Paycom Software Q2 2021 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2021

Key Takeaways

  • Delivered a strong Q2 2021 with revenue of $242.1 million, up 33.3% year-over-year, and adjusted EBITDA of $87 million, up 42%, prompting an upward revision to full-year guidance.
  • Launched “Betty,” a self-service payroll tool that puts payroll control in employees’ hands; rolled it out to 100 pilot clients in Q2 and opened it to all clients on July 6, with 1,000+ deployments to date driving higher accuracy and transparency.
  • Expanded proactive outside sales coverage from firms with 50–5,000 employees to those with 50–10,000 employees to capture larger HCM opportunities and reflect growing up-market demand.
  • Maintained robust non-GAAP metrics—98% recurring revenue, adjusted gross margin of 85.4%—and repurchased 94,000 shares ($32 million) in Q2, leaving ~$300 million under its share buyback program.
  • Continued aggressive marketing and R&D investments and signed a 15-year naming rights partnership for the Oklahoma City Thunder’s new arena, now the Paycom Center, to bolster long-term brand visibility.
AI Generated. May Contain Errors.
Earnings Conference Call
Paycom Software Q2 2021
00:00 / 00:00

There are 12 speakers on the call.

Operator

You for standing by, and welcome to the Paycom Software Second Quarter 2021 Quarterly Results Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer I would now like to hand the conference over to Mr. James Sanford. Thank you.

Operator

Please go ahead.

Speaker 1

Thank you. Welcome to Paycom's Q2 2021 earnings conference call. Certain statements made on this call that are not historical facts, including those related to our These forward looking statements represent our outlook only as of the date of this conference call. While we believe any forward looking statements These risks and uncertainties are discussed in our filings with the SEC, including our most recent annual report on Form 10 ks and our most recent quarterly report on Form 10 Q. You should refer to and consider these factors when relying on such forward looking information.

Speaker 1

Any forward looking statement made speaks only as of the date on which it is made, and we do not undertake and We 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.

Speaker 1

I will now turn the call over to Chad Richison, Paycom's President and Chief Executive Officer.

Speaker 2

Chad? Thanks, James, and thank you to everyone joining our call today. I'll spend a few minutes on the highlights of our 2nd quarter 2020 one results and the opportunities we are pursuing as we look ahead. Following that, Craig will review our financials and our guidance and then we will take questions. We delivered very strong Q2 2021 results with revenue of $242,000,000 that grew 33.3%, our The upside from the quarter was primarily a result of broad based demand strength from new client adds and consistent cross selling to existing clients.

Speaker 2

Our 2nd quarter adjusted EBITDA was $87,000,000 representing an increase of 42% over the prior year period. With these strong results, we are once again raising our full year guidance, which Craig will discuss in more detail. The investments we make in our products generate tremendous value for our clients and drive our differentiated employee strategy. Our newest employee innovation is Betting, The industry's first self-service payroll technology allowing employees to do their own payroll, which we officially rolled out to the market in early July. Betty, which stands for Better Employee Transaction Interface, is an employee driven payroll experience and represents one of the most important advances we've made to date.

Speaker 2

With Betty, employees do their own payroll, which allows our clients to benefit from increased payroll accuracy, while employees gain full insight to their Paycheck including advanced knowledge of take home pay and how it's calculated. Employees have a direct connection to their paycheck to resolve errors well before payday, So they don't have to wait on or contact anyone for assistance. The additional clarity on how their pay changes and is calculated combined with automatic alerts when items Feedback, including a VP of HR who said Betty is the most revolutionary payroll product I've ever seen. Another comment from a Chief HR Officer Noted that Betty is giving ownership of payroll to employees and managers, which is great because they know better than anyone what their paycheck should be. As we said during our Q1 earnings call, we are planning to have 100 pilot clients on Betty in the 2nd quarter And we easily achieved that goal.

