Q1 2021 Paycom Software Inc Earnings Call
Hello, My name is Philip and I'll be your conference operator today.
At this time I would like to welcome everyone to the pay Com software first quarter of 2021 quarterly results conference call on.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session.
You'd like to ask a question during that time simply press star and the number one when your telephone keypad, if you'd like to withdraw the question press the pound K pound sign.
Thank you and I'd like to turn the call over to your host Mr. James Hanford. Please go ahead.
Thank you and welcome to take homes first quarter 2021 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 and actual results may differ materially because of the statements are based on our current expectations and subject to risks and uncertainties.
These risks and uncertainties are discussed in our filings with the SEC, including our most recent annual report on form 10-K M.
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 statements 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 it is the result of new information future events or otherwise.
And as required by applicable law.
Also during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA non-GAAP net income adjusted gross profit adjusted gross margin and certain adjusted expenses.
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 press release that we issued at the close of the market today.
And is available on our website at investors day pay com Dot com and now I'll turn the call over to Chad Richison take Holmes, President and Chief Executive Officer Chad.
Thanks, James and thank you to everyone joining our call today I will spend a few minutes on the highlights of our first quarter 'twenty 'twenty. One results then I'll review the progress we're making on our goals for 2021 following that Greg will review, our financials and our guidance and then we will take questions, but first I want to thank my colleague and good brand.
Jeff York for his many years of service, leading our sales organization over the last 14 years, Jeff has built the sustainable sales organization with a deep bench of Likeminded professionals I look forward to continuing to work with him and his strategic leadership role.
One of those like minded individuals as our new Chief sales officer Holly per row Ali is the true success story of pay Com, our 14 year career with US began with an internship and the sales organization all of the quickly progressed into a top sales rep.
Top sales manager and a top regional sales manager, earning many of the company's highest sales ranking of awards along the way.
And 2016, she was asked to further expand pay comes client relations Department, which presents additional products to clients and focuses on creating value by increasing employee usage.
All he has been instrumental and contributing to the success of pay com across the entire sales organization and I'm confident she will continue to build on the momentum we are seeing.
We delivered strong first quarter results, even with the tough pre COVID-19 year over year comparison, our 2021 first quarter revenue of $272 2 million grew 12, 3% compared to the prior year period and came in above the top end of our guidance range. Despite several previously identified headwinds.
Unsurprisingly, the first quarter revenue was impacted by lower forms filings and adjustments due to lower hiring trends and industries, most impacted by the pandemic and 2020.
Excluding forms filings and adjustments revenue our year over year recurring revenue growth accelerated again in Q1 as we go through 2021, we will have a cleaner comparison that will provide a true reflection of our revenue growth profile since the arrival of the pandemic.
Turning to profitability of our first quarter adjusted EBITDA was $133 million, representing adjusted EBITDA margin of 48, 9%.
And that's reflected in our updated guidance, which Craig will discuss we believe the combination of revenue growth and adjusted EBITDA margin. It makes us well positioned to exceed the rule of 60 in 2021.
Our marketing plan continues to work very well delivering strong demo leads and the first quarter. We continue to see success from our advertising spend and we intend to continue to spend aggressively to fuel future revenue growth and expand of roughly 5% market share and of large and expanding H C. M. T M.
Capitalizing on the shortcomings of disparate HCM systems with the value proposition the pay com single database solution that is stronger than ever employees expect their HR software to be efficient and easy to use in fact and a recent survey we commissioned with the third party employees expressed frustration with complex and the spirit H.
Our software that lack the transparency and usability they've come to expect from consumer oriented technologies.
Pay comps employee usage strategy and single database solution squarely addresses these expectation.
We had record high employee usage rates and Q1 as measured by our direct data exchange or D. D. Ex this is fueling new opportunities for product innovation and automation for products like Betty are better employee transaction interface for payroll, which we started rolling out to a select few clients during the quarter.
That is already receiving high marks as it transforms the way payroll has done I believe over the next 12 to 18 months that he will become the standard for how payrolls should be done.
Now that the first quarter is over we have substantially lapped the pandemic impact on a comparable year over year numbers, new client additions are driving our growth and Q2 and beyond.
And the negative revenue impact the pandemic had on our pre pandemic client revenue remained stable.
While we haven't seen any material improvement and employment trends at those same clients are forecast and future growth initiatives are not dependent on any improvement.
Our strategy throughout the pandemic has remained unchanged we will continue to focus on the three controllable activities of providing world class service to our clients rapidly developing new technologies and increasing the number of new clients added to our platform. We've done a great job and succeeded in these areas, which has kept us on track to achieve our growth and.
