Earnings Call: Q1 2021

May 4, 2021

Hello. My name is Philip, and I will be your conference operator today. At this time, I would like to welcome everyone to the Paycom Software First Quarter 2021 Quarterly 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. First. Thank you. And now I'd like to turn the call over to your host, Mr. James Henford. Please go ahead. Thank you. Welcome to Paycom's Q1 2021 earnings conference call. Certain statements made on this call 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 ks and our most recent Quarterly Report on Form 10 Q. First. You should refer to and consider these factors when relying on such forward looking information. Any forward looking statements 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, quarter, including adjusted EBITDA, non GAAP net income, adjusted gross profit, adjusted gross margin and certain adjusted expenses. Call. We use these non GAAP financial measures to review and assess our performance and for planning purposes. The reconciliation schedule showing GAAP versus non GAAP results is included in the press release that we issued at the close of the market today and is available on our website at investors. Pay com.com. I'll now turn the call over to Chad Richardson, Paycom's President and Chief Executive Officer. Chad? Thanks, James, and thank you to everyone joining our call today. I will spend a few minutes on the highlights of our Q1 2021 results, call, and I'll review the progress we are making on our goals for 2021. Following that, Craig will review our financials and our guidance, and then we will questions. But first, I want to thank my colleague and good friend, Jeff York, for his many years of service leading our sales organization over the last 14 years. Call. Jeff has built a sustainable sales organization with a deep bench of like minded professionals. I look forward to continuing to work with him in his strategic leadership role. Call. One of those like minded individuals is our new Chief Sales Officer, Holly Viro. Holly is a true success story at Paycom. Her 14 year career with us began with an internship in the sales organization. Ollie quickly progressed into a top sales rep, quarter, a top sales manager and a top regional sales manager earning many of the company's highest sales ranking awards along the way. Call. In 2016, she was asked to further expand Paycom's client relations department, which presents additional products to clients and focuses on creating value by increasing employee usage. Holly has been instrumental in contributing to the success of Paycom across the entire sales organization, and I'm confident she will continue to build on the momentum we are seeing. We delivered strong first quarter results call even with a tough pre COVID year over year comparison. Our 2021 Q1 revenue of 272,200,000 grew 12.3% compared to the prior year period and came in above the top end of our guidance range despite quarter, several previously identified headwinds. Unsurprisingly, the Q1 revenue was impacted by lower forms, filings and adjustments quarter due to lower hiring trends in industries most impacted by the pandemic in 2020. Excluding forms, filings and adjustments revenue, our year over year recurring revenue growth accelerated again in Q1. As we go through 2021, we will have a leaner comparison that will provide a true reflection of our revenue growth profile since the arrival of the pandemic. Turning to profitability. Our first quarter adjusted EBITDA was $133,000,000 representing adjusted EBITDA margin quarter of 48.9%. As reflected in our updated guidance, which Craig will discuss, we believe the combination revenue growth and adjusted EBITDA margin makes us well positioned to exceed the rule of 6 feet in 2021. Our marketing plan continues to work very well, delivering strong demo leads in the Q1. We continue to see success from our advertising spend, and we intend to continue to spend aggressively to fuel future revenue growth and expand a roughly 5% market share quarter and a large and expanding HCM TAM. We are capitalizing on the shortcomings of disparate HCM systems with the value position for Paycom's single database solution that is stronger than ever. Employees expect their HR software to be efficient and easy to use. In fact, in a recent survey we commissioned with a 3rd party, employees expressed frustration with complex and disparate HR software that lacked the transparency and clarity and usability they've come to expect from consumer oriented technologies. Paycom's employee usage strategy and single database solutions squarely addresses these expectations. We had record high employee usage rates in Q1 as measured by our direct ad exchange or DDX. Call. This is fueling new opportunities for product innovation and automation for products like Betty, our better employee transaction interface for payroll, which we started rolling out to a select few clients during the quarter. Betty is already receiving high marks as it transforms the way payroll is done. Call. I believe over the next 12 to 18 months, Betty will become the standard for how payroll should be done. Quarter. Now that the Q1 is over, we have substantially lapped the pandemic's impact on our comparable year over year numbers. Call. The pandemic had on our pre pandemic client revenue remains stable. While we haven't seen any material improvement in employment trends at those same clients, our forecast and future growth initiatives are not dependent on any improvement. Quarter. Our strategy throughout the pandemic has remained unchanged. We will continue to focus on the 3 controllable activities of providing world class service to our