Q3 2022 Paycom Software Inc Earnings Call
Good afternoon. Thank you for attending today's pay come software third quarter 2022 quarterly results. My name is Hannah and I will be your moderator for today's call.
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
But if you would 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 head of Investor Relations. Please go ahead.
Thank you and welcome to pay Com's third quarter 2022 earnings Conference call.
Certain statements made on this call that are not historical facts, including those related to our future plans objectives unexpected performance are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 at.
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 the statements are based on our current expectations and subject to risks and uncertainties. These risks and uncertainties are discussed in our filings with the SEC, including our most recent annual report on Form 10-K, you should refer to and consider these factors when relying on such.
Forward looking information.
Any forward looking statement made speaks only as of the date on which it is made and we do not undertake and expressly disclaim any obligation to update or alter our forward looking statements, whether as a result of new information future events or otherwise, except as required by applicable law.
Also 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 well.
We use these non-GAAP financial measures to review and assess our performance and for planning purposes.
A reconciliation schedule showing GAAP versus non-GAAP results is included in the press release that we issued after the close of the market today and is available on our website at investors <unk> Com Dot com.
And now I'll turn the call over to Chad Richison, <unk>, President and Chief Executive Officer Chad.
Thanks, James and thank you to everyone joining our call today, we delivered another very strong quarter with a focus on high quality revenue growth that produces world class margins 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 third quarter 2022 revenue of approximately 334 million.
It came in very strong at 30% year over year with rapid recurring revenue growth driven by new business sales demand for self service solutions that enable employees to interact directly with their data continues to be strong and feedback on self service payroll remains very positive at the center of our automation strategies.
Betty which is how businesses and their employees went in payroll that he is the future payroll and already nearly half of our clients have embraced self service payroll. Our go to market strategy includes 54 outside sales teams that focus on penetrating their respective territories and we augment their sales efforts with market.
And advertising that drive lead volumes brand awareness and a call to action. Our efforts are producing strong demo leads into our new brand campaign is driving strong recognition across our target market range. We are also seeing a surge in organic lead referrals coming directly from employees as.
More employees experienced Betty and pay comes comprehensive employee self service solutions. Many are seeking to bring us into their current workplace just like in the consumer World employees don't want to go backwards in technology and with pay Com employees get the best HCM user experience in the most control over their data interactions.
Employee users are becoming pay come advocates and when they get promoted and their current position or move onto a new organization. They are becoming strong influencers. We have a long runway to go in a multifaceted go to market strategy should help deliver rapid new business growth for many years to come to sum up we are delivering high quality.
Profitable revenue growth based on our strong financial results to date and expectations for the remainder of the year achievement of our full year guidance for 30% revenue growth and 41% adjusted EBITDA margin puts us back into the pre pandemic roll of 70, our differentiated product strategy focused.
<unk> experience and self service payroll is producing outstanding fundamentals with accelerating revenue growth in 2022, expanding adjusted EBITDA margins and strong cash flows I want to thank our employees for their focus and commitment to pay com 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 third quarter and our outlook for the fourth 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.
Third quarter 2022 results were very strong with total revenues of $334 2 million representing growth of 30% over the comparable prior year period, our revenue growth is being fueled by strong demand for our differentiated solution and strong new business wins within total revenues recurring.
<unk> was $328 2 million for the third quarter, representing 98% of total revenues and growing 31% from the comparable prior year period.
Total adjusted gross profit for the third quarter was $285 million, representing an adjusted gross margin of 83, 9% our focus on high quality revenue produces world class margins and we remain on target to achieve strong full year adjusted gross margins of approximately 85%.
Adjusted sales and marketing expense for the third quarter of 2022 was $85 8 million or 25, 7% of revenues compared to 25, 9% of revenues in the prior year period.
Adjusted R&D expense was $37 3 million in the third quarter of 2022 were 11, 2% of total revenues adjusted total R&D costs, including the capitalized portion were $52 million in the third quarter compared to $40 7 million in the prior year period.
Our investments in sales and marketing and innovation are fueling our market share gains and we plan to continue to invest in these areas to drive our future growth.
Adjusted EBITDA was 126 million in the third quarter of 2022, or 37, 7% of total revenues compared to $89 7 million in the prior year or 35% of total revenues I am pleased with the 270 basis points of year over year adjusted EBITDA margin expansion that we have.
Fall in the quarter, which reflects the strength of our business model and flow through of high margin revenue upside.
