Q1 2024 Paycom Software Inc Earnings Call

May 1, 2024

Okay.

Right.

Okay.

Thank you.

[music].

Okay.

[noise].

Okay.

And we're going to do.

Okay.

[music].

?? ?? ?? ?? ??

Terry: Good afternoon, My name is Terry and I'll be your conference operator today.

Operator: Good afternoon. My name is Terri, and I will be your conference operator today. At this time, I would like to welcome everyone to Paycom's first quarter 2024 financial results conference call. All lines have been placed on mute to prevent any background noise.

Terry: This time I would like to welcome everyone to pay comes first quarter 'twenty to 'twenty four financial results Conference call.

Terry: All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. Thank you. I will now turn the call over to James Samford, Head of Investor Relations. You may now begin.

Terry: After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

Terry: I'd like to withdraw your question. Please press star followed by Chi. Thank you I will.

Terry: I'll now turn the call over to James Samford head of Investor Relations you May now begin.

James Samford: Thank you. This is the Paycom earnings conference call for the first quarter of 2024. Certain statements made on this call that are not historical facts, including those related to our future plans, objectives, and expected performance, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this conference call. 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 uncertainty.

James Samford: Thank you and welcome to <unk> earnings Conference call for the first quarter of 2020 for 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.

James Samford: 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.

James Samford: These forward looking statements represent our outlook only as of the date of this conference call.

James Samford: 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.

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

James Samford: 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.

James Samford: Also, during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP net income, and certain adjusted expenses. 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.paycom.com. Now, I'll turn the call over to Chad Richison, Paycom's Co-CEO and President. Chad?

James Samford: Also during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA non-GAAP net income and certain adjusted expenses. 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 our press release.

James Samford: That we issued after the close of the market today and is available on our website at investors <unk> Com Dot com.

James Samford: I will now turn the call over to Chad Richison, <unk> co CEO and President Chad.

Chad R. Richison: Thanks, James, and thank you to everyone joining our call today. I'll kick off the call with a few highlights from the quarter, and then I'll turn it over to Chris to discuss client trends and recent awards. Craig will then review our financials and our guidance before taking questions.

Chad R. Richison: Thanks, James and thank you to everyone joining our call today I'll kick off the call with a few highlights from the quarter and then I'll turn it over to Chris to discuss client trends and recent awards Craig will then review our financials and our guidance before taking questions.

Chad R. Richison: Our product vision centers around eliminating redundant HR work, eliminating costs, and allowing users to recoup valuable time in their day to add value to the organization. In addition to our single database, which simplifies the client experience and reduces integration costs, another key Paycom differentiator is that employees input and validate their data directly into our HCM solution. With Paycom, employees do their own payroll, fixing errors before they become problems. On our last call, we highlighted three key focus areas for 2024.

Chad R. Richison: Our product vision centers around eliminating redundant HR work, eliminating cost and allowing users to recoup valuable time in their day to add value to the organizations.

Chris: In addition to our single database, which simplifies the client experience and reduces integration costs. Another key pay comes differentiator is that employees input and validate their data directly into our HCM solution.

Chris: With pay com employees do their own payroll fixing errors before they become problems.

Chris: On our last call. We highlighted three key focus areas in 2024 solution automation client ROI achievement and World Class service.

Chad R. Richison: Solution Automation, Client ROI Achievement, and World-Class Service. Led by Betty, our solution automation initiatives continue to generate tremendous opportunities for our clients. We released more product enhancements in the first quarter than in the previous two quarters combined. We are leveraging AI and decisioning logic across our solution, adding more value and eliminating mundane, non-revenue-generating activities for our customers. A recent new client told us that prior to implementing BETI, it would take over two days to process payroll. With Betty, they complete the process in only 90 minutes.

Chris: Led by Betty our solution automation initiatives continue to generate tremendous opportunities for our clients, we released more product enhancements in the first quarter than in the previous two quarters combined.

Chris: We are leveraging AI and decisioning logic across our solution, adding more value in eliminating mundane non revenue generating activities for our clients.

Chris: A recent new client told us that priority implementing Betty it would take over two days to process payroll.

Chris: With Betty they complete the process and only 90 minutes.

Chad R. Richison: We've also automated time-off decisioning, allowing managers across the country to focus on value-added activity. With GON, our time off product leverages decision logic to automatically approve, deny, or defer time off requests by employees. This is a better experience for employees and delivers both time savings and efficiency for Workforce Management. On the client ROI achievement front, our success with Betty results in increased client ROI and is resonating with more and more businesses in the market.

Chris: We've also automated time off decisioning, allowing managers across the country to focus on value added activities with.

Chris: With gone our time off product Leverages decision logic to automatically approved deny or warehouse time off requests by employees. This is a better experience for employees and delivers both time savings and efficiencies for workforce management and scheduling.

Chris: Yeah.

Chris: On the client ROI achievement front, our success with better results in increased decline ROI and is resonating with more and more businesses in the marketplace. Our clients already receive industry, leading ROI and we are focused on accelerating our product roadmap to drive even more value.

Chad R. Richison: Our clients already receive industry-leading ROI, and we are focused on accelerating our product roadmap to drive even more value. Now, with Betty, clients regularly tell us that their company runs much smoother when their employees do their own payroll. And I know this sentiment is shared across the client base of Betty. We are changing the way payroll is done, and our clients are telling us we're right. On the world-class service front, we are meeting clients where they live to help identify and close any gaps they might be seeing between their respective total available ROI and where they stand today. We are strengthening our client relationships through service and value delivery, and I want to thank our employees for their incredible efforts on this front. It has worked before.

Chris: Now with better clients regularly tell us that their company runs much smoother when their employees do their own payroll and I know this sentiment is shared across the client base of data users. We are changing the way payroll has done and our clients are telling us we're right.

Chris: On the World Class service front, we are meeting clients, where they live to help identify and close any gaps they might be seeing between their respective total available ROI and where they stand today, we are strengthening our client relationships with service and value achievement and I want to thank our employees for their incredible efforts on this.

Chris: <unk> front it is working.

Chad R. Richison: Our go-to-market strategy continues to emphasize the differentiated nature of our offering and the significant benefits of doing your own payroll with us. We are getting more leads thanks to Betty, and we are seeing solid demand for our solution. At our recent sales incentive trip, we recognized our first sales rep to sell over $4 million in annual new business. It wasn't that long ago that we celebrated the first sales rep to sell $1 million.

Chris: Our go to market strategy continues to emphasize the differentiated nature of our offering and the significant benefits of doing your own payroll with Paypal.

Chris: We are getting more leads thanks to Betty and we are seeing solid demand for our solution at our recent sales incentive trip, we recognized our first sales rep to sell over $4 million in annual new business.

Chris: It wasn't that long ago that we celebrated the first sales rep to sell $1 million.

Chris: Business, we believe our unique value proposition separates us from the other disparate offerings in the market that require complex integrations and manual entry activities.

Chad R. Richison: We believe our unique value proposition separates us from the other disparate offerings in the market that require complex integrations and manual entry activities. We continue to make meaningful progress on the international front as we build on the momentum we achieved in 2023 and early 2024 when we released our global HCM product and announced the launch of native payroll in Canada, Mexico, and the United States. Today, we are pleased to announce that we have developed and are launching our native payroll solution in Ireland.

Chris: We continue to make meaningful progress on the international front as we build on the momentum we achieved in 2023 and early 2024, when we released our global HCM product and announced the launch of native payroll in Canada, Mexico, and the United Kingdom.

Chris: Today, we are pleased to announce that we have developed and are launching our native payroll solution in Ireland.

Chad R. Richison: In less than a year since we announced our international journey, we are already seeing U.S.-based companies with an international presence look to Paycom as a global provider. While still early, I'm pleased to see that all the work on our International Strategies Panel has paid off. In fact, we recently won a large international sports organization thanks to our multi-country payroll and HCM. This client will process payroll with Betty in multiple countries, and this win represents another proof point for our international strategy.

Chris: In less than a year since we announced our international journey, we are already seeing U S. Based companies with an international presence look to pay com as a global provider.

