Q1 2020 Earnings Call
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Good afternoon, welcome to the software first quarter 2020 quarterly results conference call participants will be in listen-only mode off.
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To withdraw your question, please press * then two, please note that this event is being recorded. I would not like to turn the conference over please. Go ahead. Thank you and Welcome to our first quarter 2020 earnings conference call certain statements made on this call that are not historical facts including those related to our future plans objectives and expected performance are forward-looking statements within the meaning of the private Securities litigation Reform Act of 1995 these forward-looking statements represent our Outlook only as of the date of this conference call while we believe any forward-looking statements made on this call are reasonable actual facts could differ materially because the statements are based on our current expectations and subject to risks and uncertainties these risks and uncertainties our dispatch in our filings with the SEC including our most recent annual report on form 10-K and our most recent quarterly report on form 10-q.
You should refer to and consider these factors when relying on such forward-looking information any forward-looking statement made speaks only as of the date on which it is made and we do not Undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information future events, or otherwise except as required by applicable law also directs course of today's call. We were referred to certain non-gaap Financial measures including adjusted ebitda. Non-gaap net income adjusted gross profit adjusted gross margin and certain adjust wage fences.
We use these non-gaap Financial measures to review and assess our performance and for planning purposes a Reconciliation schedule showing gaap versus non-gaap results is included in the price lease that we issued after the close of the market today and is available on our website at investors will now turn the call over to Chad richison Bay, president and chief executive officer Chad Thanks James and thank you to everyone joining our call today first. My thoughts go out to those whose Health has been impacted by the pandemic may also sympathize with businesses who are faced with unavoidable reductions in their workforces and the employees who have lost their jobs. Additionally. I'd also like to extend my sincere thanks to First Responders medical personnel and those involved in the supply chain who are on the front line.
Finally, I want to thank our employees who continue.
To execute while working from home and also our face for team who remained working at the office for today's call. I'll spend a few minutes on our first quarter 2020 results and some notable achievements following that Craig will review our financials and provide some perspective on financial Trends and then we will take questions. I am particularly pleased with our performance in the first quarter first quarter results were strong driven by our high-margin recurring Revenue business model and continued strength of new business ads. I want revenue of 242.4 million came in above the high end of our guidance range in spite of the effects of unexpected interest rate cuts and an unemployment spike in March wage adjusted ebitda 117.9 million in q1 was also above our guidance range as a result of record gross margins.
We entered the year with strong momentum following record Revenue retention in 2019 and a value proposition that is stronger than ever.
Even though the month of March was impacted by declining revenues from our current client base due to the effects of covid-19. We continue to see strong addition of new clients.
We are also experiencing elevated lead volumes compared to the same period last year which we are driving to our marketing efforts and the strength of our value proposition. The pandemic is exposing seems created by the disparate systems. And that is creating a higher demand for the pacom single database solution. I am pleased with the incredible results and collaboration. I'm seeing across the sales and marketing organization the appropriate usage of human Capital Management Solutions has never been more important than today and we will continue to invest in innovate to strengthen our position more employees and managers are accessing the system in HR and employees are doing less paperwork and manually input than ever before we continue to see strong usage patterns of our products as measured by a direct exchange or DDX with usage scores. Well above Q4 levels.
GDX numbers continue to be strong and improved as companies adopt a full employee usage strategy when employees have a direct relationship with the database the employee wins the company that wins from real savings estimated at $4.51 per hr. Task or data entry point as well as higher efficiency and overall employee satisfaction.
In February, we launched manager on the go the tool built into pay comes existing mobile app, which empowers leaders with 24/7 accessibility to essential manager side functionality of our song I said at the time that I believe this was the single most important product release we had since the launch of our Employee Self Service app and while we are still early it's proving to be very popular within the first twelve weeks since it's launch manager on the go has significantly exceeded the Employee Self-Service science adoption over the 12-week comparable post-launch.
this easy to
Use functionality distributes approval responsibilities more broadly and removes impediments to Quick data flow and managers across our client base are embracing it off once manager. She's manager on the go the vast majority of them fundamentally changed the way they interact with our Solutions and actions previously completed on the desktop are now completed on the mobile app. I'm very pleased with the trends. We're seeing while many of our clients are unfortunately experiencing significant fluctuation in their employment trends due to covid-19 month. We remain focused on three controllable activities providing world-class service to our clients rapidly developing new technologies and increasing the number of new clients added to our platform.
