Paycom Software, Inc. — 2024 Q1

This is Mason Marion on for Samad. So looking at your guidance, can you kind of elaborate on what you're seeing from a churn new bookings perspective and how -- and the assumptions that you have for those in your guidance?

You sound exactly like Samad. So churn, new bookings POB assumption. What is the -- I'm trying to can you maybe -- can you say that question again?

I'm just trying to better understand what you're factoring in to your 2Q assumptions and maybe for the back half of the year around what you think from a new bookings perspective, from a churn perspective?

Yes, stability. I mean from a new bookings perspective, we are seeing improvement in that. Retention is something that we call out at the end of the year, but all of our initiatives that we're working through our client value achievement are set to have an impact on that, and we feel good about how that's working.

Yes. And so I guess, first, I would say, I mean, our best offices are going to have the best managers regardless of geography. And I think there for a couple of years, Tulsa was #1, and it's a city of 400,000 people. We've been in that city for 22, 23 years. So your best office is going to have your best manager.

Yes. So there's no change with what the CRR groups have been doing. They've been making significant impacts for us and the client value achieving the strategy. Again, meeting clients where they are today, making sure they're receiving full value of using the system that they've already purchased before we move forward. Selling them additional products, they've done a good job with that. There's no change as far as what their focus is from that, but we are seeing the positive impacts from them.

This is Camden Levy sitting in for Brian Schwartz. My question is around sales capacity. How do you guys feel about the quota carrying like sales capacity of the business? And are there any plans to increase the number of sales offices in the second half of this year or early 2025?

Yes. So first around sales capacity. Our sales capacity numbers, again, have gotten a lot more improved, I would say, over the last 2 or 3 months from that perspective. It would be too early to say exactly when we would be opening up additional offices because, as you know, we take a current manager that's successful, relocate them to a new territory to open up an office and then we backfill them with salespeople who are ready to be sales managers.

Our unemployment services are stable, is the way I would categorize that. They've been stable. They're somewhat going to be a reflection of the new clients that you bring on as well as the current client trends. Yes, I mean I would say that increased -- if you do -- I'm not saying we're seeing this, I'm just saying if a company did have increased turnover, then they would have -- especially if they're set up for new hire background checks, then they're going to have to work those, obviously.

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

Yes. I mean our guidance for 2024, I mean, it included -- I mean, we gave this guidance for the first time, we've given -- we had talked about what we were going to do. I think it was October 31 of last year. And so the guidance at that time included our many organic initiatives that were designed to set us up for 2025. And so we've been sticking with those disciplines and time lines.

They're not. They're not changed.

Yes. We didn't call it out on the call. It was a small amount, I think like $3 million.

I would say better expense management for the quarter. I mean we've given the full year adjusted EBITDA guidance. We'll continue to look throughout the model for efficiencies. I mean yes, right now, we're like 39% adjusted EBITDA margins. And so still best-in-class and looking at additional efficiencies.

It's Ryan Krieger on for Alex. So first one, just to touch on margins again. You kind of previously talked about leaving a little bit of room for potential incremental investment this year. So I'm just curious what are the top investment priorities that, that optionality could be earmarked for?

Yes. So on the cost side, I mean, obviously, we've continued to spend aggressively in the R&D area as we announced the launch of Ireland this quarter. So that's one area that we're continuing to spend heavily on. And then obviously, the one that you can pull some levers on would be the sales -- or the marketing side of the sales and marketing.

And from a customer attrition standpoint, we did call out last quarter when we reported retention, the impact that the small business group, which we got into really in 2020 that, that had on our retention rate. We're not calling out any -- updating the retention rate today other than to say, I don't -- and again, the small business represents 3.5% of our overall revenue-ish.

It's Phil on for Siti. I just wanted to ask, it sounds like you guys are heavily investing into the product to several enhancements. What are some key features that you're working on? And when can we maybe hear more about them?

Yes. So we did roll out GONE fourth quarter, and we continue to put people on that. From an automation perspective, I mean, we've got several things rolling out throughout this year. We don't disclose what we're developing and/or what we've done until it's actually out in the market. But we're having a lot of success in product and really around automation. That's very important, and I believe that's wins.

There wouldn't be any headwinds there into Q2.

Not in the Q2...

Sequential drop. Oh, sequential drop, I mean, I don't know that, that sequential drop versus last year, is that -- I don't know if they have...

[indiscernible].

Yes.

Obviously, it's factored into our outlook. And as far as the sequential drop, we'll see there. And then as we probably could comment on forms filings, we're in line with expectations.

Yes. But we have called out for the last 7, 8 years that over time, the percent of the quarter that your forms filings would have, the percent of revenue that it would represent over time is going to be lower and lower because we've added additional products and additional services. But we really haven't added anything to our year-end forms filing. I mean it's been substantially the same service types. We added one thing to it in 2016, and that was the ACA form.

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

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

No. I wouldn't say there's been change in competitive market. I mean it's always been competitive always. And any time I've been asked about this, I've said it's been competitive. I do think that there's differentiating strategies out there. And I like ours when it comes to automation and really being able to utilize the employee base to leverage that ROI, which they're the ones that care the most about their check and what's happening to their financial situation and hours and health insurance and everything else individually because it impacts them the most.

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

I mean what we talked about was some of those less runs because of Beti. I mean Beti is making it more efficient for clients in eliminating some of that. And I mean that's better for the client. In the end, that's really a better process for the client, a better situation for the client. So we call that out that we would start to -- we're starting to see those. And most of those are going to -- a lot of those are going to run through the first half of this year. And then towards the back half of the year, we won't see as large of an impact.

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

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

Sure. And so separating two things. First, I would want to separate our global HCM product from the native payroll developments that we've done. So from a global HCM product perspective, we have clients that are utilizing that product globally on the HCM side that are not running international payroll through our system, but they're getting value through the HR side of our system by using our global HCM product.

All right. Well, thank you for joining our call today. I do want to acknowledge and celebrate our 10th anniversary as a publicly traded company. I want to thank all employees who have contributed to our success and set us up for the next decade of innovation and growth.