Paycom Software Inc (PAYC) — Q2 2020 Earnings Call Transcript

Thank you and welcome to Paycom's second quarter 2020 earnings conference call. 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 and our most recent quarterly report on Form 10-Q. 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 the course of today’s call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP net income, adjusted gross profit, adjusted gross margin, 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 President and Chief Executive Officer.

Thanks James and thank you to everyone joining our call today. I want to thank our employees who continue to thrive in this ever-changing environment. For today's call, I'll spend a few minutes on our second quarter 2020 results and some notable trends. Following that, Craig will review our financials and provide some perspective on guidance, and then we'll take questions. I'm very pleased with our performance in the second quarter and the demand we're seeing. As expected our second quarter results were impacted by the headwinds we outlined in our last call, namely the impact of unemployment across our current client base due to the pandemic and a 150 basis point cut in interest rates in March. Despite these headwinds, we continue to see very strong lead volume and new business sales achievements, which have set us up very well for the future. Q2 revenue and adjusted EBITDA came in at $181.6 and $61.2 million respectively. While we expected there to be similarities between the increase in the unemployment rate and the impact on our client base, we now know the actual impact on our client base even as unemployment has fluctuated throughout the quarter. Headcount reductions at our clients and the impact on current client revenue peaked at the end of April and began to stabilize. Based on the trends we've seen throughout the second quarter, we estimate the impact on current client recurring revenue is a loss of approximately $2 million per week. Interest rate cuts added another $350,000 in weekly lost recurring revenues. We've seen these numbers stabilize at these rates for over the last few months, thus making the impact on our revenue more predictable. I'm pleased we are in a position to provide Q3 guidance, which Craig will walk you through shortly. We began the second quarter with strong demand and elevated lead volumes, driven by our deliberate investments in advertising. Q2 demo leads were roughly three times higher than in the comparable prior year quarter. As I mentioned last quarter, the pandemic is exposing scenes created by disparate HCM systems and the increasing trend towards a more autonomous workforce is creating high demand for the Paycom single database solution. We believe the value proposition of our solution is stronger than ever and we continue to see success in both outbound and inbound sales efforts. Our sales teams continue to operate in a virtual model without disruption, and they had strong success in Q2. We continue to see strong usage patterns of our products as measured by our Direct Data Exchange or DDX. With the increasing importance of working autonomously, it is critical that companies enable their employees to have a direct relationship with the database. With Paycom, the employee wins from an easier and more comprehensive experience and the company wins from real savings. Throughout the second quarter, we continue to invest in product development and released several thousand product enhancements. One product that continued to be enhanced during the quarter was Manager on-the-Go. This tool is built into Paycom's existing mobile app and empowers leaders with 24/7 accessibility to essential manager side functionality of our solution. Manager on-the-Go continues to be widely adopted by managers across our client base with already almost 90% of our clients deploying it in just the first five months since launch. Manager on-the-Go is transforming manager workflows and accelerating the speed that data moves throughout the system, which further increases the ROI of our solution and sets up future usage patterns that pave the way for future product innovation and automation. Going forward, we will continue to remain focused on three controllable activities: providing world-class service to our clients, rapidly developing new technologies, and increasing the number of new clients added to our platform. I'm very pleased with the execution we have delivered on all three of these fronts to date, which I believe will further strengthen our market position in the quarters and years to come. We are overcoming the revenue headwind created by the pandemic. As I'm sure many of you have seen our commercials on TV and our advertising assets online, we have spent more on advertising in Q2 than we've ever spent in a single quarter by a significant margin. This advertising spend coupled with our world-class sales organization yielded great results for us in the second quarter. In fact, Q2 was our best quarter ever from a new business sales perspective by a large margin and we will continue to spend aggressively on advertising throughout Q3 and Q4 above the Q2 levels as we deliver our value proposition to our massive target market. With less than 5% of the total addressable market already captured, we have a long way to go. The digital transformation for business is accelerating and our investment in expanding our market share is working. I'll stop there and hand it over to Craig to review our financials and guidance.

