shop if you will. But, uh, maybe before we leave there, I want to just kind of talk like what, who's right for your research? Because I think maybe, maybe, maybe some folks aren't familiar.

[00:05:23] How do they, how do they engage with it? And like, who is the kind of your key customer and can benefit from this? Yeah. So it's institutional investors that are clients of, uh, TD security. So that would be mutual funds, hedge funds, pensions, but also it is the corporates as well too, in terms of, you know, many of the public as well as private companies are also subscribed to our, um, research through, uh, relationships.

[00:05:44] But, um, yeah, that's, and then we often, you know, outreach to private companies and try and engage with them in terms of, you know, understanding what's going on the market in terms of similar to what you do. Um, but yeah, just from more of a pulse on our end as well. Yeah. No, I love that. It's always multiple audiences, which is, uh, sometimes you have to be balanced, right? With the message, you gotta be mindful of that.

[00:06:04] And, uh, we, we always try to be, um, but, but to Jared's point, it's, it's, it's, I guess, number one, those institutional investors, but at the same time too, the corporates and particularly the private ones that have to pay attention to the public world and see about, you know, how things are positioned, how strategies evolve, things like that. Yeah. Yeah, absolutely. No, I was just going to say that that's really helpful because I think more folks are familiar with just the analysts, like in the HR space, the HR analysts who are putting out the grids and the peaks and the maps, right? Yeah. Yeah. Providers.

[00:06:34] And, uh, this is just a different lens and some of the research is, is incredibly valuable to all sorts of consumers, no matter, you know, whether they would directly consume your research or are just involved. Yeah. And we, we benefit from the great work that individuals like yourselves do too. We're looking at those quadrants ourselves. Yeah. Yeah. Yeah, absolutely. Yeah. Well, you guys do a great job. I think breaking down, I always read 10 Ks of the major vendors that I work with and across the market anyway.

[00:07:01] Uh, but you guys do a great job of synthesizing that and really giving your perspective. So, uh, shout out to your research. If anyone out there is interested, I'll try to pop a link in down here. I'll get that from you guys, Brian, and we'll make sure you guys are able to share that. But, um, look, I want to jump right in. I got a lot of questions and I'm excited to, uh, to kind of get your perspective. So if you don't mind me putting you on the hot seat, uh, we'll get started if that's all right.

[00:07:23] Um, so the first thing is, could, I'd love to be guys to talk a little bit about the health and the state of the HR tech marketplace, kind of what you're seeing from your vantage point in your lens. And more importantly, what, what are you excited about and what do you see investors get excited about when it comes to, to the HR tech space? Yeah. I frame it as it's been pretty consistent and stable the last call it year to 18 months after, you know, a really hot elevate demand environment, call it from 22 to the most, the latter parts of 23 here.

[00:07:51] It feels like we've been pretty, there was a bit of a slowdown in the later of later half of 23 through 24, but it feels like it's been pretty consistent here. At least the past, you know, six to 12 months here, which has been good in terms of investor sentiment as, you know, uh, I'd say there was some increasing caution regarding, you know, what's going to happen with the employment environment as well as demand environment. But it feels like it's been pretty consistent and stable here, um, in terms of what we've seen. And Brian, what would you say in terms of like, what's most exciting here?

[00:08:20] Yeah, I think, you know, there, there's certainly questions right now with all the volatility in, uh, being caused by the U S, uh, you know, administration and all that change. So there are questions of, okay, what, what direction do we go in next? Can we sustain that stability or is there going to be some type of a, you know, a deterioration on the employment front? Um, other things, uh, that are interesting or, or what's the, you know, how is the M&A environment unfolding? There's been some transactions announced.