GAAP net income for the third quarter was $52 2 million or 90 cents per diluted share versus $30 4 million or <unk> 52 cents per diluted share in the prior year period based on approximately 58 million shares.
non-GAAP net income for the third quarter of 2022 was $73 4 million or $1.27 per diluted share versus $53 6 million or 92 per diluted share in the prior year period for 2022, we anticipate our full year effective income tax rate to be approximately 20.
8% on a GAAP basis, turning to the balance sheet, we ended the quarter with cash and cash equivalents of approximately $317 million and total debt of $29 million. The average daily balance of funds held on behalf of clients was approximately $1 85 billion in the third quarter of 2022.
Now, let me turn to guidance with our very strong third quarter and the strength of our recurring revenue model. We are raising our full year 2022 guidance. We now expect revenue in the range of $1.371 billion to $1 $373 million or 30% year over year growth at the midpoint of the range.
We expect adjusted EBITDA in the range of $560 million to $562 million, representing adjusted EBITDA margin of 41% at the midpoint of the range and a 120 basis point expansion from the prior year for.
For the fourth quarter of 2022, we expect total revenues in the range of 366 million to $368 million, representing a growth rate over the comparable prior year period of approximately 29% at the midpoint of the range. We expect adjusted EBITDA for the fourth quarter in the range of $144 million to a 100.
$46 million, representing an adjusted EBITDA margin of roughly 40% at the midpoint of the range.
Combining our 2022 guidance for revenue growth with adjusted EBITDA margin. We are now expecting to exceed the rule of 70, which is at least five points greater than the rule of 65, we achieved in 2021, we have a long runway for continued high margin revenue growth our fundamentals continue to improve.
2022, and we have strong momentum heading into 2023 with that we will open the line for questions operator.
Certainly if you would like to ask a question. Please press star followed by one on your telephone keypad.
Any reason you would like terminate that question. Please press star followed by two again to ask a question press Star one.
Kindly ask participants to limit themselves to one question today with one follow up as a reminder, if you are using a speaker phone. Please remember they pick up your handset before asking your question.
The first question is from the line of Raimo <unk> with Barclays. Please proceed.
Hey, Thank you and congrats on a great quarter and this kind of environment.
Chapter one question for you then a follow up for Craig.
In terms of what you're seeing in the.
And in the market at the moment like obviously, there's one company. After you kind of talk to to talk about.
Delaying demands.
Things happening you guys are sending out a little bit in terms of like you're not seeing anything can you just talk a little bit about.
Mike.
That's possible in terms of late.
So.
Different nature of what's going on that people are holding onto their employees for longer than you do guys don't see it is it kind of the offering but it looks like it's more the whole HR space. So that's the first question then for Greg any comments on the operating cash flow because that number came in lower than that.
And then the model so I'm sure there's something going on there would be great to hear thank you and congrats again.
Sure I mean, I'll take the first one and I would say first I mean, you know the hiring market is still a little tight and not like it was I mean, I would say theres been a little softening in our hiring as far as it.
Shifting maybe more into an employer's market I would still say that we're not there yet I mean for us, though as far as moving deals around I mean, moving deals forward I mean September and October were huge book sales.
Months for US and you know as a reminder, I mean, we only have 5% of the Tam I mean, we reported 33800 clients at the end of last year. Our two largest competitors have a combined one 7 million clients and we're out there are you know making.
Making businesses more efficient by having their employees do the payroll themselves. So you know we're not we're not short on opportunity right now, we're making businesses.
Are you now more efficient and I don't see why that would slow down for us as is that's really within our control.
And I would say on the operating cash flow Raimo, a couple of things impacted us this 33rd quarter and most of it was really just a timing between quarters, but we had some additional tax payments here in the third quarter typically we get some benefits as it relates to discrete items.
On stock comp and that was so that caused our rate to be slightly higher. So we made some additional payments here in the third quarter and then the rest is really more just expenses and the timing of those expenses and when they are paid so.
Nothing really to point out other than those two items okay.
Okay perfect. Thank you.
Thank you.
Thank you Mr Lin Sal.
The next question is from somebody that Manav with Jefferies. Please proceed.
Hey, good evening, Thanks for taking my questions Chad maybe first one for you.
About the growth sustaining above 30% even against normalized card Thats clearly impressive and if you look at our fourth quarter guidance, it's actually a stronger seasonal uplift as your initial guidance for the fourth quarter than normal to the plus 10%. If I go back and look last year I think it did something closer to like plus seven plus 8%.