Thanks Chad. Before I review our second quarter 2020 results, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. I'll briefly cover our Q2 results and trends, then I'll provide some high level comments about Q3 guidance. Our approach is to be as transparent as possible, based on what we know now that we believe there has been enough predictability in the impact of the pandemic on our current client revenue to provide near-term guidance. Before turning to the results, I want to briefly discuss the environment we faced in Q2. During the second quarter, our analysis of the impact of the pandemic was declining employment rates that our existing clients became progressively worse and hit a low point at the end of April and then stabilized. We estimate that the effect of lower headcount at our clients on our current client revenue is a loss of approximately $2 million in weekly recurring revenue as of today. We also experienced the impact of 150 basis point interest rate cuts that occurred in March, which amounts to a loss of roughly $350,000 in weekly recurring revenue. Despite these anticipated headwinds, demand for our solution continues to strengthen and we had increasing new clients sales that were solidly ahead of pre-COVID sales levels. That success has continued into Q3 with accelerating demand and sales trends that are layering in nicely on top of our current client recurring revenue base. With that as a backdrop, I'll turn to the results. In the second quarter, we generated total revenues of $181.6 million, representing growth of roughly 7% with the comparable prior year period, driven by strong new business wins. Within total revenues, recurring revenue was $178 million for the second quarter of 2020, representing 98% of total revenues for the quarter. Total adjusted gross profit for the second quarter was $153.8 million, representing adjusted gross margin of 84.7%. We continue to see improving efficiency and customer service and expect to see similar adjusted gross margins for the remainder of the year. Adjusted total administrative expenses were $106 million for the second quarter as compared to $85.9 million in the second quarter of 2019. Adjusted sales and marketing expense for the second quarter of 2020 was $52.3 million or 28.8% of revenues, up from 23.1% in the prior year quarter. We're seeing very positive results from our ad campaigns and marketing efforts and as the second quarter progressed, we made the deliberate decision to further increase our advertising spend. As long as we continue to see positive results from these investments, we intend to continue to be aggressive in this area to drive market share gains. We expect Q3 sales and marketing expense to be approximately $8 million to $10 million higher than Q2 on both a GAAP and adjusted basis. We're maximizing our opportunity to capture market share by spending more on advertising. Adjusted R&D expense was $18.8 million in the second quarter of 2020 or 10.3% of total revenues. Adjusted total R&D costs, including the capitalized portion, were $27.7 million in the second quarter of 2020 compared to $22.3 million in the prior year period. We have a very ambitious product innovation roadmap, which is a key driver of our success and we will continue to expand our R&D team with high quality talent. Adjusted EBITDA was $61.2 million in the second quarter of 2020 or 33.7% of total revenues compared to $69.4 million in the second quarter of 2019 or 41% of total revenues. We were able to partially offset the loss of high margin revenue with reduced costs from lower travel expenses, but the biggest driver of the year-over-year adjusted EBITDA margin decline was our deliberate increase in advertising. Our GAAP net income for the second quarter was $28.6 million or $0.49 per diluted share based on approximately 58 million shares versus $48.8 million or $0.83 per diluted share based on approximately 58 million shares in the prior year period. For Q3 and Q4, we expect our effective income tax rate to be approximately 30% and our full year effective income tax rate to be approximately 24% to 25%. Non-cash stock-based compensation was $21.2 million in the second quarter and we expect non-cash stock-based compensation for the third quarter of 2020 to be approximately $20 million. For the full year we anticipate non-cash stock-based compensation will be approximately $75 million. Non-GAAP net income for the second quarter of 2020 was $35.9 million or $0.62 per diluted share based on approximately 58 million shares versus $43.7 million or $0.75 per diluted share based on approximately 58 million shares in the prior year period. We anticipate fully diluted shares outstanding will be approximately 58 million shares in the third quarter of 2020. From the time we increased our buyback on March 12th, 2020 and through the end of the second quarter, we repurchased over 330,000 shares, including over 240,000 shares purchased in the open market. As of June 30, 2020, Paycom has repurchased over 4 million shares since 2016, with $175 million remaining in our buyback program. Turning to the balance sheet, we ended the second quarter with cash and cash equivalents of $114 million and total debt of $32 million. Cash from operations was $25.5 million for the second quarter. The average daily balance of funds held for clients was approximately $1.2 billion in the second quarter of 2020. Now, let me turn to our guidance, with more clarity about headcount trends in our client base resulting from the pandemic, we believe our current client revenue has become more predictable and we are now providing Q3 guidance based on what we can see as of today. For the third quarter of 2020, we expect total revenues in the range of $191 million to $193 million, representing a growth rate over the comparable prior year periods of approximately 10% at the midpoint of the range. We expect adjusted EBITDA for the third quarter in the range of $56 million to $58 million, representing an adjusted EBITDA margin of approximately 30% at the midpoint of the range. Our focus continues to be on mitigating the impact of the pandemic on our business by providing world-class service to our clients, rapidly developing new technologies, and increasing the number of new clients added to our platform. We have a strong balance sheet, a highly profitable recurring business model, and what we believe is the strongest value proposition in our industry. We are committed to taking advantage of our financial position to drive long-term market share gains. With that, we will open the line for questions.

