Q1 2023 Paycom Software Inc Earnings Call

Speaker 2: Good afternoon. Thank you for attending the Pay Call software first quarter, 2023, quarterly results call. My name is Matt and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call up an opportunity for questions and answers at the end. If you'd like to ask a question, please press star one on your telephone key pet.

Speaker 2: I will now like to pass the conference over to our host, James Samford, Head of Investor Relations. James, please go ahead. Thank you and welcome to Pay Com's earnings conference call for the first quarter 2023. Certain statements made on this call that are not historical facts.

Speaker 3: Including those related to our future plans, objectives, and expected performance, are forward-looking statements within the meaning of the Private Security's litigation reform act of 1995. These forward-looking statements represent our outlook only as of the date of this conference call.

Speaker 3: because of the statements are based on our current expectations and subject to risks and uncertainties.

Speaker 3: These risks and uncertainties are discussed in our finalings with the SEC, including our most recent annual report on Form 10K. 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.

Speaker 3: Whether it is a result of new information, future events are otherwise, except as required by applicable law.

Speaker 3: Also during today's call, we will refer to certain non- GAAP financial measures, including adjusted EBITDA, non-gap net income, adjusted gross profit, adjusted gross margin, and certain adjusted expenses.

Speaker 3: We use these non- GAAP financial measures to review and assess our performance and for planning purposes.

Speaker 3: A Reconciliation Schedule showing Gap vs NonGap 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.pacom.com. I will now turn the call over to Chad Richardson, Pay Combs President and Chief Executive Officer. Chad. Thanks James and thank you to everyone joining our call today. We delivered strong results in the first quarter and I'm very pleased with the progress with many of you.

Speaker 3: came in very strong up 28% year over year with strong recurring revenue growth from new clients.

Speaker 3: First quarter, Adjusted EBITDA also came in very strong at $221 million, representing an Adjusted EBITDA margin of roughly 49 percent, up 70 basis points year over year. With our updated full year 2023 guidance, we are well positioned to exceed our initial outlook for a solid rule of 65.

Speaker 3: On the product front, Betty continues to be a key differentiator in the market with employee self-service payroll continuing to drive strong client additions.

Speaker 3: The industry transformation to more efficient HCM and payroll processes is accelerating and now with Betty.

Speaker 3: Payroll processes can be automated to deliver perfect payroll.

Speaker 3: Using Betty, employees do their own payroll. Employee usage is a key differentiator and new clients are coming to pay comp for exactly that. With 95% of database interactions being completed by the employees of our clients, as measured by the DDX, we are changing the way employees engage with HGM solutions.

Speaker 3: Our product and go to market strategy are working.

Speaker 3: I just returned from our annual President's Club meeting with our top sales people, and I couldn't be more excited about the tone of the conversations and enthusiasm for our product, especially around employee usage embedding.

Speaker 3: We are having increasing success at market with continued rapid growth at the upper end of our target market range. Large organizations benefit tremendously from simplifying their HCM and payroll needs with our single database solution.

Speaker 3: We have 5% of the TAM today. However, our TAM has increased now that we've laid the groundwork for a global platform, beginning with global HCM, which further strengthens our value proposition with our largest clients.

Speaker 3: To sum up, we are executing well with the highly differentiated product and go-to-market strategy. Our addressable market opportunities continue to expand, and we are pleased to enhance our long-term commitment to stockholder return with the initiation of the quarterly dividend program.

Speaker 3: I'd like to thank our employees for helping lay the foundation for another record breaking year. With that, I'll turn the call over to Craig for review of our financials and guidance. Craig?

Speaker 3: Before I review our first quarter results for 2023 in our outlook for the second quarter in full year 2023, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAT basis. We delivered very strong results this quarter with revenue of $451.6 million.

Speaker 4: 27.8% compared to the prior year period.

Speaker 4: Our gap net income for the first quarter was $119.3 million or $2.06 for the alluded share of 29.8% compared to the prior year period based on approximately 58 million shares. Adjusted EBITDA was $220.5 million in the first quarter of 2023 or 48.8% of total revenues compared to $170.1 million in the first quarter of 2022 or 48.1% of total revenues.