Chris: While still early I am pleased to see that all the work on our international strategy is paying off.

Chris: In fact, we recently won a large international sports organization, thanks to our multi country payroll and HCM offering this client or process payroll with Betty in multiple countries and this win represents another proof point for our international strategy.

Chad R. Richison: While this is a great win for Paycom, I want to be sure to note that we remain highly focused on our U.S. growth as we still have only an estimated 5% of the total addressable market. To sum up, I'm pleased with the progress we are making on our strategic initiatives, and I look forward to building on the momentum we are building. With that, let me turn the call over to Bob.

Chris: While this is a great win for <unk> com I want to be sure to note that we remain highly focused on our U S growth as we still have only an estimated 5% of the total addressable market.

Chris: To sum up I'm pleased with the progress we are making on our strategic initiatives and I look forward to building on the momentum we are seeing with that let me turn the call over to Chris.

Chad R. Richison: Our Service and Client Relations We will continue to work very closely together to drive value for our clients. Usage of our system continues to increase as more employees interact directly with their data.

Chris: Thanks, Chad.

Chris: Our service and client relations group continue to work very closely together to drive value for our clients.

Chris: Usage of our system continues to increase as more employees interact directly with their data.

Chris: Our average DDx score continues to rise and is above 95% across our clients. Our innovative technology and our client ROI achievement strategy are key drivers of satisfaction and bolster our world-class service model. In fact, we were very pleased to receive several awards that highlight the strength of our relationship with our clients. Most recently, we were recognized as a 2024 winner of the Excellence in Customer Service Award by Business Intelligence. It's gratifying to receive recognition from an organization for our hard work and dedicated focus on our clients.

Chris: Our average <unk> score continues to rise and is above 95% across our client base today.

Chris: Our innovative technology and our client ROI achievement strategy are key drivers of satisfaction and bolster our world Class service model. In fact, we were very pleased to receive several awards that highlight the strength of our relationship with our clients. Most recently, we were recognized as a 2024.

Chris: The winner of the excellence in customer Service award by business Intelligence Group.

Chris: It's gratifying to receive recognition from an organization for our hard work and dedicated focus on our clients.

Chris: This award highlights businesses who are redefining service standards in their industry. This achievement showcases our ability to further drive client ROI while making a positive impact across our client base. We were also named one of the most trustworthy companies in America by Newsweek for the third consecutive year. These awards are testament to our service model. I'm pleased to see that our relationships with our clients continue to get even stronger. Finally, we earned the Gallup Exceptional Workplace Award for the second consecutive year, and we're grateful to be recognized among global leaders in workplace culture. With that, I'll turn the call over to Craig for a review of our financials and guidance. Craig

Chris: This award highlights businesses are redefining service standards and their industry.

Chris: This achievement showcases our ability to further drive client ROI, while making a positive impact across our client base.

Chris: We were also named one of the most trustworthy companies in America by Newsweek for the third consecutive year. These awards are Testament to our service model I am pleased to see that our relationships with our clients continue to get even stronger.

Chris: Finally, we earn the Gallup exceptional workplace award for the second consecutive year, and we are grateful to be recognized among global leaders and workplace culture with that I'll turn the call over to Craig for a review of our financials and guidance Craig.

Craig E. Boelte: Thanks, Chris. Before I review our first quarter 2024 results and our outlook for the second quarter and full year 2024, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. First quarter revenue of $500 million was up 11% over the comparable prior year period. Within total revenues, recurring revenue was $492 million for the first quarter of 2024, representing 98% of total revenues for the quarter and growing 11% from the comparable prior year period.

Craig: Thanks, Chris before I review, our first quarter 2024 results and our outlook for the second quarter and full year 2024, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis.

Craig: First quarter revenue of $500 million was up 11% over the comparable prior year period within total revenues recurring revenue was $492 million for the first quarter of 2024, representing 98% of total revenues for the quarter and growing 11% from the comparable prior year period.

Craig E. Boelte: We delivered strong net income and adjusted EBITDA in the first quarter of 2024, with gap net income of $247 million or $4.37 per diluted share based on approximately 57 million shares. Also included in our GAAP results is a one-time non-cash stock compensation benefit of $118 million related to the forfeiture of the 2020 CEO Performance Award. Non-GAAP net income for the first quarter was $147 million, or $2.59 per diluted share. First quarter adjusted EBITDA of nearly $230 million was better than expected, primarily due to higher revenue and expense discipline, and represented a margin of 45.9% for the quarter.

Craig: We delivered strong net income and adjusted EBITDA in the first quarter of 2024 with GAAP net income of $247 million or $4 37 per diluted share based on approximately 57 million shares included in our GAAP results is a onetime noncash stock compensation benefit of 100.

Craig: $19 million related to the forfeiture of the 2020 CEO performance Award.

Craig: non-GAAP net income for the first quarter was $147 million or $2 59 per diluted share.

Craig: First quarter adjusted EBITDA, nearly $230 million was better than expected, primarily due to higher revenue and expense discipline and represented a margin of 45, 9% for the quarter during.

Craig E. Boelte: During the first quarter, we paid over $21 million in cash dividends, and earlier this week, the board approved our next quarterly dividend of $0.375 per share, payable in mid-June. We still have approximately $796 million dollars remaining under our buyback authorization as of March 31st, 2021. Adjusted R&D expense was $45 million in the first quarter of 2024, or 9% of total revenue; adjusted total R&D costs, including the capitalized portion, were 71 million in the first quarter of 2024, compared to 55 million in the prior year period.

Craig: During the first quarter, we paid over $21 million in cash dividends and earlier. This week. The board approved our next quarterly dividend of <unk> 37, five cents per share payable in mid June.

Craig: We still have approximately $796 million.

Craig: Remaining under our buyback authorization as of March 31, 2024.

Craig: Adjusted R&D expense was $45 million in the first quarter of 2024, 9% of total revenues adjusted total R&D costs, including the capitalized portion were $71 million in the first quarter of 2024 compared to $55 million in the prior year period, we continue to invest in our long term future growth.

Craig E. Boelte: We continue to invest in our long-term future growth in the areas of automation, AI, and international. Our tax rate for the first quarter of 2024 was 15% on a gap basis, reflecting the benefit of the forfeiture of the 2020 CEO Performance Award during the quarter. For Q2 and the full year 2024, we anticipate our effective income tax rates to be approximately 33% and 22%, respectively on a gap basis. We estimate Q2 and the full year 2024 non GAAP effective tax rate to be $25,000. Quarterly fluctuations in our effective tax rates are generally due to the timing of stock compensation vesting and related tax effects.

Craig: In areas of automation AI and international.

Craig: Our tax rate for the first quarter of 2024 was 15% on a GAAP basis, reflecting the benefit of the forfeiture of the 2020 CEO performance award during the quarter.

Craig: For Q2, and the full year 2024, we anticipate our effective income tax rates to be approximately 33% and 22% respectively on a GAAP basis we.

Craig: We estimate Q2 and full year 2024, non-GAAP effective tax rate to be 25%.

Craig: Quarterly fluctuations in our effective tax rates are generally due to the timing of stock compensation vesting and related tax effects for the remainder of 2024, we expect stock based compensation expense to be approximately $33 million per quarter.

Craig E. Boelte: For the remainder of 2024, we expect stock-based compensation expense to be approximately $33 million per quarter. Turning to the balance sheet, we ended the first quarter with a very strong balance sheet, including cash and cash equivalents of $371 million and no debt. The average daily balance of funds held on behalf of clients was approximately $2.6 billion in the first quarter of 2024, up 8% year over year. On the capital expenditure front, our fifth building in Oklahoma City is substantially complete and will be placed into service in the second quarter. While we continue to estimate total CapEx as a percent of revenues to be approximately 12% in 2024, we also expect that percentage to decline beginning in 2025. Now, let me turn to Guy.

Craig: Turning to the balance sheet, we ended the first quarter with a very strong balance sheet, including cash and cash equivalents of $371 million and no debt.