I'm just curious if you could help us maybe think about what what's driving the confidence in that kind of strong seasonal uptick in the December quarter, or if there's anything you're seeing in terms of change in renewal timing or is it just float revenue just help us understand that.
Yeah, I mean, we've had a lot of strong starts.
You know as of late and so those starts.
When a deal starts in the quarter.
That really does matter.
Size of our base for a quarter is really dictated by when a deal starts if we start that new business that new client for us if we start them at the beginning of the quarter. We received 100% of the revenue billing for that client we start the deal at the end of the quarter, we might receive only 15% to 30% of the revenue billing for that client for that quarter then of course.
All subsequent quarters, we received 100% so we do have pretty good visibility as we go.
Quarter to quarter, and what would be driving the fourth quarter is obviously, we benefited from some rate increases we've talked about that as how those layer in I mean as you've seen those do start to layer in but also just the strength of our new client conversions.
We are converting clients.
Now at a rapid pace, they're using the product right off the bat, which is helpful. And so you know, we're having strong, whereas having strong growth into the fourth quarter.
Great and then maybe just a quick follow up we're getting close to lapping that the new sales offices.
Any update on how we should think about them are they fully what you would consider to be fully productive or is there still room for productivity gains there and how does that maybe factoring into but what happened in the third quarter and then your forward outlook.
Yeah, I mean with the offices that we've opened up last year and I'm going to call. It five even though we opened up one late in the first quarter of 2021 and then I think we opened up for in the very at the very beginning of 2022 of this year I mean all offices.
Just as a reminder, it takes offices 24 months to reach full maturity and that's having eight reps with the backline backlog and pipeline having been out in the field today I mean, I would say our best one probably has four reps on quota right now as we sit here today as they've been going through and selling and so that'll continue.
To increase you know throughout the throughout next year for them and then they will become mature offices and have the exact same quota as all of our other offices.
You know in 2023.
Or sorry at the end of I'm, sorry at the beginning of at the end of 2023 for one of them and then at the beginning of 'twenty 'twenty four for the other four.
Great I appreciate that thanks again.
You bet.
Thank you Mr. Simona.
The next question is from Brad Reback with Stifel.
Seed.
Great. Thanks very much.
Have you seen any noticeable change in hiring and retention at your customers.
No I can't I can't say that we've seen any changes now obviously, we're seeing changes just from when we're out there hiring people ourselves and I think to some extent that mimics a little bit of what our clients would be doing.
I would say its not as extreme as what you were facing maybe even nine months ago as far as the additional bonuses people would look to pay or the recruiting bonuses people might have I think more and more companies are getting people back into the office at some level I think.
It's there's less work from home and more hybrid if not even more work at the office. So again, we're not we're not seeing any slowdowns in our at bats, or our lead generation.
But I think a lot of that also has to do just with our size I mean, we only have 5% of the market.
Everyone is using a vendor I mean, the craziest thing someone can try to do is try to do payroll by themselves without using.
A business or a provider. So we are having success, making businesses more efficient with a very differentiated go to market strategy that is very much resonating.
Out there with that both the workforce as well as with those companies that we serve.
That's great thanks very much.
Thank you Mr <unk>.
The next question is from the line of Mark Mccollom with Baird. Please proceed.
Hey, good afternoon.
Now, let me add my congratulations on the strong quarter.
<unk>.
Craig I was wondering if you could give us a feel for like what sort of rates youre able to get right now on the on the tax filing slowed and how that might look or what you're factoring in for the fourth quarter.
Yeah. So mark you know, what we've talked about but you know what aged 25 basis points represents.
We haven't disclosed the exact rate that we're achieving those kind of layer in over time, but for every 25 basis points. You know at some point, we should be getting close to $5 million on an annualized basis, but you know all of our investments are fairly short term we're doing.
These overnights and then.
Commercial papers. So those are the types of investments as well as some two year treasuries. So those are really of the investments we're.
Seeing now and then.
<unk>.
That's kind of where we're at at this point.
Great and then Chad you mentioned, you know really strong bookings here in September and October wondering.
Given the normal cadence.
What does that make you feel like for the for the fourth quarter and in the strength that youre seeing in terms of the pipeline in terms of the key fall selling season.
Yeah, I mean, I I would say I mentioned those months because they are the most recent I mean I can go back to August July I mean, I can go back as far as we want we've just been having strong book sales.
I mean for a long time, I mean, even since the pandemic a star.
Started.
We're getting a lot of leads from just employees I mean, and we're getting leads from the largest companies in the world. I mean, you know 20 of their employees will hit our database in a in a one month period of time and so we're having strong leads we're able to turn those leads some of them into to Influencers. As we are we go in there but.
