Software second quarter 2023 quarterly results conference call. My name is Kate, and I will be the operator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. I would now like to pass the call over to our host, James Samford, Head of Investor Relations. You may go ahead. Thank you. 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. We now turn the call over to Chad Richison, Paycom's President and Chief Executive Officer. Chad? Thanks, James. 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 US. 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 in 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 2,600 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. 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 upmarket 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. 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. 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. Craig? 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 of 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 remain 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. Let me turn to guidance. For fiscal 2023, we are raising our outlook and now expect revenue in the range of $1.715 billion-$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-$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-$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-$158 million, representing an adjusted EBITDA margin of approximately 38% at the midpoint of the range. We paid our first quarterly dividend of $0.375 per share in June, and the board has approved a quarterly dividend of $0.375 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. Operator? Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star, followed by A-one. If for any reason you would like to remove that question, please press star followed by A-two. As a reminder, we would like to ask you to limit yourself to one question and one follow-up question. Again, to ask a question, please press star followed by a one. The first question will be from the line of Raimo Lenschow with Barclays. Your line is now open. Thank you. I had two quick questions. First, Chad, can you talk a little bit about what you're seeing out there, in terms of end demand, et cetera? Because. The reason why I'm asking is, like, if I look at, this quarter, you beat by $3 million, the full year was only raised by $2 million. Do we need to read into that, that you're kind of slightly concerned about the second half of the year? Like, maybe you kind of frame it for us in terms of how we should think about that. Then the second question was on EveryDay. Like, how should we think about that in terms of, like, applicability, in terms of, is this for all the clients? Is it for a select group that have more contingency workers, whether it's interesting? How think you broadly you can roll this out? Thank you. Sure. I mean, I'll take your last question first, then circle back. In regards to EveryDay, you know, we put it out there because there are industries and certain companies that have moved toward a more, you know, 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's not charged. Oftentimes, you know, these amounts are guesstimated, and then if the employee leaves early or if they didn't collect all of the deductions for the employee, the employer's on the hook. All I would say is it's, it's meeting a need that's already out there. I, I do not suggest that businesses change 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 Vault Card. In regards to your first question about demand, demand for us is still very strong, especially with the 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. Outside sales is strong and up year-over-year. Inside sales, which sells small business or smaller emerging businesses 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's been down year-over-year, and honestly, that's because, you know, we've remained very disciplined in converting our client base to Beti. You know, you had that first group that came on, and then, you know, we've been out selling the others. It's a lot of work for our CRR with very little revenue opportunity for them. 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. You know, while self-inflicted, I mean, we are having CRRs focus on Beti, and that's, that, you know, costs us $15 million-$20 million in bookings this year. You know, again, we're doing the accelerator commission for the CRRs to make up for the lower revenue. You know, 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, produces a dramatic ROI, so we have to remain disciplined. You know, we're not gonna 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. You know, I think we're doing something like triple. We're tripling their commissions for what they're gonna be missing out. For us, it's significant because employees are gonna 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. While Beti's a small revenue amount for Paycom, it produces strong employee and employer advocates, which produce more leads for our outside sales group, and, you know, with less than 5% of the market, you know, we'll recapture the delayed opportunities in due time. Thank you. The next question will be from the line of Samad Samana with Jefferies. Your line is now open. 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%-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? 