Initially I'd like to thank our employees for their patients flexibility and grit over these last 14 months.
In summary, now that we've lapped Q1s tough year over year comparison with the last pre COVID-19 quarter, we expect that the strength of our growth profile will be reflected and our future results. The record new business revenue and record number of new clients added in 2020 combined with robust first quarter sales is bolstering our long term revenue.
Growth opportunity as a reminder, we only have approximately 5% market share of of growing Tam. So we have a long runway ahead of us our strategy is working and our products have never been more relevant and with that I'll turn the call over to Craig per view of our financials and guidance Greg.
Before I review, our first quarter 2021 results and our outlook for the second quarter and full year 2021, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis as Chad mentioned, we are pleased with our first quarter results with total revenues of $272 two.
Representing growth of roughly 12% over the comparable prior year period, which was primarily driven by new business wins, including very strong new client revenue starts and the first quarter within total revenues recurring revenue was $267 8 million for the first quarter of 2021 representing.
And 98% of total revenues for the quarter and growing 12% from the comparable prior year period.
As expected the effects of lower head count on our pre pandemic clients and the impact of 150 basis point of interest rate cuts that occurred in March of 2020 remained relatively unchanged and addition, as we discussed on our Q4 2020 earnings call your employees working and industries hardest hit by the pandemic.
And lower overall turnover in those industries resulted in fewer annual forms filings and adjustments. It is difficult for us to estimate the exact amount that those trends impacted us, but we don't believe it was dramatically different from our expectations total.
Adjusted gross profit for the first quarter was $236 9 million, representing adjusted gross margin of 87% for 2020 one our target of adjusted gross margin range is expected to remain strong at approximately 85 the 86%.
Adjusted total administrative expenses were $119 8 million for the first quarter as compared to $108 4 million and the first quarter of 2020.
Adjusted sales and marketing expense for the first quarter of 2021 was $59 3 million or 21, 8% of revenues. We continue to be very pleased with our marketing strategy with another quarter of very strong demo leads and we plan to continue to invest and marketing throughout the remainder of 2021.
Adjusted R&D expense was $23 1 million and the first quarter of 2021 or eight 5% of total revenue adjusted total R&D costs, including the capitalized portion were $34 million and the first quarter of 2021 compared to $27 6 million and the prior year.
Period.
<unk> been aggressively recruiting talent and R&D to drive our future growth through innovation and new product development and <unk>.
Adjusted EBITDA was $133 million and the first quarter of 2021 or 48, 9% of total revenues compared to $117 9 million and the first quarter of 2020 or 48, 7% of total revenues, we benefited from cost efficiencies and G&A, which we expect to continue.
Throughout the year, we plan to continue to invest in the marketing and R&D.
Our GAAP net income for the first quarter was $64 6 million or a dollar and <unk> 11 per diluted share versus 63 million four of $1.08 per diluted share and the prior year period based on approximately 58 million shares and both period.
Non-GAAP net income for the first quarter of 2021 was $85 9 million of $1 47 per diluted share versus $77 9 million or of $1 33 per diluted share based on approximately 58 million shares and both periods.
We expect non cash stock based compensation for the second quarter of 2021 to be approximately $27 million to $28 million for the full year, we anticipate noncash stock based compensation will be approximately $105 million to $110 million turning to the balance sheet. We ended the first quarter of 2021 with cash and.
Cash and equivalents of $215 1 million and total debt of $30 5 million related to construction at our corporate headquarters cash from operations was $89 5 million for the first quarter, reflecting our strong revenue performance and the profitability of our business model. The average daily balance of funds held on behalf.
Of clients was approximately $1 7 billion and in the first quarter of 2021 shifting the guidance. We have now substantially lapped the last pre COVID-19 year over year comparison, and our guidance for strong second quarter revenue growth represents a true reflection of the strong performance we achieved throughout 2020.
We are pleased to be able to provide the following Q2 and full year guidance for the second quarter of 2021, we expect total revenues and the range of 231, the $233 million, representing a growth rate over the comparable prior year period of approximately 28% at the midpoint of the range.
We expect adjusted EBITDA for the second quarter, and the range of $80 million to $82 million, representing an adjusted EBITDA margin of approximately 35% at the midpoint of the range.
For fiscal 2021, we are raising our expected revenue range. The one point of $1 7 billion to one point of $109 billion up from 1.009 of 1.011 billion or approximately 21% year over year growth at the midpoint of the range we expected.
Adjusted EBITDA and the range of $400 million, the $402 million, representing an adjusted EBITDA margin of approximately 39, 4% at the midpoint of the range.
