Good afternoon, my name is Lauren and I will be your conference operator today. At this time, I would like to welcome everyone to PACOM's First Quarter 2025 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 later by the number 1 on your telephone keypad. If you would like to withdraw your question, please press the star for the number two. Thank you. I will now turn the call over to James Sanford, Head of Investor Relations. You may begin.

Thank you. Welcome to Paycom's earnings conference call for the first quarter of 2025. 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 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, and we do not undertake and expressly disclaim any obligation to update or alter our forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law. Also during today's call, we refer to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP net income, 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 Richardson, Paycom's CEO and President.

Thanks, James, and thank you to everyone joining our call today. I'll focus my comments on some of our achievements in the first quarter and the progress we've made executing on our 2025 plan. I'll then turn it over to Bob for a review of our first quarter results and an update of our full year guidance. We will then take questions. With that, let's get started. We are executing very well and delivering strong ROI for our clients as they are experiencing the benefits of our full solution automation strategy. Recent product enhancements and client-focused initiatives are driving positive trends across our client usage metrics and our net promoter score increased another 16 points year over year we have the most automated solution in the industry and our clients routinely attest to this our award-winning solution gone is a perfect example of how paycom simplifies tasks through automation and ai gone is the industry's first fully automated time-off solution that decisions all time-off requests based on customizable guidelines set by the company's time-off rules. Before GAN, 10% of an organization's labor cost went substantially unmanaged, creating scheduling errors, increased costs from overpayments, staffing shortages, and employee uncertainty over pending time-off requests. According to a Forrester study, Ghosn's automation delivers an ROI of up to 800% for clients. Ghosn continues to receive recognition. Most recently, Fast Company Magazine named Paycom one of the world's most innovative companies for a second time. This honor specifically recognized Ghosn and is a testament to how Paycom is shaping our industry by setting new standards for automation across the globe. Another example of automation that is changing our industry is Betty. Our award-winning payroll solution continues to be a major selling point for organizations looking to reduce the labor needed to process payroll by up to 90% and also cut the time spent correcting payroll errors by up to 85%. Betty allows clients to focus resources on profit-driving initiatives as it eliminates human involvement in non-revenue-generating tasks like post-payroll adjustments, check reversals, voids, ledger corrections, and more. Thanks to Betty and the importance of perfect payrolls, we're also successfully getting former clients back onto the Paycom platform. We recently brought back a 500-employee healthcare company who quickly realized the pain they brought on themselves by switching to another provider. With this other provider, this client lost the transparency and ability to fix errors before they became problems. In fact, their employees were some of the biggest advocates and encouraged this client to return to Paycom because they missed having control over the accuracy of their pay. Once employees experience Betty, they don't want to go backwards in technology. The client returned to us within nine months and went from processing payroll in four days with their previous vendor to four hours with Betty. Sales continues to break records, including the first quarter where we saw a meaningful increase in book sales. We also saw an increase in the number of units sold for the quarter as compared to the same period last year. One of the new clients we onboarded was a 2,500-employee restaurant group who wanted a single, easy-to-use software solution. Working across nearly 80 locations, this group is now utilizing Betty and the rest of the Paycom suite to automate tasks that were previously performed across numerous systems, which created data inconsistencies. More and more businesses like this one are abandoning disparate decision-making processes for more consistent, scalable, and automated solutions. Organizationally, Paycom was named one of America's Best Large Employers by Forbes, and Newsweek ranked us as one of the most trustworthy companies in America for a fourth consecutive year. Both are testaments to the strategy and execution of our organization. I'd like to thank our employees for their hard work and dedication that they demonstrate every day. We have a strong balance sheet with high margin organic growth. We are building on strong momentum, and I'm very pleased with how this is setting us up for even stronger results through the rest of 2025 and beyond. With that, let me turn it over to Bob.