Speaker 4: Our revenue growth was driven by strong demand, new business plans, and new product adoption. Within total revenues, recurring revenue was $444.4 million for the first quarter of 2023, representing 98.4% of total revenues for the quarter and growing 27.6% from the comparable prior year period. Adjusted sales and marketing expense for the first quarter of 2023 was 98.1 million or 21.7% of revenues. We have been aggressively investing in marketing to drive strong demo leads that complement our outside sales model.

Speaker 4: We anticipate our effective income tax rate to be approximately 28% on a gap basis and approximately 26.5% on a nine-gap basis. Turning to the balance sheet, we ended the quarter with a very strong balance sheet, including cash and cash equivalents of 506 million and total debt of 29 million. Cash from operations was 146.1 million in the first quarter representing an increase of 24.6%.

Speaker 4: The average daily balance of funds held on behalf of clients was approximately 2.4 billion in the first quarter of 2023 up approximately 10 percent year over year.

Speaker 4: balance of funds held on behalf of clients was approximately $2.4 billion in the first quarter of 2023, up approximately 10% year over year. Now let me turn to guidance. As weros Mayor Thank you.

Speaker 4: For fiscal 2023, we are raising our outlook and now expect revenue in the range of $1,713,000,000 to $1,715,000,000 or approximately 25% year-over-year growth at the midpoint of the range.

Speaker 4: We expect adjusted EBIDA in the range of 717 million to 719 million, representing an adjusted EBIDA margin of approximately 42 percent at the midpoint of the range. With these strong results in that look, we are well positioned to exceed the rule of 65.

Speaker 4: For the second quarter of 2023, we expect total revenues in the range of $397 million to $399 million, representing a growth rate over the comparable prior year period of approximately 26% at the midpoint of the range.

Speaker 4: We expect adjusted EBITDA for the first quarter in the range of 152 million to 154 million, representing an adjusted EBITDA margin of approximately 38% at the midpoint of the range.

Speaker 4: Finally, after 25 years of rapidly growing paycom into a highly profitable company, we are expanding our capital allocation strategy.

Speaker 4: On May 1st, the Board of Directors approved a quarterly dividend program that we expect to initiate in mid May. In 2023, we project PACOM would generate greater than 1.7 billion in revenues over 700 million in adjusted EBITDA and strong operating cash flow, all of which continue to grow.

Speaker 4: We believe PAYCOM is in a unique position to return value to stockholders in the form of a dividend and still have the necessary resources to aggressively pursue growth opportunities.

Speaker 4: Since 2016, we returned a total of nearly 600 million to stockholders through stock buybacks, and we have a 1.1 billion buyback authorization still in place.

Speaker 4: Today's dividend policy announcement reflects our confidence and the resilience of our long-term growth opportunity to strengthen our balance sheet and the profitability of our business model. We intend to pay a dividend at an annual rate of $1.50 per share with a first-poderly dividend of 37.5 cents per share.

Speaker 2: 2023 is off to a great start. We are in a strong financial and strong competitive position in a large and attractive addressable market, and we have a long runway to continue to deliver rapid organic revenue growth, high profit margins, and attractive cash flows. 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. 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. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We ask that you please limit yourselves to one question and one follow-up.

Speaker 2: We will pause here briefly as questions are registered. The first question is from the line of Rhymo Linchal with Barclays. Caroline is not open.

Speaker 3: several clients who currently use our domestic software and they use it internationally, they rig the system a little bit so that they can store employees in other countries and then oftentimes they'll work with a third party for payroll. So our current clients, they don't have to do this any longer.

Speaker 3: because the paycom system now does have global HCM product that'll work in 180 countries in 15 languages. And global HCM for us is everything minus the payroll side. And so we've looked at integration opportunities, we've looked at working with third parties and even potential acquisitions, but.

Speaker 3: The fact is everyone else does it the old way. And payroll and HR departments send data for processing and

Speaker 5: You know, we're not going to be putting any development into the old way. So for us, you know, Betty's packing her bags and, you know, we'll be going around the globe.

Speaker 5: any development into the old way. So for us, Betty's packing her bags and we'll be going around the globe as we develop it out.

Speaker 6: Yeah, yeah. Okay, perfect. Okay. But does it mean that you want to become now a global company with operations in other major countries or is this just more for US domestic clients to give them more optionality and kind of work with them better?

