Paycom Software, Inc. (NYSE:PAYC) Q1 2024 Earnings Call Transcript

Paycom Software, Inc. (NYSE:PAYC) Q1 2024 Earnings Call Transcript May 1, 2024

Paycom Software, Inc. beats earnings expectations. Reported EPS is $4.37, expectations were $2.43. PAYC isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon. My name is Terri and I will be your conference operator today. At this time I would like to welcome everyone to Paycom’s First Quarter 2024 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Thank you. I will now turn the call over to James Samford, Head of Investor Relations. You may now begin.

James Samford : Thank you. And welcome to Paycom’s Earnings Conference Call for the First Quarter of 2024. Certain statements made on this call that are not historical facts, including those related to our future plans, objectives, and expected performance, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this conference call. While we believe any forward-looking statements made on this call are reasonable, actual results may differ materially because the statements are based on our current expectations and subject to risks and uncertainties. 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. 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’ll now turn the call over to Chad Richison, Paycom’s co-CEO and President. Chad?

Chad Richison : Thanks, James, and thank you to everyone joining our call today. I’ll kick off the call with a few highlights from the quarter and then I’ll turn it over to Chris to discuss client trends and recent awards. Craig will then review our financials and our guidance before taking questions. Our product vision centers around eliminating redundant HR work, eliminating cost and allowing users to recoup valuable time in their day to add value to the organizations. In addition to our single database, which simplifies the client experience and reduces integration costs, another key Paycom differentiator is that employees input and validate their data directly into our HCM solution. With Paycom, employees do their own payroll, fixing errors before they become problems.

On our last call, we highlighted three key focus areas in 2024. Solution automation, client ROI achievement, and world-class service. Led by Beti, our solution automation initiatives continue to generate tremendous opportunities for our clients. We released more product enhancements in the first quarter than in the previous two quarters combined. We are leveraging AI and decisioning logic across our solution, adding more value and eliminating mundane non-revenue generating activities for our clients. A recent new client told us that prior to implementing Beti, it would take over two days to process payroll. With Beti, they complete the process in only 90 minutes. We’ve also automated time off decisioning allowing managers across the country to focus on value-added activities.

With GONE, our time off product leverages decision logic to automatically approve, deny, or warehouse time off requests by employees. This is a better experience for employees and delivers both time savings and efficiencies for workforce management and scheduling. On the client ROI achievement front, our success with Beti results in increased client ROI and is resonating with more and more businesses in the marketplace. Our clients already receive industry-leading ROI and we are focused on accelerating our product roadmap to drive even more value. Now with Beti, clients regularly tell us that their company runs much smoother when their employees do their own payroll. And I know this sentiment is shared across the client base of Beti users. We are changing the way payroll is done and our clients are telling us we’re right.

On the world-class service front, we are meeting clients where they live to help identify and close any gaps they might be seeing between their respective total available ROI and where they stand today. We are strengthening our client relationships with service and value achievement and I want to thank our employees for their incredible efforts on this front. It is working. Our go-to-market strategy continues to emphasize the differentiated nature of our offering and the significant benefits of doing your own payroll with Paycom. We are getting more leads thanks to Beti and we are seeing solid demand for our solution. At our recent sales incentive trip, we recognized our first sales rep to sell over $4 million in annual new business. It wasn’t that long ago that we celebrated the first sales rep to sell $1 million in annual new business.

We believe our unique value proposition separates us from the other disparate offerings in the market that require complex integrations and manual entry activities. We continue to make meaningful progress on the international front as we build on the momentum we achieved in 2023 and early 2024 when we released our global HCM product and announced the launch of native payroll in Canada, Mexico, and the United Kingdom. Today we are pleased to announce that we have developed and are launching our native payroll solution in Ireland. In less than a year since we announced our international journey we are already seeing US-based companies with an international presence look to Paycom as a global provider. While still early, I’m pleased to see that all the work on our international strategy is paying off.

In fact, we recently won a large international sports organization thanks to our multi-country payroll and HCM offering. This client will process payroll with Beti in multiple countries, and this win represents another proof point for our international strategy. While this is a great win for Paycom, I want to be sure to note that we remain highly focused on our US growth as we still have only an estimated 5% of the total addressable market. To sum up, I’m pleased with the progress we are making on our strategic initiatives and I look forward to building on the momentum we are seeing. With that, let me turn the call over to Chris.