clients, rapidly developing new technologies and increasing the number of new clients added to our platform. Call. We've done a great job and succeeded in these areas, which has kept us on track to achieve our growth initiatives. I'd like to thank our employees for their patience, flexibility and grit over these last 14 months. In summary, now that we've lapped Q1's tough year over year comparison with the last pre COVID quarter. We expect that the strength of our growth profile will be reflected in our future results. The record new business revenue and record number of new clients added in 2020 combined with robust first quarter sales is bolstering our long term revenue growth opportunity. As a reminder, quarter. We only have approximately 5% market share of a growing TAM, so we have a long runway ahead of us. Our strategy is working and our products have never been more relevant. Quarter. With that, I'll turn the call over to Craig for a review of our financials and guidance. Craig? Before I review our Q1 2021 results quarter. In our outlook for the Q2 and full year 2021, I would like to remind everyone that my comments related to certain financial measures will be on a non GAAP basis. Call. As Chad mentioned, we are pleased with our Q1 results with total revenues of $272,200,000 quarter, representing growth of roughly 12% over the comparable prior year period, which was primarily driven by new business wins, including very strong new client revenue starts in the Q1. Within total revenues, recurring revenue was $267,800,000 for the Q1 of 2021, quarter, representing 98% of total revenues for the quarter and growing 12% from the comparable prior year period. Call. As expected, the effects of lower headcount on our pre pandemic clients and the impact of 150 basis point interest rate cut call that occurred in March of 2020 remained relatively unchanged. In addition, as we discussed on our Q4 2020 earnings call, call. Your employees working in industries hardest hit by the pandemic and lower overall turnover in those industries quarter. Resulted in fewer annual forms, filings and adjustments. It is difficult for us to estimate the exact amount that those trends impacted us, call. We don't believe it was dramatically different from our expectations. Total adjusted gross profit for the Q1 was 236 $900,000 representing adjusted gross margin of 87%. For 2021, our target adjusted gross margin range quarter is expected to remain strong at approximately 85% to 86%. Adjusted total administrative expenses were $118,800,000 for the Q1 as compared to $108,400,000 in the Q1 of 2020. Adjusted sales and marketing expense for the first quarter of 2021 was $59,300,000 or 21.8 percent of revenues. We continue to we're very pleased with our marketing strategy with another quarter of very strong demo leads and we plan to continue to invest in marketing throughout the remainder of 2021. Adjusted R and D expense was $23,100,000 in the Q1 of 2021 or 8.5 percent of total revenue. Adjusted total R and D costs including the capitalized portion were $34,000,000 in the first quarter 2021 compared to $27,600,000 in the prior year period. We've been aggressively recruiting talent in R and D to drive our Future Growth Through Innovation and New Product Development. Adjusted EBITDA was $133,000,000 in the Q1 of 2021 or quarter, 48.9 percent of total revenues compared to $117,900,000 in the Q1 2020 or 48.7 percent of total revenues. We benefited from cost efficiencies in G and A, quarter, which we expect to continue throughout the year. We plan to continue to invest into marketing and R and D. Our GAAP net income for the Q1 was $64,600,000 or $1.11 per diluted share versus 63,000,000 quarter $1.08 per diluted share in the prior year period based on approximately 58,000,000 shares in both periods. Non GAAP net income for the first quarter of 2021 was $85,900,000 or $1.47 per diluted share versus $77,900,000 quarter $1.33 per diluted share based on approximately 58,000,000 shares in both periods. We expect call. Non cash stock based compensation for the Q2 of 2021 to be approximately $27,000,000 to $28,000,000 quarter. For the full year, we anticipate non cash stock based compensation will be approximately $105,000,000 to 110,000,000 quarter. Turning to the balance sheet. We ended the Q1 of 2021 with cash and cash equivalents of $215,100,000 quarter. We have a total debt of $30,500,000 related to construction at our corporate headquarters. Cash from operations was 89 $500,000 for the Q1, reflecting our strong revenue performance and the profitability of our business model. The average daily balance funds held on behalf of clients was approximately $1,700,000,000 in the Q1 of 2021. Shifting to guidance, We have now substantially lapped the last pre COVID year over year comparison and our guidance for strong second quarter revenue growth represents a clear reflection of the strong performance we achieved throughout 2020. We are pleased to be able to provide the following Q2 and full year guidance. For the Q2 of 2021, we expect total revenues in the range of $231,000,000 to $233,000,000 representing a growth rate quarter over the comparable prior year period of approximately 28% at the midpoint of the range. We expect adjusted EBITDA for the 2nd quarter in the range of $80,000,000 to $82,000,000 representing an adjusted EBITDA margin of approximately 35% at the midpoint of the range. For fiscal 2021, we are raising our expected revenue range to $1,017,000,000 to $1,019,000,000 quarter, up from $1,009,000,000 to $1,011,000,000 or approximately 21% year over year growth at the midpoint of the range. We expect adjusted EBITDA in the range of $400,000,000 