PAYC - Earnings call 3 2023 | Paycom Software, Inc.

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Operator

Good afternoon, and thank you for attending today's Paycom Software Third Quarter 2023 Quarterly Results Conference Call. My name is Chasson, and I'll be the moderator for today's call. [Operator Instructions]

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

James Samford

Thank you, and welcome to Paycom's earnings conference call for the third quarter 2023. the this to are and of our are statements on including historical expected XXXX. made Private forward-looking related the those future within statements call Reform not that facts, performance Securities Certain Litigation of Act meaning plans, objectives conference These this our date represent statements only as forward-looking the of outlook of call.

risks While reasonable, are differ to may the statements uncertainties. actual based and any our and materially statements expectations on made forward-looking believe results we this are current on call because subject

These most on our on including and risks discussed with filings in report and uncertainties recent are the SEC, Form quarterly Form our XX-Q. report annual XX-K

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

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

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

Chad Richison

everyone to joining thank and today. James, Thanks, our you call

and very our in All results profitability. innovations on our position. the We industry competitive that focus strong are delivered quarter Paycom third with transforming strengthening solid

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

the started Throughout and to And have by moving businesses products. core We industry we payroll payroll history, industry. HR use Paycom been the payroll shifted now HCM XX-year fundamentally in innovations transforming XXXX the and transforming have web. how our

none many with is more made industry have but employees their do-it-yourself when XX payroll. a than our years, and for delivers This to important We paradigm do shift own employees our payroll innovations for in value tremendous clients those Beti.

focus to and products, are payroll expanding our and current payroll global our of we for global with Mexico. Today, that innovating all on to we're Along we automating product enhance our product include international enterprises. continuing announced our HCM

During the Mexico own third employees employees Beti in payroll too. quarter, and their can, doing Canada now in started with

way have to a of continuing of result, shift as our are to X/X We help doing navigate the new things. to nearly And clients clients made the Beti.

the a from that? most is do get immeasurable. payment. the perfect getting value value For to friend better you make payrolls need How check perfect, oftentimes better their a don't payroll weekend the member to employees, them value they through the bill or full If is helping at and or are borrow family the We're available of to of measure perfect. employers when measure money

of elimination easy after-the-fact WXCs, value would they cetera, be voided the correction et billable. corrections et runs, Perfect checks, A that payroll to portion deposit manual the calculate direct it's receive payroll cetera. additional after-the-fact that eliminate value otherwise is that because by these adjustments, tax reversals, errors common payrolls wires, of require checks, payroll

savings Paycom. delivered from by recognized lower billings, related Paycom employees to more which in the payroll, client results future their the do the So own the greater revenue

and a we're guidance. of started. turn call review also long-term And employees Craig? as strategy. wish their just I to I'd Craig the I'll to execution for financials want commitment very With like birthday. getting XXth consistent more. look their to know, to you thank forward our happy Paycom our over a many for to I our of and that, many

Craig Boelte

Thanks, Chad.

results was up million prior payroll came my revenues We to as this our review and delivered Revenue with solid unscheduled year lower-than-expected basis. to the quarter earnings to XXXX, on a of fundamentally revenue our of everyone results below third would period will quarter our I growth. and strong non-GAAP in compared that result approximately a be financial $XXX.X quarter the related like guidance XXXX remind full for I for Before comments outlook fourth certain and and XX% runs. range year that service measures

as items. creates unscheduled usage tremendous and experience errors, As Beti otherwise and be Chad which mentioned, clients billable payrolls perfect they value adoption corrections and to payrolls, eliminate would

which Beti quarter. focus adoption our on usage, CRR lower net in GAAP $XX.X continue income was income addition, and cross-selling nearly delivered very EBITDA million third system based representing and diluted year-over-year. in strong overall XXX teams resulted on the shares third $XXX.X EBITDA XX of per basis In million adjusted and to adjusted approximately We share margin or XX%, over points Net revenues. was million, $X.XX up quarter

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

$XX paid During dividends. the quarter, million stock worth million we repurchased over cash nearly in of $XX and

As payable approved combined our dividend with million the of have we and remaining billion to September returned Board shares quarterly authorization in XX, XXXX, dividends, $X has We share our when have per have buyback of mid-December. million next we under retired X still stockholders. over $X.XXX nearly $XXX and

the third of marketing XX.X% for and quarter revenues. sales of Adjusted $XX.X XXXX was representing expense million,

total points our to expense XX including R&D footprint R&D invest XXXX. of total continue were portion, drive to up talent costs, in million volume. lead sales Adjusted basis the top in third revenues, of quarter capitalized to the Adjusted the third $XX XXXX and of year-over-year. quarter in $XX.X expand million XX.X% marketing was We hire or

in XX% quarter new our the in approximately continue we and increased efforts. rate capitalization invest expansion international The to as support products