Thank you for taking my question. I believe the main concern we're going to hear is about the increase in sales resulting from the rise in advertising or marketing spending. Can you explain your reasoning behind this increase, especially since it's significantly higher than what you've experienced in the past? Are you seeing positive results and good returns from this strategy? In listening to other companies, it seems they are facing more challenges, which might present a good opportunity for you. Please share your thoughts on this and how you gauge success.

On the last call at the end of April, I mentioned that our book sales numbers have returned to pre-COVID levels. I can now say that in the second quarter, our new client revenue reached an all-time high, making it our best quarter ever in terms of new business sales. Additionally, July, which just ended last Friday, was the best month we've had for new business sales. We're seeing significant results from this, with demo leads up threefold. These leads represent genuine interest, as they come from individuals who request product demonstrations. Approximately 90% of these leads turn into appointments, resulting in a higher number of appointments and improved sales. Naturally, we're investing in this growth; our advertising spending in the second quarter was significantly higher than in the past, and it's proving effective. We'll keep investing in advertising as long as it continues to deliver results. Our advertising commitments are made on a week-to-week basis, and we're seeing great success. As many have observed, our ads are appearing on television and online. Importantly, we are not just promoting the Paycom brand but also introducing a new way to utilize this technology. It seems illogical for HR to manage this data manually, especially as businesses increasingly adopt technology for a more autonomous workforce. I believe we are witnessing the rise of the autonomous worker, where having the right technology benefits both the employee and the employer. Our aggressive approach is yielding positive results, which will continue to enhance our current client revenue.

Good. Okay, perfect. That's really helpful. You mentioned the $2 million per week loss due to unemployment. You also noted stabilization since the peak in April. Should we still consider the calculations you shared in Q1, or is there a different way to approach that $2 million per week figure now that unemployment rates are decreasing? Any guidance on this would be appreciated. Thank you.