Conclude our strategy to mitigate the impact of the pandemic and grow the business has been working and we will continue to focus on providing world class service to our clients rapidly developing new technologies and increasing the number of new clients added to our platform. We have a strong balance sheet of profitable recurring business model.
And a long runway to deliver sustainable long term revenue growth with that we will open the line for questions operator.
At this time I would like to remind you if you'd like to ask a question. Please press Star then the number one on your telephone keypad.
Your first question is from the line of.
I'm, sorry, if I mispronounce, it Raimo <unk> with Barclays.
Hey, that's very close thank you.
Hey.
Congrats.
On a great quarter, and I am sure Youre looking forward to Q2.
Chad can you maybe remind us.
The question I get a lot from investors how can the 12% growth in Q1 jumped to like 28% growth in Q2, we like obviously the conflict and easily.
Maybe talk about the puts and takes it of driving at because that makes it really exciting.
And then one for Craig.
You mentioned, it a cost efficient and efficiencies and DNA can you just kind of elaborate a little bit on that one. Thank you.
Yeah. Thanks, Ryan So I guess first I would say as you know Q1 is typically one of our largest quarters for revenue in any given calendar year and that's because of our annualized.
Revenue billings of forms filings and adjustments that come in throughout the year, which has to do with.
Hiring and turnover trends throughout the year at different businesses, while 2020 reacted differently than any other year since I've been doing this since 1998, and which the hiring trends were different it would.
B of a traditionally you know of restaurants that may have 100 employees could easily do 300 W. Twos with forms filings and what have you.
They share that same restaurant may do 120 day.
W. Twos, so we saw a significant differences and hiring trends throughout 2020 than what we had seen in the past we did try to estimate what those would be also as a reminder of this Q1, we are still lapping.
Q1 of the.
Previous year that did not have COVID-19 in it which made for a tougher comps and as we move throughout second quarter, we've substantially lapped the.
The pandemic now you did still have recurring revenue.
Still getting worse throughout the month of April as we had mentioned that it it kind of got to its worst point beginning in May and then and then started the stabilized but we are excited about our next quarter guide. The guide that we're putting orders in Q2 of this year is the largest Q2 guide we've had since 2000 and <unk>.
<unk> 17 on a percentage basis for revenue growth. So you Werent you werent necessarily wrong and your early take that we're getting back on the right tracker and overseeing Cedric Alpha data rich dig and Ciena.
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As you might say in the native language.
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And there is paying off my German miners paying off.
And then yes.
Craig I'll answer your second one.
And gentlemen.
And the English his last name is bolting.
Go ahead.
In terms of the.
On the G&A line and the cost effect efficiencies we're seeing.
As we're looking to hire additional people you know those are primarily going to be and other areas of our income statement. So we're continuing to the higher aggressively and the R&D area and and the and.
And the sales and marketing as well as and the operations area. So we're just not going to see the same level of hiring and the and the on the G&A line as what we would see on in other areas of the business.
Okay.
Thank you. Thank you.
Your next question is from the line of <unk> <unk> with Jefferies.
Good afternoon, and thanks for taking my questions Chad.
And maybe the first one for you on the bookings side, Yes. As you mentioned, we're starting to kind of the lap last year and you guys had a great 2020.
Would you say that one was <unk> 20 of anything from a bookings perspective.
Was it a record compared to other quarters, maybe just help us further triangulate on the on the in quarter of New bookings performance and then just a follow up question as well.
Yes, so I mean, obviously, our bookings have been very strong I mean last year, we did have a record bookings as well as we added the record well that record new business revenue as well as a record number of clients to our platform, which was an increase from prior years as we've returned to guidance.
We've gotten away from talking about bookings, obviously, our bookings are very strong as what's reflected in our in our second quarter Guide.
Understood and then maybe on on Betty and you mentioned a couple of customers have.
And already been rolled out to them can you maybe help us understand how pricing for that's working and maybe how pervasive the use of that looks like at those customers.
Yes, I mean batteries really and all or nothing type.
The usage product I mean, you do have to change your internal process in order to use Betty because like we've said in the past payrolls are traditionally started after pay period, and and and Betty contemplates all of that happening at payroll beginning to wear once pay period and the payroll has done and so we have had clients.
Already submit using Betty and their employees.
We're able to use Betty as a matter of fact, one within the first of our of release, we had like 65% employee approvals and by the time of the submission they were over 85%. So employees are already engaging and it we're getting feedback from employees that this is the first time and I've really looked at my check and and much less.
