Q2 2024 Paycom Software Inc Earnings Call
Cameron: Good afternoon. Thank you for attending the Paycom Software second quarter 2024 quarterly results conference call. My name is Cameron, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the call over to your host, James Samford, head of investor relations. You may proceed.
Good afternoon, and thank you for attending repay Com software second quarter 2024 quarterly results Conference call. My name is Cameron and I will be your moderator for today.
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end I would now like to pass the conference over to your host James Samford head of Investor Relations You May proceed.
James Samford: Thank you, and welcome to Paycom's earnings conference call for the second 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 current expectations and subject to risks and uncertainty.
Speaker Change: Thank you and welcome to <unk> earnings Conference call for the second quarter of 2020 for 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 $19 95.
Speaker Change: These forward looking statements represent our outlook only as of the date of this conference call.
Speaker Change: While we believe any forward looking statements made on this call are reasonable actual results may differ materially because the statements are based on the current expectations and subject to risks and uncertainties.
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.
Speaker Change: These risks and uncertainties are discussed in our filings with the SEC, including our most recent annual report on Form 10-K.
Speaker Change: If you 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: 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. I will now turn the call over to Chad Richison, Paycom CEO and President.
Speaker Change: 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.
Speaker Change: We use these non-GAAP financial measures to review and assess our performance and for planning purposes, a reconciliation schedule showing GAAP versus non-GAAP results is included in the press release that we issued after the close of the market today and is available on our website at investors <unk> Com Dot com.
Speaker Change: I will now turn the call over to Chad Richison, <unk>, CEO and President Chad.
Chad R. Richison: Thanks, James, and thank you to everyone joining our call today. I'll focus my comments on the progress we are making on our 2024 initiatives, and then I'll turn it over to Craig, who will review our financials and guidance before taking questions. This year we remain focused on providing world-class service to our clients, solidifying client ROI achievement, and deepening our automation capabilities through product innovation. I'm very pleased with the progress we are making on these client-focused initiatives as they are resonating across our client base.
Chad R. Richison: Thanks, James and thank you to everyone joining our call today I'll focus my comments on the progress we are making on our 2024 initiatives and then I'll turn it over to Craig who will review, our financials and guidance before taking your questions.
Speaker Change: This year, we remain focused on providing world class service to our clients solidifying client ROI achievement and deepening our automation capabilities through product innovation.
Speaker Change: I'm very pleased with the progress we're making on these client focused initiatives as they are resonating across our client base as a result of our initiatives our client usage metrics in our net promoter score are up and trending positively.
Chad R. Richison: As a result of our initiatives, our client usage metrics and our net promoter score are up and trending positively. Beyond that, I'm very pleased with our achievements on the product front. We continue to lead the industry in automation, and our clients consistently confirm this view.
Speaker Change: Beyond that I am very pleased with our achievements on the product front, we continue to lead the industry in automation our clients consistently confirm this view, we continue to eclipse our functionality with even greater automation as we rapidly moved towards full solution automation.
Chad R. Richison: We continue to eclipse our functionality with even greater automation as we rapidly move towards full solution automation. The enhancements we made to our development processes at the end of 2023 enabled us to transform our solutions even faster. Year-to-date, we have more than doubled our development productivity rates and implemented functionality for our clients that eliminates redundant payroll and HR work through automation and employee use. We are rapidly disrupting the industry by delivering a fundamentally differentiated value proposition for our clients, which ultimately results in a better employee experience. We are focused on continuing to improve the most automated solution in the industry.
Speaker Change: The enhancements, we made to our development processes at the end of 2023 enabled us to transform our solutions even faster.
Speaker Change: To date, we have more than doubled our development productivity rates and implemented functionality for our clients that eliminates redundant payroll and HR work through automation and employee usage, we are rapidly eclipsing the industry by delivering our fundamentally differentiated value proposition for our clients.
Speaker Change: Which ultimately results in a better employee experience, we are focused on continuing to automate the most automated solution in the industry.
Chad R. Richison: Two examples of automation in our industry are Betty and Gong. Every month, millions of checks are processed directly by employees using Betty, delivering our clients measurable ROI through this truly unique solution. One example is an existing client who has been with us for six years.
Speaker Change: Two examples of automation in our industry are Betty and gone.
Speaker Change: Every month millions of checks or process directly by employees using Betty delivering our clients measurable ROI through this truly unique solution. One example is an existing client who has been with US for six years. This is a 2500 employee company that recently adopted Betty since allowing their employees.
Chad R. Richison: This is a 2500 employee company that recently adopted Betty. Since allowing their employees to do their own payroll, they have reduced their payroll team by half, going from a process that took roughly four days before Betty to merely hours with it. Betty continues to evolve and raise the bar as we add more functionality and connections to solve complex decisioning, and we are seeing increased inbound inquiries from prospective clients. Gone, the industry's first fully automated time-off solution, was recently recognized as a GLOBE award winner for transforming the time-off process. It connects highly complex, traditionally disparate systems and leverages decision and logic to automatically approve, deny, or warehouse employee time off requests. Time off decisions are a hassle for everyone within an organization unless you use the word gone.
Speaker Change: <unk> to do their own payroll they reduced their payroll team by half going from a process that took roughly four days before Betty to merely hours with Betty Betty continues to evolve and raise the bar as we add more functionality and connections to solve complex decision and we are seeing.
Speaker Change: <unk> inbound inquiries from prospective clients.
Speaker Change: Gone the industry's first fully automated time off solution was recently recognized as a global award winner for transforming the time off process.
Speaker Change: <unk> highly complex traditionally disparate solutions and Leverages decisioning logic to automatically approved deny or warehouse employee time off requests.
Speaker Change: Time off decisions or a hassle for everyone within an organization unless you use gone.
Chad R. Richison: Thanks to GON, employees get immediate decisions, and managers gain back time and increase scheduling visibility. HR and payroll no longer have to track down managers to verify indecision requests, and gone significantly reduces after-the-fact liabilities and related costs. The C-suite benefits from increased confidence in operations and resource management, driving improved productivity, and reducing liability. We have a retail client with over 100 stores where each manager's controlled time off request is different.
Speaker Change: Thanks to gone employees get immediate decisions and managers gained back time and increased scheduling visibility HR and payroll no longer have to track down managers to verify and decision requests and gone significantly reduces after the fact liabilities and related costs.
Speaker Change: The C suite benefits from increased confidence in operations and resource management, driving improved productivity and reducing liability.
Speaker Change: We have a retail client with over 100 stores, where each managers control time off requests differently. The client enabled gone and built unique roles per store to ensure each manager was in control of their appropriate coverage now these managers no longer need to take direct action on request and when the payroll teams prepping.
Chad R. Richison: The client enabled GON and built unique rules per store to ensure each manager was in control of their appropriate coverage. Now these managers no longer need to take direct action on requests, and when the payroll team's prepping payroll, they've eliminated the need for all follow-up.
Speaker Change: Payroll they've eliminated the need for all follow ups their payroll manager stated gone to Bettie to the next level since implementing gone. This client is automated over 1000 time off decision spring hours of Nonproductive time, I'm very excited about gone and its ability to streamline time offered.
Chad R. Richison: Their payroll manager stated, GON took Betty to the next level. Since implementing GON, this client has automated over 1,000 time off decisions, saving hours of nonproductive time. I'm very excited about GON and its ability to streamline time off requests for businesses across the globe. Through Solution Automation, we are helping our clients eliminate decision fatigue across the entire organization, from the C-suite to HR and from managers to employees. This, in turn, creates better employee retention and engagement for all organizations. We are meeting the expectations of today's employees. And once they've experienced Paycom, they don't wanna go backwards in technology.
Speaker Change: Quest for the businesses across the globe.
Speaker Change: Third solution automation, we are helping our clients eliminate decision fatigue across the entire organization from the C suite to HR and for managers to employees. This in turn creates better employee retention and engagement for all organizations. We are meeting the expectation of today's employees.
Speaker Change: And once they've experienced pay com. They don't want to go backwards in technology. In fact, we are seeing more and more returning clients is both user buyers and employees are missing the automation that is lacking in disparate and antiquated competitor solutions they had deployed at.