GAAP quarter rate tax in XX.X%. came Third at

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

of including equivalents third of quarter cash Turning was very balance on sheet. $XXX to the ended sheet, total approximately and XXXX. and The $X.X average clients million million. of funds We of in $XX quarter billion the behalf the balance strong of debt cash balance held with daily a

turn me and upside been headwinds increases Throughout our model, XXXX, usage impact to corresponded let seeing in guidance Beti differently. to we inflation with that moderating Now from which macro client guidance. have each may

unscheduled Now cannibalizing the are it services billable ROI offer, items, of achieving eliminated our that a which Beti more clients certain has to and that is has revenues. portion

XXXX months are of of million expect to the representing we million, the range year XX XX% revenues usage, Based comparable on Beti $XXX the period data clients' prior midpoint on rate model. quarter approximately that over our a the growth factors, range. in our increased total incorporating With has impact $XXX at to ROI these achievement from we fourth of the be of

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

XXXX be of of at With billion our the QX results billion $X.XXX to and range. approximately range expect or XX% $X.XXX our revenues QX midpoint the now to growth guidance, the in fiscal we year-over-year

range. adjusted in track XXXX. margin, XX% $XXX range at EBITDA million, the of Combining revenue reach We on EBITDA the million the our an we're adjusted representing the $XXX in and margin nearly expected growth EBITDA of still to XX to of of expect midpoint adjusted Rule

strengthen strategic that initiatives out value a from number we have further clients look of our XXXX, to we the will As believe we receive offering.

making We feel best long-term our client with value and are decisions strategic our we are performance for that clients. relationship

is focus. mission to and is value, that Our client our ensure and achieve

the impact months assumes guidance the and for are we decisions from making. XX next be Our strategic revenue the will

prudent it early revenue We'll February. guidance to expectations XX%. we believe growth between we XXXX for As provide a have set for XX% in result, is when us visibility of and formal more year-over-year

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

Operator

first Our Instructions] is [Operator Raimo with from Barclays. Lenschow question

Raimo Lenschow

I'm Beti a more bit trying to get clarity impact. on the little

like sounds listening a issue or if kind to problem on. of for what's it the launched but main here So has for the I'm been it's while. Beti is you, But going -- it

for So kind impact we next so with to do like And Beti, the can you that think decisions Is year. link the we it of need do here? dramatically see strategic in broader now? or why revenue maybe

Chad Richison

first, that to mean, every pretty quarter to continues continued and this Sure. the almost guidance in one, year. to has us, the been close throughout usage to I Beti increase regards We've increase. for year first

so seeing the... of we're And And Craig, then, Craig accelerated what year. kind the kind of that Beti about moderating throughout impact And can add has. talked you

Craig Boelte

Yes.

correct So the Raimo, couple unscheduled quarter. relates areas. as I of and they to typically end in those some come moderating, were numbers of towards we the payrolls, a and I mean, payrolls obviously, have it different service in those that mean, to revenues runs it correcting of impacted the it

which impact, that's as for came little the the So on in then And of I prepared out services well CRR impact remarks. the quarter also light. the called as preemployment a the part

So of it items. combination was really those X all a of

Operator

next question Our Samana Samad with from is Jefferies.

Samad Samana

I'm I guess either organization, if in of with just count guess to we you on Just we the based just added the square the see the Yes, historically. want on late those head a we've XX% to kind to the XX% from I of I'm think thinking unpack a growth do dollars curious, XX% based growth in things mean it? follow would about levels of or trying I to add adding and cost that especially understand change early XX% how departure couple question. that up a XXXX. would things, dollars that 'XX significant should Raimo's you sales staffing pretty structure added be the 'XX? and I about on that's to I X in seen because offices

Craig Boelte

Yes.

the the wanted any is shaping I we're relates how something to of be do at. to we guys we'll thing Samad. XXXX would that's given of things One seeing as kind we now you looking an guidance up. indication be haven't what of as just would structure, with it some We expect give mean to cost

Samad Samana

that. I maybe on just, And a follow-on guess,

otherwise what that in terms are added help what customer represented forward? you or seats helpful. give going I of the new that revenue have Or new So maybe ARR assuming understand would -- number can about about that maybe added quarter update but in some gotten, XXXX? you of count you whether be efficiency can services that for that think you color for growth terms on any either of the any Just in in would us drives customers Beti's us maybe