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? Well, I'll, I'll let Craig kind of comment a little bit on that. From my perspective, I mean, there's really only, you know, one metric that's given way for us, and that's the fact that we're having CRR spend, you know, 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 talked about what we earn on interest as they've increased. We've also talked about how that's layering in. I know there's different models out there, and they all seem fairly consistent with one another. You know, I don't plan on giving any of the interest back, but, you know, if you want to take it out, I think that's a fair thing. Yeah, I mean, we delivered a strong, a very solid quarter, Samad, and, you know, as we looked at guidance, you know, we're still guiding to 25% for the, for the, full year and 42% adjusted EBITDA. You know, we haven't given any long-term guidance in terms of revenue, but, you know, we have a large opportunity in front of us. You know, we, we had several announcements on this call, and so the opportunity is definitely there. It's just, up to us to go out and, and achieve that. Great. Just a quick follow-up on the product side. On the new product rolled into Canada, do you already have beta customers? Is that hiring a different type of rep? Have you opened sales offices there? Maybe just help us think about both the, you know, who's trying the product already, and if you've already built out the go-to-market infrastructure for that. Yeah, we rolled out Canada, and that included, you know, all territories and provinces in Canada. We rolled out full service payroll, where we're doing direct deposit taxes, everything. We've already got clients that are, you know, signed up in the pilot, have been for a while. We really focused on those countries that, you know, our U.S.-based clients already have as an opportunity. We could see that because we rolled out our Global HCM product, and we rolled out our Global HCM product based on people rigging our system for these other countries. You know, 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 US-based company employees, so 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 larger and larger at-bats for our business, which, you know, Beti drives a strong result in ROI for them as well. Thank you. The next question will be from the line of Brad Reback with Stifel. Your line is now open. great, thanks very much. Chad, on the CRR headwinds, you talked about $15 million-$20 million of bookings. Should we assume that's the revenue sort of headwind here in 2023 as well? Bookings kind of flow in. They don't come in right away, so, I mean, there would be, you know, some amount of that, but you wouldn't get all of that, this year. You know, 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. Really, it just comes down to, we've still got about 40% of our client base, you know, not on Beti, and, that ROI is available. You know, if not, we're servicing two different product sets here. The Forrester study was put out, talked about how it's 90% of the savings. I mean, you know, and it's significant there. Employees and employers are having success with it. We didn't just start doing this. We really started doing this end of last year, you know, 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 their first payroll on Beti and walk them through the datasets. That's the group that we're using to do it. In answer to your question, not 100% of $20 million would we have realized in revenue this year. I will say, though, with CRRs, it comes in pretty quick. I'd say they sell it 1 month, and most of it's up within 4-6 weeks with that group. Got it. Then just lastly on the CRR point, was it below your expectations for the quarter, or 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. You know, I mean, it's, it's, it's, it's impacting us, but we have to stay disciplined in it. It's. You know, once we get these clients moved over to Beti, it's, it's a very little revenue piece for them, but it's a significant amount of their ROI. It also makes servicing clients easier for us, just because you don't have the, the paper cuts that come with an HR and payroll department trying to do it for the employee. Thank you. The next question will be from the line of Mark Marcon with Baird. Your line is now open. Good afternoon. A couple of questions. One, you know, 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, like, you're forecasting that we're going to see some decent expansion in the 10,000+ employee range type clients. To what extent was not having EveryDay holding you back before? Yeah, I wouldn't say EveryDay's holding was holding us back at all because people had options for that. As you know, there's daily pay options out there. So 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. You know, in some states, the client may not be compliant because, you know, taxes are due. We'll often also see EveryDay used in more of a, 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, you know, the normal groups you'd expect there. That'd be different than what we'd expect with Canada. I mean, Canada is gonna be any client that has employees in Canada. It's also the first time that we've, you know, we've been in business now 25 years, it's the first time that we've developed another country. You know, it's not like a country, it's multiple provinces, territories, and, you know, as we look at the next countries we're developing, it's the same type of thing. These countries are large entries. We're well on our way, and like I said before on the last call, there was really only one thing holding us