Craig: The average daily balance of funds held on behalf of clients was approximately $2 6 billion in the first quarter of 2024 up 8% year over year on.

Craig: On the capital expenditure front, our fifth building in Oklahoma City is substantially complete and will be placed into service in the second quarter. While we continue to estimate total capex as a percent of revenues to be approximately 12%. In 2024. We also expect that percentage to decline beginning in 2025 now let.

Speaker Change: Let me turn to guidance for fiscal 2024, we are maintaining our revenue and adjusted EBITDA guidance ranges with revenue expected to be in the range of $1.860 billion to $1 billion and $885 million were approximately 11% year over year growth at the midpoint of the range, we expect adjust.

Craig E. Boelte: For fiscal 2024, we are maintaining our revenue and adjusted EBITDA guidance ranges, with revenue expected to be in the range of $1,860,000,000 to $1,885,000,000, or approximately 11% year-over-year growth at the midpoint of the range. We expect Adjusted EBITDA to be in the range of $720 million to $730 million, representing an Adjusted EBITDA margin of approximately 39% at the midpoint of the range We remain on track with the full-year plan we put in place at the beginning of the year and are beginning to see positive responses from our strategic initiatives.

Speaker Change: At EBITDA to be in the range of $720 million to $730 million, representing an adjusted EBITDA margin of approximately 39% at the midpoint of the range.

Speaker Change: We remain on track with our full year plan, we put in place at the beginning of the year and are beginning to see positive responses from our strategic initiatives.

Craig E. Boelte: For the second quarter of 2024, we expect total revenues in the range of $434 million to $438 million, representing a growth rate over the comparable prior year period of approximately 9% at the midpoint of the range. We expect adjusted EBITDA for the second quarter in the range of $151 million to $155 million, representing an adjusted EBITDA margin of approximately 35% at the midpoint of the range. We continue to focus our efforts on executing on our plan and building momentum. We have a differentiated product, an industry-leading value proposition, and a solid foundation to build upon. With that, we will open the line for questions. Operator.

Speaker Change: For the second quarter of 2024, we expect total revenues in the range of 434 million to $438 million, representing a growth rate over the comparable prior year period of approximately 9% at the midpoint of the range. We expect adjusted EBITDA for the second quarter in the range of 151 million to one.

Speaker Change: Hundred $55 million, representing an adjusted EBITDA margin of approximately 35% at the midpoint of the range.

Speaker Change: We continue to focus our efforts on executing on our plan and building momentum, we have a differentiated product and industry leading value proposition.

Speaker Change: <unk> Foundation to build upon with that we will open the line for questions operator.

Operator: Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. In the interest of time, we ask that you please limit yourself to one question and one follow-up. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Raimo Lenschow of Barclays. Please go ahead; your line is open.

Speaker Change: Thank you at this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.

Speaker Change: Interests of time, we ask that you. Please limit yourself to one question and one follow up with Paul suggested payments in your part of the Q&A roster.

Raimo Lenschow: Perfect. Thank you. And two quick questions. One for you, or for the two of you, Chad and Chris?

Speaker Change: Your first question comes from the line of Ryan Lynch.

Ryan Lynch: <unk> of Barclays. Please go ahead your line is open.

Unknown Executive: If you think about the strategic initiatives that you're kind of talking about, can you frame them in the, in the, you know, how does it compare to what, first of all, you know, what are you doing there? Maybe you could be more specific. And then also, how does it compare to, or kind of relate to, what you see in the market in terms of, you know, end demand, headwinds from less new hiring, et cetera? Just frame it a little bit like, you know, what's going on in the market versus what's going on at you. And then my next question is for Craig. Can you speak to the benefits?

Ryan Lynch: Perfect. Thank you.

Ryan Lynch: Two quick questions one for you.

Ryan Lynch: <unk> and Chris if you think about the strategic initiatives that youre kind of talking about can you frame them in the in the.

Ryan Lynch: How does it compare to what first of all what are you doing there maybe it could be more specific and then also how does it compare.

Ryan Lynch: Kind of a lead to what you see in the market in terms of.

Ryan Lynch: And demands headway.

Ryan Lynch: <unk> from less new hiring et cetera, just frame it a little bit like.

Ryan Lynch: What's going on in the market versus what's going on with you and then my follow up question is for Craig.

Craig: Can you just speak to the benefits or extra benefits you might see from less rate cuts. This year is that kind of helping you or how does that play into the model. Thank you.

Ryan Lynch: Okay.

Unknown Executive: Sure, so I'll take the first one, Raimo, and so our Client Value Achievement Strategy, or as you called it, the strategic initiatives that we're working on throughout the year, really have to do with meeting clients where they live and making sure that they're achieving the full value of ROI that's available to them through the appropriate usage of our software. And so we've been focused on that. We did call that out on October 31st, actually, when we reported. We did call out that we're going to be really focused on that.

Craig: Sure. So I'll take the first one Ryan and so our client value achievement strategy or as you called it the strategic initiatives that we're working throughout the year.

Ryan Lynch: Really have to do with meeting clients, where they live and making sure that they are achieving the full value of ROI, that's available to them through the appropriate usage of our software and so we've been focused on that we did call that out.

Ryan Lynch: On October 31, actually when we reported we did call out that we're going to be really focused on that all of the all of those initiatives are in efforts to continue to drive improvements in retention.

Unknown Executive: All of those initiatives are in efforts to continue to drive improvements in retention and again, be able to set clients up to achieve full value because we do have additional products for many of these clients that can really help them out once they're utilizing the product correctly that we've already implemented. And I'm going to say that's in regards to our current client.

Ryan Lynch: And again be able to set clients up to achieve full value because we do have additional products for many of these clients.

Ryan Lynch: That can really help them out once they are utilizing the product correctly that we've already implemented and I am going to say that's in regards to our current client base from a new client base perspective, we're focused on our sales initiatives.

Ryan Lynch: Those have been.

Ryan Lynch: Unchanged as we've moved throughout the year as far as what our focus is there.

Craig E. Boelte: Sure. And Raimo, on the rate cuts, I mean, obviously, you know, that changes every day as to how many there might be, but it seems like there may be less than we had originally thought. So, you know, I mean, that is a benefit towards the end of the year, but the one thing we're also looking at is, do we try to extend the duration of some of those funds? And, you know, when you do that, you're trading off some of that higher rate, you know, effectively, you're taking two or three rate cuts if you do that. So, you know, that's kind of what we're looking at strategically with those funds. Thank you. Your next question comes from Samad Samana.

Speaker Change: Sure and Ron on the rate cuts I mean, obviously.

Speaker Change: Yes.

Speaker Change: It changes every day as to how many of their mountain David It seems like there may be less than we had originally thought.

Speaker Change: So I mean that is a benefit towards the end of the year, but the one thing. We're also looking at is do we try to extend the duration of some of those funds and when you do that you're trading off some of that those higher rates effective immediately youre, taking two to three rate cuts if you do that so.

Speaker Change: That's kind of what we're looking at strategically with those funds.

Operator: Thank you. Your next question comes from Samad Samana from Jeffreys. Your line is now open.

Ryan Lynch: Thank you. Your next question comes from Samad Samana from Jefferies. Your line is now open.

Ryan Lynch: Hi, This is Mason Marion on for Matt. Thanks for taking our question. So looking at your guidance can you kind of elaborate on what youre seeing from a churn new bookings perspective, and how it and the assumptions that you have in your guidance.

Samad Saleem Samana: Well, you sound exactly like Samad. So churn, new bookings, POV assumption, what is the, I'm trying to think, can you maybe reframe, can you say that question again? I'm just trying to better understand what you're factoring into your 2Q assumptions and maybe for the back half of the year around what you're seeing from a new bookings perspective and from a term perspective. Yeah, stability. I mean, from a new bookings perspective, you know, we are seeing improvement in that, you know, retention, something that we call out at the end of the year, but all of our initiatives that we're working on through client value achievement are set to have an impact on that. And, you know, we feel good about how that

Speaker Change: You sound exactly like some odd.