Yes, the figure was in the range of $1.95 million to $2 million, peaking at the end of April and remaining steady afterward. While unemployment rates varied, our numbers continued to reflect a consistent impact, possibly due to our clients experiencing the initial effects earlier. I want to emphasize that, as I mentioned in the previous call, it was unrealistic to expect we wouldn’t be influenced by unemployment, because I believe our client base provides an accurate sample size that should align with broader trends. Now, we have a clearer understanding of the actual figures. The numbers reported by the media and government regarding unemployment are calculated in two primary ways. The first source is unemployment insurance data, which is compiled weekly from unemployment agencies, capturing both initial and continuing claims. Notably, initial claims peaked in early second quarter at around 5 million to 6 million. Recently, that number has dropped to about 1.4 million and has begun to stabilize around that level since July, compared to an average of about 200,000 claims per week before COVID-19, making it a less reliable metric. The second method, used by the U.S. Department of Labor, is the Current Population Survey, which produced the unemployment rates of 14.7% for April, 13.3% for May, and 11.1% for June. This data is based on interviews with 60,000 households across the U.S., representing around 110,000 individuals. While our initial assessments were directionally accurate and aligned with the increase in unemployment figures, we've now pinpointed the exact effects on Paycom. We peaked at the end of April and have stabilized since then; while we can't definitively state that client revenues have improved because of unemployment, we can confirm that the situation has not worsened. I believe the early impacts were absorbed by our clients. Finally, I want to clarify that I don't intend to play the role of an economist focused on unemployment. Our aim is to provide directional guidance. Now that we're sharing concrete figures, I don't think it's necessary to delve into the various methods of calculating unemployment, whether based on elevated initial claims or the household survey. We've provided our number, and it has not changed for the worse or better since late April.

Okay, that's very clear. Very helpful. Chad. Thank you.

All right. Thank you, Raimo.

Hi, good afternoon, and thanks for taking my questions. As always, appreciate all the color you just gave. Maybe if I could just ask a follow-up on the new booking side. If I think about sales and marketing dollars, it's up about 33% in dollar terms year-over-year, how should we think about maybe framing the magnitude of that bookings growth just because, you spent the most you ever have in 2Q as less, I'm just trying to understand maybe how to think about what new bookings growth looks like either year-over-year or versus pre-COVID levels as a as a point of comparison? And then I have a couple of follow-ups.

The bookings have significantly increased compared to Q2 of last year, making this year’s Q2 our highest booking quarter ever, which is unusual for this period. Additionally, July has set a record as our largest bookings month to date. Despite facing challenges with client revenue due to unemployment impacts, we are hopeful about establishing a growth floor. We aim to maintain focus on this area. I expect that as we sell, our revenue will reflect this, and our margins will continue to improve. I am optimistic about achieving at least a rule of 50 this year, with expectations for further improvement next year. We are cautious about our spending but recognize it is effective. However, considering the $90 million reduction in revenue and interest income for the quarter, we have lost about $75 million in potential margins as well. Advertising is proving effective, and as long as it continues to perform, we will set ourselves up for success in the upcoming quarters. We have yet to see a worsening or improvement in our numbers. It is important to note that although the pandemic impacted our current client revenue, our new business sales are accelerating, partly due to our advertising efforts and the strength of our value proposition.

And Samad that's 30 million a quarter, the $90 million would be the three quarters for this year.

Right, $90 million for the three quarters, sorry.

That was very informative. I noticed in the press release that the client base is still growing, and it seems like churn or possibly unit retention has performed better than anticipated, especially considering the challenges posed by the pandemic. Could you provide some insights on client unit retention in terms of the number of customers and how that has changed over the quarter compared to the pace of control change?

Yes, we're not going to give exact retention numbers because obviously, we give those at the end of the year, but I mean I will follow-up on the same thing that I said last time, we're not really seeing units go away. We are seeing clients that may have had 500 employees now have 60. But we're not we're not seeing unit losses. We do have a few clients that may be on pause, and we're filing some zero returns for them. Those are going to be your smaller clients that may not have payrolls to run, but they do still have to file taxes and so we can file zero returns for them. So, they're still active. So, all that's to say is we're not seeing a unit attrition.

Got you. That's very helpful. I appreciate you taking my questions and congrats on the strong new bookings performance.

Hey Chad and Craig. Wondering if you can talk a little bit about any sort of differences in terms of the types of clients that you're seeing that are being driven by the advertising? Are they smaller, larger? How many modules are they typically taking? How do they compare to your established client base?