Understood. It so we're having a lot of positive there we expect to put on.
At least 100 more clients and the next couple of months on Betty.
Betty and and throughout the year, we will continue to convert all over and what I mean by convert it is not a conversion of data it's more of a conversion of of their internal process and how you approach each payroll of little bit differently and our own environment. We've gone from over 55 clicks or processes within our payroll of down to three.
Three each person's experience is going to be differently, depending on whether youre doing commissions bonuses labor distribution job costing so it is a little bit different for each company, but it does drive a lot of efficiencies and as those payroll administrators submit.
They roll they have a very high degree of confidence and the accuracies that have already been approved by those employees. So it's going very well now as far as billing of Betty is not that he is not going to be build unlike.
Many of our other modules it will be a per life per employee fee to us.
Betty and then as we moved throughout this year, we will continue to sell more and more clients on its value.
Great and I.
I apologize in advance of squeezing of third one and but but I'll break the rules here any other changes we should expect with Holly the appointment.
And her new role and any other changes to either the go to market motion or are the sales organization organization that we share it.
We should anticipate and conjunction with that.
Well I mean, we changed the sales organization every year, we changed about three or four years ago to really focus on employee usage as an organization, we focused on selling usage, we'd come out with the Dx and we came out with the manager on the go net now Betty So obviously as we settle into this year there.
Or are some changes that we make to our selling motion, but that's not unlike what we've done in any given year Holly was.
He was our first and turn on the sales side.
And actually she started and turning for us when I was the sales manager. So Holly has a deep knowledge of of what we've been doing this entire time she's helped the spill did up to now and the reason why Hollywood chosen as it allows us.
And to continue to increase the drive that we have throughout our sales organization with the consistent leader.
And with the also of consistent talk track of that we've been driving throughout the sales organization for the last 20 years. So I wouldn't see any significant changes happening to the sales other than what we always have which is the improvements on our strategies as we deliver more value to the client.
Perfect. Thanks again for taking my questions. Thank you.
Your next question is from the line of Brad Reback with Stifel.
Great. Thanks, very much Chad the the upside in the quarter wasn't as robust as we come to expect with you guys.
Was there any sort of one or two items in the quarter of that maybe weren't as strong wtb's, maybe a bit below original expectations or anything along those lines.
Yes, it is related to year and services I mean are we have pretty good visibility quarter to quarter based off of our recurring revenue and then what we believe we will be adding from a new client revenue perspective.
And when Youre looking at year end, which as you guys have seen in the past are typically our largest quarters because of those year and service fees you know it gets harder to <unk>.
Xactly put an exact number on.
How those negative trends impacted us we did a pretty good job of of estimating that but and we don't necessarily guide to have a certain level of base. We guide to what we can see and oftentimes with new business revenue that can be impacted.
One way or the other and as it relates to first quarter, though we've always been heavy on annual forms filings adjustments and.
And so and also to note that it's not just our W. Two forms with US. We also have ACA forms at the effort at the end of every year as well. So I think we did a pretty good job estimating and its impact obviously, the fact that we continue to grow throughout the quarter and were coming out strong into Q2 reflects that we did have.
Strong ads throughout Q1 and coming out of Q4, but.
Those numbers were impacted by our annual forms filing business.
Great. Thanks very much.
Thank you.
Your next question is from the line of bar on cone with Baird.
Hey, good afternoon, and thanks for taking my questions.
Wondering.
The commentary with regards to what you're seeing in terms of the number of employees within the client base.
You mentioned there wasn't much of a help in terms of the first quarter, but as you look through the quarter and going into March and then April and.
Now going into May and are you are you starting to see a rebuild and how should we think about the sensitivity in terms of if theres of wanting of 1% increase in terms of the number of employees, how does that translate to revenue broadly speaking.
Yes, I mean, well, we'd like to think one per cent equals, 1%, but that 1% has to happen.
Across our client base that we serve which is less than 5% of the total addressable market and so.
And in answer to your question as far as those clients that were mostly impacted by the pandemic that we said really hit its worst.
For us in May and then started to.
Stabilized for us, we haven't seen any meaningful changes and those in those same clients.
So as we move forward I don't know that that number becomes an important bellwether for us.
As far as that.
$185 $2 million impact that we see from the recurring revenue negative impact from.
And those clients. So I don't know that it's a part of our story moving forward, obviously, we would hope that those clients.
And are able to hire back and that they are able to come out of it and the same situation that they entered into it.
But we'll have to see again, we're not seeing any we're not seeing any meaningful improvement and those and those numbers.
Okay.
