Good afternoon. My name is Cameron, and I will be your conference operator today. At this time, I would like to welcome everyone to PACOM's fourth quarter and full year 2024 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star key. Thank you. I will now turn the call over to James Sanford, Head of Investor Relations. You may begin.

Thank you, and welcome to PACOM's earnings conference call for the fourth quarter and full year 2024. 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 . 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, state, 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, free cash flow, 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 Richeson, Paycom's CEO and President. Chad?

Thanks, James, and thank you to everyone joining our call today. We ended 2024 with strong momentum thanks to focused execution, organic sales growth, and operational efficiency gains. Before diving in, I want to welcome our next CFO, Bob Foster. Bob joined Paycom over two years ago after working within the industry as the CEO and chairman of a payroll company for eight years. Prior to that, he served as a senior partner at Ernst & Young, managing several of the firm's largest accounts. He brings industry experience, process expertise, and a strong financial pedigree to lead our financial team. He will assume the role of CFO effective February 21st when my longtime friend and colleague, Craig Bolte, officially retires. After my opening remarks, Craig will review our fourth quarter and full year results, and Bob will provide comments on our full year guidance. We will then take your questions. With that, let's get started. Our performance strengthened throughout the year as we diligently executed our 2024 plan. We expect to fuel our momentum in 2025 by maintaining our focus on full solution automation, client ROI achievement, and delivering world-class service. 20 years ago, when we sold our software, user buyers bought the product because they wanted to do more with the software, and today, they want the software to do more for them. We already have the most automated solution in the industry, and we are rapidly moving toward full solution automation, driving even more ROI for our clients. Simply put, our software vision is that people shouldn't do tasks that systems can safely automate. On the payroll side, Betty continues to eliminate non-revenue generating tasks, which allow clients to shift resources to more profitable activities. Betty is a highly differentiated automated solution that delivers strong client ROI. Having employees do their own payroll is the most effective way to do payroll, and we are seeing this validated daily. Take, for example, a client of ours in the professional sports industry. Prior to Betty, this 500-employee organization worked through payroll issues for days leading up to their submission deadline. They ran separate reports and supervisors chased down employees to fix time and attendance issues. With Betty, their employees ensure their check is correct, which has significantly increased employee trust, and the client has automated 85% of the time and effort previously wasted on payroll. We onboarded a 2,000 employee retail client that operates in multiple states. This client raved about their seamless transition process, and they confirmed they have also reduced their payroll processing time by nearly 85%. In addition to their payroll savings, their HR team saved an additional month annually of unproductive time through automations outside of the payroll process. Clients continue to see strong ROI from our automated time and labor management solutions. For many clients, unproductive time represents roughly 10% of labor costs. With GON, clients can eliminate unnecessary interaction points by providing a consistent and fully automated experience for employees, managers, HR administrators, and the business as a whole. A recent Forrester study found that GON can generate an ROI of up to 800%. Through the automation of time-off decisions, managers save nearly a week of unproductive hours annually, And on average, companies save nearly five weeks of unproductive time in the areas of HR, finance, and accounting every year. We were pleased that GAN received the Business Intelligent Group's Innovation Award, which is awarded to the organizations changing how employees experience the world. Internally, we are experiencing increased efficiencies through product automation. PACOM's AI agent, which was rolled out to our service team six months ago, utilizes our own knowledge-based semantic search model to provide faster responses and help our clients more quickly and consistently than ever before. As responses continuously improve over time, our client interactions become more valuable and we connect them faster to the right solution. As a result, we are seeing improved immediate response rates and have eliminated service tickets by over 25% compared to a year ago. We remain committed to having a high-touch service model, which means we'll always have a single point of contact for our clients to provide them personal service. But with automations like AI Agent, we are realizing internal efficiencies, driving increasing client satisfaction, and seeing higher net promoter scores. Through our internal automation efforts, we are identifying opportunities to automate even more processes that currently require unnecessarily human interaction, and this is having a positive impact on our service initiatives and margins. Thanks to these efforts, we ended the year with roughly the same headcount as last year, while continuing to attract talent in the key areas of service, sales, and R&D. Demand for the most automated solution in our industry, provided by Paycom, is stronger than ever and sales is having record success as more businesses experience the benefits of solution automation with greater success amongst our sales organization we have more individuals ready to be leaders and with a deep bench of sales leaders we open three new sales offices in january these are located in raleigh north carolina los angeles california and providence rhode island which brings our total outside sales teams to 57 our culture was highlighted by comparably in q4 as paycom was the top company for compensation and best company culture additionally newsweek recognized us as one of america's greatest workplaces for diversity with the most automated product consistent retention and kicking off the year with record sales growth we are set to perform well in 2025 and beyond. With that, let me turn it over to Craig.