Chad R. Richison: In fact, we are seeing more and more returning clients as both user buyers and employees are missing the automation that is lacking in disparate and antiquated competitor solutions they have deployed. At the end of the day, the best product will win, and we are furthering our own product. We continue to leverage AI across a wide variety of areas within our organization. We believe our AI approach toward full solution automation will continue to deliver even stronger ROI, value, and functionality for our clients. On the international front, we continue to make meaningful progress in the geographies that we rolled out in the last 12 months. Betty is now available for employees in Canada, Mexico, Ireland, and the UK.
Speaker Change: At the end of the day, the best product will win and we are furthering our product advantage.
Speaker Change: We continue to leverage AI across a wide variety of areas within our organization. We believe our AI approach toward full solution automation will continue to deliver even stronger ROI value and functionality for our clients.
Speaker Change: On the international front, we continue to make meaningful progress in the geographies that we rolled out in the last 12 months that is now available for employees in Canada, Mexico, Ireland and the UK, we continue to win new clients with domestic and foreign employees. Thanks to our investments in our global HCM product.
Chad R. Richison: We continue to win new clients with domestic and foreign employees thanks to our investments in our global HCM product and our native international payroll. On the sales side, we are seeing strong momentum. Our new outside sales reps are winning more deals earlier than ever before, and we've sold significantly more units in 2024 than we did this same time last year. Just this month, we had our top sales week in company history.
Speaker Change: And our native international payroll.
Speaker Change: On the sales side, we are seeing strong momentum our new outside sales reps are winning more deals earlier than ever before and we sold significantly more units. In 2024, then we did the same time last year.
Speaker Change: Just this month, we had our top sales week in company history, Celsis energized and last week, we added our largest sales class of new reps, placing 67 sales reps in the field across the country.
Chad R. Richison: Sales is energized, and last week we added our largest sales class of new reps, placing 67 sales reps in the field across the country. I'm excited about the enthusiasm across our sales division heading into the back half. To sum up, I'm pleased with the progress we are making with our product strategy and with our strategic initiatives. The investments we are making in 2024 and our focus on client value achievement are designed to deliver long-term value to our clients and their employees, which will, in turn, deliver value to Paycom and its stockholders. With that, let me turn it over to Craig. Craig
Speaker Change: I'm excited about the enthusiasm across ourselves division heading into the back half of the year.
Speaker Change: To sum up I'm pleased with the progress we are making with our product strategy and with our strategic initiatives.
Speaker Change: The investments we are making in 2024 and our focus on client value achievement are designed to deliver long term value to our clients and their employees, which will in turn deliver value to pay common stockholders with that let me turn it over to Craig Craig.
Craig: Thanks, Chad. Before I review our second quarter 2024 results and our outlook for the third quarter and full year 2024, I'd like to say a few words about my future plans here at Paycom. I joined this incredible company nearly 19 years ago and had the privilege of shepherding the company from a few million dollars in revenue to one approaching $2 billion in revenue. It has been a career that has surpassed all of my dreams, and I want to thank Chad for bringing me in as a partner in this journey.
Craig: Thanks, Chad before I review, our second quarter 2024 results and our outlook for the third quarter and full year 2024, I'd like to say a few words about my future plans here at <unk> com.
Craig: Joining this incredible company nearly 19 years ago and had the privilege of shepherding the company from a few million dollars of revenue to one approaching $2 billion in revenues.
Speaker Change: It has been a career that has surpassed all of them aren't dreams and I want to thank Chad for bringing me in as a partner in this journey.
Craig: As a new grandfather, it is time for me to prepare for my next chapter, and I am announcing my plan to retire from my role as CFO sometime in the next 9-12 months. After that, I expect to remain with Paycom in an advisory role. With that, let's dig into Q2 results by reminding everyone that my comments related to certain financial measures will be on a non-GAAP basis. Second quarter revenue of $438 million came in at the top end of our range and was up 9% over the comparable prior year period.
Speaker Change: As the new grandfather. It is time for me to prepare for my next chapter and I am announcing my plan to retire from my role as CFO sometime in the next nine to 12 months and after that I expect to remain with pay com in an advisory role.
Craig: Within total revenues, recurring revenue was $430 million for the second quarter of 2024, representing 98% of total revenues for the quarter and growing 9% from the comparable prior year period. Gap net income in the quarter was $68 million, or $1.20 per diluted share, based on approximately 56.8 million shares. Non-gap net income for the second quarter was $92 million, or $1.62 per diluted share.
Speaker Change: With that let's dig into Q2 results by reminding everyone that my comments related to certain financial measures will be on a non-GAAP basis.
Speaker Change: Second quarter revenue of $438 million came in at the top end of our range and was up 9% over the comparable prior year period.
Speaker Change: Within total revenues recurring revenue was $430 million for the second quarter of 2024, representing 98% of total revenues for the quarter and growing 9% from the comparable prior year period.
Speaker Change: GAAP net income in the quarter was 68 million or $1 20 per diluted share based on approximately $56 8 million shares non-GAAP net income for the second quarter was $92 million or $1 62 per diluted share second.
Craig: Second quarter adjusted EBITDA of nearly $160 million, or 36.5% margin, was better than expected primarily due to expense discipline in the quarter. We continue to aggressively invest in areas of AI, automation, international expansion, and our value proposition for the client. Adjusted R&D expense was $55 million in the second quarter of 2024, or 14% of total revenue. Adjusted total R&D costs, including the capitalized portion, were $81 million in the second quarter of 2024, compared to $61 million in the prior year period. We are building more automation on the most automated platform in the industry, which should continue to distance us from the rest of the competition.
Speaker Change: Second quarter, adjusted EBITDA of nearly $160 million or <unk> 36, 5% margin was better than expected primarily due to expense discipline in the quarter.
Speaker Change: We continue to aggressively invest in areas of AI automation international expansion and our value proposition for the client.
Speaker Change: Adjusted R&D expense was $55 million in the second quarter of 2024 or 14% of total revenues adjusted total R&D costs, including the capitalized portion were $81 million in the second quarter of 2024 compared to $61 million in the prior year period, we are building more automation.
Speaker Change: The most automated platform in the industry, which should continue to distance us from the rest of the competition.
Craig: For Q3 and full year 2024, we anticipate our effective income tax rates to be approximately 28% and 23%, respectively, on a gap basis. We estimate our Q3 and full year 2024 non-GAAP effective tax rate to be 26%. For the remainder of 2024, we expect stock-based compensation expense to be approximately $30 million per quarter. Turning to the balance sheet, we ended the second quarter with a very strong balance sheet, including cash and cash equivalents of $346 million and no debt.
Speaker Change: For Q3, and full year 2024, we anticipate our effective income tax rates to be approximately 28% and 23% respectively. On a GAAP basis, we estimate Q3 and full year 2024, non-GAAP effective tax rate to be 26%.
Speaker Change: For the remainder of 2024, we expect stock based compensation expense to be approximately $30 million per quarter.
Speaker Change: Turning to the balance sheet, we ended the second quarter with a very strong balance sheet, including cash and cash equivalents of $346 million and no debt.
Craig: The average daily balance of funds held on behalf of clients was approximately $2.4 billion in the second quarter of 2024, up 8% year over year. However, during the second quarter and into July, the valuation of our stock dropped below that of slower growing and lower margin peers. We opportunistically took advantage of the low stock price to repurchase approximately 790,000 shares between April 1st and July 31st for $120 million. Since July 1st of last year, we have repurchased approximately 2.3 million shares, representing approximately 4% of total shares outstanding. Nearly 2 million of those have been repurchased since November of last year.
Speaker Change: The average daily balance of funds held on behalf of clients was approximately $2 4 billion in the second quarter of 2024 up 8% year over year.
Speaker Change: During the second quarter and into July the valuation of our stock drop below that of slower growth and lower margin peers. We opportunistically took advantage of the low stock price to repurchase approximately 790000 shares between April one and July 31 for 120.
Speaker Change: <unk>.
Speaker Change: Since July one of last year, we have repurchased approximately two 3 million shares representing approximately 4% of total shares outstanding.
Speaker Change: Nearly $2 million of that has been repurchased since November of last year.