Same, they compare the same. I will say that we did sell our two largest accounts during this quarter, just anecdotally, but that they've been the same. We were getting more usage in the upfront out of them as we are now at 100% commitment to employee usage. We now are getting that on all clients as they start, so we are seeing people's approach to conversion to be more in the effort to where employees would take a full usage strategy. So, we're seeing that, but as far as the types of clients that we're saying usual suspects for us.

Any sort of change in terms of regional composition? Are you seeing more from areas that you haven't typically been in that are basically being brought in by the national advertising? Or how would you characterize that?

Our best representatives are where we make the most sales, regardless of the city or location. That's where we perform best, and our leads continue to come from various places. We do receive leads from areas outside our territory, which are locations we don't specifically cover, but we've been managing those as we always have. In the past, we would travel to meet with a company with over 100 employees in North Dakota; today, we're able to handle that from our home office. However, we are still pursuing out-of-territory sales as well.

Okay, great. How should we think about the marketing spend? I heard someone say that advertising is for wimps. If the advertising spend continues to perform as it has been, and considering that the fall selling season hasn't really started yet, should we anticipate that the spend might increase even more as we move into next year and the following year, especially since there is still considerable room for growth in your market share?

You can reach a point where additional advertising spending yields diminishing returns; you can't simply expect to double your impact by doubling your spend. Therefore, it's important to manage that carefully. We have identified various opportunities for advertising, whether through initial outreach or retargeting efforts, which allows us to increase our spending strategically. However, there's still a risk of wasting advertising dollars. We implement a weekly strategy where we adjust our efforts based on what makes sense. We are currently investing our advertising dollars effectively and seeing positive results, but it's difficult to predict precisely where our spending will go. What I can say is that our average advertising expenditure has increased, and we are seeing corresponding results. We hope to continue increasing that spending in the future, all while avoiding expenditures in areas that won't deliver results.

Historically, how does July typically rank in terms of its percentage relative to the best seasonal months?

I think some months perform better than others. As you know, Mark, while we may not have explicitly stated this, I believe our industry, and almost every competitor, would agree that the selling season usually spans from September to December as people return from their vacations. This makes it a bit challenging to compare with last year when some individuals may have been on vacation and preparing for back-to-school. Currently, those distractions are less of a factor. I’m not claiming that July was our best July ever; rather, it was the best month for sales we've ever had, regardless of the month in a year. Hopefully, that clears up your question.

I appreciate it. That's why I'm saying if July was the best month ever, and it's not even the key selling season, that should bode well for September through December. What is the average float balance and what kind of effective yield are you seeing on that now, Craig?

We haven't shared the yield on our float balance, but as we noted, the 150 basis point reduction in March had an impact of about $4.5 million per quarter on us. We have some layers in place, but we may not layer out as much as some of our competitors. We're extremely conservative in how we're investing those funds. However, the rates on those funds are quite low.

Okay, great. Thank you. Congrats.

Thank you. Thank you.

Hi, this is Steven Chang coming on for Brad. I just have one quick question calendar-wise. I believe that you mentioned in the first quarter that that quarter has one less Wednesday than normal. Am I correct assume that the September quarter will have an extra Wednesday this year versus a year ago?

That is correct. The quarter ending in September will have one extra Wednesday. This similar situation occurred in 2015 and now again in 2020, where Q1 had 12 processing Wednesdays and Q3 has 14. As we mentioned in the first quarter, a Wednesday typically represents about half of a week's revenue billing.

Okay, great. Thank you so much for clearing that up.

Excellent. Thank you so much, guys. I got a couple of questions. Maybe just for starters. Chad, I've always been very impressed by your go-to-market, the very disciplined approach to opening and maturing offices in geographies where you see opportunity, but given the success you're having with virtual sales now, does it change your long-term thinking about your go-to-market?