Thanks, Chad. Before I review our fourth quarter and full year results for 2024, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. Also, in our income statement, we have broken out total revenue into recurring and other revenue and interest on funds held for clients. In our earnings press release today, we provided 2024 quarterly revenue amounts to conform to this presentation. This change has no impact on total revenue or any other line item in our income statement. We ended the year with solid results with full year 2024 revenue of $1.88 billion, representing 11% organic growth compared to 2023. Full year recurring another revenue was $1.76 billion, also up 11% compared to 2023, and interest on funds held for clients of $125 million was up approximately 16% year-over-year. Fourth quarter results were better than expected, with total revenue of $494 million, representing growth of approximately 14% over the comparable prior year period. Recurring another revenue in the fourth quarter was $465 million, up 14.5% compared to 2023. We generated $29 million of interest on funds held for clients up approximately 2% year-over-year on an average daily balance of approximately $2.5 billion. Our strong top-line results and recent operating efficiency gains translated into even stronger bottom-line results. Full-year gap net income was $502 million or $8.92 per diluted share based on approximately 56 million shares. Non-gap net income for 2024 was $462 million, or $8.21 per diluted share. In the fourth quarter, gap net income of $114 million and non-gap net income of $130 million represented $2.02 and $2.32 per diluted share, respectively, based on approximately 56 million shares. Full-year adjusted EBITDA was $775 million, representing full-year margin of 41.2%. Fourth-quarter adjusted EBITDA was $215 million, representing a quarterly margin of 43.5%, up 290 basis points year-over-year. We continue to invest in automation across our software. Adjusted R&D expense was $61 million in the fourth quarter of 2024, or 12% of total revenues. Adjusted total R&D costs, including the capitalized portion, were $89 million in the fourth quarter of 2024, compared to $73 million in the prior year period. Our tax rate for 2024 was 23% on a gap basis. For the full year 2025, we anticipate our effective income tax rate to be approximately 29% on a GAAP basis and approximately 27% on a non-GAAP basis. In fiscal year 2025, we expect stock-based compensation expense as a percent of revenue to be approximately 8%. Cash flow from operations in 2024 was $534 million, representing 28% margin. Total CapEx of $197 million in 2024 represented approximately 10% of total revenues compared to approximately 12% of total revenues in 2023. We estimate total capex as a percent of revenues to be below 10% in 2025. Free cash flow, defined as operating cash flow less capex, was $337 million in 2024, up 17% year-over-year. Free cash flow margin expanded 90 basis points year over year to approximately 18%. In 2024, we repurchased over 900,000 shares of common stock, or approximately 2% of our shares outstanding, for a total of $145 million, and we paid over $84 million in cash dividends. Since the beginning of 2023, we repurchased over 2.4 million shares, or approximately 4% of shares outstanding for approximately $445 million. We still have approximately $1.48 billion remaining under our buyback authorization as of December 31st, 2024, and the board has approved our next quarterly dividend of $0.37.5 cents per share payable in mid-March. Turning to the balance sheet, even after returning capital to shareholders through buybacks and dividends paid in 2024, we ended the year with a very strong balance sheet, including cash and cash equivalents, the $402 million, and zero debt. We ended 2024 with approximately 37,500 clients, representing a growth rate of 2% compared to 2023. On a parent company grouping basis, we ended the year with approximately 19,400 clients, and of those, clients with greater than 1,000 employees were up 12% year over year. Total employee records stored in our system in 2024 was 7 million, up 3% year over year. Paycom's annual revenue retention rate in 2024 was 90%, which was consistent with 2023. 2024 was a solid year of execution with strengthening fundamentals as the year progressed.

