Paycom Software Inc (PAYC) — Q2 2022 Earnings Call Transcript

Thank you, and welcome to Paycom’s second quarter 2022 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. You should refer to and consider these factors when relying on such forward-looking information. Any forward-looking statement made speaks only as of the date on which it is made, and we do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Also during today’s call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP net income, 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 will 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. We had another very strong quarter. I'll spend a few minutes on the highlights and then turn it over to Craig to review our financials and our guidance, and then we'll take questions. Our second quarter 2022 revenue of approximately $317 million came in very strong, up 31% year-over-year with continued strength in recurring revenue from new business sales. We continue to see strong demand for self-service payroll and automation of human capital management as more companies and their employees embrace innovative solutions like Beti. We’ve been leading the employee usage initiative for years and our efforts are paying off. When data interactions on our platform are performed by employees, our clients realize the ROI that self-service promises. At the core of our employee usage strategy is Beti, which we believe is how businesses and their employees win in payroll. If any business is doing the employees' payroll for them, that business is doing both itself and its employees a disservice. The only way a company wins at payroll is by having the employees do it themselves. It makes no sense in the year 2022 for any company to continue to transfer data inefficiently through multiple systems or manual archaic processes. Beti is the future of payroll, and already over 13,000 clients or nearly 40% of our client base have embraced Beti. That's great progress, but as I've said, I expect all clients will eventually deploy Beti in order to finally experience the correct way to do payroll. We are reinforcing this message through our marketing efforts. Our recently launched new ad campaign calls on businesses and their employees to eliminate unnecessary activities, and the early feedback has been very positive. Overall, our marketing plan continues to deliver strong demo leads and brand recognition across the target market range. In particular, we continue to see strong leads from larger clients, which is driving average revenue per client higher, and an important contributor to our strong growth. On the sales front, our 54 outside sales teams continue to perform well, driving deeper penetration and market share gains into our target geographies. While we estimate we have roughly half of the country covered geographically, we only have approximately 5% of a very large and growing total addressable market. We have a long runway for rapid growth for many years to come. To sum up, we finished the first half of 2022 with very strong financial results. With our expectation for the second half of the year, 2022 has become a year of growth acceleration and margin expansion. Our differentiated product strategy focused on employee usage and self-service payroll is resonating with prospects, and we are onboarding new clients at a very strong pace. I want to thank our employees for making this quarter another milestone growth quarter. With that, I'll turn the call over to Craig for a review of our financials and guidance.