Thank you, Chad. Before I review our first quarter 2025 results and our commentary for the remainder of 2025, I'd like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. We delivered solid first quarter results. Total revenue of $531 million increased 6% over the comparable prior year period, including a milestone quarter for recurring in other revenue at $500 million, up 7% year-over-year. As expected, rate cuts in 2024 represented a headwind to interest on funds held for clients, which declined 10% year-over-year to approximately $31 million in the first quarter of 2025. Gap net income in the quarter was $139 million or $2.48 per diluted share based on approximately 56 million shares. Non-GAAP net income for the first quarter was $158 million or $2.80 per diluted share. We delivered strong profitability in the first quarter. Adjusted EBITDA of $253 million increased 10% over the prior year period, representing a 48% margin and a 180 basis point increase over the prior year period. Margin strength in the quarter was driven by solid revenues and effective spend in sales and marketing and G&A. At the same time, we continue to invest in the areas of AI, product, and R&D. Combining these with efficiencies from internal automation initiatives, we are well positioned to deliver an even stronger full-year adjusted EBITDA margin than last year. Our balance sheet is strong. We ended the first quarter with cash and cash equivalents of $521 million and no debt. The average daily balance on funds held for clients was approximately $2.9 billion dollars in the first quarter of 2025. During the first quarter of 2025 we paid approximately 21 million dollars in cash dividends. Earlier this week the board approved our quarterly dividend of 37.5 cents per share payable in mid-June. We repurchased five million dollars of common stock through netdowns on vested stock during the first quarter of 2025 and we still have 1.47 billion dollars remaining under our stock repurchase plan. As a reminder, our capital allocation strategy includes a disciplined return of capital to our dividend plan and opportunistic repurchases to our buyback authorization. Now let me turn to guidance for 2025. We continue to have success selling and onboarding new logos. Based on our strong Q1 results and outlook for the remainder of the year, we are raising our full-year revenue and adjusted EBITDA guidance ranges. We expect total revenue to be between $2.023 billion and $2.038 billion, up approximately 8% year-over-year at the midpoint of the range. For the full year of 2025, we expect recurring and other revenue to be up over 9% year-over-year, including growth of approximately 10% year-over-year for the remainder of 2025, with the highest growth coming in Q4. Our expectation for interest on funds held for clients remains unchanged at approximately $110 million in 2025, down 12% year-over-year. Automation of HCM and payroll manual tasks is driving our own internal efficiencies. Because of the efficiencies we are realizing throughout our business, we are raising our full year adjusted EBITDA guidance range to be between $843 million and $858 million. This represents an expansion of adjusted EBITDA margin to approximately 42% at the midpoint of the range, up 70 basis points compared to 2024. Other forward-looking items include full-year GAAP and non-GAAP tax rates of 28% and 27% respectively, and stock compensation of approximately 8% of revenues. We are pleased to see our teams executing well against our full-year plan and the positive response from the market. We will continue to invest in our strategic initiatives focused on world-class service, full solution automation, and high client ROI. With that, we will open the line for questions. Operator?

Thank you. 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 a moment to compile the Q&A roster. Your first question comes from the line of Raymond Lemschao from Barclays. Your line is open.

Thank you. Congrats, great start to the year. Two quick questions, one for Chad. At the moment, everyone is obviously worrying about tariffs, volatility. Can you talk a little bit about what you're seeing in your field? I would assume it's not that much, but what's the feedback from the sales guys, et cetera, on that one? And one question for Bob. You talked about the efficiency gains that help you on the EBITDA side. Can you maybe give us a couple of examples of how far can you push that to understand that a little bit better?

Yeah, I'll take the tariffs. I mean, I would say it's still early to kind of be able to judge specifically. I would say we don't have much direct exposure to it. We're not over-concentrated down market where you might see more of the maybe mom and pop impact a little bit more than what you could from a total employee base impact. But ultimately, anything that impacts our clients does impact us. It's just we haven't seen anything yet, but it is something that we'll continue to monitor. I would say that it would have to have an impact on employee count and the overall employment, I would say, to really have a meaningful impact on us. But, you know, like everyone else, it's something we're monitoring.

And Raymo, on the efficiency gains, you know, just like our clients, we use our product, all of our product suite. And as we continue to see how we can implement and maybe there's somebody that doesn't have to that might leave and we don't backfill a position let's say or expense management's a great way where we do some automation around there with our products so we're seeing the benefits of our full solution automation throughout basically our entire organization we've talked in the past about how we are dealing with less tickets now through automation in our service to provide better you know better service to our clients thank you our next question comes from samad samana from jeffrey's please go ahead hey good evening and thank you all for taking my

question congressional organization maybe one for you chad um and then one follow-up just as i think about the new offices i know that they usually take uh let's call it 18 to 24 months to ramp but i think last quarter you mentioned that maybe just go around it could be a little bit faster just are those staffed have you seen in terms of early impact um and then a follow-up on the uh in terms of the shape of the year i'll go ahead and ask them at the same time um any shift in the number of processing days like this 4q have an extra day just trying to understand the shape of the year with with more context thank you both for answering my questions yeah so on the new offices

you know we we get better and better as we open offices and as you know we didn't open offices for a couple of years there, and so when we did open up those offices, you know, we were better prepared to hit the ground running. They're still going to mature in 24 months. It'll still take 24 months before a new office will be carrying the same level of quota of a mature office, but, you know, we are getting better as we've opened up offices. As far as processing days, you know, any given year you're going to have a little bit here and there uh you know we have uh we did kind of discuss it a little bit uh uh last quarter and then you know any impact uh from either additional or less is uh included in our current uh guide thank you our next question comes from mark mark on from bird mark please go ahead okay good afternoon and thanks for taking my questions So, two major questions.

