-started. My name is Jason Celino. I'm one of the software analysts here at KeyBanc. You know, they need no introduction, but, you know, I'm glad to welcome Chad Richison from Paycom and Craig Boelte f rom Paycom as well, CFO. First of all, maybe a warm-up question, you know, top of mind for everybody, you know, macro, you know, what do you see in the current environment? And then if we think back to when you were here last year, what's changed or stayed the same? Yeah, I mean, well, the environment's been stable. I mean, for us now, we only have 5% of the TAM. For us, when we think about macro, you know, it's our ability to go out and bring new logos onto our platform. Really, I mean, even, you know, comparing and contrasting a little bit with last year, and maybe really even 2021, when you had more of a tighter labor market, you know, people still had to outsource or gain efficiencies in the back office because they didn't have the staff. We did well throughout that period, and it's the same as today. From a macro perspective, you know, it's been, for us, stable since August of 2020. Okay. Okay. No, that's fair. That's fair. Then, you just reported recently, it was just last week, so it's still quite fresh, I think, on the earnings call. You said, your Beti conversions were seeing a, little bit of a, couple headwinds, and that was kind of stemming from your CRR teams. Maybe if you want to just talk about that a little bit. Yeah, sure. Well, Beti conversions and outside sales for new logos are, you know, every client that comes on that's a new client comes on with Beti. The usage on that's actually at about 60% of all employees on the first payroll of a new conversion do their own payroll, about 60%. Want to separate that group from a current client base. Our current client base, we still have about 40% that had been with us before we started selling Beti. We have to go back into that client base, and we have to sell them Beti because it creates great value for them. The group that we have doing this is the CRR group. Paycom has inside sales, which sells businesses below 50 employees. That represents about 5% of our revenue. We have outside sales, which sells businesses now from 50 all the way up past 10,000 employees because we've gone up market. That represents the overwhelming majority of our, of our new business revenue. Then we have CRRs, and what CRRs do is after the first 30 days a client's been onboarded, they can upsell current clients our products. A new product that we'd had in the last couple of years is, Beti. Beti drives a strong amount of ROI for our client base, so we want all clients to be able to use it. We're not going to force clients to use it, and so we have to influence them. The CRR group is the group that actually goes out and influences clients to do that. Okay. I guess, how big is the CRR group in terms of, like, all your salespeople? We have multiple CRR people in each office, so we have 54 outside sales teams, and so, you know, it's not a small group. Okay. Well, is there an advantage that Paycom has if you're able to convert everybody to Beti? Leads. You know, we're getting leads from employees that use our product at one company, and it's one system, and their payroll's in one system, their time and labor management's in a system. They request time off in one system. They do their expenses in that system. They do their learning management, benefits enrollment, everything in one system. Once an employee gets used to doing everything themselves, you know, none of us do well going backwards in technology. If you take a piece of technology away, it becomes difficult. So what happens is those employees become advocates for this type of technology. When they go to another company that has multiple products, multiple logins, in which oftentimes it's duplicative effort on their part, you know, nobody likes to go back to 1992. You know, we get leads, and so there's that. There's efficiencies for the business, for them to be able to use Beti to get the full value, because in order for your- to use Beti and your payroll's correct, that means your time and labor management was correct, all your time card editing was correct, your expenses are correct, you're in the correct state, your deductions are correct. It just helps a client to make sure that everything's... And they become a lot more efficient. I think some of the biggest pushback that we get when we're out in the field selling Beti to a new client is: You'll take my job. It's true. I mean, that- that's the pushback. That's sometimes the fear of automation, but, you know, businesses continue to, to leverage that and repurpose people to do more of a revenue-generating opportunity. I mean, if you're inputting payroll data you're a cost center. That's it. You know, if you're using a system like Beti, well, now you're getting a return on investment for what you're actually doing. It can help you automate. I guess what kind of doesn't make sense to me, I mean, you've talked about it being a $15 million-$20 million headwind this year, but it's not necessarily costing you revenue. I guess why would it matter if someone, a CRR individual, is selling LMS, as long as they're hitting their quota or something, versus doing Beti? Yeah, well, you know, end of last year, you know, there was a month there where no one really wanted to sell much of Beti. Because of Beti's a very low fee. There's some effort on the on the, the sales rep, and not necessarily in the sales process, but more in the, you know, with Beti, at once right now, with payroll, once a pay period ends, that's when your payroll department starts collecting all the data to send it to the payroll. With Beti, when your pay period starts, all payroll's done by employees, and then when pay period ends, it's over. So my point is, there's some change management for a current client. Sure, yeah. The CRR walks them through