I am more confident never than our products value proposition and go-to-market strategy. I've been saying for some time. We may be early with our strategy, but we're not wrong. And today. We're no longer early. The digital transformation for business is accelerating.
I'd like to thank all of our employees for their grit and the winning Spirit they display every day in this changing environment with that. I'll turn the call over to Craig Craig before I review our first quarter 2020 results. I would like to remind everyone that my comments related to certain Financial measures will be on a non-gaap basis. These are unprecedented times. And while we are withdrawing our full-year guidance, we plan to get back to providing annual and quarterly guidance as soon as unemployment Trends become more predictable. I'll briefly cover. Our q1 results wage are possible. I'll provide some high-level comments about our financial Outlook. Our approach has to be as transparent as possible based on what we know now.
It's Chad mentioned. We're very pleased with our first quarter results, especially given the unexpected interest rate cuts and spike in unemployment from the pandemic in the first quarter. We generated total revenues of 242.4 million representing growth of roughly 21% over the comparable prior-year. Which was above our guidance range driven by strong new business wage and robust recurring revenues as a reminder in q1 2020. There were only twelve banking Wednesdays instead of the usual 13. We had the comparable prior-year. As we discussed last quarter a Wednesday represents roughly half a week's revenues with in total revenues recurring Revenue was 238.5 Million for the first quarter of 2020 representing 98% of total revenues for the quarter and also growing 21% from the comparable prior-year. During the month of March we started to see the spike Thursday.
Employment across the country reflected in our client base a trend that continued into April the net effect. As of today is that the impact on our current client revenue is similar to the percentage increase in unemployment across the country. We are closely monitoring unemployment Trends in their impact on our client base. We're also experiencing the impact of a hundred fifty basis points interest rate cuts that occurred in March. We estimate the net effect on our business for the rate Cuts is roughly 4.5 million per quarter for the balance of the year total adjusted gross profit for the first quarter was 213.5 Million representing a record adjusted gross margin of 88.1% of 130 basis points compared to the prior-year. We continue to benefit from high-margin recurring revenue and increasing customer service efficiency adjusted total administrative expenses were a hundred eight point four million for the first quarter as compared to eighty million in the phone number.
quarter of 2019
Adjusted sales and marketing expense for the first quarter of 2020 was 51.9 million or 21.4% of revenues. We're seeing positive results from our recent ad campaign and marketing efforts and plan to continue to invest in marketing and Q2 and throughout the year. We believe this is not the time to back off from our marketing plan. In fact due to the increasing demand. We're seeing and the success we're having we plan to spend more in Q2 than we did in q1 adjusted R&D expense was Nineteen point four million in the first quarter of 2028 or 8% of total revenues adjusted total R&D cost including the capitalized portion for 27 point six million in the first quarter of 2020 compared to twenty one point 1 million in the prior year. We plan to continue to invest in our future growth through Innovation and new product development.
Adjusted ebitda was 117.9 million in the first quarter of two thousand twenty or 48.7% of total revenues compared to a hundred three point three million in the first quarter of 2019 or 51.7% of total revenues our gaap. Net income for the first quarter was $63 million or $1.08 per diluted share based on approximately 58 million shares vs. 47.3 million or 81 cents per diluted share based on approximately 58 million shares in the prior year. Are effective income tax rate for the first quarter of 2028 twenty 8.7% Non-gaap. Net income for the first quarter of 2020 was 77.9 million or a dollar and $0.33 per diluted share based on approximately 58 months and shares vs. 69.3 million or $2.19 per diluted share based on approximately 58 million shares in the prior-year. We anticipate fully diluted shares outstanding will be dead.
58 million shares and the second quarter of 2020 since we increased our buyback on March 12th, 2020. We have repurchased over 260,000 shares today paycom has repurchased nearly four million shares since 2016 turning to the balance sheet. We ended the quarter with cash and cash equivalents of $182 million and found out of thirty two million as a reminder this debt represents a financing of construction at our corporate headquarters cash from operations was $82 million for the first quarter reflecting are strong Revenue, perfect and the profitability of our business model. The average daily balance of funds held on behalf of clients was approximately 1.4 billion in the first quarter of two thousand and twenty-two conclusion. I'll repeat what you had said. We are focused on mitigating the impact of the pandemic on our current client Revenue numbers by providing world-class service to our clients rapidly developing new technologies dead.
