Paycom Software Inc (PAYC) — Q2 2023 Earnings Call Transcript

Thank you, and welcome to Paycom's earnings conference call for the second quarter 2023. 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 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 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 delivered very solid results in the second quarter, and we continue to expand our opportunity, both within and outside the U.S. I'll start with highlights from the second quarter and progress on our initiatives. Following that, Craig will review our financials and guidance, and then we'll take questions. Second quarter 2023 revenue of approximately $401 million represented strong growth of 27% year-over-year. Second quarter adjusted EBITDA came in at $157 million representing an adjusted EBITDA margin of roughly 39%, up approximately 130 basis points year-over-year. We are delivering a solid combination of growth and high margins while maintaining a disciplined investment strategy and product and international expansion. On the product front, the ROI that our clients are achieving from Beti is unquestionable. We recently commissioned a total economic impact study from Forrester Consulting that quantified the savings from using Paycom and Beti, including a 90% reduction in labor for payroll processing and saving HR and accounting teams more than 2600 hours per year. Companies that are not adopting Beti are missing out on a significant opportunity for savings from this structural change to how payroll should be done. With millions of employees already doing their own payroll and organizations seeing incredible ROI with Beti, there's no reason not to adopt it. The product is working as we anticipated, and our messaging is resonating. So we will remain disciplined in promoting the power of Beti to new and existing clients. In April 2023, we launched access to our Global Human Capital Management Software in more than 180 countries and in 15 languages and dialects. Today, we announced that we have expanded our HCM solutions to include self-service payroll for organizations with Canadian employees. Now, more North American businesses will be able to improve their payroll processing by giving their employees a more transparent and user-friendly experience in Canada with Beti. We are seeing continued success selling across our entire target market range, and our efforts upmarket continue to be strong. With our recent launch into Canada, we've opened up a new large cross-border opportunity. As we continue to expand our geographic reach, I expect our move-up market to continue to accelerate. As a result, we are redefining our target market range to include organizations with greater than 10,000 employees which represents an enterprise segment that our sales reps can now directly pursue. With our new expanded market opportunity, we now estimate our market share is well below 5%. This expansion gives me confidence that we can grow at an impressive pace for many years to come. In addition to launching our payroll services in Canada, our product development team also rolled out two significant tools in our software, Everyday and the Client Action Center. Everyday allows employees to get paid on a daily basis. Unlike other products on the market, with Everyday, employees access their earned pay early without being charged a fee, and employers are not exposed to potential losses from all factors that impact pay, including early departures, garnishments, or benefit deductions to be collected. Everyday is a fully compliant payroll as opposed to a pay advance like many other daily pay services. The Client Action Center furthers our dedication to creating software that simplifies the lives of our clients by providing them with an intuitive dashboard within the Paycom mobile app. This new tool makes it even easier for our clients to take action and get updates on service-related items. We've received great feedback from clients on this streamlined approach since we rolled it out in June. Finally, Paycom was recently recognized as one of America's Greatest Workplaces in 2023 by Newsweek. The award highlights companies dedicated to providing employees with an enjoyable work environment that also fosters growth and development opportunities. In addition, for the second year in a row, Comparably named Paycom one of the best career growth opportunities among all companies. In summary, our highly differentiated product and realized client ROI continue to drive our strong results. I'd like to thank our employees for their hard work and commitment to excellence, as we continue to change the way payroll is done. With that, I'll turn the call over to Craig for a review of our financials and guidance.