Chad Richison

see now is these Sure. Cross-selling be as are CRR strong, remain very clients sales we group I what tell can on focused with that we about remain have. we sales to and inside very strong what down right mean current continues you outside we our

Operator

Stifel. Brad from is question next Reback with Our

Brad Reback

keep XXXX? revenue simple. Great. in I'll it any Is ERTC there

Chad Richison

impact. an mean called of have competitors I and revenue it some of -- know the going top I was have Brad, that out that to

are what client than a size. some in terms the of Our quite bit our hearing base competitors larger of from client you're

So of on I'm had credit. period, quarter file sure for to there retention and put most applying has of think not you or but were employee people moratorium that, IRS a I I of was would some the have some. second significant. the year the that first say by next end We kind a for And that it's

Operator

Marcon Our from Mark Baird. next is with question

Mark Marcon

breakdown clarify exactly Just not to what that does what seeing renewing revenue or on you efficiencies, to possible sales to strategic how some -- year? terms outside does that next of them? following And for mean? XX% on, regards does you're to Does with the impact seeing pairing CRR can the And taking you're decisions how how that growth? you're you strong in correspond mean XX% by it much the the out clients what that the Or potentially was of mean Is these other questions. what group? like

Chad Richison

XX, they're the to quarter. Well, question have client were that they're back running running used they be first was running now payrolls -- in And XX. to you Sure. supposed is, XX a may to a and

you of mean the thing. going on of have as lot eliminates so I a as And perfect with fixes. just well some payroll's just everything. that I a Beti it mean

the of with payroll half of their Beti month. own on are come their by clients the New employees first end and doing

are like inside new strong, is. Our I sales logo sales said,

it's that's And to weak. bit. I pretty a for been going mean, change little cross-selling, Our not

with of I client value. the trying not using mean full in and going base partner or it more value ensure receiving to the to available go achieving portion to not back them. we're they're keep to going a to We're the to sell products

will I base, And our to so is of say go-to-market. big not And a that's strategy related the here. part strategy our the

Operator

Our Schwartz Oppenheimer. question from next is Brian with

Ari Friedman

seeing talk it's sitting about This demand Schwartz. the just is is I to trended? what in like SMB in question for quarter Ari you last Friedman mid-market like just comparison -- in and I terms can how and you're terms the have a guess Brian of in of

Chad Richison

that what mean, Paycom and I with strong. about remains rest more through made that we've necessarily is and clients value. have before industry. that as big of to this. would there's I these well, I gone and our that of talking ones new in to not dedicated, Demand going to believe I shift things done specific the that we're of continue a mean happening we've something the things, we be get through think These are all very that onboard we've that stayed lot types we a great we've paradigm continue

on our and going what out current stay clients to we're doing for so focused [indiscernible]. And looking we're also and

Operator

next is Joshua question Reilly Our Needham. from with

Joshua Reilly

And much in customer of having XXXX the on guidance? an terms the QX of Has and that last how is any, anything couple of the quarters? in initial changed if impact, retention

Chad Richison

Sure.

And quarter on retention is call our our are October to way, surprise adjustment third larger-than-normal a since fourth achievements. no Said change have QX there expectations for changes gave nor the to we quarter any X. related our what guidance different neither expectation retention guide been I our for in would so in

Operator

Our from Citi. next Steven question is Enders with

Steven Enders

way of guess, guess, I net mean follow And gross first retention it's hasn't question. talking that the like is about quantify thinking be guess but as any change it net think the Maybe it guide? to a of just, teens here? even that year like low retention on of right more way to about in kind I for last to I changed, the dynamics. retention the of about all, view I next we you're that seems

Chad Richison

Sure.

a report in year gross once So we February. retention

said throughout fourth usually strongest I've before, the retention in As we quarter. the measure year. It's

February, client, as retention because that client and not When in using gross we specific were us. a revenue with client we'll client, revenue If looking specific one previously. retention transition to Paycom that It's strong them does we remains new they're their to billing at they something were new. they of that that so number. is system, impact if current retention the our And give to you're had Beti, future a a

as they a get is absolutely, billing. to great -- so it And continue reflected value of value, lot that is in reduced

in errors. portion overall they look, whoever of a for from Beti. value perspective, people all that's I went But the mean payroll and mean for the only the I employee the customer is loses. a would say mean, smaller the and old that the the the receive accolades company I model I that is getting fixing business