back from going upmarket, and, you know, that's the fact that we didn't have international capabilities. With our Global HCM product, and now with our first expansion into Canada, you know, we're well on our way with that. Great! Then in terms of the CRR and moving Beti to the remaining clients, what's your forecast, Chad, just in terms of how long it will take to get that 40%? You know, to what extent could, you know, some of the Forrester data that you've put together help to speed that up? Yeah, I mean, the Forrester data is, it's helpful, I mean, especially if you played it correctly, to any client. It's hard for me to, you know. I mean, I said I, I, I thought we would have, all converted within, 18 months, and we're gonna be past, we may be past that point, but we're coming up on being past that point, if not. So, I guess, you know, there's an incredible amount of value that automatically associated with clients rushing to capture that value. There's also some change management on the client side. I've also talked about how I'm not gonna force a client, you know, to go on it, so we do have to sell it. You know, because it's a smaller revenue item, we've got to incentivize our sales reps another way to sell it, to be able to, you know, keep them whole on commissions and what have you, so that we get what we want. It's hard to answer that question, you know, but we're focused on it. I, I will say this, we've got some groups of CRRs and sales managers that are, you know, closer to having their clients converted than others, and so, you have that. We continue to bring out new products. I mean, I think that, you know, for all of them, they're gonna be in this just for a little bit to get the rest of them going. Thank you. The next question will be from the line of Joshua Reilly with Needham. Your line is now open. Yeah, thanks for taking my questions. I guess maybe starting off, if you look at the revenue beat in the quarter, it was a little less than 1% versus the midpoint of guidance. Historically, beats could have been closer to 1.5%-2% on revenue. How should we think about the way you're positioning guidance going forward? Has there been any change there? Is there a little bit less conservatism built into assumptions? Any color there would be helpful. No, I mean, you know, we guide to what we can see, and, you know, obviously, when a deal starts in a quarter, can impact the guidance for that quarter. You know, there are certain things within a quarter that can, can make the beat larger or smaller. We, we typically guide to what we can see and, and really no change to our stance on guidance. You know, as Chad mentioned, you know, we, we saw the CRR impact, you know, start to come through, and, and that's what we've seen over the last quarter. Quarter four really has much more variability. You know, We have, you know, probably 20% of our clients that are brand new to us. When you think of that, we don't necessarily know how they're going to pay bonuses and if they're going to pay bonuses. A little more uncertainty in that Q4 as we, as we move throughout the year. Got it. Sales and marketing was up about $2 million quarter-over-quarter this year in Q2, while last year was up about $10 million sequentially. Should we read into anything around the pace of investments in sales and marketing slowing a bit while you increase more investments in product and R&D continues to increase? Do you need to get some of these new products out, and then you're gonna reaccelerate investments in sales and marketing after that point in time? Thank you. I would say, you know, we saw some efficiencies in sales and marketing, and, you know, as we've mentioned on, on previous calls, you know, you, at some point, hit the point of diminishing returns. I, I think you saw a big increase last Q2. This second quarter wasn't quite as large. You know, and some of those are also timing quarter to quarter. You know, I, I don't think we've necessarily pulled back on sales and marketing. We didn't pull back on sales and marketing to invest in R&D. It's just, you know, where can we get the best returns? Thank you. The next question will be from the line of Steve Enders with Citi. Your line is now open. Okay, great. Thanks for thanks for taking the question here. I, I guess maybe to, to start, you know, I know that you're opening up into the 10,000 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, that may need to be built out to be able to get into those customers? No, I mean, our marketing efforts are a little bit different. I wouldn't. In answer to the question on the sales motion, no. I mean, you know, back in the day, I mean, every client's different, but today employees are the same. I mean, it's just what we're dealing with. There's no such thing as a large market employee versus a small market employee. They've got all 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, you know, they're, they're 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, it's much different than what we were doing there. But. It's a little bit different if you're, you know, trying to get into a company that has 250,000 employees, you know, how you're getting in there to be able to make an impact. I mean, there's a lot of companies that will listen to you, but, you know, we're looking to meet with the decision makers and buyers. So, again, employee advocates are helping us. You know, 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. So, we're still having a lot of success with