Chris Thomas : Thanks, Chad. Our service and client relations groups continue to work very closely together to drive value for our clients. Usage of our system continues to increase as more employees interact directly with their data. Our average DDX score continues to rise and is above 95% across our client base today. Our innovative technology and our client ROI achievement strategy are key drivers of satisfaction and bolster our world-class service model. In fact, we were very pleased to receive several awards that highlight the strength of our relationship with our clients. Most recently, we were recognized as the 2024 winner of the Excellence in Customer Service Award by Business Intelligence Group. It’s gratifying to receive recognition from an organization for our hard work and dedicated focus on our clients.

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

Craig Boelte : Thanks, Chris. Before I review our first quarter 2024 results and our outlook for the second quarter and full year 2024, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. First quarter revenue of $500 million was up 11% over the comparable prior year period. Within total revenues, recurring revenue was $492 million for the first quarter of 2024, representing 98% of total revenues for the quarter and growing 11% from the comparable prior year period. We delivered strong net income and adjusted EBITDA in the first quarter of 2024 with GAAP net income of $247 million or $4.37 per diluted share based on approximately 57 million shares. Included in our GAAP results is a one-time non-cash stock compensation benefit of $118 million related to the forfeiture of the 2020 CEO Performance Award.

Non-GAAP net income for the first quarter was $147 million or $2.59 per diluted share. First quarter adjusted EBITDA of nearly $230 million was better than expected primarily due to higher revenue and expense discipline and represented a margin of 45.9% for the quarter. During the first quarter, we paid over $21 million in cash dividends and earlier this week, the Board approved our next quarterly dividend of $0.375 per share payable in mid-June. We still have approximately $796 million remaining under our buyback authorization as of March 31, 2024. Adjusted R&D expense was $45 million in the first quarter of 2024, or 9% of total revenues. Adjusted total R&D costs, including the capitalized portion, were $71 million in the first quarter of 2024, compared to $55 million in the prior year period.

We continue to invest in our long-term future growth in areas of automation, AI, and international. Our tax rate for the first quarter of 2024 was 15% on a GAAP basis, reflecting the benefit of the forfeiture of the 2020 CEO Performance Award during the quarter. For Q2 and the full year 2024, we anticipate our effective income tax rates to be approximately 33% and 22%, respectively on a GAAP basis. We estimate Q2 and full year 2024 non-GAAP effective tax rate to be 25%. Quarterly fluctuations in our effective tax rates are generally due to the timing of stock compensation vesting and related tax effects. For the remainder of 2024, we expect stock-based compensation expense to be approximately $33 million per quarter. Turning to the balance sheet, we ended the first quarter with a very strong balance sheet including cash and cash equivalents of $371 million and no debt.

The average daily balance of funds held on behalf of clients was approximately $2.6 billion in the first quarter of 2024, up 8% year-over-year. On the capital expenditure front, our fifth building in Oklahoma City is substantially complete and will be placed into service in the second quarter. While we continue to estimate total CapEx as a percent of revenues to be approximately 12% in 2024, we also expect that percentage to decline beginning in 2025. Now let me turn to guidance. For fiscal 2024, we are maintaining our revenue and adjusted EBITDA guidance ranges, with revenue expected to be in the range of $1.860 billion to $1.885 billion, or approximately 11% year-over-year growth at the midpoint of the range. We expect adjusted EBITDA to be in the range of $720 million to $730 million, representing an adjusted EBITDA margin of approximately 39% at the midpoint of the range.

We remain on track with the full year plan we put in place at the beginning of the year and are beginning to see positive responses from our strategic initiatives. For the second quarter of 2024, we expect total revenues in the range of $434 million to $438 million, representing a growth rate over the comparable prior year period of approximately 9% at the midpoint of the range. We expect adjusted EBITDA for the second quarter in the range of $151 million to $155 million, representing an adjusted EBITDA margin of approximately 35% at the midpoint of the range. We continue to focus our efforts on executing on our plan and building momentum. We have a differentiated product, an industry-leading value proposition, and a solid foundation to build upon.

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

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Q&A Session

Operator: Thank you. [Operator Instructions] Your first question comes from the line of Raimo Lenschow of Barclays. Please go ahead, your line is open.

Raimo Lenschow: Perfect, thank you. Two quick questions, one for you or for the two of you Chad and Chris, if you think about the strategic initiatives that you’re kind of talking about, can you frame them in the — how does it compare to what — first of all — what are you doing there? Maybe you could be more specific. And then also, how does it compare to or kind of relate to what you see in the market in terms of end-demand, headwinds from less new hiring et cetera. Just frame a little bit like and what’s going on in the market versus what’s going on at you? And then my following question is for Craig. Can you speak to the benefits or extra benefits you might see from less rate cuts this year? Is that kind of helping you or how does it play into the model? Thank you.