to $402,000,000 call, representing an adjusted EBITDA margin of approximately 39.4% at the midpoint of the range. Call. To conclude, our strategy to mitigate the impact of the pandemic and grow the business has been working, and we will continue to focus on quarter. We have a strong balance sheet, a profitable recurring business model and a long runway to deliver sustainable long term revenue growth. With that, we will open the line for questions. Operator? Your first question is from the line of I'm sorry if I mispronounced it, Raimo Lenschow with Barclays. Hey, that's very close. Thank you. Hey, congrats on a great quarter and I'm sure you're looking forward to Q2. Chad, can you maybe remind us, because that's a question I get a lot from investors. How can the 12% growth in Q1 jump to like 28% growth In Q2, like obviously, the comps are getting easier, but what's maybe talk about the puts and takes that are driving it because that makes it really exciting. And then one for Craig, you mentioned that the cost efficiencies in D and A. Can you just kind of elaborate a little bit on that one? Thank you. Yes. Thanks, Raimo. So I guess first I would say, as you know, Q1 is typically one of our largest quarters for revenue in any given calendar year and that's because of Our annualized revenue billings of forms, filings and adjustments that come in throughout the year, which have to do with hiring and turnover trends throughout the year at different businesses. Well, 2020 reacted differently than any other year since I've been doing this since 1998 in which the hiring trends were different. It wouldn't be traditionally a restaurant that may have 100 employees could easily do 300 W-2s with forms, filings and what have you. This year, that same restaurant may do 120 W-two. So we saw significant differences in hiring trends throughout 2020 than what we had seen in the past. We did try to estimate what those would be. Also as a reminder, this Q1 we are still lapping Q1 of the previous year that did not have COVID in it, which made for tougher comps. And as we move throughout 2nd quarter, We've substantially lapped the pandemic. Now you did still have recurring revenue Still getting worse throughout the month of April as we had mentioned that it kind of got to its worst point beginning in May and then started to stabilize. But We are excited about our next quarter guide. The guide that we're putting forth in Q2 of this year is the largest Q2 guide we've had since 2017 on a percentage basis for revenue growth. So you weren't necessarily wrong in your early take that we're getting back on the right track or Wursen, Sivik, auf, der,ichte, genshin, Raimo, As you might say in your native language. That's very good, yes. My miner is paying off. My German miner is paying off. Question. Craig will answer your second one. Question. In English. His last name is Bolte. In terms of the G and A line and the cost efficiencies we're seeing, as we're looking to hire additional people, those are primarily going to be in quarter. Other areas of our income statement. So we're continuing to hire aggressively in the R and D area and in the sales and marketing as well as in the operations area. So we're just not going to see the Cleaning as well as in the operations area. So we're just not going to see the same level of hiring on the G and A line as what we would see in other areas of the business. Okay, perfect. Thank you. Thank you. Your next question is from the line of Samad Samana with Jefferies. Good afternoon and thanks for taking my questions. Chad, maybe the first one for you. On the one for you on the bookings side. As you mentioned, we're starting to kind of lap last year and you guys had a great 2020. Would you say that 1 was 1Q 2020 from a bookings perspective, was it a record compared to other quarters? Maybe just help us further triangulate on the in quarter new bookings performance and then just a follow-up question as well. Yes. So I mean, since obviously our bookings have been very strong. I mean, last year, we did have record bookings as well as we added record well, that record new business revenue as well as a record number of clients to our platform, which was an increase from prior years. As we've returned to guidance, we've gotten away from talking about bookings. Obviously, our bookings are very strong as what's reflected in our second quarter guide. Understood. And then maybe on Betty, you mentioned a couple of customers have it's already been call out to them. Can you maybe help us understand how pricing for that's working and maybe how pervasive the use of that looks like at those customers? Yes, I mean, Betty is really an all or nothing type usage product. I mean, you do have to change your internal process in order to use Betty, because like we've said in the past, payrolls are traditionally started after pay period end first. And Betty contemplates all that happening at payroll beginning to where once pay period ends, the payroll is done. And so We have had clients already submit using Betty and their employees are actually able to use Betty. As a matter of fact, one within the first hour of release, We had like 65% employee approvals and by time of submission, they were over 85%. Employees are already engaging in it. We're getting feedback from employees that this is the first time I've really looked at my GAC and much less understood it. So we're having a lot of positive there. We expect to put on at least 100 more clients in the next couple of months on, Betty and then throughout the year, we'll continue to convert all over. And what I mean by convert, It's not a conversion of data, it's more a conversion