Ryan Lynch: Yes.

Speaker Change: So the churn and new bookings POB assumption what is the I'm trying to can you maybe refresh can you say that question again.

Speaker Change: I'm, just trying to better understand what you're factoring into your <unk> assumption for the back half of the year round.

Ryan Lynch: What are you seeing from a new bookings perspective from a churn perspective.

Speaker Change: Yes stability from a new bookings perspective, we are seeing improvement.

Ryan Lynch: In that retention is something that we call out at the end of the year, but all of our initiatives that we're working through our client value achievement.

Ryan Lynch: Set to have an impact on that and we feel good about how that's working.

Speaker Change: Great. Thank you.

Mark Steven Marcon: Your next question comes from Mark Marson of Baird. Please go ahead; your line is open.

Speaker Change: Your next question comes from Mark Nelson of Baird. Please go ahead. Your line is open.

Chad R. Richison: Good afternoon, and thanks for taking my question. Chad, I was wondering if you could talk just a little bit about what you're seeing in terms of variance in terms of sales performance across the various offices. You did mention that you've got one quota carrier that achieved over 4 million, and so that obviously seems very strong. But on the other hand, you know, we've had a little bit of a deceleration with regard to the revenue growth rate.

Mark Steven Marcon: Hey, good afternoon, thanks for taking my questions.

Mark Steven Marcon: Ken I was wondering if you could talk just a little bit about what.

Mark Steven Marcon: What youre seeing in terms of variance in terms of sales performance.

Mark Steven Marcon: Cross the various offices.

Mark Steven Marcon: You did mentioned that <unk> got one quota carrier that achieved over $4 million and so that obviously seems very strong.

Mark Steven Marcon: But on the other hand, we've had a little bit of a deceleration with regards to the revenue growth rate and so I'm just wondering.

Chad R. Richison: And so I'm just wondering, you know, when you talk to your sales leaders, and you obviously made some changes there, what they are seeing out in the market? How much more difficult is it to get, you know, new sales? There have been some investors that have been asking about, you know, saturation in the mid market. And I'm wondering, you know, what your perspective is.

Mark Steven Marcon: When you talk to your sales leaders and you obviously made some changes there.

Mark Steven Marcon: What are they seeing out in the market.

Ryan Lynch: How much more difficult is it to get.

Ryan Lynch: New sales.

Ryan Lynch: There had been some investors that have been asking about saturation in the mid market.

Speaker Change: I'm wondering what your perspective is with regards to that.

Chad R. Richison: Yeah, and so I guess first I would say, I mean, our best offices are going to have the best managers regardless of geography. And I think there for a couple of years, Tulsa was number one, and it's a city of 400,000. We've been in that city for 22, 23 years. So your best office is going to have your best manager. From a saturation perspective, that's... No, there's no such thing as saturation in the mid market. I mean, you've had the same players.

Speaker Change: Yeah. So I guess first I would say I mean, our best offices are going to have the best managers, regardless of geography, and I think there for a couple of years Tulsa was number one and it's a city of 400000 people.

Ryan Lynch: We've been in that city for 'twenty two 'twenty three years. So you best office is going to have your best manager from a saturation perspective.

Ryan Lynch: No. There is no such thing as saturation in the mid market I mean, <unk> had the same players for a long period of time.

Ryan Lynch: We're all very competitive in the market, we have about 5% of the total addressable market available to us and so.

Ryan Lynch: No I wouldn't say, it's from a saturation perspective, it comes from a appropriate management appropriate training and appropriate leadership and as we've gone through the year, we've gotten better and better and can call out that we are having accelerated sales. If you look at the last two months of this year versus the first two months.

unknown: .. .. .. .. .. ...

Ryan Lynch: Of this year from a bookings perspective, and thats not to say that the first two months were back. It's just to say that we are getting better and better in how we move product.

Unknown Executive: Great. And can you talk a little bit about what you're doing with regard to the internal sales group that typically does the up sales? How are you structuring commissions? You know, is there still a mandate that new clients have to have Betty? And where do you stand with Betty penetration within the existing client base? Yeah, so there's no change with what those...

Speaker Change: That's great can you talk a little bit about what.

Ryan Lynch: What youre doing with regards to the.

Speaker Change: The internal sales group typically does the up sales.

Speaker Change: How are you structuring.

Speaker Change: Commissions.

Speaker Change: Is there still a mandate it.

Speaker Change: New clients have to have Betty and where do you stand with the better penetration within the existing.

Speaker Change: Client base.

Speaker Change: Yeah.

Unknown Executive: Yeah, so there's no change with what the CRR groups have been doing. They've been making significant impacts for us in the Client Value Achievement Strategy. Again, meeting clients where they are today, making sure they're receiving full value from using the system that they've already purchased, you know, before we move forward selling them additional products. They've done a good job with that. There's no change as far as what their focus is from that, but, you know, we are seeing the positive impacts from it.

Speaker Change: Yes, so there is no change.

Speaker Change: This year, our groups have been doing they've been making significant impacts for us and the client value achievement strategy again meeting clients, where they are today, making sure. They are receiving full value of using the system that they've already purchased.

Speaker Change: We move forward.

Speaker Change: Selling them additional products they've done a good job with that Theres no change as far as what their focus is from that but.

Speaker Change: We are seeing the positive impacts from that.

Speaker Change: Thank you.

Speaker Change: Okay.

Operator: Your next question comes from the line of Brian Schwartz of Oppenheimer. Your line is now open.

Speaker Change: Your next question comes from the line of Brian Schwartz with Oppenheimer. Your line is now open.

Speaker Change: Okay.

Camden Levy: Hey, good afternoon. This is Camden Levy sitting in for Brian Schwartz.

Speaker Change: Hey, good afternoon. This is Camden, while sitting in for Brian Schwartz. Thank you for taking my question.

Unknown Executive: Thank you for taking my question. My question is around sales capacity. How do you guys feel about the quota carrying sales capacity of the business? And are there any plans to increase the number of sales offices in the second half of this year or early 2025? And then just additionally, thinking about just the pipeline momentum, is there anything you guys can provide qualitatively about how the pipeline is building in 2024? I know you guys had mentioned stability, but any other commentary regarding how that's building? Thank you. Yeah.

Camden: My questions are on sales capacity, how do you guys feel about the quota carrying sales capacity of the business and are there any plans to increase the number of sales offices in the second half of this year or early 2025.

Speaker Change: Then just additionally, thinking about just the pipeline momentum is there anything you guys can provide qualitatively about how the pipeline is building in 2024, I know you guys had mentioned stability, but any other commentary regarding how that's building. Thank you.

Unknown Executive: Yeah, so first around, sales capacity or sales capacity numbers have gotten a lot better, I would say, over the last two or three months from that perspective. It'd be too early to say exactly when we would be opening up additional offices because, as you know, we take a current manager that's successful, relocate them to a new territory to open up an office, and then we backfill them with salespeople who are ready to be sales managers.

Speaker Change: Yes, so first around sales capacity ourselves capacity numbers again have.

Speaker Change: <unk> gotten a lot more improved I would say over the last two or three months from that perspective, it would be too early to say exactly when we would be opening up additional offices because as you know we take a current manager that successful relocate them to a new territory to open up an office and then we backfill them with salespeople who are.

Speaker Change: Ready to be sales managers and so.

Unknown Executive: And so, you know, how quickly we're able to open up additional offices is really dependent upon that backfill bench and how we are doing there. And so, you know, we've continued to have success building that out, but also key for us is that we have 55 sales teams right now, and it's making sure that all of those are performing at top levels, and that's a focus that we've had going throughout 2020. Commentary on pipelines. Pipelines are very strong.

Speaker Change: How quick we're able to of how quickly we're able to open up additional offices is really dependent upon those back for that backfill vantage and how we're doing there and so.

Speaker Change: We've continued to have success building that out but also key for US is we have 55 sales teams right now and it's making sure that all of those are performing at the top levels and that's a focus that we've had going throughout 2024.

Speaker Change: Commentary on pipeline pipelines are very strong.