[00:08:45] Um, this has always been an industry where we feel like there is logical consolidation just given how fragmented it is. And that's also, uh, you know, a big point of, uh, focus for, uh, for Wall Street. Yeah. Yeah, absolutely. Yeah. The economic climate is something I do want to touch on. Like what, you know, what do we think in terms of where we're headed, but I'll kind of get to that a little bit later. Um, but we, you know, Brian, one of the things you mentioned that I've been really focused on is that convergence between HR tech,

[00:09:13] fintech, and even some adjacencies out there. Like what, what do you see in that way? Like what, what do you think about what's going on there? Yeah, I think that's certainly, um, a long-term trend that has, that will continue. And, and we've seen transactions, uh, occur here recently where you're looking at vendors that are bringing in more solutions into their arsenal, right? They, they need to, they need to attack more opportunities in their client base.

[00:09:39] So you'll see them make acquisitions and things that may be adjacent to where their traditional base of businesses. Yeah. Jared, you want to talk maybe about the office of the CFO? Yeah, we've seen that increasingly in the office of CFO space. So as you guys have probably mentioned before, Paylocity, it's acquisition of Airbase in terms of that spend and expense management side. Yep. There's a recent push there and you've also seen companies such as Paylocity and also Dayforce in terms of more of the headcount planning, which also does touch a little bit on that office of CFO world. So yeah, we're definitely seeing that convergence. Yeah.

[00:10:09] It really ticked off a few years ago, I think with the whole earned wage access in terms of more of like that payments fintech angle. So there are a lot of areas that this, uh, sector can go. So it is interesting to see how it's been trending. Yeah. Um, we're increasingly more in different adjacencies in recent years. Payment services seems big there too, right? I mean, and I don't know if folks are actually acquiring each other as much as just doing the buddy hype, you know, like they're bring a friend along and have your solution. But that feels like a biggie. Yeah, absolutely.

[00:10:38] Partnerships are important too. And some are interesting. So, I mean, if you think about the HCM and the payment side, more recently you had, um, Fiserv and ADP announce a tie up, right? With their, uh, partnership through Fiserv's Clover terminal, ADP run, right? Will be integrated in the backend to help with merchants, right? So you got to think about from the buyer side always is, okay, many of these merchants have many vendors, right? And it comes down to some level of a consolidation to make it easier to run their business. Yeah. I thought the ADP Fiserv thing was very quiet.

[00:11:08] It just sort of snuck around, snuck around the corner and came in. So that's, that is, you're right. That is the kind of embedded sort of thing. I think we're seeing with some of these solutions getting together and bringing more, more value to their, to their, to a different customer base that may not have that. So. What I think is most interesting. I mean, you guys know I'm downstream of a lot of the, you know, B2B type stuff that happens in, in the world. And when it comes down to buyers, HR buyers and consumers and clients, a lot of that is just sophistication plus.

[00:11:38] I mean, like they, it's, it's hard, you know, for them to really understand, is this differentiating or is this not differentiating? And so, you know, I find that some of the things we say like, wow, can you believe this happened? And are like, the buyer's like, so? Yeah. Like, why, why do I care about this? Yeah. Until they do. Until they need it, right? Until they live it. You know, you, you mentioned Jared, the whole point about finance getting closer to HR, right?

[00:12:03] You know, high Bob, we talked about high Bob on here, not publicly traded, but they picked up mosaic, which was an FP and a solution that is now giving a very nice synergy to the HR data that's available in their, in their platform. But one of the things we were talking about, and we've kind of been dabbling in here, Julie and I, or I've been thinking about it is how much, how much ERP do you think that the SMB wants smaller markets, smaller firms want with their HCM?

[00:12:28] I'm not sure if we know yet and how, how wide some of these HR platforms, like a Rippling, like a high Bob or whatever are going to get in terms of just the, the, the, the things that they can do beyond just the HCM elements. Yeah. That's a key debate here in terms of how this market evolves. It does seem like it's more geared towards some of these more finance type functions are more geared towards, you know, more mid market organizations.