Is that because of certain industries, Chad or I mean, when you take a look at the overall employment numbers broadly speaking, it's it does seem like sequentially on a seasonally adjusted basis things are improving.
Broadly speaking and we'll get the April of reports here and.
And a few days.
Is it just certain industries or what would be the reason why we wouldn't start seeing some of the the national trends come down too to the pay com client base.
Well I mean, our comments werent really of wholesale about.
The United States as much as it is about these particular clients.
That work with us and we're working with us prior to the pandemic.
And that we.
And that they had the layoffs and different hiring trends throughout the year.
A lot of and May have been kept the flow with the PPP that's been out there and.
And what have you, but we're not we haven't seen any significant movement with that group like I said I do believe that people took their hits early as it related to many of our clients. They may not be as quick to add people back potentially some may have become a little bit more efficient and you know there may be some out.
There that are.
Struggling but again, we've been focused on adding new business to our pipeline, so and focused on and focused on those so all of that is to say, it's been stable with that group and I don't know if or when the trends would impact that group because I believe it's going to be more of a client by client Imp.
<unk>.
Your next question is from the line of Daniel Jester with Citi.
Great. Yes. Thanks for taking my question kind of along the same line Chad I mean, I think many would project that we're going to see some historic levels of hiring here in the U S and the next couple of quarters. So you've been through macro up cycles and the path. So maybe you can just remind us how does sort of the HR.
And the buying cycle or sort of the spending intentions, how does that evolve as we get and QA really brisk hiring environment do you see HR on.
And just trying to get ahead of that or is there a bit of paralysis, because they're focused on growth of the business and maybe don't want to make a change on their payroll module and the outlook looks so great.
Yes, I mean, I think we're in a business, where we make those departments more efficient and so did the fact that you need to go higher and many people.
Using our onboarding product using our applicant tracking our talent acquisition product of using our background checks products that we have out there I mean, I think that we can aid.
People and that so I also think you're really seeing a shift toward the employee user.
I don't know that four years ago, you could even point to many employee users, especially in the mid market and today, that's really becoming the standard and so I think there are a lot of business that are focused on leveraging employee usage trends of what they use in their daily lives working with consumer products I think there's a lot of business.
<unk> is looking to leverage that to create value for themselves. So as businesses come back and and I'm not saying that we're not seeing positive hiring trends. My comments are related to those clients that represented the 1.85 to 10 2 million dollar weekly impact we're not seeing those numbers.
New dramatically are we seeing impacts of business is starting to come back and and hotel starting to hire more and and what have you. We're seeing some of that and where we can see that is in our talent acquisition is more requisitions are open or is in our background check. So I do think things are getting better but the question was more related to.
How are those clients that were impacted those clients that we said had that monthly negative rate or excuse me monthly weekly negative.
Revenue impact of of $1 $92 million, I think about a quarter or so ago, we called out. It may have improved 100000 of weak ish. It kind of fluctuated week to week and then now we've said we haven't seen any substantial sustained meaningful change from that which would be accurate as we sit here today, but we are bullish about.
Employee trends beginning to get better for us, it's never something that we've been able to focus on.
Les our hat on that.
Our bet the farm on that and you've got a really do the work and what we are doing we are going out and were selling businesses right now and if they have 400 and and 15 employees and then we're selling them at that and we're bringing them on and now maybe they grow maybe they don't.
We've just been focused on adding new business.
<unk> onto our platform and that's worked well for us.
Great. Thank you and then just on on Betty quickly.
And now that you've announced that and youre starting to get from customers on it are you seeing some of your other customers kind of get more with some of the module and that they need to be able to use <unk>. So are you seeing more engagement on manager on the manager on the go are you seeing more engagement on DDS as customers get ready to use Betty and the future.
Sure.
Yes, both manager on the go and Didi extra at the highest level of usage no matter, how you measure it so.
And I'm talking about at the highest level of usage right now and so that's been getting better and better as we've gone through.
Throughout the I would say I think we've had the DD ex for the last 18 19 months of head manager on the go now for well over a year and so we continue to see those trends tick up now is that in the anticipation for Betty or is that because of the value someone's receiving by using those things independently.
Whether you are setting up for better Youre, not I would say, it's probably the latter but the fact that it's happening.
Set us up very well for Betty and I do believe that as people look and see the value that <unk> is going to deliver for both the business as well as the employees I think youre going to even have more usage around the DD ex and manager on the go from a best practice perspective.
Your next question is from Milan of Brian Schwartz with Oppenheimer.
Yeah, Hi, Thanks for taking my questions. This afternoon.