Speaker 5: Yeah, absolutely we'll be a global company. You know this is the first step and that's moving our product into the different languages and getting the HCM side done and now we're heavily focused on you know bringing Betty to the other countries which you know it will require us to have operations in certain countries in order to do that in order to process in those.

Speaker 7: into acquisitions, which I hadn't really ever heard you say before. So I'm going to pivot in real time here and ask you, between the dividend announcement, you mentioning potential for M&A, which is something PICOM hasn't historically done, is M&A something that is just maybe going to be something part of the broader capital allocation or have a strategy of how to use.

Speaker 5: and develop things that way and grow that way. And so my comment earlier was more, as we looked at building out the payroll side internationally, you know, we did review multiple options for that, but at the end of the day, you know, there's no shortcut to long-term success, and so.

Speaker 5: At the end of the day, you know, we're going to dance with what brung us and we know how to develop software and we're already well on our way in getting things set up to be able to have Betty in all the other countries as well. So in answer to your question, I would say more no, Samad. I mean, if I was going to have to be direct with that, but.

Speaker 7: You know, we did do a dividend and you know, we still have a $1.1 billion buyback in place. Great, and then maybe just a quick follow up for Craig. Just, you know, the numbers on the margins are impressive as always. The sales and marketing dollars jumped a pretty good bit from 4K to 1K. More than you normally see.

Speaker 5: I mean, I do think it's a little bit easier to hire. You know, I was looking, if you're looking at from a year ago, I would say the labor market was a little bit tighter for us on hiring, just as more people, you know, touted the work from home in which we came back to work. I think that, especially on the tech side, we seem to be doing very well attracting...

Speaker 5: top town went there as you know more and more companies have shed some of those jobs. You know from our own client base you know we're definitely focused on adding clients. Don't really have anything to call out on seeing any negative softening within our own you know within our own client base. I've tried to...

Speaker 5: You know, do as much as I can to kind of look into the future, you know, with 5% of the Tam and several accelerators for ourselves, you know, it's...

Speaker 5: I'm focusing on being a salesperson right now than an economist, but definitely we're really not seeing much in our own numbers as we look into the future. But from hiring people, which I mean I think is somewhat of a proxy to what happens as well for our clients, we are definitely seeing it's a little bit easier to hire, especially on the technical talent side. Yeah, Brad, and I would say on our client base, I mean we have a very diversified client base and that's both geographically and based on industry. So some of the things you're hearing out there, we're not overly exposed to those.

Speaker 5: and on being a salesperson right now that an economist. But definitely, we're really not seeing much in our own numbers as we look into the future. But from hiring people, which I mean I think is somewhat of a proxy to what happens as well for our clients. You know, we are definitely seeing it's a little bit easier to hire especially on the technical talent side. Yeah, Brad. And I would say on our client base, I mean we have a very diversified client base and that's both geographically and based on industry. So some of the things you're hearing out there that you know what I'm totally exposed to those. That's great. Thanks very much.

Speaker 2: Thank you. Thank you for your question. The next question is from the line of Mark Mark on with Baird your lines now open.

Speaker 2: Hey, good afternoon Chad, Craig and James and congratulations on the really strong results and also the initiation of the dividend which I think is a huge positive. With regards to what you ended up seeing you know during the selling season and then extending into the...

Speaker 8: relative to increases in employment within the existing base and how you're thinking about the pipeline on a go-forward basis.

Speaker 5: Yeah, I mean for us on that it's all really about new logo ads, you know, I mean increases in employment from existing base or decreases. I can't say that that's had a meaningful impact on us one way or the other with the exception of what I'm going to call a...

Speaker 5: maybe a six month to 12 month period in COVID where it went down and then back up, you had some significant fluctuations then. But since stabilization, it's not gonna be employee gains and or at this time we don't really have the employee.

Speaker 5: employees leaving that would impact that. So for us it's new logos, we added over 3,000 clients to Betty in this first quarter. And that's been going really well. I don't know if Craig would have anything to add to that. No, I would agree with Chad. I mean, it's primarily new logo wins and that's what's driving the recurring revenue.

Speaker 8: Great, and you just came out of club. What are you seeing this in terms of Salesforce productivity? You know, and how much more were big people have to do in order to qualify for club? And, you know, what regions are you, you know, really starting to see some real pickups in terms of traction?