Chad Richison: Sure, so I’ll take the first one Raimo. And so our client value achievement strategy, or as you called it, the strategic initiatives that we’re working throughout the year really have to do with meeting clients where they live and making sure that they are achieving the full value of ROI that’s available to them through the appropriate usage of our software. And so we’ve been focused on that. We did call that out in October 31st, actually, when we reported, we did call out that we’re going to be really focused on that. All of those initiatives are in efforts to continue to drive improvements in retention and again, be able to set clients up to achieve full value because we do have additional products for many of these clients that can really help them out once they’re utilizing the product correctly that we’ve already implemented.

And I’m going to say that’s in regards to our current client base. From a new client base perspective, we’re focused on our sales initiatives and those have been, you know, unchanged as we’ve moved throughout the year as far as what our focus is there.

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

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

Mason Marion: Hi, this is Mason Marion on first, Samad. Thanks for taking our questions. 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 to those in your guidance?

Chad Richison: You sound exactly like Samad. So churn new bookings POV assumption. What is the — I’m trying to think. Can you maybe refrag, can you say that question again?

Raimo Lenschow: I’m just trying to better understand what you’re factoring into your 2Q assumptions and maybe for the back half the year around what you’re seeing from a new bookings perspective and from a churn perspective?

Chad Richison: Yeah, stability. I mean from a new bookings perspective, you know, we are seeing improvement in that. You know, 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 you know we feel good about how that’s working.

Raimo Lenschow: Great, thank you.

Operator: Your next question comes from Mark Marcon of Baird. Please go ahead, your line is open.

Mark Marcon: Hi, good afternoon and thanks for taking my questions. Chad, I was wondering if you could talk just a little bit about what you’re seeing in terms of variance, in terms of sales performance across the various offices. You did mention that you’ve got 1 quota carrier that achieved over $4 million. And so that obviously seems very strong. But on the other hand, we’ve had a little bit of a deceleration with regards to the revenue growth rate. And so I’m just wondering, when you talk to your sales leaders, and you obviously made some changes there, what are they seeing out in the market? How much more difficult is it to get new sales? There have been some investors that have been asking about saturation in the mid-market. I’m wondering what your perspective is with regards to that.

Chad Richison: Yeah, so I guess first I would say our best offices are going to have the best managers regardless of geography. And I think, there for a couple of years, Tulsa was number one, and it’s a city of 400,000 people. We’ve been in that city for 22, 23 years. So your best office is going to have your best manager. From a saturation perspective, that’s no — there’s no such thing as saturation in the mid-market. I mean, you’ve had the same players for a long period of time. We’re all very competitive in the market. We have about 5% of the total addressable market available to us. And so, no, I wouldn’t say it’s from a saturation perspective. It comes from appropriate management, appropriate training, and appropriate leadership.

And as we’ve gone through the year, we’ve gotten better and better. And can call out that we are having accelerated sales if you look at the last two months of this year versus the first two months of this year from a bookings perspective. And that’s not to say that the first two months were bad. It’s just to say that we are getting better and better at how we move product.

Raimo Lenschow: That’s great. Can you talk a little bit about what you’re doing with regards to the internal sales group that typically does the up sales, how are you structuring commissions, is there still a mandate that new clients have to have Beti. And where do you stand with the Beti penetration within the existing client base?

Chad Richison: Yeah, 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 are receiving full value of using the system that they have already purchased before we move forward. Selling them additional products, they’ve done a good job with that. There is no change as far as what their focus is from that, but we are seeing the positive impacts from that.

Raimo Lenschow: Thank you.

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

Unidentified Analyst: This is [Cam Delavi] (ph) sitting in for Brian Schwartz. Thank you for taking my question. 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? And then just additionally, thinking about just the pipeline momentum, is there anything you guys can provide qualitatively about how the pipeline is building in 2024? I know you guys had mentioned stability, but any other commentary regarding how that is building. Thank you.

Chad Richison: Yes. So first around sales capacity. Our sales capacity numbers, again have gotten a lot more improved, I would say, over the last two months or three months from that perspective. It would be too early to say exactly when we would be opening up additional offices because, as you know, we take a current manager that’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. And so how quick we are able to — how quickly we are able to open up additional offices is really dependent upon that backfill bench and how we are doing there. And so we have continued to have success building that out, but also key for us is we have 55 sales teams right now and it’s making sure that all of those are performing at top levels. And that’s a focus that we’ve had going throughout 2024. Commentary on pipeline. Pipelines are very strong.

Unidentified Analyst: Okay, awesome. Thank you so much. I appreciate it.