One, Chad, can you describe a little bit more about, you know, what you've done recently in terms of fine-tuning, you know, the sales process, both externally as well as, you know, in terms of the internal CRR group, in terms of how they're approaching, you know, clients and what sort of results you're seeing from that? That's the first question. And then the second question is, is this more on the margins? You know, when we think about, you know, the Q1 to Q2 transition, obviously there's going to be some seasonality and obviously there's some high margin work that goes into Q1 and inflated, you know, fund balances.

Can you give us a little bit of guidance just in terms of thinking through Q2 just in terms of the typical seasonality thanks yeah so well first on the cell side uh you know i would say that we've been continuing to get better and better in cells you know i do believe that our sales staff is the best in the world at what they do and you know i we did have a uh reconstitution if you will of training uh early part of last year as amy kind of took over the group to get back to normal blocking and tackling that we've always done here at paycom that resulted in increased sales especially as well as increased units new logo ads obviously those came on throughout the year and and most would have all started by now and then as we turned into first quarter you know we saw a continuation of the same up meaningfully in both book sales and units and so activity matters in sales. And then, of course, having a product that's getting better and better and better as we go to market, removing barriers of usage. And then as far as on the efficiency side, you know, we're automating everywhere. I mean, we're automating our product for the client. We're automating our product for the client. And we're also automating things internally. There are several tasks that we have to perform on the back end that we've been able to automate. And that has an impact on our adjusted EBITDA across the board, but it also has an impact on the client experience. And that's really why we're doing a lot of the things that we're doing through automation. I like to say the only reason a client even calls us is due to a deficiency in the software that we create. And so a lot of our focus has been removing impediments, removing clicks, and really focusing on allowing the client to have a fully solutioned automated product. And so that's been impacting our margins, and that's been impacting our sales.

Thank you. Our next question comes from Steve Enders from Citi. Please go ahead.

Okay, great. Thanks for taking the questions here. um i guess just to start i want to ask on the i guess the kind of free cash flow dynamics looks pretty solid here is there anything that we should be kind of keeping into account for you know timing impacts or how we should be thinking about how that maybe compares to the ebitda progression for the year um and then secondarily just on the the mid-market opportunity it seems like there was good traction there last quarter and just wanting to see how that's maybe tracking comparatively from what you saw in a in one queue here yeah I mean the mid-market opportunity I mean I would say everywhere for us is going very well I mean we're not seeing any changes to demand if anything I've

always kind of said we also create demand ourselves by the work we do and as I just talked about first quarter was up meaningfully for both revenue from a book sales perspective as well as for units as far as the free cash flow conversion. We did talk about how we've substantially finished out the completion of our facilities. I think we've got a parking garage and something else that'll be coming online. You know, I will say this, though, we are very ambitious with what we do with our technology and what we're doing in the ways of AI and other. And, you know, over time, I would think that some of that spend that we spend on facilities, I think you would see some of that transfer to those technological assets that are required to really run a full-scale, fully automated product. But we don't guide to free cash flow. It has been a focus of ours to be able to improve that, and I think you've seen a little bit of that recently.

Thank you. Our next question comes from Jason Salino from KeyBank Capital Markets. Please go ahead.

Great, thank you. I'm just trying to decipher some of the subtleties and kind of the script language today. I think, Bob, in your section, you mentioned the recurring revenue growth being up over 9% this year. I think before it was technically approximately. And then I think you also said that it would be up 10% for the remainder of the year. Is that like an average or is that kind of like each quarter? Just curious there.

Yeah, Jason. We've talked about being consistent for the Q2, Q3, and Q4 with a little acceleration in Q4 on recurring revenue. That's how we're looking at that.

Okay. Perfect. Thank you for that. And then, you know, changing topics a little bit, I think in the quarter there was a press release saying that you received authorization as a payment institution from the Central Bank of Ireland. Curious, you know, what this means for the business and the international part of the story. Thank you.