Craig: Earlier this week, we increased our buyback authorization to $1.5 billion and extended it for another two-year period. We will continue to be opportunistic buyers of our stock if and when we see dislocations in valuation relative to our peers. During the second quarter of 2024, 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-September. Now, let me turn to Guy.
Speaker Change: Earlier this week, we increased our buyback authorization to $1 5 billion and extended it for another two year period, we will continue to be opportunistic buyers of our stock if and when we see dislocations in valuation relative to our peers.
Speaker Change: During the second quarter of 2024, we paid over $21 million in cash dividends and earlier. This week. The board approved our next quarterly dividend of <unk> 37, five per share payable in mid September.
Speaker Change: Now, let me turn to guidance, we continue to execute on several strategic initiatives and remain on plan to achieve the 10% growth and 39% adjusted EBITDA margin that we guided to at the beginning of this year for fiscal 2024, now that we have more visibility into the remainder of the year, we are narrowing our.
Craig: We continue to execute on several strategic initiatives and remain on plan to achieve the 10% growth and 39% adjusted EBITDA margin that we guided to at the beginning of this year. For fiscal 2024, now that we have more visibility into the remainder of the year, we are narrowing our revenue guidance range, with revenue expected to be in the range of $1,860,000,000 to $1,875,000,000, or approximately 10% year-over-year growth at the midpoint of the range.
Speaker Change: Revenue guidance range with revenue expected to be in the range of $1.860 billion to $1 billion $875 million or approximately 10% year over year growth at the midpoint of the range.
Craig: We are raising our expected adjusted EBITDA range to $727 million to $737 million, representing an adjusted EBITDA margin of approximately 39% at the midpoint of the range. For the third quarter of 2024, we expect total revenues in the range of $444 million to $449 million, representing a growth rate over the comparable prior year period of approximately 10% at the midpoint of the range. We expect adjusted EBITDA for the third quarter in the range of $155 million to $159 million, representing an adjusted EBITDA margin of approximately 35% at the midpoint of the range.
Speaker Change: We are raising our expected adjusted EBITDA range to 727 million to $737 million, representing an adjusted EBITDA margin of approximately 39% at the midpoint of the range.
Speaker Change: For the third quarter of 2024, we expect total revenues in the range of 444 million to $449 million, representing a growth rate over the comparable prior year period of approximately 10% at the midpoint of the range. We expect adjusted EBITDA for the third quarter in the range of 155 million to one.
Speaker Change: $159 million, representing an adjusted EBITDA margin of approximately 35% at the midpoint of the range. We have a strong balance sheet strong free cash flow and significant liquidity, we will continue to invest in areas that will bolster our competitive position and strengthen our client ROI through automation and <unk>.
Craig: We have a strong balance sheet, strong free cash flow, and significant liquidity. We will continue to invest in areas that will bolster our competitive position and strengthen our client ROI through automation and the user experience. With that, we will open the line for questions. Operator?
Speaker Change: Is your experience with that we will open the line for questions operator.
Operator: Thank you. We will now begin the Q&A session. If you would like to ask a question, please press star one on your telephone keypad. If, for any reason, you would like to remove that question, press star two. Again, to ask a question, press star one. And as a reminder, if you're using a speakerphone, please pick up your handset before asking a question. And in the interest of time, we ask that you please limit yourself to one question. And we will pause here briefly as questions are registered. The first question is from the line of Raimo Lenschow with Barclays.
Speaker Change: Thank you we will now begin the Q&A session. If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Any reason you would like to remove that question press Star two again to ask a question press Star one and as a reminder, if you are using a speakerphone. Please pick up your handset before asking any questions in the interim.
Speaker Change: Just a time, we ask that you. Please limit yourself to one question and we will pause briefly as questions are registered.
Raimo Lenschow: The first question is from the line of Raimo <unk> with Barclays.
Speaker Change: Proceed.
Raimo Lenschow: Hey, thank you. And Craig, all the best. Well, I guess we still have a few quarters.
Raimo Lenschow: Hey, Thank you.
Raimo Lenschow: And Greg all the best well I guess, we still have a few quarters.
Raimo Lenschow: My question is around Betty.
Chad R. Richison: My question is around Betty. Chad, in your prepared remarks, you talked about increased inbound. Can you talk a little bit about the perception that, you know, Betty now has in your installed base? I'm thinking about the whole installed base and how it's turning into like a sales tool as the industry is understanding the benefit of that for its own business, but also for the employee base. Thank you.
Chuck: Chuck in your prepared remarks, you talked about increased inbound like can you just talk a little bit about the the perception that.
Speaker Change: Back to you now have in your installed base.
Speaker Change: Thinking about the whole installed base and how it's turning into like.
Speaker Change: <unk> two will add the industry.
Speaker Change: Understanding the benefit of that for its own business, but also for the employee base. Thank you.
Chad R. Richison: Sure, and so, new clients, and everyone, by the way, everybody does get a question and a follow-up. He didn't necessarily state that on the call, but Raimo, what's happening with new clients coming in, that's why they're coming in to use it. I mean, they're coming to Paycom to actually utilize Betty.
Speaker Change: Sure and so new clients, there and everyone by the way everybody does get a question and a follow up you didn't necessarily state that on this call.
rima: But rima, what's happening with new clients coming in Thats why they are coming in to use I mean, they are coming to pay com to actually utilize Betty I did talk about a client on the call who had been with us for six years.
Chad R. Richison: I did talk about a client on the call who has been with us for six years. They have 2,500 employees. They implemented Betty, and, you know, they were able to reduce their payroll department by half, and it went from four days for them working on payroll to, you know, mere hours. And so, you know, within our client base, we continue to meet clients where they are today as we work our client value achievement strategy to help them maximize the most ROI with where they are today. And then, as far as new clients coming on board, there's been no change.
rima: 2500 employees, they implemented Betty and.
rima: They were able to reduce their payroll department by half and it went from four days for them working on payroll to.
rima: Mere hours and so within our client base, we continue to meet clients, where they are today as we work our client value achievement strategy to help them maximize the most ROI with where they are today and then as far as new clients coming on it's been no change I did talk about on the call how we've had.
rima: More unit sales this year and what we have in the past and so our sales staff is doing really good in our go to market as well.
Raimo Lenschow: Okay, perfect. And if I now that I'm allowed to follow up, like, may I squeeze?
Speaker Change: Okay, Perfect and then now that Im allowed follow up.
Speaker Change: Can I ask why didn't you.
Speaker Change: <unk> talked about the sales reps that were added this quarter.
Speaker Change: With number how do you think about that cadence on the hiring side, especially on the <unk>. If you think about what you're seeing in your installed base. When you think about the economy like how do you think that will progress. Thank you and congrats from me.
Chad R. Richison: Yeah, so we're better staffed in sales than we've been in probably five or six years. And what I mean by that is having all the teams with the sales manager in them fully staffed, and then just the number of staff that we have on each. And so, you know, Amy Vickroy took over sales, and she had been with us for 14 years prior to that. She started taking over sales in April. And since that time, it has really put them in a position, us in a position on the sales side where we're strong from a staffing perspective, and again, our sales tactics and techniques to be able to go out there and sell more as we're differentiated in the
Speaker Change: Yes, so we are better staffed in sales and what we've been in probably five or six years and what I mean by that is having.
Speaker Change: Paul.
Speaker Change: Teams with the sales manager in it fully staffed and then just the number of staff that we have on each and so.
Amy Vickroy: Amy Vickroy took over sales and had been with US for 14 years prior to that she took over sales in April and since that time has really got them in a position us in a position on the sell side where.
Amy Vickroy: We're strong from a staffing perspective and again R.
Speaker Change: Our sales tax tactics and techniques to be able to go out there and even sell more as we are differentiated in the industry.
Samad Saleem Samana: The next question is from the line of Samad Samana with Jeffreys. You may proceed.
Speaker Change: The next question is from the line of some modest Romano with Jefferies. You May proceed.
Craig: Thank you. And Craig, congratulations on becoming a new grandfather. It's exciting news. So maybe, maybe I'll start with you, or for either one of you. But just as I think about the narrowing of the guidance outlook, what assumptions changed, or what did you experience?
Samantha Romano: Alright, thank you.
Craig: Craig Congrats on becoming and your grandfather sat in mute.