Definitely they become data points and information that we're able to gather as we go in to clients and we're finding that our employees really like to use the product once we convert a client over onto our system and again, all new clients have Betty they're all using that but within the very first two payrolls.
Over 50% of their employees are already doing their own payroll.
So that has a differentiated strategy theyre not doing that with any other company and as those employees you know either get promoted where they're at or moved to other companies there theyre, bringing us into a to other businesses and so we're having a lot of success with that and I wouldn't expect that to slow down.
I think if the labor market loosens up or even becomes tighter or what have you. It doesn't really change the value proposition of <unk>.
Eliminating and reducing exposure and risk for the company as well as helping those employees. So that they don't suffer the negative consequences associated with your pay not matching what you expected to be paid.
Perfect. Thank you.
Thank you.
Thank you Mr Marchionne.
Our next question is from Brian Schwartz with Oppenheimer. Please proceed.
Yeah, Hi, Thanks for taking my questions. This afternoon, and congratulations on an excellent quarter Chad in terms of deal sizes or maybe the cycles as the lead generation is flowing through to your conversions are you seeing any meaningful changes in those metrics.
No deal sizes have continued to go up so.
So deal size is every year I mean, I can talk about how we continue to be pull pulled further and further up market as far as the cycles I wouldn't say, there's been any big change to that.
And.
Let's see the other part of your question Yeah, I mean deal sizes are going up and the cycles are no meaningful changes there.
Yeah, you got them both Chad. Thank you and then Craig one follow up for you.
The Guy doesn't for for Q4 on the EBITDA on the margin.
It's showing less improvement than you know what the business has done for the last two quarters and I'm. Just wondering if there's any catch up in spend or maybe you are increasing your advertising here in Q4.
I'm just wondering if you have any any color on on on that target. Thanks.
I would say you know kind of similar to how we've done in the past you know we are we.
Want to make sure we have.
The ability to spend as we see necessary you know as we're going into fourth quarter and.
And if we want to increase those AD spends it gives us the ability to do that.
Thank you.
Okay.
Yeah.
Thank you Mr Schwartz.
The next question is from Joshua Reilly with Needham. Please proceed.
Okay.
Hi, Thanks for taking my questions and nice job on the quarter here.
If you look at your R&D strategy I think you have something like a 2019 modules today is the focus going forward.
More on adding new additional paid modules or is it more enhancing the clearing offerings or just maybe an update there.
Yeah, I'd say, it's both our strategy when it comes to both module creation and adoption hasn't changed you know sometimes we create.
Additional features and functionality within a product and we do not charge for those features and functionality DD acts as an example of that manager on the go.
As an example of that and I could name many others and then sometimes we create a product that has a different level of return on investment and then we do a.
Charge for those products and those products that we call modules and we do have 29 of them and so as we move forward you know youll continue to see a healthy mix of both as it makes sense for us.
Okay.
Got it. Thank you and then just to clarify on the.
The guidance for the fourth quarter are you considering the 75 basis point rate increase.
To come out tomorrow, and the current guidance. Thanks.
Yeah, I mean, any any rate increase in November and December we'll have a very little impact on our fourth quarter. You know those layer in over time. So those would have a very small impact on our fourth quarter.
Got it thank you.
Okay.
Thank you Mr. Riley.
Our next question is from Steve <unk> with Citi. Please proceed.
Hi, This is Jordan on for Steve Thanks for taking my question.
<unk> landscape.
Any changes into the Iranian crude oil deals.
Particularly I think started to move up market.
Not really I would just say we're running into some competitors. We've always had the same players.
Whether we were you know now.
Now I would say we would have different players if we're talking a sub 100 employee company or sub 50 employee company, but when you're talking about the 2000, plus which we've always gone from 50 to 2000, even at IPO, we talked about since 2014. So when you were talking about 2000 employees or more it's been the same players.
For a very very long time, and so I wouldn't say that we're running into new players I would say you know because we're continuing to move up market. We're seeing some of the old faces a little more.
Yeah.
Got it thank you.
Making the brand marketing program in our prepared remarks, I'd love to hear a little more on kind of the successes we've seen there and if there's any plan to expand that program.
Yeah. So I think what anybody you know when someone's looking at our new branding and marketing Theres really been a big shift I mean, we've gone from single database employee usage driven strategies with the D. D X the direct data exchange where employees are making all.
The changes, which I will update within the pay com system.
'bout, 95% of all changes are made directly by the employee without any touch or duplicative effort.
