Q2 2021 Paycom Software Inc Earnings Call
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Excuse me, ladies and gentlemen, this is the operator todays conference call is scheduled to begin momentarily and until that time. Your lines will again be placed on music hold thank you for your patience.
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Thank you for standing by and welcome to the Telecom software second quarter 2021 quarterly results conference call. At this time, all participants are in a listen only mode.
For the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone if you require any further assistance. Please press star zero and I would now like to hand, the conference and Richie Mr. James Samford. Thank you. Please go ahead, thank you and welcome to pay for.
Second quarter, 'twenty, 'twenty, 1 and earnings conference call.
Certain statements made on this call that are not historical facts, including those related to our future plans objectives and unexpected performance are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 of these.
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 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, and our most recent net 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.
And whether as a result of new information future events or otherwise, except 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.
We use these non-GAAP financial measures to review and assess our performance and for planning purposes.
The reconciliation schedule showing GAAP versus non-GAAP results is included in the press release that we issued after the close of the market today.
And is available on our website at investors Dot Com Dot com.
And we'll now turn the call over to Chad Richison pay Com's, President and Chief Executive Officer.
Chad.
Thanks, James and thank you to everyone joining our call today I'll spend a few minutes on the highlights of our second quarter 2021 results and the opportunities. We are pursuing as we look ahead following that Craig will review, our financials and our guidance and then we will take questions. We delivered very strong second quarter 2021 results with revenue of 200 and for.
42 million that grew 33.3% our fastest quarterly growth rate compared to the prior year period since Q4 of 2016 and well above the top end of our guidance range. The upside from the quarter was primarily a result of broad based demand strength from new client adds and consistent cross.
Selling to existing clients, our second quarter adjusted EBITDA was 87 million, representing an increase of 42% over the prior year period with the strong results. We are once again, raising our full year guidance, which Greg will discuss in more detail.
And the investments, we make and our products generate tremendous value for our clients and driver of differentiated employee strategy. Our newest employee innovation is Betty the industry's first self service payroll technology, allowing employees to do their own payroll, which we officially rolled out to the market in early July Betty which stands for better employee.
The transaction interface is and employee driven payroll experience and represents 1 of the most important advances we've made to date with Betty employees do their own payroll, which allows our clients to benefit from increased payroll accuracy, while employees gained full insight to their paycheck, including advance knowledge of take home pay and.
And how it's calculated employees have a direct connection to their paycheck to resolve errors well before pay day. So they don't have to wait on or contact anyone for assistance and the additional clarity on how their pay changes and is calculated combined with automatic alerts when items require their action gives employees and clients confidence and the accuracy of the.
Payroll I'm very pleased with the launch so far we are receiving tremendous feedback including of VP of HR, who said betty's the most revolutionary payroll product I've ever seen another comment from a chief HR Officer noted the Betty is giving ownership of payroll to employees and managers, which is great because they know better than anyone.
What their paychecks should be.
As we said during our Q1 earnings call. We are planning to have 100 pilot clients on Betty and the second quarter and we easily achieve that goal on July 6 we opened up Betty to all clients and through the end of July we've already so Betty to over 1000, new and existing clients I continue to expect that all pay compliance will of.
Chile deploy Betty it's the only way payroll should be done.
And our marketing plan continues to deliver strong demo leads and we intend to spend aggressively in the coming quarters to fuel future revenue growth and further expand our market share and a large and expanding H C. M to M. Our messaging continues to resonate with prospects as we contrast, the shortcomings of disparate H C M.
Systems with the value proposition of pay come single database solution and self service capabilities that are stronger than ever employees expect their HR software to be efficient and easier to use and once again, we had record high employee usage rates and Q2 as measured by our direct data exchange or D. D. Ex we continue to enjoy increased.
The traction with both smaller and larger companies as a reminder, we added multiple inside sales teams as we've continued to have success below our target range due to the technological advances we've made and the demand and that's building around our employee self service initiatives. We've continued to be pulled further upmarket as well.
As a result, we are pleased to announce that we are expanding our proactive outside sales efforts from targeting firms with 50 to 5000 employees to targeting firms of 50 to 10000 employees. We've had success selling the organization's above our historic range driven by a larger company demand. This change we are announcing today empowers our sales representatives to per.