And increasing the number of new clients added to our platform. We have a strong balance sheet, they highly profitable recurring business model in the strongest value proposition in our industry Thursday. We are confident that 2020 can still deliver the enviable combination of growth and margins that we have consistently demonstrated and we look forward to being able to quantify that combination for you as soon as macroeconomic factors become more stabilized or predictable with that. We will open the line for questions operator.
Now begin, the question-and-answer session, we will have one question and one follow-up from each person to ask a question, please press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the key to withdraw your question, please press start then to at this time. We will momentarily pause to assemble our roster.
Our first question is from Raymond Lynch from Berkeley. Go ahead. He thanks for taking my question and hope everyone at P, staying safe and wish all the best to get one. First question for me chat you you guys have been in kind of a crisis mode in 2008/2009. Can you just kind of compare and contrast what you saw back then how would it compares to now and then you know like and what lessons you learned back then and then I have a follow-up.
Sure. So in 2008 and 2009 obviously we were a lot smaller company. We were somewhat go focused in a certain area. I would say we were more in the Midwest and and South and Southwest at that time, you know from that period of time you had the mortgage crisis going on and other factors and really at that time it became a cash flow management issue for us and at that point in time we changed the way we managed our cash for clients because you had greater ACH risk at that time. So we may change as to protect cash flow at that time and exposure for a c a r a c h risk, but actually the three things were focusing on right now are the three things we focused on back at that time, you know, we continue to focus on providing world-class service to our clients. We continue to innovate through the rapid development of our software and we also were aggressive and adding new clients and so dead.
Those are the same lessons, uh, or the same activities that we're focused on right now, but it's a little different 2009 and 8 from today. Okay, and then the the follow-up for that. The next question I had was on we had now like a good month of kind of working from home Etc. And you guys have been in terms of your sales approach very local and you know, I saw in the statement that you gave out as you know, maybe there's increased productivity by kind of doing it over video calls Etc. Can you see what you're seeing in the field at the moment in terms of how long this to engage ability to engage from your sales force, etcetera, you know where one month in so hopefully you're getting some data points already.
Yeah, and so, you know, we've sold face to face for a long time until we added the inside Sales Group, you know, again we had about five of them for about you know, ten fifteen years and then we we built out for teams over the last six months and inside sales. So we've had a little bit of experience with selling virtually. I will say, you know, we came this year with strong sales momentum. We had a very strong value proposition. It continued to resonate then we, you know ran into the pandemic and so on Sunday March 15th, we actually uh closed all sales offices and moved them to the virtual work from home model during the weeks of March 16th and the week beginning March 23rd, you know, we rescheduled all of those sales appointments and really focused on retraining or outside sales organization on a somewhat new model. Yep.
Those two weeks our book sales.
Business dropped about 50% for those two weeks during the subsequent week which would have been the week. I believe began March 30th are booked sales was back up to 80% off. It's been selling a previously and then the rest of April we're actually at the same level of book sales numbers. We were pre covid-19.
Tell you that the digital transformation has accelerated through this, uh, I think our value proposition stronger today not less. So and so we're having some success with sales rep. Okay, perfect. Good luck. Thank you. Next question is from someone from Jeffrey. Go ahead. Hi, good afternoon. And thanks for taking my call back. And then and I'd like to Echo. I hope everybody is staying safe and and doing well in this type of environment. So I guess my first question that Craig just for clarity. You said that the that the change and take alms customer base has been consistent with unemployment kind of more broadly. Can you just clarify? So does that mean that you've seen em, I guess what's the change in Pace for control that you've seen from pre-crisis to to add the stands, you know one month into April.
Samad I can take that as well and Craig Craig can also chimed in. You know, the point is is it would be unreasonable to think that paycom would not fall off, you know, the the increase in the rate of unemployment. I would say that we're an accurate sampling size of the US market as it relates to payrolls. We are wage industry agnostics or Diversified across all Industries often times when it comes to unemployment. We are going to see the impact before the before the unemployment number actually comes out there are many states California, Massachusetts, Illinois other states where you're having to pay that last check either same-day or next-day from your pay date and so oftentimes someone's going to receive their last check prior to filing unemployment and it actually being in within the number and so it would be unreasonable to think that wage.
you follow that I will say this unemployment if
To look at it for the last twelve trailing months. It's been fairly consistent. It's kind of run between 3.5 to 3.8% And that's based on anywhere from a hundred and sixty $365 million, uh available Americans out there in the workforce. So you calculate that we saw that jump in and March specifically the last couple of weeks of March is really where you started to see that jump and you know, it jumped to a 4.4% or 7.1 million unemployed since that time for April you're looking at since since March 15th. I think we've had twenty six million unemployment claims filed. It looks like about 20 for that million of those could hit could hit in in April we would expect and so that you know, you do that division over the over the 163 available Workforce. You're going to come up with a different unemployment number than the than the birth.