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

Joshua Reilly: Yeah, thanks for taking my questions here. Can you give us a sense how is the preemployment services revenue trending for the year relative to your maybe expectations leading into the year? And remind us how correlated is that revenue stream to job switching versus any other factors that we should be considering there?

Chad Richison: Our unemployment services are stable is the way I would categorize that. They’ve been stable. They are 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 are seeing this, I’m just saying if the company did have increased turnover, then they would have — especially if they are set up for new hire background checks, then they’re going to have to work those obviously. We don’t have any of that to call out from an additional employees leaving clients and going to others any more so than what it’s been in the past. Again, there was a period of time there in COVID, where that is happening maybe a little bit more than what you would see in times like today. But we don’t have anything to call out significant to that product.

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

Craig Boelte: 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 is 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.

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

Steve Enders: Okay. Great. Thanks for taking my question. I guess maybe to dig into the guide a little bit more. It seems like sales performance has improved the past couple of months or was better than first couple of months. And I guess with rate environments may be staying in a little bit higher — I guess would have expected maybe a little bit better of a guide here. So I guess is there kind of like any change in assumptions or maybe help me kind of think through why the guide has been maintained versus maybe some of the green shoots that would impact that?

Chad Richison: 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 timelines. And we’ve said, I mean even at the beginning of this year that it would be back-end loaded because of the many both client value achievement strategies, as well as the work that the CRRs and the other groups are performing. And so we’ve been focused on that. And as we go into any quarter, we are focused on maintaining what we believe are going to make the largest impact on the client base to help them achieve the greatest ROI, so we can go forward.

I’ve said it many times that it’s a lot easier to sell a client an additional product and to get them to actually use it. And we’ve implemented several strategies to make sure that clients are able to utilize and achieve a full client ROI in value before we sell them another product. And in many cases before we even will build them, even though, we’ve sold it. We want to make sure they are utilizing the product before we even build them. And so these are some initiatives that have delayed certain revenue opportunities for us, but they set us up for those things as well. And so that’s been important for us to continue to focus on that and really meet every client where they are living so that we can help bring them through the rest of the Paycom journey.

Steve Enders: Okay. That’s helpful. Maybe just to slip another one in here, I guess, maybe ask it differently. Just I guess if we think about the guide today versus 90 days ago, like maybe how are some of the underlying assumptions different today than they were before.

Chad Richison: They’re not. Not changed.

Steve Enders: Okay, all right. That’s helpful. Thank you.

Chad Richison : Thank you.

Operator: The next question comes from the line of Kevin McVeigh of UBS. Your line is now open.

Kevin Veigh: Great. Thank you. I don’t know if you said it on the call if you did — I missed it. How much stock did you buy back in the quarter?

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

Kevin Veigh: Okay. Great. And then it seems like the margins really overperformed. Was that a function of maybe not being able to hire certain folks you wanted to or just better expense management? And how should we think about that if possible, over the balance of the year?

Craig Boelte: I’d say better expense management for the quarter. I mean, we have given the full year adjusted EBITDA guidance, we will continue to look throughout the model for efficiencies. I mean, yes, right now we are like 39% adjusted EBITDA margins. And so still best-in-class and looking at additional efficiencies.

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

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

Craig Boelte: 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.

Chad Richison: 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 are 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. So — but I don’t know that you would necessarily see anything that would have changed the impacts with the small business and they’re just traditional ways of attrition. And again, I’m talking about the small business portion of our revenue.

Operator: Thank you. Your next question comes from the line of Siti Panigrahi of Mizuho. Your line is now open.

Phillip Leytes: Hi, guys. 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?

Chad Richison: 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. So I mean, it’s 2024 and to think that any company would buy or implement a system, whereby the payroll department inputs and imports data to do the payroll, I mean, it’s crazy. I mean if a company wants to do that, they might as well drive to the office throwing money out the window and run every stop light because they don’t care about liability.

I mean to me, it’s all going to automation. That’s what’s important, that’s how you do something consistency, the same way and actually achieve value. And so that’s what we’re doing over in product. I did call out on the call that we did put out more product this quarter than we had the two previous quarters combined, and we are just accelerating from there. So it is an exciting time to be in product because you’re able to really utilize technology today to make an impact. And I believe we’ve been at the forefront of that, and we are accelerating it.

Operator: Your next question comes from the line of Jared Levine of TD Cowen. Your line is now open.

Jared Levine: Thank you. My first question, how should we think about the sequential headwind to 2Q revenue growth from the annual form filings revenue recorded in 1Q?

A – Chad Richison: There wouldn’t be any headwinds in there into Q2.

A – Craig Boelte: Not the Q2…

Chad Richison: I don’t know that. That sequential drop versus last year, is that — I don’t know –.