By HR or or payroll and so what you've noticed though now is our brand marketing is shifting toward employees doing their own payroll and in fact, the consequences suffered by the employees when they don't do their own payroll you know, it's funny will go into our business and we'll ask the payroll person as we're going through the analysis, hey, as you're.
Check every wherever wrong and the payroll persons often know if my check looks wrong, a fix it before payroll.
And so why not roll that out to all the employees because they'll do the same thing and so you know I would say before we often times might retreat to what we're comfortable with with the App and the single database today, we're staying in the language is often times uncomfortable.
Helping employees as well as HR and payroll individuals' realize the advantages are.
That can be realized when employees actually do their own payroll.
Great. Thank you taking the question.
Thank you.
Thank you Mr. Anders.
The next question is from the line of Citi Pedigree with Mizuho. Please proceed.
Okay.
Hi, This is Alex on behalf of city point, Ryan I, just wanted to ask him how has done better adoption been trending.
For this quarter.
What percent of Betty is you're acquiring clients and what do you expect.
Revenue for FY 'twenty, two or how is Betty performance done versus your initial expectation then.
A follow up.
Yes, we're about 50% of all current clients are on battery and again that every client that's on boarded or had been sold since last July that may not have on boarded right at July but every client sold since last July as using Betty and the trend in bed is continuing to go up I mean, that's why we're.
Getting so many leads from employees after they leave one company and go to another you know nobody does good going backwards in technology, you can take a you've taken app off somebody's phone and asked them to do it the old way it becomes very difficult for them and so and and it's unnecessary and so.
Better usage continues to go up I already did talk about or did make mentioned earlier of the fact that our new clients.
Within the first payroll or so you've got 50% of their employees are already doing their own payroll and that continues to increase as clients continue.
Continue to get better at using the product and so and it's our strategy I mean today everything's about Betty I mean, I tell our salespeople.
All the time look if you can't if you can't get someone to understand the benefits and value of Betty to their organization as well as the positive impact on their employees I don't have anything else for you to sell I mean, because everything else.
Comes with that being the case already and so it.
It's not a it's a strategy that we've been continuing to drive and it's a strategy that really fits within the problems that are already inherent.
Between our employees are having correct data and receiving correct pay from their employer.
Got it thanks.
I wanted to ask with the rising inflation have you been able to pass on price increases to your customers very modules then.
How does a better pricing or to your other modules.
Yes, I mean, Betty pricing is a it's a nominal fee I would not say that Betty.
<unk> Singh compares in fee with our you know are more substantial.
Our modules from that standpoint, our first pricing adjustment ever as a company was in 2019, we did talk about that in the future should we choose to do or make pricing adjustments it would be based off of.
There were able to deliver for our clients as I mentioned in the past, sometimes we develop product and we do not create a module from that where we're billing. So I think there are you know that as we've continued on.
Any time that we make the product more valuable it only makes sense that we're able to share in the value that we've created through pricing adjustments.
Okay.
Okay. Thank you.
Okay.
Thank you.
Our next question is from Bryan Bergin with Cowen. Please proceed.
Hi, guys. Good afternoon. Thanks, I wanted to start with margin can you comment on the uptick in <unk> adjusted Opex levels. It sounds like there is no change to your 85% gross margin target for the year I'm just curious what added leverage you're going to get <unk> to achieve that.
Yeah, I would say you know in Q4.
A couple of things that have impacted the gross margin I guess would be the hiring that we've had in the past we continued to incur.
Increase our operations group to be able to catch you know the revenue that they were bringing on towards the end of the year and next year. So that's something that's had a small impact on the gross margin as well as depreciation you know we brought the data center in Dallas online so.
Depreciation is impacting that that gross margin and then.
Levers, we pull we always look for efficiencies in the model. So we will continue throughout the rest of the year to kind of look at where we could maybe have some efficiencies, but yet continue.
Continue as a high growth company, we want to make sure we're investing.
For the future.
We've made statements in the past about if our gross margins up way too high.
It often times shows that we could be a little understaffed in.
And operating operations and service and so often times when you see it changed a little bit towards the downside. It means that we're hiring ahead of the growth then.
And then as that growth begins to come in and those people take on full load clients, we start to get some of that back.
Okay that makes sense I guess, a follow up just off of that.
Would you say that you are fully staffed now across those different parts of the organization and then just a follow up on the on the new sales offices are these newer offices ramping faster than historical pace or is it basically in line with what you've seen.
Yeah.