Chad one question for you and then a follow up for <unk> for you on the new business that was coming in the quarter can you share of any color in regards to the linearity on how that business came and it seemed like there was possibly of different operating environment. When we started in January versus kind of at the end of the quarter and then I have of follow.
For Craig Thanks.
Yes, no I wouldn't say, there's been any meaningful difference and how we brought in our revenue.
And first quarter. This year, then and how we had done and how we brought in revenue and.
And first quarter of subsequent years Youre going to typically have your greatest number of starts and the first part of that as people look to start fresh at the beginning of the year of course, and first quarter your quarter to date and year to dates are the same.
So any time in the first quarter is not a bad time.
To convert and what have you, but no I wouldn't say that we've seen.
The trends meaningful meaningfully different than what we'd seen in the past as far as when someone chooses to start and the quarter.
Thanks for that and then the crowd one follow up I just have on the guidance maybe underlying the annual guidance I remember last quarter. When you reinstated the annual guidance you set a target out there for rule of six day and at that time that guidance had assumed no macro recovery.
And.
You are raising your guidance here today still targeting that rule of 60 per this year, but I'm just wondering if theres any change in terms of your view on that time and behind the macro recovery or if it still assumes no big macro recovery this year. Thanks.
Yes, I mean, our annual guidance still assumes no.
Macro recovery at this time so.
Consistent with how we guided.
Got it last year as well.
Your next question is from Milan of Robert Simmons with RBC.
Hi, Thanks for taking the question can you talk to what Youre seeing in terms of return to office and return to in person and selling and also other than what the expense and margin implications of that are or could be.
Yes, so as that question as it relates to us of our clients from a return to office.
Mostly for you, but whatever youre seeing.
Yeah, well first I would say, it's very regional and.
And returned to office strategies, depending on where you're located.
For us internally.
We've continued to be well.
And from home for most everybody we have put out a return to office plan for our employees beginning with the the.
And the supervisors and certain leaders coming in June. We will then have the team leaders start to come back and in July and then we will start alternating and our general population throughout the month of August and hopes of being back.
To the office full time and September now when you're talking about our sales.
Opportunities as far as going to meet with clients, we're going to continue to meet clients, where they live and you may have some clients that are wanting us to come in you may have some parts of our sales process.
And our steps of a certain sales that continued to stay and more of a hybrid.
Model, and then I would see us going in person for others, but I wouldn't say that we're back at that level or anywhere close yet in fact, we don't have any sales person, that's gone out and and called on a per.
Our business and person yet so we're kind of wait and see how that develops I would say, we're hopeful but I think that's something that's going to just kind of happen throughout these next couple of quarters and.
We'll just kind of see what happens.
On the expense related to kind of return to office.
We wouldn't see that a significant increase in costs were on.
Already.
Maintaining the buildings and and.
And all of those things so even on the travel side and we wouldn't see it the significant uptick and any of that has been already baked into our guidance.
Great. Thank you very much.
And <unk>.
Your next question is from the line of Ryan Macdonald of the Needham and company.
Hey, guys. This is Josh on for Ryan just one question from me.
If you look at platform usage pre.
Pre colored versus today do you think clients are deepening their understanding of productivity and how software can affect their workflows that previously maybe they didn't understand and the same way versus managing their operations and then do you think this results in a permanent shift of customers buying more modules.
Upfront as we exit the pandemic or could there be some reversion.
The pre pandemic.
<unk>.
I mean, it would be hard to think that we're going to go backwards and technology. It doesn't usually happen that way once you.
Once you've made that job. So I wouldn't think that we're going backwards as far as your question about I do believe that the farther and employee of a way maybe the more metrics you may have to look at.
The harder and employee has to touch the more metrics, you're left with that you'd really need to manage and so I do think being able to engage with employees through technology makes it both easier for the employee as well as for the business to kind of really share on the same transparency. There. So I don't see us going backwards and regard.
To that plus I really is something that was happening anyway and it wasn't that the pandemic.
<unk> created these opportunities I think the pandemic more sealed the fate of.
The old way in fact, we were already seeing trends with employees that are used to using consumer base technology too.
<unk> banking get a plane ticket order of coffee and then they came to work and it was 1992 three.
And through email and what have you and so we were already seeing the trends of of that usage happening I think the pandemic just provided of stronger proof source for the reason for that it probably accelerated that for some people.
But I don't see it going.
Backwards and that because it was right before the pandemic and the pandemic just produced another proof source for reasons why it's important to be employees to have a direct relationship with the database.
Your next question is from the line of Citi.