Speaker 5: Yeah, you know, we had the President's Club in Hawaii, which was the very same place that we had it at our initial President's Club 15 years prior. So I was able to actually talk about, you know, the numbers from that first club and now and, you know, we've continued to accelerate the amount that anyone sales rep

Speaker 5: can sell. Our top sales reps continue to sell more than they have in the past. This year again, I mean we had a rookie sales rep that sold over two million dollars. You know, when we IPO'd that would have been great for a city and now we have a rookie rep selling that. And so, you know, the numbers continue to go up as we've had a, you know, we've continued to develop product.

Speaker 5: part of it to for us to get a back out face to face because these are big decisions for companies to make and I think we present well in person. I would expect another record to be broke next year as we've already got some reps that are very close to what our top rep finished at last year.

Speaker 5: Which is always how we've achieved our numbers, as cells performance continuing to get stronger.

Speaker 2: Thank you for your question. The next question is from the line of Brian Schwartz with Oppenheimer. You want to start with him?

Speaker 5: Yeah, hi, thanks for taking my questions this afternoon. I'll congratulate a real nice fine start to the year for the business. Chad, I wanted to ask you, I saw that you announced a global HGM solution and capability this quarter. And just wanted to ask you on the strategy behind that, is the strategy more to extend the reaching capabilities of your multinational customers.

Speaker 5: or is there an opportunity that you see in the future of targeting international markets? And then if I could ask one other question along this new solution, how should we think about the solution in terms of the impact to the margin, whether it can be accretive or dilutive to the overall business?

Speaker 5: I mean, on the first question, I mean, I think people can talk about whether it's a single database or willingness to integrate with multiple systems and what have you. And the fact is, is...

Speaker 5: There's one type of employee. I mean, the employees are the same. And they like doing their own payroll. So for us, international and laying the groundwork with global HCMs, the first step, to go on all the way up market. I mean, there's never really been an issue for us in scalability of this system.

Speaker 5: We've got a very simplified product. It does very complex things. And I would say there might have been one thing that we were missing to be able to go work with, the largest companies in the world. And I don't think we're going to be missing that one thing very much longer.

Speaker 5: That said, our system still does work well. We have a lot of clients that have, you know, definitely we're having success up market. We have a lot of clients that are 10,000 employees and more. We have clients that even, you know, like our system so much, they were willing to work around it to use it for other countries. Now they don't have to do that on the HCM side and, you know, we would be planning to roll out.

Speaker 4: But in terms of just the overall margins, it should be very similar.

Speaker 2: Thank you. Thank you for your question.

Speaker 2: The next question is from the line of Joshua Riley. What need him? Your line is not open. Hi there. Thanks for taking my questions. On the international product here, when you say you're building Betty on a global basis, does that mean that you plan to build native payroll solutions in some international countries? Great.

Speaker 7: or is Betty going to sit on top of the existing payroll solutions used by customers with an international presence? We would be building Betty out in each country.

Speaker 7: Okay, so you are building a native payroll in some of these international countries? Correct. Got it. Okay. And then, have you increased your advertising spend sequentially from Q4? And I think in the past you said that increasing that spend implies more confidence around demand. Is that accurate that you're seeing more demand in Q1 than Q4? Yeah, we continue to see strong demand. We saw the strong demand in Q4 too. You know, oftentimes Q4, you know, sometimes you can advertise a little bit stronger than others depending on elections.

Speaker 2: The next question is from the line of Fidi Panigrahi with Mizuho. Your line is now open.

Speaker 9: businesses kind of under pressure right now with their cost use in terms of you know commit to any kind of investment in this environment so wondering what are you hearing from your customer base any color available.

Speaker 5: Yeah, I mean, we're not here in a lot right now. I mean, now, you know, I would say a part of that is we're, you know, very focused on growth and landing new logos. I wouldn't say that we're having, we're not seeing losses from clients going out of business.

Speaker 5: employees. You know, 95% of its derived from companies have larger than that obviously and then we're continuing to grow at the top end of our range. It's probably our fastest growing segment and so you know I'm not saying things couldn't be happening down market it's just from the data that we have it's not something that you know that we could call out on our end.