of their internal process and how you approach each payroll a little bit differently. In our own environment, we've gone from over 55 clicks or processes within a payroll down to 3. Each person's experience is going to be differently depending on whether you're doing commissions, bonuses, labor distribution, job costing. So it is a little bit different for each company, but it does drive a lot of efficiencies. And as those payroll administrators submit payroll, they have a very high degree confidence in the accuracies that have already been approved by those employees. So it's going very well now. As far as billing, Betty is not going to be billed unlike many of our other modules. It will be a per life per employee fee to use Betty. And then as we move throughout this year, we'll continue to sell more and more clients on its value. Great. And I apologize in advance for squeezing a third one in, but I'll break the rules here. Any other changes we should expect with Holli's appointment in her new role? Any other changes to either the go to market motion or or the sales organization that we should anticipate in conjunction with that? Well, I mean, we change as a sales organization every year. We changed about 3 or 4 years ago to really focus on employee usage as an organization. We focused on selling usage. We've come out with the DDX, then we came out with Manager on the Go, Now Betty. So obviously, as we settle into this year, there are some changes that we make to our selling motion, but that's not unlike what we've done in any given year. Holly was she was our first intern on the sales side. And actually, she started interning for us when I was the sales manager. So, Holly has a deep knowledge of what we've been doing this entire time. She's helped us build it up to now. And the reason why Holly was chosen is it allows us to continue to increase the drive that we have throughout our sales organization with a consistent leader, with also a consistent talk track that we've been driving throughout the sales organization for the last 20 years. So I wouldn't see any significant changes happening to the sales other than what we always have, which is improvements on our strategies as we deliver more value to the client. Perfect. Thanks again for taking my questions. Thank you. Your next question is from the line of Brad Reback with Stifel. Great. Thanks very much. Chad, the upside in the quarter wasn't as robust as we've come to expect with you guys. Was there any sort of 1 or 2 items in the quarter that maybe weren't as strong, W2 is maybe a bit below original expectations or anything along those lines? Yes, it's related to year end services. I mean, our we have pretty good visibility quarter to quarter based off of our recurring revenue and and what we believe we will be adding from a new client revenue perspective. When you're looking at year end, which As you guys have seen in the past, are typically our largest quarters because of those year end service fees. It gets harder to Exactly, put an exact number on how those negative trends impacted us. We did a pretty good job of estimating that, but and we don't necessarily guide to have a certain level of beef. We guide to what we can see and often times with new business revenue that can be impacted one way or the other. And as it relates to first quarter though, we've always been heavy on annual forms filings adjustments. And so and also to note that it's not just our W-two forms with us. We also have ACA forms at the end of every year as well. Call. So I think we did a pretty good job estimating its impact. Obviously, the fact that we continue to grow throughout the quarter and we're coming out strong into Q2 reflects that we did have strong adds throughout Q1 and coming out of Q4, but those numbers were impacted by our annual forms filing business. Great. Thanks very much. Thank you. Your next question is from the line of Mark Marcon with Baird. One. Wondering the commentary with regards to what you're seeing in terms of the number of employees within the client base. You mentioned it wasn't much of a help in terms of the Q1, but as you look through the quarter and going into March and then April And now going into May, are you starting to see a rebuild? And how should we think about the sensitivity in terms of if there's A 1% increase in terms of the number of employees, how does that translate to revenue, broadly speaking? Yes. I mean, well, we'd like to think 1% equals 1%, but that 1% has to happen across our client base that we serve, which is less than 5% of the total addressable market. And so, in answer to your question, as far as those clients that were mostly Acted by the pandemic that we said really hit its worst for us in May and then started to stabilize for us. We haven't seen any meaningful changes in those same clients. So as we move forward, I don't know that that number becomes quarter bellwether for us as far as that $1,850,000,000 to 2,000,000 call. So I don't know that it's a part of our story moving forward. Obviously, we would hope that those clients are able to hire back and that they are able to come out of it in the same situation that they entered into it. But we'll have to see again, quarter. We're not seeing any meaningful improvement in those numbers. Okay. Is that because of certain industries, Chad? Or I mean, when you take a look at the overall employment numbers, broadly speaking, It does seem like sequentially on a seasonally adjusted basis, things are improving broadly speaking, and we'll get the April report here in a few days. Is it just certain industries or what would be the reason why we wouldn't start seeing some of