Thanks, Chad. Before I review our second quarter and our outlook for the third quarter and full year 2022, I would like to remind everyone that my comments relating to certain financial measures will be on a non-GAAP basis. Second quarter 2022 results were excellent, with total revenues of $316.9 million representing growth of 31% over the comparable prior year period. In Q2, we had very strong recurring revenue growth, predominantly from new client additions over the past year. Our revenue growth continues to be driven by strong demand for easy-to-use, employee-focused solutions and our success in attracting new business wins. Within total revenues, recurring revenue was $311.5 million for the second quarter, representing 98% of total revenues for the quarter, and growing 31% from the comparable prior year period. Total adjusted gross profit for the second quarter was $268.2 million, representing an adjusted gross margin of 84.6%, and we are on target to achieve strong full year adjusted gross margin of approximately 85%. Adjusted sales and marketing expense for the second quarter of 2022 was $82.7 million or 26.1% of revenues compared to 26.6% of revenues in the prior year period. We continue to see strong return on investment from our advertising spend and plan to continue to invest aggressively in marketing and advertising through the remainder of 2022. Adjusted R&D expense was $33.9 million in the second quarter of 2022 or 10.7% of total revenues. Adjusted total R&D costs, including the capitalized portion, were $48.1 million in the second quarter compared to $38 million in the prior year period. We will continue to invest in innovation in our world-class products. Adjusted EBITDA was $119.6 million in the second quarter of 2022 or 37.7% of total revenues compared to $87 million in the prior year or 35.9% of total revenues. Our GAAP net income for the second quarter was $57.4 million, or $0.99 per diluted share, versus $52.3 million or $0.90 per diluted share in the prior year period based on approximately 58 million shares. Non-GAAP net income for the second quarter of 2022 was $73 million or $1.26 per diluted share, versus $56.5 million or $0.97 per diluted share in the prior year period. For 2022, we anticipate our full year effective income tax rate to be approximately 27% on a GAAP basis. Turning to the balance sheet. We ended the quarter with cash and cash equivalents of approximately $279 million and total debt of $29 million. The average daily balance of funds held on behalf of clients was approximately $2 billion in the second quarter of 2022. We recently increased our liquidity through an expanded revolving line of credit of $650 million and a delayed draw term loan that allows us to borrow up to an additional $750 million as needed. Potential uses of proceeds include but are not limited to general corporate purposes, capital expenditures and stock buybacks. During the second quarter of 2022, we took advantage of a dislocation in the stock market and repurchased approximately 360,000 shares for a total of roughly $100 million. Through June 30, 2022, Paycom has repurchased nearly 4.65 million shares since 2016, for a total of nearly $588 million, and we currently have $550 million remaining in our buyback program. Now, let me turn to guidance. We are raising our full year 2022 guidance as a result of very strong second quarter financial performance and the continued strength of demand trends. We now expect revenue in the range of $1.354 billion to $1.356 billion or 28% year-over-year growth at the midpoint of the range. We expect adjusted EBITDA in the range of $546 million to $548 million, representing an adjusted EBITDA margin of 40% at the midpoint of the range. For the third quarter of 2022, we expect total revenues in the range of $327 million to $329 million, representing a growth rate over the comparable prior year period of approximately 28% at the midpoint of the range. We expect adjusted EBITDA for the third quarter in the range of $117 million to $119 million, representing an adjusted EBITDA margin of 36% at the midpoint of the range. With only 5% share of a growing total addressable market, we have a long runway for continued high margin revenue growth for years to come. Our differentiated solutions and go-to-market strategy, particularly with Beti, are working well and driving new client growth and higher revenue per client. Combining our raised 2022 guidance for revenue growth, with adjusted EBITDA margin guidance, implies we are well on our way to deliver a material improvement over the Rule of 65 we achieved in 2021. With that, we will open the line for questions.

Thank you. Congratulations from my end. Two quick questions. Chad, can you talk a little bit about what you're seeing there? Obviously, macro is a big question for everyone on everyone's mind. Employment data are still very, very strong. But like anything that you're seeing out there in terms of end demand changes or a different behavior from customers? It's my first question. My second question is Craig for you. Obviously, we have quite a bit of rate changes over the last quarter. Can you just remind us how that fits into your numbers going forward? Thank you and congrats again.

You bet. Thank you, Raimo. I'll take the first. We aren't seeing much change from what we've observed in the past. I believe it’s not as challenging to hire people as it was six months ago, but it's still very much an employee's market. We are not back to where we were in 2019, where the market was more balanced between employers and employees. There are still many unfilled jobs, and we are all still in a competitive situation for talent.

Raimo, regarding the interest rate question, for each increase of 25 basis points in the Fed funds rate, we anticipate about $5 million in annualized interest income. However, this typically accumulates over time. We experienced an increase in May, followed by further increases in June and July, which will continue to contribute in the third and fourth quarters as well.

Okay, perfect. Thank you. Congrats again.

Thank you.

Hey, good afternoon, and it's great to see the strong results. Maybe first one, Chad, just in terms of deal cycles are you seeing a similar closed rates or similar lengths in terms of the typical deal cycle? Are you seeing any changes in terms of the level of approval that needs to go to? What are you seeing as far as actually closing deals goes?

Yes, no changes there from what we've been seeing. As far as the timeline and in our close percentages, I would say if anything, they're going up. We're definitely getting more interest in the first calls that we have, and being able to move those into second calls. So we're having more success with that. But all in all, our close ratios remain very strong and very similar to what they've been in the past.