Actively target in this expanded segment and we are excited by this incremental opportunity we have clients and the segment already so we're confident that our solution will compete and serve these clients effectively.
On the pay Com branding front, we recently signed a 15 year naming rights partnership with the Oklahoma City Thunder that will transparent formed their downtown home into the pay Com Center, Oklahoma City is home to thousands of our employees and I'm happy that the pay comp center will be home of the Thunder, we have now lapped the tough pre pandemic.
Year over year comparison in Q2 and is more reflective of our historical growth profile record new client additions over this past year driving our growth while we saw a very small head count improvement and our pre pandemic client revenue base, our guidance and future growth initiatives are not reliant on any employment improvement and summary, Q2 was a very.
Strong quarter that reflects the strength of our execution throughout the pandemic and the investments we've made to further distance ourselves from the competition innovation customer service and new client growth represent the foundation of our long term revenue growth strategy and with only approximately 5% market share of of growing Tam we.
Continue to have a long runway ahead of us I want to thank all of our hard working and dedicated employees for their resilience and commitment to winning with that I'll turn the call over to Craig for a review of our financials and guidance Craig.
Before I review, our second quarter, 2021 results and our outlook for the third 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. We are very pleased with our second quarter results with total revenues of $242.1 million reps.
Resuming growth of 33, 3% over the comparable prior year period, driven primarily by broad based strength with new client wins and consistent cross selling to existing clients within total revenues recurring revenue was $237.6 million for the second quarter of 'twenty 'twenty 1.
Renting 98% of total revenues for the quarter and growing 33, 5% from the comparable prior year period.
Total adjusted gross profit for the second quarter was $206.9 million, representing an adjusted gross margin of 85, 4%.
For 2021 we remain on target for adjusted gross margin to be and the range of 85% to 86%.
Adjusted total administrative expenses were 136 million for the second quarter as compared to 106 million and the second quarter of 2020 <unk>.
Adjusted sales and marketing expense for the second quarter of 2021 was $64.3 million or 26, 6% of revenues and our marketing strategy continues to generate strong demo leads both within and outside of our historical target market range of 50 to 5000 employees we planned.
The continued to invest and marketing throughout the remainder of 2021 and as Chad mentioned, we have increased our target market range to 50, the 10000, and thus empowering our outside sales representatives to proactively target larger companies are.
Adjusted R&D expense was $26.2 million and the second quarter of 2021 or 10, 8% of total revenues adjusted total R&D costs, including the capitalized portion were 38 million and the second quarter of 2021 compared to $27.7 million and the prior year period we.
And you to be very pleased with the high quality innovation, we're seeing from our investments in R&D and we'll continue to aggressively recruit talent in R&D to drive our future growth and.
Adjusted EBITDA was 87 million and the second quarter of 2021 for 35, 9% of total revenues compared to $61.2 million and the second quarter of 2020 or 33, 7% of total revenues.
Our GAAP net income for the second quarter was $52.3 million or 90 cents per diluted share versus $28.6 million or 49 cents per diluted share and the prior year period based on approximately 58 million shares in both periods non.
Non-GAAP net income for the second quarter of 2021 was $56.5 million or 97 cents per diluted share versus $35.9 million or 62 cents per diluted share and the prior year period.
We expect noncash stock based compensation for the third quarter of 2021 to be approximately $25 million to $26 million for the full year, we anticipate noncash stock based compensation will be approximately 95 to 100 million for 'twenty 'twenty..1 we anticipate our full year effective income tax rate to be 24.
Of the 25% on a GAAP basis on a non-GAAP basis, we anticipate our full year effective income tax rate to be 26% to 27%.
Turning to the balance sheet. We ended the second quarter of 2021 with cash and cash equivalents of $202.4 million and total debt of $30 million related to construction at our corporate headquarters cash from operations was 57 million for the second quarter, reflecting our strong revenue performance and the profitability of our business more.
Model the average daily balance of funds held on behalf of clients was approximately $1.6 billion and the second quarter of 2021.