the national trends come down to the Paycom client base. Well, I mean our comments weren't really a wholesale about the United States as much as it is about these particular clients that work with us and were working with us prior to the pandemic that we That they had layoffs in different hiring trends throughout the year. A lot of them may have been kept afloat with the PPP that's been out there and what have you. But we're not we haven't seen any significant movement with that group. Call. Like I said, I do believe that people took their hits early as it related to many of our clients. They may not be as quick to add people back, potentially some may have become a little bit more efficient. And there may be some out there that are struggling, but again, we've been focused on adding new business to our pipeline, so and focused on those. So all that's to say it's been stable with that group and I don't know if or when the trends would impact that group because I believe it's going to be more of a client by client impact. Your next question is from the line of Daniel Jester go with Citi. Great. Yes, thanks for taking my question. Kind of along the same line, Chad, I mean, I think many would project that we're going to see some historic levels of hiring here in the U. S. In the next couple of quarters. So you've been through macro up cycles in the past. So maybe you can just remind us requirement. Do you see HR officers trying to get ahead of that? Or is there a bit of paralysis because they're focused on growth in the business and maybe Don't want to make a change on their payroll module when the outlook looks so bright. Yes. I mean, I think we're in a business where we make Those departments more efficient and so did the fact that you need to go hire many people using our onboarding product, using our looking tracking or talent acquisition product using our background checks products that we have out there. I mean, I think that we can aid people in that. So I also think you're really seeing a shift toward the employee user. I don't know that 4 years ago. You could even point to many employee users, especially in the mid market. And today, that's really becoming the standard. And so I think there are a lot of business that are focused on leveraging employee usage trends of what they use in their daily lives working with consumer products. I think there's a lot of businesses looking to leverage that to create value for themselves. So as businesses come back and I'm not saying that we're not seeing positive hiring trends. My comments are related to those clients that represented the 1.85 to $2,000,000 weekly impact. We're not seeing those numbers move dramatically. Are we seeing impacts of businesses starting to come back and hotels starting to hire more and what have you. We're seeing some of that and where we can see that is in our talent acquisition as more requisition are open is in our background check. So I do think things are getting better, but the question was more related to how are those clients that were impacted, those clients that we said had that monthly negative rate or excuse me, monthly, weekly negative revenue impact of $1,900,000 to $2,000,000 I think about a quarter or so ago, we called out it may have improved 100,000 week ish. It kind of fluctuated week to week. And then now we've said, we haven't seen any substantial or meaningful change from that, which would be accurate as we sit here today, but we are bullish about employee trends beginning to get better for us. It's never something that we've been able focus on lay our hat on that or bet the farm on that. You got to really do the work. And what we are doing, we are going out, We are selling businesses right now. And if they have 415 employees, then we're selling them as Adam, we're bringing them on. Now maybe they grow, maybe they don't, but we've just been focused on adding new business into onto our platform and that's worked well for us. Great. Thank you. And then just on Betty quickly, Now that you've announced that and you're starting to get some customers on it, are you seeing some of your other customers kind of get more with some of the modules that they need to be able to use that. So are you seeing more engagement on Manager on the Go? Are you seeing more engagement on DDX As customers get ready to use Betty in the future. Yes, both Manager on the Go and DDX are at the highest level of usage no matter how you measure it. So, and I'm talking about at the highest level of usage right now. And so that's been getting better and better as we've gone throughout, I'd say, I think we've had the DDX for the last 18 months, 19 months. We've had manager on the go now for well over a year. And so we continue to see those trends tick up. Now is that in anticipation for Betty or is that because of the value someone's receiving by using those things independently, whether you're setting up for Betty or not. I would say it's probably the latter, but the fact that it's happening Will set us up very well for Betty and I do believe that as people look and see the value that Betty is going to deliver for both the business as well as The employees, I think you're going to even have more usage around the DDX and Manager on the Go from a best practice perspective. Your next question is from the line of Brian Schwartz with Oppenheimer. Yes. Hi. Thanks for taking my questions this afternoon. Chad, one question for you and then a follow-up for Craig. For you, On the new business that was coming in the quarter, can you share any color in regards to the linearity on how that business came in. It seemed like there was possibly a different operating