[00:12:51] We're really small business, you know, sub 50 probably only is going to be using a QuickBooks or zero in terms of their G and L and might not need like an FP and a type solution in terms of their daily needs. So I think that's still to be determined. And, but yeah, it is kind of a consolidation play that we've been hearing from vendors in terms of, you know, what's been driving increases and attach rates and their desire to look for adjacencies.

[00:13:12] Is that consolidated platform to drive potentially a better user experience to consolidate the number of vendors a client has to deal with in terms of how this market seems to be evolving and that potential cost savings as well too for that end customer. Yeah. Yeah, exactly. How about, how about just any other trends that you guys are seeing? Maybe we haven't really talked about here. Any, anything popping up that kind of, you didn't, you didn't see coming that, that you're noticing? Nothing too surprising here.

[00:13:38] It does feel like global, you know, we still continue to see in terms of the global payroll front, a lot of investment there, interest there in terms of some of the consolidation of vendors or modernization of solutions. But yeah, nothing too surprising here. I'd say maybe a little bit on the office of CFO the last past year was probably the key surprise. Yeah. Yeah. A little, a little thing called AI, I would say is the other thing, right?

[00:14:01] So not that we don't see it coming, but you know, it's, it's, the question is what is the offerings that are being proposed by the vendors and how does it then impact their business models and their financials? Yeah. Yeah. The plays, right. How they're playing this, I think is really interesting. And I, I actually think the ones that are going a little bit slower and being more cautious and purposeful will probably be the ones who'll be more successful with it.

[00:14:24] I think the ones that have rushed off from a marketing standpoint, trying to maybe garner some, some attention out of it, I think is it might, it might be a little bit short-sighted versus the long game. But what do you think about that? You agree? Yeah, I would, I would agree that some of the ones that may be a little bit more disciplined will have that ability to leapfrog. They can't be silent, right?

[00:14:46] They have to have some, they have to participate some way, but they also want to be rash and rush out there with the wrong model, the wrong solution. We've seen in the past automation solutions have some problems for some companies. So this is, it'll be interesting to see how ultimately the revenue models unfold. Now, some of it is pure productivity, right? Some of these vendors across the spaces that we cover. Oh yeah. It's about adopting these tools to become more productive and help, you know, help clients become more productive.

[00:15:14] But there's a, there's a big debate in, in the market about winners and losers from generative AI. And also too, even, even companies in the software, the broader software space, the question of, okay, where's the money, right? We're hearing a lot of marketing and a lot of conversation with dollars that should follow that. Yeah. I think right now it's really, it's really materializing more in margin than maybe charging, right?

[00:15:40] Most of the platforms, and I've studied this a little bit in the HCM world are kind of providing it as, as a part of the module, right? There's not a lot of add-on yet. But it is, I imagine it's probably coming in some forms and it depends on the solution we're talking about, but it is, it is going to be interesting to see how that plays out. Because I think there's this idea that, oh, well, now there's going to be AI, things are going to be cheaper. I've actually heard some people presenting that way and I'm not, I'm not exactly seeing that yet.

[00:16:07] And I don't know that that makes sense in terms of just the fact that you're stepping into an innovation cycle, like any SaaS buy, or even an outsource buy, managed service buy, where you are not necessarily going to save money. You're, you're, you're, you're capturing something that you, a vehicle that you can't necessarily develop on your own. And there is a premium for that. We would agree with that. It feels like it could be supportive of price increases, even if vendors don't potentially charge a separate SKU for that.

[00:16:32] We've fielded more, I guess, investor questions regarding longer term impacts to overall employment, since these tend to be, you know, price per employee that, you know, does this drive so much, you know, not just specifically HR tech vendors, Gen AI solutions, but just broader Gen AI solutions. Does that reduce the employment levels at companies broadly? And then does that impact HCM vendors revenue stream since it is a C-based model there? But I think it's still a little bit early and then some of these vendors might shift to more of a subscription-based model to offset that.