Yeah, well, what I was first say about the organization about being fully staffed I mean it is.
I believe that we've done a good job of hiring I've talked about over the last nine months I think it's become easier for everyone to hire as it's been more of a shift.
Go back to maybe more of the middle where we were definitely in an employee.
Driven.
Environment, and then I don't know you fit in like four or five questions in all of this what was the other one something about our hiring.
That's right okay.
Yeah.
I would say that when it comes to the new sales offices as we've always had we've always had increasing increasingly more success with new offices and what we would have with the past just because the amount of product were selling the fact that we continue to go up market I mean, as I said in the past I mean, I don't think it's about.
Four or five years ago, I said, the first rep that sells a million dollars in a year, we're going to name. The we're gonna named the award after them.
And then it wasn't long after that someone did $2 million in the year as an individual and I'm sure. This year someone will finish at $3 million that they've sold and so you would expect the new office. When you have your executive reps going from an average sell below a million to over 3 million not not an average rep, but I'm, saying a top rep selling that.
Much you would expect that to raise.
That tied to raise all boats, including the new office opportunities as we open them.
Okay makes sense. Thank you.
Thank you.
Thank you Mr. Bergen.
Our next question is from the line of Jason <unk> with Keybanc. Please proceed.
Okay.
Great Chad Craig I don't know, if it's just me or I've been thinking about pay com too much but I've been seeing more pay com commercials, especially during football game.
During the pandemic, you really leaned into marketing and advertising to capture incremental share is it possible that some of the strength we've seen over the last couple of quarters is coming from increased top of funnel efforts.
Okay.
Yeah, well, we're definitely getting better at marketing and re targeting and how we brand ourselves.
So yeah, I mean marketing is definitely one of those levers that we feel impact sales are you now and you know often times, we're landing on a softer beach because of it I think our marketing is changed dramatically even since the beginning of the pandemic. When we started spending because we are able to.
Do things with I'm, not going to call them indirectly, but softer employee driven leads that come from rank and file employees that you now are just tired of dealing with the consequences of having their check wrong.
Okay.
That's fair because we've been hearing about falling advertising prices.
Other types of tech and software companies pull back.
With this dynamic does that change the rois for some of the you know.
<unk> marketing efforts or cost of acquisition efforts that you do.
No I mean, I still believe you can waste money in advertising.
So I mean, it's not going to change.
Our strategy. It is an ROI metric, we do measure it every single week based off not only leads but the percent of appointments that we get from those leads and then how we convert them into closed deals is they start so that's how we measure effectiveness of our marketing hasn't changed.
Okay very thoughtful thanks.
Thank you.
Thank you Mr Celina.
The next question is from Alex Zukin with Wolfe Research. Please proceed.
Hey, guys.
Usually we just say congratulations on a solid quarter, but let's see.
Relative to everybody. That's that's reporting this season just amazing.
Amazing, where you guys continue to put up and obviously very volatile and difficult macro environment.
So again complements aside I guess I'll start with that with that question, which is Chad. If you zoom out is is the tougher macro actually helping you meaning that companies are starting to re prioritize certain efforts either around efficiency more automation in their in their back office and their payroll and then the higher.
Environment to which you referred to as being back to kind of more normalized levels like I guess, how much of a tailwind is this for you and how long like if you had to you. If you look at your Crystal ball and you kind of think about the durability of this trend like what's your thinking around that.
I mean I'll just say, we're just getting started with Betty I mean, all employees are going to be doing their own payroll everybody on this call is going to be doing their own payroll.
It is how companies when it payroll it only makes sense that employees do it themselves or unreasonable employees haven't been doing it themselves because it's always been overly complicated and multiple systems and blah blah blah. So I mean, I think that our biggest opportunities. The fact that people are waking up to this and they want to do less.
In your back office, they want to do less, especially when that equivalate into less exposure for them. They can do less work and create less exposure less risk and greater satisfaction with their employees. So I don't really think it matters, what's going on in order for us to move our our product from a strategic.
Basis now could the size of the deals me smaller if if if you're in a looser versus a tighter labor market well, maybe yeah, but I mean, I'm not saying that's the case now, but I'm, saying there are reason for making the change is going to be exist regardless of what the lag.
Current market is.
And so and I believe that we provide that for them. So that's really what's driving it and you know I think that as we've shifted over to really giving the employee control.
Over their own payroll and everything else that feeds. It now if I have you are responsible for your time and labor management of clocking in and clocking out Okay, which all employees are happy responsible for your expense management, which all employees are your benefits administration, which all employers are I'm just not showing you how it all added up at the end.