environment when we started in January versus kind of the end of the quarter. And then I have a follow-up for Craig. Yes. No, I wouldn't say there's been any meaningful difference in how we brought in our revenue in Q1 this year than how we had done, than how we brought in revenue in Q1 of subsequent years. You're going to typically have your greatest number of starts in the first part of that as people look to start fresh at the beginning of the year. Of course, in Q1, your quarter to date and year to date are the same. So anytime in the first quarter and what we've seen in the past as far as when someone chooses to start in the quarter. Thanks for that. And then to Craig, one follow-up I just have on the guidance maybe underlying the annual guidance. I remember last quarter, when you reinstated the annual guidance, you set target out there for rule of 6 day. And at that time, that guidance had assumed no macro recovery. And you are raising your guidance here today, still targeting that rule of 60 for this year. But I'm just wondering if there's any change in terms of your view on the timing behind the macro recovery or if it still assumes no big macro recovery this year? Thanks. Yes. I mean our annual guidance still assumes no macro recovery at this time, so consistent with how we quarter guided last year as well. Your next question is from the line of Robert Simmons with RBC. Hi. Thanks for taking the question. Can you talk to what you're seeing in terms of return to office and return to in person selling? And also then what the expense and merger implications of that are or could be? Yes. So is that question as it relates to us or our clients from a return to office? Mostly for you, but whatever you're seeing. Yes. Well, first, I would say it's very regional and return to office strategies depending on where you're located. For us internally, we've continued to be work from home for most everybody. We have put out a return to office plan for our employees beginning with supervisors and certain leaders coming in June. We will then have team leaders start to come back in July and then we will start alternating in our general population throughout the month of August in hopes of being back to the office full time in September. Now, when you're talking about our sales opportunities as far as going to meet with clients, we're going to continue to meet clients where they live. You may have some clients that are wanting us to come in. You may have some parts of our sales process in our steps of certain sales that continue to stay in more of a hybrid model and then I would see us going in person for others. But I wouldn't say that we're back at that level or anywhere close yet. In fact, we don't have any salesperson that's gone out and called on A business in person yet. So we're kind of waiting to see how that develops. I would say we're hopeful, but I think that's something that's It's going to just kind of happen throughout these next couple of quarters and we'll just kind of see what happens. Yes. And the expense related to kind of return to office, things related to kind of return to office. We wouldn't see that as significant increase in costs. We're already Maintaining the buildings and all of those things. So even on the travel side, we wouldn't see a significant uptick and any of that's been already baked into our guidance. Great. Thank you very much. Thank you. Your next question is from the line of Ryan MacDonald with Needham and Company. Hey guys, this is Josh on for Ryan. Just one question for me. If you look at platform usage pre colored versus today. Do you think clients are deepening their understanding of productivity and how software can affect their workflows that previously Maybe they didn't understand in the same way versus managing their operations. And then do you think this results in a permanent shift of customers buying more modules upfront as we exit the pandemic or could there be some reversion to pre pandemic trends? I It would be hard to think that we're going to go backwards in technology. It doesn't usually happen that way once you've made that jump. So I wouldn't think that we're going backwards. As far as your question about, I do believe that The farther an employee is away, maybe the more metrics you may have to look at. The harder an employee is to touch, the more metrics you're left with fully as well as for the business to kind of really share in the same transparency there. So I don't see us going backwards in regards to that. Plus, I really it's something that was happening anyway. I mean, it wasn't that the pandemic created these opportunities. I think the pandemic more sealed the fate of the old way. In fact, we were already seeing trends with employees that are used to using consumer based technology to do banking, get a plane ticket, order of coffee and then they came to work and it was 1992 through email and what have you. And so we're already seeing the trends of That usage happening. I think the pandemic just provided a stronger proof source for the reason for that. It probably accelerated that for some people, but I don't see us going backwards in that because it was right before the pandemic and the pandemic just produced another proof source for reasons why it's important to be employees to have a direct relationship with the database. Your next question is from the line of Siti Penangrahi with Mizuho. Hey, guys. It's actually Matt Diamond on Citi's behalf. Congrats on the strong print. I've heard the questions about guidance and I want to phrase mine a little bit differently. It looks like the magnitude of the 2Q guide and the magnitude of the annual year, the full