Penn and gray with the Mizuho.
Hey, guys, it's actually Matt Diamond on the city's behalf congrats on the strong print I've heard the questions about guidance and I want the phrase mine a little bit differently. It looks like the magnitude of the <unk> guide and the magnitude of the annual year. The full year guide implies some some strength.
And the back half of the year I know you can only comment on what you see for sure right now, but I'd love to get your insight on how to disentangle the magnitude of the <unk> guide and that of the annual guide anything Youre seeing and the second half of the year, specifically would be helpful.
Yeah. So we've always guided to what we can say we have not changed.
That approach as we had said the Q2 is our highest guide that we've had since the.
Since 2017, as we sit here today I really don't know of deals that are starting in <unk>.
October.
But I know as we move throughout this quarter and especially as we move throughout.
The future into the future quarters that we'll see more and more revenue that and that we're onboarding.
Okay.
That's what I would say as well as you know me.
As we set up our guide we.
And we guide to what we can see and you know so.
For the back half.
We'll continue to take a look and the.
Update as appropriate.
And on the the sales office side, and I know theres been some commentary around a return of the office I'm curious about your plans for sales office openings. This calendar year is there any light that can be shed there.
And it's still part of our strategy opening sales offices, and we're going to continue to do that as it as it makes sense as we talked about during the pandemic every office was substantially open because our people can really sell of prospect anywhere prior to the pandemic.
It was all in person so if we needed to if we wanted to sell a deal and Las Vegas, We don't have an office and Las Vegas, We had to we had to fly someone there and go there and person during the pandemic, we were able to do that virtually and so as we shift back there will be offices that will be looking to <unk>.
And.
And then we will have to do it and the right time, Inc. As well because I'm not 100% share when we will be going to full in off of selling again if ever.
From that perspective, as it relates to the mid market and I'm talking about where every appointments and person I mean before we had five of appointments with the prospect every one of them were in person I'm not 100% share that's going to be the case on a go forward basis, and that's not something we're trying to force, that's something where we're going to meet the prospects.
And where they live and a way that produces.
Successful.
Communication for both the for both us and the prospects.
Your next question is from the line of Bryan Bergin with Cowen.
Hi, Thank you I wanted to ask the question around clients switching behavior. So the large incumbent providers of talked about our retention and benefit for them. The seems to be partly supported by our reluctance to switch here from the pandemic uncertainty and some of the PPP reporting requirements and your sales team seen any of that behavior and the pipeline.
And if so do you consider that and incremental opportunity as things normalize.
Well our R. R. Our retention is directly reflected with usage and fact someone gave me of retention.
The report the other day and of thought it was a usage of report.
Because of the trends are almost the exact same.
You know you watch your route usage go up you watch retention go up and so that's really what we've been saying as the as a reflection of our strong retention it's about usage.
Are there things out there that make it to where somebody is the less like the switch I mean, I don't think so in the new youre going to become more efficient if the switch to us with a very strong value proposition and your employees are going to like it more and.
And we're going to create even more value. So I don't really think waiting it's a good opportunity.
<unk> on that and so we've been focused on driving revenue prior to the pandemic, we've been focused driving it during the pandemic and.
Once the pandemic and so I mean, it's not my job to say when that happens, but once the pandemic is over I would expect us to continue to have a strong sales regardless of of what's out there as far as.
Trends one way of the other.
On.
With software because of the efficiencies that we're driving and the dramatic difference and experienced set of clients gonna have using our product today than what they would have.
Four of five years ago.
Okay and.
And then just are you seeing any different behavior, and what module of existing clients or attaching as of the economies reopening here and we're seeing and new clients take on more at the point of purchase.
And they look background checks or are doing better than they've done and the past or than they did last year because you are having.
More people hire you know when I talk about hiring trends and improvement I'm talking about those businesses that we had pre pandemic that were hit I'm not talking about all of the new businesses that we've added.
<unk> or businesses that weren't hit negatively by the pandemic last year, so I want to be able to separate the two of those when I'm talking about.
Hiring trends, where we're not seeing improvement I'm talking about of those clients that were most impacted by the pandemic last year and there are and the industry. As you would think they would be and but we still do see positive trends happening across the board with more people.
<unk> background checks doing on boarding today more so than they were doing last year, but we're still not back.
To where we were.
And at pre pandemic levels.
Your next question is from the line of Josh Beck with Keybanc.
Thank you for taking the question Chad you made the pretty specific comment about.
<unk>, becoming the.
Standard for payroll and 12 to 18 months. So I'm just curious what you mean by that would love to hear a little more on the topic.