[00:17:02] I think, I think developing that and first making your, your own shop internally productive and efficient, you know, you learn things along the way. And there's such a, such a feeling that clients are demanding this upfront for their own use. And if the back office hasn't figured out how to internalize use itself, you know, there's some inherent risk to that. And so you're asking for it, asking for it.

[00:17:26] I had a, I had a leader as I was preparing for a conference topic, tell me, oh, well, you talked about AI last year. So what's next? And I'm like, are you kidding me? Like, we're just starting with AI. And it, and just because people have talked about it, it's doesn't mean it's not a trend. It's like, it doesn't even exist in most organizations yet. So it's like, yeah, great. You landed on the moon. When's Mars coming? When are we getting to Mars? You know, like, whoa.

[00:17:52] I can't take this off of the trends list just because it was on there, you know, last year. That's ridiculous. Yeah. Yeah. No, it's true. It's interesting you said that too, because other technology cycles have also had time to incubate outside of the mainstream and the public eye. Right. So that's something that we've had discussions with in other parts of our coverage about, you know, this hit everybody's feeds, everybody's talking points on day one.

[00:18:16] Whereas things like cloud and other automation technologies had five years, right, behind the scenes working with technologists, not necessarily the mainstream and certainly not the senior management and the boards of major companies. Yeah. You know, last year we saw, I think we ended the year. Shout out to George LaRocque over at OneWork Tech. I think they do a great job, you know, following the investments that are coming in here into the market. It was pretty healthy last year.

[00:18:41] And I love the fact that payroll and compliance was quite up there in the top echelon, if not the top. But what are you seeing as far as that goes in terms of investments coming into the market? Because I think things, I thought maybe, I know things slowed a little bit from kind of that post-pandemic pop we had. What do you see in that way? You think it's still pretty healthy? It feels like based on the fundings that we track, it does still seem to be pretty consistent.

[00:19:05] You're not seeing as many, I'd say, frequent outsized, you know, unicorns being minted here as we did in, you know, 21 or 22. But it does feel pretty consistent and stable here. But yeah, still a lot of innovation being funded, particularly around the whole AI theme, regardless of area. And broader, I'd say HCM suite vendors do tend to benefit just that view of the consolidation play in terms of what we've seen. Yeah. Yeah. Yeah. How about, sorry, Julie, do you have anything? No.

[00:19:31] Well, I was just wondering about buying, you know, innovation, AI or integration, innovation, those types of innovations being incubated in small startups and then, you know, quickly bought and incorporated as a means to kind of catch up and stay on top of that. If that's, if that hits the radar as well, or that's kind of. Those tend to be the targets of their acquisitions in terms of like tuck in capability driven acquisitions. We've seen that a lot, particularly in the talent acquisition and talent management space.

[00:19:59] It's not been a, you know, historical strong point for our, you know, more payroll centric vendors. So definitely see that in terms of the targets they're acquiring. Yeah. Yeah. The demand for that is definitely rising, especially down market, right? They've all really need, especially the ones that are emerging out of the down market into the middle market. They need to mature their strategic side of HR. I think there's a lot of investments probably needed to help not just the vendor, but also the actual buyer, right? You know, to get them progress. So yeah, that's interesting.

[00:20:28] So kind of coming back to this economic challenge, right? I think coming into 2025, there was a sort of a tone of, hey, we're going to see some new IPOs. There were some that kind of got put off until after the election, which makes total sense. Now, I don't know, right? We've seen the stock market kind of rattled a little bit with some of the tariff stuff. But what do you think about the IPO front? Like any pulse on what that might look like this year, what we could expect? Yeah.

[00:20:55] Honestly, there were a couple of technology deals late last year that came through. Felt like there was going to be a window open here in the early part of this year. But just given all the volatility from policy and the uncertainty caused by that and just the day-to-day gyrations in the stock market, it makes, you know, potential issuers a little bit nervous, right? Yeah. So it does feel like it has extended the potential conversion of that pipeline.