Before I review our second quarter results for 2023 and our outlook for the third quarter and full year 2023, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. We delivered solid results this quarter with revenue of $401.1 million, up 26.6% compared to the prior year period. Our GAAP net income for the second quarter was $64.5 million or $1.11 per diluted share based on approximately 58 million shares. Adjusted EBITDA was $156.6 million in the second quarter of 2023, or 39% of total revenues compared to $119.6 million in the second quarter of 2022 or 37.7% of total revenues, or up 130 basis points year-over-year. Non-GAAP net income for the second quarter of 2023 was $94.3 million or $1.62 per diluted share, up 29.1% from the prior year period. Second quarter GAAP tax rate came in higher than expected at 30.5%. For the full year 2023, we now anticipate our effective income tax rate to come in slightly higher at approximately 29.5% on a GAAP basis and approximately 27% on a non-GAAP basis. Demand trends remained strong, particularly upmarket. Within total revenues, recurring revenue was $394.5 million for the second quarter of 2023, representing 98.4% of total revenues for the quarter and growing 26.6% from the comparable prior year period. Adjusted sales and marketing expense for the second quarter of 2023 was $100.4 million or 25% of revenues. We continue to aggressively spend on marketing and sales ahead of future growth. Adjusted R&D expense was $42.5 million in the second quarter of 2023 or 10.6% of total revenues. Adjusted total R&D costs, including the capitalized portion, were $61.2 million in the second quarter of 2023 compared to $48.1 million in the prior year period. We continue to invest in new products and expanded geographic offerings. Turning to the balance sheet, we ended the quarter with a very strong balance sheet including cash and cash equivalents of $537 million and total debt of $29 million. Additionally, we announced today that we have expanded our revolver from $650 million to $1 billion. The average daily balance of funds held on behalf of clients was approximately $2.2 billion in the second quarter of 2023, up approximately 13% year-over-year. Now, let me turn to guidance. For fiscal 2023, we are raising our outlook and now expect revenue in the range of $1.715 billion to $1.717 billion or approximately 25% year-over-year growth at the midpoint of the range. We expect adjusted EBITDA in the range of $722 million to $724 million, representing an adjusted EBITDA margin of approximately 42% at the midpoint of the range. With these strong results and outlook, we are well-positioned to reach the Rule of 67. For the third quarter of 2023, we expect total revenues in the range of $410 million to $412 million representing a growth rate over the comparable prior year period of approximately 23% at the midpoint of the range. We expect adjusted EBITDA for the third quarter in the range of $156 million to $158 million representing an adjusted EBITDA margin of approximately 38% at the midpoint of the range. We paid our first quarterly dividend of $37.5 per share in June, and the Board has approved a quarterly dividend of $37.5 per share payable in mid-September. Paycom is in a strong financial position and executing well against a very large market opportunity. Our focus on delivering strong revenue growth and attractive adjusted EBITDA margins remains top priorities, and I am pleased with the consistency of our execution and the resiliency of our business model. We look forward to delivering continued strong results as many of our initiatives gain traction in 2023 and 2024. With that, we will open the line for questions.

Thank you. I have two quick questions. First, Chad, can you share your insights on current end demand? I'm asking because while this quarter you exceeded expectations by $3 million, the full-year guidance was only updated by $2 million. Should we interpret this as a sign of slight concern regarding the second half of the year? It would be helpful if you could provide some context on how we should view this. The second question is about Everyday. Can you clarify if this is applicable to all clients or just a select group with more contingency workers? I'm interested in how broadly this can be implemented. Thank you.