that. Okay, gotcha. That's, that, that's helpful there. On the, on the international expansion, good to see the, the entry into, into Canada and that officially announced. How should we be thinking about the pace of further country openings and, I guess any initial learnings from, from, from entering Canada and, and how the platform performed there that could be applied to, 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, you know, crazy things in each country. I mean, every country operates a little bit different. There's countries that, you know, their year runs April 6th through April 5th, you know? There's countries that you don't reconcile the tax at the end. You got to have a stamp in the beginning, you know? So we're running into that with all countries. We do continue to spec them out, and we'll have out a couple more significant countries this year. I'd mentioned on the call not long ago that, you know, we believe that about 20 countries will represent most all the opportunity that we'll need, you know, for the US-based clients. Not all, but most all. Thank you. The next question will be from the line of Siti Panigrahi with Mizuho. Your line is now open. Thank you. Thanks for taking my question. Just want to follow up, Chad. When you are now going to Canada or even other countries, are you know, are you targeting customer in those countries, or are you focusing on US customer who are employed there? The reason I'm asking, are you trying to build now a sales team in Canada and other countries, or it's still focused here in the US? er is yes, we will eventually have sales teams, you know, in other areas that we're expanding to. But, you know, it's first things first, and that we're not focused on opening up a sales team 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 upmarket. You know, we get a lot of, we get a lot of call-ins and interest in regards and leads in regards to large businesses, and we kinda 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 with that. Now, as we're building out Beti in each country, you know, it just wouldn't make sense for a company not to use us for all of that. Originally, our focus is US-based companies. There's plenty of them as we go upmarket, but eventually, absolutely, we'll have sales, we'll have sales teams in other countries. That's not something we're eyeballing right now, though. Okay. Okay, thanks for that color. One more follow-up on the Beti. When you say that 40% of customer yet to move. I understand they are all your, you know, prior customer, not the new customer. They, by default, get Beti. Definitely there's a clear value proposition of Beti, and it's been there two years. What, what's the pushback you're hearing from those customer? What's stopping them moving to Beti? Yeah, I mean, I think the biggest pushback is the fact that, you know, it can be a significant reduction in force as well. I think that there's change management on the client side, some changes they have to make on their side of how they feed the data. You know, that's primarily it. I mean, I can tell you a lot of what we get, it's not broke, you know? We're already using Paycom. Our payroll's not wrong. You know, we've got 100% DDX. Why do we have to go through? We're working on other things, you know. I just don't know that it becomes the priority. You know, the Forrester study will help, and, you know, as we continue to go out there and show the value that it can create with appropriate usage. Then also, we kinda got a little bit of the tail wagging the dog strategy, with the employee base, especially hourly employees, it's inherent. You know, they'll do their own. You know, that's helping us out a little bit in there. You know, at the end of the day, it's a sales call that we have to provide value for. We're not gonna force a client, we're gonna influence them in, in, in making a decision that, you know, can drive significant ROI in regards to payroll and HCM software. Thank you. The next question will be from the line of Brian Bergen with TD Cowen. Your line is now open. Hi, guys. Good afternoon. Thank you. Wanted to ask a, a margin question first here. Can you talk about investments being made in, in cost to revenues, just considering the higher float revenue tailwind, which has been a bit lighter than we've expected? Are there catch-up investments being made here, or are you broadening out the international operations? 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, you know, this, this quarter was down slightly. You know, it's, it's typically going to be headcount. You know, we hire ahead of the growth. It's, it's going to be a higher headcount in the service group. You know, we're starting to see a, a few costs as it relates to international, but it's not really moving the needle at this point. You know, we haven't guided to, to gross margins. We've always been in that 84%-86% range, and, you know, we, we would expect that to, to, to be, you know, similar moving forward. Okay. 