Speaker 2

On July 6, we opened up Betty to all clients and through the end of July, we've already over 1,000 new and existing clients. I continue to expect that all Paycom clients will eventually deploy Betty. It's the only way payroll should be done. Our marketing plan continues to deliver strong demo leads and we intend to spend aggressively in the coming quarters to fuel future revenue growth And further expand our market share in a large and expanding HCM-ten. Our messaging continues to resonate with prospects As we contrast the shortcomings of disparate HCM Systems with the value proposition of Paycom's single database solution and self-service capabilities that are stronger than ever.

Speaker 2

Employees expect their HR software to be efficient and easy to use and once again We had record high employee usage rates in Q2 as measured by our direct data exchange or DDX. We continue to enjoy to have success below our target range. Due to the technological advances we've made and the demand that's building around our employee self-service initiatives, We continue to be pulled further up market as well. As a result, we are pleased to announce that we are expanding our proactive outside sales efforts from targeting firms with 50,000 to 5000 employees to targeting firms with 50,000 to 10000 employees. We've had success selling to organizations historic range driven by larger company demand.

Speaker 2

This change we are announcing today empowers our sales representatives to proactively target in this expanded segment and we are excited by this incremental opportunity. We have clients in this segment already, so we're confident that our solution will compete and serve these clients On the Paycom branding front, we recently signed a 15 year naming rights partnership with the Oklahoma City Thunder that will transform their downtown home into the Paycom Center. Oklahoma City is home to thousands of our employees And I'm happy that the Paycom Center will be home of the thunder. We have now lapped a tough pre pandemic year over year comparison. In Q2, it is more reflective of our historical Record new client additions over this past year driving our growth.

Speaker 2

While we saw a very small headcount improvement in our pre pandemic client revenue base, Our guidance in future growth initiatives are not reliant on any employment improvement. In summary, Q2 was a very strong quarter that reflects The strength of our execution throughout the pandemic and the investments we've made to further distance ourselves from the competition. Innovation, customer service and new client growth Represent the foundation of our long term revenue growth strategy and with only approximately 5% market share of a growing TAM, We continue to have a long runway ahead of us. I want to thank all of our hardworking and dedicated employees for their resilience and commitment to winning. With that, I'll turn the call over to Craig for a review of our financials and guidance.

Speaker 2

Craig? Before I review our second quarter 2021 results and our outlook for the Q3 and full year 2021, I would like to remind everyone that my comments related to certain financial measures will be on a non GAAP basis. We are very pleased with our 2nd quarter results with total revenues of 242 point $1,000,000 representing growth of 33.3 percent over the comparable prior year period, driven primarily by broad based strength with New client wins and consistent cross selling to existing clients. Within total revenues, recurring revenue was $237,600,000 for the Q2 of 2021, representing 98% of total revenues for the quarter and growing 33 point 5% from the comparable prior year period. Total adjusted gross profit for the 2nd quarter was $206,900,000 representing an adjusted gross margin of 85.4%.

Speaker 2

For 2021, we remain on target for adjusted gross margin to be in the range of 85% to 86%. Adjusted total administrative expenses were $136,000,000 for the 2nd quarter as compared to $106,000,000 in the Q2 of 2020. Adjusted sales and marketing expense for the second Strong demo leads both within and outside our historical target market range of 50,000 to 5000 employees. We plan to continue to invest in marketing throughout the remainder of 2021. And as Chad mentioned, we have increased our target market range to 50,000 to 10000 thus empowering our outside sales representatives to proactively target larger companies.

Speaker 2

Adjusted R and D expense was $26,200,000 in the Q2 of 2021 or 10.8 percent of total revenues. Adjusted total R and D costs including the capitalized portion were $38,000,000 in the Q2 of 2021 compared to $27,700,000 in the prior year period. We continue to be very pleased with the high quality innovation we are seeing from our investments in R and D and we'll continue to aggressively recruit talent in R and D to drive our future growth. Adjusted EBITDA was $87,000,000 in the Q2 of 2021 or 35.9 percent of total revenues compared to $61,200,000 in the Q2 of 2020 or 33.7 percent of total revenues. Our GAAP net income for the 2nd quarter was $52,300,000 or $0.90 per diluted share versus $28,600,000 or $0.49 per diluted share in the prior year period based on approximately 58,000,000 shares in both periods.