During the second quarter of 2021 we repurchased approximately 94000 shares for a total of roughly $32 million through June 30, 2021 take home has repurchased over $4.2 million shares since 2016 for a total of approximately $455 million and we currently.
We have roughly 300 million remaining and our buyback program.
Shifting the guidance, we are pleased to provide strong third quarter guidance. It reflects the robust performance, we achieved and the first half of 2021 and we are raising our full year 2021 outlook as a result, our Q3 and full year guidance are as follows for the third quarter of 2021, we expect total revenues.
And the range of 249 to 251 million, representing a growth rate over the comparable prior year period of approximately 27% at the midpoint of the range. We expect adjusted EBITDA for the third quarter in the range of 87 to 89 million, representing an adjusted EBITDA margin of approximately.
35, 2% at the midpoint of the range for fiscal 'twenty 'twenty..1 we are raising our expected revenue range to 1 point of 3.6 to 1 point O..3 8 billion up from 1 point of 1.7 to 1 point of 1.9 billion or approximately 23, 2% year over year growth.
And at the midpoint of the range, we expect full year adjusted EBITDA in the range of $410 million to $412 million, representing an adjusted EBITDA margin of approximately 39, 6% at the midpoint of the range. When combined we now expect revenue growth and adjusted EBITDA margin to easily exceed the <unk>.
Rule of 60 this year.
To conclude we are very pleased with the performance and the quarter, which gives us increasing confidence and our outlook for the remainder of the year with the launch of Betty and expanded target market and a deep product development pipeline. We have a long runway ahead of us to continue to deliver rapid growth for years to come with that.
That we will open the line for questions operator.
Thank you at this time, if you would like to ask a question. Please press Star then the number of wine on your telephone keypad.
Your first question comes from the line of Raimo and shelf with Barclays. Please go ahead.
And he is first of all congratulations that was an amazing quarter and amazing return to high growth.
So Chad quick question on the decision to go towards like the the 50 to 10000.
All of your clients now historically you were always a little bit of has attempted force healed FICO debt.
Seem to get more complex slightly longer et cetera, how do you manage that process and can you still do it with the same sales force and then I had 1 follow up.
Sure Raimo and so if you remember it was about 3 years ago. Our range at that time was 50 to 2000 employees. We continue to be pulled up and so at that point and time, we made it official allowing our employees to target proactively target of companies of that range because again, we were being pulled.
More up market and.
Same things happened here up to 10000, we continue to be pull of pulled further up market I would say that the buying criteria for.
And for companies of that size has changed.
You know, we're all working with the same type of employee and Theres no such thing as a large market employee and a small market employee you can work for a 300 employee 1 company and work for a 10000 employee company of the next and so you know we're providing a are very easy to use standard way for employees to interact with their data and.
And we're finding it easier to work with the larger businesses as they look to displace multiple disparate systems with 1.
Yeah, Okay, perfect makes sense and then on Betsy like if you think of it you know the the 1000 and the greater than 1000 clients already signed up like what has been the M.
1 of them has been the the the feedback so far from those clients.
Some surprises maybe that you've seen there and that you can utilize for the rest of the client base and thank you and congrats again.
You bet and so you know employees like I've been saying employees pretty much fly blind into every payroll. They do the work day clock in clock out put and their expenses manage benefits manage time off and everything else and then they get blindfolded before pay day and then they get to find out on pay day, what it meant and I mean, it's similar to blinding the pilots.
Before the land.
And so what we've done is taken that blindfold off the where employees understand how their checks are calculated and they can help the payroll department have perfect payrolls, because theres not a payroll person out there that doesn't have anxiety going into each payroll day, because they want it to be perfect and so oh, what Betty does is help everybody.
Get to the right level of accuracy and it also eliminates a lot of the after fact manual checks boyd's and adjustments that oftentimes clients have to do after and employees check is incorrect and we know how important it is for employees checks to be a perfect. They expect it. So you know we're having a lot of some.
Access with it and I would expect us to continue them.
Perfect. Thank you.
Thank you.
Your next question comes from the line of some odd Sumani with Jefferies. Please go ahead.
Hi, good evening and I'll Echo the congrats on the 30% plus scrapped and it's great to see that come back the.
