Q2 2022 Paycom Software Inc Earnings Call
Brown quarter I'll spend a few minutes on the highlights and then turn it over to Craig to review, our financials and our guidance and then we'll take questions. Our second quarter 2022 revenue of approximately $317 million came in very strong at 31% year over year with continued strength in recurring revenue from new business sales.
We continue to see strong demand for self service payroll and automation of human capital management as more companies and their employees embraced innovative solutions like Betty.
We have been leading the employee usage initiative for years and our efforts are paying off when data interactions on our platform or performed by employees our clients realize the ROI that self service promises at the core of our employee usage strategy is Betty, which we believe is how businesses and their employees win and payroll.
If any business is doing the employees payroll for them that business is doing both itself and its employees to service the only way a company wins at payroll is by having the employees do it themselves. It makes no sense in the year 2022 for any company to continue to transfer data inefficiently.
Multiple systems or manual archaic processes that is the future of payroll and already over 13000 clients or nearly 40% of our client base have embraced Betty that's.
Thats, great progress, but as I've said I expect all clients will eventually deploy Betty in order to finally experienced the correct way to do payroll.
We are reinforcing this message through our marketing efforts, our recently launched new AD campaign calls on businesses and their employees to eliminate unnecessary activities and the early feedback has been very positive overall, our marketing plan continues to deliver strong demo leads and brand recognition across our target market.
Range in particular, we continue to see strong leads from larger clients, which is driving average revenue per client hire and an important contributor to our strong growth.
On the sales front, our 54 outside sales team continued to perform well driving deeper penetration and market share gains into our target geographies. While we estimate we have roughly half of the country covered geographically, we only have approximately 5% of our very large and growing Tam we have a long runway for rapid growth.
For many years to come to sum up we finished the first half of 2022 with very strong financial results with our expectation for the second half of the year 2022 has become a year of growth acceleration and margin expansion, our differentiated product strategy focused on employee usage and self service payroll is resonating with prospects.
And we're onboarding new clients at a very strong pace I want to thank our employees for making this quarter another milestone growth quarter with that I'll turn the call over to Craig for a review of our financials and guidance Greg.
Thanks, Chad before I review, our second quarter, and our outlook for the third 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.
Quarter 2022 results were excellent with total revenues of $316 9 million representing growth of 31% over the comparable prior year period.
In Q2, we had very strong recurring revenue growth predominantly from new client additions over the past year. Our revenue growth continues to be driven by strong demand for easy to use them fully focused solutions and our success in attracting new business wins.
Within total revenues recurring revenue was $311 5 million for the second quarter, representing 98% of total revenues for the quarter and growing 31% from the comparable prior year period.
Total adjusted gross profit for the second quarter was $268 2 million, representing an adjusted gross margin of 84, 6% and we are on target to achieve strong full year adjusted gross margin of approximately 85%.
Adjusted sales and marketing expense for the second quarter of 2022 was $82 7 million or 26, 1% of revenues compared to 26, 6% of revenues in the prior year period, we continue to see strong return on investment from our advertising spend and plan to continue to invest in <unk>.
Resolutely in marketing and advertising through the remainder of 2022.
Adjusted R&D expense was $33 9 million in the second quarter of 2022 or 10, 7% of total revenues adjusted total R&D costs, including the capitalized portion were $48 1 million in the second quarter compared to $38 million in the prior year period, we will continue to invest.
And innovation and our World class products.
Adjusted EBITDA was $119 6 million in the second quarter of 2022, or 37, 7% of total revenues compared to $87 million in the prior year or 35, 9% of total revenues. Our GAAP net income for the second quarter was $57 4 million or <unk> 90.
<unk> per diluted share versus $52 3 million or <unk> 90 per diluted share in the prior year period based on approximately 58 million shares.
non-GAAP net income for the second quarter of 2022 was $73 million or $1 26 per diluted share versus $56 5 million or 97 cents per diluted share in the prior year period for 2022, we anticipate our full year effective income tax rate to be approximately 27.