Speaker 2

Non GAAP net income for the Q2 of 2021 was $56,500,000 or $0.97 per diluted share versus $35,900,000 or $0.62 per diluted share in the prior year period. We expect non cash stock based compensation for the Q3 of 2021 to be approximately $25,000,000 to $26,000,000 For the full year, we anticipate non cash stock based compensation will be approximately $95,000,000 to $100,000,000 For 2021, we anticipate our full year effective income 6% to 27%. Turning to the balance sheet. We ended the Q2 of 2021 with cash and cash equivalents of $202,400,000 and total debt of $30,000,000 related to construction at our corporate headquarters. Cash from operations was $57,000,000 for the 2nd Reflecting our strong revenue performance and the profitability of our business model.

Speaker 2

The average daily balance of funds held on behalf for clients was approximately $1,600,000,000 in the Q2 of 2021. During quarter of 2021, we repurchased approximately 94,000 shares for a total of roughly $32,000,000 Through June 30, 2021, Paycom has repurchased over 4,200,000 shares since 2016 for a total of approximately $455,000,000 and we currently have roughly $300,000,000 remaining in our buyback program. Shifting to guidance. We are pleased to provide strong third quarter guidance that reflects the robust performance we achieved in the first half of twenty twenty one and we are raising our full year 2021 outlook as a result. Our Q3 and full year guidance are as follows.

Speaker 2

For the Q3 of 2021, we expect total revenues in the range of $249,000,000 to $251,000,000 representing a growth rate over the comparable prior year period of approximately 27% at the midpoint of the range. We expect adjusted EBITDA for the 3rd quarter in the range of $87,000,000 to $89,000,000 representing an adjusted EBITDA margin of approximately 30 to $1,030,000,000 up from $1,017,000,000 to $1,019,000,000 or approximately 23.2% Year over year growth at the midpoint of the range. We expect full year adjusted EBITDA in the range of $410,000,000 to 412,000,000 representing an adjusted EBITDA margin of approximately 39.6% at the midpoint of the range. When combined, we now expect revenue growth and adjusted EBITDA margin to easily exceed the rule of 60% this year. To conclude, we are very pleased with the performance in the quarter, which gives us increasing confidence in our outlook for the remainder of the year.

Speaker 2

With the launch of Bevy, an expanded target market and a deep product development pipeline, we have a long runway ahead of us to continue to deliver rapid growth for years to come. With that, we will open the line for questions. Operator?

Operator

Thank you. Your first question comes from the line of Raimo Lenschow with Barclays. Please go ahead.

Speaker 3

Hey, first of all, congratulations. That was an amazing Quarter and amazing return to high growth. Chad, quick question on the decision to go towards like The 50000 to 10000 employee clients now, historically, you were always a little bit hesitant because sales cycles there Seem to get more complex, slightly longer, etcetera. How do you manage that process? And can you still do it with the same sales force?

Speaker 3

And then I had one follow-up.

Speaker 2

Sure, Raimo. And so if you remember, it was about 3 years ago, our range at that time was 50 to 2000 employees. We continue to be And so at that point in time, we made it official allowing our employees to target, pro Actively target companies of that range because again, we've been pulled more up market. Same things happened here up to 10,000. We continue to be pulled further up market.

Speaker 2

I would say that the buying criteria for companies of that size has changed. We're all working with the same type of employee. There's no such thing as a large market employee and a small market employee. You can work for a 300 employee one company and work for a 10,000 employee company the next. And so we're providing a very easy to use standard way for employees to interact with their data and we're finding it easier to work with larger businesses as they look Displace multiple disparate systems with 1.

