Q4 2021 Paycom Software Inc Earnings Call

February 8, 2022

Good afternoon, and thank you for attending today's pay Com software fourth quarter, 2020 one results.

Good afternoon and thank you for attending today's PACOM Software Fourth Quarter 2021 results. My name is Austin.

My name is Austin and I'll be the moderator for today.

All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.

If you'd like to ask a question, please press star 1 on your telephone keypad.

If you'd like to ask a question. Please press star one on your telephone keypad.

I would now like to pass the conference over to our host, James Samford with Paycom. James, please go ahead. Thank you and welcome to Paycom's fourth quarter 2021 earnings conference call.

I would now like to pass the conference over to our host James Samford with pay Com. James. Please go ahead. Thank you and welcome to pay Com's fourth 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.

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.

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 these statements are based on our current expectations and subject to risks and uncertainty.

While we believe any forward looking statements made on this call are reasonable actual results may differ materially because these 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 .

You should refer to and consider these factors when relying on such forward-looking information.

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.

Any forward-looking statement made speaks only as of the date on which it is...

and we do not undertake and expressly disclaim any obligation to update or alter our forward-looking state.

whether as a result of new information, future events, or otherwise, except as required by applicable law.

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.

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.

including adjusted EBITDA, non-GAAP net income, adjusted gross profit, adjusted gross margin, and certain adjustics.

We use these non-GAAP financial measures to review and assess our performance and for planning purposes.

A reconciliation schedule showing gap versus non-gap results.

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 <unk> Com Dot com.

included in the press release that we issued after the close of the market today and is available on our website at investors.paycom.com.

I will now turn the call over to Chad Richardson, PACOM's President and Chief Executive Officer.

I will now turn the call over to Chad Richison, <unk>, President and Chief Executive Officer.

Jan.

Thanks, James, and thank you to everyone joining our call today. We ended 2021 with a very strong quarter, and I'd like to thank all of our employees for the outstanding effort they put in to make 2021 a great year.

Thanks, James and thank you to everyone joining our call today, we ended 2021 with a very strong quarter and I'd like to thank all of our employees for the outstanding effort. They put in to making 2021, a great success.

I will spend a few minutes on the highlights of our fourth quarter 2021 results, then I will review some of our notable achievements throughout the year.

I will spend a few minutes on the highlights of our fourth quarter 2021 results. Then I will review some of our notable achievements throughout the year following that Greg will review, our financials and our guidance and then we will take questions.

Following that, Greg will review our financials and our guidance, and then we will take questions.

2021 was a very strong year for pay com, we extended our platform to the employee even further through innovations like Betty which enables employees to do their own payroll and we are seeing very strong adoption and record employee usage as measured by the DDS strong demand continues to bolster our salesmen.

our platform to the employee even further through innovations like BETI, which enables employees to do their own payroll. And we are seeing very strong adoption and record employee usage as measured by the DDS.

Strong demand continues to bolster our sales momentum and record new client sales in 2021 have positioned us to deliver another year of rapid growth in 2022.

And and record new client sales in 2021 have positioned us to deliver another year of rapid growth in 2022.

For years, I have been predicting the end of the old model, whereby HR and payroll personnel's routine of inputting data for employees is replaced by a self-service model that provides employees direct access to the data.

For years I have been predicting the end of the old model, whereby HR and payroll personnel as routine of inputting data for employees is replaced by a self service model that provides employees direct access to the database.

The old model is dying, and that is good for both the business and the environment.

Old model is dying and that is good for both the business and the employee pay com is leading this transformation. We will continue to automate the processes that generate maximum ROI for our clients.

PECOM is leading this transformation. We will continue to automate the processes that generate maximum...

Our 2021 fourth quarter revenue of $285 million came in very strong of 29% year-over-year.

Our 2021 fourth quarter revenue of 285 million came in very strong up 29% year over year.

Our full year 2021 revenue of 1.056 billion grew 25% compared to 2020.

our full year 2021 revenue of $1 billion.

million grew 25% compared to 2020.

employee usage, which is at a record high, is a key driver of revenue retention. And I'm pleased to announce that PACOM's annual revenue retention rate increased once again to 94%.

Employee usage, which is at a record high is a key driver of revenue retention and I'm pleased to announce that pay com's annual revenue retention rate increased once again to 94% this year, which is a validation of the strong ROI our clients are achieving.

which is a validation of the strong ROI our clients are achieving.

Our full year 2021, adjusted EBITDA was 419 million, representing an adjusted EBITDA margin of nearly 40%.

Our full year 2021 adjusted EVA DA was $419 million, representing an adjusted EVA DA margin of nearly 40%. The sum

The sum of our 2021 revenue growth rate and adjusted EBITDA margin resulted in us hitting the rule of 65, reflecting the solid demand for our solutions and the profitability of our business model and was well ahead of our stated goal to reach the rule of 60.

adjusted EBITDA margin resulted in us hitting the rule of 65, reflecting the solid demand for our solutions and the profitability of our business model, and was well ahead of our stated goal to reach the rule of 65.

As you can see with our full year 2022 guidance, we are starting strong with the rule of 65.

Our marketing plan throughout 2021 continued to perform well, delivering strong demo leads throughout the years. We spent aggressively on that.

Our marketing plan throughout 2021 continued to perform well delivering strong demo leads throughout the year as we spend aggressively on advertising more importantly, our sales teams are successfully closing these leads which is the key driver to our revenue growth.

More importantly, our sales teams are successfully closing these leads, which is the key to the

And our first year as our Chief sales officer, Holly furrow as executed fabulously on our sales plan and I'm very pleased with the coordination we are seeing across the sales and marketing organizations. We are capitalizing on the shortcomings of disparate HCM systems that are failing both the employees who struggle to use them in the businesses that struggled.

In her first year as our Chief Sales Officer, Holly Perot is executed fabulously on her sales.

And I'm very pleased with the coordination we are seeing across the sales and marketing org.

We are capitalizing on the shortcomings of disparate HCM systems that are failing both the employees who struggle to use them and the businesses that struggle just to make them work.

Just to make them work.

Our proven single database platform just works better and we continue to differentiate ourselves.

Our proven single database platform, just works better and we continue to differentiate ourselves with easy to use solutions that enhance the employee experience and generate maximum ROI for our clients.

solutions that enhance the employee experience and generate maximum ROI for our clients.

In response to increasing demand in 2021, we expanded the upper end of our target client size range from 5,000 to 10,000 employees, as we are seeing success selling.

In response to increasing demand in 2021, we expanded the upper end of our target client size range from 5000 to 10000 employees as we are seeing success selling to larger clients. We are also concurrently expanding geographically to meet the increased demand in addition to.

We are also concurrently expanding geographically to meet the increased demand. In addition to the Manhattan office we announced a few months ago, we recently opened four outside sales offices in Apollo.

The Manhattan Office, we announced a few months ago. We recently opened for outside sales offices in the following locations Las Vegas, Jacksonville, New England, and South Jersey, We have now opened five offices in the last five months.

Las Vegas, Jacksonville, New England, and South Jersey.

We have now opened five offices in the last five months.

That said, I'd remind everyone that we still only have approximately 5% of the TAM today. So there's plenty of runway ahead to expand and continue to capture Mark.

That said I would remind everyone that we still only have approximately 5% of the Tam today. So there's plenty of runway ahead to expand and continue to capture market share.

Hey, Com received national recognition from several organizations in 2021, our latest innovation Betty was awarded a top HR product of the year honor.

Haycom received national recognition from several organizations in 2021. Our latest innovation, Betty, was awarded a Top HR Product of the Year award.

As a workplace, we earned a top 20 ranking in best places to work in the US by top workplaces, and we were named a top work place in Oklahoma for the ninth consecutive year. We were also named the best company for women to work. These awards are a-

As a workplace we earned the top 20 ranking in best places to work in the U S by top workplaces, and we were named a top workplace in Oklahoma for the ninth consecutive year. We were also named the best company for women to work.

These awards are a testament to our execution and thriving corporate culture.

As of December 31, 2021, our headcount stood at 5,385 employees, up 28% year-over-year as we continue to have great success attracting and retaining high-quality talent to further bolster our future growth.