I want to thank our employees for all the hard work that is paying off with that i'll turn the call over to bob for guidance bob thanks craig and thank you chad for the opportunity to take the financial reins of such an innovative and profitable company for the near term the plan is to continue to fuel the momentum we have been building in 2024 in the areas of r d sales and investing in automation to benefit our clients as well as us internally. Our approach to guidance remains consistent as we guide to what we can see today and factor in relevant trends, opportunities, and potential constraints. With the goal of aligning our guidance with our long-term focus and consistent with how we run our business, we are transitioning to an annual revenue and adjusted EBITDA guidance framework. For fiscal 2025, we expect total revenue to be between $2,015,000,000 to $2,035,000,000 or approximately 8% year-over-year at the midpoint of the range. We expect full-year recurring and other revenue to be up approximately 9% year-over-year. year. We expect full-year adjusted EBITDA in the range of $820 million to $840 million, representing an adjusted EBITDA margin of 41% at the midpoint of the range. This represents one of our highest initial margin guides. Included in Total Revenue Outlook is interest on funds held for clients of approximately $110 million, down 12% year-over-year. Looking at the shape of the year, we expect first quarter growth to be the low point of the year. We expect recurring and other revenue growth to accelerate to consistent double digits every quarter thereafter, as we benefit from record sales and consistent retention trends. We have positive momentum and are positioned well in 2025. We have an organic growth model that produces high-quality revenue and profit. We also have the talent and the product vision to build on our success. Before taking your questions, I want to thank Craig for what he has meant to Paycom, our clients, and our employees over the last 20 years.

From all of us, Craig, thank you. with that let's open the line for questions operator at this time i would like to remind everyone in order to ask a question press star then the number one on your telephone keypad in the interest of time we ask that you please limit yourself to one question and one follow-up we'll pause for just a moment to compile the q a roster your first question comes from the line of Ramo Lenshaw with Barclays. You may proceed.

Hey, perfect. Congrats on a great Q4. And Bob, all the best in your journey with Paycom as a CFO. Two quick questions. Bob, first on guidance and guidance philosophy, what drove the decision to kind of not do quarterly anymore? I mean, it does feel like Paycom is a very predictable business, so that's a little bit surprising there. Maybe talk a little bit about your thinking. And then Chad, can you talk a little bit about the renewal ratios you mentioned they were stable on last year um but you know in the past we've seen uh large numbers and you know like the the whole betty uncertainty kind of obviously created advent and and so i'm thinking like you know is this this level like the new level or uh are your ambitions to bring it back to the levels we've seen in the years prior to to what we've seen before and many thanks and uh congrats on the good q4 again yeah right well thanks for the question you So, as you know, we run our business with a long-term focus and we invest in things that will help our clients

and Paycom along the way. And this aligns with how we run our business. And when you look at our guide, it's a very strong guide accelerating through the year with high EBITDA margins. And we feel this better aligns with just how we run our business.

I'll take the renewals. We did see stability last year, being that it was the exact same number that it was from the year previously i will say i mean we had strengthening in that number as we moved throughout the year as we moved throughout the year and you know we expect that to continue into this year and yes i mean i would hope for stronger retention as we move throughout the year as i would every year but i will say it was consistent last year with the year before okay perfect thank you the next question is from the line of samad samano with jeffries you may proceed hi this is mason marion on for smart thanks for taking our questions um i want to dig into guidance here a little bit um can you provide some commentary on the building blocks from bedding within that nine percent recurring another guide what are you expecting from a macro standpoint and then any commentary around like pay for control price realization retention anything that would be helpful yeah i mean the nine percent are recurring in other and so that would be revenue x interest right and so we've now broken out what our interest is and so that would be you know us onboarding new business clients at higher rates as we continue to do higher revenue rates and you know that'll impact us as we move throughout the year so no new components or assumptions go into that.