Speaker 9: That's super helpful. And a follow-up for Craig. If I heard your client fund balance, I think $2.4 billion, you said that's almost kind of 9% on a year-over-year growth compared to other years, which was pretty high. Is there anything that we should…

Speaker 5: anything that causes slowdown and also any color in terms of interest in gum and float income contribution this quarter. I can take the first question I'll let Craig handle the interest in gum but from a float balance perspective you know

Speaker 5: large client you're holding on to that for about 24 hours so there's larger amounts but it impacts your average steady balance a little bit because you're it's clearing out of there so quickly with the larger clients.

Speaker 4: And all that Craig handle the second part. Yeah, I would say on the interesting come on our client funds, we called out last quarter. We're realizing around 80% of the Fed funds, right? And part of that's because it's layered in. We have some investments that are a little bit longer term.

Speaker 4: And you know, I mean the banks don't give you the full amount as the fed raises those rates. So that's kind of what we've said last quarter. It really wouldn't update that any.

Speaker 4: And the banks don't give you the full amount as the fed raises those rates. So that's kind of what we've said last quarter. And it really wouldn't update that any. Great. Thank you. Great quarter.

Speaker 2: Thank you. Thank you for your question. The next question is from the line of Brian Bergen with PD Cowen. Your line is now open.

Speaker 5: That is actually Jared Levina for Brian tonight. In terms of retention, how did one-two revenue retention compare to one-two-twenty-two? Were there any notable changes based on clients with under 50 employees and then those clients with 50 plus employees? Yeah, so we provide retention at the end of each year. You don't fall out your way.

Speaker 5: strong and even as an increase, as a larger percentage, as more clients use the product the right way to achieve the maximum ROI that's available to them. But yeah, for retention, I've also said in the past, typically, regardless of I'm not comparing it from last first quarter to this first quarter.

Speaker 5: But typically, especially for larger clients of any of our competitors, retention oftentimes starts off lower to first of the year and continues to increase throughout the year because less clients usually leave in the fourth quarter, if you will.

Speaker 5: But nothing to call out special in the first quarter. I would just say we've been very stable and you know the companies that use Betty do better.

Speaker 8: And then there's my follow-up. What is your adjusted gross margin expectation for this fiscal year? And then more specifically looking at 1Q, what weight on that adjusted gross margin within that operating expense line item?

Speaker 4: I mean, typically if it gets too high, we may be a little bit behind on hiring. And so that's usually what would cause it to creep up some. And it fluctuates based on how our hiring trends are, because those are the individuals that are bringing on, handling the new business that we're bringing on. And we have to...

Speaker 7: The next question is from Alon of Jason Solino with KeyBank. Anyone with no open? Hey, thanks, guys, for taking my questions. Chad, in the press release for Global HCM a few weeks ago, you mentioned that you've been working on the product for two years. Since it doesn't include Betty yet, why not just wait until you had developed it for some of those countries first, or maybe can you just talk about the timing on why move now? Sure. Well, you're going to have to do first things first. You're going to have to have it. But as I mentioned with Raimo's very first question, we have a demand for Global HCM right now as we have clients that are storing.

Speaker 5: client or employees that they have in other countries in our system right now. And somewhat rigging the system. So we have demand right now for HCM and you have to have first things first. I mean with Betty everything's connected. It's not like it's payroll only. You have to have time and attendance. You have to have expense management. You have to have paid time off. So you have to have these other products within the system.

Speaker 7: ROI strategy that it produces for clients. And our clients now are used to using Betty. And so I think they're gonna expect that internationally and I think that's how we win. So, I would say it's the beginning foundation for what we're doing, but also we have demand for that product in of itself right now. Okay, yeah, that's fair. And you have mentioned that some of your customers are kind of jerry-rigging onto your system already. But is there any way to know how many of your customers have international employees or offices?

Speaker 5: You know, it's our larger clients. It would be our larger clients in many of those cases. You know, so not going to give out a specific number, but I mean, the revenue opportunities there for them. And then of course, when you look at our prospect base that's out there.

Speaker 5: over time this will increase the size of companies that we prospect. Okay, great. Thanks a lot.

Speaker 5: over time this will increase the size of companies that we prospect. Okay great thanks a lot. Thank you.