As of December 31st 2021, our head count stood at 5385 employees up 28% year over year as we continue to have great success, attracting and retaining high quality talent to further bolster our future growth. Additionally at one.

Additionally, I want to congratulate the 2021 Peacom Jim Thorpe Award winner, Toby Bryant from the University of Cincinnati. This award recognizes the most outstanding defensive back in college football and memorializes Jim Thorpe, who is one of the greatest all around athletes in history. Jim Thorpe also has...

I congratulate the 2021 pay Com, Jim Thorpe Award winner Kobe Bryant from the University of Cincinnati. This award recognizes the most outstanding defensive back in college football and memorialize as Jim Thorpe, who was one of the greatest all around athletes in history, Jim Thorpe also happen to be in Oklahoma.

Some up, we are executing well on all fronts with innovative solutions, high employee usage, and increasing revenue retention. Robust Market demand and our proven go-to-market strategy are fueling strong, new client rather-

To sum up we are executing well on all fronts with innovative solutions high employee usage and increasing revenue retention robust market demand and our proven go to market strategy are fueling strong new client revenue momentum I'd like to thank our employees for help making 2021, such a strong year and we are.

I'd like to thank our employees for help making 2021 such a strong year, and we are set up to do even better in 2022, and we're off to a great.

Set up to do even better in 2022, and we're off to a great start with that I'll turn the call over to Craig for a review of our financials and guidance Greg.

With that, I'll turn the call over to Craig for a view of our financials and guidance.

Thanks Chad. Before I review our fourth quarter and full year results for 2021, in our outlook for the first quarter and full year 2022, I would like to remind everyone that my comments related to certain financial measures will be on a non-gap basis.

Thanks, Chad before I review, our fourth quarter and full year results for 2021, and our outlook for the first quarter and full year 2022, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. We ended the year with very strong results delivering a milestone.

We ended the year with very strong results, delivering a milestone full year 2021 revenue total of $1,056,000,000, up 25.4% compared to 2020. Fourth quarter results were excellent, with total revenues of $285,000,000, representing growth of 29% over the comparable prior year period.

Full year 2021 revenue total of $1.056 billion up 25, 4% compared to 2024th quarter results were excellent with total revenues of 285 million representing growth of 29% over the comparable prior year period.

Our revenue growth is driven by strong demand, new business wins, and adoption of recent new product off.

Our revenue growth is driven by strong demand new business wins and adoption of recent new product offerings within total revenues recurring revenue was $280 million for the fourth quarter of 2021, representing 98% of total revenues for the quarter and growing 29% from the comparable prior year period.

Within total revenues, recurring revenue was 280 million for the fourth quarter of 2021, representing 98% of total revenues for the quarter, and growing 29% from the comparable prior year period.

We ended 2021 with nearly 34,000 clients representing a growth rate of 9% compared to 2020. On a parent company grouping basis, we ended the year with roughly 17,700 clients representing a growth rate of 10% compared to 20.

We ended 2021 with nearly 34000 clients, representing a growth rate of 9% compared to 2020 on a parent company grouping basis. We ended the year with roughly 17700 clients, representing a growth rate of 10% compared to 2020.

Total adjusted gross profit for the fourth quarter was 239.7 million representing an adjusted gross margin of 84.1%.

Total adjusted gross profit for the fourth quarter was $239 7 million, representing an adjusted gross margin of 84, 1% for the full year 2021, our adjusted gross margin was 85, 1% for 2022, our target adjusted gross margin range is expected to remain.

For the full year 2021, our just-to-gross margin was 85.1.

For 2022, our target adjusted gross margin range is expected to remain strong at approximately 85 to 86%.

<unk> strong at approximately 85% to 86%.

Adjusted sales and marketing expense for the fourth quarter of 2021 was 72.3 million or 25.4% of revenue.

Adjusted sales and marketing expense for the fourth quarter of 2021 was $72 3 million or 25, 4% of revenues our marketing strategy. In 2021 has been very effective at driving high quality demo leads and our outside and inside sales teams have been doing a great job closing the easily.

Our marketing strategy in 2021 has been very effective at driving high quality demo leads, and our outside and inside sales teams have been doing a great job closing these leads.

Leads we plan to continue to invest in marketing in Q1 and throughout 2022 and.

We plan to continue to invest in marketing in Q1 and throughout 2022.

In addition, as Chad said, we have added four more outside sales offices bringing the total outside sales office opening to five new openings in the last five.

In addition, as Chad said, we have added four more outside sales offices, bringing the total outside sales office opening two five new openings in the last five months. We also continued to add inside sales personnel as we grow our sales organization to meet the demand.

We also continue to add inside sales personnel as we grow our sales organization to meet the demand.

Adjusted R&D expense was 32.3 million in the fourth quarter of 2021 or 11.3% of total revenue.

Adjusted R&D expense was $32 3 million in the fourth quarter of 2021 or 11, 3% of total revenue.

Adjusted total R&D costs, including the capitalized portion, for $44 million in the fourth quarter of 2021, compared to $33.2 million in the prior year period.

Adjusted total R&D costs, including the capitalized portion were 44 million in the fourth quarter of 2021 compared to $33 2 million in the prior year period we.

We aggressively recruited talent in R&D throughout the pandemic and we plan to continue to invest in our future growth through innovation and new product development.

We aggressively recruited talent in R&D throughout the pandemic, and we plan to continue to invest in our future growth through innovation and new product development.

Adjusted EBITDA was 109.6 million in the fourth quarter of 2021 or 38.4% of total revenues compared to 84.2 million in the fourth quarter of 2020 or 38.1% of total revenue.

Adjusted EBITDA was $109 6 million in the fourth quarter of 2021 or 38, 4% of total revenues compared to $84 2 million in the fourth quarter of 2020 or 38, 1% of total revenues for the full year of 2021, adjusted EBITDA was $419 3 million.

For the full year 2021, adjusted EBITDA was 419.3 million or 39.7% of total revenues compared to 330.8 million or 39.3% of total revenues in 2020.

Dollars or 39, 7% of total revenues compared to $338 million or 39, 3% of total revenues in 2020.

Our gap net income for the fourth quarter was 48.7 million or 84 cents per deluded share versus 24.4 million or 42 cents per deluded share in the prior year period based on approximately 58 million shares.

Our GAAP net income for the fourth quarter was $48 7 million or 84 cents per diluted share versus $24 4 million or 42 cents per diluted share in the prior year period based on approximately 58 million shares for the full year 2021, our GAAP net income was $196 million or.

For the full year 2021, our Gatnet income was $196 million for $3.37 per deluded share. Our effective income tax rate for the fourth quarter of 2021 was 30.4%.

$3.37 per diluted share.

Fact of income tax rate for the fourth quarter of 2021 was 34%.

9GAP net income for the fourth quarter of 2021 was $64.4 million or $1.11 per deluded share versus $49.1 million or 84 cents per deluded share in the prior year period.

non-GAAP net income for the fourth quarter of 2021 was $64 4 million or $1 11 per diluted share versus $49 1 million or 84 cents per diluted share in the prior year period for the full year 2021, our non-GAAP net income was 264 million.

For the full year 2021, our non-GAAP net income was $260.4 million or $4.48 per diluted share versus $203.5 million or $3.49 per diluted share in the prior year period.

Or $4.48 per diluted share versus $203 5 million or $3.49 per diluted share in the prior year period.

For 2022, we anticipate our full year effective income tax rate to be approximately 28% on a gap and on gap basis with Q1 gap effective tax rate expected to be approximately 30%.

For 2022 we anticipate our full year effective income tax rate to be approximately 28% on a GAAP and non-GAAP basis with Q1, GAAP effective tax rate expected to be approximately 30%.

Turning to the balance sheet, we ended the year with cash and cash equivalence of 278 million and totaled out of 29.

Turning to the balance sheet, we ended the year with cash and cash equivalents of 278 million and total debt of $29 million cash from operations was $319 million in 2021, representing an increase of 46%, reflecting our strong revenue performance and the profitability of our business.

Cash from Operations was 319 million in 2021, representing an increase of 40.6% 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 1.9 billion in the fourth quarter of 2021.

Model the average daily balance of funds held on behalf of clients was approximately $1 9 billion in the fourth quarter of 2021.

During 2021, we repurchased approximately 164,000 shares for a total of roughly 65.6 million.