Is that it had been or the 4 .4 that it was in March? And so all we're saying that right now is you know, we we have had visibility into our numbers there were changes that's happening with unemployment. We don't know if these will necessarily accelerate through second quarter. We don't know if they'll stabilize and so I think it's just too early to tell but unemployment does have an impact on our on our current client Revenue the mitigating factors that we have are continuing to add new clients on a platform. We are seeing people engaging right now as well as any UPS else we might do to to current clients but I would say that those have always been dwarfed by a new logo ads. I'm not sure what Chad said, you know, even though we do have some clients that are in those Industries hardest hit, you know, like restaurants and hotels, you know, we're not over exposed to any of those Industries in a very indirect.
Agnostic great. Thank you for that thorough answer. I really appreciate it and maybe just one follow-up. There's been a lot of investors have asked us a question about what percentage of a contract is typically bulb fixed versus what is the variable component? That's based on headcount or payroll is processed. So any directional percentage you can give us is it is it 10% is 50% it would be helpful in framing is we're doing the math. Well, I'm going to I'm going to just go ahead and give this information out. I haven't given it out before but I'm going to talk about her billing. We have a base fee and that base fees for one employee. And so if you have with me with paycom and you're using the pacom system, we're going to have the base fee. All right. Now if you add multiple employees, you might have multiple States you may have a few more bass fees, but but ultimately took a smaller clients. The base fee can be a measurable percent of a client's bill. But as of that client gets larger That Base fee get substantially distributed into the employee lost dog.
And the employee loss percent.
Becomes a very close to equal to the loss of Revenue percent on that client. So it really just has to do with size of client. Ugh, you know before you could really figure out exactly how much of the base fee is in there. Now will say this, we're not necessarily seeing increased, uh, a client attrition when we're talking about, you know, whether it be someone leaving what we're not seeing increased client attrition for me. There's someone leaving and or going out of business the impact we're really seeing is the impact as it relates to employee count the clients that were working with might go from, you know, running 200 checks normally with us the ones that are impacted again not all are and and some have even bought some growth in this but for the most part, you know, we do have several clients that you know may have been running 300 checks and now they're running 17 and so, you know, we're going down.
Still have the client. But again, we're going to be impacted by that unemployment number. I really appreciate the the openness and and wish you guys well and and I'll pass it along to the next person. Thank you. Again. Next question is from Mark Murphy from JPMorgan. Go ahead. Yes. Thank you very much. Good timing. I wanted to follow up on some odd question Chad just to clarify the math on the unemployment. So we've seen twenty six million unemployment claims out of a Workforce of about 164 million, um, you know, so you get about 16% I guess. I'm just curious if the employees are furloughed and they're kind of applied for unemployment wouldn't they still be a payee in the in the pacom system, right and then uh, so then you'd still be getting paid for for the furloughed employees.
Or is that not accurate? That would not be accurate. I mean depending on how you're using the term furlough typically a furloughed employee is a is an employee that still has their job but is not paid paycom sub model is is really based on number of paid employees as it goes through. Now, those employees would remain active in our system. They continue to use uh, our employee app and you know, when they come off furlough, uh will will begin to receive the billing from them but and and as far as per load employees and how they may be also included in that unemployment number we would want to check on that but as in regards to our system furloughed terminated get laid off those should all have a very similar impact in our number, although you're going to have different termination codes because those have different rehire birth.
activities that someone's going to take
They turn them back into active pays. Okay understood and then as a follow-up, I'm just curious if you've been able to survey your customer at all to try to ascertain where they think their head count might trough at you know, perhaps when it would bottom the pace of rehiring at what level perhaps they think it would stable job is to try to inform your business plan. I'll give you a for instance. If a customer had three hundred employees that they they think it's going to drop to 200 in May maybe then they think it would ramp back up to 200000 you could at least try to recalculate and then and then plan on a 10% reduction in their in their head count. Have you been able to do anything like that? Uh, you know somewhat scientifically or even to have enough anecdotes to to create some type of a guess on how that will look. Well. I think that there's many things that will be able to do once we see a trend and yep.