Chad maybe first question for you.
And just wanted to think about it sounds like cross selling was much more and mentioned more often on this call and I think historically you tend to take customers adopt the day adopt right and so can you help us understand why cross selling is becoming a bigger motion and is that primarily Betty or is it across the portfolio.
Yeah, I I couldn't say that our cross selling today as a percentage is is the more of our revenue than what it's been in the past I would say on a percentage basis still cross selling for the biggest percentage of our revenue was during that year of HCA.
We're again everybody had to take it I do believe that we're going to be having a oh you know the.
3 or 4 quarters here of some pretty good at cross selling as we move everybody over to the better employee transaction interface, which is Betty also as we're selling a new onboarding new clients now Betty is a part of that and so our sales reps are you know Betty comes with the payroll package now it is and additional fee for.
For that but it is his and included on every quote moving forward for new businesses. As we believe this is the way businesses win and achieve their return on investment with our product as it relates to the payroll side of of what we do.
Great really helpful and then maybe as a follow up that day.
This was 1 of the biggest speeds take Ams posted kind of relative to expectations. So I'm curious if you could maybe help us.
Maybe unpack how much of that how you think about it.
In terms of better new bookings versus the uplifted baddie versus the employment and recovery and the installed base. When we true as we think about maybe the the strength and the quarter.
Sure well in regards to beat and Betty Betty had very little does zero impact on our second quarter I talked about on our May call that we would be looking to put 100 clients on it that quarter, we achieve that I think within the first couple of weeks and then we held we went through that and then on July 6th we actually released it to.
All other clients. So that was within this quarter. So Betty would've played a zero impact as it relates to last quarter. We do you think it's going to be a part of our our differentiated strategy of moving forward.
So new logo adds as usual is what what contributes to our growth followed by Upsells to current clients as far as macro.
And we've been that we've been going through this now for a little bit I've been talking a little bit about as having some improvement with the pre pandemic client base as far as this quarter I'd say, we saw an improvement and hiring during this past quarter and the impact that it had on our revenue for this quarter from our pre pandemic client base.
And was a $1 million to $1.5 million for the quarter. So that's about $100000 worth of weekly improvement on that number that we had talked about.
The prior.
Great I appreciate the questions and congrats again on the strong results great to see.
Thank you.
Your next.
Question comes from the line of Brad Reback with Stifel. Please go ahead.
Great. Thanks, very much Chad as your sales people have the opportunity to move further up market do you think that changes the sales cycle length, and if it does length and how do you manage that.
No I don't I mean, a little bit it's hard for me to say that you know of a of a.
Of 5000 employee company sales cycles going to be are the same as 150 employee company sales cycle I will say the 5000 employee side. The sales cycle is the same as of 10000 employee cell cycle. So I don't know that there are some major differences between the 2 of those as far as the what theirs.
Sales cycles.
Would be.
We're still not looking to engage with the long sales cycle that are requires us to link up with multiple disparate systems. So you know somebody has to be a fit for us to go into that something else. I would say is we continue to have strength of down market.
We continued to aggressively achieve our lead volumes and and they continue to go up and oftentimes. Those leads are also small business and so first of this year. We had for sales teams and that was up from 1 of the previous year throughout the sheer we've added another 6 inside sales teams and so now we're at 10.
And inside sales teams, which sell the emerging business or that would be the below 50 market. So we continue to do extremely well below 50, and we continue to be a pulled up market because again, it's the same employee interface, whether you work for a 15 employee company or whether you work for a 10.
<unk> thousand employee company, those employees expect and ease of use and easy access to their system and so we're seeing a we're seeing a lot of momentum being created based off of the employee usage needs and and and how much it makes it easier for them.
That's great and then 1 quick follow up and Betty can you help us on the monetization of I'm, sorry, if I missed it.
What type of uplift you get from an existing customer that the adding Betty.
And then on net new what type of uplift.
Yeah, and so you know, we've we've added products and the past, where we got 100% usage very quickly and I'm thinking of Mdx and manager on the go in and those were products that we just included in our pricing with Betty It is and additional priced product even though it's now included on every single payroll deal.
And you know.