During 2021, we repurchased approximately 164000 shares for a total of roughly $65 6 million.

Through December 31st, 2021, Paycom has repurchased nearly 4.3 million shares since 2016 for a total of nearly 488 million, and we currently have 266 million remaining in our buyback program.

Through December 31, 2021 take home has repurchased nearly four 3 million shares since 2016 for a total of nearly $488 million and we currently have 266 million remaining in our buyback program now.

Now let me turn to guidance. For fiscal 2022, we expect revenue in the range of 1,314 million to 1,316 million or nearly 25% year over year growth at the midpoint of the range. We expect adjusted EBITDA in the range of 524 million to 526 million, representing an adjusted EBITDA margin of approximately 40% at the midpoint of the range.

Now, let me turn to guidance for fiscal 2022, we expect revenue in the range of $1.314 billion to $1.316 billion or nearly 25% year over year growth at the midpoint of the range. We expect adjusted EBITDA in the range of 524 million to 526.

<unk> million, representing an adjusted EBITDA margin of approximately 40% at the midpoint of the range. We're starting this year's guidance at the rule of 65.

We are starting this year's guidance at the rule of 65. For the first quarter of 2022, we expect total revenues in the range of 342 million to 344 million, representing a growth rate over the comparable prior year period of 26% at the midpoint of the range.

For the first quarter of 2022, we expect total revenues in the range of 342 million to $344 million, representing a growth rate over the comparable prior year period, a 26% at the midpoint of the range. We expect adjusted EBITDA for the first quarter in the range of 161 million to 163 million.

We expect adjusted EBITDA for the first quarter in the range of $161 million to $163 million, representing an adjusted EBITDA margin of 47% at the midpoint of the range.

Representing an adjusted EBITDA margin of 47% at the midpoint of the range.

2021 was a very strong year for Paycom as a direct result of the investment.

<unk> 2021 was a very strong year for pay com as a direct result of the investments. We made we will continue to invest in talent marketing innovation customer service and geographic expansion to meet the strong demand, we are experiencing and to support our high expectations for long term future growth.

We will continue to invest in talent, marketing, innovation, customer service, and geographic expansion to meet the strong demand we are experiencing and to support our high expectations for long-term future growth. With that, we will open the line for questions. Operator.

With that we will open the line for questions operator.

Thank you.

Thank you. If you'd like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one.

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If you are using a speaker phone. Please remember to pick up your handset before asking your question.

If you are using a speaker phone, please remember to pick up your handset before asking your question. We will pause here briefly as

We will pause here briefly ask questions are registered.

Our first question is from Raimo <unk> of Barclays.

Our first question is from Rainbow, Lincha of Barclays.

Hey, thank you. Congrats to a great finish to the year. Chad and Craig, I'd like two questions. One was on the retention rate, so 94% is kind of again up from last year, a very, very strong number, especially considering where you were playing in the market. Can you talk a little bit about the drivers here? And is that kind of, you know, how are you thinking about this number going forward?

Hey, Thank you and.

Congrats to a great finish to the year chat and Craig I'd like two questions.

One was on the retention rates of 94%.

Is kind of again up from last year, the very very strong, especially considering where you were playing in the market can you talk a little bit about the drivers there and is that kind of you know it you know well.

How are you thinking about this number going forward.

And then the second question is where I got a lot of questions were from investors was around the customer ads, obviously, last year was actually with the pandemic. So you had like a crazy big number there. That kind of moderated this year, like how do how should we think about it, especially in light of your comments crack around the investments on inside and outside fields. Thank you.

And then the second question is where I got a lot of questions from investors was around the customer adds obviously last year was essentially even with a pump that makes so you have like a crazy big number dear that kind of moderated this year like how do you how should we think about it especially in light of your comments crank around the investments on the inside and outside sales. Thank you.

Yeah, Raimo. So starting with the first on retention, it was about three or four years ago that we started to increase that rate. We've been 91% for six years straight.

Yeah, Ryan so starting with the first on retention. It was a it's about three or four years ago that we started to increase that rate, we'd been 91% for six years straight and then it jumped up to 92 and it really jumped up once we started implementing employee usage products, we'd come out with the App. It went up.

And then it jumped up to 92 and it really jumped up once we started implementing employee usage products You know, we'd come out with the app it went up Then we looked at the year before the pandemic in 2020 it went up again to 93% again We had driven through the direct that exchange Having employees make those changes themselves

And then we looked at the year before the pandemic hit in 2020, and it went up again to 93% again, we had driven through the direct data exchange having employees make those changes themselves increased satisfaction again for those clients is it increase their return on investment 2020, we held the line at 93 and that it had.

increased satisfaction again for those clients as it increased the return on investment. 2020, we held the line at 93 and that had somewhat to do with the trailing revenue, trailing 12 revenue retention number. Obviously 2020, we did have some retreat in our revenue, just the natural attrition that came from those employees.

Somewhat to do it's a trailing revenue trailing 12 revenue retention number obviously 2020, we did have some retreat in our revenue.

Just the natural attrition that came from those employees.

you know, being laid off or leaving their business during the pandemic. And then now, in 2021, we've been able to increase it once again to 94%. And answer to that question, it's all really driven by usage. You know, the more success a client has using our products, the greater the return on the investment they're achieving. And that makes them want to stay with us longer. And so, how high can it go? Obviously, at some point you do...

You know being laid off are leaving their business during the pandemic and then now in 2021, we've been able to increase it once again to 94% and answer to that question no. It's all really driven by usage are you know the more success of client has using our products the greater the return on the investment, they're achieving and that make.

They want to stay with us longer and so how high can it go obviously at some point you do have.

have to look at you're always going to have a certain number of clients that could be bought, sold and merged. But I, you know, we're very ambitious with that number. We're seeing a lot of satisfaction across the client base. So, you know, I don't know, I would necessarily say we're done with our retention aspirations, but we feel really good by being able to raise it again. As far as the client count that you mentioned.

You have to look at are you always going to have a certain number of clients that could be bought sold and merged but I. You know, we're very ambitious with that number we're seeing a lot of satisfaction across the client base. So you know I don't know I wouldn't necessarily say, we're done with our retention aspiration.

But we feel really good by being able to raise it again as far as the client count that you mentioned in 2019, our parent company group and those are decision client decisions grew by six 5% that client number of course today in 2021 it grew 10%.

In 2019, our parent company group, and those are decision client decisions, grew by 6.5% that client number. Of course, today in 2021, it grew 10%.

Last year it grew 18% and that was really in conjunction with the fact that we added small business teams.

Last year, it grew 18% and that was really in conjunction with the fact that we added small business teams to sell small business units we are.

to sell small business units. We accelerated.

Accelerated our advertising spend in 2020, which generated a high volume of leads a lot of those were beneath the 50 employee range and so that's when we added several teams to catch that and that really we benefited that from a percentage.

are advertising spend in 2020, which generated a high volume of leads. A lot of those were beneath.

the 50 employee range. And so that's when we added several teams to catch that. And that really, we benefited that from a...

percentage growth unit add. I would point out that in 2020 even though we did have around 18 percent parent company grew growth from a unit perspective our growth per client, Billings Per client annual lives were was roughly flat and in 2021 that numbers up about 14 percent. all right. Okay. Thank you. Congrat. Thank you. Thank you.

Gross unit add I would point out that in 2020, even though we did have around 18% parent company group.

Growth from a unit perspective, our growth per client billings per client annual lives, where was roughly flat and in 2021 that number is up about 14%.

Okay perfect. Thank you congrats.

<unk>.

Yeah.

Our next question is with some odd samana.

Of Jefferies.

Hi, great Congrats I'll echo that as well just a really great.

I'm congrats. I'll let go of that as well. Just a really great end to 2021. So maybe Chad, one just to follow up on Ramo's question and you kind of touched on it a little bit there at the end. But if I think about the net ads that you've added in the context of the call it Net New Recurring Revenue, you're getting to like an average customer size of new customers added like North of $70,000.

And to 2021, so maybe a chat one just to follow up on <unk> question, and you kind of touched on it a little bit there at the end, but if I think about the.