Matt when you do all this work without ever showing you, where you're going and so now we'll pay com does as we show you, where you're going and how it's going to impact your payroll you'll be amazed at how much better everybody gets it time tracking expense management benefits administration.
When you take the blindfold off of them and show them, what it should look like at the end they get a lot better and I don't see that slowing down regardless of what's going on in the labor market.
Understood and then I guess maybe.
The different Brexit if you look at the funding environment with private companies now and I don't know if valuations have corrected or they will correct.
And then the incremental opportunity that youre seeing particularly further up market.
How would you say your approach is that the same or changed over the course of the next 12 months to 24 months around organic versus inorganic innovation.
I mean, I think that we're in organic innovation company I mean, I've always said that we always look to do things that make sense to us.
But I mean, we've always developed a developed our product we continue to be ambitious with our product in and what we look for in the future. We are continuing to be pulled up market and honestly I think that the larger the company. It is the the larger company is.
The more opportunity for exposure and risk they have in them, even the more difficult. It is to keep everybody paid correctly and so I think youre going to see more and more as we have definitely see the employees of those companies call us I mean, I don't think we're going to have less opportunity with larger companies as time goes on.
Got it thank you guys.
Okay.
Thank you Ms Suzanne.
Our next question is from Patheon Shah with Deutsche Bank. Please proceed.
Great. Thanks for taking my question chat on that I'll not put you made earlier on video, 50% self service adoption by the FERC payrolls what are the things you can do to maybe accelerate that like what could those things be and is it more awareness than anything else.
He says and what the upper bound that number could look like.
Well I mean, our clients are learned you know you are a new client and Youre rolling something out to your employees I mean, I would say that are our clients are getting better at it as well I mean, this 50% or just from the group that wanted to.
I believe our clients are getting better at talking about the impact.
That can be had when an employee does their own and so and you see that number go up I'm, just saying, that's where they're starting which to me is showing a very strong interest I mean, it's one thing to buy something it's another thing to use it and you know Betty is definitely a product thats getting a high usage.
From the point of conversion on.
That's helpful. There and just a quick follow up I mean, you talked earlier about maybe tweaking.
<unk> marketing strategy, a little bit of kind of going at it from different angle. How was the effectiveness of this marketing campaign evolved over the last few months given some of these changes are you looking to go after a different customer base or attract buyers that maybe what I'm coming to you if all or otherwise.
Okay.
No because you know at the end of the day. There is no such thing as a as an enterprise employee I mean, whether a person works for a large enterprise company or a small company. They had the same mortgage same bill same medical need same childcare needs. They all expect their check to be correct. So.
Employees that work for me Enterprise Company, one day can work for a smaller company. The next day and it can be back working for a large company. There are the same person. They expect the same things and so when it comes to bedding. It's for everyone. It's for the employee and it's regardless of the company size.
Got it that's helpful. Thanks for taking my questions again and congrats.
Okay.
Thank you.
Thank you.
The next question is from Daniel Jester with BMO. Please proceed.
Great. Thanks for taking my question, maybe just as kind of Sir.
And then earlier on the call about bookings in the quarter, Chad you mentioned called out September and October specifically.
Just in terms of the linearity like how did this third quarter look like other third quarters did you book more business on a relative basis in September October or were you just commenting on sort of the macro.
Outlook. Thanks.
Yeah, well it was commented on the macro outlook and I just took our most recent two months I mean I could go back further into August July June the answer to your question is absolutely we are booking more today.
Today than we've looked in the past and you know I wouldn't say that I mean September strong October strong, but so is August so it's July so as June you know.
As far back as you go we've continued to be strong.
Okay.
And then with <unk>, you've actually obviously run this business for a very long time through all sorts of different macroeconomic cycles. I mean, clearly there is a lot of uncertainty about what 2023 looks like so maybe just philosophically how do you run pay com in a recession what changes what are the levers that we should expect you to.
We'll either to manage costs or drive additional growth.
I mean very little change for us based on what we're already doing I mean, just as a reminder, I mean, we have 5% of the Tam we have a differentiated product.
As I've said before we started off the year with 33800 clients. We've got two competitors that if you combine the client count it's $1 7 million and so you know what happens to US next year is dependent upon us.
And I think we're in control of that.
So I mean I wouldn't see any major changes from what we're going to be doing into next year.
Great. Thanks very much.
Thank you Mr Jester.
Our next question is from Kevin Mcveigh with Credit Suisse. Please proceed.