Speaker 2: Thank you for your question. The next question is from the line of Arvind Ramani with Piper Samler. Your line is now open. Hi, thanks for taking my question. I just wanted to ask about...

Speaker 9: Some of the children are going to benefit you see from children from legacy players. And, you know, are you seeing any kind of change in the computer dynamics?

Speaker 10: or sort of the win rate.

Speaker 5: that you've historically seen from some of the legacy players.

Speaker 5: In 2021, I think it was July 2021, when we very first even started selling it, you know, we've gotten a lot better at our value proposition and how we actually go to market with it. I think it took some learning. It was somewhat hard to teach old dog new tricks, you know, from our standpoint of our sales force.

Speaker 5: When we started selling Betty, we were all virtual cells. We've made a bunch of changes dramatically. I definitely think having a stronger value proposition as we've had with Betty, as well as us being face to face, is helping our closer ratio out there. I would say it would be competitor agnostic.

Speaker 5: When we have a strategic buyer that takes the time to really try to achieve the return on investment that implementing any one of these products would promise to produce, we do very well. Thank you.

Speaker 10: Certainly within the technology world there's a lot of conversation with the chat GBT and AI and just wanted to sort of get your perspective either sort of expected impact to pick on specifically but even to the HCM space.

Speaker 10: Do you think this is a space that's, you know, kind of, says, is a space that's ever to change or kind of some pressure from Chaggb2? Do you think it's not yet kind of relevant to your space or to your company?

Speaker 5: No, I definitely think it will be relevant. You know, you can use AI for multiple things. There are areas that you can use it for that are better than others. You know, there are front-end things you can use it for direct to the client. There are back-end things.

Speaker 5: that you can use it for that a client may never see. And so, when you're talking about AI, it has many uses, some of which is front end and some back end. And I don't wanna talk specifically about what exactly we're using it for already internally and what our opportunities would be into the future. But in answer to your question, yeah, I do think that.

Speaker 5: over time, AI is going to be a thing in our industry.

Speaker 5: AI is going to be a thing in our industry. Thank you very much.

Speaker 2: Thank you for your question. The next question is from the line of Jackson Ader with SBB. Your line is now open. Great. Thanks for checking our questions, guys. The first one is on SBB.

Speaker 3: Chad, you mentioned hiring and maybe being able to kind of hoover up some of the tech talent that have been coming from some of the larger maybe tech layoffs. It sounded like that was more on the developer or the R&D side. I was curious whether you've also been able to maybe pick up additional salespeople.

Speaker 5: along the way as well. Yeah, I mean what I called out R&D because that's a side that you know we oftentimes hire people that have you know experience with technology writing code and what have you. You know our sales people, you know we've always we typically look for people with less than two years outside sales experience. We do take changing careers what have you.

Speaker 5: We do have specific education requirements for that position. And so, you know, I wouldn't necessarily say it was difficult for us to hire jobs, but what has changed on the sales side is you get a little bit more time to look. There for a while, I mean, if you had a salesperson that you were interviewing, you had a week or two to...

Speaker 5: I'd say that's changed some on the cell side. But I just, I called out technology because we're just, we're seeing it.

Speaker 3: We're seeing it, right? Okay. All right. Cool. That's great one Quick follow up just like on the mechanics of the Betty Payroll rollout so you're you're in 180 countries with global ACM, but like

Speaker 5: Do you roll out Betty one country at a time? Are we going to see like 180 press releases for all the different countries? Is it a block here, a block there? Just mechanically, how is that rollout going to work? There's about 16 to 20 countries that represent about over 80% of the opportunity.

Speaker 5: So, you know, I would expect us to be rolling those out first.

Speaker 5: So, you know, I would expect us to be rolling those out first as you look at it.

Speaker 5: But yeah, I mean, over time, you know, we build things ourselves. And so I would expect us to continue to roll them out. But you know, there's 16 to 20 countries that are going to be first. Yep. Okay. All right. Great. Thank you. Thank you for your question.

Speaker 2: The next question is from the line of Alex Zucken with Wolf Research. You don't want to start over.

Speaker 2: Hey guys, thanks for taking the question. Most of my questions have been asked, but I guess maybe on the topic of just pipeline and sales, you know, expansion efficiency, I guess, how do you think about office openings, territory expansion? Most of my questions have been asked, but I guess maybe on the topic of just pipeline and sales, I guess, how do you think about office openings?