We believe our pricing is competitive so I don't like to just put it out there you may be able to find it out there, but all I would say is it's a reasonably priced.
Like many of our other modules.
That's great thanks very much.
Thank you.
Your next question comes from the line of Martin <unk> with Baird. Please go ahead.
Hey, good afternoon, and let me add my congratulations.
With regards to the you know to the the rapid ramp in terms of the clients that are using Betty would with the hundred debt first came on and can you talk a little bit about like what sort of.
M experiences day, we're seeing this you know did it did it really ease the or increase the accuracy. The pay ended up experiencing are the are you getting any feedback from clients about hey, our payroll department doesn't need as many people and how quick how easy was it to live.
You know you opened it up on July 6 and now you've got over a thousand odd Betty how easy was it to convert them.
To Betty.
Yeah, and so well, it's better you're already on it it's something that we turned on for you, but what we have to work with you to converting your processes you've got a lot of these processes that happen. After the fact, we need to have those happen happened at the beginning or during the payroll transaction and once you do that a lot of the processes you'd normally do after the factor.
Our irrelevant, we're able to displace those and so we eliminate a lot of processes and then with some of the processes, we moved them into our earlier and the in the processing phase and so but in answer to your question. We haven't had anybody turn it off you know once you turn it on and that's what your employees are doing you have of very high satisfaction rate with.
The employees and he of a very strong the R O y.
Betty itself, 100% pays for itself and it actually helps even pay for the payroll the entire payroll module because theres, an incredible amount of ROI when youre not having to do manual checks boyd's adjustments and wire money into employees accounts to cover NSF fees. They may have because of their payroll is wrong.
And so it also gives employees of visibility into what their checks going to be you know a lot of a lot of people live check the check I mean over 80.85 per cent of the U S. Our employee lives check the check and you know they need to know exactly what their pay is going to be and if it's $30 off that's a big difference for them and so that it gives them visibility.
<unk> long before the check date and gives them the ability to interact with their check to make sure. It's accurate, which again increases are of life for the business. It also lowers the business as the exposure and as certain risks associated with paying people you know theres some pretty specific laws on making sure you pay your employees correctly.
And that you pay them on time and with Betty.
And you know that's easily achieved.
That's great and did.
All of those clients have time and attendance already set up or did some of them have to add.
And that.
You know that's of Great question, Raimo I would expect that most of our peers of it.
Sorry, Mark sorry, Marc Marc I would expect that most of our key.
Clients already had time and attendance because you know we like to go through there and and.
Get the ones using quickly that are already ready now and I would say most of our clients at pay com already have time and attendance, but you are right there will be certain modules. So that as we go to move Betty would be required for a client to implement.
Great.
And then 1 last 1 just on the the.
Increasing the <unk>.
Of the target range from upper limit of 5010 thousand and with the when you first expanded from 2000 of 5000 and how many of those 5000 and employee companies were kind of like inbound and kind of approaching you guys. Obviously, you've got a great marketing campaign, that's been very successful image.
And that's that's drawn and the number of enquiries, but can you talk about like how much of that is being pulled in as opposed to being pushed.
Yeah, I mean, you know we don't we do not have a marketing strategy for companies above 5000, with new targeted prospecting and our targeted prospecting strategies had been.
3 years ago, they were for companies below 2000 Ah.
And then we moved that to 5 below 5000, which we've experienced for the last 3 years and now we're moving it to 10000 and what that means is we will start proactively targeting knees. We have continued to have people call us of employee sizes in that range and again the more that we've had you know we've continued to move up our.
For our market and so what it allows us to do now is new targeted prospecting toward those and add salespeople make calls you know theyre able to proactively make those calls now sales reps have always been able to make a proactive call of sales Rep can go out there right now and sell of 50000 employee company I don't care.
But as far as what where are our target of prospecting efforts are toward those companies now that have between 50 and 10000 employees and then and are more small business or emerging tech companies. It would be for those that are also below 50.
Great and congratulations.
And <unk>.
Your next question comes from the line of Daniel Jester with Citi. Please go ahead.
Great Gaffney and thanks for taking my question. It seems like every day, there's a new story about how tight the labor market and so I'm. Just wondering if you could talk about sort of how the tight labor market may or be or may not be impacting our inbound demand that youre seeing.
