Fresh from an upbeat set of results for the year ended 31 March 2021, we caught up with PayGroup Limited (ASX:PYG) managing director and CEO, Mark Samlal. The highlight of the payroll and human capital software specialist’s FY21 result was a breakthrough to positive full-year EBITDA (earnings before interest, tax, depreciation and amortisation) of $1.6 million, improving $2.2 million on the figure for FY20, driven by revenue growth, increased cost efficiencies, and enhanced operating leverage.

PayGroup operates a Software as a Service (SaaS) payroll and HCM (human capital management) platform aimed at Asia-Pacific businesses. The company handles payroll and human resource services for more than 2,100 customers (1,100 companies and organisations) in 41 countries, across the Asia-Pacific region. In FY21, PayGroup handled more than 5.4 million payslips, the bulk of its more than 6 million transactions.

It’s business process outsourcing, but in particular, it’s solving a pain-point for multinational corporations. As these grow across multiple jurisdictions, payroll becomes a complex and costly jumble of different tax laws, reporting obligations, languages, currencies, time zones, and even banking hours, making it hard to streamline processes and manage them accurately. PayGroup’s solutions do this for them.

Samlal says the business benefited both from strong organic growth over the year and the three acquisitions it made. PYG generated a record annualised recurring revenue (ARR) amount, of $27.2 million, an increase of 53% on the FY20 figure; excluding the contribution from the three acquired businesses, standalone ARR was at least $21.5 million, a 21% lift on the $17.8 million ARR figure reported for FY20. New contracts signed during the year amounted to a record $13.7 million, up 149%. PayGroup also passed a significant rite of passage for smaller companies in FY21, recording positive cashflow from operating activities for four consecutive quarters, and hence receiving ASX exemption from quarterly 4C reporting.

The buoyant FY21 performance – particularly in light of the COVID-19 pandemic – made it a pivotal year for PayGroup, as it continued to build significant scale across its core payroll business, as well as make strategic acquisition opportunities. Acquisitions are very important to the company, Samlal says, and PayGroup is extremely diligent in doing its homework on the kinds of companies it wants to acquire: it looks for founder-led, sales-focused businesses with high-quality client bases that it can add into its business. A perfect example is the March 2021 acquisition of IWS, a leading cloud-based workforce management platform specialising in solutions for the franchise sector in Australia and New Zealand – at a stroke this takes the company into the fast-growing franchise market.

The other major part of the growth strategy is the global partner program (GPP), which covers seven large multinational payroll businesses as partners, and sees PayGroup handle payroll work for partner clients across Asia-Pacific and the Middle East. This sales channel now represents 13% of ARR, up from 10% a year ago, and Samlal says it has more than quadrupled the number of leads and potential deals coming into PayGroup in just the last year alone. PYG expects the GPP to continue to deliver a strong pipeline of international opportunities, to drive strong revenue growth in FY22, and be a material revenue contributor over the coming years.

Samlal describes PayGroup’s proposition as firstly, to enter a client relationship by solving its complex needs for payroll, compliance and governance, and then up-sell the client into other strategic areas that it offers, such as its HCM suite, its talent management, onboarding, rostering, timesheets, leave management, expense management, and its treasury services, which handle the movement of payroll funds around the region. In Australia, it could also be the company’s superannuation freedom-of-choice service, which cuts in whenever a client onboards a new employee or a contractor. Most recently, to accommodate for work conditions made necessary by COVID-19, PYG has also included facial recognition and temperature checks. All of these are designed to monetise further a client’s employees.

But the most crucial measure for PayGroup that investors should watch, he says, is the number of payslips that it generates, and the unit economics of each one of those payslips, which flow into margins. The company posted a 28% increase in the number of payslips processed in FY21, a significant increase given the deterioration in employment markets throughout the year, and a result that underscores the importance of PayGroup’s mission-critical payroll solutions to customers.

There has been a litany of well-publicised “underpayment” corporate scandals recently, and this is bringing the company’s specialised capability onto the radar of more clients, as the complexity of the payroll process seems only to increase. Samlal says the market is looking for a solution that makes every single payslip accurate and on time – a simple need that he says is the core ethos of PayGroup.

While Samlal says he has never seen a year bring as much change to the business process, compliance and governance market as 2020-21, PayGroup’s ability to adapt quickly and augment its service offering means it must be doing something right – with a 95% client retention rate across all of its businesses telling the tale. According to research firm Gartner, PayGroup’s service offering gives it access to a US$20.3 billion ($26.4 billion) market in Asia-Pacific, and Samlal says it can only grow, as the digitalisation revolution continues apace and as ESG obligations grow – the biggest challenge that organizations have is reputational risk, and paying employees properly and on-time is right up there on the list of such red flags.