Not yet. I mean, we're going to go where prospects are buying and how they buy. If prospects continue to buy online, which, I mean, I think it's a pretty good model, it removes all distractions and we're watching deals, you know that normally you'd have had a meeting this week and a meeting two weeks from now and a week meeting two weeks from them, maybe worse. And some days you have a meeting on Tuesday, a meeting on Thursday and a meeting the following Monday. So, you know, I think as you remove the distractions out of the way, I think even buyers are able to focus more on functionality as well and, you know, product replacement. So not yet, but we're, we're looking at it, we're definitely gaining some efficiencies within our sales process throughout management, leadership, better development with salespeople, because we're obviously on a lot more calls with them than what we were able to be physically in person. So, as well as sales achievements continue to go up. So I like the environment we're in, could have done without the whole impact to our current client recurring revenue. But we like this type of sales environment that we're going through right now. But the fact is, if clients return back to having people in their office to buy this type of technology, then we're going to be in the office with them.

That makes perfect sense. And maybe if I could just follow-up with one on pricing, you've now got the government's PPP program that's expired. Our customers asking for concessions when we think about you know pat them on a like-for-like basis. How is that trending?

Yeah, so we have a fair pricing model. You only pay for the employees that you pay. So if you have active employees within our system and you're not paying them, we're not charging you for them. So, you know, that company that had 500 employees that may now have 60 employees, we're only charging you for those 60 employees as you pay them. So it's a fair model, does that mean we haven't had a client here or there that may have asked for that? I'm sure we have. But our models a fair model in that you pay for who you pay.

Excellent. Thanks so much, and congrats to you on all this success in generating new business and the environment. Thanks, guys.

Thank you.

Great, thanks for taking my question. Just first, on the product side, I think you briefly mentioned the Manager on-the-Go update. It's been out six months now, can you just talk about sort of adoption and maybe more generally, as you think about sort of the product, are there any big themes you're looking about in terms of sort of evolving and rolling out new features that, have come across your client conversations in the last couple months?

Yeah. We've had a product roadmap for a while now. And, you got to do first things first. And so for us, it was first getting employees to interact with the database. We've done a good job on that, but we can do better. And, and I again, I don't think there should ever be one change that the employee didn't make on their own, because anytime someone else does it for them, it's duplicative. No HR departments reading an employee's mind. And so that said, there are some things obviously an HR person has to do that an employee is not privy to be able to do themselves. So you have that we came out with the application, now we've moved into Manager on-the-Go. And the good thing about Manager on-the-Go is it's very similar to the app it's within the same technology and keeps the data flow moving timecard approvals, performance reviews, time off approvals and what have you. And so it allows us to get to further automation as we move along. And so our goal right now is to be making sure that people are using all the products we have. The more use cases we have for these, the more companies that buy a full solution set, because it's going to take the full solution set to have full automation. And so yes, we continue to be aggressive with our R&D efforts. We rolled out thousands updates this quarter. We're also finding efficiency throughout our R&D group from a number of hours that they are actually producing, we assign hours to a project, hours a project takes so many hours, we're producing more hours of development in this environment as well. And so we continue to be ambitious. And as we've laid the roadmap, and especially as clients and their employees use these products, it gets us even closer to other areas of innovation and automation that we continue to move in.

Great. Thanks a lot. And then maybe just a little bit of a longer term question here. You know, over the years, you've invested a lot in sort of physical space, right? You built a new campus in Texas. Last year, you made a big land purchase right next your facility in Oklahoma City. I guess, given how you've been able to pivot to more of a remote work environment. How do you think about the physical need for space and the physical need to invest to help you grow the business over the next year or two? Thanks.

We currently have about 50 people occupying 1 million square feet, which means we have more space than we need for our current situation. It's still early to make definitive statements, but I do believe in the value of building relationships and having face-to-face interactions. I don't envision a fully virtual model at this point. I believe that without those in-person connections, our current way of working might be more challenging. However, we're going to monitor the situation and see what unfolds. There's no urgency to make decisions right now, but if an opportunity arises to operate more efficiently, we'll certainly explore it, as long as it supports our goals for strong business continuity.

Great. Thank you very much.

Thank you.