And with now. our in clients that we're to continuing work so

Operator

Siti Mizuho. next Our with from question is Panigrahi

Sitikantha Panigrahi

services of your or could offset even you like you pricing? have unscheduled revenue Chad, Beti any what Have seems free. Beti coming revenue now your to understood from changes get thought that this payroll? cannibalizing the about thought it strategically I revenue. for But that you services you some understand about even incremental I raising did from

Chad Richison

now, focused heavily actually we've mean and health got that while, differential new value kind the rollout saying the adopters. I've I the a clients the I continuing group. on Beti on revolutionary. to is unchanged I for the adopters, late paying mean they're achieving. what between what it tell be early our and indexes been I was go-to-market to right they're client And mean Yes. you many for I'm will value, on-the-Go, of it And still may right Beti's everything the by employees the see And mean rollout time People mean current the some that, They're way. the But usage, very strong. base, to need manager get is I I are mean do I and board. it's across client our Beti it. the to how to nuanced. fault. I way using Beti was not Beti's it, payroll.

Operator

next with from Bryan Bergin is Our question TD Cowen.

Bryan Bergin

XX% was if unpack to if -- And we understood growth this round sharp of before, there, think just been that's logo-driven. how in I XX%. have growth sounds It normal to trying new early like -- XX% about demand numbers, versus points we pretty XX I guess there's the figured would growth view. I'm your XX disconnect there's XXXX XX%, a algo around the but just

this? So with help can you just us

Chad Richison

our And Sure. type well factor always like new to within as I sales business cross-selling transition mean, make been new as of base again, mitigating strong. shift we sales any business a has this. remained

rep have In calls Beti. fact, the current and greater employees. first It's about We've And to only enterprise of most of Paycom. leads. we deals in XX,XXX get that got they've is targeting got plenty our rep they're than

we're But business go-to-market we're and issues regards that not new that, And it's make the we've on-boarding, logos I shift as with looking that. the far we're as that not paradigm to in to been making. mean having and so a changes

Bryan Bergin

Is using differently client occurring any that i.e., that Okay. the segment activity Beti it for impact? client having Is and it with usage? any seeing sizes, particular bigger that you're clients larger more

Chad Richison

more that's that. kind them say actually the through specific we what of client payroll and at they're upon the doing It's went setup would own and and dependent their how of we how I time up set kind of to also things. walked

in far were the it would the you correctly, As on much bigger have versus large the how on to other, as messing mean deployed up. you it really one does be potentially. impact get, impact companies. I But based larger a some if point,

And I don't. mean correctly. just don't I mean they to even it have payroll they do

our not to people fix way said, So standpoint, that mean is we've so to you're perfect make. -- company, And it's mistakes allowed been in it. with payroll old for the only mistakes that I then that person wins like model the charging years, from XX I the industry, to -- them we've I the about do company. dealing mean if care X-employee a their employees and do payroll? mean, I

at could we well, if runs. we all direct -- and many these changes reversals WXCs look new and and yes, eliminate have we're not mistakes, deposit payroll going to so And as tax

get to been value mean to helping would and/or will drive sales clients along today long-term we're the the and I making the us way. more. now anything, not dedicated But today achieve allow strategy we've with step. we're in share last or the me said and on decisions where group, If it, long-term we business we're say as our our value. being shareholders, at the in and I abandoning CRR of mitigating it That's we're leaning decisions one so for making to But regards I will we're today to Beti. them, changing get we're next our call,

Operator

next is Jason from KeyBanc. question Our Celino with

Jason Celino

Great. I'm just trying rate assumes exit the a kind at when these look And from it new growth also numbers. rate. QX, to unpack we of XX%

So is year for from that. the next early look deceleration a

I'm I if us, look you're does trying guess this headwinds? to So just wonder incremental imply early bookings giving it

Chad Richison

from Bookings go-to-market, our No. no.

Operator

Piper. with Our question from Ramnani is next Arvind

Arvind Ramnani

-- that's to see questions. of in just I initiatives kind X I is, the initiatives but strategic your revenue taking? like you're expand just I specific just the deceleration was our can guess, kind right on kind of, do had causing what One of for you you're client all strategic what's Can expand you you taking that on growth?