Speaker 2: through the rest of the year, maybe sales hiring moving into the back half of this year to get ready for next year. Just any kind of commentary around that, particularly as it would relate or compare to last year and then just a quick follow-up.

Speaker 5: Yeah, so that, you know, opening up offices continues to be a big part of our strategy. We've continued to open up offices, I think a year ago, was it? Last year, maybe about 15 months ago, let's call it. 14 or so. We opened up.

Speaker 5: five offices from December through February . And those offices are maturing very well and continue to mature and we'll continue to open up offices. You know, for us, our bottleneck on being able to open up offices is capacity of our management group being ready to do that. We have to both backfill and

Speaker 5: for managers that may not be accomplishing their goals, as well as we have to expand. And over the course of 25 years, I think we've done that pretty well. But it's a part of our growth strategy and we'll continue to open up offices.

Speaker 5: that may not be accomplishing their goals as well as, you know, we have to expand and, you know, over the course of 25 years, you know, I think we've done that pretty well. But it is a, it's a part of our growth strategy and we'll continue to open up offices when we're able.

Speaker 2: Perfect. And then I guess maybe just a quick financial question. Free cash flow was really, really strong here in Q1, and quite a bit stronger than we were modeling. What's the right way to think about that progression as we head through the year? And in general, as you're seeing many adoption.

Speaker 4: specifically get better. I think last quarter you mentioned, almost 50% of the penetration for Betty. Where is the target for this year and how much is that? How much more efficient is an incremental Betty sale than in traditional ones? I'll take the pre-cash flow question.

Speaker 4: to be. We're wrapping up our building in Oklahoma City, a large building here, so no capex will be a little bit more back-end loaded, you know, in terms of how it flows throughout this year. So that's kind of the way I would look at the free cash flow for the year.

Speaker 4: And then on the bedding penetration.

Speaker 5: Yeah, I can take that. So, you know, I think the question was how much more efficient is an incremental betty sale? I mean, betty's a very nominal sell to a current client. You know, from that perspective, I mean, it's not an expensive item and drives a significant amount of ROI. What I would say on new clients.

Speaker 5: on new clients that come in with Betty because they all have to. I would say the biggest margin impacts for them than us. I've always said it costs you the same whether you use the system correctly or not. Charge is the same. So you may as well try to get the most value out of the system by using it the right way. It's nice when someone uses better.

Speaker 5: caused to themselves and therefore, you know, on the margin they require less service for us to be able to provide them and less services around what I would call more of our low margin activities, which is going to be, you know, amending, amended returns and other issues that could come out by. Thank you.

Speaker 5: having payroll done wrong. Thank you guys.

Speaker 2: Thank you for your question. The next question is from the line of Bob and Shaw with Deutsche Bank.

Speaker 11: Great, thanks for taking the question. Just a couple of correct, if I just look at your one-q sequential growth or four-q on recurring revenue, it looks like it trended a little bit lower versus the prior one-q. I know the declining mix of tax loans revenue has an impact here, but any other commentary on linearity of go-lives or even growth within the tax forms and how that's trending? I would say, you know, we pull out the tax forms, you know, I mean, obviously they don't grow it quite the same.

Speaker 5: only added one product to our year-end services and that was ACA. That's it in 25 years. Meanwhile our monthly recurring revenue products, you know, we've continued to add products that we charge on a monthly recurring basis for them and so the monthly recurring, you know, it's just growing at a rate much more so than our annual recurring.

Speaker 5: And over time, you know, the annual recurring amount represents a smaller amount of a client's bill because of that.

Just one follow-up on float revenue and just your philosophy on reinvesting from the upside here. Can you just remind us of your philosophy and if anything has changed at all given some of your global initiatives?

Yeah, I know, I mean, we're still investing in pretty short-term investments, you know, very safe. You know, we're looking at CDs, commercial paper, treasury notes, and then some overnight. So you know, we're still very safe on our investments and fairly short-term. So, yeah, I think we're still investing in pretty short-term.

And then, you know, as we do global, you know, we'll look at those opportunities as well. Thanks again for taking my questions.

Thank you for your question. The next question is from the line of Daniel Jester with BMO Capital. Your line is now open.