<unk> on a GAAP basis, turning to the balance sheet, we ended the quarter with cash and cash equivalents of approximately $279 million and total debt of $29 million. The average daily balance of funds held on behalf of clients was approximately $2 billion in the second quarter of 2022, we've recently.
Increased our liquidity through an expanded revolving line of credit of $650 million and a delayed draw term loan that allows us to borrow up to an additional $750 million as needed.
Potential uses of proceeds include but are not limited to general corporate purposes capital expenditures and stock buybacks.
During the second quarter of 2022, we took advantage of a dislocation in the stock market and repurchased approximately 360000 shares for a total of roughly $100 million through June 32022, Telecom has repurchased nearly 465 million shares since 2016 for total.
With nearly $588 million and we currently have $550 million remaining in our buyback program.
Now, let me turn to guidance.
We are raising our full year 2022 guidance as a result of very strong second quarter financial performance and the continued strength of demand trends. We now expect revenue in the range of $1.354 billion to $1 billion and $356 million or 28% year over year growth at the midpoint of the range.
We expect adjusted EBITDA in the range of 546 million to $548 million, representing an adjusted EBITDA margin of 40% at the midpoint of the range for the third quarter of 2022, we expect total revenues in the range of 327 million to $329 million, representing a growth rate.
Over the comparable prior year period of approximately 28% at the midpoint of the range. We expect adjusted EBITDA for the third quarter in the range of $117 million to $119 million, representing an adjusted EBITDA margin of 36% at the midpoint of the range.
With only 5% share of a growing Tam we have a long runway for continued high margin revenue growth for years to come.
Our differentiated solutions and go to market strategy, particularly with Betty are working well and driving new client growth and higher revenue per client <unk>.
Combining our raised 2022 guidance for revenue growth with adjusted EBITDA margin guidance implies we are well on our way to deliver a material improvement over the rule of 65, we achieved in 2021 with that we will open the line for questions operator.
Thank you.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
Any reason you'd like to ask question. Please press star followed by team again to ask a question. Please press star one as a reminder, if youre using a speakerphone. Please remember to pick up your handset before asking your question.
Please limit your questions to one part analysts and one follow up we will pause briefly ask questions are registering.
Our first question comes from the line of Ryan.
Raimo <unk> with Barclays. Please go ahead.
Thank you congratulations from my end.
Two quick questions Chad can you talk a little bit about what you're seeing there obviously macro is a big question for everyone on everyone's mind.
Employment theater is still very very strong, but like any anything that youre seeing out there in terms of.
And demand changes or a different behavior from customers. That's my first question and Mike taking questions Craig for you.
Obviously, we had quite a bit.
Rate changes over the last quarter can you just remind us how that fits into your numbers going forward. Thank you and congrats again.
You bet. Thank you Ron I'll take the first.
Now, we really aren't seeing much of a change from what we've seen in the past I mean, I will say that.
I believe that.
Okay.
It's not as difficult maybe to hire people as it was.
Six months ago.
It's still very much an employee's market and I would say we're nowhere back.
In no way back to where we were in 2019, where it was more of an equally yoked.
Employer employee market. So there's still a lot of jobs out there unveiled and it's still a very.
We're still all in at somewhat of a fight for talent.
Yes.
On the interest rate question.
For every 25 basis points.
Interest the fed funds rate goes up we get about $5 million of annualized interest income, but it is typically layered in so we felt we saw one in may and June and July .
We saw some so those will layer in.
Some in third quarter, and then some in fourth quarter as well.
Okay perfect. Thank you congrats again.
Thank you.
Thank you.
Our next question comes from the line of Samad Samana with Jefferies. Please go ahead.
Hey, good afternoon, and it's great to see the strong results maybe first of on Chad just in terms of deal cycles are you seeing similar close rates or similar lengths in terms of the typical deal cycle or are you seeing any changes in terms of the level of approval it needs to go.
What are you seeing as far as actually closing deals guys.
Yes, no no changes there from what we've been saying.