Craig: Maybe I'll start with that with you Brian.
Craig: Brian I wanted to do but just as I think about the narrowing of the guidance outlook, what assumptions changed or what did you experience.
Speaker Change: And what are you tweaking to get to that new narrow range isn't a change in new business assumption is it a change in <unk> bookings and retention just help us understand the mechanics of that.
Craig: And what are you tweaking to get to that new narrow range? Is it a change in new business assumptions? Is it a change in CRR bookings, or retention? Just help us understand the mechanics of the change going forward, especially considering that 2Q came in a little bit better than it was.
Speaker Change: The change going forward, especially considering that you came in a little bit better than you expected.
Chad R. Richison: Yeah, I mean, as we came into the year, our plan had a wide range of initiatives and opportunities. And, you know, the high range had assumptions depending on some timing and the magnitude of some of those initiatives. So, you know, some of it was timing, and now that we have more visibility during the year and it's progressed, we're going to narrow that range.
Speaker Change: Yes, I mean, as we came into the year I mean, our plan had a wide range of initiatives and opportunities.
Speaker Change: The high range had assumptions, depending on some timing and the magnitude of some of those initiatives. So.
Samantha Romano: Of it was timing and now that we have more visibility during the year and it's progressed we were.
Speaker Change: We're going to narrow that range.
Samad Saleem Samana: And then maybe, Chad, if I could follow up on Raimo's question about the sales hiring, and you talked about capacity, should we think about that as maybe a leading indicator, the hiring that you just did in terms of what you're seeing in the market, either opportunity increasing, and you hiring behind that? Or is this hiring in anticipation of just maybe helping us understand? Let's have a signal that suggests, especially because we haven't really gotten an update on office opening disclosures in a while, and this seems like a pretty important development.
Speaker Change: Understood and then maybe Chad if I could follow up on <unk> question about sales hiring and you're talking about capacity should we think about that as maybe a leading indicator of the hiring that you guys did in terms of what youre seeing in the market either opportunity increasing in your hiring.
Speaker Change: Behind that or is this hiring in anticipation of just maybe help us understand what type of signal that suggests, especially because we havent really gotten an update on an office opening disclosures in a while and it seems like.
Speaker Change: A pretty important development.
Chad R. Richison: Yeah, I mean, I would say that, you know, I've always felt like we've had the best sales organization. I think having the best products is part of that. You know, we focused very hard on sales this year. We were very focused on it and what we wanted to accomplish with it. And, you know, being fully staffed does allow us to get the opportunity to be able to open offices again when it's right for us.
Chad R. Richison: Yes, I mean, I would say that I've always felt like we've had the best sales organization I think having the best products part of that.
Speaker Change: We focus very hard on sales. This year, we were very focused on it and what we wanted to accomplish with it and.
Speaker Change: Being fully staffed does allow us to get to the opportunity to be able to open up offices again, when it's right for US right now, we're really focused on unit growth and sales skills development.
Chad R. Richison: Right now, we're really focused on unit growth and sales skills development. You know, in second quarter, we sold 24% more units than what we had sold in second quarter the previous year. That's just one data point that Amy just took over in April.
Speaker Change: Second quarter, we sold 24 for 24% more units than what we had sold second quarter the previous year.
Speaker Change: One data point that Amy just took over in April so.
Mark Steven Marcon: So, you know, that's helping, and being staffed really helps with that. You know, the more people that you're staffed with, the more you're going to sell. And so we're having a lot of success right now with the sales group, and staffing is a big part of it.
Amy Vickroy: That's helping and being staffed really helps with that.
Speaker Change: The more people that you are staffed with the more youre going to sell and so we're having a lot of success right now with the sales group and staffing as a big part of that.
Craig: The next question is from the line of Mark Marcon with Baird. You may proceed.
Mark Steven Marcon: Next question is from the line of Mark <unk> with Baird You May proceed.
Mark Steven Marcon: Hey, good afternoon, and thanks for taking my questions. And let me add my congratulations, Craig. That's huge in terms of being a grandpa. That really is.
Mark: Hey, good afternoon, and thanks for taking my questions and let me add my congrats Craig.
Speaker Change: Huge in terms of being your grandpa.
Craig: Thank you.
Chad R. Richison: Thank you. I wanted to ask you a little bit about, you know, some of the investments that you're making, Chad. Can you talk a little bit about, you know, the investments behind service, as well as R&D? And, you know, specifically, I'm looking at, you know, the gross margins and trying to think through, you know, you've ramped up the investments, and it sounds like the NPS scores are going up as a result. How should we think about, you know, the further pace of the investments, both in terms of cost of service, as well as R&D, and how that's going to unfold over the course of the year? And then I've got a follow-up.
Mark Steven Marcon: Wanted to ask a little bit about.
Mark Steven Marcon: Some of the investments that Youre, making Chad can you talk a little bit about.
Chad R. Richison: The investments behind service as well as R&D.
Speaker Change: Specifically I'm looking at.
Speaker Change: The gross margins and trying to think through.
Speaker Change: <unk> ramped up the investments it sounds like the NPS scores are going up as a result.
Speaker Change: How should we think about.
Speaker Change: Further pace of the investments.
Speaker Change: Both in terms of cost of service as well as R&D.
Speaker Change: And.
Speaker Change: How thats going to unfold over the course of the year and then I've got a follow up.
Craig: Now, Mark, I'll take the gross margin part of that question. You know, one thing on gross margins, like you mentioned, is headcount. But this quarter, we brought our fifth building at corporate online. And so we saw an increase in depreciation both on the building and on the equipment and furniture and fixtures that are related to that building. So part of that gross margin was the additional depreciation, which also hit other lines of depreciation in the income statement. And I'll kind of add on to that.
Speaker Change: And Mark I'll take the gross margin part of that question one thing on the gross margins like you mentioned is.
Speaker Change: Our head count, but this quarter, we brought our fifth building.
Speaker Change: Corporate online and so we saw an increase in the depreciation both on the building and on the equipment and furniture and fixtures and related to that building. So part of that gross margin was the additional depreciation which also hit other lines that appreciation in the income statement and I'll kind of add on to that.
Chad R. Richison: And I'll kind of add on to that. I mean, from a hiring perspective in operations, we're hiring. So we're open for business. We're hiring there.
Speaker Change: I mean from a hiring perspective in operations. We're hiring so we're open for business, we're hiring there and again, we only have 5% of the market. We have a differentiated product we're focused on our sales message. We're focused on our service and of course, you now have.
Chad R. Richison: And, you know, again, we only have 5% of the market. But we have a differentiated product. We're focused on our sales methods. We're focused on our service. And, of course, you know, we're heavily, heavily focused on product, which leads to our R&D expense. I know that that jumped up in there in the second quarter, but that's because we're putting out a lot of product. As I said on the call, we've put out twice as many product releases this past month than we did in January. And January was also a good month for product releases.
Speaker Change: <unk> heavily heavily focused on product, which leads to our R&D.
Speaker Change: Expense I know that that.
Speaker Change: Jumped up in there in the second quarter, but that's because we're putting out a lot of product.
Speaker Change: As I said on the call we've put out twice as much.
Speaker Change: Product release.
Speaker Change: This path past month than we did in January January was also a good month for product releases and so.
Chad R. Richison: And so, you know, we sell our product. I mean, our products are all our values derived from our clients. And so it's just very important that we're always focusing on that. We have very ambitious goals in regard to our product as well. And so, you know, but we're also mindful of our spend. And, you know, we're mindful of having quality revenue that generates a strong bottom line. And so, you know, all that's included. You know, when we go through this for what we're
Speaker Change: We sell our product I mean, our products, where all our values derived from firm from our clients and so it's just very important that we're always focusing on that and we have very ambitious goals in regard to our product as well and so.
Speaker Change: But we're also mindful of our spending.
Speaker Change: We're mindful of having quality revenue that generates a strong bottom line and so all of that included.
Speaker Change: When we go through this for what we're going to budget to spend.
Mark Steven Marcon: Great. And then it sounds like, I mean, with a 24% increase in terms of units sold so far year-to-date, is that part of the reason why we would anticipate seeing an acceleration with regard to revenue growth in Q3 relative to Q2? Just wondering how baked in that is as opposed to, you know, hoping for additional incremental sales from the new salespeople.