Speaker Change: Yes.

Camden Levy: Okay, awesome. Thank you so much. I appreciate it.

Speaker Change: Okay awesome. Thank you so much I appreciate it.

Operator: Your next question comes from the line of Joshua Reilly of Nedham. Your line is now open.

Speaker Change: Your next question comes from the line of Joshua <unk> of Nathan Your line is now open.

Joshua: Yes, Thanks for taking my question here.

Joshua: Can you give us a sense how is the preemployment services revenue trending for the year relative to your maybe expectations leading into the year and remind us how correlated is that revenue stream to job switching.

Joshua: Any other factors that we should be considering there.

Unknown Executive: And our unemployment services are stable, is the way I would categorize that. They've been stable so far. They're somewhat going to be a reflection of the new clients that you bring on board, as well as, you know, client trends. Yes, I mean, I would say that increased turnover, if you do, I'm not saying we're seeing this, I'm just saying if a company did have increased turnover, then, you know, they would have, especially if they're set up for new higher background checks, then We don't have any of that to call out from...

Joshua: And our unemployment services are stable is the way I would categorize that they've been stable there are somewhat going to be a reflection of the new clients that you bring on as well as you know the current client trends, yes, I mean, I would say that increased if you do im not saying we are seeing this I'm just saying.

Unknown Executive: I'm not saying we're seeing this; I'm just saying if a company...

Joshua: The company did have increased turnover.

Joshua: They would have.

Joshua: Especially if they are set up for new hire background checks and theyre going to have a word for us obviously.

Joshua: We don't have any of that to call out from an.

Joshua: Additional <unk>.

Joshua: Employees, leaving clients and go into others any more so than what it's been in the past again, there was a period of time there in Covid, we are seeing that.

Joshua: It was happening maybe a little bit more than what you would see in times like today, but.

Joshua: We don't have anything to call out in a significant to that product.

Unknown Executive: Got it. And then just a quick follow-up. The revenue guidance implies a little more of a maybe second half reacceleration and growth than what we were previously expecting. Can you just give us a sense of what gives you the confidence or visibility to that revenue growth reaccelerating in the second half? Thank you. Yeah, so.

Speaker Change: Got it and then just a quick follow up the revenue guidance implies a little more of a maybe a second half reacceleration in growth than what we were previously expecting can you just give us a sense of what gives you the confidence or visibility.

Speaker Change: So that revenue growth re accelerating in the second half. Thank you.

Unknown Executive: Yeah, so, you know, a lot of the initiatives that we had and we talked about, you know, last November and, you know, fourth quarter, really were front-end loaded. And so, you know, that's really what we saw, you know, even going into the Q2 guide, that those were more front-end loaded. And then we would expect, you know, once we get through some of those, that we would see a reacceleration in the back half of the year.

Speaker Change: Yes.

Speaker Change: A lot of the initiatives that we had and we talked about.

Speaker Change: Last November in fourth quarter really were front end loaded and so.

Speaker Change: That's really what we saw even going into the Q2 guide is those were more front end loaded and then we would expect once we get through some of those that we would see a reacceleration in the back half of the year.

Speaker Change: Sure.

Operator: Your next question comes from the line of Steve Enders of Citi. Your line is now open.

Speaker Change: Your next question comes from the line of Steve <unk> with Citi. Your line is now open.

Steven Lester Enders: Okay, great. Thanks for taking the question. I guess I'll probably dig into the guide a little bit more. It seems like, you know, sales for

Steve: Okay, great. Thanks for thanks for taking the question.

Steve: I guess, maybe digging into the guide a little bit more it seems like sales performance has improved the past couple of months always better than the first couple of months and I guess.

Steve: Rates environments may be seen in a little bit higher I guess, what I would've expected, maybe a little bit better of a guide here.

Speaker Change: Is there kind of like any change in assumptions or maybe help me.

Speaker Change: I kind of think through why the.

Speaker Change: Well I think I did guide has been maintained versus maybe some of the green shoots.

Speaker Change: Would impact that.

Unknown Executive: Yeah, I mean, our guidance for 2024, I mean, it included, I mean, we gave this guidance, you know, for the first time we'd given, we talked about what we were going to do. I think it was October 31st of last year.

Speaker Change: Yes, our guidance for 2024 I mean it included I mean, we gave this guidance for the first time, we've given we've talked about what we were going to do I think it was October 31 of last year and so the guidance at that time included our many organic initiatives that were designed to set us up for 2025.

Unknown Executive: And so, you know, the guidance at that time included our many organic initiatives that were designed to set us up for 2025. And so we've been sticking with those disciplines and timelines. And, you know, we said, I mean, even at the beginning of this year, that it would be back in full force because of the many client value achievement strategies, as well as the work that the CRRs and the other groups are performing.

Speaker Change: And so we've been sticking with those disciplines and timelines and we said I mean, even at the beginning of this year that it would be backend loaded because of the many both client value achievement strategies as well as the work that <unk> and the other groups are performing and so.

Unknown Executive: And so, you know, we've been focused on that. And as we go into any quarter, you know, we're focused on maintaining what we believe is going to make the largest impact on the client base, to help them achieve the greatest ROI so we can go forward. I've said it many times that it's a lot.

Speaker Change: We've been focused on that and as we go into any quarter.

Speaker Change: We're focused on maintaining.

Speaker Change: What we believe are going to make the largest impact on our client base.

Speaker Change: To help us.

Speaker Change: Help them achieve the greatest ROI. So we can go forward I've said it many times that it's a lot easier to sell a client and additional product and to get them to actually use it and we've implemented several.

Speaker Change: Strategies to make sure that clients are able to utilize and achieve.

Speaker Change: Full client or Hawaii and value before we sell them another client add another product and in many cases before we even will build them, even though we sold it we want to make sure. They are utilizing the product before we did build in so these are some initiatives that have delayed.

Speaker Change: Certain.

Speaker Change: Revenue opportunities for us, but they set us up for those things as well and so that's been important for us to continue to focus on that and really meet every client where they are living so that we can help bring them to the rest of the pay comm journey.

Steven Lester Enders: Okay, that's helpful. Maybe flip another one in here, I guess, maybe to ask it differently, just, I guess, if we think about the guy today versus 90 days ago, like, maybe how are some of the underlying assumptions different today than they were before?

Speaker Change: Okay. That's helpful. Maybe just slip another one in here I guess, maybe to ask it differently I.

Speaker Change: I guess, if we think about the guide today versus 90 days ago like maybe how are some of the underlying assumption different.

Speaker Change: Different today than they were before.

Unknown Executive: They're not changed.

Speaker Change: They're not no not much.

Speaker Change: <unk>.

Steven Lester Enders: Okay, all right, that's helpful. All right, thank you. Thank you. Your next question comes

Speaker Change: Okay, Alright, that's helpful. All right. Thank you.

Speaker Change: Thank you.

Operator: Your next question comes from the line of Kevin McVeigh of UBS. Your line is now open. Great, thank you. I don't know if you said it on the call. If you did, I missed it. How much stock did you buy back in the quarter?

Speaker Change: Your next question comes from the line of Kevin <unk> of UBS. Your line is now open.

Kevin: Great. Thank you.

Kevin: Look you said it on the call. If you did I missed it how much stock did you buyback in the quarter.

Kevin Damien McVeigh: Yeah, we didn't call it out on the call. It was a small amount, I think like $3 million. Okay, great.

Kevin: We didn't we didn't call it out on the call. It was a small amount I think like three.

Kevin: $3 million.

Unknown Executive: And then it seems like the margins really overperformed. Was that a function of, you know, maybe not being able to hire certain folks you wanted to or just, you know, better expense management? And how should we think about that, if possible, over the balance of the year? Yeah, I would say better expense management for the quarter. I mean, we've given the full year, you know, adjusted EBITDA guidance, and we'll continue to look throughout the model for efficiencies. I mean, yeah, right now we're like 39% adjusted EBITDA margins. And so, you know, still best in class and looking at additional efficiency.

Speaker Change: Okay, Great and then.