[00:21:25] There's certainly good quality companies in the private markets that we would anticipate to, you know, incoming public over the next two years. But, you know, whereas I think there was a lot of optimism last year that 25 was going to be a better year. Right now it's a little bit more cautious just given everything that's going on. What if I told you that your boss skydives, Tim in marketing is a magician, and Sam in accounting does sums in his head while standing on his hands.

[00:21:55] Seeing sides of the people you work with but never see, sides that inform and inspire their work and that can inspire yours, is what The Talent Show is all about. Email me, Tom Alexander, host of The Talent Show at talentshow at backboneinc.com and show us what you got. I look forward to seeing you on The Talent Show. I mean, you've got some firms that are still steaming ahead, right? I mean, deals made it pretty clear they're going to try to IPO in the next year or two. You've got, I think, what Klarna is pretty much steaming toward. Not now.

[00:22:25] They're more fintech related than HR. Obviously, fintech. And then there's some others that are out there I know of that are fundamentally headed that way. So it's going to be interesting to see how that plays out and if those firms go forward with that now or if it will be a 2026 sort of thing. Yeah, it's definitely, regardless of the underlying subsector, it would be nice to just see one of these bigger ones come out, right?

[00:22:51] And some of them are probably a little nervous about being first in an environment like this. Yeah, yeah. Regardless whether it's the fintech side, the HCM payroll side, or another software sector, anything into the market would be supportive to then get some of that pipeline potentially following after. I mean, that's kind of a little bit to have as we go through this year into next. Yeah, and Brian's point, that's a frequent thing we hear from some of the privates we speak to that like, yeah, we just don't want to be the first one out the gate here.

[00:23:19] But based on kind of the companies we talked to, it does seem to favor more of the HCM suite type vendors here. And there are a few that are more, we call it specific or more point solution focused, but primarily it does seem like investors are favoring the HCM suite vendor model here versus a few years ago where there was the potential for more of a call, like a module type company to be a standalone public entity. Yeah. That's a question too. Yeah, Jared, you make a good point there too, because like that's kind of, you know, is it feature?

[00:23:47] Is it a company, right? So you, Pete, to your question before about the funding world, it's interesting. It went from a money is free environment to money is obviously not free with where rates came up to. You did see, you know, you see good quality businesses now being funded. You see companies getting funded versus potentially teachers that were interesting back then in that environment, but now potentially get rolled up. Yeah. Yeah. Interesting. One thing that I'd like to ask you guys about is when do you see,

[00:24:16] do you see a point at which a provider has bought so many things, you know, like when is, when is it too much? And, you know, you're just seeing them pick up things here, there and everywhere. And it's like, how could they possibly be operationalizing this fast enough on the back end? Or, you know, where does that come in? You would see that in terms of their margins, when their margins just continue to trend lower, you know, there's just too much drag from that.

[00:24:44] And they're just spending too much on resources to try and integrate that. And then even on the growth side too, if it doesn't lead to, you know, acceleration, their organic growth profile, you know, it's probably not working out well. So those are the kind of the key things we focus on, not just the total company growth, but how much of that growth is really truly organic. And some of these acquisitions are supposed to accelerate that organic growth. Some firms have just gotten really good at it. You know, they've figured out a way to make it work for them. And there is different types of acquisitions.

[00:25:10] And I think some of them, it all kind of depends on their acquisition culture in a way. Yeah, Peter, that's exactly right. And I think, too, you think about the messaging when these deals are getting done, these synergies on both sides of the equation from growth and earnings. And when that synergy commentary starts dying down, you can typically tell, all right, there may be a problem here. This isn't working. And it is. You're right. It's hard to do everything well. Yeah, it is. So you typically go through these cycles where you have acquisitions and, you know, aggregation.