Yeah and I would say kind of consistent with how we've always done guidance. I mean, we don't count on the macro either positive or negatively impacting us during the year.

Okay, that is helpful. And then it seems like the CRR team improved performance throughout the back half of 24. What are your expectations for this team as we move into 25 in the context of your guidance?

We're all focused on client satisfaction. We're focused on making sure clients are getting the ROI and the service that can be delivered to them. So that's what our entire organization is doing. CRRs help with that definitely. And you know when able definitely they are upselling clients products that they need. And so it's a group effort across the board. I'm very happy with what our group did this year. As again we saw continued strength into the back half of the year. That's continuing as we start off the year now. And so you know for us it's just focusing on doing the right things for the right reasons.

The next question comes from the line of Mark Marcon with Baird. You may proceed.

Hey, good afternoon, and thanks for taking my questions. Craig, it's been a pleasure working with you. Congratulations on a great career, and Bob, look forward to working with you. With regards to the revenue performance that you ended up having throughout the year, could you compare and contrast that relative to the total client growth? Because, you know, the client growth was a little bit on the lower side. Obviously, you've been moving towards bigger clients. But I'm wondering if you can fill in some of the gaps because, you know, it also looks like you're probably selling more modules, wondering what's going on with pricing. And how does the module build factor into next year? So that's the first question. And then the second question has to do with the margin improvement was really nice to see, particularly in terms of gross margins. How are you thinking about, you know, about the balance between gross margin improvement versus sales and marketing R&D and G&A as part of your guide?

Yeah, I mean, sales and marketing has done well all year. we did call out some of our largest month sales ever actually this january the month we just finished was our largest sales month i mean blew out any previous sales month none of those deals have started you know throughout the year i did talk about increasing new unit growth for new business sales which we had and you know but also i would say we haven't been uh selling as many maybe small businesses as we did you know we ramped up that group during covid it's a smaller group now so you know we might be uh you know uh losing 40 pennies out of our pocket but you know we replaced it with two dollar bills so you know um there's a little bit of that going on in client mix i know craig did mention on the call that clients above a thousand employees grew that market grew 12 so uh you know there's a little bit of that of where our focus is you know we do have the most automated solution. We're having a lot of success with that out in the field. Our sales reps are having a lot of success. That's why we've opened up three new offices. And so I would say that, you know, we've had a very strong growth year and you're going to see that continue as we move into next year. And I'll let Craig and Bob talk about the margins.

Yeah, I would say on the margin side, I mean, you know, some of the things that impacted the gross margin kind of the back half of this year was that new building that came online. We had no additional depreciation on that as well as the cost of uh opening that uh new building and you know eventually we'll grow into that and uh you know those that will start to improve on those margins and then you know kind of throughout you know we mentioned we're continuing to invest in r d and then those other line items you know we continue to look for efficiencies throughout the next question comes from the line of kevin mcveigh with ubs you may proceed great thank you so much and let me add Mike, congratulations, Craig.

It's been great working with you. In terms of the new office openings, is there any way to think about how those should scale over the course of 25 into 26?

I know, Chad, you have a pretty deliberate approach in terms of, you know, staffing and then as they scale, just anything to help us dimensionalize how they should kind of scale and maybe what's factoring into the guidance? yeah it takes 24 months for uh those offices to be fully staffed with the backlog pipeline so that those offices will carry a full team quote at the beginning first quarter 2027. you know this year they will contribute uh to revenue in a smaller capacity because they're just now selling and so those deals have to start but as we move throughout 2026 and beyond, obviously, they'll have a more meaningful impact on that.