Speaker Change: Great and then.
Speaker Change: It sounds like I mean with the <unk>.
Speaker Change: 24% increase in terms of units sold so.
Speaker Change: So far year to date is that is that part of the reason why we would anticipate seeing.
Speaker Change: An acceleration with regards to the revenue growth in Q3 relative to Q2, just wondering how.
Speaker Change: How baked in is that.
Speaker Change: As opposed to.
Speaker Change: Hoping for additional incremental sales from the new salespeople.
Chad R. Richison: Sure, so let me correct one thing. 24% is the unit growth for the second quarter over the prior second quarter. Year-to-date, we're about 15% in unit growth. I was just making that point since Amy's taken over.
Speaker Change: Sure. So let me correct one thing 24% is the.
Speaker Change: Unit growth for the second quarter over prior second quarter year to date, we're about 15% and unit growth I was just making the point since <unk> taken over now we will say so.
Speaker Change: So far for third quarter starts July starts, which are always the largest quarter.
Speaker Change: First quarter month, as the largest revenue of any one quarter. Our July starts are up 40 or 40%.
Chad R. Richison: Now, I will say, so far, for third-quarter starts, July starts, which are always the largest of a quarter, you know, your first quarter month is the largest revenue of any one quarter. Our July starts are up 40%, you know, from a revenue perspective. And so, again, this is but one data point that, you know, it's from where we're starting. And, you know, we get to start with the best product, we get to start with the best sales training, and we get to start with the best service model. And so, for us, it's a continuation of work in our 2024 plan.
Speaker Change: Sure.
Speaker Change: From a from a revenue perspective, and so again these are about one data point, but it is from where we're starting and we get to start with the best product, we get to start with the best sales training and we get to start with the best service model and so for US. It's a continuation of work in 2024 plan into next year.
Speaker Change: Yeah.
Joshua Christopher Reilly: The next question is from the line of Joshua Reilly with the song Need Him, you may proceed.
Speaker Change: The next question is from the line of Joshua Reilly with need him you May proceed.
Chad R. Richison: Yeah, thanks for taking my question. Just wanted to understand better with the better new customer activity, but the lower, the high end of the guidance is slightly lower. How should we think about, you know, the impact of the payment, the extra run for payroll revenue coming out of the model? Has that been in line with your expectations? I just wanted to understand if there's any other impact on the high end of the guidance. Thank you.
Joshua Christopher Reilly: Yeah. Thanks for taking my question.
Joshua Christopher Reilly: Just wanted to understand better with the better new customer activity.
Speaker Change: But the lower the high end of the guidance is slightly lower.
Speaker Change: How should we think about.
Speaker Change: The impact from the payment.
Speaker Change: The extra run.
Speaker Change: For payroll runs revenue coming out of the model has that been in line with your expectation.
Speaker Change: Just wanted to understand if there is any other impact to the high end of the guidance. Thank you.
Chad R. Richison: Yeah, I would say all of the current client factors that we discussed, even, you know, at the end of 2023, those still exist today, as far as additional payroll run opportunities, and inefficiencies gained when someone uses our product correctly. But we also have many mitigating factors that, you know, we're able to gas and pull the levers on. And again, we have a lot of confidence in what's going on with both our sales organization, our service organization, and, of course, our product, which gives us confidence as we head into the end of this year and then as well as 2024.
Speaker Change: Yes, I would say all of the current client fab.
Speaker Change: Factors that we discussed even.
Speaker Change: The end of 2023.
Speaker Change: <unk> exists today as far as additional payroll run opportunities.
Speaker Change: And efficiencies gained when someone uses our product correctly and so all those factors continue to exist, but we also have many mitigating factors that.
Speaker Change: We're able to gas and pull the levers on and again, we have a lot of confidence in what's going on with both our sales organization, our service organization and of course our product.
Speaker Change: With what gives us confidence as we head into the end of this year and then as well as 2025.
Chad R. Richison: Got it. And then last quarter, you discussed getting better utilization of modules that have already been sold to customers. Any update there in terms of getting customers to maybe utilize the modules that have already been sold at a faster pace than what we've seen over the last year? Thank you.
Speaker Change: Got it and then last quarter, you discussed getting better utilization of modules that have already been sold to customers.
Speaker Change: Any update there in terms of getting customers to maybe utilize the modules that have already been sold at a faster pace.
Speaker Change: And then what we've seen over the last year.
Speaker Change: Yes.
Chad R. Richison: And so yes, you know, anytime we focus on something, we're going to have some results from that. We've been focused all year on the Client Value Achievement Strategy, which includes meeting clients where they are and helping them achieve that ROI. It's impacting our service model from a positive to a positive, and it's impacting our net promoter scores. And you know, those are commitments that we're not going to be backing off.
Speaker Change: And so yes anytime we focus on something we're going to have some results from that we've been focused all year on the client value achievement strategy, which does include meeting clients, where they are and helping them achieve.
Speaker Change: That ROI is impacting our service model from a path to a positive and it's impacting our net promoter scores and those are commitments that we're not going to be backing off.
Steven Lester Enders: The next question is from the line of Steven Enders with Citi; you may proceed.
Speaker Change: The next question is from the line of Stephen Andrews with Citi. You May proceed.
Chad R. Richison: Hey, great. Thanks for taking the question there. I guess maybe just kind of pull it on the last couple of lines of questioning just how was the back-to-base motion kind of trending? And I guess, you know, on the back of what sounds like solid new units coming on board, just how are you feeling about that back-to-base motion and kind of what that's implying for the Graph Outlook versus, you know, versus what you were expecting before?
Stephen Andrews: Hey, great. Thanks for thanks for taking my question there I guess, maybe just kind of going on the last.
Speaker Change: A couple of lines of questioning just.
Stephen Andrews: How does kind of the back to base notion kind of trend down and I guess on the back of what sounds like solid new new units coming on board just how do you. How are you feeling about that back to base motion and kind of what that is implying four.
Stephen Andrews: The graph outlet versus versus what you were expecting before.
Chad R. Richison: Yeah, you know, my opinions on that haven't really changed. I mean, it's very important for us to meet each client where they are and make sure that they're utilizing the product to get the full value of it. And, you know, we're still very focused on that. I mean, if you look throughout the history of Paycom, we've sold a lot of products.
Speaker Change: Yes.
Speaker Change: My opinions on that Hasnt really changed I mean, it's very important for us to meet each client where they're at and make sure that they are utilizing the product to get the full value of it and we're still very focused on that I mean, you look throughout the history of <unk> Com, we sold a lot of product and it's very important that clients are utilizing it the right way to get wrong.
Speaker Change: Got out of it Theres a lot of things. We're also working on an product and developing and releasing that also helps with that and so.
Chad R. Richison: And, you know, it's very important that clients are utilizing it the right way to get ROI out of it. You know, there's a lot of things we're also working on in product and development and releasing that also helps with that. And so, you know, it's not like we've abandoned working with clients to be able to help them purchase new modules from us that can help them drive that ROI. But we have changed the game a little bit in making sure that, you know, we're doing our part to make sure that clients are achieving the level of ROI needed for their satisfaction. And so, you know, that really hasn't changed for us as far as what we're doing throughout 2024 and what we're
Speaker Change: It's not like we've abandoned working with clients to be able to help them.
Speaker Change: Uh huh.
Speaker Change: Purchase new modules from us that can help them drive that are alive, but we have changed the game a little bit and making sure that we're doing our part to make sure that clients are achieving.
Speaker Change: Level of ROI needed for their satisfaction, and so that really hasn't changed for us as far as what we're doing throughout 2024 and what we're focused on here.
Chad R. Richison: Okay, that's, that's helpful. And then maybe there is an update on kind of a Betty penetration or, you know, adoption so far from versus the last disclosure.
Speaker Change: Okay.
Speaker Change: Helpful. And then I guess, maybe is there an update on.
Speaker Change: Kind of a buddy.
Speaker Change: Penetration or adoption.
Speaker Change: So far from Alaska.
Speaker Change: The last disclosure.