Kevin: It seems like the margins really over performed or was that a function of maybe not being able to hire shirt folks you wanted to or just.

Kevin: Better expense management, how should we think about that if possible over the balance of the year.

Speaker Change: I would say.

Speaker Change: Expense management for the quarter.

Speaker Change: We've given the full year adjusted EBITDA guidance.

Speaker Change: We will continue to look throughout the model for efficiencies I mean, right now were at like 39% adjusted EBITDA margins and so still best in class and looking at additional efficiencies.

Operator: Your next question comes from the line of Aleksandr Zukin of Wolf Research. Your line is now open.

Kevin: The next question comes from the line of Alex Zukin of Wolfe Research. Your line is now open.

Ryan Scott Krieger: Hey guys, it's Ryan Krieger. I'm for Aleks.

Kevin: Hey, guys, it's Ryan Krueger on for Alex Thanks for taking the question. So first one just to touch on margins again.

Ryan Scott Krieger: You've kind of previously talked about leaning a little bit of room for.

Ryan Scott Krieger: The potential incremental investment this year. So I'm just curious what are the top investment priority is that.

Ryan Scott Krieger: Thanks for taking the question. So first one, just to touch on margins again. You kind of previously talked about leaving a little bit of room for potential incremental investment this year. So I'm just curious, what are the top investment priorities that, you know, that optionality could be earmarked for? And then on customer cohorts, can you just give us a quick update on kind of the down market attrition that you were seeing last quarter? And how are the market cohorts performing now?

Ryan Scott Krieger: Optionality could be earmarked for and then on customer cohorts can you just give us a quick update on kind of the down market attrition that you were seeing last quarter and how the upmarket cohorts are performing now.

Unknown Executive: Yeah, so on the cost side, I mean, obviously, we've continued to spend aggressively in the R&D area as we, you know, announced the launch of Ireland this quarter. So that's one area that we're continuing to spend heavily on. And then, you know, obviously, the one that you can pull some levers on would be the sales or the marketing side of sales and marketing. And from a customer attrition standpoint, you know

Ryan Scott Krieger: Yes, so on the cost side I mean, obviously, we've continued to spend aggressively in the R&D area as we announced the launch of Ireland.

Ryan Scott Krieger: This quarter. So that's one area that we're continuing to spend heavily on and then obviously the one that you can pull some levers on would be the sales or the marketing side of the sales and marketing.

Unknown Executive: And from a customer attrition standpoint, you know, we did call out last quarter when we reported retention the impact that the small business group, which we got into really in 2020, that that had on our retention rate. We're not calling out any update on the retention rate today, other than to say, I don't and again, the small business represents three and a half percent of our overall revenue. So, you know, but I don't know that you would necessarily see anything that would have changed the impacts of small business on small business and their, you know, just traditional ways of attrition. And again, I'm talking about the...

Kevin: And from a customer attrition standpoint.

Kevin: We did call out last quarter, when we reported retention the impact.

Unknown Executive: That the small business group.

Unknown Executive: We got into really into 2020 that that had on our retention rate, we're not calling out any.

Unknown Executive: Updating the retention rate today other than to say I don't and again the small business represents three 5% of our overall revenue ish. So.

Kevin: But I don't know that you would necessarily see anything that would have.

Kevin: <unk> the impacts of the small business with the small business in there.

Kevin: Just traditional ways of attrition and again I'm talking about the.

Kevin: Small business portion of our revenue.

Operator: Your next question comes from the line of Siti Panigrahi of Mizuho. Your line is now open. Hey guys, it's Phil on ProCity. I just wanted to...

Kevin: Hello. Thank you. Your next question comes from the line of City Panic right of Mizuho. Your line is now open.

Kevin: Hey, guys. This is Phil on for Citi I, just wanted to ask it sounds like you guys are heavily investing into the product with several enhancements. What are some key features that you are working on and when can we maybe share more about them.

Phil: Yeah, and so, you know, we did roll out Gone in the fourth quarter, and we continue to put people on that. From an automation perspective, I mean, we've got several things rolling out throughout this year. But we don't disclose what we're developing or what we've done until it's actually out in the market.

Sitikantha Panigrahi: Yes, so we did rollout gone.

Phil: Fourth quarter, and we continue to put people on that.

Kevin: From an automation perspective, I mean, we've got several things rolling out throughout this year, we don't disclose what were developing <unk>, what we've done until it's actually out in the market.

Unknown Executive: But we're having a lot of success in product and really around automation. That's very important, and I believe that's a win.

Kevin: We're having a lot of success in product and really around the automation, that's very important and.

Unknown Executive: I mean, it's, you know, it's 2024. And to think that any company would buy or implement a system whereby the payroll department inputs and imports data to do the payroll is crazy.

Unknown Executive: I believe that's when it's I mean, it's it's 2024 and to think that any company would buy or implement a system whereby the payroll department inputs and imports data to do the payroll I mean, it's meaningful.

Unknown Executive: I mean, if a company wants to do that, they may as well drive to their office throwing money out the window and running every stoplight because they don't care about liability. I mean, you know, to me, it's all going to automation. That's what's important. That's how you do something consistently the same way and actually achieve value.

I mean, if a company wants to do that the Mezz will drive to their office throwing money out the window and run every shop life, because they don't care about liability.

Unknown Executive: To me, it's all going to automation.

Unknown Executive: And so that's what we're doing over in product. I did call out on the call that, you know, we did put out more product this quarter than we had the two previous quarters combined. And, you know, we're just accelerating from there. So it is an exciting time to be in product because you're able to really utilize technology today to make an impact. You know, I believe we've been at the forefront of that, and you know, we're accelerating.

Kevin: What's important is how you do something consistency the same way and actually achieve value and so.

Unknown Executive: And that's what we're doing over in product I did call out on the call that we did put out more product. This quarter. Then we had the two previous quarters combined and.

Kevin: We're just accelerating from there. So it is an exciting time to be in product because you're able to really utilize technology to day to make an impact.

Unknown Executive: Believe we been at the forefront of that and we're accelerating it.

Operator: Thank you. Your next question comes from the line of Jared Levine of TD Cowan.

Unknown Executive: Thank you. Your next question comes from the line of Scott Levine of TB Cowen. Your line is now open.

Jared Marshall Levine: Thank you my first question, how should we think about the sequential headwind to <unk> revenue growth from the annual form filings revenue recorded in <unk>.

Jared Marshall Levine: I wouldn't make any headway. No, no, I am a Q2, you know. I don't know, sequential drop versus last year, https://www.patreon.com

Jared Marshall Levine: It wouldn't be any headwinds there.

Jared Marshall Levine: No not in the Q2.

Jared Marshall Levine: Right.

Jared Marshall Levine: Yes.

Jared Marshall Levine: I mean.

Jared Marshall Levine: I don't know.

Jared Marshall Levine: Yeah.

Jared Marshall Levine: Sequential drop versus last year is that I don't know if theres any strategic.

Jared Marshall Levine: Obviously, it's factored into our outlook as far as the sequential drop you see there and then as.

Jared Marshall Levine: We probably could comment on forms filings.

Jared Marshall Levine: Your line with expectations, Yes, we have called out for the last.

Unknown Executive: 7, 8 years that, you know, over time, the percent of the quarter that your forms filings would have, the percent of revenue that they would represent over time is going to be lower and lower because we've added additional products and additional services, but we really haven't added anything to our year-end forms filings because the ACA is essentially the same service types. We added one thing to it in 2016, and that was the ACA form.

Jared Marshall Levine: Seven eight years that over time.

Unknown Executive: The percent of the quarter that Youre forms filings would have the percent of revenue that it would represent over time is going to be lower and lower because we've added additional products and additional services that we really haven't added anything to our yearend forms filing I mean, its been substantially the same search.

Unknown Executive: This types, we added one thing to it in 2016 and that was the ACI for them, but other than that it's been the exact same services since $19 98, and so it represented a larger percentage for us in revenue.