Yeah. Hi. Thanks for taking my questions this afternoon. Chad, just wanted to drill down into the record sales and try to see if anything is changing out there in the market. What I just wanted to ask you really I know you've been pushing the Self-Service messaging for a couple years now you've really been evangelizing that. And I wonder, if COVID-19 and the work from home trend now that that's taken hold, if that is somehow accelerating the messaging around Self-Service, and that could be one of the drivers of the bookings momentum?

Yes. Absolutely, I mean, we've been running these ads for a while I do believe people are getting it. Also, people are having a lot of success with usage. So as employees leave one company and go to another, we're getting leads that way or even people that use the Paycom Solution as an administrator, whether they're in HR, payroll, benefits of administration, procurement, performance, whatever they're in, they leave one company go to another, they're bringing in it easier to use solution whereby the client wins. So absolutely a differentiated product is what's driving our sales results, but advertising the differentiation is getting us those at-bats. And so we've been focused on that.

Thank you. And then the one follow-up I had for either you or Craig was just trying to get, if it's possible anymore color in terms of what that growth is on the bookings? Is there anything that maybe you can help us maybe then share what the bookings growth was last year in this quarter since we know it’s above that? Or maybe what your best month was in the company's history since we know July would be above that without necessarily giving the exact rate? Thanks.

We haven't disclosed that information, and discussing it further tends to lead us in circles once we start. However, it is true that our bookings in Q2 of this year were the highest we've ever experienced. We've had impressive booking quarters in the past, but this one tops them all. Additionally, July has set a record as our best month ever, indicating that our performance in July surpassed any month in Q2, which was itself our largest new business quarter. So, we just wrapped up our most successful month after completing our biggest quarter. Based on what we observe today, we believe the revenue from our current clients has stabilized, which is why we have reinstated guidance for Q3.

Thank you for that additional color.

Thanks, Brian.

Hi, this is Robert Simmons on for Alex. So, I believe you've opened one new sales office in the last two plus years, given the usual ramp time for new office, with this now be a good opportunistic time to open a few new ones? Or alternatively, are you expanding your team sizes?

Yes, we haven't necessarily expanded team sizes. Now we did talk about how we've added inside sales teams. We started adding those. We had one that we really put together through last year and then continued to add additional teams to that. Right now everybody's an inside sales rep on an inside sales team. It's just our inside sales by definition, focuses on below 50 employee companies and our outside sales group, which again is working inside, focuses on above 50 employees. But we're just having a great success with performance, I think that the amount that anyone rep sales is continuing to increase. And it has been, I mean, this isn't a phenomenon that just happened right now. Our top reps have continued to increase the amount that one rep can sell. And so it's not that we've hired a bunch of extra reps. It's that we're having very strong performance amongst our sales rep group, with some moderate increases in inside sales teams as we fill them out.

Got it. Great. And then can you size the impact of lower unemployment levels on 2Q revenue? Can we think that $2 million and multiply it by 13? Or is that too simple?

Roughly it will be, yes, it will be $2 million multiplied by 13 for the quarter.

Yes, but plus the impact on the interest.

The interest would be what we called out last quarter was $4.5 million per quarter, which I think.

Got it. Great. Thank you.

Hey, guys, this is Josh on for Ryan. What assumptions are you baking into Q3 guidance for improvement in employment trends versus new customer growth? Do you expect that $2 million per week to remain steady and your assumptions? And then the benefit of the extra Wednesday; is that roughly an $8 million benefit to the quarter with a half week of recurring revenues?

Yes, first off on the extra Wednesday, that would have been kind of the pre-COVID levels. Now, you're looking at more of a $6.5 million to $7 million range on that impact on the quarter. In terms of the Q3 guidance, what we've seen so far as it relates to our current client base is not much of an improvement. It kind of hit that $2 million level and it stayed there and any improvements, kind of ending in employment level would have minimal impact on us unlike what obviously happened in April where, we're going up so much. So, we really haven't baked in any improvements. We haven't seen any so far for the quarter.