The net adds that you've added in the context of the call. It net new recurring revenue youre getting to like an average customer size of new customers added like north of $70000 of average revenue versus like let's call. It into 50 is maybe looking back to 2019, so you're seeing pretty significant growth. There I'm. Just curious is that a fair way to think about it that.

of average revenue versus like let's call it in the 50s maybe looking back to 2019 through things pretty significant growth there i'm just curious is that a fair way to think about it that you're just signing customers that are that are even much larger today then in twenty one and actually maybe think about that just on the historical compare

You just signing customers that are that are even much larger today than in 'twenty, one and how should we maybe think about that just on the historical comparison.

Sure, so it's been similar, you know, as what you've seen us pick up in the past. As we've continued to focus on larger clients, that's driven that number up. We're having more success selling larger clients. So you might say that, you know, the ones we're bringing in on average are larger than what we bring right into the past. We're selling more of them.

Sure. So it's been similar as what you've seen us pick up in the past as we've continued to focus on our larger clients. That's driven that number up we're having more success selling a larger client. So you might say that are the ones. We're bringing in on average are larger than what we bring brought in.

In the past, we're selling more of them. So we're just having more unit counts at that level than what we've had in the past and then obviously we've continued to add product into.

So we're just having more unit counts at that level than what we've had in the past. So then obviously we've continued to add product.

into the mix which also adds value to each deal that we bring in regardless of what size they're at.

Into the mix, which also adds value to each deal that we bring in regardless of what size they are at.

Great and then maybe just a follow up you know Betty is impacting retention in a positive way I'm curious if you could maybe update us on what the what the attraction is in terms of getting the install base to using battery and how we should think about that progression in 2022.

And then maybe just to follow up, you know, Betty is impacting retention in a positive way. I'm curious if you can maybe update us on what the traction is in terms of getting the install base to using Betty and how she's thinking about that progression in 2020.

Yeah, and so you know we're having a lot of success with the installed base are using Betty I mean internally there is a little bit of a process change for our clients Oh, you're moving things that you were doing after the payroll and the pay period and you're moving that to the beginning but we continue to have success selling.

Yeah, and so, you know, we're having a lot of success with the install base using Betty. I mean, internally there is a little bit of a process change for our clients. You know, you're moving things that you were doing after the payroll ends, the paper it ends.

You're moving that to the beginning. But we continue to have success selling Betty, both into our current install base. And as a reminder, all new business that we've brought on since July of last year all have.

Betty both into our current install base and as a reminder, our all new business that we've brought on since July of last year all have Betty.

included in its pricing and usage expectation.

Included in and its in its pricing and usage expectation.

Great. Thank you for taking my questions.

Thank you.

Yeah.

Our next question is with Brad Reback of Sticell.

Our next question is with Brad Reback with Stifel.

Great, thanks very much. Just a first quick one. Chad, can you remind us how many sales teams both internal and external you have today and maybe where that was a year ago?

Great. Thanks, very much just a first a quick one Chad can you remind us how many sales teams both internal and external you have today, and maybe where that was a year ago.

Sure Craig So outside sales teams were 54 now you know and as we mentioned we've added.

Sure, Craig. Yeah, so outside sales teams, we're 54 now. And as we mentioned, we've added the four recent ones, and then we added one towards the end of last year. So we've added five of those. And then in terms of inside sales teams, from our KPIs, we count the inside and the CRR group as one. But we've also announced that we've had over 10 plus adding to the inside sales.

For recent ones and then we added one towards the end of last year. So we've added five of those.

And then.

In terms of inside sales teams.

From our Kpis, we count the inside and the.

<unk> group is one but we've also announced that we've had over 10, plus we're adding to the inside sales group and so outside sales is at 54, I think right now total outside sales teams right.

And so outside tells us at 54, I think right now, total outside sales teams, Brad, the last time we added a sales outside sales team, we added in 2019, we added our New Orleans office, we did not add any in 2020. The end of 2021's when we brought through Manhattan, and then we continued on with four, since then.

Brad the last time, we added itself outside sales team. We added in 2019, we added our New Orleans office, we did not add any in 2020. The end of 2020 ones. When we brought through Manhattan, and then we continued on with for censor them.

That's great. And maybe just following up to close the loop on the unit versus pricing dynamic. With these added sales teams, would it be right to assume that we could probably see a more even split in 22 with the 25% growth between unit and price, or maybe even a little more unit?

That's great and maybe just following up.

To close the loop on.

The unit versus pricing dynamic with these added sales teams would it be right to assume that we could probably see a more even split in 'twenty two with the 25% growth.

Between unit price or maybe even a little more unit.

Not sure I you know, we're not as focused on unit growth I would say I mean, obviously, we want to win our our deals sometimes our unit growth goes up as it did in 2020, just because of the success, we had with our inside sales group, obviously those deals have a.

not sure I, you know, we're not as focused on unit growth, I would say. I mean, obviously we want to win our deals. Sometimes our unit growth goes up as it did in 2020 just because of the success we had with our inside sales group. Obviously, those deals have a smaller revenue contribution.

A smaller revenue contribution.

So, you know, as we turned into 2021 and we had success on in 2020 as well above our range, but, you know, in 2021 we raised our range because we continue to have so much success. So, our focus continues to be the mid-market, but, you know, we also have success below and that is really what contributes to the increase in unit count are those small unit deals. Thank you very much.

So you know as we turned into 2021 and we had success selling in 2020 as well above our range, but you know in 2020 . One we raised our range because we continue to have so much success. So our focus continues to be the mid market, but we also have success are below and that is really <unk>.

What contributes to the increase in our unit count are those small.

Deals.

Got it thanks very much.

Thank you.

Yeah.

Our next question is with Mark Mckone of Baird.

Hey, Good afternoon, let me add my congratulations.

Hey, good afternoon. Let me end my congrats.

With regards to the the revenue per client increasing by 14% how much of that is it just because of the bigger clients that you're selling relative to.

regards to the revenue per client increasing by 14%. How much of that?

just because of the bigger clients that you're selling relative to an increase in terms of the number of employees per client just as employment came back versus adding more modules or selling more modules.

You know an increase in terms of the number of employees per client just as employment came back versus.

Adding more modules or selling more modules is there a way to think about that in.

In terms of the three elements.

Yeah, I mean, well, it's going to be driven by size of client and number of modules sold into client for sure any contribution from employer, improving employment and in regards to our base would be minimal.

Okay. So that that was a minimal contribution in terms of the employees in the base.

Okay.

Correct.

Great. And then can you talk a little bit about the assumptions for the gross margin? Obviously, continue to be best in class wondering if you can just talk a little bit about the expectation.

Great and then can you talk a little bit about the the assumptions for the gross margins obviously continue to be best in class wondering if you can just talk.

Talk a little bit about the expectations here for 'twenty two.

What are you assuming in terms of average float balance and with rates starting to finally move back up? How much do you think you could end up capturing as?

What are you assuming in terms of average bloke balance and with with rates starting to finally move back up.

Uh huh.

How much do you think you could end up capturing as rates start hopefully normalizing.

Yeah, in our gross margins, we don't anticipate, or we don't factor in any rate increases. I mean, obviously, if there are rate increases, which they're talking about here in first quarter and more.

Yeah.

Our gross margins we don't.

Anticipate we don't factor in any rate increases I mean, obviously, if there are rate increases, which we're talking about here in the first.

First quarter in March.

You know, that would be a tailwind to us, you know, based on the average daily balance.

That would be a tailwind to us.

Based on.

The average daily balance.

somewhere between four and five million on an angle basis, but that would layer in Mark. I mean, you know, it wouldn't come to us the data increase rates. So that's something that kind of layers in over time. Is that...

Somewhere between $4 5 million on an annual basis, but that would layer in mark I mean, it wouldn't come to us the data increase right. So that's something that kind of layers in over time.

Is that $4 million to $5 million for.

How many basis points per quarter basis for 25 right.

Her quarter basis for 25, right? Yeah, it would be on an annual basis for each 25 basis point increase. So under 12, thank you.

It would be on an annual basis for each 25 basis point increase.

So what are you.

Excellent. Thank you.

Our next question is with Ryan Macdonald of Needham.

Hey, guys. This is Josh on for Brian Congrats on a strong year and quarter here I'm curious you know now that you've just opened five sales offices. What are you seeing in the macro that that's kind of giving you. This confidence here over the last couple of quarters to open. These offices and then are you seeing improved active.