Great. And then just, it sounds like, Chad, the retention improved over the course of the year. Was that kind of just the runoff of anything Betty related or the mixed effect of larger clients and any way to think about, like, what retention levels embedded in the 25 guidance?

Yeah, I mean, Betty improves retention, you know, and so I would say that. And the more usage that our clients get out of our system to where they're getting the full ROI out of it, you know, that helps us. And it's not just betting. And, you know, a differentiated strategy also allows us to win clients back a lot faster. I mean, you know, we've had clients that leave one payroll, they're right back with us. And so that helps as well. But I would say it's all of the technology that we're bringing into the market right now through automation. and Betty obviously being a big part of that, that's really helping us win deals.

The next question comes from the line of Steve Enders with Citi. You may proceed.

Okay, great. Thanks for taking the questions here. I guess maybe just to start, I just want to get a better sense for maybe what drove the upside here in Q4, what drove the revenue strains, and I guess maybe how should we think about the puts and takes between the strength here versus what might impact Q1?

Yeah, I would say Q4, you know, as we go into Q4, it's usually the hardest to really predict in terms of, you know, unscheduled runs and things like that. And I would say those came in strong. And so, you know, overall there was strength in the quarter as well as, you know, good starts in Q4 as it relates to new clients coming on board.

Okay, thanks. And then on the booking strength that you've been seeing lately, you know, I know there's been a lot of changes in the go-to-market over the past year, year plus. I guess, what do you feel like is working right now? What's resonating? And then I guess maybe where do you feel like there still are some areas where you can see improvements or some incremental things that you can improve upon?

Yeah. And so I would say what's working is the fact that we have the most automated product in the industry and people want to do less these days. You know, like I said before, 20 years ago, I sold a product because people wanted to do more with it. Today, you sell the product because they want it to do things for them, you know, and it's automated. And so, you know, that's where we're having our most strengths going out there talking about those things and obviously delivering the ROI that's available to our clients. And we have our entire company focused on client satisfaction. That's pretty important. Our clients are the reasons why we're here. And so we're all focused on that as well. It's hard for me as I look at 2024 to see any area where we weren't successful in our initiatives. So we continue on with that as we go into 2025 and beyond.

The next question comes from the line of Jason Salino with KeyBank Capital Markets. You may proceed.

Thanks, Craig. you know it's been an absolute pleasure pleasure hope retirement with the grandkids and the wheat farming you know goes well um you know i um my my first question on you know the the sales offices um can you just remind us when the last time you opened sales offices i think it's been a few years um and i think you typically only open them when you find the leadership bench to be ready but certainly a good sign maybe the internal macro you know your your views influence the decision to expand it all or is it just typical planning thanks no i mean it's probably been a couple of years i would say since we opened our last uh office i want to say but james is looking

it up but i want to say this may have been first of 2023 or into 2022 yeah but for us that's internal, I mean, we only have 5% of the market right now as a company. So, you know, it's the demand's there. You just, you want to make sure that you have 100% success every time you open an office, which we have. And that's really dependent upon the manager that you put in there. And then, you know, we've obviously got to backfill that manager with a rep that's ready to be manager. And so, you know, we do those things when it makes sense to us, when we have the bench strength to do it. I would say we were better at opening up the offices this year than what we'd been in the past, meaning we opened up the office and already had reps ready to go in them and already trained and identified. So I would say that these offices I would expect to have more success earlier maybe than what we've had in the past. A lot of that's due to the way we've made changes to our training and I wouldn't necessarily say we changed our go-to-market. I would just say we changed the way we are prepared to go at it and so and that's been very successful. you know you you have a very strong successful sales and marketing program that's coupled with the strongest product out there in the industry with good messaging and uh you know we're having a lot of success there okay um and then my this is my quick follow-up i don't know if this wasn't part of steve's last question but i guess what did you see in terms of workforce levels thank you for just one of your competitors mentioned you know some weakness but obviously to get a strong quarter um and then i guess what are you baking in in terms of you know workforce expectations for for the 2025 guide thanks just stability i mean i can't say we saw anything unique in q4 and we're not uh we don't have anything forecasted for anything unique going into 2025 as far as macro uh employment um changes the next question is from the line of jared levine with td cohen you may proceed thank you can you discuss your thoughts on additional sales office things uh offices over the rest of the year is that contemplating the guide currently i mean we don't disclose any offices we would plan to open this year would be uh already in our guidance but we haven't disclosed what uh what our plans would be as