I think all of our clients will be using Betty within the next 12 months to 18 months.
Okay.
The.
And we clarifies it.
What about with respect to marketing and advertising.
Have you changed maybe the the composition of the channels.
Versus say pre pandemic is there any notable.
Differences and how you want to invest across those areas.
Yeah, well I would just say we've gotten better at it.
As you continue to spend on it and again, we measure this week after week week over week based off the number of leads that we get and so sometimes some weeks leads are generated and areas.
And maybe a little bit stronger areas, one week and then what we may see and the next week, meaning that you may have more come and digitally.
One week and the next week could be.
<unk> through what we're doing from a targeted marketing perspective, where we already know who you are we're targeting new all of that is a part of of our marketing strategy. We're not just putting ads on television and see and who's calling us.
We have we have many legs to our marketing department and as well as to our marketing strategy and so it's continued to evolve and we can ship, but we've continued to measure it the same way.
Successful marketing campaign delivers demo leads for US those are companies that requested demo. We have leads that arent demo leads of someone that may go in and download white papers or they're interested but they have not yet requested of demo from a demo of late perspective, we're still setting appointments with over 90% of those.
And as they come in and so Theyre very strong leads for us and we've been having a lot of success there.
Your next question is from the line of Arvind Romani with Piper Sandler.
Hi, Thanks for taking my.
Congrats on a good quarter.
And I just wanted to go back to this topic of Betty Inc. You suddenly and provided a lot of color on Betty and it seems to us getting really good traction.
And and I know, it's very different and D D ex.
But can you kind of help frame how impactful that is.
And as it pertains to the win rates I know D. D ex had like a big impact on win rates.
And I'm, just trying to get an understanding of the business model the impact on <unk>.
Yes, I mean, well Betty Betty is a unique product that comes with the unique strategy and that is about having employees being able to visualize what their checks are what the check is going to be.
And what components impact their check.
And where they are able to visit visualized and participate in that throughout the pay period, and then it pay period and they.
And theyre able to approve that that check is is correct and what that does is it eliminates manuals boyd's adjustments all of the things that payroll departments and accounting departments. Traditionally you have to do after the fact once they found out that.
That was an exact didn't exactly include everything that it should have for that employee and so by moving the process up to the beginning of the pay period versus at the end of the pay period.
It's going to change the way people.
Do that that payroll as far as the win rate I think it is going to impact our win rates absolutely once people really start using it the Dx we came out with it starting to impact.
Packaging, our retention not long after we.
Came out with it and and manager on the go I would say, it's a similar product as that and all of that got more and more people engaged employees again engaged and our software and interacting with the database on their own and the more people that interact with the database on their own the more accurate the data is.
The more confirmation that you have that the data is accurate and it produces less liability and exposure for the businesses that deploy it.
I see that continuing with us as we move forward and I do think it's going to impact of both our win win rates and our retention positively as it becomes prevalent within our platform.
Great.
Your last question is from the line of Alex Zukin with Wolfe Research.
Hey, Larry This is Alan on for Alex here and thanks for taking my question.
And we only of client counts on a quarterly basis, but can you talk about the momentum you're seeing of market that is driving improvement per club.
And that's the one follow up.
Yes, we've continued to have success, we really started rolling out and inside sales group and let's say, we had five or so people for several years and then about two years ago, We started building out that.
Of that group as we've done that we've obviously seen more deals below our target market and we continue to see deals above our target.
The market, even as we rolled through last year I was even a little bit surprised that our average billings per client wasn't down a little bit when you looked at the growth that we had and in client units. So but it was pretty much the same which just shows the fact that yes, we are continuing to add small.
And as clients, but they're also being book ended with the large business that we continue to bring on as well.
And that does conclude the Q&A portion and I would like to turn the call over to Chad Richison for closing remarks.
Alright, I want to thank everyone for joining us on the call today.
Today I'd like to send a special thanks to all of the employees at <unk> com for their commitment and patients throughout the pandemic.
Over two thirds of our staff are either fully vaccinated are and the process as I've stated in the past I do believe that getting vaccinated saves lives and maybe your own but likely of loved ones and from an investor outreach front. This quarter, we'll be presenting at the Cowen Technology Conference.
On June 1st and that the Baird Global consumer Technology and services conference on June 10th of pay Com will also be hosting one on one meetings in may and in June at the Needham J P. Morgan and Stifel conferences, we look forward to speaking with many of you very soon and I. Appreciate your continued interest and pay com.
Thank you operator, you may disconnect.
Thank you that does conclude today's conference. Thank you for participating you may now disconnect.