Hey guys, this is Josh on for Ryan. Congrats on the strong year and quarter here. Curious, now that you've just opened five sales offices, what are you seeing in the macro that's kind of giving you this confidence here over the last couple quarters to open these offices?

improved activity in hospitality and some of the troubled industries from

In hospitality and some of the troubled industries from the pandemic starting to pick up here.

uh... material before on the cron hit and then what kind of a pilot

Materially before Omicron hit and then what kind of a pause are you seeing with omicron if any.

Yeah first I would talk about the office openings I mean demand is really what's driving us to add.

Yeah, first I would talk about the office openings. I mean, demand is really what's driving us to add more sales teams. You know, again, we started really spending heavily on marketing in 2020.

Add more sales teams you know again, we started really spending heavily on marketing in 2020.

It brought on high quality revenue that produced very strong margins for us. And we continue to have elevated leads. And so we went again, we didn't really open anything in 2020. So it was really time for us to start that again. As it relates to Omic.

It brought on high quality revenue that produced a very strong margins for us and we.

We continue to have elevated leads and so.

And again, we didn't really open anything in in 2020. So you know its really time for us to start that.

Again.

As it relates to omicron.

I would say that often times, we don't really know why.

I would say that oftentimes we don't really know why one company may be experiencing less employment today than it did last week and you know why it may have more next week.

Why one company may be experiencing a lesson point met today than it did last week and you know why it may have more next week.

So I don't really see these factors as long as we have stability, having a large impact one way or another on our quarters as we move forward. I talked about the importance it was, the need that we had to lap the pandemic.

So I don't really see these factors as long as we have stability, having a large impact one way or another on our quarters as we move forward I talked about the importance. It was it need that we had to lap the pandemic.

with stability and you know we've had that substantially since the summer.

With stability and we've had that substantially since the summer of 2020 so.

2020 so you know we feel good about Where we're at from here and feel like you know barring any major move

We feel good about where we're at from here and feel like a you know barring.

Barring any major move and I believe it would have to be major in some type of employment situation, which are you know we don't expect.

And I believe it would have to be major in some type of employment situation, which we don't expect. I think it should be business as usual for us as we go forward throughout the year.

I think it should be business as usual for us as we go forward throughout the year.

Okay got it great and then just a follow up question on the interest income.

Okay, got it great. And then just to follow a question on the interest income, you know, that kind of returns to the model here over the next couple of years.

That kind of return to the model here over the next couple of years.

You know, investors are obviously more focused on free cash flow generation with the increasing interest rates.

Investors are obviously more focused on free cash flow generation with the increasing interest rates. How do you think about the balance of.

Reinvesting that that interest income for growth versus letting it just fall to free cash flow and ultimately buying back more shares obviously, depending on how the stock price goes.

versus letting it just fall to free cash flow and ultimately buying back more.

Yeah, first prize is always growth for us. I mean, we have been investing our profits into growth and they're creating more profits. So that's just kind of what's been happening. But in regards to the interest rates, we wouldn't do anything unnatural than the things we're doing right now.

Yeah first prize is always growth for us I mean, you know we have been investing our profits into growth and they're creating more profits. So oh, that's just kind of what's been happening, but you know in regards to the the the interest rates are.

Now, we wouldn't do anything unnatural than the things we're doing right now.

Craig, I don't know if you had to add anything. No, I mean, you know, obviously, you know, as they come back, I mean, we would, you know, trade off a point of margin for a point of growth, but, you know, we're gonna still spin wisely as we go, as you see that we've always done. And we're focused as grown as fast as we can in 2022. So we have that locked and loaded, and the funds to be able to do that.

Craig I don't know if you'd add anything no I mean.

Obviously.

As I come back I mean, we would.

Tradeoff of a point of a margin for a point of growth, but we're going to still spend wisely.

As you see that we've always done and we're focused is growing as fast as we can in 2022, so we have that locked and loaded and the funds to be able to do that.

Great. Thanks, guys.

Thank you.

Our next question is with <unk> plenty good I E.

Oh 50 funding right.

Oh, city Panegray. Congratulations, great quarter. So I was getting a question about your Q1 guidance. Sequentially, it is 21% is almost similar to last year versus prior to COVID is 30% plus. Is there a similar kind of expectation from W2 and form filing this year as well, Chad? Or any other factor you have considered your guidance?

Congratulation.

Great quarter. So I was getting to your question about the Q1 guidance.

Sequentially. It was 21% is almost similar to last year versus prior to Covid is 30% plus is there a similar kind of expectation from W. Two and form filing this year that Israel check or any other factor you have considered in your guidance.

Yeah, there's a little bit of that. I would point to how fourth quarter in 2021 was our highest revenue quarter.

Yeah, Theres, a little bit of that I would kind of point to how fourth quarter and 2021 was our highest revenue quarter.

that we've had from a fourth quarter perspective, meaning typically, first quarter can outpace first fourth quarter throughout the years. This year, fourth quarter outpaced first quarter in 2021. Really hadn't happened since 2015, and then it happened in 2014. Really, what's happening is our revenue makeup mix. As we continue to sell more products, both at the time of sale as well as into the base, the contribution that those annualized form filings has

That we've had from a fourth quarter perspective, meaning typically first quarter can outpace first fourth quarter throughout the years. This year fourth quarter outpaced our first quarter in 2021 really hasn't happened since 2015, and then it happened in 2014 really what's happening is our revenue makeup mix as we continue to sell more.

Our products both at the time of sale as well as into the base. The contribution that those annualized form filings has on an overall client annualized revenue that we get from them is a it is smaller and so the recurring revenue monthly recurring we're charging a client you might say.

on an overall client annualized revenue that we get from them.

is smaller and so the recurring revenue, monthly recurring, we're charging the client, you might say is outpacing.

Is outpacing.

that we would have growth in annualized fees if you will.

That that we would have growth in annualized fees. If you will and so and then yes. I think you still have some of the trends are that you know were followed in 2020 or happened again in 2021 somewhat but you know I think our comps were a little bit easier comping over.

And so, and then yes, I think you still have some of the trends that, you know, we're followed in 2020 or happened again in 2021 somewhat. But, you know, I think our comps were a little bit easier comping over this year than what we had going into.

This year than what we had going into it.

2021 W2s versus the 2019 W2s.

2021, W twos versus the 2019 W. Twos, but anyway all of that is to say I think one thing that's starting to happen in our revenue mix is that the monthly recurring that we're charging a client due to the additional products that we've come up with that they are buying and finding value in it.

Anyway, all that's to say, I think one thing that's starting to happen in a revenue mix is that the monthly recurring that we're charging a client due to the additional products that we've come up with that they're buying and finding value.

is outpacing any growth and are annualized.

Outpacing any growth in our annualized fees.

That's a great color. And then click follow up on now, great to see that you're already at 4 to 5 sales offices. And how do you think the competitive landscape will change in your 5,000 above kind of segment now that you have sales office and they can do in person, which is probably more relevant for targeting this high end customer? How should we think about that?

That's great color and then quick follow up on on no great to see that Youre already out of that four to five sales offices and how do you think the competition landscape will change you know your $5. Your idea about kind of segment now that you have sales office and they can.

Do in person, which is probably more.

Relevant for Todd a good thing because high end customer.

How should we think about that.

The growth in that well I think it still remains to be seen how prospects are going to buy this technology. We're still I mean, most people are still buying virtually again, we're not going to try to pull clients onto a certain way to buy we're going to meet them, where they live so if they're used to.

Well, I think it still remains to be seen, you know, how prospects are going to buy this technology. We're still, I mean, most people are still buying virtually. Again, we're not gonna try to pull clients onto a certain way to buy. We're gonna meet them where they live. So if they're used to buying virtually, and they want to buy virtually, well, we have the solution for that. And then of course, if clients are wanting us to come out there, we have that availability.

Buying a virtually and they want to buy virtually well we have the solution for that and then of course if.

If clients are wanting us to come out there are we have that availability to be able to do that but you know I would say that we're not seeing a yeah. You know a huge shift to our in person selling at this point, we remain ready, but again that's something that's.

to be able to do that. But, you know, I would say that we're not seeing a, you know, a huge shift.

to in person selling at this point. We remain ready, but again, that's something that's going to, you know, we're going to meet the client where they live on that. That's great. Thank you, Jeff.