As far as the timeline and in our closed percentages I would say if anything theyre going up we're definitely getting more interest in the first calls that we have and being able to move those into second calls.
So we're having more success with that but all in all.
Our close ratios remain very strong and very similar to what they've been in the past.
Great and then maybe just on the.
Newer sales offices.
Any I know it's.
Still early in terms of the ramp, but where are we on the staffing of does and maybe their productivity compared to maybe prior new office openings for comparison.
I would say the staffing is going to be similar.
They're more productive.
Today, today's new reps are more productive than.
Then what yesterday years.
Reps would've been but as far as the number of reps that's very similar the progression to maturity of any one of our new offices is going to start off with the three years or so reps and then we'll continue to add reps over the course of a two year period of course at some point they are fully staffed with eight and they all are.
Both pipelines and backlogs and so after two years.
Those cities carry the same quota as what we would have had in an existing city.
Okay. Okay, great. Thanks, again for taking my questions and great to see the good numbers.
Thank you.
Thank you.
Our next question comes from the line.
Rod.
We bought with Stifel. Please go ahead.
That's great. Thanks, very much Chad can you remind us historically, what type of impact employment levels that your customers have has on your overall growth rate.
Yes.
Yes.
Next year will be our 25th year and with the exception of the <unk>.
<unk> the two beginning months of the pandemic normal gyrations.
And in an unemployment haven't really.
Packed at US we've gone through multiple cycles and now the pandemic is a little different because you had an overnight retreat of an employee base, which was a little bit different but.
I would say, we're we're very solid in regards to unemployment that said I mean, if unemployment doubled overnight it would be hard for me to believe it wouldn't have some impact.
On our current client base, but as we sit here today unemployment number still remain reasonable with where they're at right. Now I mean, you might even say there is still fairly low and then you still have quite a bit of open jobs out there with over 10 million I mean at some point you have to start thinking.
Does everybody that wants a job already have one.
That's great thanks very much.
Thank you.
Thank you Mr <unk>.
Our next question comes from the line Mark.
Mark Hahn.
With <unk>. Please go ahead.
Hey, Chad and Craig Let me add my congratulations terrific results I'm wondering can you talk a little bit about.
The strong leads that youre getting particularly from larger clients can you talk a little bit about what sort of size difference youre seeing how bigger some of the.
The companies that are now coming into the pipeline and to what.
How big is the average client now relative to say a year ago.
Well it continues to go up because.
As you remember it was about a year ago, maybe a little longer that we increased our range up to 10000. So.
Obviously, it's going to continue to go up a little bit I wouldn't say that there's been a massive shift for us to go a whole lot higher than that right. Now so what I would say is is theres been more within that range not necessarily.
Quadruple that range, but we continue to engage.
Above well above our target range and we're having a lot of success a lot of the leads we're getting right now are still coming from employees of companies that have used us elsewhere have that sing.
A single easy to use experience and are really wanting to have that same experience with the next company. They went too.
So we're still having a lot of success and continuing to bring in strong demo leads through both that which I'll say indirect as well as their advertising and marketing efforts, which are still yielding great results for us.
That's great and then.
With regards to.
The float balances what was the effective yield that you were able to generate off of offered last three months.
Yes, Mark we haven't disclosed what yield it is but I mean, we're investing still fairly short term, we have a commercial paper some overnight money markets as well so.
And have a mix of that and we're not chasing yield, but we're paying attention to it.
Okay.
Obviously getting more and more promising thank you.
Thank you.
Thank you Mr Marchionne.
Our next question comes from the line.
Brian Schwartz with Oppenheimer. Please go ahead.
Hi, Thanks for taking my questions I'll Echo congratulations.
Relations again on these terrific results one for you Chad one for Crag Chad.
Chad the commentary that on the deal closures closures youre seeing higher asps.
Are you seeing similar trends in your lead flow also and then the question I wanted to ask Crag.
With the guidance Youre retaining the same EBITDA margin, but clearly we know that inflationary factors have gotten worse here.
Out the quarter.