Sure. So, I'll take your last question first and circle back. But, in regards to Everyday, we put it out there because there are industries and certain companies that have moved toward a more pay-as-you-want type program, typically for lower wage earners. Our product that we put out there allows early wage access or everyday access to wages. The employer is not on the hook. It's not a loan, so the employee is not charged. Often, these amounts are guesstimated. If the employee leaves early or if they didn't collect all the deductions for the employee, the employer is on the hook. So, all I would say is that it’s meeting a need that's already out there. I do not suggest that business has changed to a daily pay environment, but some of them are already out there. And so, it gives us an opportunity, and it's linked to our bulk card. In regards to your first question about demand, demand for us is still very strong, especially with outside sales and new bookings. We're booking larger deals. We're booking $2 million deals, $3 million deals. We hadn't booked those before. So, outside sales is strong and up year-over-year. Inside sales, which sells small business or smaller emerging business below 50 employees is also up year-over-year. We do have a metric within our business model that sells that's down year-over-year and that's our CRR sales. The CRR group upsells current clients, and this group has been down year-over-year. Honestly, that's because we've remained very disciplined in converting our client base to Beti. You had that first group that came on and then we've been out selling the others. It's a lot of work for our CRR with very little revenue opportunity for them. So, we've actually given compensation accelerators to incentivize the group to sell it, but it's still a smaller revenue product or billing item for us. So, while self-inflicted, we are having CRR's focus on Beti. And that's cost us $15 million to $20 million in bookings this year. But, we’re doing the accelerator commission for the CRRs to make up for the lower revenue. We've been changing out the jet engines on our plane in mid-flight here. I mean, Beti dramatically changes the way our clients do their payroll, producing a dramatic ROI. So, we have to remain disciplined. We're not going to make a client go on it. We have to sell them on it, and it takes a while. Once you sell a deal, it takes a while. CRRs have to be out there to convert them. So, I think we're doing something like triple. We're tripling their commissions for what they're going to be missing out. But for us, it's significant because employees are going to be doing their own payroll. Millions already are with Paycom. Employees who do their own payroll don't want to go back to the guessing game. So, while Beti is a small revenue amount for Paycom, it produces strong employee and employer advocates, which produce more leads for our outside sales group. With less than 5% of the market, we'll recapture the delayed opportunities in due time.

Hi. Good afternoon. Thanks for taking my questions. I wanted to ask one follow-up to Raimo’s question on the guidance. If I think about recurring revenue, and I take out the impact of higher rates and the average flow balance, it kind of suggests maybe, like, a 20% to 22% or let's call it low-20s like software revenue growth rate going forward. Is that the right way to think about maybe the durable subscription revenue growth rate or just maybe help us understand, is that just for the back half or if we think about the durable number? How should we think about that?

Samad, I'll let Craig kind of comment a little bit on that. From my perspective, I mean, there's really only one metric that's given away for us, and that's the fact that we're having CRR spend three days converting a very small revenue item for a client that produces strong ROI. I think it's a season that we're in. As far as the percentage growth, I mean, you guys have the numbers, we've talked about what we earn on interest as they've increased. We've also talked about how that's layering in. So, I know there are different models out there, and they all seem fairly consistent with one another. I don't plan on giving any of the back, but if you want to take it out, I think that's a fair thing.

Yes, I mean, we delivered a strong, a very solid quarter, Samad, and as we looked at guidance, we're still guiding to 25% for the full year and 42% adjusted EBITDA. We haven't given any long-term guidance in terms of revenue, but we have a large opportunity in front of us. We had several announcements on this call, and so the opportunity is definitely there. It's just up to us to go out and achieve that.

Great. I have a quick follow-up regarding the product side. For the new product launched in Canada, do you currently have beta customers? Are you hiring a different type of representative? Have you established sales offices there? Could you provide some insights on who is testing the product and whether you've developed the go-to-market strategy for it?

Yes. So, we rolled out Canada, and that included all territories and provinces in Canada. We rolled out full-service payroll where we're doing direct deposits, taxes, everything. We've already got clients that are signed up in the pilot and have been for a while. We really focused on those countries where our U.S.-based clients already have as an opportunity. We could see that because we rolled out our Global HCM product. We rolled out our Global HCM product based on people registered in our system for these other countries. So, we're continuing to roll out countries. We'll be rolling out more countries this year. We're not picking the easiest countries; we're picking the countries that have the greatest amount of U.S.-based company employees. That's where we're focused first. I don't see us rolling out a sales office in Canada right now, just because we have so much opportunity as we continue to go upmarket. As I've been mentioning, we're getting a larger and larger number of at-bats for our business, which Beti drives a strong result in ROI for them as well.

Great. Thanks very much. Chad, on the CRR headwinds, you talked about $15 million to $20 million of bookings. Should we assume that's the revenue sort of headwind here in ‘23 as well?