[00:25:38] And then on the other side of it, you know, breaking apart. And we've seen some of that, certainly in the payments world, occur as companies realized, okay, these didn't necessarily fit well. We didn't have the integration approach we should have. And now at this point, they'd be better suited as separate entities. Yeah, makes sense. Makes sense. I think it's been interesting, too, to see, you know, maybe it's because they were one after the other, a couple of different approaches to when do you start to look at cutting,

[00:26:06] you know, cutting overlap, right? It seemed for a while, like when you had a merger and acquisitions, something come together, it was pretty instant. Like that's one opportunity to cut what you expect to be overlap or fat. And then we've seen others that have happened, you know, historically that are big ones in the HR space, like a UKG, you know, with Kronos and Ultimate, where that's on a two-year lag, right? When they start to make some of those decisions.

[00:26:33] And it just feels like the lag was never, never happened much before. Folks just kind of went into it all ready to, you know, sort it out. Yeah. Yeah. Yeah. It also depends on if, I guess, UKG also had the benefit of being in the private markets where there wasn't as much screw in the in terms of the quarters. But yeah, it's definitely dependent on the investor base there. But I guess the investors in UKG were willing to make that a little bit more extended of a period.

[00:27:01] And more broadly, this, these type of times now where things do get tight and cost becomes a priority. This is when you make some of those rationalizations. So that's certainly happening across public and private companies now because they, you know, the CFO was looking at everything, right? Every dollar coming out the door is being scrutinized. Yeah. And you have to justify businesses and things you may have acquired in the past. Yeah. I think that was a very unique merger. I worked with both firms, Ultimate and Kronos. And I think that was a very synergistic play there. Obviously, the same ownership.

[00:27:30] And they're one that I feel like, you know, and this is my opinion personally, you can kind of see that I believe longer term, they're probably ready themselves for an IPO. If you if you kind of look at the new leadership that's come in and some of the some of the ways they're shaping themselves, I could you could probably see that possibly coming maybe someday again. Well, who knows? Right. I actually feel like that lag is more helpful, you know, to buyers and end users. Yeah. Because, you know, it messages that there's, you know, sure, there's synergies, but let's

[00:27:59] just put it together first. Yeah. So I know it's not the usual way. Also at that scale, too, it feels like now we've heard recently with the paychecks in a Paycor potential M&A there as well, too, that Paycor would continue to operate a standalone solution. So there might be an element of just the size of the organizations being a key determinant, because obviously it's a much easier to cut when it's, you know, a 10 person shop versus, you know, thousands of employees and much, you know, multiple product sets. Yeah. Yeah. I don't think that deal is actually closed. Right. Is that not yet?

[00:28:29] Not quite yet. But yeah, obviously, it'll probably get there. I'm sure. I don't hope it will. We talked about it. We covered it. It was I think that I mean, it made sense. You know, it totally does. But so maybe to ask your opinion here and not asking you to necessarily, you know, endorse anyone or anything, but but what do you think there's any brands or just any types of solutions that are really nailing it right now? Categories of solutions even that you feel like are just I mean, obviously, we've talked about deal a lot on here with all the news that they've been, you know, making in terms of just product

[00:28:58] and the acquisitions. But any brands or any just solution areas where you see it's just really nailing it in terms of growth? Yeah, I'd say overall HCM suite vendors to just in terms of that consolidation play. And that's across the spectrum from the SMB focus when the very low end with like a gusto all the way up there to like a UKG in terms of more of that enterprise market. It feels like the vendors have a healthy market there in terms of, you know, benefiting the

[00:29:26] financial wellness of employees in that market. And it's interesting to see more of the EOR vendors increasingly shift to more of a single solution. So whether that's, you know, contractor payments, the EOR model or global payroll, it seems like that's been an interesting trend. And it seems like that was the right play for the ones who took that approach. Yeah. Yeah. Speaking along that lines, EOR, you think we'll see more consolidation? I think we will. I think we have to. I think there's a number of those firms that are-

[00:29:56] It feels like there's always a new one announced every week. But yeah, it feels like at this point, yeah. Everybody's doing it. Yeah. I just feel like it has to happen, right? There's got to, I think a lot of them are at an inflection point with their offerings, with their growth. And it's, there's a lot out there, but there's also, it's hard, right? There's a lot of churn. So it's going to be interesting to see if those, more of those guys get together. Obviously, we've talked about the deal Safeguard, which was more on the payroll side.