So I'm just wondering are you able to maintain that margin because of the efficiencies of the business that you were able to overcome or is that are you holding back any sort of span that maybe you had planned in the second half of the year. Thanks.
Sure. So on the first I mean definitely.
The leads are also coming in.
With with larger clients, but also we still continue to target to do targeted prospecting.
That's always been our bread and butter, we're very we remain very focused on that thats more of our general pressure relentlessly applied strategy that we deploy through targeted marketing efforts, but theres no doubt that the leads continue.
To generate.
Larger opportunities for us.
Yes, and in terms of the inflationary question.
We've seen some pockets where we're seeing some.
Higher inflationary areas, but overall, we're continuing to look for leverage throughout the model in.
And really not holding back on any hires.
Just finding leverage throughout the model.
Thank you.
Thank you thank you Mike.
Thank you Mr Schwartz.
Our next question comes from the line.
Ryan Macdonald with Needham. Please go ahead.
Hi, Chad and Craig Thanks for taking my questions. Congrats on a great quarter Chad in your prepared remarks, you talked about this dynamic where you've got nearly half the country covered geographically, but only 5% market penetration currently as you think about continuing to expand the proportion of the pie where do you see.
The most value in terms of incremental investment whether it be.
<unk> that geographic expansion in the back half of this year with new offices.
Incremental advertising spend to build the brand awareness or perhaps continued investment and expansion inside sales teams.
Well number one is us continuing to get better at the outside sales process. We.
Have more opportunity out there for us within the markets that we're in we only have a <unk>.
5% of the market out there. So I would say number one for us is continuing to get better at selling our value proposition out there to prospects. We have continuous continued to be pulled up market because of the strong value proposition that we are delivering all the way down to the employee level and.
So.
We are continuing to get more.
Leads that tend to be a little bit larger than what we've had in the past and I would say in aggregate theres more of them as well and so really that's been our focus is getting better at executing and being able to sell that now that alone.
Isn't our only strategy, we're getting better at sourcing leads we're getting better at re targeting them and then of course, we continue to look at expanding geographically when it makes sense to do so and when we have the staffing and leadership bench.
<unk> to be able to do them.
So maybe just as a follow up.
When you look at sort of the yield that youre looking to get off of the digital marketing investments and the advertising can you talk about what the timeframe that youre looking for in terms of that return on investment and whether if we do see a slowdown in the back half that could materially impact those returns in the near term.
Yes, when we measure it.
We know our return weekly I mean.
These arent I mean these are very strong demo leads these are clients, who are asking for a product demonstration and we have very good close ratios once we engage with.
With those clients and so.
It would be more of that for us as far as the slowdown in the back half of the year and this I really don't I really can't see that I mean, we have a very strong value proposition, which is resonating.
Very well out there both with employees as well as with their employer and to some extent the world's conspiring to help us here and just the way different individuals now deploy and utilize technology and so we're at the forefront of that I've said many times I mean, we might be early but we're not wrong.
And.
So we're going to continue to drive our employee usage strategy throughout the both the last half of this year as well as our next year.
Thanks for the color Congrats again.
Thank you.
Thank you Mr Mcdonald.
Our next question comes from the line.
<unk> kind of groggy.
With Mizuho. Please go ahead.
Hi, This is Alex on behalf of <unk> I had a question about better you talked about.
10000 clients uptick in better in Q1, and this quarter you have about 13000 clients what drove the <unk> ads.
What sort of per employee per module uptake, yes part of Buddy.
What kind of growth upside do you see from Betty adoption.
Can you answer that in a follow up.
Yeah, well I mean.
We continue it continues to grow every quarter for two reasons. One we continue to up sell that into our current client base is its a better way for them to.
Do payroll it really is the only way someone should be doing payroll today, but as a reminder, since July of last year every new client that's come on our system.
<unk> has deployed bed and so thats a part of our.
Of our product offering since July of last year to every new client and so you've got a mixture of both of those.
And then as far as the opportunity that upselling into our client base has with Betty.
It is incremental <unk>.