Some stabilization which makes sense predictable for many of our clients. They have the same unknown factors that that that we do if if you think about it, so it might just be timing we might be a little early on being able to get good information that way uh, but we definitely are staying close to our clients. I mean, we we talked to them on a continual basis and we wage we've been able to kind of see in different areas and different Industries potentially impacts, but it's really all over the board and you know, we still remain hopeful that at some point in life, you know, it it stabilizes. We just don't know where it stabilizes at does a company that made a decision in March to go into a a certain age pays for themselves. Do they take additional steps throughout the year or is March a steady-state for them? Because they took the hit up front. We don't really know that yet and as the this quarter goes on Thursday.
We'll have more information on that, you know, Mark and one thing too with the you know, with the payroll Protection Program like the example you gave, you know, those people, you know are have applied for some assistance and you know the rules if if if they use 75% of that to rehire, you know, the thing you can have a loan forgiveness on that but you know, so we may see some of that as well. Okay, and then Craig wonder is final question. Is there any change with respect to customers or prospects asking for a price discounts or payment deferrals in this kind of environment? You know, our pricing model is very fair. It's actually the thing that's impacting is right now, you know our pricing models based off the number of employees that your page within the system substantially and so obviously I'm going to take that company. I said that maybe three hundred employees before and now they're Seventeen employees. Well when they were 300, yep.
They're paying us for $300.
Employees now that they're Seventeen they're paying us for Seventeen. So that's a fair model and I wouldn't see any reason that we would make changes to our pricing model at this point is she's our next question is from Brad Reba from Steve. Go ahead. Thanks very much chat on the new business activity. Can you give us a sense of your ability to implement remotely? Yeah, I mean to be able to implement very similar to the way we were doing a lot of our implementations not going to say it's necessarily done, you know, you definitely have the conversation with the transition rep with that client and you go through training that way but substantially most of our implementation has been done through either the Oklahoma City and or Dallas area and so a lot of it was really done remotely anyway with the exception of the training and the data collection as a reminder off.
We've had an inside Sales Group for quite some time. So no, we're not. We're not seeing a it being a more difficult becoming more difficult for us to implement. In fact our measurement through the fourth quarters and implementations are going faster than what they traditionally had. And and honestly so is the sales process somewhat I can tell you that, you know, we'd have we'd set an appointment on a Tuesday and we might have that call in two or three weeks. You know now we're setting that appointment on a Tuesday. We can be having that appointment on Wednesday, you know, and and we're getting you know most people at the table and so, uh, I wouldn't say it's uh, it definitely hasn't slowed us down from being able to convert you will have clients that due to the current situation that they may be in you could have clients that choose to wait a little bit longer, but I don't even have anything to really call out in regards to that right now.
But anyway, that that's where I would leave that great. Thanks in one quick follow-up. Have you seen a moderation in the rate of decline in the number of people that you're paying customers are paying on a weekly basis over the last few. We'll call it three or four weeks.
Well, I'll go back to what I said. It would be unreasonable to think that we wouldn't continue to follow increases in the unemployment rate. And so, you know, you would be hoping that that would suck moderate to some level of stabilization at some point.
Got it. Thank you you bet.
Our next question is from Mark Martin from Baird. Go ahead. Hey, good afternoon. Chad and Craig. Thanks for taking my question and best wishes for safety package. During these times. I'm wondering can you talk a little bit just a follow-on on the the impact of the unemployment. If you have a 1% decline in terms of the number of employees paid, what does that translate to from a revenue perspective? How should we think about just the sensitivity there? I know it varies across the Disco client sizes, but if we're taking a look at the portfolio as a whole, how should we think about that?
I mean
For clients you're going to be close to a one-to-one relate ratio and larger clients smaller clients. It's going to be a lot less. I mean, you know, uh from that meaning that really does depend on size of clients but a larger client your definitely closer to the one to one because of the base fee has been eaten up by that one employee company. Now if you're talking about a 30 or 40 employee company, I mean, you're going to have quite a bit of bass, uh still in there, but you know, once you going up to two hundred three hundred five hundred two thousand three thousand, I mean the boss is going to be closer to 1% loss in their employment equals close to 1% loss in uh current client Revenue.