Unknown Executive: But other than that, it's been the exact same service since 1998, and so it represented a larger percentage for us in revenue during the first quarter if you go way back. And then, over time, that percentage has dropped, not because it's going down or we're charging less, but because of the other fees, services, and additional products now that just represent a larger percentage of that revenue.

Unknown Executive: During the first quarter. If you go way back and then over time that percentage has dropped not because it's going down where we're charging less but because of the other fee services and additional products now.

Unknown Executive: Represent a larger percentage of that revenue for the quarter.

Unknown Executive: Okay.

Unknown Executive: Okay. Oh, I'm in the front. Okay.

Speaker Change: Any reason why you cannot shift towards Pepam based pricing for payroll and is this something that you've considered or you anticipate considering in the future.

Unknown Executive: We don't comment on specific pricing initiatives in regard to competitive situations. All that's to say is, you know, we're looking to win every deal. And that's the mode that we're in right now. I know I have our sales organization listening to this call, and they know that. We're looking to win every deal. And so, you know, that includes all the initiatives that would go into that. So I would just stop.

Speaker Change: We don't comment on specific pricing initiatives in regard to competitive situations all of that is to say is.

Unknown Executive: We're looking to win every deal and Thats the mode that we're in right now I don't have our sales organization listening to this call and Dana that we're looking to win every deal and so.

Unknown Executive: That includes all of the initiatives that would go into that.

Speaker Change: So I'll just start with that.

Speaker Change: Okay. Thank you.

Operator: Your next question comes from the line of Jason Celino of KeyBank Capital Markets. Your line is now open.

Unknown Executive: Your next question comes from the line of Jason <unk> of Keybanc capital market. Your line is now open.

Zane Meehan: Great. Thanks for taking our question. This is Zane Meehan on behalf of Jason Celino. I wanted to ask quickly about the competitive environment. Any notable changes you're seeing there and maybe any particular strength or weakness you're seeing in any specific verticals or end markets? Thanks.

Jason Vincent Celino: Great. Thanks for taking our question. This is <unk> on for Jason Celaeno I wanted to ask quickly about the competitive environment.

Zane Meehan: Any notable changes youre seeing seeing there and maybe any particular strength or weakness you're seeing in any specific verticals or end markets.

Unknown Executive: No, I wouldn't say there's been a change in the competitive market. I mean, it's always been competitive. Always.

Speaker Change: No I Wouldnt say there has been change in competitive market I mean, it's always been competitive.

Unknown Executive: And anytime I've been asked about this I've said, it's been competitive I do think that there is.

Unknown Executive: Anytime I've been asked about this, I've said it's been competitive. I do think that there are differentiating strategies out there, and I like ours when it comes to automation and, You know, really being able to utilize the employee base to leverage that ROI, which, you know, they're the ones that care the most about their checks and what's happening to their financial situation and hours. Transcripts provided by Transcription Outsourcing, LLC. They could have been better, and I think that we've corrected course on that as we've worked with every client to move them toward that.

Unknown Executive: Differentiating strategies out there and I like ours, when it comes to automation and.

Unknown Executive: Really being able to utilize the employee base to leverage that ROI, which.

Unknown Executive: They are the ones that care, the most about their check and what's happening to.

Unknown Executive: To their financial situation and hours and health insurance and everything else individually because it impacted us so.

Unknown Executive: We've been able to leverage that we've made that shift we've been leaning into that.

Unknown Executive: Some extent our messaging around that as we made that shift.

Unknown Executive: Sure.

Unknown Executive: Could have been better and I think that we've corrected course on that is we've worked with every.

Unknown Executive: Client.

Unknown Executive: And toward that from a go to market perspective, though that's why clients kind of companies are calling us when they get to the point of how many backend people can they hired even do this work and then correct at all and so we do have the best process people are trusting it more and more as more and more companies have been deploying Betty every client's dip.

Unknown Executive: From a go-to-market perspective, though, that's why clients and companies are calling us. I mean, they get to the point of how many back-end people they can hire to even do this work and then correct it all. And so, we do have the best process. People are trusting it more and more, as more and more companies have been deploying Betty. Every client that we've brought on has deployed Betty since July of 2021. A new client that we've brought on, and they've had a lot of success with both that product as well as the suite of products that go around it as well.

Unknown Executive: Floyd Betty since July of 2021, new client that we brought on and they've had a lot of success with both that product as well as the suite of products that goes around it.

Unknown Executive: And then, you know, now we've announced Gone. I mean, the amount of time that managers in a company spend on managing PTO is just incredible in the US. Over 50% of them are approved after the PTO has already been paid. It's already been taken and paid, so people aren't managing it, and 19 states require you to pay it out when someone leaves. That's just one category, but what I'm saying is there's ROI available to our clients everywhere, and it's important that we meet them where they are currently and be able to display that throughout our sales calls. We've gotten better and better at that. As we, you know, continue to re-enhance our training, sales training programs, as well as our go-to-market strategies and lead generation.

Unknown Executive: As well and then now we've announced gone I mean, the amount of time that managers in a company spend on managing PTO is just incredible and 50% of all PTO requests in the U S over 50% of them are approved <unk>.

Zane Meehan: Great. Super helpful. Thank you.

Zane Meehan: After the PTO has already been paid.

Zane Meehan: It's already been taken and paid so people are managing it in 19 states require you to pay it out with someone leaves and so that's just one category, but what I'm, saying is there is ROI available to our clients everywhere and it's important that we meet them where they are at currently and be able to display that two other sales calls, we've gotten better and better.

Zane Meehan: At that.

Zane Meehan: As we continue to re enhance our training sales training programs as well as our go to market strategies and lead generation.

Zane Meehan: Great Super helpful. Thank you.

Operator: Your next question comes from the line of Bhavin Shah of Deutsche Bank. Please go ahead; your line is open.

Zane Meehan: Your next question comes from the line of from Shah with Deutsche Bank. Please go ahead. Your line is open.

Bhavin S. Shah: Great, thanks for taking my question and two for me. The first one is just Chad, can you maybe talk about the promotion of Amy Walker to Head of Sales at the beginning of the quarter? Can you just elaborate on this decision and any changes to the go-to-market strategy that we should expect over the coming quarters or years?

Bhavin S. Shah: Great. Thanks for taking my question two for me. The first one just Chad can you just maybe talk about the promotion of Amy Walker head of sales at the beginning of the quarter can you just elaborate on this in this series and any changes to the go to market strategy that we should expect over the coming quarters or years.

Chad R. Richison: Yeah, we've changed our go-to-market strategy. I mean, Amy was running, and Amy got promoted to run outside sales in late November. And then she took over all of sales, not long after that. And so we started shifting our go-to-market strategies, enhancing, I would say, I wouldn't say shift, I would say enhancing our go-to-market strategies, especially in regards to the outside sales group, which represents the overwhelming majority of all of our sales. And so she's had a dramatic impact on that group, and we continue to improve week after week with her.

Chad: Yeah, we changed our go to market strategy mean, Amy was running Amy got promoted to run outside sales in late November and then she took over all of sales not long not long over that and so we started shifting our go to market strategies enhancing I would say.

Chad R. Richison: Wouldn't say shift I would say enhancing our go to market strategies.

Chad R. Richison: Especially in regards to the outside sales group, which represents the overwhelming majority of all of our sales and so.

Chad R. Richison: She has had a dramatic impact on that group and we continue to improve week after week.

Chad R. Richison: With that.

Craig E. Boelte: Craig, can you maybe help quantify some of the headwinds that you guys are seeing for revenue from your strategic initiatives, whether it's less pay for control due to less payroll runs due to Betty or even some of the other client success measures that you talked about today that are kind of impacting revenue?

Speaker Change: Got it and then Craig can you just maybe help quantify some of the headwinds that you guys are seeing for revenue from your strategic initiatives, whether it's less ACR control do.

Craig E. Boelte: Let's payroll royalty Betty or even some of the other credits and Chris mentioned that you've talked about today that are kind of impacting revenue.

