Paycom Software (PAYC) 1 Aug 232023 Q2 Earnings call transcript

Good afternoon. Thank you for attending the Paycom Software Second Quarter 2023 Quarterly Results Conference Call. My name is Kate, and I will be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end.

I would now like to pass the conference over to our host, James Samford, Head of Investor Relations.

ahead. go may You

statements performance our These welcome of XXXX. earnings this XXXX. Certain the historical related the are and the expected call call date call. represent statements our second Litigation not and to those including quarter as within statements Act of of conference Securities the Reform meaning facts, plans, to forward-looking are you, of forward-looking objectives conference Paycom's for Private that future outlook Thank only made this on

While any annual with reasonable, risks on These to believe SEC, the on statements materially forward-looking we subject this statements most uncertainties. filings and XX-K Form based call actual because and on including our made uncertainties are quarterly our are report differ and report and on current are expectations results recent Form discussed may risks our the XX-Q. in

You only obligation on whether future should otherwise, forward-looking do result consider or forward-looking except law. such a and and any made, and Any statement not our as forward-looking factors alter by information, required of applicable update as on of relying we undertake as events expressly these when refer new it is to disclaim made to or the speaks information. statements, which date

at today, non-GAAP close will purposes. release market and Also we and to margin results included press measures is performance gross the A that our financial available schedule measures, We during certain on non-GAAP versus the after net in certain financial to and reconciliation website is our gross assess adjusted for we showing today's investors.paycom.com. adjusted these planning GAAP issued the of profit, including use income, call, non-GAAP refer review adjusted adjusted EBITDA, expenses. and non-GAAP

Chief I Officer. will Chad? Executive and Richison, over President turn Chad now to Paycom's call the

the and initiative. and our the and solid everyone with highlights we both to within U.S. in from today. thank on very expand continue you joining second opportunity, quarter, results our delivered James, second I'll to outside start call We our the quarter and Thanks, progress

review questions. and Following and Craig financials then will guidance, that, our we'll take

revenue strong year-over-year. XXXX of quarter Second $XXX of million growth XX% approximately represented

quarter $XXX roughly million EBITDA XXX at up of basis adjusted margin XX%, came year-over-year. approximately adjusted Second representing points EBITDA in an

a growth while a disciplined of and and delivering solid product are strategy expansion. We and combination margins, maintaining high investment international

front, is Beti, the On payroll for commissioned saving quantified HR processing more unquestionable. Beti that a from the and are economic study hours from product XX% Paycom using impact the year. clients including We and labor XXXX from in achieving recently ROI Consulting total accounting and Forrester teams reduction a our that savings per than

payroll Companies messaging incredible opportunity own to as that adopt for it. out organizations working not their payroll this of should our anticipated, structural be missing and employees there's to product reason millions ROI already significant The we Beti a doing adopting with Beti, on change how from resonating. With are is savings done. seeing is no are and not

the So new clients. of to will in existing and discipline promoting remain we power Beti

Software in payroll self-service Management than in Today, for we dialects. languages solutions to more XX our Canadian Capital we expanded that and our employees. to organizations XXXX, announced Global countries April In XXX with access include have Human HCM launched and we

experience a Beti. will processing businesses employees Now, more and their improve transparent giving with North more in American be Canada to their friendly payroll by able user

up we've market success cross-border continue entire across continued and target launch into opportunity. market a With range, efforts Canada, our selling opened are up be large new our recent seeing strong. We to our

accelerate. we to to our As expand market continue geographic our move-up I to expect reach, continue

share pursue. XX,XXX with segment that directly can With enterprise market to which reps our include X%. impressive market come. target our at an new we This confidence for to expanded we gives pace me result, than expansion well years an greater below now are sales organizations that a employees market many grow As we estimate range our now our represents is can opportunity, redefining

to development also Everyday significant our Center. two and out our product Canada, Client the team addition services in tools our in rolled launching In Action software, payroll

fully allows Everyday exposed employees are and paid daily their charged potential other basis. early get to to pay earned employees market, products the a with on fee, on Unlike being Everyday, a employers access without not or compliant losses deductions from including departures, Everyday is early impact other collected. opposed like pay, that a pay daily be pay many to benefit advance payroll garnishments all factors as services. to a

of get Paycom The mobile dashboard for lives our creating easier feedback updates and simplifies received it June. new this service to on software app. streamlined great clients in since Client our them that Center to an clients providing we tool This dedication by even We've the with intuitive items. our Action furthers the clients within rolled action from approach, take out on related it makes