Great. Regarding the newer sales offices, could you update us on the staffing levels and how their productivity compares to previous new office openings?

I would say the staffing is going to be similar. They're more productive today. Today's new reps are more productive than what yesteryear's reps would have been. But as far as the number of reps that's very similar. The progression to maturity of any one of our new offices is going to start off with three or so reps. And then we'll continue to add reps over the course of a 2-year period. Of course, at some point, they're fully staffed with eight and they all have both pipelines and backlogs. And so after 2 years, those cities carry the same quota as what we would have had in an existing city.

Okay, okay. Great. Thanks again for taking my questions, and great to see the good numbers.

Thank you.

That's great. Thanks very much. Chad, can you remind us historically what type of impact employment levels that your customers have has on your overall growth?

Next year will mark our 25th anniversary, and apart from the first two months of the pandemic, typical fluctuations in unemployment have not really affected us. We have navigated through various cycles. The pandemic was unique due to the sudden decrease in our workforce, but overall, we feel very stable concerning unemployment. However, if unemployment were to suddenly double, it would be hard to imagine it wouldn’t affect our current client base. As it stands now, unemployment rates remain reasonable and might even be considered low, with over 10 million job openings available. At some point, one has to wonder if everyone who wants a job already has secured one.

That's great. Thanks very much.

Thank you.

Hey, Chad and Craig. I want to extend my congratulations on the terrific results. Could you explain the strong leads you're experiencing, especially from larger clients? I'm curious about the size difference you are observing. How significant are some of the companies now entering your pipeline? Additionally, how does the average client size today compare to a year ago?

Well, it continues to go up because, as you remember, it was about a year ago, maybe a little longer that we increased our range up to 10,000. And so, obviously, it's going to continue to go up a little bit. I wouldn't say that there's been a massive shift for us to go a whole lot higher than that right now. So what I would say is, is there's been more within that range, not necessarily quadruple that range. But we continue to engage well above our target range, and we're having a lot of success. A lot of the leads we're getting right now are still coming from employees of companies that have used us elsewhere, have that single easy-to-use experience, and are really wanting to have that same experience at the next company they went to. So we're still having a lot of success and continuing to bring in strong demo leads through both that which I'll say is indirect as well as through our advertising and marketing efforts, which are still yielding great results for us.

That's great. And then, with regards to the float balances, what was the effective yield that you were able to generate off of the last 3 months?

Yes, Mark, we haven't disclosed what yield it is, but I mean, we're investing still fairly short-term. We have commercial papers from overnight money market as well. So, kind of a mix of that, and we're not chasing yield, but we're paying attention to it.

Okay. Obviously, getting more and more promising. Thank you.

Thank you.

Hi. Thanks for taking my questions. I like to owe congratulations again on these terrific results. One for you, Chad, one for Craig. Chad, the commentary that on the deal closures you're saying higher ASPs. Are you seeing similar trends in your lead flow also? And then the question I want to ask, Craig, with the guidance you're retaining the same EBITDA margin. But clearly, we know that inflationary factors have gotten worse here throughout the quarter. So I'm just wondering, are you able to maintain that margin because of the efficiencies of the business that you're able to overcome? Or is that are you holding back any sort of spend that maybe you had planned in the second half of the year? Thanks.

Sure. We are definitely seeing leads coming in from larger clients, but we remain focused on targeted prospecting, which has always been our strength. This approach is part of our strategy of consistently applying pressure through targeted marketing efforts, and it's clear that these leads are generating larger opportunities for us.

Yes, and in terms of the inflationary question, we've seen some pockets where we're seeing some higher inflationary areas, but overall we're continuing to look for leverage throughout the model and really not holding back on any hires. Just finding leverage throughout the model.

Thank you.

Thank you.