Okay, great. And then I just want to follow-up. How should we think about your hiring plans in the back half of the year versus pre-COVID plans earlier this year? Do you feel like this is also a time to ramp up hiring more than you had maybe originally expected at the beginning of the year?

I believe it varies by department. Generally, every business is emerging from this period more efficient. We had teams working from home in various ways, and as we analyze each business, we can identify opportunities to enhance efficiency, which we have leveraged. Overall, businesses are coming out of this leaner than they were going in. We've noticed some of this ourselves. That being said, during the initial weeks, we scaled back on our sales efforts, and we also did the same with our recruiting and hiring initiatives. However, those efforts, particularly in sales and R&D, are picking up again, and we will continue to assess our staffing needs. So yes, we have definitely started to rehire.

Got it. Thanks, guys.

Hi, congrats on a good quarter. Just an overall question, certainly when the pandemic hit you all went into changing how you will sell your product, how your sales declined. Now that the dust has settled, two questions here, what areas were you most surprised about from upside and downside perspective? And secondly, are there any sort of permanent changes you're looking to kind of put in place?

I would say the positive aspect is clearly the sales side. The pandemic revealed weaknesses but also created new opportunities. Every business likely wishes for their employees to have a direct connection with the database, although they may not have wanted to engage in that conversation before. Now, it's much simpler to do so. On the downside, I'm surprised that our numbers remained consistently at a low point week-to-week; I expected some fluctuations where it might initially get worse and then improve. It appeared to decline sharply at the start and then plateaued at a low level. It seems possible that clients faced their challenges early on, and if that's accurate, we may continue to see stabilization in our numbers, which we have over the past three months. Although unemployment has varied, the most reliable unemployment data comes from a random survey of 60,000 households, representing 110,000 individuals. Prior to COVID, initial unemployment claims were around 200,000 each week. For instance, in early January, the figures were 212,000, 207,000, 220,000, 212,000, 201,000, and 204,000, which gives us a starting point. By mid-March, claims skyrocketed to 3.3 million, then 6.8 million, followed by 6.6 million. In the following six weeks, weekly claims fluctuated between 1.35 million and 1.5 million, which is nearly seven times pre-COVID claims. Despite this surge, our numbers have stabilized, and we haven't felt that negative impact. We aimed to provide directional insight rather than guidance, and we have since understood the direct effects on our figures. We are now establishing a new baseline and hopefully have laid the groundwork for the future. If unemployment numbers improve for our clients, we can anticipate growth. However, if the unemployment figures rise from general surveys but not among our clients, organic growth in current revenue won't occur. Instead, our growth will depend on the diligent efforts in new business sales, which we are currently achieving successfully.

Yeah. That's super helpful. On the existing clients there, clients have been reducing headcount. You talked about some level of civilization, are you able to help us think through what triggers you're all seeing for that return where existing clients go back and rehire employees that they're either furloughed or laid off?

Yeah, I mean, I believe that some of the ones that I've mentioned before. I mean, I know we had health clubs, we had hotels, we had some different groups that were impacted by that. Could we get some uplift? Yes, we could. We absolutely could. Could we be negatively impacted more in areas that haven't yet experienced a significant shutdown? I don't know, maybe. But we're just going to have to wait and see. But one thing we did was we went through an analysis of what were the impacts on our current client revenue? What were those numbers? When did they start and what's been the movement since? And I believe that's the most relative number to us. And so we've seen stabilization. I am hopeful that that stabilization continues. We feel good about third quarter. That's why we've gone ahead and returned to guidance here in the third quarter. And then we'll see what happens subsequent to that. But thus far for the last three months, our numbers have been stabilized as far as the negative impact on our current clients unemployment trends.

Thank you all for joining us today. I want to express my gratitude to our employees for their exceptional work. In the coming months, we will be engaging with investors at the Oppenheimer conference on August 12, followed by participation in the Citi and Jefferies virtual conferences in September. We value your ongoing interest in Paycom and look forward to connecting with many of you soon. Thank you, operator, you may disconnect.