Chad R. Richison: Yeah, it continues to go up every month. I mean, you know, we're adding and again, we're adding more and more clients, and each client that starts, they're starting with greater usage than we have in the past. And so, you know, with good technology that's easy to use, usage continues to move forward. Of course, we do have a percent of our client base still that may not be receiving the full benefit that it may have to offer at this point just because it's not the right time for them or what have you, or it doesn't fit specifically with their initiatives.
Speaker Change: Yes. It continues to go up every month I mean, we're at it and again, we're adding more and more clients in each client that starts there starting with greater.
Speaker Change: Usage than we have in the past and so and those that are using it and have been using it. It continues to go up and so with good technology, that's easy to use usage continues to.
Speaker Change: To move forward.
Speaker Change: We do have a percent of our client base still that that may not be receiving the full benefit that it may have to offer at this point just because it's not the right time for them or what have you or it doesn't fit specifically where their initiatives and so those clients are meeting them, where they live and sometimes they do come on again I talked on the call about a 25.
Chad R. Richison: And so those clients were meeting them where they lived, and, you know, sometimes they do come on. Again, I talked on the call about a 2,500 employee company that, you know, finally said, yes, it did reduce their labor costs in regards to working the payroll system by half. And they went from four days of working on payroll to merely hours.
Speaker Change: 100 employee company that finally said, yes, it did reduce their labor cost in regards to working to payroll system by half and they went from four days of working on payroll to merely hours. So.
Chad R. Richison: So, you know, that's available to everyone out there. But again, we're servicing clients where they are right now today. And that's what we're focused on. And, you know, we'll move forward with clients on their timeline, not, not ours. And then when it comes to new prospects coming in, we want them to receive the full value that we have to offer so that they can achieve that ROI, which is available only through Betty.
Speaker Change: Thats available to everyone out there, but again, we're servicing clients, where they are right now today and that's what we're focused on and we'll move forward with clients on their timeline and not ours and then when it comes to new prospects coming in we want them to receive the full value that we have to offer so that they can cheat achieved at ROI, which is.
Speaker Change: Only through.
Eddie: Eddie for new clients.
Kevin Damien McVeigh: The next question is from the line of Kevin McVeigh with UBS. You may proceed. Great, thanks so much.
Kevin Damien McVeigh: The next question is from the line of Kevin McVeigh with UBS. You may proceed. Great, thanks so much.
Eddie: The next question is from the line of Kevin Mcveigh with UBS.
Speaker Change: I presume.
Kevin Damien McVeigh: Great. Thanks, so much.
Chad R. Richison: database count, you know, from that perspective. So and we're furthering Betty as well. I mean, Betty's not the same product it was at the first. Transcripts provided by Transcription Outsourcing, LLC.
Speaker Change: At a base count.
Speaker Change #100: From that perspective, so and we're further embedding as well I mean <unk> not the same product. It was at the first of the year than what it is today and so we're continuing to advance all of our solution with automation.
Speaker Change: And then with the extended buyback.
Speaker Change: Is there any way to think about.
Speaker Change: <unk> around that.
Speaker Change: Relative to you know there's been some obviously variability over.
Speaker Change: Over the last year or so just any thoughts moving forward is to Asia progression.
Speaker Change: Back.
Craig: Now, I mean, as we mentioned on the call, we bought back a significant amount of shares. We actually bought back 574,000 just during Q3 in a, you know, large amount since July 1. So, really an opportunistic approach to the buyback. And, you know, we were, the other one was about to expire. So we put this one in place for another two years, that $1.5 million.
Speaker Change: No I mean as we.
Speaker Change: We mentioned on the call I mean, we bought back a significant amount of shares and we actually bought back 574000, just during Q3.
Speaker Change: A large.
Speaker Change: A large amount.
Speaker Change: Since July one so a really an opportunistic approach to the buyback.
Speaker Change: We were.
Speaker Change: The other one was about to expire so we put this one in place for another two years that $1 5 billion.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Yes.
Sitikantha Panigrahi: The next question is from the line of Sitikantha Panigrahi with Mizuho. You may proceed. Hi, this is Phil.
Speaker Change: The next question is from the line of <unk> with Mizuho.
Speaker Change: You May proceed.
Chad R. Richison: Yes, as we develop them, and as, you know, certain countries have certain factors that go into their own employment laws, so, but as we develop these countries, absolutely, we would expect that to be happening. Cool, thank you. The next question is from the line of Jason Bellino with KeyBank Capital Markets.
Speaker Change: Hi, This is Phil on for Steve You guys mentioned, you added Betty in Canada, Mexico, Ireland, and the UK are there plans to add to other countries.
Speaker Change #112: Yes, as we develop them.
Speaker Change: As <unk>.
Speaker Change #108: Certain countries have certain factors that go into their unemployment law, so but as we develop these countries absolutely.
Speaker Change #108: Would expect that to be happening.
Speaker Change: Cool thank you.
Jason Vincent Celino: The next question is from the line of Jason <unk> with Keybanc capital markets.
Speaker Change: You May proceed.
Speaker Change: Great. Thanks. This is zane on for Jason Celina.
Speaker Change: One for me on the.
Speaker Change #109: The uptick in the EBITDA margin guide nice to see that moving up by 50 bps.
Speaker Change #101: Wanted to ask what's what's driving that increase in.
Speaker Change: Where you might be getting more efficient in the next or in the second half of the year.
Speaker Change: Yes.
Jason Bellino: Yeah, I mean, we kind of look across the entire organization and just look for efficiencies. I mean, there's, there's no levers that we're really trying to pull to do that. You know, and really, it was the second quarter beat really flowing through to the full year and then raising it on top of that. So really, there's nothing that we're pulling any levers on.
Speaker Change #105: Yes, I mean, we kind of look across the entire organization and just look for efficiencies I mean, there's there's no levers, we're really trying to pull to do that.
Speaker Change: You don't really was the second quarter be really flowing through to the.
Speaker Change: For the full year, and then raising it on top of that sounds so really nothing that we're pulling any levers score.
Speaker Change: Great. Thank you.
Aleksandr J. Zukin: The next question is from the line of Aleks Zukin with Wolf Research.
Speaker Change: The next question is from the line of Alex Zukin with Wolfe Research.
Speaker Change #102: You May proceed.
Ryan: Hey guys, this is Ryan on behalf of Aleksandr Zukin. Just one question about the CRR teams. So, can you just provide an update on where the CRR teams were focused in the quarter? Are you still structuring commissions towards BETI conversions of the base and system usage? Or are they starting to lean more back into the upsell-cross-sell motions? And, you know, to the extent that they are, you know, still focused on BETI conversions, when could we see them kind of shift back to the upsell-cross-sell focus? Yeah, I mean, for competitive reasons. I'm not gonna get into exactly why.
Speaker Change #102: Hey, guys. This is Ryan on for Alex Zukin, just one question on the CR teams.
Ryan: Can you just provide an update on where the CRT much more focused in the quarter are you still structuring commissions towards any conversions of the base system usage or are they starting to lean more back into the upsell cross sell motions and to the extent that they are still focused on the battery conversions when could we see them.
Ryan: Shifting back to the up sell cross sell focus.
Chad R. Richison: Yeah, I mean, for competitive reasons, I'm not going to get into exactly what a CRR's process is today that's different than what it was last year. But I will say that, you know, to a CRR, they work with each client, and not every client's in the same situation, which means a CRR's approach isn't the same as they go into their entire territory, if you will. And so it really depends on if I'm working with a client that has not yet gone through the Client Value Achievement Strategy fully, or, you know, if I'm working with a client that has.
Speaker Change #106: Yes, I mean for competitive reasons I don't know if you get into exactly what acr's process is today, that's different than what it was last year.
Speaker Change #110: But I will say that.
Speaker Change: <unk> they work with each client and not every client in the same situation, which means a <unk> approach isn't the same as they go into their entire.
Speaker Change: Territory, if you will and so it really depends on if I'm working with the client that has not yet gone through decline value achievement strategy fully or.
Speaker Change: Im working with the client that has and so that's not to say that they can't provide opportunity and additional that they don't have additional revenue opportunities with each client.