[00:30:21] And Safeguard will now go off on its own as a standalone EOR, you know, geo provider, as they call it, which is great for the, you know, great for the brand. But I think they might see some more consolidation personally from just what I can tell. I got an area that I think is crazy, right? Because I believe there's just hundreds of vendors out there. And that's in the, the total rewards and recognition space. I mean, 204, like 240, when you have hundreds of providers that are trying to differentiate

[00:30:48] in rewards and recognition, like that just feels to me like it's obvious. Something's got to happen. Yeah. Yeah. It feels like all these categories. I think we've heard stats even in terms of payroll in the U.S. I think we've heard stats up to like maybe you're in estimates up to like 10,000 payroll vendors alone in the U.S. And then, you know, with embedded payroll solutions, it feels like maybe that number could even grow. So, yeah, it does feel like it's tough to just do standalone payroll and really anything kind of standalone.

[00:31:16] And that's why more vendors just are naturally look to adjacencies to expand their market opportunity to scale or they just, you know, naturally be acquired. Yeah. Yeah. I mean, I'm still talking to vendors in the HCM and payroll space that are outside the U.S. that are now coming this way and targeting harder. I think you see Personio's put a flag here. They're going to be targeting. Obviously, high bobs leaning into the U.S. Darwin box. So, a lot of these little, I wouldn't say little anymore, these darling sort of startup

[00:31:44] HCMs are really expanding their footprint and starting to push into the American, the North American market. And I think they're going to be disruptive to the same old, the pays, right, that have been around the block for a long time and have great, great, you know, growth. But there's going to be some disruption, I believe. And it's kind of crazy to think that we need another solution coming to America. But there's so much still opportunity here that you can still absolutely grow.

[00:32:11] But anything you see that way, do you see the same thing? You see a lot of companies coming this way? It feels like, yeah, everyone's pushing, yeah, to go increasingly more global too. Mostly on the pay, it feels like it's most complex to do on the payroll side. But that's obviously an area of investment we've seen, you know, even Paycom in recent years rolled out at global payroll. Dayforce has been in that market for multiple years and emphasizing that market. But yeah, it feels like increasingly everyone's going to push more and more to go outside their domestic borders just to, you know, broaden out that growth opportunity. Yeah.

[00:32:40] Interestingly, right, the S&Bs, you know, like we just said, a lot of options, still a lot of room for market TAM to be captured. Mid-market is just wide open. And then enterprise is going the other way, right? You know, Workday and others are really going hard on international now that they've kind of saturated the upmarket here in the US. So it's kind of interesting. They're going in different directions in many ways. Yeah. All right. Well, look, I, this is, man, I could just go on and on and on.

[00:33:10] I love talking to you guys, but let's round this out with maybe some predictions or just maybe some thoughts on what you see, kind of where, what we'll see the rest of the year and maybe even into 2026, just, just would love your thoughts on that. And not asking you to necessarily lay any bold stakes in the ground, but just kind of broadly what you, what you might see out, what we could expect to see. Yeah. I'll take it off here. So I'd say one, we probably in the next, let's say 12 to 18 months, at least one more public HCM vendor probably coming to market here would be prediction.

[00:33:38] One, two, ongoing consolidation. I think that trends here to stay. And then three, just ongoing messaging and investment in the whole Gen AI, Agentic AI theme here. Just don't think that's going to disappear anytime soon. Still probably vendors are figuring out the pricing model, but it's still going to continue to be a point of emphasis in terms of differentiation on the product side. Yeah. Agreed. Agentic, I think is a great opportunity. I'm excited for Agentic for the HR world.