Increase in revenue opportunity for us so it is accretive.
To that profile.
But in every year.
We have different focuses on modules so.
And this year and I'm sure in the next year, we're going to continue to be focusing on Upselling Betty to a 100% of our of our client base and again it'll be positive, but really what it does is it drives greater usage greater usage reduces the amount of service we have to provide to any one client because of course, if their payrolls are curve.
Correct, we're not having to go through the process of doing corrections and corrections can produce.
Service calls and so we believe that with greater usage of Betty done the right way it changes the employee experience it changes their expectation of what they would expect that any employer that leads to more leads for us that leads to greater satisfaction for clients, which ultimately also.
That leads to less service on our end as clients experience to self service opportunities.
Got it. Thank you and my follow up with him ADP continues to see better retention rates and how does your new bookings trends. So have trended so far in alright, expecting any slowdown in new business bookings from a potential macro slowdown in the second half and as ADP still a major source of new business for you.
Yes, ADP has been experiencing better retention rates since I started the company in 1998, I'm surprised there retention, it's not already a 200%, but it doesn't impact our ability to sell in.
Our ability to sell and take business is again.
Our product is more comprehensive it's easier to use and it's just the way.
Employee should be interacting with their own data.
Alright, thank you.
Thank you.
Thank you.
Our next question comes from the line of.
Bryan Bergin with Cowen. Please go ahead.
Hi, guys. Good afternoon. Thank you.
I wanted to just starting to kind of what the <unk> recession question. So just how are you thinking about the sustainability of growth trajectory in the event. The U S does fall into a bit of a more challenged macro environment and as just as you think about the growth composition. What are the key swing factors that may change versus what you think remains unchanged.
Well first of all just talking about the macro I mean, the only thing that I could really see that would have a significant impact on us would be a very quick and massive shift in unemployment.
That doesn't happen incrementally over time that happens somewhat right away I would think that that would have some level of impact on us. We're a growth company. We're focused on growing were focused on automating the back office.
We're focused on making it easier for employees to actually do their job and so that's always going to be popular.
Regardless, what's going on out there and often times.
When people have to do something with less.
That means they get the opportunity to automate more so.
I feel really good about our ability to weather.
What we would expect to happen.
But again.
It would take something some massive change in the unemployment rate.
To really impact us and im not saying, we could sell through that.
But you kind of saw what happened during the pandemic.
And what happened there and I would say, that's probably much larger type of unemployment hit than what we would expect necessarily in a recession definitely something that would have happened a lot quicker than all at once but we'll just have to see but save that I'm not really I.
Can't really see a whole lot.
That would prevent us from.
Continuing to grow at a strong rate and again this next year as our 25 years in business. So we've been through.
Different recessions and then Ben on different tests of recessions.
In the past.
Okay. Thanks, I appreciate that and then just a follow up on free cash flow can you comment on just free cash flow margin, but for this year. How do you expect those to land for 2022, and just any thoughts on longer term forward free cash flow conversion trends.
One thing this quarter that impacted our free cash flow. Some was just the tax rate we saw.
Last year we.
Second quarter, we had some benefit from.
A discreet item to the quarter as it related to some stock vesting and this year, we didn't have quite the same level. So.
I would think that what we're seeing this year would be more indicative.
With.
As we kind of roll out throughout the rest of 2022 and then into 2023.
Thanks.
Yeah.
Thank you.
Next question comes from the line of Jason <unk> with Keybanc capital markets. Please go ahead.
Great. Thanks for taking my question really strong results here, especially given the macro backdrop, Chad how would you describe alright tribute to upside that we've seen just from industry resilience versus company specific drivers in execution.
Yes, so much of our upside in any one quarter is dependent upon when a deal starts.
We always believed going into quarter, we have a really good we have really good visibility into when a deal is going to start but when it starts matters when you're talking about over performance within a quarter because of course, if a deal starts at the beginning of a quarter, we get 100% revenue billing for that deal that quarter that starts at the end of the quarter, we could only get a third of the billing or.