Hi, Chad and Craig. Thanks for taking my questions. Congrats on a great quarter. Chad, in your prepared remarks, you talked about this dynamic where you've got nearly half the country covered geographically, but only 5% market penetration currently. As you think about continuing to expand Paycom's portion of the pie, where do you see the most value in terms of incremental investment? Whether it be continuing that geographic expansion in the back half of this year with new offices, incremental advertising spend to build the brand awareness, or perhaps continued investment and expansion inside sales teams? Thanks.

Well, number one, is us continuing to get better at the outside sales process. We have more opportunity out there for us within the markets that we're in. We only have 5% of the market out there. So, I would say number one for us is continuing to get better at selling our value proposition out there to prospects. We have continued to be pulled up market, because of the strong value proposition that we are delivering all the way down to the employee level. And so, we are continuing to get more leads that tend to be a little bit larger than what we've had in the past. And I would say, in aggregate, there's more of them as well. And so really, that's been our focus is getting better at executing and being able to sell that. Now that alone isn't our only strategy. We're getting better at sourcing leads, we're getting better at retargeting them. And then of course, we continue to look at expanding geographically when it makes sense to do so. And when we have the staffing and leadership bench to be able to do them.

Thank you. Maybe just as a follow-up, when you look at sort of the yield that you're looking to get off of the digital marketing investments and the advertising, can you talk about what the timeframe that you're looking for in terms of that return on investment, and whether if we do see a slowdown in the back half of the year that could materially impact those returns in the near-term? Thanks.

Yes, we monitor our returns weekly and have strong demo leads, meaning clients are actively seeking product demonstrations. Our close ratios with these clients are very good. I don’t anticipate a slowdown in the second half of the year. We have a compelling value proposition that resonates well with both employees and employers. The evolving use of technology is also beneficial for us. While we may be early to this market, we are confident in our approach. We will continue to implement our employee usage strategy for the remainder of this year and into next year.

Thanks for the color, Chad. Congrats again.

Thank you.

Hi. This is Alex on behalf of Siti Panigrahi. I had a question about Beti. You talked about 10,000 clients uptaking Beti in Q1 and this quarter. You have about 13,000 clients. What drove the 3K net adds and what sort of per employee per month uptake be part of Beti? And what kind of growth upside do you see from Beti adoption? Can you answer that and I have a follow-up.

We continue to see growth every quarter for two reasons. First, we are actively upselling Beti to our existing clients, as it offers a superior payroll solution that we believe is the best option available today. Since July of last year, every new client that has come onto our system has implemented Beti, making it a standard part of our product offering for all new clients. This creates a combination of continuous upselling and onboarding new clients. Additionally, upselling Beti to our client base presents an incremental revenue opportunity, which is beneficial for us. Each year, we prioritize different modules, and this year, as well as next year, we will focus on upselling Beti to our entire client base, which we expect will be advantageous. Greater usage of Beti will enhance the user experience and set higher expectations for employees, leading to more referrals for us and increased client satisfaction. Ultimately, this not only drives down our service workload, as fewer corrections are needed when payrolls are accurate, but also promotes self-service opportunities for our clients.

Thank you. My follow-up question is about ADP, which continues to experience improved retention rates. How have your new booking trends been so far, and do you anticipate any slowdown in new business bookings due to a possible macroeconomic slowdown in the second half? Also, is ADP still a significant source of new business for you?

Yes, ADP has been experiencing better retention rates since I started the company in 1998. I'm surprised their retention is not already at 200%. But it doesn't impact our ability to sell and our ability to sell and take business. As again, our product is more comprehensive. It's easier to use. And it's just the way that employees should be interacting with their own data.

All right, thank you.

Thank you.

Hi, guys. Good afternoon and thank you. Wanted to start here kind of with the recession question. So just how are you thinking about the sustainability of growth trajectory in the event the U.S does fall into a bit of a more challenged macro environment? And it's just as you think about the growth composition, what are the key swing factors that may change versus what you think remains unchanged?