Okay, and and then with regards to you know, the new sales that sounds tremendous. Can you talk a little bit about like who your winning from? Is there any has there been any change with regards to that is there you know some special attraction in terms of the mobile self-service capabilities that would lead you to get more clients from older providers or as the mix changed in any way shape or form, you know, it's an interesting. It's an interesting question. I will say that you know, it's Usual Suspects for us. We're hitting them the usual wage. You know, we do have a much stronger product. Now I talked about the employee mobile app as well as the DDX success. We're having many people are using our ask here as we've gone through this environment by Rolling Out manager on the government. Our adoption rate on manager on the go for the first twelve weeks was almost double what our adoption rate was for the employee app for the same launch. So, yep.
We're having high levels of Engagement. And so I would not say that any of our competitors, uh have the level of Engagement we have and so we do continue to uh board five people from The Usual Suspects. You do have some systems out there that were more in house in nature or even some competitors that may have been more Regional using licensed software and those models are are are very much disrupted right now in this environment. So to the extent we have low-hanging fruit. It's going to be more in that area, but we're also having just a lot of success because you know, we have a lot of clients who even call us back, you know, we pitched him one or two years ago. It was what it was. They understand the value proposition weren't ready to make the move right now. You know, I think people are forced to look for additional efficiencies. I think most all companies come out of this leaner, and yep.
Efficient and you know, we're going to do our part just to make sure that's uh what happens on the efficiency side.
Terrific. Thank you.
Our next question is from Daniel gesture from City. Go ahead. Great. Thank you for taking my question. You know, I appreciate your comments about you know, most of the impact you're seeing so far is in the reduction of employees at your clients account. But I suspected as this situation extends. There is the risk of higher churn just from macroeconomic volatility. So I'm just wondering you've done a great job over the years improving retention. Is there anything specific you're putting in place to help improve or keep your attention even in these uncertain times?
I mean really?
Retention if you're talking about the actual loss of a client that might go out of business, you know other than helping them find resources that might help them stay in business. There's not a whole lot of impact we can make their now. What I will say is even at IPO, you know, we announced that 90% of our revenues derived from a companies that have greater than 50 employees. And so today that's only going to be greater than that as far as a percent of Revenue my bet is it's it's you know, well, it's it's much higher than 90% at this point. And so you know for us what we're seeing is more a decrease not a go away now some of that may be answered and how long are we in this do things in life when they improve what you know, how long can someone last but but as we sit here today, we can't really call out a business failure today we can log
Call out business failures. I should say we can't call out business failures. We can call out impact to that. That unemployment is having on those off business revenue on those client revenues great. Thank you. And then you mentioned this briefly in your prepared remarks about d d x and Improvement in engagement there. I'm just wondering, you know, based on what you've seen is the usage of DDX consistent across your customers, whether they're in either managing these times well or not. I just wonder in times of Crisis do people go back to the old ways and and move away from from automation, or does the the automation 6 through even in times of turbulence. Thank you.
You know, that's that's actually really good question. We have not seen d d d d x scores have continued to go up. I can tell you this just in a couple of anecdotes. It's actually been where we'll have clients that you'll see in certain areas. It forces. They're dvx to go up. You know, if they were just kind of adopting. Let's say you had a d d x score of 96% off you are sort of adopting into some level it forced people to have 100% adoption. I'm not saying that we've we've made it to 100% adoption. But uh, I miss you know, the the environment that we're going through right now has not had a negative impact on the DDX scores. Now DDX is a measurement of employee usage and and actually a measurement of using the system the correct way and so I would just answer that by saying more and more people are using the system the correct way today than what they had in the past.
Great. Thank you very much.
Our next question is from Brian Schwartz from oppenheim. Go ahead. Yeah. Hi. Thanks for taking my question this afternoon Chad. I was just wondering if you could provide some additional color on either what you're saying in terms of the sales or the elevated lead activity by company size, and if there's any reason for us to think that the sales activity by company South should be materially different for the business at thanks.
No.
So, you know, I'm not announcing anything different on what we're doing from a size perspective. We can send you to sell both in and above our range. I had also called out that I think it was the last Thursday mornings call. I called out that we have for inside sales teams that continue to sell the small business market. So I would say that's been a very consistent for us. Yes, we continue to clients come in at the top end of our range or even above but we've always seen that and so, you know, it's been very consistent and that would be also consistent with the lead that we the leads we see.
Thank you.
Our next question is from Alexandria Lucan from RBC Capital markets. Go ahead.
Hey guys. Thanks for taking the question and and glad to hear you're staying safe out there. Maybe just the first one jacket. Can you remind us on kind of the linearity of bookings and 1/4 usually wage and then maybe you know traditionally are typically from a quarter perspective like how much visibility do you typically have 1/4 out on the business?