Inbound interest that we're seeing yeah, that's right. Okay. Okay got it and your last part there cutoff well I mean definitely I think it plays a role of you know we've done a lot of surveys that employees like easy to use technology at work I've said and employee shouldn't have to work to work.
You know and so you definitely have a frustrated employee base. If you have multiple pieces of technology that are difficult to use also.
The Hopper talent out there you know you want to retain your good employees. That's of must good technology helps you do that you also need to deploy pretty good technology on the talent acquisition side, because you know everybody's and a dog fight for talent right now, it's a very tight labor market. So I do believe that there is some of that in.
There, but you know the the everything shifted to this digital transformation and the right way to do something and it only makes sense that employees would be the ones engaging with their data and so we're having success with that but.
And I think the labor market might be tight for awhile here.
We'll kind of see what happens after that as far as our business.
Because of our new business ads, we've really what we've needed stability and we've had that since the summer of last year. We just we needed some stability within the labor market and so I don't think even if the.
There's different situations with the pandemic as we go through the remainder of this year.
I still believe that you know, we're dealing with somewhat of a tight labor market. So I don't feel like the macro.
On a go forward is going to impact us like it had provided.
Provided that we have some stability here and it looks like we will from and employment perspective.
That's great and then just as the.
The follow up you've been selling virtually for like 18 months now you talked about adding the inside sales team I'm. Just wondering if you can kind of reflect on once the accident you get back to the normal environment does this change of philosophy about adding a new sales offices.
No no I mean, its timing you know we're just now our managers are getting back into the office and you know throughout.
The rest of this year, you know people are going to be filtering back into our offices as we.
Go back to the office to do our selling as far as what type of model and hybrid model, we're going to be using you know, we've we've been paying attention to our why prospects by and we've also been paying attention to how the prospects by so you know we're going to be supporting the.
And the methods that are best helped both the prospect as well as us be able to and Rk's display.
And what our product does and it and in their case, you know haven't have a clear understanding of what the rois for them.
Great. Thank you very much.
Thank you.
Your next question comes from the line of Brian Schwartz the top with Oppenheimer. Please go ahead.
Yeah, Hi, Thanks for taking my questions and congratulations on a great quarter, Chad, maybe if I could just start there on the quarter can you shed any light on just how the bookings of the business activity trended in the quarter I'm.
And just how the linearity was and will start from there.
Yeah, I mean, you know we've had really strong bookings since the.
April of last year.
You know things kind of took off and we were doing well anyway, but I mean, you know we've had very strong bookings and factor. These last 2 weeks that we just had here in July of these last 2 weeks.
You know that's the largest number we've put up ever in.
And bookings and so bookings have been strong.
As we've continued to push a differentiated strategy. That's you know.
Getting a lot of momentum here and the marketplace.
Thank you and then Chad 1 question I had just on the target of expansion move here I'm just wondering if theres any industry verticals that you know would have I would think think about fewer organizational complexities to them and therefore would just be ripe for battery and and more likely to.
Switch to self service when you target.
Yeah.
Yeah, I mean, I I really look at it is it's a product for everybody you know from the employee perspective.
I would even say that the more complex. It is the more you need to deploy.
Deploy Betty you know the.
The more of data points you have on of check.
And the more important it is to deploy something like Betty so I'm not going to say that any specific vertical or.
You know either easy or complex.
And type of company that Betty would be best for I think it's best for everybody and it's 100% best for the American worker too.
To have a product like this to where they can engage the himself with their data and something that's going to significantly impact their ability to work their financial plan.
And then last question for Craig just on the on the marketing and advertising campaigns given the are the bookings momentum here and the business. The commentary I Wonder if you of any plans to increase your advertising spend here and the second half of the year in support of the the battery product cycle and in the current momentum in the <unk>.
Thanks.
Yeah, you know, we're going to continue to spend aggressively on the sales and marketing you know you've seen that in the past you know the back half of the year, where we've.
Kind of ramped up sales and marketing so.
I would expect the kind of see the same for us through the rest of the year, obviously in the marketing plans, we've currently baked into our.