James Samford: Yes. Obviously it is 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 are in-line with expectations.

Chad Richison: Yes. But we have called out for the last seven years, eight 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. But other than that, it is been the exact same services since 1998. And so it represented a larger percentage for us in revenue during the first quarter can go way back. And then over time, that percentage has dropped not because it’s going down or we are charging less but because of the other fees, services and additional products now that just represent a larger percentage of that revenue for the quarter.

Jared Levine: Okay. And then as my follow-up, any reason why you cannot shift towards [indiscernible] based pricing for payroll? And is this something that you’ve considered or you anticipate considering in the future?

Chad Richison: 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 win. So that includes all the initiatives that would go into that. So I’d just stop with that.

Jared Levine : Got it. Thank you.

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

Zane Meehan: Great. Thanks for taking our question. 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? Thanks.

Chad Richison: No, I wouldn’t say there has been a 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 are 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 it the most. So — we’ve been able to leverage that. We’ve made that shift. We’ve been leaning into that. To some extent, our messaging around that as we made that shift, could have been better.

And I think, that we’ve corrected course on that as we work with every client to move them toward that. From a go-to-market perspective, though that’s why clients’ companies are calling us. I mean, they get to the point of how many back-end people can they hire to even do this work and then correct at all. And so we do have the best process. People are trusting it more and more. As more and more companies have been deploying Beti. Every client’s deployed Beti since July of 2021. New client that we’ve brought on, and they’ve had a lot of success with both that product as well as the suite of products that goes around it as well. And then now we’ve announced GONE. I mean, the amount of time that managers and a company spend on managing PTO is just incredible.

And 50% of all PTO requests in the US, over 50% of them are approved after the PTO has already been paid. It is already been taken and paid. So people aren’t managing it. And 19 states require you to pay it out when someone leaves. And so that’s just ONE category, but what I’m saying is – there is ROI available to our clients everywhere, and it’s important that we meet them where they’re at currently and be able to display that throughout our sales calls. We’ve gotten better and better at that as we’ve continued to re-enhance our training — sales training programs as well as our go-to-market strategies and lead generation.

Zane Meehan: Great. Super helpful. Thank you.

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

Bhavin Shah: Hi, thanks for taking my question and two for me. The first one, just, Chad, can you just maybe talk about the promotion of Amy Walker at a head of sales at the beginning of the quarter. Can you just elaborate on this [Susan] (ph)? And any changes to the go-to-market strategy that we should expect over the coming quarters or years?

Chad Richison: 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.

Bhavin Shah: Got it. And then Craig, can you just maybe help quantify some of the headwinds that you guys are seeing for revenue from your strategic initiatives when there is less paper control due I mean let’s payroll runs through to Beti or even some of the other clients success measures that you talked about today that are kind of impacting revenue?

Craig Boelte: I mean what we talked about was some of those less runs because of Beti, I mean Beti making it more efficient for clients and 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.

Chad Richison: And a lot of that corresponds to how we are working with our current clients, as well in regards to utilization of Beti.

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

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

Chad Richison: 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. And so it’s everywhere. I mean, in answer to your question, it’s everywhere. And we’ve been working on that. I’ve been working over in product and we’ve been having an exciting time doing it. And the world’s our oyster right now in regards to that.

I believe we’ve always been the leader and what’s new and innovation. And we have opportunities to continue to accelerate that, especially now that we are all focused in the same model from a product development perspective.

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

Chad Richison: 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. Now in regards to that, you also have clients that are utilizing the native payroll and Beti that we have in the countries of Canada, Mexico, the U.K. and now Ireland. I believe we’ve put out Canada, I say, July of last year maybe. And so that was the very first one that we’ve done. And I would say, well inside of 12 months, we’ve completed three more.

We didn’t start with the easiest. And there is still a couple of hard ones out there. I can tell you that. We are developing the areas where our US-based clients have the largest number of employees and then kind of as we look internationally, we’re able to really look at — if you look at it from a whole, we believe that 20 or so countries. I believe it is actually around 18 represent over 80% of the opportunity available to us. And so we’ve continued to focus on those.

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

Chad Richison: All right. Thank you for joining our call today. I do want to acknowledge and celebrate our 10th anniversary as a publicly-traded company. I want to thank all employees who have contributed to our success and set us up for the next decade of innovation and growth. Over the next couple of months, we’ll be attending the Needham Conference in New York on May 14, the Jefferies Conference in Newport on May 29 and presenting at the Baird Conference in New York on June 6. We look forward to engaging with many of you again soon. Operator, you may end the call. Thank you all.

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