First of all, regarding the macro situation, the only factor I see that could significantly affect us would be a rapid and substantial increase in unemployment. This kind of change doesn’t happen gradually; it typically occurs suddenly. I believe that would have some impact on us. We are a growth-focused company dedicated to automating back-office tasks and simplifying employees' work. This approach will always be valued, regardless of external conditions. In many cases, when resources are limited, there’s a greater push for automation. Therefore, I am confident in our ability to navigate potential challenges. However, it would require a drastic change in the unemployment rate to truly affect us. I’m not suggesting that we couldn’t adapt to that situation, but as observed during the pandemic, that was a much more severe unemployment spike than we might expect in a recession. Such a scenario was much more abrupt and widespread. We’ll see how things unfold, but I don’t foresee many obstacles preventing us from maintaining strong growth. This year marks our 25th anniversary in business, and we’ve successfully endured various economic downturns before.

Okay, thanks. Appreciate that. And then just a follow-up on free cash flow. Can you comment on just free cash flow margin for this year? How you expect those to land for 2022? And just any thoughts on longer term forward free cash flow conversion trends?

One thing this quarter that impacted our free cash flow was the tax rate. Last year in the second quarter, we benefited from a discrete item related to some stock vestings, but this year we didn't experience the same level of benefit. Therefore, I believe this year's results are more indicative of what we can expect as we move through the rest of 2022 and into 2023.

Thanks.

Great. Thanks for taking my question. Really strong results here, especially given the macro backdrop. Chad, how would you describe or attribute the upside that we've seen just from industry resilience versus company-specific drivers and execution?

Much of our growth in any given quarter depends on when a deal begins. We enter each quarter with strong visibility regarding deal start times, but the timing is crucial. If a deal starts early in a quarter, we can recognize 100% of the revenue for that period; however, if a deal begins later, we may only realize a small portion, like a third or even 15% of the revenue. In later quarters, we would receive the full amount. While we have good visibility and can guide effectively from quarter to quarter, the outperformance is primarily driven by new client acquisitions, and the timing of those deal starts is critical for us.

Okay, perfect. And then, Craig, again, 31% growth in the quarter, very impressive. I think the guidance assumes for the second half some modest deceleration. Curious on what kind of macro assumptions you've built into this.

Yes, I mean, as we were coming into guidance, I mean, at this point, we haven't seen anything. You're starting to hear about it, but we haven't baked any sort of a macro impact to our guidance for the back half of the year. Really, we're guiding very similar to how we've done in the past. We guide to what we see. As we get closer to the fourth quarter, we can see a little more on the fourth quarter. And that's the quarter that has the bonuses, the off-cycle runs. So, as we're sitting here and by the beginning of Q3, we're guiding very similar to how we have in the past.

Okay. Thanks for the clarification, Craig.

Thank you.

Hi, thanks for taking my question. So clearly good results. But I’m trying to dimension are you able to kind of separate how much of your growth was driven by expansion at existing clients versus new client logos?

Sure. Is that the question? I'm just making sure. Okay, if that's a question, the overwhelming majority of our revenue and our revenue that we onboard, our new business revenue comes from new client wins. We do continue to sell into our client base. I've never said land and expand. We land large, but there are opportunities for us to expand into that client base. And we do that, as we believe that clients should be able to use all the products that we have the correct way to drive the employee experience. Go ahead, Craig.

One thing I would mention, Arvind, is that our external clients and sales teams are focused solely on acquiring new clients. This entire group is acquiring new accounts. The distribution has remained quite consistent with what it has been in the past, except for the introduction of ACA, which was a significant upsell. However, in recent years, the ratio of new clients to upsells has been fairly steady, and the majority continues to come from new client acquisitions.

Perfect. And just quick follow-up here. Have you seen any sort of layoffs or turnover with existing clients that has been a headwind on revenue? Or has it been sort of roughly equal? And then the second thing is, if you can comment on pricing, if you've been able to push sort of pricing increases through?

Now on the headwind. And then as far as our pricing, we've talked about that in the past where we did our first pricing adjustment, I believe it was in 2019. And we did a small pricing adjustment to a small subset of our client base. We did talk about as we move forward, that talking about our pricing model isn't something that we're going to do just for competitive reasons, but I've also always said that as we make our product more valuable, it only makes sense that we get to share in the value we create through pricing adjustments over time.