Greatest dedicated an The in companies by fosters Workplaces highlights Finally, also Newsweek. development providing and work as that recognized America's of opportunities. employees to Paycom XXXX award environment was growth recently with enjoyable one

in growth companies. for the among one Comparably of opportunities second year named the all a Paycom, In row, addition, best career

their our and I'd to excellence, realized continue strong we hard to work way payroll differentiated ROI our client product the highly continue results. drive done. like to summary, our employees as and is thank In to change for commitment

our the call review a and turn financials over to With of Craig, Craig? for guidance. I'll that,

for basis. that quarter like and the XXXX, certain quarter I Before would a financial year results measures review I for comments related everyone be third XXXX remind full our our to will to my and non-GAAP outlook second on

with quarter prior period. the million, We year delivered solid to $XXX.X this up compared revenue of XX.X% results

points was basis XXX year-over-year. second total of net for second was $XXX.X revenues on the EBITDA based or diluted or XX of quarter shares. million million the million XX% total to XXXX, income Adjusted or XXXX share $XX.X approximately or the in revenues of compared million GAAP quarter of $X.XX $XXX.X in second Our XX.X% per quarter up

share per income Non-GAAP $XX.X from XXXX period. for up of year was the prior quarter second net or the XX.X% million diluted $X.XX

GAAP rate at higher quarter in tax Second than XX.X%. came expected

slightly to year non-GAAP at a For the approximately higher anticipate XX.X% basis, basis. XXXX, a in tax our approximately effective full we on on and income now XX% come GAAP rate

remained trends XXXX of XX.X% revenues, of revenue of recurring for particularly Demand second quarter Within the and revenues million million quarter strong, $XXX.X second expense quarter year was period. total sales or XX.X% marketing the for revenues. and the XXXX, for comparable was the representing XX% prior total upmarket. growing $XXX.X from of Adjusted

to ahead future continue and aggressively marketing on We of spend sales growth.

million quarter XX.X% to of was costs, were period. R&D in $XX.X Adjusted the revenues. XXXX the million expense in second prior of $XX.X including R&D in million quarter second total compared XXXX capitalized total portion, or $XX.X of Adjusted the year the

products to in continue We new invest expanded geographic offerings. and

quarter very to cash strong with the balance million. equivalents cash $XXX and million $XX and we balance including the sheet Turning of sheet, total of a ended debt

$X revolver that quarter daily on million Additionally, in have year-over-year. approximately the $X.X approximately The clients to billion. expanded our of we from balance of funds XXXX, held up second billion $XXX XX% today we announced average behalf of was

Now, me let turn to guidance.

we now midpoint to $X.XXX For are billion our of of year-over-year or revenue at the XX% billion in the range the expect XXXX, fiscal $X.XXX range. outlook growth approximately and raising

EBITDA of range the adjusted midpoint range. of We EBITDA the at the an XX% adjusted approximately million, in $XXX of to margin expect representing $XXX million

to Rule we With reach of the these well-positioned strong results and XX. outlook, are

million $XXX the expect revenues representing rate growth prior at third total For the to in the of XXXX, of of range we million quarter year range. a approximately comparable midpoint of the period the XX% $XXX over

We an per of of representing million adjusted EBITDA per in in We payable the approximately dividend share expect to our $XXX paid $XX.X of dividend in adjusted share million the the a quarterly the range Board approved EBITDA range. for of $XXX June, the and XX% first at third has of quarter margin quarterly $XX.X midpoint mid-September.

