Paycom Software Inc Q4 2024 Earnings Call Summary

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

Question: Raimo Lenschow - Barclays - Analyst : Hey, perfect. Congrats on a great Q4. And Bob, all the best in your journey with Paycom as a CFO. Two quick questions. Bob, first on guidance and guidance philosophy, what drove the decision to kind of not do quarterly anymore? I mean, it does feel like Paycom is a very predictable business, so that's a little bit surprising there. Maybe talk a little bit about your thinking. And then, Chad, can you talk a little bit about the renewal rates? You mentioned they were stable on last year, and but in the past, we've seen larger numbers and like the whole Beti uncertainty kind of obviously created headwinds. And so I'm thinking like is this level like the new level or are your ambitions to bring it back to the levels we've seen in the years prior to what we've seen before? And many thanks, and congrats on a good Q4 again.

Question: Raimo Lenschow - Barclays - Analyst : Okay, perfect. Thank you.

Question: Mason Marion - Jefferies LLC - Analyst : Hi, this is Mason Marion on for Samad. Thanks for taking our questions. I want to dig into guidance here a little bit. Can you provide some commentary on the building blocks you're embedding within that 9% recurring and other guide? What are you expecting from a macro standpoint? And then any commentary around like pay per control, price realization or retention? Anything there would be helpful.

Question: Mason Marion - Jefferies LLC - Analyst : Okay. That is helpful. And then it seems like the CRR team improved performance throughout the back half of 2024. What are your expectations for this team as we move into 2025 in the context of your guidance?

Question: Mark Marcon - Robert W. Baird - Analyst : Hey, good afternoon, and thanks for taking my questions. Craig, it's been a pleasure working with you. Congratulations on a great career and Bob look forward to working with you. With regards to the revenue performance that you ended up having throughout the year. Could you compare and contrast that relative to the total client growth because the client growth was a little bit on the slower -- on the lower side? Obviously, you've been moving towards bigger clients. But I'm wondering if you can fill in some of the gaps because it also looks like you're probably selling more modules. Wondering what's going on with pricing and how does -- how does the module build factor into next year. So that's the first question. And then the second question has to do with the margin improvement was really nice to see, particularly in terms of gross margins. How are you thinking about the balance between gross margin improvement versus sales and marketing, R&D, and G&A as part of your guide?

Question: Kevin Mcveigh - UBS - Analyst : Great. Thank you so much. And let me add my congratulations, Craig. It's been great working with you. In terms of the new office openings, is there any way to think about how those should scale over the course of 2025 into 2026? I know, Chad, you have a pretty deliberate approach in terms of staffing and then as they scale, just anything to help us dimensionalize how they should kind of scale and maybe what's factored into the guidance? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 12, 2025 / 10:00PM, PAYC.N - Q4 2024 Paycom Software Inc Earnings Call

Question: Kevin Mcveigh - UBS - Analyst : Great. And then just it sounds like, Chad, the retention improved over the course of the year. Was that kind of just the runoff of anything Beti related or the mix effect of larger clients? And any way to think about like what retention levels embedded in the 2025 guidance?

Question: Steve Enders - Citi - Analyst : Okay. Treat. Thanks for taking the questions here. I guess maybe just to start, just want to get a better sense for maybe what drove the upside here in Q4, what drove the revenue strength? And I guess maybe how should we think about the puts and takes between the strength here versus what might impact Q1?

Question: Steve Enders - Citi - Analyst : Okay. Thanks. And then on the bookings strength that you've been seeing lately, I know there's been a lot of changes in the go-to-market over the past year or year-plus. I guess, what do you feel like is working right now? What's resonating? And then I guess maybe where do you feel like there still are some areas where you can see improvements or some incremental things that you can improve upon? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 12, 2025 / 10:00PM, PAYC.N - Q4 2024 Paycom Software Inc Earnings Call

Question: Jason Celino - KeyBanc Capital Markets - Analyst : Great. Thanks. Craig, it's been an absolute pleasure. Hope retirement with the grandkids and the wheat farming goes well. I -- my first question on the sales offices. Can you just remind us when the last time you opened sales offices? I think it's been a few years. And I think you typically only open them when you find the leadership bench to be ready, but certainly a good sign maybe the internal macro, your views influence the decision to expand at all or is it just typical planning done? Thanks.

Question: Jason Celino - KeyBanc Capital Markets - Analyst : Okay. And then my -- just my quick follow-up. I don't know if this wasn't part of Steve's last question, but I guess, what did you see in terms of workforce levels in Q4, just one of your competitors mentioned some weakness, but, obviously, you had a strong quarter. And then I guess what are you baking in, in terms of workforce expectations for the 2025 guide? Thanks.