Craig E. Boelte: Now, I mean, you know, what we talked about was some of those less runs because of Betty. I mean, Betty's making it more efficient for clients and eliminating some of that. And, I mean, that's better for the client, you know, and in the end, that's, you know, that's really a better process for the client, a better situation for the client. So, you know, we call that out that we would start to, you know, we were starting to see those. And, you know, most of those are going to, you know, a lot of those are going to run.

Craig: Yes, I mean.

Craig E. Boelte: What we talked about with some of those less runs because of the area that is making it more efficient for clients and eliminating some of that and I mean thats better for the client and in the end net.

Craig E. Boelte: That's really a better process for decline a better situation for the client. So we call that out that we would start to we're starting to see those and most of those are going to a lot of those are going to run through the first half of this year and then.

Craig E. Boelte: Towards the back half of the year, we won't see as large of an impact.

Craig E. Boelte: And a lot of that corresponds to how we're working with our current clients as well in regards to utilization.

Craig E. Boelte: And a lot of that corresponds to how we're working with our current clients as well with regards to utilization of study.

Operator: Thank you. Our final question today comes from Daniel Jester of BMO. Your line is now open.

Craig E. Boelte: Thank you. Our final question today comes from Daniel Jester of BMO. Your line is now open.

Daniel William Jester: Great, thanks for taking my question. Maybe to revisit the sort of innovation and R&D kind of theme that came up a couple of times, I guess, you know, when you look at your customer base today, where is the least automation in the workflows? Is there any sense of where there's the easiest ROI for you to come in and offer some additional automation in the product?

Daniel William Jester: Great. Thanks for taking my question.

Daniel William Jester: Maybe to revisit the sort of innovation and R&D kind of theme that came up a couple of times.

Daniel William Jester: When you look at your customer base today.

Daniel William Jester: Where is the least automation.

Daniel William Jester: In the workflows is there any sense of where there's like the easiest ROI for you to come in and offer some additional automation.

Daniel William Jester: And the product.

Unknown Executive: There are so many places that we can go in our product and really automate full items that were multiple steps before it again takes appropriate client configuration. It takes a client's ability to have a mind to change management because it is different than what they've done before. It takes some trust because you are giving up some level of control when you turn it over to AI, and you have to prove that.

Daniel William Jester: There are so many places that we can go in our product and really automate for items that were multiple steps before it again takes appropriate client configuration. It takes our clients' ability to have a mind.

Unknown Executive: A change management because it is different than what they've done before it takes some trust because you are giving up some level of control and you turn it over to.

Unknown Executive: AI and do you have to prove that out and so there are certain ways that you can work with clients and help prove that out and so it's everywhere I mean in answer to your question it's everywhere.

Unknown Executive: And so there are certain ways that you can work with clients and help prove that out. And so it's everywhere. I mean, in answer to your question, it's everywhere.

Unknown Executive: And we've been working on that. You know, I've been working over in product, and I've been having an exciting time doing it. And, you know, the world's our oyster right now in regards to that. I believe we've always been the leader in what's new and innovation. And, you know, we have opportunities to continue to accelerate that, especially now that we're all focused on the same model from a product development perspective

Unknown Executive: And we've been working on that I have been working over in product and we've been having an exciting time doing it and the world is our oyster right now in regards to that I believe we've always been the leader in what's new and innovation and we have opportunities to continue to accelerate that especially now that.

Unknown Executive: We're all focused.

Unknown Executive: In the same model from a product development perspective.

Unknown Executive: Okay, great. And then I apologize if this came up earlier; I joined a little bit late, but on sort of the globalization of Paycom, I think you're in four countries from a payroll perspective now. Is there any way that you can sort of quantify the amount of penetration that you've gotten? And I know Ireland is brand new, but can you help us think about sort of what the uptake has been thus far as you go more global? Or is there a certain, you know, threshold that you need to see before you'll be able to share some more context with us about that opportunity? Thanks.

Speaker Change: Okay, Great and then I apologize if this came up earlier I joined a little bit late but.

Unknown Executive: On sort of the globalization of pay Com I think youre at four countries from a payroll perspective now.

Unknown Executive: Is there any way that you can sort of quantify the amount of penetration that you've gotten in I know Ireland is brand new but.

Unknown Executive: Can you help us think about sort of what the uptake has been thus far as you've gone more global or is there a certain.

Unknown Executive: Threshold that you need to see before you'll be able to share some more context with us about that opportunity. Thanks.

Unknown Executive: Sure, and so I'm going to separate two things. First, I would want to separate our global HCM product from the native payroll developments that we've done. So from a global HCM product perspective, we have clients that are utilizing that product globally on the HCM side that are not running international payroll through our system, but they're getting value through the HR side of our system by using our global HCM product. Now, in regards to that, you also have clients that are utilizing the native payroll embedding that we have in the countries of Canada, Mexico, the UK, and now Ireland.

Speaker Change: Sure. So separate two things first I would want to separate our global HCM product from the <unk>.

Unknown Executive: <unk> payroll developments that we've done so from a global HCM product perspective, we have clients that are utilizing that product.

Unknown Executive: Globally on the HCM side that are not running <unk>.

Unknown Executive: International payroll through our system, but they are getting value through the HR side of our system by using our global HCM product now in regards to that you also have clients that are utilizing the native payroll and Betty that we have and the countries of.

Unknown Executive: I believe we put out Canada in July of last year, maybe. And so that was the very first one that we did. And, you know, I would say, well, inside of 12 months, we've completed three more. We didn't start with the easiest, you know. You know, and there's still a couple of hard ones out there. I can tell you that we are developing the areas where our US-based clients have the largest number of employees and then kind of as we look internationally.

Unknown Executive: Canada, Mexico, the UK and now Ireland I believe we've put out Canada when I say July of last year, maybe and so that was the very first one that we've done.

Unknown Executive: I would say well inside of 12 months, we've completed three more.

Unknown Executive: We didn't start with the easiest.

Unknown Executive: And there are still a couple of hard ones out there I can tell you that we are developing the areas, where our U S. Based clients had the largest number of employees and then kind of as we look internationally.

Unknown Executive: You know, we are able to really look at, if you look at it as a whole, we believe that, you know, 20 or so countries, I believe it's actually around 18 represent, you know, over 80% of the opportunity available to us. And so we've continued to focus on.

Unknown Executive: We are able to really look at if you look at it from a whole we believe that.

Chad R. Richison: Thank you. This concludes the question and answer portion of today's call. I will now turn the call back to Mr. Chad Richison for closing remarks.

Unknown Executive: 20, or so countries I believe it's actually around 2018 represent over.

Chad R. Richison: Over 80% of the opportunity available.

Chad R. Richison: To us and so we've continued to focus on those.

Chad R. Richison: Thank you. This concludes the question and answer portion of today's call I will now turn the call back to Mr. Chad Richison for closing remarks.

Chad R. Richison: All right, thank you for joining our call today. I do want to acknowledge and celebrate our 10th anniversary as a publicly traded company. I want to thank all employees who have contributed to our success and set us up for the next decade of innovation and growth. Over the next couple of months, we'll be attending the Needham Conference in New York on May 14th, the Jeffries Conference in Newport on May 29th, and presenting at the Baird Conference in New York on June 12th. We look forward to engaging with many of you again soon. Operator, you may end the call. Thank you all.

Chad R. Richison: Alright, Thank you for joining our call today I do want to acknowledge and celebrate our 10th anniversary as a publicly traded company.

Chad R. Richison: I want to thank all employees, who have contributed to our success and set us up for the next decade of innovation and growth.

Chad R. Richison: Over the next couple of months, we'll be attending the Needham Conference in New York on May 14th the Jefferies Conference in New <unk> on May 29, and presenting at the Baird Conference in New York on June six we look forward to engaging with many of you again soon operator, you may end the call. Thank you all.

Operator: Thank you. This concludes today's conference call. You may now disconnect.

Speaker Change: Thank you. This concludes today's conference call you may now disconnect.

Operator: [music].

Operator: Thank you all.

Operator: Yes.

Q1 2024 Paycom Software Inc Earnings Call

Request a DemoDemo

PAYC

Paycom Software

Earnings