a market and a financial in well executing strong is very against Paycom opportunity. position large

priorities, and as on margins gain delivering and strong of adjusted consistency I delivering pleased focus attractive of the execution results look with top growth many XXXX of We XXXX. strong our our resiliency in and am and continued our Our forward traction to business the EBITDA model. revenue initiatives remains

the open questions. for line Operator? With we that, will

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seeing talk reason if the end I why by demand, bit by $X look the Because, you're was like, is, you you this million. at, million, in asking full can raised and there I'm terms only a etcetera. little of Chad, about beat what First, year out quarter $X

read workers, year, like the the of all do into slightly roll think half to how in that terms maybe in And So, kind group, how need us can it more we a this about that. that of you concerned Like, it's this terms applicability we the you Everyday. for for Thank for you're of clients? that second broadly should frame is the was kind is, we think should on then about question terms of in -- interesting, of, whether that, second Is how about have contingency up? that select of you. like it think you there

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employee then if collect It's wages. leaves Our the so the charged. everyday product employee, the not employer oftentimes, didn't is access amounts not early hook. employer they to on of is the that And And or we early, the employee deductions all are allows loan, is And guesstimated. there not access if put the the out for wage on the these or hook. a

there. meeting daily out I has say I suggest it’s is a do some environment, but pay out And are not changed a them so, already that already would of all need it, business that's there. to

and And so, our card. it an gives us linked bulk opportunity to it's

new $X booking for deals. $X still booking to about regards demand, hadn't We deals. We're demand booked question especially before. We're first us In and million million sales deals, very bookings. with those is your outside strong, larger

is outside So, sales and up strong year-over-year.

clients selling that's that then you current sales, that group’s to CRR business our came also we've that's remained on group out XX because, had group this and our first honestly, Inside client in smaller small and a year-over-year sells is base and upsells that year-over-year. sells Beti, been and down down disciplined model that's others. the we've within do below sales. have metric business emerging year-over-year We been or up The converting CRR our very employees which business

revenue of CRR a with them. for It's for lot very our work little opportunity

it's given group but to product compensation incentivize for item accelerators us. revenue the sell actually we've So, it, still a smaller to billing or

So, CRR's Beti. are focus And to I cost us this we $XX bookings $XX million having on million year. while in mean, self-inflicted, that's

Beti, the dramatically doing our for to out a revenue. we’re the engines We've their jet dramatic plane the make-up accelerator lower mean, on our changes been here. again in mid-flight But, ROI. produces the changing commission payroll, CRRs way I for do clients the

remain we So, to have going a on to disciplined. make client We're it. go not

on a to to takes it CRRs be it takes sell have out you them. them deal, while. Once a We have it sell there to a and, while. convert

they're We're guessing Employees what I But missing something want employees So, their don't we're significant, going doing back payroll. going like us, already game. to own for doing to Paycom. their tripling it's own because be to think their are with to who commissions, do triple. the payroll for Millions go be are out.

in recapture So, small strong X% which less the sales of outside advocates, we'll produces time. for while opportunities employer Paycom, the market, more a produce for with it and leads delayed than amount is And, Beti group. our due revenue employee

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we or take Good think taking the I If ask rate let's just or but way growth the impact half going understand, to think wanted Is about for the for about flow it maybe of balance, out, we durable right How the about think growth number? rates that? think question just back if recurring to is one suggests maybe rate call or it Hi. I the low-XXs on maybe, to about Thanks a and that XX% like, XX% revenue, questions. Raimo’s forward. kind the I of that software my and subscription should to guidance. like, revenue the durable, the and revenue us average afternoon. help higher follow-up