Yeah, so first of all on the bookings, I would say that you know.
Month to month, they'll kind of change. I mean typically I'll say there's typically Summers on a great month. I can tell you two years ago. August was our largest Book Sales month. So, you know, it just depends if they're all over and Ebbs and flows, right? You fill up your pipeline. Then you close pipeline. It is most common that the end of the year for our industry would be where your largest booking numbers would come just because admittedly most all companies in our space would tell you January is a is a large start month for a prospective clients for us. And so you do Thursday sales to be higher matter of fact some people in our industry even call it settling season. They'll say we're gearing up for selling season which is kind of the September through December, uh-uh time frame. I can tell you with paycom, you know, we're open for sales on a continual basis and it's hard for us to really point to significant books else.
In one area versus the other it really has to do with how fast we're clearing out that pipeline which leads to your visibility question, you know, if we have somebody within our pipeline in a in a 90-day close the likelihood of them closing being that they've been in our pipeline for 90 days, you know is is much smaller than a goal to continue to get deals that we engaged with today to be able to move forward throughout the sales process and to get them closed up in the six to eight week. So when it comes to visit them as it relates to book sells sure we have some do we have three to six months of visibility? I wouldn't trust a 6-month pipeline for my cellphone because those are businesses that we should be able to get them going on the solution so that they can start receiving the ROI sooner rather than later.
And then, you know just maybe as a follow-up I think you know, I probably some of us are pretty surprised to hear the new bookings of kind of returned to to pre covid-19 in April and and you're not seeing any customer a meaningful changes in customer. Churn. Do you anticipate that being like when you think about the the balance of this year is is that something you're anticipating to continue. Do you anticipate those levels to to kind of friend off and and if so, how much do you anticipate to just to kind of sell into the base that to insulate a little bit from from that?
Well, I think there's a difference between hope and anticipation. I mean if I if think if we were able to really quantify a lot of those and have a high level of competence in that of this of the track we have today continuing, you know, we would be able to be providing more information than what we're doing right now. I will say that even our appointment numbers off, you know through April or similar as they were pre covet and so the interest hadn't slowed down in our ability to have those meetings hasn't slowed down as far as your answer on on on client, you know on clients may be losing their business. I would say which which we hope doesn't happen. I mean, that's really that's really something I'm not going to have great visibility. And I mean I can see when a client might drop again to use the same example from 300 to 17 employees. I don't know what happens to that club.
After that, if we're in a certain environment for too long, that's really going to depend depend on it's almost a per client basis, uh, you know, what decisions they are. They're making their business. So it's just hard to it's hard to judge that right now. I don't think it's going to be forever that we're unable to judge that and I'm talking about, you know, I do think there's going to come a point in time where we'll have a better information on that, but it's hard to it's hard to to tell right now.
Got to think.
Our next question is from Ryan McDonald from Needham & Company. Go ahead.
Hi Chad, incorrect. Thanks for taking my question Chad. You mentioned before that. There's a bit of a difference. I think in the in the code. That's that's entered whether a customer a customer furloughs an employer versus lays off an employee. Can you talk about what you're seeing in terms of mixed with your clients or to the extent that you have seen thus far of, you know, layoffs versus versus for Thursday at this point.
No, I was just go back to what I said. The impact on us would be the same from a revenue perspective. I don't know, you know, you really going through and asking okay, your clients even understand the difference between between them between furlough between a laid-off employee or between an employee that you might be using a you know, something different through some type of termination method or an onboarding method. You're going to go back to later. So no, I mean I wouldn't be able to give you exact numbers on those who have been furloughed versus terminated and or laid off I'll all that stuff to say though. If someone has put in a termination code for any one of those within the system or left them furloughed inactive, but they're not receiving payment. It's it's going to react it's going to impact our Revenue the same regardless of which one of those uh, birth
Which one of those they choose?
Got it. And then just the follow-up, you know wanted to touch on Gross margins in the quarter. You know, I think over the past few years here first quarter gross margins have been running in that 87% range had a really strong performance there at 88% What what drove that that nice increase that we saw in a year-over-year basis during the quarter is it, you know, the expanded usage from some of these self-service products or perhaps something else? Yeah. I mean, well, you're definitely having and I'll let Craig chime in a little bit on this but you're definitely having efficiencies gained from usage of the product. I mean we talked about before that our call volume, even the calls coming into paycom has been uh equal to or less than prior year same quarter, right? And so even volumes that are coming into paycom we're receiving less calls because clients are using the product correctly. They understand it and now their employees are using it correctly and so yep.