we move through the the year to open up additional offices got it and then for my follow-up here can Can you disclose what the 4Q revenue benefit was from that pull forward of that extra payroll processing day from 1Q?

You know, there are always calendar issues within a year or quarter. And, you know, if you're able to look at it on a weekly basis or even longer normalized basis, you know, you're going to see the strength that we had in the back half of 2024 continues into 2025 and actually accelerates as we move throughout the year.

Got it. Thank you. The next question is from the line of Bavin Shah with Deutsche Bank. You may proceed.

Great. Thanks for taking my question. Bob, appreciate kind of the change of guidance a lot to see, but kind of taking your comments here in the full year for recurring revenue with 1Q the low point and then double digits thereafter, I get to like 6%-ish recurring revenue growth for 1Q. Am I in the right ballpark there? And kind of, if so, what are the factors impacting 1Q? Is it just the calendar timing issue or is there anything else?

Thanks so much. yeah thanks for the question yeah we're not we don't comment on the quarter since we've changed our guidance there are a couple things that we will talk about shape the quarter the year-end forms filings don't grow as fast as our core business and there's a little uh interest head wind because we were up 30 last year in interest and we'll be down 11 or so percent in the first quarter that's helpful there and then just kind of following up on the the ebic.guide for 25 just even given what you're seeing on the flip side, it's very healthy.

Where are you seeing the efficiencies? Is it across the board? Are there certain areas where you're kind of being able to leverage AI or anything else to really provide a lot more productivity within your sales force?

Well, first, I appreciate you appreciating adjusted EBITDA. You know, when you start a company with 13 credit cards and an SBA loan, you know, profit kind of matters in being efficient and actually having high quality revenue that produces income, you know, those are pretty important. And so we focused on that. And we're getting a lot of benefit through automation. Obviously, we're getting benefit through our sales department going out and selling good deals, fair deals. And then, you know, we're also having success through automation on the back end, you know. And that's something that's been, you know, when I look at our company, I mean, the only thing I'm really trying to fix on it right now is the valuation. I mean, it's difficult. You know, we're seeing companies that started two years before us, our closest comps, comparables, I would say. And as I do my calculation into what our growth and adjusted EBITDA is into next year, and I look at theirs, it'll take them over a decade to catch us in revenue, 12 years to be exact, and almost three decades to catch us in adjusted EBITDA. So I'm glad that people do appreciate high quality revenue. You know, we've grown our business organically and we do have a focus on full automation of our system. And as we move into the future, I do believe that's going to put us in the area of being the highest margin company in our industry. I think we're second now with our current guide. And I also expect that our growth will continue to be strong because, again, we've got the best sales force out there. We have the best product, and we have got consistent retention with our client base. So I'm excited about it. Thanks for the question.

The next question comes from the line of Daniel Jester with BMO Capital Markets. You may proceed. Great. Thanks for taking my question.

I know you don't comment too much on the product roadmap, but philosophically, we've been talking about Betty for a few years. I think gone has been, you announced that in late 2023. So as I think about 2025, does your guidance or does the playbook assume that you're going to be launching new products or maybe just any sort of guidance in terms of thinking about the roadmap and the direction on the product side would be helpful?