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talked we've they've about far I that's in. what how earn the guys also the As percentage as layering mean, growth, you have on talked numbers, We've about increased. interest we as

all back, they thing. to and plan think that's if there on you out models I the take it another. a I fairly different seem but there's consistent know I So, out, want any one don't giving with of fair

we I we guidance, we're Yes, XX% year at mean, full to solid Samad, a very and EBITDA. a as for quarter, strong, guiding looked and delivered XX% the still adjusted

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go us And so, the that. It's opportunity there. achieve just out is to up definitely to and

a side. Great. the follow-up product quick on And just

that? opened On you've -- the of product rolled both you already who's have you is new just a there? hiring the offices think out rep? different trying have product already Maybe built us sales Canada, beta do had go-to-market for and Have into customers, the type you -- already if help that already, about infrastructure the

Yes.

Canada. those based clients our on included payroll got clients everything. we up have out for We our in that Canada and that could our signed a rolled on Global pilot rolled the direct rolled for We because in opportunity. these focused are based already we we're out while. we already in So, out where rolled product other deposit product. countries our doing system provenance all as rig HCM And, that taxes, HCM Global territories service and really U.S. people full We countries. We've out been have see an that

greatest to more We're countries. of employees. year. countries have be not countries. company continuing roll easiest we're So, based the U.S. rolling the picking countries out that We're the this picking out We'll amount

I we're rolling Canada, office we where because have see now, in so out focused we upmarket. us as much first, don't just that's opportunity sales go so, a And to right continue

business, for we're result drives a been Beti our ROI As them for I've mentioning, getting well. strong larger at-bats a larger and as which, in

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here million about revenue well? of as sort Great. the $XX talked CRR Chad, we Thanks in $XX on to of much. Should very headwinds, million bookings. you headwind the that's assume ‘XX

kind don't of flow come in in. Bookings They away. right

all the So last some get of amount comes not two dramatic if here. how year, at I much mean, of would how on down the still base, big, there, but products there change client we were and is sets we about this available, that just wouldn't much mean, up not, I this we've year really we're not ROI to year our of were Beti, be, you it and servicing look that, different XX% got that but

are So, of it. and the it's was talked study put out, there. Forrester how significant and about it's XX% mean, with success employers the savings. Employees having I

data a we And just Beti the so, with only year, And doing the is but it management doing the last a sets. We the takes this. send help just we through change there end this of be CRR and been really group to can payroll client, didn't for out on impact first to walk that them and we've start while. because the seeing started really

the it. do that that's we're so group And to using

$XX in would we And in CRRs, sell up I'd most have will not I revenue four one what your question, of pretty within with this say have in group. comes quick. but that answer of say and it XXX% with million month to though weeks year. six they to it its realized so,

hit much it. quarter? they it the the then for was on CRR Got point, your below pretty expectations your quarter, the for And or lastly just plan,

slog move group. would I that it's harder in been this to say a last than, Beti

piece over But, in have it's it's a get clients it's don't trying for very of It's stay for once us, with to makes little employee. it. a an have Beti, impacting these them, us, but I easier mean, It we paper come because the it just to revenue for -- payroll but you we moved that do servicing clients and HR amount to cuts department also significant ROI. the disciplined

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Couple afternoon. Good of Hi. questions.

in XX,XXX like a like see would greater bit that type before. extent. It the targeting you're we're So little a you holding to not one, talk range can to decent was back plus having Everyday what and extent to between about, clients. of expansion clients that forecasting the types Canada, And some be employee going Everyday sounds you you

say out Everyday for had that, pay as options at wouldn't you daily because was us I people there. know, there's Yeah. holding back all, options

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what We'll work Everyday transient time of environment client XX an would expect in That more we've typically any type normal or first might different it's the see be been with more you where going periods and in for Canada there. service Canada, also workers have now area be often groups expect any a Canada. of business, years. the mean quick to one has employees in is that used that we'd shorter you'd business that in than I also time

market. way the holding only call, really first product global now HCM there first the like our country. back well with expansion our And It's on same going country, us we've capabilities. I the with we're type that And the These last developing, we're territories. And look at it's have one way. It's international and on well and Canada, on large And fact into another said time we that was like our provinces, our up are the we entries. next before developed of But not thing with countries countries a multiple that. that's from as it's thing. we're didn't

is take could extent to moving, XX%? how get forecast, you've Beti, together, terms and Chad, to to of that And in it -- terms Great. what the speed will to And then that some clients, that CRR the of what your Forrester data just long helped put in what's the your of remaining up?