Bookings kind of flow in. They don't come in right away. So I mean, there would be some amount of that; you wouldn't get all of that this year. But I mean, we look at how much we were up last year and how much we're not this year, the big, the dramatic change there. But really it just comes down to we've still got about 40% of our client base not on Beti, and that ROI is available if not. We're servicing two different products sets here. The Forrester study was put out, talked about how it's 90% of the savings. I mean, it's significant there. Employees and employers are having success with it. We didn't just start doing this; we've really started doing this at the end of last year, but we've been seeing the impact just because it takes a while. The CRR is really the only group we can send out to a client, to help with that change management and be there for the first payroll on Beti and walk them through the data sets. And so that's the group that we're using to do it. In answer to your question, not 100% of that $20 million would have been what we have realized in revenue this year. I will say though with CRRs, it comes in pretty quick. I'd say they sell it one month and most of it's up within four to six weeks with that group.

Got it. And then just lastly on the CRR point, was it below your expectations for the quarter, or did they pretty much hit your plan for the quarter?

I would say that it's been a harder slog to move Beti than in this last group. But, I mean, it's impacting us, but we have to stay disciplined in it. Once we get these clients moved over to Beti, it's a very little revenue piece for them, but it's a significant amount of ROI. It also makes servicing clients easier for us, just because you don't have the paper cuts that come with an HR and payroll department trying to do it for the employee.

Hi. Good afternoon. A couple of questions. So, one, between Everyday and Canada, can you talk a little bit about, like the types of clients that you would be targeting to a greater extent. It sounds like you're forecasting that we're going to see some decent expansion in the 10,000-plus employee range type clients. To what extent was not having Everyday holding you back before?

Yeah. I wouldn't say Everyday was holding us back at all, because people had options for that, as you know, there's daily pay options out there. In answer to your question and what we would go after in Everyday, that would be someone that's using some other product where employees are having to pay. In some states, the client may not be compliant because taxes are due. We'll often also see Everyday used in more of a quick service type environment or in an area where you might have more transient workers that typically work shorter periods of time for any one business, the normal groups you'd expect there. That would be different than what we'd expect with Canada. Canada is going to be any client that has employees in Canada, and it's also the first time that we've been in business now for 25 years. It's the first time that we've developed another country, and it's not like a country; it's multiple provinces and territories. As we look at the next countries we're developing, it's the same type of thing. These countries are large entries. But we're well on our way. As I said before on the last call, there was really only one thing holding us back from going up market. That's the fact that we didn't have international capabilities. With our global HCM product and now with our first expansion into Canada, we're well on our way with that.

Okay, great. Thanks for taking the question here. I guess maybe to start, now that you're opening up into the 10,000 fee customer range, does there need to be any change in the go to market to go capture some of those more enterprise-focused accounts and any areas that may needed to be built out to be able to get into those customers?

No. I mean, our marketing efforts are a little bit different. In answer to the question on the sales motion: no. I mean, back in the day, I mean, every client's different, but today, employees are the same. I mean, there’s no such thing as a large market employee versus a small market employee. They've all got to have perfect payrolls and what have you. Our approach to selling because we're selling one system is very similar. The prospecting methods, meaning the methods through which you go to get appointments are a little bit different in how we're doing that, but not unlike how we've been doing it with companies that have 10,000 employees already. So, I wouldn't say it's much different than what we were doing there, but it's a little bit different if you're trying to get into a company that has 250 employees and how you're getting in there to make an impact. There's a lot of companies that will listen to you, but we're looking to meet with the decision-makers and buyers. Again, employee advocates are helping us. Three or four years ago, we had zero employee advocates. Today, we continue to cultivate advocates of our client employees who use our system and then go to other companies and bring us in. We're still having a lot of success with them.

Okay, gotcha. That's helpful there. And then on the international expansion, good to see the entry into Canada and officially announced. How should we be thinking about the pace of further country openings, and I guess any initial learnings from entering Canada that could be applied to some of the other countries that you're targeting here?

I mean, it gets easier as you do more countries because you run into crazy things in each country. Every country operates a little bit differently. There are countries that year runs April 6th through April 5th. There are countries that you don't reconcile attacks at the end; you got to have a stamp in the beginning. We're running into that with all countries. We do continue to spec them out, and we'll have a couple more significant countries this year. I've mentioned on the call not long ago that we believe that about 20 countries will represent most all the opportunity that we'll need for the US-based clients. Not all, but most all.