that, where if you're a new client, you're already in change mode because you're now converting everything over to Paycom. That's what we sold you. Okay. Because that's why I kind of asked the question earlier, it's like, it sounds like with... If you can get all your customers on Beti, you'll just have better data. Yeah, and they'll have a better experience, and, you know, we had zero referrals from employees five years ago. Now we get thousands a week. Got it. We have to cultivate them. That makes more sense now because if everyone loves Beti so much, and you're getting these referrals from these other users, then, you know, it's like a flywheel. Right. Millions of employees are doing their own payroll today. Zero were doing it until we came out with it a couple of years ago. In the future, 100% of you are going to be doing your own payroll, because- Not me, I'm salaried. Yeah. You'll still be, Well, you'll still be verifying, you're paid in the right state, and you have the right deduct, you know. Yeah, KeyBanc didn't mess that up this year. Well, I, I mean, yeah, expenses and everything else because that's how business wins. They don't read your mind. Every piece of data that comes from a payroll comes from you into the system. No one's reading your mind. So if you're using multiple systems or someone else is involved in that, it becomes duplicative effort for an organization, plus the liability and exposure associated, you know? You made sure you had the correct overtime. You made sure you had the correct benefits. You know, I'm not saying someone can't bring a wage and hour claim against a business because they can for any reason, but, you know, you're reducing and mitigating your exposure and liability when you have an employee do something. Now, I want to say this: With hourly employees, we don't have to sell them on doing their own payroll, right? If I'm short $42, so what? If an hourly employee short $42, that could be 10% of their pay. Sure, yeah. That could be the difference in impacting their weekend. With any client base, you have a lot of them. When you're talking about an hourly employee, they're already doing their own payroll. It's just payroll, and HR is fixing it after the fact. Never met a payroll person that wouldn't fix the payroll when it's broke. Sure. Why not prevent it? Yep. Makes sense. Then it doesn't cost you. Afterwards, you're doing wires, reversals, amended returns for taxes. Employees that are paid wrong two times in a row, they don't trust you, so, you know. Sure. How does an employee know it's wrong? I don't know. I, well, I'm not really- Well, they look at their account, they notice it's wrong. All the things they're doing after the fact, they could have done before the fact, and it would have cost the client zero. Now they're doing it after the fact. Salaried employees have had wrong checks. Sure. Great. Any questions on this before we move on? I wanted to touch on international. You know, that's a recent development over the last year. I actually asked you this question last year at this conference, and I think you said something along the lines of tons of opportunity here, you know. I guess, what's changed in the last year? Yeah, I mean, you know, we still have all the opportunity. Again, we're 5% of the U.S. market, but we've been continued to be pulled up, upmarket. You know, one major change for us is we introduced our Global HCM product with first quarter results. We launched our Global HCM product, and that rolled out in all the countries and in 15 different languages. The biggest change-- and then now we've, of course, rolled out Canada which we've developed ourselves, for payroll. The biggest change is we continue to be pulled further and further upmarket as people look to give their employee a single system to use, you know? There's small business, medium-sized business, large businesses, and then, you know, enterprise or very, very large businesses. From an employee perspective, the employee's the same, whether you work for a very large company or a small business or a mid-size, you're the same person with the same mortgage, with the same... You get what I'm saying? So they don't have a tolerance for complexity. You're making me work to work to get paid, you know? HR and payroll departments do have some tolerance for complexity because that's the world they've been living in. You know, you had to. Employees, they don't have that tolerance, and so, even upmarket, we've made it easier, for them. Okay. Yeah, no, I, I think maybe my first question with international is: How should we think about TAM with this? You know, obviously, it's hypothetically a big opportunity, but how do you frame it? Yeah. Our We announced our expansion into Canada also with our now going above 10,000 employees. It's through that that we would have expanded our TAM. We're also expanding we would have expanded our TAM for U.S.-based companies with Canadian employees. There'll come a time where we'll open up an office and be selling in Canada. It's just right now, we're focused on U.S.-based companies with international presence. How did, how did customers use or run payroll if they had a U.S.