data I if I have XX especially mean, we coming would to thought I it's months the is hard you we I for said point, point, to, within me on may past, played past being helpful. past Yeah. that client. but converted not. we're if It's that it mean, up Forrester -- we're be I all mean, to any going be correctly and

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continue we And bring you that and so, to new out have products.

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proposition there value clear a Beti it there's definitely, and of So, been two years.

moving to So, you're what's the them Beti? stopping pushback hearing from What's those customer?

that -- as well. fact a think it in be mean, I the is biggest is can pushback it significant Yeah. the reduction force I

there's make feed client of management the I the data. how think side, they on have change they on their to that side changes some

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first afternoon. Hi, question a you. Thank ask here. margin guys. Good to Wanted

us catch So you Are just made tailwinds expected. there a investments give this than talk broadening of sense can in a land revenue considering weighed made margin investments in and expecting cost been Are the lighter year-on-year where being Just you year. on float has up being gross bit adjusted higher to operation? here? we've about what's kind out to you're revenues international the

going Yeah. was down this quarter not starting it going to a relates group. slightly. the a I We to it's moving We're international, it's but service mean, in see headcount. to be typically to the ahead headcount be of few needle costs higher at It's as this point. really the hire growth

we moving So, always XX%, gross was what to it And XX%, We've margins. that forward. we similar in range. would haven't guided XX% expect been to be that

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ones cash in strong conversion this lowest been but in came quick and flow free cash quarter. two margin So, relatively had it Historically, XQ,

unpack just this that of if retention, should wondering XX% given you we Thanks. but at just in end through macro, any reported can that number first aware of And half. on that the swings you then strength. So year, be last the

fluctuate throughout in year. I'll the I'll And and year report then retention let I We February, year, handle year. free cash once one for last every flow you a margin. the does the once believe, the take we first report a year prior

now, we don't the so right at will, any year. the on we retention number And but of have updates end the

very came for free Yeah. on strong flow cash mean, in QX. I

way very it be Some of free happy with and that QX, be much than of timing, can to the in QX. flow your rates last CapEx But main overall, things going some impact that. better came we're the year's that on yeah, tax at it's are cash

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understand quarter Chad throughout see for you you're if help in cycle. the of that any always taking we Thanks of you and lot there's various macro a you noise have are seeing customers that to what turned with [indiscernible] your in my customer how the across differences sizes Can question. just where us might terms Great. as serve? the it

stability. I seen macro can't issues. to I point We've Stable. mean,

just year-over-year kind what those you prepared mentioned in you is versus then the both growth And of are outside sales. on seeing remarks, Like, how think in trended this? you're it. click to But can terms magnitude your inside seeing about both Got and growth, earlier inside way areas growth double and in growth, quarters, any both deceleration, outside of prior with similar kind you accelerating of sales? of

it we've represents of basis. from again very X% I mean, probably mean, but the had strongest said, years sales percentage strong. our strong, like revenue. outside in mean, is sales three I I I growth a inside

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from line of be with BMO. Thank next Daniel will you. The Jester the question

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taking for Thanks my Great. questions.