Thank you. Thanks for taking my question. I just want to follow-up, Chad. When you are now going to Canada or even other countries, are you targeting customers in those countries, or are you focusing on US customers who have employees there? The reason I'm asking, are you trying to build now a sales team in Canada and other countries or is it still focused here in the U.S?

I mean, the answer is yes. We will eventually have sales teams in other areas that we're expanding to, but first things first and we're not focused on opening up sales teams in Canada right now. We do have a service center there now with people available to service. They've been trained and have been using our product themselves. But really, it's an opportunity for us to continue to go further up market. We get a lot of call-ins and interest in regards and leads with respect to large businesses. We sometimes fall by the wayside in regards to how they manage their global group. Our Global HCM product helped a lot with that because so much of the global payroll is already disparate and siloed all over the place. The global HCM helps some of that. But now as we're building out Beti in each country, it just wouldn't make sense for a company not to use us for all of that. Initially, our focus is on US-based companies. There are plenty of them as we go up market, but eventually, absolutely, we'll have sales teams in other countries. That's not something we're aiming for right now, though.

Okay. Thanks for that color. And one more follow-up on Beti. When you say that 40% of customers are yet to move, I understand they're all your prior customers, not the new customers; they by default get Beti. There's a clear value proposition for Beti, and it's been there for two years. So, what’s the pushback you're hearing from those customers? What's stopping them from moving to Beti?

I think the main resistance comes from the fact that it could involve a significant reduction in force. There’s also a need for change management on the client side regarding how they process the data. A lot of what we're hearing is that their current system is working fine. They’re already using Paycom, their payroll data is accurate, and they feel it’s unnecessary to make a change as they have other priorities. The Forrester study will assist us in demonstrating the value that can be achieved with proper implementation. Additionally, there is a bit of influence from the employee side, particularly with hourly workers, as they tend to take the initiative on their own. Ultimately, it’s about providing value during the sales process. We aren’t going to compel a client; instead, we aim to guide them toward a decision that can generate significant returns on investment with respect to payroll and HCM software.

Hi, guys. Good afternoon. Thank you. Wanted to ask a margin question first here. Can you talk about investments being made in cost to revenues just considering the higher float revenue tailwinds has been a bit lighter than we've expected. Are there catch-up investments being made here? Are you broadening out the international operation? Just give us a sense on what's kind of weighed year-on-year and where you're expecting adjusted gross margin to land this year.

Yeah. I mean, this quarter was down slightly. It's typically going to be headcount. We hire ahead of the growth; it's going to be a higher headcount in the service group. We're starting to see a few costs as it relates to international, but it's not really moving the needle at this point. We haven't guided to gross margins. We've always been in that 84%, 85%, 86% range. We would expect that to be similar moving forward.

Okay. And then on the updated revenue guide for the year, did you add any incremental revenues assumptions related to the Canada entry or for Everyday?

I mean, it’s going to be a small impact this year, just because you have bookings and then conversions. Everyday could add a little bit, but that's not going to move the number.

Yes, that’s not going to move the number.

Great. Thanks. This is actually Devin on for Jason today. Thanks for taking my question. I wanted to get an update on your sales capacity. Do you feel pretty good about capacity for the remainder of the year and for next year, particularly as you continue to move up market and expand into Canada and maybe other regions down the line?

Yeah. I mean, outside sales is rolling. We've got people that are selling numbers that, one deal's bigger than some unsold before at Paycom. So, I mean, sales continue to do well that our capacity is continuing to increase; we continue to get stronger at staffing. Again, I'm talking about from our outside sales perspective, which sells 95% of our new business, that we bring on; new clients that we bring on. So, we're doing well there, and I would expect us to continue to do so.

Got it. No, that's helpful. And then, just a quick follow-up. Any additional details on how you would think about what you're getting on your effective yield for client cash just given another interest rate hike in the past month? Thank you.