Going to you know, we're going to meet the client where they live on that.

That's great. Thank you Jeff.

Thank you.

Our next question is with Bryan Bergin of Cowen.

Hi guys, good afternoon, thank you. So you measure kind of the Salesforce metrics. Can you talk a bit about where Salesforce productivity stands relative to pre-pandemic levels?

Hi, guys. Good afternoon. Thank you. So you measure kind of the sales force metrics can you talk a bit about where salesforce productivity stands relative to pre pandemic levels.

Cell's productivity's way up.

Sales productivity sales productivity is way up.

From pre pandemic levels. When you look at a per on a per rep basis, or even if you look at a per team basis.

from pre-pandemic levels when you look at a per on a per rep basis or even if you look at a per team basis, you know, when you lose one of your senses the other takes over and we just we became a lot better throughout the pandemic and how we sold, we got better at strategy, we got better at connecting to our prospects, we got better at marketing, we got better at retargeting. So, you know, cells has been very strong and it remains that today.

When you when you lose one of your sensors. The other takes over and we just we became a lot better throughout the pandemic and how we sold we got better at strategy.

We got better at connecting to our prospects, we got better at marketing, we got better re targeting so our sales have been very strong and it remains that today.

Okay.

Okay, and as far as employee growth or client employee growth goes, I think I heard you say it was minimal in the fourth quarter. Are you embedding any assumption on client employee growth in your 2022 outlook?

As far as employee growth or client employee growth goes I think I heard you say it was minimal in the fourth quarter are you embedding any assumption on client employee growth in your 2022 outlook.

No.

Alright, thank you.

Thank you.

Our next question is with our Alex Zukin of Wolfe Research.

Next question is with Alex Zuchen of Wolf Research.

Yes.

Hey, guys. Thanks for taking the question I guess, maybe Chad for you if you're if you think about the pipeline. The sales cycles are sales cycle length, and just in general the impact of of kind of the great resignation.

Hey guys, thanks for taking the question. I guess maybe Chad, if you think about the pipeline, the sales cycle length, and just in general, the impact of kind of the great resignation, the puts and takes on the business, where do we stand on all those fronts as we look at 22? Yeah, well I would say is the good.

Both the puts and takes on the business where do we stand.

On all those fronts as we look at 'twenty two.

Yeah, well I would say in regards to the us.

Sorry go ahead.

Okay.

I would say in regards to the pipeline, our pipeline remains very strong. I also would say through virtual selling.

I would say in regards to the.

The pipeline our pipeline remains very strong I I also would say through virtual selling.

I do think it's been to some extent easier to connect to

I do think it's been to some extent easier to connect to.

Some of the players that you would have in a larger organization, you know in a smaller organization You might talk to two or three people but in a larger organization You have multiple decision-makers and in our case multiple user buyers because we are impacting many parts

Some of the players that you would have in a larger organization you know in a in a smaller organization you might talk to two or three people, but in a large organization you have multiple decision makers and in our case multiple user buyers.

Because we are impacting many parts.

Of the businesses of the business as far as the tight labor market I mean, I think that impacts all of US you know we've had a lot of success in the tight labor market, especially in them at them in the management ranks of of being able to.

of the business. As far as the tight labor market, I mean, I think that impacts all of us. We've had a lot of success in the tight labor market, especially in the management ranks of being able to...

increase quality for us in those areas. You know, we're up 28% from an employment perspective. We added 28% to our employee base last year. So, you know, I've definitely, we notice it being tied out there, but you know, and it's definitely, you have to be competitive. But we've had a lot of success building our recruiting teams over the years with very strong learning management systems.

Increase quality for us in that in those areas.

We're up 28% I mean from an employment perspective, we added a 28% to our employee base last year or so.

Definitely we notice it being tied out there but you.

And it's definitely a you have to be competitive.

But we've had a lot of success.

Building, our recruiting teams over the years with a very strong learning management systems, we're able to spin up employees quickly get them started on their career.

and we're able to spin up employees quickly, get them started on their career.

Got it and then maybe just a follow up that obviously that the amount of sales offices that you added.

Chad obviously the amount of sales offices that you added in 21 is, yeah I don't know if you're catching up from where you weren't able to move as quickly in 2020 obviously but to the extent that that's a direct result of more people being in a position to make a move after being installed to some extent with COVID.

In 'twenty, one as you know I don't know if you're catching up from you know kind of.

Where you Werent able to move as quickly in 2020, obviously, but from the to the extent that that's a direct result of more people being in a position to make a move after being stalled to some extent with COVID-19 , whether it's <unk>.

you know attrition from your here competitors like eighty-fee and paychecks or whether it's you know the competitive environment there was a large hack uh... ransomware attack at you k g like what what

Attrition from your competitors like ADP, and Paychex, where whether it's the competitive environment. There was a large hack a ransomware attack that U K G. Like what what is what is the competitive set will landscape look like and how is your.

What is the competitive set or landscape looked like and how is your dialed in investment incrementally and kind of expanding the sales team number by a lot more than in previous years? What's the signal we're supposed to go into?

In dialed in investment incrementally and kind of expanding the sales team.

<unk> buy a lot more than in previous years.

What is that what's the signal we're supposed to take away from that.

Well I mean, we're focused on you know dominating the industry and really providing businesses with a very strong return on investment in and really that's happening I mean, you know a lot of the things that we're competing against are just their old ways to use systems and you know I believe over time and you're starting to see that.

Well, I mean, we're focused on, you know, dominating the industry and really providing businesses with a very strong return on investment. And really that's happening. I mean, you know, a lot of the things that we're competing against are just, they're old ways to use systems. And, you know, I believe over time and you're starting to see that, it just becomes more and more difficult to use them. So, and we only have 5% of the market. I mean, that's the other thing. We have such an opportunity to man continue to increase.

It just becomes more and more difficult to use them. So we only have 5% of the market I mean, that's the other thing. So we have such an opportunity demand continues to increase the popularity of our brand is getting stronger we have a lot stronger proved sources or larger clients and we have increased retention rate, which shows you.

The popularity of our brands getting stronger. We have a lot stronger proof sources or larger clients. And we have increased retention rate, which shows you that they're just having a lot of success with it.

You know that they're just having a lot of success with it.

And what was your question about U K G.

Oh I was just asking.

I was just asking, you know, have you seen any impact from the hack that they suffered or the security breach in terms of more clients? That's been a pain point that has been used by more clients to switch providers.

Have you seen any impact from the half that they suffered.

The security breach in terms of more clients that had been a pain point that that has been used by more clients to switch providers.

Yeah, I just wanted to get you to say it again. You know, we're having success with that. It's a pretty bad deal when you're down that long and we are having success with that. You know, our hearts go out to those clients and especially their employees that are impacted.

Yeah, I just wanted to get you to say it again.

You know, we're having success with that.

It's a pretty bad deal.

When you're down that long and we are having success with that in our hearts go out to those clients and especially their employees that are impacted.

And, you know, but those are a little bit longer cell cycle when you're talking about the larger deals. I think this happened in December . Obviously we're on it. We do believe that we're going to have success taking some business. And I mean, I think if you're a CFO or HR person, you know, you'd be hard pressed to stay in that environment without quite a few explanations.

And you know, but those are those are a little bit longer sales cycle, when you're talking about the larger deals I think this happened in December obviously, we're on it we do believe we do believe that.

We're gonna have success.

<unk> taken some business and I mean, I think if you're a CFO or HR person you'd be hard pressed to stay in that environment without a <unk>.

Quite a few explanations I mean, some point you get to read the room on what industry, you're in an island Theres a lot of restaurants. So that won't serve you a salmonella 32 days in a row not one eight to one of them.

Some point you got to read the room on what industry you're in. And there's a lot of restaurants that won't serve you a Saminella 32 days in a row. Might want to eat at one of them. Thanks for the questions.

Thanks for the questions.

Thanks, Jeff.

Yeah.

Our next question is with Brian Schwartz of Oppenheimer.

Yeah, Hi, congratulations on a good quarter and thanks, so much for taking my questions. Chad just a follow up again on your optimism on the demand trends as well as the sale of successes that you've experienced in the quarter clearly your marketing and sales expansion is having some for wet Shawn I just wanted to ask you.