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'll be a small- It would be- It's gonna be very small impacts this year, just because you have bookings then conversions. I mean, EveryDay could add a little bit, but. Yeah, it would be. It's not gonna move the number. Yeah, it's not going to move the number. Thank you. The next question will be from the line of Jason Celino with KeyBanc. Your line is now open. Great. Thanks. This is, actually Devin on for Jason today. Thanks for taking our question. You know, wanted to get an update on your, 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, well, outside sales is rolling. I mean, we've got people that are, you know, selling numbers that, I mean, even one deal is bigger than, you know, what someone sold before at Paycom. I mean, you know, sales is continuing to do well, our capacity is continuing to increase. We're continuing 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, and new clients that we bring on. You know, we're doing well there, and I would expect us to continue to do so. Got it. No, that's, that's helpful. And then, just a quick follow-up. You know, any additional details, on how would you think about, you know, what you're getting on your effective yield for, for cash held for clients, just given another interest rate hike, you know, in the past month? Thank you. Yeah, I mean, you know, what we've said in the past, and really don't have an update on that, is, you know, we, we typically get about $5 million annually on a 25 basis point increase. We had $2.2 billion average daily funds held this quarter. I mean, we're typically trying to get somewhere between 80% and 90% of the Fed funds rate. It, it, it layers in over time, it doesn't, it's not an immediate impact to us. We have certain funds that are layered out longer. That, that's, that's the impact that we rate hike has on us. Thank you. The next question will be from the line of Alex Zukin with Wolfe Research. Your line is now open. Hey, guys. This is Ryan on for Alex. Thanks for taking the question. Two quick ones. Historically, free cash flow margin and cash conversion had been lowest in Q2, but it came in relatively strong this quarter. Just wondering if you can unpack that strength. 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, the last one first, and then I'll let you handle the free cash flow, margin. You know, we, we report retention, once a year. It does fluctuate throughout the year, and then we report it once a year, I believe, in February, every year for the prior year. So we don't have any updates, on the retention number, right now, but, you know, we will, at the end of the year. Yeah, I mean, on free cash flow came in, very strong for Q2. You know, some of that can be timing, but, you know, overall it's. You know, the main things that impact free cash flow are gonna be CapEx and, you know, and, and, and some of your tax rates on that. But yeah, we're, we're very happy with the way it came in, Q2. Much, much better than last year's Q2. Thank you. The next question will be from the line of Bhavin Shah with Deutsche Bank. Your line is now open. 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 pays per control, how that might have turned it 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, 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. 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, of what you're seeing with both inside and outside sales. I mean, very strong. I mean, outside sales is, you know, probably the strongest growth we've had in 3 years from a percentage basis. I mean, inside sales, you know, strong, but again, like I said, it represents 5% of our revenue. You know, I mean, I would say, you know, from a sales perspective, we're getting stronger and stronger. I mean, again, we're selling $2 million and $3 million deals. I mean, that's, you know, when we IPO'd, that's what a Citi would sell and, you know, last couple of years, that's what a sales rep of the year would sell. You know, now we've got deals of that size. You know, as our product's gotten stronger, and again, the value's gone all the way out to the employee, and the employee user has become, you know, more technological in what they expect for usage, you know, we're, we're, we're kinda really able to help everybody out, the employee as well as the employer, to drive this, and capture this ROI available. Thank you. The next question will be from the line of Daniel Jester with BMO. Your line is now open. Great, thanks for taking my question. First, I wanna ask about sort of the back to the base motion. You know, you made a comment that the Beti transition is kind of impacting the velocity of that group. As you think about Global HCM, it also sounds like that's gonna be a back to the base motion with customers that are already have international employees. Are these gonna be the same team selling that, and how do you deal with the bandwidth as you ramp that, that global product? Secondly, can you just clarify, is EveryDay and Client Action Center, are those gonna be modules that you charge for? Thank you. Okay. EveryDay, yes. Client Action Center, no. Every client has it, the ability to enable it, right now. As far as, y es, it is the exact same team that sells the Global HCM product as what sells Beti. It's also that same team 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, and 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, that some of them you already have sold Beti to, and you're gonna have to go out there and spend the time to get them converted. It's our CRRs that do those conversions. The difference can be, 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 making sure that the ROI is being realized. Once someone's made that conversion, you know, 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 gonna pay you triple, 'cause I know it's a smaller revenue amount. Anytime you sell one, this will be your commission. We have to do that so that we can 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. You know, 