Maybe 15% of it of course in subsequent quarters, we'll get 100%. So we have pretty good visibility I'd say, we have great visibility going guiding quarter to quarter, but as far as the outperformance, it's always being delivered by new client wins and then on top of that you really have to look at when those deals or are.
Starting for us.
Okay, Perfect and then Craig again, 31% growth in the quarter very impressive alright. Thank the guidance assumes for the second half some modest deceleration.
Curious on what kind of macro assumptions you've built into this.
Yes.
As we were coming into guidance at this point, we haven't seen anything.
Youre starting to hear about it but we haven't baked any sort of a macro impact to our guidance for the back half of the year really we are guiding very similar to how we've done in the past we guide to what we see.
I get closer to fourth quarter, we can see a little more on the on the fourth quarter and that's the quarter that has the bonuses the off cycle runs so.
As we're sitting here at the beginning of Q3, we are guiding very similar to.
We have in the past.
Okay. Thanks for that clarification Craig.
Thank you.
Thank you Mr Tomaino.
Okay.
Our next question comes from the line of RV Ing, Ralph <unk> with Piper Sandler. Please go ahead.
Okay.
Hi, Thanks for taking my question. So clearly a good result, but trended diamonds.
Even to kind of separate how much of your growth was driven by.
Expansion at existing clients versus new new client logos.
Sure is that the question I'm, just making sure okay. If thats the question.
The overwhelming majority of our revenue and our revenue that we onboard our new business revenue comes from new client wins.
We do continue to sell into our client base.
Serge will land and expand we land large, but there are opportunities for us to expand into that client base and we do that as we believe that clients.
Clients should be able to use all of the products that we have the correct way to drive the employee experience.
So.
Craig one thing I would say.
Ireland as our outside clients or outside sales teams was 54 sales teams are only bringing on new logos. So that entire group is bringing on new logos. So the mix has been very similar to what it has been in the past with the exception of that year.
<unk> came about where we did that was such an immediate.
Ah.
So but the.
The last few years has been very similar to the mix of new.
New logos to upsell and it's still the overwhelming majority is going to be new logos.
Perfect and just a quick follow up here have you seen any sort of layoffs of turnover.
Existing clients that has been a headwind on revenue or has it been sort of roughly equal and then the second thing is.
You can comment on pricing being able to push pricing increases through.
No on the headwind.
And then as far as our pricing we've talked about that in the past, where we did our first.
Icing adjustment I believe it was in 2019.
And we did a small.
Pricing adjustment to a small subset of our of our client base. We did talk about as we move forward.
Talking about our pricing model is it's something that we're going to do just for competitive reasons, but I've also always said that as we make our products more valuable it only makes sense that we get to share in the value we create through.
Through pricing adjustments over time.
Perfect. Thank you.
Thank you.
Thank you.
Our next question comes from the line.
<unk> Zukin with Wolfe Research. Please go ahead.
Hey, guys. Thanks for squeezing me in and congrats on an all out great quarter.
I guess so.
A lot of these questions have been asked but I'll try to maybe ask it a different way it sounds like youre, having incremental success selling more modules at the same time because of Betty Youre still seeing a tremendous amount of new business.
You don't really see it.
A recessionary headwind impacting employment rate so.
Yes. The main question I would add is if you look at your the Constitution of your new bookings and you look at that from.
It kind of increased value versus increased units, how does that compare to prior periods, meaning are you getting more of your growth from deals.
Deals are larger.
Incrementally.
Yes.
I would say compares very similar to every past year with the exception of when we added.
Onto our inside sales business, which are for more of your emerging businesses. Those companies that have less than 50 employees that group represents approximately 5% of our overall revenue. So that's one way to think about it as companies that have less than 50 employees represent 5% of our <unk>.
All revenue and so.
What has been growing is the average size of our other clients and so that hasnt been different.
In a year from year to year. It continues to go up and again part of that diluting factor. If you just take the unit count divided by total number of employees in our system part of that diluting factor is going to be all of those.
Emerging below 50 employee companies that we added when we added this inside sales group and expanded it in the year 2020.