-based operation that had employees in Canada before? It's a hodgepodge when you look internationally at how someone runs payroll. There's multiple services out there. Oftentimes, those services then aggregate data and send it to an in-country partner that would actually process the payroll, and then potentially move the money and/or send the file to the client's bank for the client to move the money and do the taxes. Everything we've developed on ourselves and everything we're rolling out, we'll be rolling out two more countries this year, is all full service. We're doing all the direct depositing, all the tax depositing and filing. We're removing the burden that still exists when someone does payroll internationally to, again, a single system. We, we went a long way with the Global HCM product because it unified all, everything non-payroll. So now we've layered the payroll on top. How do you decide which countries to expand first? Because you said two, two. I mean, Canada is kind of like our hat, so- Yeah. Um, yeah, How do you think about it? What you look at. For us, we look at our, both our client base and our prospect base, and where do they have the highest number of employees? You know, there's a, there's a couple of logical, you know, places that you would look to for that. Those are the areas that we focus first, not the easiest ones. Sure. I mean- The ones where you're going to have the, the highest number of, of an employee base of U.S. companies. If you're going off of the, call it the, the synergies with your customers, the complexity of each country, does that going to affect how fast or how slow you launch in different areas? Well, complex company, complex countries take longer, but it doesn't change their prioritization. Sure. Next is next, regardless of how difficult it is. Is Canada, do you view that as a complex country? I mean, I think you're, you've got, 17 total territories and provinces and, and it's different than the U.S. No, I don't consider it. I mean, it's more difficult than many of the other things that we've spec'd out for other countries, but, you know, Pennsylvania is pretty difficult. Ohio is pretty difficult. Labor law in California is pretty difficult. I mean, you know, there's a proxy for everything we do. Whether it's labor law, whether it's reciprocity between New York and Connecticut, I mean, we're already in this business, and so then you go to the other countries, and you're like, What's the proxy for this? What's the proxy for the IRS? What's the proxy for the Colorado Department of Revenue? What's the proxy for state unemployment? What's the proxy for federal unemployment? Who pays... You know, there are some countries that they pay your vacation time. Sure. I mean, this all sounds very complicated, yeah. Well, it's the business rent. You know, it's a business rent, so. My last question here, then I'll move on. I, to me, it sounds like payroll is hard. We, we know this. International, also incrementally hard. In the past, or maybe when we think about the hurdle, it's about the expertise. Right? other companies have acquired their way into international. I'm not asking if, if you're planning to do that, but, like, how, how do you gain kind of the expertise with all these tax laws? You research it. I mean, that's the way. It's the same way, you know, we started off in Oklahoma, then we added Texas, then we added Ohio. You know, it's the same thing to do. Yeah, but you- It's the research. I mean, it's the research. I mean, that's what you have to go through. You know, if you're, There are certain countries that where you research tax jurisdiction, and jurisdictions, and it's a certain language, and it may not even be run by, you know, the country. I mean, there's different groups that we work with, and we have to get in there. But there's a proxy for everything in payroll, and, you know, people figured it out. I mean, you know, people... I may have said this last time, I mean, people built, like, three space shuttles over a two-year period. You can launch payroll into another country. Okay. Sorry, last question here then. If you can research it, no matter where you are, that makes sense. But in the for your sales office expansions, you're usually taking someone you've developed internally, but if, but would you just be trying to find employees in the U.S. who spoke other countries, or how would you think about that? No, I mean, well, first of all, we're not focused on expanding our payroll to U.S.-based companies in these other countries. There'll come a time where we will expand our sales, and it depends on the sales culture of a country. You know, you're going to sell differently in Canada than what you would in Italy, you know, or Germany, or some other place. It just kind of depends on what's the culture of that country that we're going into, the sales culture. You know, what's accepted? Can you foot canvass? Can you not? You know, what's accepted? How do you market to them? Yeah, I would imagine that we'll be hiring salespeople in the country when that, you know, when that makes sense. We're not focused on that right now. We're focused on bringing, full-service payroll services, to very large companies in the U.S. that have employees in those countries. Okay. No, that's a good segue to my next topic. I wanted to talk about your upmarket. I, I know on the last call, you said you're targeting companies over 100, or over 10,000 now, but on, on a couple of quarters ago, you said that your customers with greater than 2,000 employees is your fastest-growing segment, you know, up 60% in 2022. Is that a big business today? Yeah, I mean, it continues to grow. I mean, I mentioned on the call, you know, we IPO'd. I think our largest city sold $3 million-$3.5 million. That was in 2014. Then we had 2017, our first rep sold $1 million, then our reps sold $2 million. Now, reps sell $2 million all the time. A rep last year sold $3 million. Our highest rep sold $3 million. This year, we're selling $2 million and $3 million deals. The amount that any one rep can sell continues to grow as we have we've gone from 18 products at IPO to 33. We've got more products. We continue to be pulled that market, and the value that the software is creating, the solution it's creating for the clients, you know, we're able to share more of that. Okay. If I think about the enterprise sale, what were the main couple reasons why you wouldn't win? Well, international is one. You know, having a global solution on the HCM side, I think helps. You know, typically, when you're dealing with large companies, and you go way up market, they're not really using, you