Well, I will tell you that there's not a moment that I'm awake and probably half the times I'm asleep that I'm not thinking about our product and how can we make it better and how can we enhance it. And so, you know, I took over the product back again in November of last year. I've worked very closely with that group. We're doing very well over there. We've got a lot of initiatives in flight right now all around automation of our product. Again, I think that any time that you can automate human interaction safely, you want to be able to do that. You can't do that everywhere yet, but I do think that there's all those opportunities, and so we've been focused on that. I believe that we've led that charge more than anybody else, and I think you'll continue to see that momentum continue into this year. And absolutely, there will be product announcements in 2025.

Great. I appreciate that. And sorry if I miss this, but on the $110 million of interest income this year, did you share what your expectations were with regards to interest rates or average daily balance to get that number?

Thank you. no i would say on the uh i mean on the interest rates uh i mean we kind of look at the fed funds right um you know and so we're looking at something in that range and then we've baked in a couple of uh potential rate cuts in the middle of the year and then one towards the end of the year for 2025. the next question comes from the line of michael funk with bank of america you may proceed yeah thank you for the questions tonight um first one competitive environment And I'd love to get your thoughts on the paychecks acquisition of pay core and what that means for the industry and kind of more broadly to the overall competitive environment.

Any change in your view?

No, I would say no changes in our view to competitive environment. It's always been a competitive field in our industry. I think when you have a lot of competition, the client wins. I think we're all trying to, you know, differentiate. And I believe that our plan is very strong in that. But no, you know, you've had different times. Companies consolidate and combine together. And, you know, I mean, I'll let them talk for themselves on that.

Okay. And then I think, Earl, you mentioned that you think about product every minute being awake, half time being asleep. How do you think of a longer term evolution of pricing in the industry as automation becomes more part of the product, AI becomes more part of the product?

How do you see pricing evolving over time? well you know pricing is evolved from value received from a client you know you don't really just set a price you how much value is something truly creating for someone and then you know you hope to be able to share in that as time goes as time goes on so i would say for us we look at that how can we create value for a client how can we help them what in their business can we automate fully so that it removes their efforts, exposure, and labor cost in many cases in order to get that same result. And so that's really what we focus on. And absolutely, our product roadmap does include things that drive additional value in very large ways. I will say this, clients who utilize our product correctly today realize a lot of that full value. And so it would just be an extension.

The next question comes from the line of Joshua Riley with Needham. You may proceed.

Yeah, thanks for taking my questions. Can we get some updated commentary? Well, I guess some maybe just initial commentary on how client retention trended here in January and February relative to your expectations exiting the year? And any thoughts around the 90% revenue retention and the puts and takes investors should be considering for that figure here in 2025, given that it seems like you've kind of bled off some more of those smaller, lower value customers from the metric and how that's calculated?

Yeah, I mean, I'll remind again that retention, we report retention once a year. We did report it this year and it was 90% consistent with the prior year. I also believe that as more and more businesses receive the benefit of automation and as we head toward full automation that we would expect to be able to uh do better in retention on a go forward we haven't guided to a retention number but we're very pleased with how we finish the year and we see strong trends continuing so far this year as i mentioned january uh even from the sales side was our largest book sales month by far and not any of those businesses have started yet so So we're real excited about what the rest of the year looks like.

Got it. That's super helpful. And then if you look at the EBITDA guidance of a 41% margin, how do we think about how much of the R&D being expensed versus capitalized in 2025? Is there an impact there on the margin? And should we kind of think about the 11.5% non-GAAP as a percent of revenue for R&D consistent again in 2025?

Thanks, guys. yeah i mean i mean we didn't really uh make anything uh different than what we uh saw this year in terms of the uh capitalization rate on r d uh you know as a reminder it's really the projects are working on as to whether it's capitalized or expensed but i really know change from 2024 as it relates to the rate next question comes from the line of jake roberge with william blair you may proceed yeah thanks for taking the questions um you've referenced that really strong January a few times.

I'm curious what drove that. Is that all kind of internal execution and just sales teams being a little bit more focused here after a noisy few years? Or are you also kind of starting to see HR budgets open up kind of post-election?