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. You know, it is a 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. Thank you. The next question will be from the line of Robert Simmons with D.A. Davidson. Your line is now open. Hey, thanks for taking the question. I was wondering, how does EveryDay work in terms of monetization? Will you do it the same way do you other modules work, just per employee, per pay cycle, or would it be a different model? Yeah, the best way to think of EveryDay, it's still per employee, per pay cycle, but now you have more pay cycles. Got it. Got it. Then, on Beti, are you still seeing 99% annual retention for clients who, who are, who are using it? We haven't updated any retention numbers since we last did our retention, but it's, I don't see people leaving that have Beti. It's very- Yeah. That's not to say you can't have some bought, sold, merged. I mean, you know, we've even been the benefactor of where a large company's buying a smaller company. The smaller company uses us, Beti... Then we get a $1.4 million deal, 'cause the small company doesn't want to convert off Beti, and the large company ends up converting to us for it. I even see us being more the benefactor of mergers as we move into the future, which, you know, oftentimes it was a wash or the larger company buys the smaller company. Got it. Thank it very much. Thank you. The next question will be from the line of Arvind Ramnani with Piper Sandler. Your line is now open. Hey, hey, thanks for, thanks for taking my question. I guess, kind of, kind of the first thing is like, you know, can you talk a bit about the competitive environment, particularly from, you know, some of the legacy players, ADP and Paychex, you know, has that changed, has it put any, any kind of pressure on your sales cycles or kind of conversions? No, I'd say the competitive environment's been very similar as it has, which, as I've always said, it's been competitive. I mean, it's always been a dogfight. I've said that multiple times. You know, you've always had competitors that'll go out there and say, "Hey, I'll give you a year for free," you know? I've always told prospects, "I mean, if you want the lowest price, call your current, call your current vendor, threaten to leave them. That's how you get your lowest price. Now, if you want value and a return on your investment, and you want to turn those fees into actual value that you can achieve, only way to do that is to go with us." You, you were always gonna have that, you're always having to have competitive competitors out there, and, and it's no different than it has been. Terrific. Then just, really quick one. You know, can, can you kind of tell us kind of interest income contribution for the quarter? No, as we've mentioned in the past, Arvind, you know, we, we received... You know, where our goal is somewhere between, you know, 80% and 90% of the Fed funds rate. You know, as they have, you know, increases in the Fed funds rate, then it takes a couple of quarters for that to layer in. You know, and so that's what we've said in the past. Thank you. The last question comes from the line of Jackson Ader with MoffettNathanson. Your line is now open. Oh, great. Thanks for taking my questions, guys. The first one is maybe on the talent acquisition or, or the recruiting modules. We're starting to see maybe a loosening in, in the labor markets, and 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, kind of counterintuitive demand for those products as, as the labor market begins to loosen. Yeah, it's, 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's background checks, pre-employment, background checks, and how those are going. I would say it, it's stable as of right now. Okay. All right. That's fair. Then the follow-up is for, o n 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, you know, that they don't take their eye off the ball in terms of the bread and butter deals? Thanks. Yeah, well, weekly quotas, you know, make sure of that. Ultimately, they will go after larger deals. They don't have that many of them for any one territory. You know, it's, it's not gonna increase it so much that that's all you're doing. You know, I mean, our salespeople, probably 75%-80% of what they make is commission-based, and that's based off revenue being achieved. You know, you can still achieve a lot of revenue off of, you know, the sweet spot of our market that we've been focused on. You know, we continue to be pulled up market. I, I've been mentioning that, and there's no reason not to go after that market as well. I mean, eventually, we're gonna land one of these largest, largest companies in the world kind of deal, you know? I mean, eventually, that's gonna happen because it's just right. You know, we've got to take our at bats and our swings with them. That concludes today's Q&A session. I would now like to pass the call back over to Chad Richison for closing remarks. 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 Technology Leadership Forum. At the end of August, we'll be hosting meetings at the Stifel Tech Executive Summit and the Deutsche Bank Technology Conference. In September, we'll be presenting at the Citi Global Technology Conference in New York, and hosting meetings at the Wolfe Research TMT Conference in San Francisco. We look forward to catching up with many of you soon. Operator, you may disconnect. That concludes today's conference call. Thank you for your participation. You may now disconnect your line.