Yeah, hi, congratulations on a good quarter and thanks so much for taking my questions.

Chad, just follow up again on your optimism on the demand trends as well as the sales successes that you experienced in the quarter. Clearly you're marketing and sales expansion having some fruition. I just wanted to ask you again here, are you seeing any changes at all in the environment?

Again here are you seeing any changes at all in the environment in terms of maybe what customers are asking for on top of the payroll or anything the competition where is your optimism about the demand trend just kind of strong productivity across the sales force today.

in terms of maybe what customers are asking for on top of the payroll or anything to competition, or is your optimism about the demand trend just kind of strong productivity across?

Yeah, well, I think we definitely have a strong predictivity across our Salesforce, but I do believe that that's driven by high quality leads and a differentiated product strategy.

Yeah, well I think it will definitely have a strong productivity across our sales force, but I do believe that that's driven by high quality leads and a differentiated product strategy that clients are having a lot of success for it you know.

that clients are having a lot of success for it. You know, you sell one thing, but we're able to prove it out as well. And so, you know, we go out there, we onboard clients onto our product, and then we're able to prove out the value they're receiving. And so, you know, the more you do that, the more that increases demand, as well as it increases confidence with your sales force, you know, the sales person goes out there and has an incredible amount of success.

You sell one thing, but we're able to prove it out as well and so you know we go out there we we onboard clients onto our product and then we're able to prove out the value. They are receiving and so the more you do that the more that increases demand as well as it increases confidence with your Salesforce you know the salesperson goes out there and has an incredible amount of success.

Bringing someone onto our platform and that's a happy client

Bringing someone onto our platform and that's a happy client.

You know, a lot of confidence is built up within the cell staff. And so, you know, we had to shift strategies here. We didn't start off with the employee, you know, does the work and inputs the data into the system themselves through the DDX. We didn't start off with that. We didn't start off with self-service payroll. And so there's been a little bit of a shift from our cells department selling it one way and really, you know, coming into their own with understanding the value of selling it the correct way, which is how the clients are going to current.

There are a lot of confidence is built up within the sales staff and so we had to shift strategies here, we didn't start off with the employee.

Does the work and input the data into the system themselves through the DDS, we didn't start off with that we didn't start off with self service payroll and so there's been a little bit of a shift from ourselves department selling it one way and really.

Coming into their own with understanding the value of selling it the correct way, which is how the clients are going to currently use the product so.

So, you know, we're very bullish on that and really our demand hasn't seen much or any of a tell off and I'm thinking of since 2020.

We're very bullish on that and really our demand hasn't seen much.

Much or any of a tail off and I'm thinking that since 2020.

or since we came out in 2020. Of course, it's up from there, from what we would have sold.

Since we came out in 2020 of course, it's up from there from what we would have sold in 2020, but since our since those first couple of weeks and the pandemic when we shifted into virtual leads and increase in marketing and and really becoming more efficient in our areas. We've had a lot of success since that time.

Since the first couple of weeks in the pandemic, when we shifted into virtual leads and increasing marketing,

and really becoming more efficient in our areas. We've had a lot of success since that time, and I haven't seen us take a step back since.

I haven't seen us take a step back since that time.

Thanks, Chad. And one follow-up for Craig. Craig, I have a question on the 4Q cash flow. It came in far above while we were modeling. You pointed out the revenue upside is one of the driver. I just wanted to ask you, did some of the spend plan for 4Q did that get pushed into 1Q? Or were there any other anomalies to explain the outsized cash flow growth in the quarter? Thanks.

Thanks, Chad and one follow up for Craig Craig I have a question on the <unk> cash flow. It came in far above what we were modeling you pointed out the revenue upside is one of the driver.

I just wanted to ask you did some of the spend planned for <unk> did that get pushed into <unk> or were there any other anomalies to explain the outsized cash flow growth in the quarter. Thanks.

No I would say, it's mostly just timing a little bit of timing Q3, and Q4 to Q1, but I mean really nothing.

No, I would say it's mostly just timing, you know, a little bit of timing, Q3, Q4 to Q1, but I mean, really nothing unusual there. You know, I mean, and part of it's just the overall strength of the quarter. You know, we had a very strong quarter from a revenue perspective as well for Q4.

Unusual there.

And part of it is just the overall strength of the quarter, we had a very strong quarter from a revenue perspective as well.

For Q4.

Thanks, Greg.

Our next question is with Robert Simmons of D. A Davidson.

Our next question is with Robert Simmons of DA Davidson. Hey, thanks for taking on questions. I guess most of them have been asked and answered already. I guess.

Hey, Thanks for taking my questions. So I guess most of them have been asked and answered already I guess have you thought about giving new updated for ASC 606 long term.

Target margins.

You know, under 606, I'm not exactly sure of the question. You know, we're continuing the... One term, Architur, it used to give, it used to give like a long term, he would...

Under 606, I am not exactly sure of the question.

Roger just to give you used to give like a long term EBITDA margin.

Oh, Physics Six Long Made From Cralid!

Guide, but you know to a target.

I was wondering if oh.

It takes a long term realities.

Yeah, correct. We did and I think we continue to hit that and then we would update it. You're right as we went to 606. We have not updated those long-term margins. You know, we have strong margins that we're starting off with right now. Again, we are focused on growth, but our growth is producing high quality, profitable.

You are correct, we did in <unk>.

We continue to hit that and then we would update it and you're right as we went to six O. Six we have not updated those long term margins. You know we have strong margins that were starting off with right. Now again, we are focused on growth, but our growth is producing high quality profitable.

business. So, you know, for us, we're focused on the growth side, but we do have healthy strong margins. It's something we have to take a look at internally of when we may be able to update what a long-term growth margin looks like, but, you know, we're focused on growing for the foreseeable future.

Business So you.

You know for US we're focused on the growth side, but we do have healthy strong margins. It's something we have to take a look at internally of of when we may be able to update what our long term growth margin looks like but.

We're focused on growing for the foreseeable future.

Yeah, and I would say, you know, I mean, you know, one thing we're really starting this year just to leave it on March and off it, that where we finished last year.

I'd say you know I mean.

One thing we're really starting this year adjusted EBITDA margin of where we finished last year or so.

You know, coming out strong out of the game, you know, a couple of things, you know, kind of looking into 2022 just on a modeling, you know, stock comp, we would expect it to be, you know, around 110 million up slightly from

Coming out strong out of the gate a couple of things you know kind of looking into 'twenty.

2022, just on a modeling you know.

Stock comp, we would expect it to be around $110 million up slightly from from this year and then one thing we we did bring our grapevine office facility online here at the end of the fourth quarter. So we're going to see a little bit of an increase in the depreciation for 2022 is it really.

from this year. And then one thing we did bring our grapevine office facility online here at the end of the fourth quarter. So we're gonna see a little bit of an increase in the depreciation for 2022 as it relates to that facility probably around 50 basis points as a person. And then one thing else that we've announced is kind of the expansion in Oklahoma City as well. So CapEx.

<unk> two.

That facility, probably up around 50 basis points as a percent.

And then one thing else that we've announced is kind of the <unk>.

Expansion in Oklahoma City, as well, so capex will be similar to last year as it relates to care for that so all of those play into our.

will be similar to last year as it relates to care effects. So, all of those playing to our margins, some of those get added in fact subtracted out for just the EBITAB. We're really excited about where we're starting 22 with the rule of 65.

Margins are some of those or get added insect subtracted out for adjusted EBITDA, but we're really excited about where we're starting 'twenty two with the rule of 65.

On the on the Capex is that similar dollar amount a similar percent of revenue.

on the that some are like dollars share some

A percent of revenue.

Got it great. Thank you very much.

Our next question is with Bobbin Shah of Deutsche Bank.

Our next question is with Bob and Shas of Deutsche Bank.

Great. Thanks for taking my questions Chad just any commentary you can provide in terms of which modules are seeing increased adoption at HR becomes more strategic with a great presentation. And then are you seeing any customers like are you seeing more customers come back to the table or even the size of the land get bigger.

Great, thanks for paying my questions Chad. Just any commentary you can provide in terms of which modules are seeing increased adoption at HR becomes more strategic with the great resignation. And then are you seeing any customers, are you seeing more customers come back to the table or even the size of the land get bigger?