know, like, if they're... I don't want to mention competitor's name, that's what's hard to do. You know, if you're using a payroll system you're using it for payroll tax calculation. I'll go ahead and say it. You might have ADP for payroll, Workday for requesting time off, something else, Concur for expense management, Cornerstone for learning management, some other way to enroll in benefit. Well, they, and they've built it. That's a company that's trying, by the way. That's if somebody's trying to do a good job, and then you roll that out to your employee base, it can be kind of difficult for them versus rolling out a single system. Up market, we're replacing it. We're replacing an integration strategy that they believed was best in breed, and we're going in there, and we're replacing it with a single system that does massive automation, and, you know, it's a, can be a significant reduction in force. There's a strong ROI associated. They're not used to buying that way. If I'm a buyer, I'm used to taking this product out and finding this product and inserting here. N ow you're buying something, in a different way. you know, an employee is an employee. The employees are benefiting from it. They're helping the client benefit from it, and, you know, it's the future. Okay. Okay, we've got 5 minutes left. I did want to ask a couple margin-related questions i f that's okay. Paycom's going to have 42% EBITDA margins, something like that? Few companies with the 4 handle. Right? That's an impressive club. Is there a way to think about future margin expansion, where that would come from? Or is the right thinking EBITDA dollar gross? Yeah, I mean, you know, we've, we've been in that 42 range for a while, you know, other than... I mean, it's typically in, in the 42 area, with strong growth, revenue growth as well. As we're looking at our margins, I mean, you know, we're, first of all, revenue growth is first prize. You know, we're going to continue to spend where we can get the revenue growth. Then, you know, you kind of look throughout the model on whether there may be some efficiencies. We saw a few of that, you know, on the, on the sales and marketing line this quarter, but some of that's just quarter-to-quarter noise that you, that you see there. You know, overall, as we continue to grow as a company, you know, you would, you would think that we could find other efficiencies throughout the model where we could drive that up. Like I said, first prize right now is still revenue growth, for us. Okay. Then, over the last couple of years, you've seen these tailwinds from, you know, higher interest rates, float income, and you've taken the opportunity to reinvest some of that. It sounds like a lot of that investment has gone international, but are there any other areas that you've been working on? I mean, typically it's going to be in the R&D side. You know, we, we talked about some product launches this quarter as well, and, you know. Oh, yeah, every day. Yeah. It's going to be in the R&D line, as well as sales and marketing typically. We also released our Client Action Center. I mean, that kind of went by the wayside as well, just from a discussion purpose. You know, it's, it's giving clients the same experience to communicate with us and have service with us as what our app gives the employee and/or manager on the go, gives the manager in a self-service environment, you know, for taxes, banking. That's another product that we put out recently as well, that's, you know, helpful to the service side and the client experience. Okay. Then to wrap up, I just have some speed-round questions, but any final questions from the audience? Sure. Do you do you think you're at an advantage when the macro is a little bit tougher? I could just see the ROI and customers saying, [audio distortion]. Yeah, I don't, I don't think it hurts us. I mean, an advantage would be, you know, there's so much in a go-to-market that you do to do strategic selling to get in. We're kind of a general pressure, relentlessly applied type sales organization. You know, but, but it- I would say it doesn't really hurt us. I mean, I, you know, I, I get the macro question, and I'm like: If we're not getting our logos, it's on us. We only have 5% of the market. It produces an incredible amount of ROI. You know, you're downsizing, well, you need to automate, you know? I mean, you know, unless you just like overpaying, you know, there's, there's no reason not to implement it, now. And we've done very well, you know, in.- In the macro, typically, we do pretty good in that - those environments. Okay, nice. Good question. Speed round. Yes or no for couple questions. Last one, I'll leave open-ended. We've been asking this question to everybody. Exiting Q2 versus exiting Q1, would you say your business has improved? Yeah. Okay. Then, almost afraid to ask this question, but, yes or no, do you think Paycom can directly benefit from generative AI? Yeah. Okay, okay. We got to figure out how. Well, I mean, you don't implement it just to say, We have AI. Sure. I mean, you know, it's got to, it's got to solve a problem that can be solved consistently, that we trust. You know, you meet all those? Yeah. Okay. With that answer, I don't even know if you'll be able to answer this, but when would we be able to see those revenues? Maybe this year or next year, I don't know. Well, you know, whether or not. You know, I would say there's a couple different ways. You can use AI for things that you may not even charge for, that makes you more efficient, that could speed up yourself in other areas. AI, from a product perspective, I do believe that there's certain really modules that we have that I believe in the future will benefit from an AI-type agent. Okay. Time we'll see. Yeah. Perfect. With that, I want to thank Chad and Craig for coming everyone for coming out, and have a great rest of your time at Vail. Thank you. Thank you.