Question: Jared Levine - TD Cowen - Analyst : Thank you. Can you discuss your thoughts on additional sales offices over the rest of the year? Is that contemplated in the guide currently?

Question: Jared Levine - TD Cowen - Analyst : Got it. And then for my follow-up here, can you disclose what the 4Q revenue benefit was from that pull-forward of that extra payroll processing day from 1Q?

Question: Bhavin Shah - Deutsche Bank - Analyst : Great. Thanks for taking my question. Bob, appreciate kind of change in guidance philosophy, but kind of taking your commentary on the full year for recurring revenue with 1Q the low point and then double-digit thereafter. I get to like 6%-ish recurring revenue growth for 1Q. Am I in the right ballpark there? And kind of if so, what are the factors impacting 1Q? Is it just a calendar timing issue, or is there anything else? Thanks so much.

Question: Bhavin Shah - Deutsche Bank - Analyst : That's helpful there. And then just kind of following up on the EBITDA guide for 2025, just given what you're seeing on the float side, it's very healthy. Like where are you seeing the efficiencies? Is it across the board? Are there certain areas where you're kind of being able to leverage AI, or anything else to really provide a lot more productivity within your sales force?

Question: Daniel Jester - BMO Capital Markets - Analyst : Great. Thanks for taking my question. I know you don't comment too much on the product roadmap, but philosophically we've been talking about Beti for a few years. I think GONE has been -- you announced that in late 2023. So as I think about 2025, does your guidance or does the playbook assume that you're going to be launching new products, or maybe just any sort of guidance in terms of thinking about the roadmap and the direction on the product side would be helpful? Thank you.

Question: Daniel Jester - BMO Capital Markets - Analyst : Great. I appreciate that. And sorry if I missed this, but on the $110 million of interest income this year, did you share what your expectations were with regards to interest rates or average daily balance to get that number? Thank you.

Question: Michael Funk - Bank of America Securities - Analyst : Yes, thank you for the questions tonight. First one, competitive environment. I'd love to get your thoughts on the Paychex's acquisition of Paycor and what that means for the industry and just kind of more broadly to the overall competitive environment. Any change in your view?

Question: Michael Funk - Bank of America Securities - Analyst : Okay. And then I think earlier you mentioned that you think about product every minute being awake, half time being asleep. How do you think about the longer-term evolution of pricing in the industry as automation becomes more part of the product, AI becomes more a part of the product. How do you see pricing evolving over time?

Question: Joshua Reilly - Needham & Company - Analyst : Yes. Thanks for taking my questions. Did we get some updated commentary? Well, I guess some maybe just initial commentary on how client retention trended here in January and February relative to your expectations exiting the year. And any thoughts around the 90% revenue retention and the puts and takes investors should be considering for that figure here in 2025, given that it seems like you've kind of bled off some more of those smaller lower-value customers from the metric and how that's calculated?

Question: Joshua Reilly - Needham & Company - Analyst : Got it. That's super helpful. And then if you look at the EBITDA guidance of 41% margin, how much -- how do we think about how much of the R&D being expensed versus capitalized in 2025? Is there an impact there on the margin? And should we kind of think about the 11.5% non-GAAP as a percent of revenue for R&D consistent again in 2025? Thanks, guys.

Question: Jake Roberge - William Blair - Analyst : Yes, thanks for taking the questions. You've referenced that really strong January a few times. Curious what drove that. Is that all kind of internal execution? And just sales teams being a little bit more focused here after noisy few years? Or are you also kind of starting to see HR budgets open up kind of post election?

Question: Jake Roberge - William Blair - Analyst : Sorry, you can keep going.

Question: Jake Roberge - William Blair - Analyst : Helpful. And then I know one of the priorities in 2024 was just getting a lot of the product that you already sold live rather than just sitting on the shelf. Curious how that kind of trended in Q4. And then will there be any new priorities for the CRR team moving forward? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 12, 2025 / 10:00PM, PAYC.N - Q4 2024 Paycom Software Inc Earnings Call

Question: Zachary Gunn - FTP Securities LLC - Analyst : Hey, there. Thanks for taking my question. I just wanted to ask on the EBITDA margin. So I think fourth quarter here exiting was 43%, 44%, and the guide for the full year is 41% similar to where it was this year. I'm just trying to understand what the mechanics are that delta between your exit rate this quarter versus what you're expecting for the full year next year.

Question: Zachary Gunn - FTP Securities LLC - Analyst : Got it. Thank you.