Chad R. Richison: And so that's not to say that they can't provide opportunity and additional revenue opportunities with each client. It's just there are certain methods that we go through today to ensure that clients are achieving before we just sell. So, and I wouldn't say that's a dramatic change from any other quarter we've had.
Speaker Change: There are certain methods that we go through today to ensure that clients are achieving that before we just sell them.
Speaker Change: So and I wouldn't say, that's a dramatic change.
Speaker Change: For many of the quarter, we had this year.
Speaker Change #107: Great. Thank you.
Bhavin S. Shah: The next question is from the line of Bhavin Shah with Deutsche Bank.
Robert Edward Simmons: The next question is from the line of Bob <unk> with Deutsche Bank You May proceed.
Craig: Great, thanks for taking my question. First, Craig, you mentioned bringing the fifth building online during the quarter. Any changes to thinking on terms of CapEx for the year? Is 12% of revenues still the right range to think about? And any of those bills that are planned in the near future that we should keep in mind?
Robert Edward Simmons: Great. Thanks for taking my question.
Speaker Change #107: Craig just mentioned, bringing the fifth building online during the quarter any changes youre thinking in terms of Capex for the year, just 12% of revenue still the right range to think about in any of those bills that are planned in the near future that we can.
Craig: Yeah, I mentioned that, you know, we just finished the last building. We've got a couple more projects throughout the end of the year. So, kind of as we talked earlier, what we thought the percent would be for the year, somewhere in that 11 to 12 percent range, probably still thinking that. You know, as we look at next year, we really don't have any large projects on the plan. So, you know, we mentioned even on the last call that we would expect CapEx to be, you know, potentially single digits next year as a percent of revenue. And, you know, that really bodes well for the free cash flow conversion, which we're also focused on.
Speaker Change #124: Yes I.
Speaker Change #116: I mentioned that we just finished the last building we've got a couple more projects throughout the end of the year, So kind of as we talked earlier, what we thought.
Speaker Change #115: <unk> would be for the year somewhere in that 11% to 12% probably still thinking that as we look at next year, we really don't have any large projects on the plan. So we mentioned it even on the last call that we would expect capex to be.
Speaker Change #107: Potentially single digits next year as a percent of revenue and that really bodes well for the free cash flow conversion, which we're also focused on.
Chad R. Richison: It makes sense. And just quickly following on, it appears that Paycom is now partnering with an employment verification service. Can you maybe elaborate on what this partn is?
Speaker Change #103: That makes sense.
Speaker Change #122: It appears that <unk> is now partnering with an employment verification service can you just maybe elaborate on what this partnership can bring to take off from a financial perspective for this year and maybe also a business perspective, how do you guys think about partnership opportunities more broadly.
Chad R. Richison: I mean, I wouldn't say we think much of it. I mean, any opportunities I think that are in regards to data type things are not necessarily strategic in nature from that standpoint, not necessarily differentiated. So, from my standpoint, I think that if there's something...
Speaker Change #111: I wouldn't say, we think much of it I mean any opportunities I think better in regards to data type of things are not necessarily strategic in nature from that standpoint, not necessarily differentiated from so from my standpoint, I think that if there is something we can provide.
Speaker Change #118: Our clients that helps them.
Speaker Change #118: A better experience with pay comp that's what we want to look at and focus on and most things would fall in line with that.
Daniel William Jester: The next question is from the line of Daniel Jester with BMO.
Speaker Change #103: The next question is from the line of Daniel Jester with BMO.
Speaker Change #123: You May proceed.
Daniel William Jester: Yeah, great. Good evening, everyone.
Daniel William Jester: Yes, great. Good evening, everyone. Thanks for taking my question, maybe Chad on.
Chad R. Richison: Thanks for taking my question. Maybe Chad, when you think about the product roadmap and the focus on automation, should we be expecting sort of more specific modules to help drive that outcome for your customers? Are you going to be reengineering things that you've already put out there to increase the level of automation, sort of any sort of high-level thoughts about the direction you're embarking on here?
Speaker Change #125: Think about the product roadmap and the focus on automation should we be expecting sort of more specific module to help drive.
Speaker Change #155: That outcome for your customers are you going to be a reengineering things that you've already put out there to increase the level of automation sort of any sort of high level thoughts about the direction youre embarking on here.
Chad R. Richison: Sure. And so I guess we focus on problems to solve and what we want to automate. That's where we start, regardless of whether or not that's in our current system of innovation or whether or not that's something new that we add. And so, you know, we start with what problem are we solving.
Speaker Change #120: Sure and so I guess, we focus on problems to solve and what we want to automate that's where we start regardless of whether or not that's in our <unk>.
Speaker Change #120: Current system of innovation or or whether or not that's something new that we add in so we start with what problem are we solving and so when youre looking at automation, it's across the entire suite.
Chad R. Richison: And so when you're looking at automation, it's across the entire suite, but it will include additional module opportunities. But those develop as you're doing the right thing, and then you're at the end of your process. You're able to discover the ROI for each and see if there is a revenue opportunity for that. But we don't start with the revenue opportunity. We start with automating problems for our clients and solving problems, and sometimes we get to share in those problems we solve through additional revenue.
Speaker Change #120: But it will include.
Speaker Change #103: Additional module opportunities, but those develop as you.
Speaker Change #103: As you're doing the right thing and and then you're at the end of your process Youre able to.
Speaker Change #103: Discover the ROI for each and see if there is a revenue opportunity for that we don't start with the revenue opportunity, we start with automating problems for our clients and solving problems and sometimes we get to share in those problems we solved through.
Speaker Change #103: Through additional revenue opportunities.
Daniel William Jester: Okay, thank you. And then just on the four international geographies, everybody is available now. Have you sold any locally domiciled clients? Or is this still US-centric clients that have employees abroad? Thank you.
Speaker Change #129: Okay. Thank you and then just on the four international geographies everybody is available now have you sold any locally domiciled clients or is it still you.
Speaker Change #127: Since your clients that have employees abroad. Thank you.
Chad R. Richison: Now you're asking if we've sold a client that has zero US employees and they're just in the country with zero domestic employees? Is that your question? You may have fallen off.
Chad R. Richison: Now you are asking if we
Speaker Change #114: Now you're asking if we've sold a client that has zero U S employees and they're just in the country with zero domestic employees.
Speaker Change #131: Is that your question.
Chad R. Richison: I'm going to answer that question. I assume that was. For sure, Canada, I believe, we would have a client that just had that. That was our first...
Speaker Change #117: You may have fallen off I'm going to answer that question.
Speaker Change #117: That was.
Speaker Change #126: For sure Canada, I believe really counter points to just have that as our first one released I would be surprised at this point if we have a client just in Mexico or the U K or Ireland that doesn't have a U S based.
Speaker Change #126: Base connection, but I would expect in Canada, we would have.
Speaker Change #121: Some of it.
Jacob Roberge: The next question is from the line of Jake Roberge with William Blair. You may proceed.
Speaker Change #136: The next question is from the line of Jake Roberge with William Blair You May proceed.
Chad R. Richison: Yeah, thanks for taking the question. I'm curious what you're seeing on the demand front for geos like Canada that have been in the market for a bit longer, and just how long it takes for new geos to start ramping up more meaningfully.
Jacob Roberge: Yes. Thanks for taking my question just wanted to follow up on that global payroll front I'm curious what you're seeing on the demand front for deals like Canada that have been in the market for a bit longer and just how long. It takes for new G is to start ramping more meaningfully.
Chad R. Richison: Yeah, I mean, having native payroll in any, you know, Canada was the very first time we actually ever developed a separate country. You know, we were the U.S. for 25 years.
Speaker Change #103: Yes.
Speaker Change #135: Having native payroll in Canada was the very first time, we actually ever developed a separate country.
Speaker Change #130: You asked for 25 years, and so we learned a lot in Canada and then we learned a lot more in Mexico, and the U K and a lot of the developments, we were able to do for a lot of those companies or countries some of the more transferable.
Speaker Change #130: Some of the items and so we've learned a lot by going through this process also we very much strengthen our global HCM product I mean, it's not just native payroll, we have a very strong global HCM product that we continue to automate as well and so all of that.