Hey, thanks for taking my question and good afternoon everybody. Maybe you want to tackle global HCM in a different way. If I think about the new products we've launched in the last couple of years, Betty, TDX,

Like, you know, that goes into theoretically the entire customer base. You know, for Betty, I think we saw the impact on your business like relatively quickly.

Just trying to size up like on global ACM, it's not going to go into all of your customers. And so is it so is your large customer opportunity so big that it actually can move the needle this year? Or is global ACM something you're thinking about from like a multi-year perspective, laying the groundwork and it's not going to look like Betty affecting the numbers this year? It's a long question, but hopefully I got it.

got through, got on my point, Carl. Thank you. Yeah, I mean, we just came out with Global HCM. I do think it'll be, you know, somewhat a creative tour numbers this year, more so in subsequent years. And, you know, it's a significant, it's a significant system. I think it'll allow us to continue to go further up, you know, even just the global.

as serve those clients of ours that currently have international presence and you know might not be using our system you know the way they're going to be using it into the future.

Thanks. And then as a follow-up, maybe just on the dividend and the buyback and capital allocation, you haven't really been utilizing that buyback authorization in the last few quarters. So I'm wondering, maybe just refresh us on your thinking about doing the dividend when you haven't been using other...

And you know, over 100 million over time we've bought back 600 million in 4.7 million shares. So I would expect that it'll be a balance between buybacks and dividends as we kind of look to the future.

Thank you for your question. The next question stands for an aligned of Kevin McD with Credit Suisse. Your line is met open.

Great. Thank you and congrats on the terrific results.

I think I know the answer, but the source of the upside and then the race beat.

beak under the quarter as well. That was new logo primarily. Just wanted to understand where that's at relative to expectations initially.

Yeah, new logos drive our growth. So, you know, and I'm not going to say, you see when interest rates go up, we talked about how we're achieving roughly 80% of that as it moves. So, you know, obviously that impacts us positively as well. I have a lot of mess with the new window.

But for us, what's always driven our revenue has been new logo ads.

And then, as you think about kind of the move internationally and up market, does that impact the implementation strategy at all in terms of...

you know, in a front you try to be very opportunistic or module things like that. Is that the same strategy as you kind of scale it the client base?

Yeah, I mean, it's our implementation strategy as you continue to add other countries, yeah, I mean, it is going to change implementation to some extent. Now that will, you know, a lot of that will be determined by the, you know, origination of the client. Where's the client? Are they in Nebraska? Where do you think they are?

Are they in Mexico? Are they in the UK? Where's the client? You know, you have different time zones and everything else where sometimes people are awake, sometimes they're not. So, you know, definitely it changes your implementation strategy as you go global.

I don't know that many of our methods will change as much as it would be, you know, modifying them to meet the needs of the country that we are in.

Thank you for your question. The last question comes from the line of Robert Simmons with DA Davidson. Can't see anything, 2014.

Hey, thanks for taking the question. I was wondering, do you have customers who are now using Global HCM? If so, what's been the early feedback? We have some companies that are starting to pilot it. I think there's a couple. And a lot of Global HCM is developed with current client feedback.

from that perspective, just seeing what they're trying to accomplish, what they're using, and then just making a decision that we had just to take our current systems, and you know, be able to put them to where they could be used in 180 countries, in 15 languages.

But we would expect more and more clients throughout this year to use the global HCM piece of Paycom. Got it. And then on the dividend, how are you thinking about adjusting that going forward? Would it be as percent of gap EPS or free cash flow or some other metrics? No. I mean, right now, we're looking at it as a...

at $1.50 and then adjust it as we see fit in the future.

Thank you very much. Thank you for your question. There are no additional questions waiting at this time, so I'll pass the conference back to Chad Richardson for closing remarks.

All right, I want to thank everyone for joining the call today. Our employees' efforts continue to put PECOM in a great position and we're off to a great start in 2023. So thank you to the PECOM team. Over the next quarter, we'll be hosting meetings at five conferences, beginning with the Needham Tech and Media Conference and the Moffitt-Nathanson Technology Media.

We look forward to catching up with many of you soon. And operator, you may disconnect. Thank you. Thank you.

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.

That concludes the conference call. Thank you for your participation.