year guide Implied some strength in the back half of the year. I know you can only comment on what you see for sure right now, but I'd love to get your insight on how to disentangle the magnitude of the 2Q guide and that of the annual guide. Anything you're seeing in the We will guide anything you're seeing in the second half of the year specifically would be helpful. Yes. So we've always guided to what we can see. Call. We have not changed that approach. As we've said, the Q2 is our highest guide that we've had since 2017. As we sit here today, I really don't know deals that are starting in October. Call. But I know as we move throughout this quarter and especially as we move throughout future into the future quarters that we'll see more and more revenue that we're onboarding. That's what I would say as well. As we look as we set up quarter guide. We guide to what we can see and for the back half, we'll continue to take a look and update as appropriate. And on the sales office side, I know there's been some commentary around a return to the office. I'm curious about quarter. J. Rice:] Plans for sales office openings this calendar year, is there any light that can be shed there? J. Rice:] It's still part of our strategy, opening sales offices and we're going to continue to do that as it makes sense. As we talked about during the pandemic, every office was substantially open because our people could really sell a prospect anywhere. Prior to the pandemic, it was all in person. So if we needed to We wanted to sell a deal in Las Vegas. We don't have an office in Las Vegas. We had to fly someone there and go there in person. During the pandemic, We were able to do that virtually. And so as we shift back, there will be offices that we'll be looking to open. And then we'll have to do it in the right time as well, because I'm not 100% sure when we will be going to full in office selling again, if ever, from that perspective as it relates to the mid market. I'm talking about where every appointment is in person. I mean before if we had 5 appointments with the prospect, every one of them were in person. I'm not 100% sure that's going to be the case on a go forward basis. And that's not something we're trying to force, that's something where we're going to meet the prospects where they live in a way that produces a successful communication for both us and the prospect. Your next question is from the line of Bryan Bergin with Cowen. Hi, thank you. I wanted to ask a question around client switching behavior. So the large incumbent providers have talked about our retention benefits that seems to be partly supported by call. The switch here from the pandemic uncertainty and some of the PPP reporting requirements. Has your sales team seen any of that behavior in the pipeline. And if so, do you consider that an incremental opportunity as things normalize? Well, call. Our retention is directly reflected with usage. In fact, someone gave me a retention report the other day and I thought it was a usage report, because the trends are almost the exact same. You watch usage go up, you watch retention go up. And so that's really what we've been seeing as a reflection of strong retention, it's about usage. Are there things out there that make it to where somebody is less flight switch. I mean, I don't think so. I mean, you're going to become more efficient if you switch to us with a very strong value proposition. Your employees are going to like it more and we're going to create even more value. So I don't really think waiting, it's a good opportunity to wait on that. So We've been focused on driving revenue prior to the pandemic. We've been focused driving it during the pandemic. And Once the pandemic ends, I mean, it's not my job to say when that happens. But once the pandemic is over, I would expect us to continue to have strong sales regardless of what's out there as far as trends one way or the other. With software because of the efficiencies that we're driving and the dramatic difference in experience that a client is going to have using our product today than what they would have 4 or 5 years ago. Okay. And then just are you seeing any different behavior And what modules existing clients are attaching as the economy is reopening here? We're seeing new clients take on more at the point of purchase? Background checks are doing better than they've done in the past or than they did last year because you're having more people hire. When I talk about hiring trends and improvement, I'm talking about those businesses that we had pre pandemic that were hit. I'm not talking about all the new businesses that we've added since or businesses that weren't hit negatively by the pandemic last year. So I want to be able to separate the 2 of those. When I'm talking about hiring trends where we're not thing improvement, I'm talking about of those clients that were most impacted by the pandemic last year and they're in the industries you would think they would be in. But we still do see positive trends happening across the board with more people doing background checks, is doing onboarding today more so than they were doing last year, but we're still not back to where we were at pre pandemic levels. Your next question is from the line of Josh Beck with KeyBanc. Thank you for taking the question. Chad, you made a pretty specific comment about Bevy becoming the standard for payroll in 12 to 18 months. So I'm just curious what you mean by that, would love to hear a little more on that topic. I think all of our clients will be using Betty within the next 12 to 18 months. Okay. That definitely clarifies it. What about with respect to Marketing and