Perfect, thank you.

Thank you.

Hey, guys. Thanks for squeezing me in and congrats on an all-out great quarter. I guess, so a lot of these questions have been asked, but I'll try to maybe ask it a different way. It sounds like you're having incremental success selling more modules at the same time, because of Beti. You're still seeing a tremendous amount of new business. You don't really see a recessionary headwind impacting employment rate. So I guess the main question I would have is, if you look at your the constitution of your new bookings, and you look at that from kind of increased value versus increased units, how does that compare to prior periods? Meaning are you getting more of your growth from the fact that your deals are larger incrementally?

I would say comparison very similar to every past year with the exception of when we added on to our inside sales business, which are for more of your emerging businesses, those companies that have less than 50 employees, that group represents approximately 5% of our overall revenue. So, that's one way to think about it is companies that have less than 50 employees represent 5% of our overall revenue. And so, what has been growing is the average size of our other clients. And so that hasn't been different in any year from year-to-year. It continues to go up. And again, part of that diluting factor, if you just take the unit count divided by total number of employees in our system, part of that diluting factor is going to be all of those emerging below 50 employee companies that we added when we added this inside sales group and expanded it in the year 2020.

Understood. And I guess increasingly, as you think about incremental modules, when you think about that incremental potential over the next coming couple of years, do you see it every year if everybody is buying all of the modules up front? Do you see that kind of momentum continuing in the future?

Yes, we've always said that people buy half at least half or greater of the modules that we have at the time that we sell them. Of course, we've been in business some time. So some of the modules you have to go back and sell into the current client base because we didn't have them at the time we actually sold them in the beginning. I would say it's a little bit more than half now as we go into new sales just because of what's required for a client to have in order for an employee to do their own payroll. There's several modules that they have to have. I'm not going to say it's a 100% because that wouldn't be accurate. But I would say it's more than what they needed in the past.

Perfect. I have a clarifying question regarding the guidance. It appears that there is a larger pass-through and raise than usual. It would be helpful to understand how much of the additional increase is influenced by the rate hikes from the model.

As we've mentioned, new business sales will be the main driver for us from quarter to quarter, and the timing of those sales is important. That doesn't mean we won't see some positive effects from the rate increases. We had a 50 basis points increase in May, which occurred somewhat in the middle of the quarter, and an additional 75 basis points increase at the end of June, followed by some in July. We've discussed how these increases will have a positive impact on both the upcoming quarter and subsequent ones. However, our primary focus remains on the growth in acquiring new clients.

Perfect. Thank you guys. Congrats on a great quarter.

Thank you.

Great. Thanks for taking my question and I echo my congrats on the strong results. Chad, already you mentioned a lot of the benefits of Beti. But just as it relates to retention, can you talk about what you've seen maybe from those customers that utilize Beti to the ones that maybe don't? Are you seeing any improvement there? Or is it still too early?

Well, I mean, definitely clients that use Beti and deploy Beti are going to have much stronger usage patterns than someone that doesn't. And once they've deployed Beti, it kind of changes the game and the expectation of what an employee expects to be able to use in the business. And so absolutely that impacts our retention. As I've been saying, usage is really what drives retention. And I believe that so for any software out there, but definitely ours.

Helpful there. And Craig, just a quick follow-up or clarification on float. I just want to make sure that I understand it. So is it safe to assume that your guidance takes into account the layered impact of all the rate increases up until July and assumes no further rate increases? Is that accurate?

Yes, that would be accurate. It would not include any future rate increases, and then layering in what we know up through July.

Perfect. Thanks again for taking my questions.

Thank you.

Great. Thanks for taking my question. Just one on margin. Another great quarter of year-over-year margin expansion on the EBITDA line. But you did have some compression on gross margin. I know that Craig talked about the full year expectation for about 85% gross margin. I would think with float income going higher, you'd have a benefit there just like on the EBITDA line. So can you remind us about the investments, potentially, you're making that that could impact that gross margin trends? Thank you.