Third quarter and full year guidance.
Thank you.
Your next question is from the line of Ryan Macdonald with Needham. Please go ahead.
Hi, This is Michael of Rackers I'm on for Ryan Macdonald. Thanks for taking my question.
So we've heard from multiple vendors that turn that churn ticked up slightly and the quarter and.
Some of the customers that may have wanted to make a change last year couldn't do so.
Because of the other of pandemic driven priorities did you experience any similar uptick and churn within your customer base.
And did you see any more opportunities to replace competitors during the quarter given this dynamic.
Yeah, and what I would first day as it's a bad idea to use our competitors and when and in relation to churn as a proxy to us, but we do not report.
Either gains or no gains as it relates to retention.
And until the end of each year, what I would say, though is that we're having a lot of success deploying differentiated product of both to new customers as well as to our current customers and and those clients that are buying product or Stan.
And so you know we're having a lot of success, it's a differentiated strategy and as we continue to have increased D. D ex usage, where more and more employees are the ones, making the impressions on the database and not a intermediary through through another department within the company you know.
We would have an expectation that we would continue to have a strong net retention rate with our clients.
Great. Thank you.
Thank you.
Your next question is from the line of Citi.
And with Mizuho. Please go ahead.
Hey, guys. This is Matt Diamond on the line for city of and 1 of the add my congrats for the solid results for the 1 question that come up but we've <unk>.
The 2 at a little bit is around better yet. It was mentioned that there was going to be 3 to 4 quarters of continued.
Pretty above normal cross selling.
We also know that Betty necessitates all of the PE com modules in order to to for a client to be eligible for Betty can you help us handicap, what's really what's the size of the existing client base has all of those modules TNA. It sounds like it's pretty widespread so that we can get an idea of what the magnitude of that.
Ross so opportunity looks like over the next 3 to 4 quarters.
Sure and so I do want to say 1 thing Betty does not require you to have all of our modules theres a lot of modules.
Don't need.
The 2 utilized betting that would make sense that someone would take the modules, but things like talent acquisition as far as you know recruiting Cobra a lot of our modules you don't necessarily have to have to run Betty but it's a good idea that you implement it within your business. So that your employees can use 1 system, but there.
Our modules that would be required to use Betty like paid time off time and of tenants expense management benefits administration. There are some of them definitely that youre going to want to use them because without them you wouldn't be able to use Betty a lot of those are.
Fairly popular products to us, but you know we have several clients that don't have them and so I.
I would like to thank our sales reps are probably out there right now or see our ours for probably working with a lot of those clients that are already ready to go where we just go and click a button eliminate most of your processes and shift a few of the beginning.
But I'm sure that we will have our internal sales group or a client relations group continuing to reach out to clients of of all of characters characteristics, whether they have all of the products currently required or just partial.
So there is an opportunity there for us as far as handicapping it again.
We consider of pricing.
The competitive in nature, but there are opportunities for us out there I do want to say this though our revenue gains are going to be primarily driven by new business wins, just because of of what the the and I'm, saying new logo wins.
And just because of the size of the new logo compared to the potential up sell of that same logo.
That's a perfect segue to my next question is there anything that's being done differently or for that.
And that's been adjusted on the products side to address these 10-K customers and above this and poised the 10-K employees and above it doesn't seem to be the case, but anything that could be commented on in regards to the R&D spend and and what's being prioritized for that customer base would be helpful. New.
No.
There's no day, if we're not doing anything different for a 10000 employee company that we're doing for 'twenty 300 employee company.
Excellent. Thanks, so much guys.
Thank you.
Your next question is from the line of Bryan Bergin with Cowen and please go ahead.
Hey, good afternoon, and thank you.
And how and Betty can you comment on what level of client adoption youre anticipating by the end of 2021 and the clarification on the new sales and I understand it's being included and each deal you bid, but are you seeing near 100% attach on it as well here the last several weeks.
Well again, yeah, we just like you said I mean, we started selling it July 6th and.
And as it relates to new clients, a lot of them would be and conversion.