Advertising. How have you changed maybe the composition, the channels Versus say pre pandemic, is there any notable differences in how you want to invest across those areas? Yes. Well, I would just say we've gotten better at it. As you continue to spend on it and again, we measure this week after week, week over week based off the number of leads that we get. And so sometimes some weeks leads are generated in areas maybe a little bit stronger areas 1 week than what we may see in the next week, meaning that you may have more come in digitally 1 week and the next week could be delivered through what we're doing from a targeted marketing perspective where we already know who you are, We're targeting you. All of that's a part of our marketing strategy. We're not just putting ads on TV and seeing who's calling us. We have many legs to our marketing department and as well as to our marketing strategy. And so it's continued to evolve And we've continued to measure it the same way. I mean, our successful marketing campaign delivers demo leads for us. Those are companies that request a demo. We have leads that aren't demo leads of someone that may go in and download white papers or they're interested, but they have not yet requested a demo. From a demo lead perspective, we're still setting appointments with over 90% of those as they come in. So they're very strong leads for us and we've been having a lot of success there. Your next question is from the line of Arvind Ramani with Piper Sandler. Hi. Thanks for taking my congrats on a good quarter. Yes. Just want to go back to this topic of Betty. You certainly provided a lot of color on Betty, and it seems that it's getting really good traction. And I know it's very different than DVX, but can you kind of help frame How impactful Betty is as it pertains to win rates? I know DDX had like a big impact on win rates. And I'm just trying to get an understanding of the business model impact of Betti. Yes. I mean, well, Betty is a unique product that comes with a unique strategy and that is about having employees being able to visualize what their checks are, what the check is going to be, what components impact their check to where they're able to visualize and participate in that throughout the pay period. And then at pay period end, They're able to approve that that check is correct. And what that does is it eliminates manuals, voids, adjustments, all the things that payroll departments and accounting departments traditionally have to do after the fact once they found out that That check wasn't didn't exactly include everything that it should have for that employee. And so by moving the process up to the beginning of the pay period versus at the end of the pay period. It's going to change the way people do that payroll. As far as the win rate, do I think it's going to impact our win rate? Absolutely, once people really start using the DDX we came out with, it started impacting our retention not long after we came out with it and Manager on the Go, I would say is a similar product as that. And all of that Yes, more and more people engaged, employees again engaged in our software interacting with the database on their own. And the more people that interact with the database on their own, the more accurate the data is, the more confirmation that you have that the data Acurate and it produces less liability and exposure for the businesses that deploy it. So I see that continuing with us as we move forward and I do think it's going to impact both our win rates and our retention positively as it becomes prevalent within our platform. Great. Your last question is from the line of Alex Zukin with Wolfe Research. First. Hey, there. This is Alan on for Alex speaking. Thanks for taking my question. I know we don't get client counts on a quarterly basis, but can you talk about the momentum you're seeing upmarket that is driving improvement in revenues per client? And I just got one follow-up. Yes, we've continued to have question, Seth, we really started rolling out an inside sales group. I would say we had 5 or so people for several years. And then about 2 years ago, we started building out that group. As we've done that, we've obviously seen more deals quarter below our target market and we continue to see deals above our target market. Even as we rolled through last year, I was even a little bit surprised that our average billings per client wasn't down a little bit. When you looked at the growth that we had in client units, so but it was pretty much the same, which just shows The fact that, yes, we are continuing to add small business clients, but they're also being bookended with the large business that we continue to bring on as well. And that does conclude the Q and A portion. I would like to turn the call over to Chad Richison for closing remarks. All right. I want to thank everyone for joining us on the call today. I'd like to send a special thanks to all the employees at Paycom for their commitment patient throughout the pandemic. Over 2 thirds of our staff are either fully vaccinated or in the process. As I've stated in the past, I do believe that quarter outreach front. This quarter we'll be presenting at the Cowen Technology Conference on June 1 and at the Baird Global Consumer Technology and Services Conference on June 10. Paycom will also be hosting 1 on 1 meetings in May June at the Needham, JPMorgan and Stifel Conferences. We look forward to speaking with many of you very soon and I appreciate your continued interest in Paycom. Call. Thank you. Operator, you may disconnect. Thank you. That does conclude today's conference. Thank you for participating. You may now disconnect.