Understood.
Increasingly.
As you think about incremental modules and you think about that incremental.
Yeah.
Potential over the next coming couple of years do you see it every year if everybody is buying all of the modules upfront do you see that.
What kind of momentum continuing in the future.
Yes, we've always said that people buy half at least half or greater of the modules that we have at the time that we sell them of course have been in business, sometimes with some of the modules you have to go back and sell into the current client base because we didn't have them at the time, we actually sold.
<unk>.
In the beginning I would say, it's a little bit more than half now as we go into <unk>.
As we go into new sales.
Sales just because of what's required for a client to have an order for an employee to do their own payroll.
There are several modules that they have to have im not going to say, it's 100% because that because that wouldn't be accurate, but I would say, it's more than what they needed in the past.
Perfect and just a clarifying question with respect to the.
With respect to the guidance you did it looks like a bigger pass through than usual bigger raise than usual so I think it.
It would be helpful just understand out of the.
INTL raise how much of that is coming from.
The rate hikes coming into the model.
Yes.
Well as we've said I mean for us it's really the new business sales are really going to be what's driving quarter to quarter and then it does matter when the start that's not to say that we're not going to have some.
Positive impact from the rate increases you had the 50 basis points in May which is somewhat in the middle of the quarter not necessarily maybe a little sort of that and yet another 75 basis towards the end of July we've talked about how those layered in.
Sorry at the end of June we've talked about how those.
Layer in and then you also had some July so we've talked about how those layer in and so we would absolutely expect that to be have a positive impact on both next quarter subsequent quarters.
Well.
First prize for US, which has been is that growth in new and new logos.
Perfect. Thank you guys congrats on a great quarter.
Thank you.
Thank you.
Our next question comes from the line of.
<unk> Shah with Deutsche Bank. Please go ahead.
Great. Thanks for taking my question Echo My congrats on the strong results. Chad earlier, you mentioned a lot of the benefits of Betty but just as it relates to retention can you talk about what you've seen maybe from those customers that utilize that lead to the ones that maybe don't yet are you seeing any improvement there or is it still too early.
Well, I mean definitely clients that use Betty and deploy better youre going to have much stronger usage patterns than someone that doesn't and once they've deployed Betty it kind of changes the game in the expectation of what an employee.
Expects to be able to use in the business and so absolutely that impacts our retention as I've been saying usage is really what drives.
Retention and I believe that so for any software out there.
Definitely hours.
Helpful. There and Craig just a quick follow up or clarification on float I just want to make sure that I understand it. So is it safe to assume that your guidance takes into account the layered impact of all the rate increases that contributed July and assumes no further rate increases is that accurate.
Yes that would be accurate it would not include any future rate increases and then layering in what we.
Through July .
Perfect. Thanks again for taking my question.
Thank you.
Thank you.
Our next question comes from the line of Daniel Jester with BMO capital markets. Please go ahead.
Ed.
Great. Thanks for taking my question just one on margin.
Another great quarter of year over year margin expansion on the EBITDA line, but you did have some compression on gross margin I know that.
Greg talked about the full year expectation for about 85% gross margin I would think with float income going higher you would have a benefit there just like on the EBITDA line. So can you remind us about the investments potentially youre, making that could impact that gross margin trends. Thank you.
Yeah.
Sure so the <unk>.
One thing on the gross margin line as we continue to hire and hire in front of the revenue growth.
That's going to have an impact on that gross margin and then you will eventually grow into that you have to hire and train ahead of capturing that revenue. So we're continuing to hire aggressively.
And then also we brought on the new.
Grapevine facility and datacenter that tier four data center, so you're starting to see some of the depreciation.
Hitting the different.
Areas of our income statement, so that had a small had an impact as well on the on the gross margin, but were still expecting to be at least at that 85% level for the full year.
Great. Thank you very much.
Thank you.
Thank you our.
Our next question comes from the line.
Kevin.
With credit Suisse. Please go ahead.
Great. Thanks, so much.