Yeah, so, you know, Ireland and being there allows us to get to the rest of Europe from there, and, you know, we've been focused on continuing to build out our product. You know, I mentioned Global HCM that works for all countries. We continue to onboard for that. we actually process native payroll in four other countries other than the U.S., which includes the banking side of it. And so we're continuing to do that. And this is one of those steps that you take to be able to continue to move further into Europe.

Thank you. Our next question comes from Daniel Jester from BMO Capital Markets. Please go ahead.

Great.

Thank you very much for taking that question maybe just another one on the the product side um you also talked this quarter about um getting some credentialing on the background screening side i guess is that a incremental revenue opportunity or how should you be thinking about that yeah so we've been in pre-employment services for a while now in fact i think we're uh you know from a size perspective we're one of the largest out there right now and so that's been a part of our business for a while uh you know we've continued to get more and more of our clients on that. I would say that I don't know of a better pre-employment service than pay comms as far as a quick return and its accuracy so you know that was confirmed obviously by receiving this accreditation and that's just you know something that allows us to have a proof source for how well our products doing for our clients but also as we move forward and sell other clients, you know, there's no reason for them not to switch pre-employment over.

That's great. Thank you. And then in the script, you talked about a boomerang client who left and came back. I guess you have specific programs targeting some of those customers that may have churned over the past few years.

Our best prospects sometimes are clients that left because they didn't solve the problem. You know, it's oftentimes just the thorns pulled out of the paw and you didn't really come with a full solution and i mean at the end of the day clients of ours who are using our products as they leave and try to uh go to other companies for maybe they got sold something shiny or maybe it's a a cost type thing you know at the end of the day uh you know when you look at total cost of the system you have to include both what you're paying as well as the roi that it delivers to you and the value that you're achieving and when that's real and you leave you know, and it doesn't work out, you look to come back. We're also focused on that. We want every client to come back. I mean, there's no questions asked on our part. Let's get going, you know. And so we do have a strategy to get clients that have left back. We also have a strategy to make sure that clients are receiving the value so that they don't have to go through that pain of a conversion to just to turn around and come back to us. And so that remains a part of our overall strategy. It has. And, you know, we're having a lot of success with that.

Thank you. Our next question comes from Jared Levine from TD Cowan. Please go ahead.

Thank you. Just in S&M have limited sequential growth relative to recent years and haven't really seen too many TV commercials in recent months. Can you talk about how advertising spend is expected to impact FY25 margins?

And is there any new strategies surrounding advertising spend right now uh yes i mean we are still continuing to spend uh brand advertising which is more what you're talking about uh with commercials and things on tv we're also doing a lot more direct uh as we continue to move people uh down the funnel we have deployed uh different initiatives uh through marketing and advertising that we have not done previously that are have we're having more success with as well. But I mean, to the extent we were a little light in first quarter on marketing spend, you know, it'll be up more in subsequent quarters before as well. We're not reducing what we're doing in marketing and advertising, but you will have some timing here and there based on those spends, especially now that we're doing more direct than what we've been doing in the past.

And then just wanted to clarify in terms of ex-flow growth gains for the year. Can you dig into why the 4Q ex-flow growth would be the highest for the year?

Yeah, I mean, as we continue to go through the year, you know, fourth quarter's always kind of had that opportunity with your additional payroll runs, which, again, are hard for us to necessarily forecast right now. But we do have, you know, placeholders for that. I think you saw fourth quarter last year was also one of our largest growth quarters. And so, you know, and also I would say traditionally, you know, first quarter has been, was like that for quite a long time. But with our first quarter forms business, it just doesn't grow at the same level with the rest of our business. Meaning, you know, at the end of the year, we've pretty much done ACA, W-2s, and 1099s for about 10 years now. We haven't added any additional annual services to that. And I believe the fees are the exact same that they were 10 years ago still. And so, meanwhile, the rest of our business with the products that we make and sell, it continues to grow disproportionately to those forms of business in the first quarter. And so you've been kind of seeing a little bit of a trend of that in regards to fourth quarter because of those additional payroll runs.

Thank you. The next question comes from Babin Shah from Deutsche Bank. Please go ahead.

Great. Thanks for taking my question.

Chad, just back to the authorization you received to be a payment institution in Europe. but what are the next steps that you're looking for to accomplish to go further into that region and then how do you kind of thinking about your go-to-market strategy your product strategy internationally as you progress kind of down the path in our global market strategy right now is focused on us-based companies that have locations employees and operations in other countries as we continue to build out our systems and as it makes sense for us to go in-country to make sales locally to those. That's something that we'll be deploying at the right time. For now, this allows us to move money throughout Europe. The last yard of a payroll is actually getting it into the employee's account correctly. And, you know, if you do everything else right, you don't do that part. You kind of did nothing. So for us to make sure that we ensure the highest quality for all of our clients, you know, we like to keep the ball in our hand. And this is something that's required to do that.