We're having a lot more success. And also we're on boarding clients with full usage strategies and we've been doing that for over a year. And so, you know, we don't have to do a lot of fixing if you will get all the clients to the right strategy. So you definitely have some of that and I'm sure there's some other efficiencies games Craig will talk about yeah. Yeah. I mean, you know, obviously our service department, you know, as a client's life are able to use the system and are using the system correctly, you know, our service departments able to handle a larger volume as well. So, you know, we've seen that and we've talked about that in the past as well.
Give you one more thing on that Ryan the the number of service individuals that we had service in clients. And at the end of December 2028 was the same as the number of service individuals. We had service in client's December 2019.
Yeah, I think Chad mid nineteen and nineteen and nineteen and they not 20/20 the number of service individuals we had servicing clients at the end of 2019 was basically the same as we had at the end of 2018. So you're going to get some efficiencies when you have service individuals that are able to uh service more clients because the client is using a system better.
Right. Thanks for the color you bet.
Our next question is from granny from me. Go ahead. Thanks for taking my question. I just, you know pulling up your comment about new business or you know activities or leads and the pico de gallo. Uh, that's something different. We have been hearing it's that's what we're seeing is small mostly business is focusing on me some critical application. So what do you think? What's the motivation right now for most of those customers switching their payroll at this point. Is there a different kind of motivation than that you will Cherry Creek available?
and then certain
No, I will say this. I don't think any business ever liked waste and to the extent business is still have waste. They're looking to become more efficient. I will also say that, you know payroll and benefits Administration and a lot of the things that we're doing in the system. I would say is a very important part of what any business does. So I guess we're talking about critical functions. I don't know that I align with that same thought that the types of things that someone is doing to engage with their employees right now during this environment is Les Crepes. I definitely understand the cash flow management and the other areas that people have to manage throughout their business and am I going to say where the top priority for all businesses know off the top priority for all yes, we are and you know, there's uh many businesses in the US and we don't have to sell all of them this week, but we are having a lot of success off.
Continuing to drive sales and I really don't have anything to call out from a from a sales perspective save the the two weeks. We took them out to train and not one week it took us to kind of get back where we did drop, you know, 50% for those two weeks and we dropped 80% that third week coming back. But since then, you know, you've been all pistols firing a Pistons firing in regards to our our sales efforts and and the results they're having and Book Sales regarded and I wanted to know is there any particular vehicle you're seeing more interests activities than others and also like given that Insight sells, you know, increase, you know, efficiency and insights. Are you planning to hire more people inside cells?
This year. Yes, we continue to be industry diagnostic, you know there there are industries that are going through, you know, there's you know, 5,000 employees companies that are now two thousand and eighty employees and you know, what what a great time to convert to pay, you only pay for the 280 employees that your work through. It's almost like a year in conversion. And so, you know, those are great. Those are great times to change it to pay, We're industry agnostic for us. It doesn't matter where someone is, you know, we're going to be focused on gaining market share as we come through this we want to be the net winter break that as we come through this and you know, we've got some headwinds right? We've got the interest rate now. It's at 0 we've got unemployment that continues to climb if we're doing the right thing. So we're focused on Jim Carrey's that we mentioned which is continuing to give world class service, which we have absolutely done during this continue to Roll Out Rapid product development, which was absolutely done through this and control.
To add more clients to our platform. I feel like as these things reverse on us that you know, we're going to have some organic life Tailwinds if you will, so it's very important right now that we stay focused on all it doesn't matter to me. If a client is, uh, blowing terminating laying off employees off right now, we're open for business. We want to get those clients just like we do those clients who are already growing in the face of this we want we want to get them all.
Thank you.
Yeah, thank you.
This concludes our question-and-answer session. I would I would like to turn the conference back over to Chad Richardson for closing remarks.
All right. I want to thank everyone for joining us on the call today. I'd like to send a special thank you to the pay, employees for all the valuable work. They're doing over the next couple of months will be meeting with investors virtually at the JPMorgan conference on May 12th will also be at the Needham conference on May 19th. Both of these are virtual and in June. We will participate in The Baird and stifel conferences Thursday. We appreciate your continued interest in pay, and look forward to meeting with many of you soon. Thank you operator. You mean disconnect?
Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.