Is there any way to frame what the revenue impact as it were.
Yes.
Adopted 100% across your existing client base. So said another way what's the revenue impact is Betty becomes 100% utilized across the client base.
Well that is one of 29 modules that we have so I mean, it would definitely have an impact again.
Where we're making the impacts new business logo ads embedded gives us the opportunity to do that I think Betty will have some impact for sure because we're charging for it but I think where you'll see a bit better impact of Betty once we have every single client on I mean, I think it's going to impact retention.
As we've seen usage has been impacting.
Retention of our product we were at 91% I think it was three or four years ago and it has continued to go up and so that's really been driven by usage and Betty generate stronger usage of our products. So.
If history is an indicator we would expect that.
Once all of our clients have deployed it and are actually generating that ROI, it's going to have an impact on our retention and then also all of those clients employees will be used to Betty and as they go to other companies in the market as a normal flow of an employee lifecycle goes from one company to the next.
We believe that generates even greater leads for us as we've been seeing now.
Very helpful. And then can you just remind us the philosophy on flow in terms of.
To the market as opposed to maybe reinvestment in the business.
Okay.
Yes, I mean.
We'll have to see on that I think a lot of it depends on the timing of when we might make some of those investments you look at.
If it's something that we can invest in let's say advertising or R&D, that's going to generate additional revenues.
And that's something we're definitely going to look at but we're also accompany that.
It doesn't like way, so we're not going to spend it just to spend it will but to the extent that we don't see an opportunity we will let that fall to the bottom line.
Yes.
Thanks, so much.
Thank you.
Our next question comes from the line of Robert Simmons with da Davidson. Please go ahead.
Hey, guys. Thanks for taking the question I was wondering are there parts of the market.
Responding, particularly well to Betty certain industries that are most apt to want it and to embrace it.
Now I would say, it's been industry agnostic I mean, youre talking about Betty as to the benefit of Betty as to the employees. So it's really it doesn't really matter what industry that is anywhere and employee really really needs for their check to be accurate going into the weekend.
But is there for them and within every industry.
You will have those types of of employees and then again every business that we'd like to automate and reduce actually reduce their exposure and a lot of their liability around the payroll process.
Deploying <unk> the right way to do that and so no I cant say that theres any industry.
That Betty would work stronger and then the other.
Got it.
And then can you talk about the <unk> situation I mean, how much benefit have you been able to see from that so far this year in terms of bookings.
And also to pipeline for the second half of the year.
Yes, I mean, I think that produces an opportunity for everyone. I also think.
It makes everyone take pause and everybody's got to make sure. They have the right plan for their clients.
We're all in this same world.
Together.
So I think as as you see those kind of things I know that we looked at everything ourselves.
I'm sure many competitors looked at.
Not everyone can do.
Differently to make sure that employees always get paid.
Yes, I mean, absolutely it produces opportunity, but I don't I wouldn't say, it's the hack that produces the opportunity I mean, it's the fact that someone has an opportunity to have a a very good experience in a single system for their employees. So they have an opportunity to have multiple systems, where their employees are trying to find their passwords and I would say.
That's what drives our wins more so than <unk>.
More southern what's happened to them in the past.
Got it great. Thank you very much.
Thank you.
Thank you.
There are no additional questions waiting at this time I would like to pass the conference that Chad Richison for any closing remarks.
Okay.
Okay. Thank you to everyone for joining our call today and thank you to all of our employees for contributing to our continued success. We have a busy schedule ahead, starting next week with meetings at the Keybanc Technology Forum in Vail and virtual meetings with Oppenheimer and BMO in September we will be hosting in person meetings in Las Vegas at the Deutsche.
Bank Technology Conference in New York at the Citi Global Technology Conference in San Francisco at the Wolf TMT Conference, we hope to speak with many of you soon and appreciate your interest in <unk> operator, you may disconnect.
Thank you.
That concludes the pay Com software second quarter 2022 quarterly results conference call I Hope you all enjoy the rest of your day you may now disconnect your lines.
Alrighty.