Great. Thanks, so much and I'll add my congratulations just given.
Fantastic outcome, Hey, can you give us a sense relative to expectations that you initially said.
Where was the source of the most upside was it modules condos.
New logos.
Employee furloughs.
And then any way to just frame that.
New logo.
Yeah.
No that's super helpful and then.
And is there any way to think about I mean, we got a job's number. This morning is north of $10 million.
Is there any way to think about that relative to kind of the module adoption in the type of modules that folks are using that.
One of the debates in the market now is if we get a soft landing and based on the job market in and of itself. It seems.
Potentially a real likely outcome, but how to think about modules within the context to that Joel is there any any way to think about that.
Okay.
You know I mean, we definitely have leading indicators that we look at like for background checks, how many people running background checks, which has an impact of often times onboarding and what have you I mean, all I would say this I mean those types of things are going to impact us a little bit on the margin that for us, it's really about new <unk>.
Logo wins with our differentiated strategy, that's what's really going to drive our growth. Sometimes you have some things that help you with that.
A little bit and that could be what's going on in the labor market, but I would say it would have to be something extreme.
To have any negative impact on us.
And likewise I would say it would have to also be extreme on the other side to have some a major positive impact on us except for the fact that.
Our go to market has normalized and how we're going to market. It's like the way, we were going to market pre pandemic, which for us being out there face to face and have a notes personal interchanges and exchanges of ideas and information really helps us when we're selling deals.
That makes sense congrats again.
Yeah.
Thank you.
Thank you Mr Mcveigh.
Our last question comes from Robert Simmons with D. A Davidson. Please proceed.
Hey, Thanks for taking the question. So following up on some odd sequential guide is the strongest it's been in at least five years are you expecting anything unusual in the quarter such as extra strong burns from this year or anything like that.
Okay, I'm, making sure I understand the sequential guide in the fourth quarter.
And I talked I kind of talked a little bit about this earlier when they'll start in the quarter matters and so you know.
If a deal starts at the very first of a quarter in October we get 100% of the revenue billing for that if a deal start or let's even take this quarter that we just finished with the deal started at the beginning of July we get 100% of the revenue dollars for that deal. If the deal starts you know in.
In mid September we might get 15% of the revenue for that deal, but in subsequent quarters, we get 100% of it and so.
It's a recurring revenue.
Recurring revenue model that we have here. So all I would say is that does matter I've also talked about how you know Craig and I've been talking about how interest rates.
Layer in over time.
Eventually they start layering in as well I think you get a little bit of uplift from that as well, but for us. It's really it's really the new client adds onto our platform when they start and you know our expectation that there'll be a we will receive a 100% of the revenue billing in subsequent quarters fourth quarter being the next one.
Got it so it's basically just those two things that would make switches moved things around Q3 versus Q4.
Okay.
Great and then.
I guess just have you seen anything notable.
I did have a competition I realize it's the same faces as usual, but any changes in kind of a pricing marketing approach.
ADT was commenting recently that they're seeing their churn kind of increase in normalized but only a little bit I mean, what what are you seeing on that front.
Yeah, I mean, I will tell you that you know we've always been in a very competitive market as you've mentioned, it's been with the same people where the new people. We're the new guys and next year, we're 25 years in business. So.
Where we really benchmark against ourself in their current situation about the with the ROI that we can create if someone uses our product you're not going to get the same ROI. If you use one of our competitors.
Not and so to the extent someone agrees with our strategy and can realize the ROI available for them if they deploy it correctly theyre going to choose us over someone else regardless of whats really going on with pricing that said pricing does matter there is a market.
For pricing and I think that we all understand that but as far as seeing any changes with our competitors now other than.
They all continue to deploy.
That they believe will make them more competitive and sometimes that's pricing.
You know and.
Sometimes it's given things for free so it just kind of it kind of depends on what we'll see out there, but it's really been the same that we've always seen.
Okay. Thank you very much.
Alright, thank you.
Thank you Mr Chairman.
That concludes the question and answer session I will now turn the call over to Chad Richison for closing remarks.
Okay, well I want to thank everyone for joining our call today and thank you all and I want to thank all of our employees for contributing to our continued success in November will be hosting meetings in Las Vegas at the Wells Fargo TMT summit and presenting at the credit Suisse Annual Technology conference in Scottsdale.
Then in December we will be presenting at the Barclays TMT conference in.
In San Francisco, we look forward to speaking with many of you soon operator you may disconnect.
This concludes today's call. Thank you for your participation you may now disconnect your lines.