Chad Richison

We which to or specific the thread all can clients. we from to not with you I going not more and tell to what I'm base end full sure want are doing I we're to So we're doing strategic and pull. telegraph someone with they're base need making go-to-market I are our don't value. our these decisions to mean make that. our of new decisions than one don't what share can really hand achieving that

Operator

with from Our Bhavin Deutsche is next Bank. question Shah

Bhavin Shah

question. one just Chad, Great. and one clarification

is that on XX% is XX% base? due new changes seeing say that you're headwinds a to next the logo Or customer well? the in your all Just it year primarily side fair more clarifying that to bit those assumptions guidance, is to to little as

Chad Richison

I that talking previous the again, shift. logo change And within We're perspective. and/or not inside our a mean to say I'm we made new can't from anything We've not industry. shift. paradigm would it's a sales, about seeing regard it's logo paradigm statement. by my industry change No, sales no, new I not back go-to-market. that, outside and the And --

we've it at So mean going I hard that's X not been for And changing. years.

communicated in in a easier be our competitors. a would Windows first shift, are It companies I rodeo. world modem largest challenging XX XXX with using software the desktop be been like of to but make lot can 'XX install going the a paradigm our with it's mean to have on -- Some a to drive a or not Beti. back hard

XXXX, partner easier would in to have breed. In with it been best

our very necessarily on easy. consequently value, client what accelerate We and important the we we for drive So the the right me And doing things, drives for return value stay clients ourselves, investment. opportunities do do don't when we creates shareholder which what's to disciplined personally. is and

Operator

question D.A. next with is with Our Simmons Davidson. Robert

Robert Simmons

I international those next that potential much you ramp be in included would can think you guess revenue today how that a are do year? upside outlook generating that to Or efforts? And the your is how that quickly numbers? from Is for up? --

Chad Richison

we'll will -- to And to to product year, we focus what were doing Every initial is now, yes, be we been. Canada and own continue to that I August. we now market in global part was additional be on it mean core HCM be expansion will, it nod And will the X in pulled we believe be a focused Mexico up -- think was move now payroll you that employees employees do I the on, big right until not have already be. continues our countries. outlook, into as that have but I a their still of we're market. But trying Craig continued all -- forward. that more seeing as to pulled we're initiatives I next if give think up

Operator

with question next Pfau Blair. Our William Matt is from

Matthew Pfau

are? some change what macro from And items how one ask, XXXX demand a in can clarify from Any just initial the that of those Maybe headwinds inflation. you the you or there? Wanted you're then macro guide, perspective? were mentioned a big of anticipating to factor a

Chad Richison

headwinds, where that to macro it the we're from have. services seeing specifically related is we preemployment mean I

that's that would that through. more So in really I And carry to regards mean through. carries that,

Craig Boelte

next We the quarter expect year that well. into fourth as to carry and through into

Operator

Our is Adam of Bergere with question next America. from Bank

Adam Bergere

guess like there's from shareholder like of silver cost the win use there tangible you given move the savings open-ended, perspective? value. an pretty when kind I go since Beti. this It's but rates Like lining more helped up investor what's materially in with upmarket

to Just trying initial what period, about should other positives think cannibalization look as at this past side. the the like on like we

Chad Richison

Well, I Sure. think No, that's yes. actually a good point.

First within achieve a quickly. of it'd first current over should came this clients be of value. I all, And you our about said it we've to out I much produces I I think hope on ability see XXX% talking believe them as been thought all to help kind that transitory because and clients and it period. are value. continued -- move I the Beti

And it We be want we have to out they're to value to X/X real using. of of our able opportunity them Beti be clients with preserve that make also for opportunity sell Paycom of the the them. and value able has we to are want what to the on getting sure

Operator

with is question last Research. our And Alex from Zukin Wolfe

Aleksandr Zukin

typically maybe revenue? year, or maybe be then recurring you've down with the of shift this right what's revenue associated If versus clarifying something think guess some And just strategic about think revenue it elimination like I end or revenue. next services from for QX services detail, specifically about a implementation that I year? to to not services revenue, going is I significantly that one. way just that scheduled is level where provided trends of sounds it's but that know to implementation this for

Craig Boelte

of There's to the X then services and pieces. corrections there's to obviously, well. mean as do unscheduled some I Yes. going revenue be a those

mean, QX So our seen see you've as throughout a sequential you of kind QX. I history, to

those So them you of revenue runs, tell though those unscheduled, quite even that of to of relate and QX. in some there's can a bonus a services lot few

So we QX. as we QX, the looking into to really impact saw that's were out that

that's into why it for thought carry give going important of And we And over to was some look. to that that's initial us XXXX.

Chad Richison

of their we've the payroll. deployed we've doing ones Beti XX% clients our Beti, of own now And got -- of got the XX% of employees -- using employees are who have XX% their

So and to that eventually we then goes their with to continue base. client eventually, work XXX%

to showing it be And value actually up. so should in getting we're and And show efficient then will that's up be actually way the clients go-to-market. that's our us, -- if more say the if all to is works, would it more

right. all So

Operator

Paycom Software (PAYC) 31 Oct 232023 Q3 Earnings call transcript