Certainly. As we continue to hire in anticipation of revenue growth, this will impact our gross margin. We need to recruit and train before we can fully realize that revenue. Therefore, we are actively hiring. Additionally, with the launch of our new grapevine facility and the Tier 4 data center, we're beginning to see some depreciation affecting various parts of our income statement. This has also contributed slightly to the gross margin impact. However, we still anticipate maintaining at least an 85% gross margin for the full year.

Great. Thank you very much.

Thank you.

Great. Thanks so much. Is there any way to quantify the revenue impact if Beti were fully adopted by your existing client base? In other words, what would the revenue impact be as Beti reaches full utilization across the client base?

Well, Beti is one of 29 modules that we have. So I mean, it would definitely have an impact. Again, where we're making the impacts new business logo ads, and Beti gives us the opportunity to do that. I think Beti will have some impact for sure because we're charging for it. But I think where you'll see a better impact of Beti once we have every single client on. I mean, I think it's going to impact retention. As we've seen, usage has been impacting retention of our product. We were at 91%. I think it was 3 or 4 years ago, and it's continued to go up. And so that's really been driven by usage. And Beti generates stronger usage of our products. So, if history is an indicator, we would expect that once all of our clients have deployed it, and are actually generating that ROI, it's going to have an impact on our retention. And then also, all those clients' employees will be used to Beti and as they go to other companies in the market, as a normal flow of an employee lifecycle goes from one company to the next, we believe that generates even greater leads for us, as we've been seeing now.

Very helpful. And then, can you just remind us the philosophy on float in terms of to the market as opposed to maybe reinvestment in the business?

Yes, I mean, we'll have to see on that. I think a lot of it depends on the timing of when we might make some of those investments. You look at and if it's something that we can invest in, let's say advertising or R&D, that's going to generate additional revenues. And that's something we're definitely going to look at. But we're also a company that doesn't like to spend. So we're not going to spend it just to spend it. We will to the extent that we don't see an opportunity, we'll let that fall to the bottom line.

Thanks so much.

Hey, guys. Thanks for taking the question. I was wondering, are there parts of the market that are responding particularly well to Beti, certain industries that are the most apt to want it and to embrace it?

I would say that Beti is applicable across various industries. The advantage of Beti lies with the employees, so it is relevant regardless of the sector. Employees in any field need their paycheck to be accurate, especially before the weekend, and Beti serves that need. Every industry has employees who require such support. Additionally, any business aiming to automate and minimize their liability related to payroll can benefit from implementing Beti. Therefore, I can't pinpoint any industry where Beti performs better than others.

Got it. Great. And then can you talk about the UKG situation? I mean, how much benefit have you been able to see from that so far this year in terms of both bookings to date, and also to pipeline for the second half of the year?

I believe this situation creates opportunities for everyone. It also encourages careful consideration, as we all need to ensure we have the right strategies for our clients in this shared environment. We have examined our own approach, and I'm confident that many competitors have also assessed how they can differentiate to guarantee that employees receive their payments consistently. Certainly, this situation presents chances, but it's not necessarily a simple solution that generates these opportunities. The key is that it allows for a seamless experience within a single system for employees, rather than them dealing with multiple systems to locate their passwords. This aspect is what significantly contributes to our successes more than any past challenges they may have faced.

Got it. Great. Thank you very much.

Thank you.

Okay. Thank you to everyone for joining our call today, and thank you to all of our employees for contributing to our continued success. We have a busy schedule ahead starting next week with meetings at the KeyBanc Technology Forum in Vail and virtual meetings with Oppenheimer and BMO. In September, we will be hosting in-person meetings in Las Vegas at the Deutsche Bank Technology Conference; in New York at the Citi Global Technology Conference, and in San Francisco at the Wolfe TMT Conference. We hope to speak with many of you soon and appreciate your interest in Paycom. Operator, you may disconnect.