We typically see about $5 million annually from a 0.5 basis point increase. This quarter, our average daily funds held were $2.2 billion. We generally aim to capture between 80% and 90% of the Fed funds rate, but the effects take time to materialize for us. Some of our funds have longer duration, so that is how interest rate hikes affect us.

Hey, guys. This is Ryan on for Alex. Thanks for taking the question. So, two quick ones. Historically, free cash flow margin and cash conversion had been lowest in Q2, but it came in relatively strong this quarter. So just wondering if you can unpack that strength. And then on retention, you reported 93% at the end of last year, but given the macro, any swings in that number that we should be aware of just through this first half? Thanks.

I'll take the last one first, and I'll let you handle the free cash flow margin. We report retention once a year; it does fluctuate throughout the year. We report once a year, I believe, in February, every year for the prior year. We don't have any updates on the retention number right now, but we will at the end of the year.

Yeah. I mean, on free cash flow, it came in very strong for Q2. Some of that can be timing. Overall, the main things that impact free cash flow are going to be CapEx and some of your tax rates on that. But yeah, we're very happy with the way it came in at Q2, much better than last year's Q2.

Great. Thanks for taking my question. Chad, there's always a lot of noise as to where we are in the macro cycle. Can you just help us understand what you're seeing with your customers in terms of demand and how that might have trended throughout the quarter and if you see any differences across the various customer sizes that you serve?

Stable. We've seen stability. I mean, I can't point to macro issues.

Got it. And then earlier in your prepared remarks, you mentioned kind of year-over-year growth in both outside and inside sales. But can you double-click on this? Like, how has growth trended in terms of both those areas versus prior quarters, are you seeing accelerating growth, similar growth, deceleration? Just any way to kind of think about the magnitude of what you're seeing with both inside and outside sales?

I mean, very strong. I mean, outside sales is probably the strongest growth we've had in three years from a percentage basis. I mean, inside sales strong, but again, like I said, it represents 5% of our revenue. So, it's important, but yeah, I mean, I would say, from a sales perspective, we're getting stronger and stronger. Again, we're selling $2 million and $3 million deals; when we IPO, that's what a city would sell, and for the last couple of years, that's what a sales rep of the year would sell. Now we've got deals of that size. Our products gotten stronger, and again, the value's gone all the way out to the employee, and the employee user has become more technological in what they expect for usage. We're helping everything out; the employee as well as the employer to drive this and capture this ROI available.

Great. Thanks for taking my questions. So, first, I want to ask about sort of the back-to-the-base motion. You made a comment that the Beti transition is impacting the velocity of that group. As you think about Global HCM, it also sounds like that's going to be a back-to-the-base motion with customers that already have international employees. So it's going to be the same team selling that, and how do you deal with the bandwidth, as you ramp that global product? Secondly, can you just clarify, are Everyday and Client Action Center, are those green modules that you charge for?

Okay. Everyday, yes. Client Action Center, no. Every client has it, the ability to enable it right now. As far as, yes, it is the exact same team that sells the Global HCM product as what sells Beti. It's also that same team that will sell Everyday as what sells Beti. They still have the ability to sell it. They still have the ability to go out. Nothing's precluding someone from going out and making a sale. The issue becomes, it's not an issue. Again, it's something that we have to do is regardless of what you choose to go sell on your own, you've got these clients that don't have Beti; some of them you already have sold Beti to; you're going to have to go out there and spend the time to get them converted. Our CRRs serve those conversions. So, the difference can be that instead of having a 1.5 hours or 2-hour sales call to sell a product, you're out there for 3, 3.5 days. Again, not all in the same week. It might be 3.5 days over a 4-week period of time getting the company converted over to Beti, and then you're out there when they're doing their first payroll and ensuring that the ROI is being realized. Once someone's made that conversion, I believe we earn the right to even help them achieve greater return on investment with these other products. I'm not saying I've told any CRRs, 'Hey, don't go out and sell a product.' What I've said is, 'This is your priority.' Any clients that aren't currently on it achieving the value. I know it's a smaller revenue amount. So, I'm going to pay you triple because I know it's a small revenue amount. So, anytime you sell one, this will be your commission. We have to do that to move everybody into the right value because it is the correct way to do it. It's the correct way for employees to do it themselves. That’s what we're focused on. We're not retreating from that. I also believe that we do have some good things coming out here with product. We've announced some of it. We've got more coming out throughout the year. So, it is the first things first. I'm not throwing my hands up on what the CRRs can do. I'm just explaining where they're at as of today.

