Paycom Software Inc Q3 2024 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Raimo Lenschow - Barclays - Analyst : Perfect. Congrats on a great solid quarter. Chad, if you think about like the reporting season so far for the payroll names, it does speak towards more of a stabilization or like a really stable market. And everyone is still hoping for like some sort of recovery. What are you seeing out there in terms of like end demand, et cetera? Like how does the pipeline evolve? Like how are the (inaudible) conversations going at the moment? Do you have any kind of more color there, please? And then for Craig, any comment on float and how you think about float going into next year?

Question: Samad Samana - Jefferies - Analyst : Maybe first one, Chad, for you. Interesting to hear about using AI in the customer service organization. I'm curious if that's technology that Paycom has built or if you're using a third party, and how you're thinking about that translating into like the savings on the cost to serve side. And do you think that, that can be something that can be monetized as a feature at some point as well? And then I have a follow-up for Craig after.

Question: Samad Samana - Jefferies - Analyst : Great. And then, Craig, maybe just as a follow-up. When I think about the acceleration, it was good to see that. Have we turned the corner on the CRR cross-sell headwinds and any associated BETI headwinds? And should we think about the fourth-quarter guidance as a good starting point for 2025 now that we've started to see a reacceleration?

Question: Mark Marcon - Baird - Analyst : Really nice to see the acceleration with regards to recurring revenue. Chad, you mentioned several things, but I'm wondering if you can talk a little bit about the drivers behind that acceleration. To what extent is it increased module uptake for things like GONE relative to some of the improvements that have been made with regards to kind of the sales go-to-market and training that you've implemented recently? And then I've got a follow-up.

Question: Mark Marcon - Baird - Analyst : Great. And then any comment with regards to just kind of the sales process and the sales training?

Question: Brian Schwartz - Oppenheimer - Analyst : Chad, I had a follow-up on the AI agent or the AI technology that you're developing. Do you see an opportunity in the future to productize what you're developing internally, maybe like in your -- in future versions of your recruiting product or other products in your platform? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 9:00PM, PAYC.N - Q3 2024 Paycom Software Inc Earnings Call

Question: Brian Schwartz - Oppenheimer - Analyst : And then one question for Craig. Just in terms of the EBITDA upside in the quarter, it was a much bigger beat than we've seen in previous quarters. Just wanted to ask you about the expense profile. Did any expenses slip into Q4? Or is that just primarily from the upside in the top line?

Question: Joshua Reilly - Needham - Analyst : All right. You mentioned in the press release moving towards a full solution automation. How should investors think about this period right now where you've kind of been aggressively making some changes to the platform behind the scenes? Is this something that you think is largely complete at the end of '24 or sometime in '25? And are the implications that we should be thinking about from our end is that the EBITDA margins can potentially move up as we move past that kind of elevated period of investment?

Question: Joshua Reilly - Needham - Analyst : Got it. And then just following back up on the client utilization of modules that have already been sold. It seemed like the last couple of quarters, you've been monitoring that pretty carefully yourself. Are you seeing any change in terms of making the effort with the cross-sell team to get the utilization higher? Or is it still kind of consistent with what it's been in the last few quarters? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 9:00PM, PAYC.N - Q3 2024 Paycom Software Inc Earnings Call

Question: Steven Enders - Citi - Analyst : Great. I guess maybe to start, I just want to ask a little bit on the 4Q guide and the outlook here. I think kind of (inaudible) to beat here, but it doesn't look like the full amount kind of rolled through to the year. So can you help us maybe think about what's maybe happening in Q4 that's leading to a little bit of the change in the guide or some of the puts and takes that we should be thinking about for Q4?

Question: Steven Enders - Citi - Analyst : Okay. And so is it -- the factors going into it. It's primarily changes on the (inaudible) assumption side that there isn't, I guess, other changes being accounted for in the outlook?

Question: Kevin McVeigh - UBS - Analyst : Great. In terms of the EBIT to beat, you talked about revenue and some automation. Is there any way to think about like how much was the revenue upside as opposed to automation? And as you think about that automation initiative, how much of that is kind of through the organization? And how much more is there to go, I guess, in terms of maybe not necessarily numbers, but percentages, whether it's on the front end or back end. Is there any way to frame that a little bit? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 9:00PM, PAYC.N - Q3 2024 Paycom Software Inc Earnings Call

Question: Kevin McVeigh - UBS - Analyst : That's helpful. And then with the commentary on that September, the largest sales month ever, is there any way to -- how much of that is kind of white space as opposed to competitive takeaway? What drives -- is that kind of just incremental BETI adoption? Or just because obviously it's a really, really nice [data] point?

Question: Devin Au - KeyBanc Capital Markets - Analyst : This is actually Devin on for Jason today. I just want to double click on the outperformance in the quarter on the revenue side. Would you attribute the beat there just mainly on new logo strength in the quarter? Was it stronger back-to-base motion? Or did you see maybe perhaps better retention among employees within your customers? Just more color there would be helpful.

Question: Devin Au - KeyBanc Capital Markets - Analyst : Got it. That's helpful. And then just one more for me. Just curious how the new cohort of sales rep, I believe you guys added 60-plus new sales rep last quarter. Just curious how those have been ramping versus expectations. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 9:00PM, PAYC.N - Q3 2024 Paycom Software Inc Earnings Call

Question: Arvind Ramnani - Piper Sandler - Analyst : I just wanted to see if you could comment on sort of BETI adoption, particularly with sort of the cohort of customers who were kind of slow to adopt. You definitely had some customers who were slow to adopt BETI. Have they -- has that adoption increased between that core of folks who were slow to adopt?

Question: Arvind Ramnani - Piper Sandler - Analyst : Yes. Terrific. And then can you provide a bit of an update on some of the progress on the international markets? And I know it's much smaller, but any details around that would be helpful.

Question: Bhavin Shah - Deutsche Bank - Analyst : Just first, I guess for Chad, going back to our earlier comments, just back to the CR team, where are they in terms of helping clients achieve full value for that software? Like what percentage of the base have you gone through and have optimized their spend with Paycom?

Question: Bhavin Shah - Deutsche Bank - Analyst : Got it. Craig, just on gross margins, they compressed this quarter at similar levels to what we saw last quarter, even when I take into consideration higher depreciation costs. Can you just give us a sense like what else might be impacting gross margin? How much of it is kind of industry pricing dynamics or needing to hire more customer support reps or anything else? And when should that stabilize going forward?