Chad R. Richison: And so we learned a lot in Canada. And then, you know, we learned a lot more in Mexico and the UK. And, and, you know, a lot of the developments we were able to do for a lot of those companies or countries, some of them were transferable, some of the items. And so, you know, we've learned a lot by going through this process. Also, we have very much strengthened our global HCM product. I mean, it's not just native payroll; we have a very strong global HCM product that we continue to automate as well. And so all of that ties together to make a strong value product.
Speaker Change #130: It ties together to make a strong value proposition.
Chad R. Richison: Okay, that's helpful. And then when we think about the revenue cannibalization of those payroll reruns, when do we officially lap those tougher comps? Is that something that will still be a bigger headwind heading into next year, or could that actually be much less pronounced given it'll be a smaller base as we've kind of gotten through that this year? Thanks.
Speaker Change #119: Okay. That's helpful. And then when we think about the revenue cannibalization of payroll reruns wonder we officially lap those tougher comps is that something else there'll be a bigger headwind heading into next year or could that actually be much less pronounced given and it'll be a smaller base as we've kind of gone.
Speaker Change #154: And through that this year. Thanks.
Chad R. Richison: Yeah, I mean, again, the factors that we talked about that were impacting us at the end of the year are the same factors that impact us today. When you're talking about, you know, how fast or what have you, we also have mitigating factors that factor into that as well. But, you know, when you're talking about what happens there, you're really talking about how fast our client base is going to utilize the most efficient product in the industry and then utilize it the right way.
Speaker Change #119: Okay.
Speaker Change #133: Yes, I mean again.
Speaker Change #148: The factors that we talked about that were impacting us at the end of the year are the same factors that.
Speaker Change #150: That impact us today, when you were talking about how fast or what have you. We also have mitigating factors that factor into that as well, but when you're talking about.
Speaker Change #103: What happens there you're really talking about how fast is our client base going to utilize.
Chad R. Richison: And so, you know, we've kind of quantified the expectation of the opportunity that could be cannibalized from good usage, but it's also differentiation, and I think we can get that back in other areas. So all that's to say is, you know, when will we be through this type of thing? I don't know. But, you know, I do think that there are mitigating factors that we're able to deploy again to achieve client value, to help the client achieve value that they're helping.
Speaker Change #103: The most efficient.
Speaker Change #103: Product in the industry.
Speaker Change #103: Utilize it the right way and so.
Speaker Change #103: We've kind of quantified the expectation of the opportunity that.
Speaker Change #103: Could be cannibalized from good usage, but it's also a differentiation and I think we get that back in other areas. So all that's to say is.
Speaker Change #103: When will we be through that type of thing I don't know, but I do think that there is mitigating factors that we're able to deploy.
Speaker Change #103: Again to achieve client value to help the client achieve value that.
Speaker Change #103: They are helping us there as well.
Jared Marshall Levine: The next question is from the line of Jared Levine with T.D. Cohen. You may proceed.
Speaker Change #149: The next question is from the line of Jared Levine with TD Cowen you May proceed.
Craig: Thank you. In terms of flow revenue, can you discuss what the updated annual guide is for betting surrounding flow revenue, including bets on rate assumptions? And was there any extending of duration during the quarter planned for the rest of the year here?
Jared Marshall Levine: Thank you in terms of flow revenue can you disclose what the updated annual guidance embedding surrounding float revenue, including that's the right assumption that was there any extending a duration during the quarter or planned for the rest of the year here.
Craig: Yeah, I mean, we're definitely looking at extending the duration, you know, as they're talking about some rate cuts in the back half of the year. So, you know, as you're looking at the full year, we start to kind of factor in some of those potential rate cuts that seem more certain at this point. And then, you know, as you start to layer in and extend the duration, you're basically on that amount of money, you're basically taking a rate cut because it's going to be a lower than the short-term rate that you could get on that. So yes, we're definitely
Speaker Change #141: Yes, I mean, we're definitely looking at extending the duration.
Speaker Change #142: As you are talking about some rate cuts.
Speaker Change #134: Back half of the year so.
Speaker Change #134: As Youre looking at the full year, we start to.
Speaker Change #134: Kind of factor in some of those potential rate cuts it seem.
Speaker Change #134: More certain at this point and then.
Speaker Change #103: As you start to layer in and.
Speaker Change #103: Extend duration, you're basically on that amount of money, you're basically taking a rate cut because it's going to be lower than the short term rate that you could get on that so yes, we're definitely looking at that.
Chad R. Richison: Okay, so I'm considering it, but that's not currently in motion right now. And then, in terms of the sales performance, can you discuss specifically within that inside sales, how you're doing in terms of those sub-50 employee clients, just given the notable new logo acceleration? Yeah, I mean, the logo acceleration is going to be our mid-market.
Speaker Change #103: Okay, so considering it but that's not currently an.
Speaker Change #103: In motion right now.
Speaker Change #103: The sales performance.
Speaker Change #103: You just go specifically with Amit inside sales, how youre doing in terms of those sub 50 employee clients just given the notable new logo acceleration.
Chad R. Richison: Yeah, I mean, the logo acceleration is going to be our mid-market group, the 50 and above. The below 50 represents approximately 4% or less of our overall revenue. And, you know, that hasn't been going up, as a percentage. Thank you. The next question is from the following.
Speaker Change #151: Yes, I mean, the logo acceleration is going to be our mid market group, the 50 and above.
Speaker Change #103: The below 50 represents.
Speaker Change #156: <unk>, 4% or less of our overall revenue.
Speaker Change #144: It's been going up.
Speaker Change #128: As a percentage sure. Thank you.
Speaker Change #103: Okay.
Zachary Gunn: The next question is from the line of Zachary Gunn with FT Partners. You may proceed.
Zachary <unk>: The next question is from the line of Zachary <unk> with FC partners.
Speaker Change #140: You May proceed.
Zachary <unk>: Hey, there. Thanks for taking my question I just wanted to ask in terms of new client wins has there been any change from a mix perspective of where you're seeing those wins come from whether it's competitive.
Speaker Change #145: Competitive takeaways or in house or regional just any context, there on the competitive side.
Chad R. Richison: Now, I mean, you know, we've been in a very competitive industry for 26 years. This is our 26th year, and arguably, we're the new guys from specifically who we really compete with. And so it's the usual suspects that we continue to compete against and with when we're out there in the market.
Speaker Change #147: No I mean, we've been in a very competitive industry for 26 years. This is our 2006 year arguably we're the new guys.
Speaker Change #143: Specifically, who we really compete with and so it's the usual suspects that we continue to compete against and with when we're out there in the market.
Speaker Change #137: Got it thanks.
Chad R. Richison: There are no further questions waiting at this time. I would like to pass the conference back over to Chad Richison for closing remarks.
Speaker Change #137: There are no further questions waiting at this time I would like to pass the conference back over to Chad Richison for closing remarks.
Chad R. Richison: All right. I want to thank everyone for joining our call today. I want to personally thank my colleague and friend, Craig, for his dedication to Paycom and the amazing example he set for a brilliant career. Our employees are working hard and strategically across the board. I want to thank all of our employees for their efforts toward our plans to eclipse the industry with automation. We look forward to seeing investors at several conferences this quarter, including the Deutsche Bank Technology Conference in Dana Point in August and the Citi Global Technology Conference in New York City in September.
Chad R. Richison: Alright, I want to thank everyone for joining our call today I want to personally thank my colleague and friend Craig for his dedication to <unk> Com and the Amazing example, he has set for brilliant career.
Speaker Change #153: Our employees are working hard and strategically across the board I want to thank all of our employees for their effort toward our plans to eclipse the industry with automation, we look forward to seeing investors at several conferences this quarter, including the Deutsche Bank technology or the Deutsche Bank Technology Conference in Dana point in August and the Citi Global Technology Conference.
Speaker Change #153: And New York, New York City in September Thank.
Operator: Thank you all, and Operator, you may disconnect the call.
Speaker Change #137: Thank you all and operator, you may disconnect the call.
Operator: Thank you. That concludes the Paycom Software 2nd Quarter 2024 Quarterly Results Conference Call. Thank you for your participation, and enjoy the rest of your day.
Speaker Change #152: Thank you that concludes the play Com software second quarter 2024 quarterly results conference call. Thank you for your participation and enjoy the rest of your day.