Hey. Thanks for taking the question. How does Everyday work in terms of monetization? Will you do it the same way you do other modules, working per employee per pay cycle or would it be a different model?

Yeah. The best way to think of Everyday is still per employee per pay cycle, but now you have more pay cycles.

Got it. And then, on Beti, are you still seeing 99% annual retention for clients who are using it?

We haven't updated any retention numbers since our last review, but I don't see clients leaving who are using Beti. It's important to note that there have been situations where larger companies acquire smaller ones. The smaller companies use Beti, and as a result, we secure a $1.4 million deal because they prefer to stay with Beti, leading the larger company to adopt our services as well. I anticipate that we will benefit even more from mergers as we progress, which previously may have resulted in neutral outcomes when larger companies acquired smaller ones.

Hey, thanks for taking my question. Can you talk a bit about the competitive environment, particularly from some of the legacy players, ADP and Paychex? Has that changed or put any kind of pressure on your sales cycles or conversions?

The competitive environment has remained consistent; it's been competitive for a long time, and it's always a struggle. Competitors often offer aggressive deals, like a year for free. I've advised potential clients that if they want the best price, they should negotiate with their current vendor. However, if you’re looking for real value and a return on your investment, partnering with us is a better choice. The landscape of competition hasn’t changed.

Terrific. And then just a really quick one, can you tell us interest income contribution for the quarter?

No. As we've mentioned in the past, Arvind, we received our goal is somewhere between 80% and 90% of the Fed funds rate. As they have increases in the Fed funds rate, it takes a couple of quarters for that to layer in. That’s what we've said in the past.

Thanks for taking my questions, guys. The first one is maybe on the talent acquisition or the recruiting modules. We're starting to see maybe a loosening in the labor markets. I'm curious whether you're seeing usage for your recruiting or talent products either start to slow or maybe actually pick up, like if there is some sort of counterintuitive demand for those products as the labor market begins to loosen.

Yeah. It's stable. I would say where we see it, it is a talent acquisition product, but I would see where you start seeing that is background checks. Pre-employment, background checks and how those are going. I would say it's stable as of right now.

Okay. Alright. That's fair. And then the follow-up is for – so on the sales side, when you're increasing the target market up to 10,000 employees, how do you make sure that your outside salespeople don't just go out there and start hunting the gigantic deals and make sure that they don't take their eye off the ball in terms of the bread-and-butter deal? Thanks.

Well, a weekly quote is to make sure that, but ultimately, they will go after larger deals. They don't have that many of them for any one territory. It's not going to increase it so much that that's all you're doing. I mean, our salespeople, probably 75% to 80% of what they make is commission-based, and that’s based off revenue being achieved. You can still achieve a lot of revenue off of the sweet spot of our market that we've been focused on. We continue to be pulled up market. I've been mentioning that, and there's no reason not to go after that market as well. Eventually, we're going to land one of these largest companies in the world kind of deal; that's going to happen because it’s just right. So, we've got to take our at-bats and our swings with them.

I want to thank everyone for joining the call today. Over the next quarter, we'll be hosting meetings at five conferences. Beginning next week, we'll be at the KeyBanc Tech Leadership Forum. At the end of August, we'll be hosting meetings at the Stifel Tech Exec Summit and the Deutsche Bank Technology Conference. In September, we'll be presenting at the Citi Global Tech Conference in New York and hosting meetings at the Wolf TMT Conference in San Francisco. We look forward to catching up with many of you soon. Operator, you may disconnect.