I mean, I would say that's internal to PACOM as far as what happened in the first quarter. You know, I've been talking about increased sales. I've been talking about strength of our sales group. You know, we're stronger in january we're stronger in february than we were any time last year and we had record breaking months last year too uh you know and now we're at a point where we've even opened up three more offices so really i would just say that's the preparation and uh of what we did last year to get prepared as we move through this year and then you know having success success uh kind of breeds more success and that's really what's happening for us right and that's made possible and then i know sorry no you can keep going no i was just saying that that was made possible due to our product

they're doing a great job selling the product and clients are helpful um and then i know the priorities in 24 was just getting a lot of the product that you already sold live rather than just sitting on the shelf curious how how that kind of trended uh in q4 and then will there be any new priorities for the crr team uh moving forward yeah the crr priorities are the same as all of our company's priorities and that's focused on client satisfaction uh everyone at the company regardless of your job that's what we're here for that's what we're doing and uh you know but crrs

have definitely helped with that when able crrs continue to uh sell clients products that make sense for them and expand their roi case so that they can get full value of the software and they're continuing to do that now the next question is from the line of city panagrahi with mizu home you may proceed hey this is phil on for city i just wanted to ask are there any updates to your strategy on the international front i know you guys are live in four countries but are there plans to add more countries over the next couple of years we continue to build out our international strategy you know we also have our global HCM product that all clients internationally use and then we have built out for other countries we continue to work with clients as we move into other countries and identify which are the ones to move into as well as you know we've developed certain things within our product that allows us to connect to other partners to help fulfill certain needs.

Okay, cool. Thank you.

The next question is from the line of Zachary Gunn with FT Partners. You may proceed.

Hey there. Thanks for taking my question. I just wanted to ask on the EBITDA margin. So I think fourth quarter here exiting is 43, 44%. And the guide for the full year is 41, similar to where it was this year. I'm just trying to understand what the mechanics are that delta between your exit rate this quarter versus what you're expecting for a full year next year?

Yeah, thanks. We guide to what we can see, and we usually start out with the lower EBITDA margin at the beginning of the year as we accelerate through to the rest of the year.

Yeah, and typically the first quarter of the year as well as the fourth quarter are going to be the uh the the largest uh EBITDA margins because of the the forms filings in the first quarter and then the unscheduled in the fourth and and as we mentioned this is one of the highest starting uh EBITDA guides we've had you know in the history of the company got it thank you this concludes the question and answer portion of today's call i will now turn the call back over to mr chad richardson for closing remarks well i want to thank everyone for joining our call today

i want to congratulate the 2024 paycom jim thorpe award winner judd a baron from the university of texas this award recognizes the most outstanding defensive back in college football it also memorializes one of the greatest all-around athletes in history and a fellow oklahoma jim thorpe bob and james will be on the road meeting with investors this quarter including hosting meetings at the Key Bank and Morgan Stanley Conferences in San Francisco in March. I'd like to thank all of our employees for their contribution to Paycom's success. Much of our success over the last 20 years was due to the financial stewardship and leadership of Craig Bolte. He helped to build a high growth and profitable business that many others have tried to emulate. I'm thankful for his contributions and I'm excited for him to get to enjoy working on his farm and playing with his grandkids. Craig's career achievements will forever stand as an example as to what can be achieved with hard work and grit. With that I'm going to hand the call over to Craig to close this out for the last time.

Thanks Chad. First I'd like to say thank you for asking me to join you in this amazing company over 20 years ago. Together we accomplished a tremendous amount and working at PACOM has been the most rewarding and fulfilling experience of my career. I will miss walking the halls and collaborating with the talented people who make Paycom so great. I have made lifelong friends during my time here. I am Paycom's biggest fan and as one of its largest shareholders, I am confident I am leaving the company in very capable hands and I know this company will continue to do great things. With that said, operator, you may end the call.

Thank you. This concludes today's conference call. You may now disconnect.