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Beti a You group. impacting that comment velocity kind made of of know, the you transition the that is,

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that be you So, to same going as bandwidth, the do selling you that the product? global team ramp with how deal and it's

you. is And you that green and then for? secondly, those Everyday you are just can Action clarify Center, charge Client Thank modules

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there with and period sure of payroll hours same difference It making days all doing believe week. and right so And achieve greater a first time, someone's sales realized. then Beti, I the their you're they're be on out having when earn out return by company, made days. product, other X.X you're of these or X And be for there a conversion, them, that not to a to even over once over the products. converted the the might can to X.X sell instead X call being getting Again, hour investment help that the we is ROI X, week X.X in

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Robert D.A. next with Davidson. Thank The of question Simmons you. will from the line be

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question. taking Hey. Thanks the for

be monetization? pay wondering, was you or does, modules would other per how model? Will different way terms works I employee same it per So, cycle do in work you it a of the do Everyday

per best cycles. now cycle, way it's pay to Yeah. Everyday, think of have pay but employee still per more The you

are annual And clients seeing Beti, for it. retention who are still on then, Got XX% you using it?

have can [bots it's ends we've large us we company. It's see $X.X it. number our The the benefactor retention, smaller up -- deal to because to people and you a been don't company the (ph) buying us, uses retention doesn't million have where converting let's did any company's updated some for we mean, the last very a merged. Beti, company -- small I of sold] but haven't a since convert off then We get not Beti, want leaving and Beti. smaller I that large say company

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it. Got much. Thank you very

from Ramnani will be line question next Piper of with The Sandler. the Arvind

Your line now open. is

for thanks taking my question. Hey,

Paychex on changed, your like, AC, talk competitive bit environment, So and you have put from I that or a has cycles pressure just can legacy kind players, first of the thing any going particularly is -- conversions? sales some has the of of about kind

a No. the said, I'd which, similar as multiple has very it's times. And I've been been environment's dog always I've competitive competitive. has, as it fight. always been that say said

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quick just really the tell income interest you then a And one, can contribution Terrific. us quarter? for

No.

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for increases of to have a takes quarters couple and rate, fed they funds in. in As that the it layer

said the what that's we've in past. so And

last of Ader Thank you. line with MoffettNathanson. comes the Jackson question And the from

is now Your open. line

guys. taking my Thanks questions, for

modules. or a your usage is start recruiting for the one And talent The see acquisition those recruiting demand markets. the or loosening the there either talent maybe labor first sort begins on seeing maybe or slow products curious to actually maybe to in I'm whether the if starting We're up, counterintuitive is loosen. some labor as to market like of pick products for you're

background say those as that's checks. a would product, say would and checks I stable. seeing how where see I Yeah. is talent it's acquisition it, background would are of I right but going. we you Pre-employment, see where it stable, It's start now.

up sales follow-up on when XX,XXX you're to Okay. fair. for Alright. market That's side, so the employees. then is – And the target increasing the

eye do and that go start hunting that don't So and the -- deal. your butter you just the terms bread Thanks. ball in out how the gigantic of there sure take and make off make deals sure they don't their salespeople outside

for them many is, of They to of it based all make It's don't that's off and they being so XX% that commission And I what is salespeople, achieved. any have that’s doing. that probably deals. much. ultimately, go XX% not Yeah. sure our mean, increase one you're larger make revenue Well will territory. after But, that, to a they going weekly quote based

You can we've market lot sweet of spot of focused a the off on. still achieve been that our revenue of

to of I've land to continue happen and companies world in mentioning I well. pulled because to We kind as it's right. that, of one mean, deal. we're market going these up just been go that market. not eventually, going reason I that's be mean, the to after there's no eventually largest

our got we've So, them. swings with take at-bats in our to

now Q&A back to session. the to would closing remarks. pass like for over Chad Richison I call today's concludes That

the I call today. thank want joining everyone to for

Conference and hosting the Leadership conferences. Tech and meetings Global at quarter, Francisco. in Deutsche we'll Over the At the Technology Tech next we'll the at Tech be September, be in of five meetings next Conference. hosting Forum. week, Exec Stifel the Bank at KeyBanc Citi be meetings Wolf hosting the end be August, at Summit Beginning New York TMT at San In we'll presenting Conference the we'll

many Operator, up forward may soon. look to you you We disconnect. of with catching

Thank call. your participation. for you That concludes today's conference

disconnect You your lines. now may