Yeah.

Yeah, and so first I would start with the modules. You know, we've always had healthy uptake and I've always said the longer we have a module, the more uptake we have in it.

Yeah, So well first I would start with the modules you know, we've always had healthy uptake and I've always said the longer we have the module the more uptake we have in it when.

When you deploy Betty, it does require certain modules to be implemented into the client base and into that client in order for them to use Betty. So that's helpful oftentimes with our modules, especially for the new clients, so that we bring on that half Betty, of which all of them do. So that's helpful there.

When you deploy Betty it does require a certain modules to be.

Implemented into the client base and enter that client in order for them to use Betty So that's helpful oftentimes with our modules.

Especially for the new clients that we bring on that have 30 of which all of them do.

So that's helpful. There.

As far as module impact that we see, I mean you are seeing some impact on learning management just as people are looking to both retain as well as spin up training for new employees. Obviously our recruiting product has been very strong going throughout the pandemic.

As far as module will impact that we see I mean, you are seeing some impact on learning management just as people are looking to both retain as well as spin up training for new employees, obviously are recruiting.

<unk> has been very strong going throughout the pandemic.

to be able to identify those people that you want to hire. But as far as we look at the product mix, we've had healthy usage across all of them.

To be able to identify those people that you want to hire but.

As far as as far as when we look at the product mix, we've had healthy usage across all of them and it really just depends on what industry and what area client might be and to whether or not they would use all of those modules or not.

And it really just depends on what industry and what area client might be in to whether or not they would use all of those modules or not. If that.

If that makes sense.

And then as far as seeing customers come back to the table, you know, we're not having a lot of losses on customers as we just talked about our retention rate going up. When we do lose a client though, it is, you know, we get a meeting with them normally pretty quick just because of the usage around their employee base, you know, if we're looking at a DDX.

And then.

As far as seeing customers come back to the table.

We're not having a lot of losses on customer says, we just talked about our retention rate going up when we do lose a client though it is.

We get a meeting with them normally pretty quick just because of the usage around their employee base. You know, we're looking at a D. D X of 95% where employees are making 95% of all the changes into the system. That's a quiet the finds it hard difficult to leave without destroying their return.

95% where employees are making 95% of all the changes into the system That's a client that finds it hard difficult to leave without you know destroying their return on investment and all the automation that they had

On investment and all the automation that they had.

that they had achieved through our product. So we have a lot of windbacks there, but I would just start off by saying, we're not really losing as many as we once did.

That they had achieved through our products. So we have a lot of win backs there, but I would just start off by saying, we're not really losing a as many as as we once did.

Got it that's helpful. There and just a quick follow up on your office openings. I mean have you guys open up five offices after not opening one in a handful of years. How do you ensure that you don't see any disruption to your productivity with your other offices and you shipped around personnel and then make them sales meters and so the other point of like how do we think about sales productivity ramping for these five offices.

Got it, that's up for there. And just put a follow up on your office opening. I mean, as you guys open up five offices after not opening one in a handful of years, how do you ensure that you don't see any destruction to your productivity with other offices as you shift around personnel and make them sales leaders? And to the other point of like, how do we think about sales productivity ramping for these five offices? Is there any change to the historical cadence?

Are there any change to the historical cadence.

Well, you don't ever take top managers out of an office and relocate them to a new office, where they start off with zero employees and you don't have some impact on that office, where those managers.

Well, you don't ever take top managers out of an office and relocate them to a new office where they start up with zero employees and you don't have some impact on that office where those managers came from.

Were those managers came from because we are these are some of our top managers that we relocate like that now, but what youre going to gain out of that new office is going to cover up anything that EMEA has been negatively impacted on the old and then by the time they get to maturity.

because we are, these are some of our top managers that we relocate like that now, but what you're gonna gain out of that new office is gonna cover up anything.

that negatively impacted on the old and then by the time they get to maturity there's not much difference between the two but well there's not a difference between the two on what their quota is and oftentimes quota achievement and so

Theres not much difference between the two.

Well, there's not a difference between the two on what their quota is and oftentimes quota achievement and so I wouldn't say, it's necessarily a giant sacrifice that we make but you know you do whenever you do move managers out of an office you do have an impact now we're disrupting five of those oh, there used to be a time, where.

I wouldn't say it's necessarily a giant sacrifice that we make, but you do, whenever you do move managers out of an office, you do have an impact. Now, we're disrupting five of those.

There used to be a time where we would disrupt 4 out of 12.

We would disrupt four out of 12.

So the disruption to us is a little bit left and I'm using disruption.

So the disruption to us is a little bit less and I'm using disruption.

I don't know that that would be the right word to use to be honest with you, but uh...

That'd be the right word to use to be honest with you but.

You know, it does take a little bit for those managers as they get into those new territories to spin up, but there are best managers, so they spin up pretty quickly.

It does take a little bit for those managers as they get into those new territories to spin up but they're our best managers. So they spent up pretty quickly.

Got it helpful. Thank you so much.

Okay.

Our final question is with Daniel gesture of BMO.

And the final question is with Daniel Jester of BMO.

Great. Thanks for squeezing me in just a piggyback on the last question or all of the five new offices fully staffed today.

Great, thanks for squeezing me in. Just to un-took piggyback on the last press.

Are all of the five new offices fully staffed today?

No.

Our method is we get, oh sorry, go ahead.

Our method is we get Oh, sorry go ahead.

No no no fish that please.

Our method is that typically we'll hire fully staffed office as H. Cells reps.

Our method is that typically we will hire for a fully staffed office has a sales reps.

We'll start off with three or four in an office. They get selling, pipeline. They start getting start.

We will start off with three or four in an office they get selling pipeline they start getting starts.

As we've said in the past, it usually takes 24 months for an office to get to maximum maturity. And that's where they have the same quota, the same number of reps with the same level of pipelines, and with the same level of expectation that we would have for their success as any other mature option.

As we've said in the past it usually takes 24 months for an office to get to maximum maturity and that's where they have the same quota. The same number of reps with the same level of pipelines and with the same level of expectation that we would have for their success as any other mature office.

And then just to wrap up on Betty when the product went live Chad you made some comments about how long you thought

Gotcha and then.

Just to wrap up on Betty when the product went live chat you made some comments about how long you thought it would take to get full penetration into the base now that we've seen sort of the growth in the adoption any updated thoughts about how that progression is going to evolve. Thank you.

to get full penetration into the beast. Now that

the adoption, any updated thoughts about how that progression is going to evolve.

I still feel strongly about what I said in the past. I mean, Betty ensures perfect payrolls. It ensures you're not gonna have manual checks. You're not gonna have voids. You're not gonna have employees with overdrafts and everything else. So we continue to have a lot of success deploying Betty and I still expect that all of our clients will be using Betty at some point.

I still feel strongly about what I said in the past I mean, Betty insurers perfect payrolls at insurers, you're not gonna have manual checks, you're not gonna have voids youre not going to have our employees with overdrafts and everything else. So we continue to have a lot of success deploying Betty and I still expect that all of our clients.

So we'll be using that at some point.

Great. Thank you very much.

Alright, thank you.

All right. Well, I would like to thank everyone for joining us today on the call and a special thanks to our employees for helping deliver another very strong year. This quarter we will be participating in the Key Bank and Morgan Stanley conferences in San Francisco on March 8 and March 9th respectively. Both should be in person, but we'll see. We look forward to speaking with many of you very soon and we appreciate your continued support and pay calm. Thank you operator. You may disconnect.

Alright, well I would like to thank everyone for joining us today on the call and a special thanks to our employees for helping deliver another very strong year. This quarter, we will be participating in the Keybanc and Morgan Stanley conferences in San Francisco on March eight and March 9th respectively, both should be in person, but we.

We'll see we look forward to speaking with many of you very soon and we appreciate your continued support and pay com. Thank you operator, you may disconnect.

That concludes our Paycom software 4th quarter 2021 results lender call. Thanks for your participation.

That concludes our pay common software fourth quarter 2021 results lender call.

Thank you for your participation.

Yeah.

No.

Okay.

Right.

Okay.

Yeah.

Right.

Yes.

Okay.

[music].

Okay.

[music].

Okay.

Q4 2021 Paycom Software Inc Earnings Call

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