[00:34:06] Just when you think about all of those checklists and just process handoffs and things that go on in HR and payroll, I can't wait for that to really ripen itself. So yeah, Brian, what do you got? What do you think? I'll just add to some of those. So just on Agentic push, I think the fear of job displacement will be cooled down as individuals recognize this as a productivity tool. It's not replacing wholesale roles. But I think in the time period we're talking here this year, next year, even the three-year

[00:34:34] type of period, it's going to be difficult to actually take out full jobs because of that. But people can become more productive and do more interesting work as a result of that. On the consolidation, I would also say I think we'll continue to see interesting partnerships across ecosystems. So we mentioned one earlier in between Pfizer and AP. Things like that, I think we'll continue to get pushed forward, particularly those that sell into the SMB because there's still a lot more value that can be had there. There's too many individual solutions in that market.

[00:35:01] But I'd say those two are interesting as we think forward here the next year. Yeah, and I want to jump off of Brian's just a little bit when you're talking about Agentic and the productivity opportunities that are there. I think it's so common for buyers to think about what can I buy or how does my product incorporate this technology advantage for me? And they don't spend enough time thinking about how does this change my employee skills,

[00:35:28] you know, my distribution of work, the way that I organize work around different or better or smarter or agentified, you know, types of technology. And that's always an afterthought. And it directly affects the success, you know, the utilization, the, you know, everything about how it's adopted and how much value you get out of it. And there's very little forethought, it seems, from buyers. So, you know, they're quick to buy a tool.

[00:35:58] They're not quick to buy, you know, some support in figuring out how to readjust their operating model or to deliver differently or staff and think about things differently. Yeah. Yeah, totally. The change factor is huge around all of this between the companies, the existing tech you have, how, whether it can support solutions that will be coming to the market, whether you have data that's actually organized and structured the right way. And even the processes, right? The way things are done, they can always be done better, particularly now if you have these new applications that are coming in.

[00:36:27] So there's wholesale change that needs to happen. That's why the adoption of these tools will take time in the enterprise. Yeah, agreed. Yeah. Interesting. Well, guys, this is so good. I love it. I appreciate it. I hope you guys, I want to actually make this an annual thing. Maybe you come back every year. We come back in Q1 after Q1 or something and kick this off. So you're always welcome to come back. Where can everyone connect with you? And I'll definitely share the links and connect through your research as well. Yeah, they can reach out to us over email.

[00:36:55] My email is jared.levine at tdsecurities.com. Brian.bergen. And just hit us on LinkedIn as well. Yeah, I'll share those. And how about the research itself? Is there a, can you guys give me the link to that? I can share that for you and we'll, we'll make sure. Yeah. Depending on the piece, we can, we can always have conversations and, and, you know, if there's interest in, in jumping on our list, that's something that you can reach out to, to us through the email. Okay. Perfect, man. Awesome. Awesome. And Hey, where would we see you on the road? Where will I see you at more importantly? Definitely HR tech.

[00:37:25] HR tech. Okay. That's your next one. Potentially. We'll see. Oh, come on. We'll see before then, but that, that's our primary one that we go to and we'll be at some company specific events after that as well. Yeah. Yeah. But we'll see. And Brian, we gotta, you gotta come back on the source. If you're at money, 2020, I'm sure we'll be recording there. I'd love to have you guys. And maybe, who knows, maybe you guys will be at payroll org, any of those, whatever. Just would love to connect with you and always, always happy to shine a light on what you're doing. Yeah. We'll be at those. We'll certainly be at money, 2020 again, ETA in a couple of weeks.

[00:37:54] And always interested if there's new and interesting events across these sectors, we always want to hear about them. Yeah, absolutely. Well, thank you so much again for coming on and it's always great to see you. So yeah, we will catch you guys next time.