It would be rare that we would sell our client on July 6 than they would have started by now unless they're a smaller business and on the smaller business side and you definitely could have had some of that yes, I mean, because it's the way we're training them and setting them up we're not training you on the old model now and when you go into conversion and training. We're training you on how employees do their own payroll, we're not training you Helen.
New and put your employees data into our system and so yes, it's part of the conversion and so it would be of logical for me to think that anybody would even try to do it the old way and also its included in the ROI. I mean, you know now our ROI cases include Betty and it's an important part of the ROI I mean, you can use Betty and actually it'll pay for it can help pay for the entire.
Our system, depending upon how many are true issues, you've been having and payroll payrolls are it's of high risk low reward activity. If you get it right, who cares employees expected and if you get it wrong.
You're upset employees they have NSF fees, and then you get to pay tax penalties and so.
I have and perfect payroll is extremely important and it just wouldn't make any sense to me that any client would buy our product without Betty.
And it wouldn't make any sense that they would since they bought it wouldn't make any sense if they wouldnt use it because of their employees want to use it.
Okay, and then just a follow up for a common question, we're getting around Betty and the potential offsets of the existing service revenue can you help kind of frame the magnitude of that work within your business to begin with as far as error correction and things like that and then clarify your view on the revenue accretion of penny versus those types of services.
Automated way.
You know I mean, there's definitely going to be bad is going to replace some what I'm going to call bad revenue for the client you know the client.
It didn't have visibility of the employee didn't have visibility. So they have to avoid the check and they have to do a manual then they have to send a wire and then you know to the extent, there's a tax credit tax event created because it extends the different quarter of different tax period, you've got to deal with that and so you know there are definitely some fees associated with that that can be.
Labor work on both our side and the client side, which can carry maybe of higher AR or a lower I should say the operating margin as it red and regards to that but a.
Our our higher expense to both us and the client from of Betty perspective, you know.
There's not anything we're doing to it on our end and Theres not anything the clients having to do and what I tell clients is hey, our competitors got themselves out of doing your payroll, we get you out of do and your payroll.
Thank you.
Yes.
And your next question comes from the line of Alex Zukin with Wolfe Research. Please go ahead.
Hey, This is Allen on for Alex Zukin, I, just wanted to drill in on the new business going forward. Obviously it sounds like you guys are seeing a lot of strength. There was wondering if you could help kind of put the context, what you're seeing at the lower end of your customer employee range and the top end and kind of how you're thinking about that for the second.
Thanks.
Yeah, I mean, I would say more of the same you know, we don't really get to dictate what size companies coming in from our lead volume.
Now as we use our advertising assets you could have a of 3 employee company click and on it that has of pet store and you could ever of 10000 and employee company are clicking on it and you know we're gonna be we're gonna be of going after are those of all sizes and have been and so on.
I wouldn't see how we would expect it to be dramatically different than what we're seeing right now again, our move up market. We're already there I'm just announcing it I mean, we're already there we're getting the leads we're already selling the deals Oh, we've got deals larger than 10000 that are already using our our company and so.
We're just making it more official and kind of the flying the flag out there right now that we're open for business and we're gonna be targeted prospecting those clients up to 10000 as well.
Yeah.
Thank you.
And at this time there are no further questions I will now turn the call back over to Mr. Chad Richison.
Alright, Thank you and I want to thank everyone for joining us today on the call and as we've communicated internally, we're gradually making our way back to the offices and hope to be back as soon as conditions safety.
And safely permit and want to think of all of the pay com employees for their perseverance. The the pandemic over 70% of our staff for either fully vaccinated are and the process and like to reiterate that I believe getting vaccinated saves lives for every 100000 fully vaccinated people its estimated that less than 1 will lose there.
Life from a break through COVID-19 case, please get your vaccinations and less and less in this pandemic.
On the Investor outreach side this quarter, we'll be presenting at the Oppenheimer Conference on August 10th followed by the Wolfcamp Prince on September 8 and the Citi Conference on September 14th pay Com will also be hosting 1 on 1 meetings and August and September at Keybanc and Piper Sandler conferences.
Look forward to speaking with many of you very soon and appreciate your continued support of pay come. Thank you operator, you may disconnect.
Thank you and this does conclude today's conference call you may now disconnect.
Okay.
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Okay.