That's helpful there. Just one quick follow for Bob. Just on the flow guidance, can you just remind us what's embedded in terms of rate cut expectations? Thanks so much.

We had two rate cuts embedded in the guidance, one in June and one in December.

Thank you. The next question comes from Joshua Riley from Needham & Company. Please go ahead.

Hi, this is Ian Black on for Joshua Riley. Thank you for taking my question. How is gross retention trending given the improving customer satisfaction and the lapping of any churn from the shift of betting?

Yeah, so, you know, we do report retention once a year. Obviously, it's reflected the net of it is reflected in both of our uh current quarter achievements as well as any future guidance you know we did talk about on the call how our net promoter continues to go up and also that we are continuing to see more utilization of all of our products as we've removed more and more impediments to good usage all of that is meant to have a positive impact on our retention so you know Those are all early indicators of things that we would expect to be reporting at the end of the year.

Thank you.

Thank you. Our next question comes from Siti Panagrahi from Mazuho. Please go ahead.

Hey, it's Phil on for Siti. Just a quick one from me. Are you guys seeing any shifts in how your competitors are positioning on price or discounting in the market? it.

Not any different than anything we've seen in the past.

Got it. Thank you.

Our next question is Brian Schwartz from Oppenheimer. Please go ahead.

Thank you for taking my questions this afternoon, and I start to the year. Chad, in terms of maybe more of a real-time question on what you're seeing in terms of demand. Clearly, the macro pressures did not impact the business at all in one queue. But how was the business faring in April when those macro pressures intensified? And I have a follow up for Bob.

Yeah, I mean, we're just not seeing it right now. I mean, again, I wouldn't say we're overexposed to any one industry or any one employee size necessarily. We definitely don't and have overexposure to the small business side. You know, I will just say, I think there's a lot of different movements and I think as you have different tariffs and what have you, you know, businesses will maneuver and they'll maneuver to, you know, what makes sense for them. And so I think there'll be a lot of that at play as we move on. I think it's important to keep in mind, although our direct exposure is low and we're not seeing anything. I mean, we're not seeing anything. You know, anything that impacts our clients, I mean, it will eventually impact us, but that would have to be somewhat reflected through reduction in force. And so I think you would have some leading indicators to that. And right now, we just we don't have anything to call out.

My follow-up question for Bob, given the greater operating efficiency that you're realizing internally from AI, has that made you change the hiring plan for the year?

Thanks. no we've had an ai plan and a full automation plan for a little bit now and uh so our hiring plans did change but not for what our expectations were uh this year we've been able to repurpose people in different areas i do always want to i do want to make a point on this though with all the automations that we've done on the back end we will always have a high touch service model we do have a high touch service model and we're putting a lot of resources into our people to make it easier for them to service our clients as well as allow the clients to get more value out of the product without having to you know crawl through something to get it and so we've been very focused on that with greater automation obviously we can do things quicker and it doesn't require the same type of labor commitment to it. That said, when you have great people and you do have an opportunity to put them in places that can make impacts, we look to do that. So oftentimes, to Bob's point, Bob made the point early in this call, it's oftentimes where we just don't need to hire as many people in certain areas. There are areas within PACOM that continues to grow at a rate equal to or larger than it has in the past when you're looking at areas like sales or you're looking at areas like software development and those types of areas. And then there's other areas which were more administrative on the back end, which are, you know, those were being automated. I mean, I'm telling people, I mean, if you're inputting something into spreadsheets and out of spreadsheets and all that, I mean, that's going away. It's going away and it'll end up going away everywhere. So get a skill set that's not that. And that's what we're focused on. And so we're that type of business. We create value for our clients when we automate. We create value for ourselves when we automate. And that's what we've been focused on for quite some time now. And it's rolling out. It's actually rolling out. It's not just a goal. We're actually achieving it rolling out throughout the product as well as our back end thank you this concludes the question and answer portion of today's call so i will now turn the call back over to mr chad richardson for closing remarks i want to thank everyone for joining our call today and i want to thank our employees for all their hard work and their commitment to paycom success we'll be participating in several investor events this quarter including the needham virtual technology and media conference on May 12th. Then on May 28th, Bob and James will be attending the Jeffries Software Conference in Newport. And finally, on June 3rd, we'll be presenting at Baird's Global CTS Conference in New York City. Thanks for your interest in PACOM, and operator, you may disconnect.

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