Speaker 3

Yes. Okay, perfect. Makes sense. And then on Betty, like If you think about the 1,000 accredited and 1,000 clients already signed up, like what has been the feedback so From those clients, what were some surprises maybe that you've seen there and that you can utilize for the rest of the client base? Thank you and congrats again.

Speaker 2

You bet. And so employees like I've been saying, employees pretty much fly blind into every payroll. They do the work, they clock in, clock out, put in their Expenses, manage benefits, manage time off and everything else and then they get blindfolded before payday and then they get to find out on payday what it meant. I mean, it's Similar to blinding the pilots right before they land. And so what we've done is taken that blindfold off to where employees understand how their Checks are calculated and they can help the payroll department have perfect payrolls because there's not a payroll person out there that doesn't have anxiety going

Speaker 4

into each payroll day because they want

Speaker 2

it to be perfect. And going into each payroll day because they want it to be perfect. And so what Betty does is help everybody Get to the right level of accuracy and it also eliminates a lot of the after fact manual checks, voids and adjustments That oftentimes clients have to do after an employee's check is incorrect and we know how important it is for employee's checks to be perfect. They expect it. So we're having a lot of success with it and I would expect us to continue that.

Speaker 3

Perfect. Thank you.

Speaker 2

Thank you.

Operator

Your next question comes from the line of Samad Samani with Jefferies. Please go ahead.

Speaker 5

Good evening and I'll echo the congrats on the 30% plus growth. It was great to see that come back. So Chad, maybe first question for you. Just want to think about it sounds like cross selling was much more mentioned more often on this call. And I think historically, we tend to say customers adopt Dave, that's upfront.

Speaker 5

So can you help us understand why cross selling is becoming a bigger motion? Is that primarily Betty or is it across the portfolio?

Speaker 2

Yes. I couldn't say that our cross selling today as a percentage is more of our revenue than what it's been in the past. I would say on a percentage basis still cross selling for the biggest percent of our revenue was during that year of ACA, Where again everybody had to take it. I do believe that we're going to be having 3 or 4 quarters here, some pretty good cross selling As we move everybody over to the better employee transaction interface, which is Betty. Also as we're selling new onboarding new clients now, Betty is a part of that.

Speaker 2

And so our sales reps Betty comes with the payroll package now. It is an additional fee for that, but it Is it included on every quote moving forward for new businesses as we believe this is the way businesses win and achieve their return on investment with our As it relates to the payroll side of what we do.

Speaker 5

Great, really helpful. And then maybe as a follow-up to that, How much how you think about it in terms of better new bookings versus this uplift VIBETI versus Recovery in the installed base when we as we think about maybe the strength in the quarter?

Speaker 2

Sure. Well, in regards to BEAT and BEDI, BEDI had Very little to 0 impact on 2nd quarter. I talked about on our May call that we would be looking to put 100 clients on it that quarter. We achieved that I think within the 1st couple of weeks and then we held, we went through that and then on July 6, we actually released it to All other clients. So that was within this quarter.

Speaker 2

So Betty would have played 0 impact as it relates to last We do think it's going to be a part of our differentiated strategy moving forward. So new logo ads as usual is What contributes to our growth followed by upsells to current clients. As far as macro, we've been going through this now for a little bit. I've been talking a little bit about us having some improvement with the pre pandemic client base as far as this quarter. I'd say we saw an improvement in hiring During this past quarter and the impact that it had on our revenue for this quarter from our pre pandemic client base Was $1,000,000 to $1,500,000 for the quarter.

Speaker 2

So that's about $100,000 worth of weekly improvement On that number that we had talked about prior.

Speaker 5

Great. Appreciate the questions and congrats again on the strong results. Great to see.

Speaker 2

Thank you.

Operator

Your next question comes from the line of Brad Reback with Stifel. Please go ahead.

Speaker 2

Great. Thanks very much. Chad, as your salespeople have the opportunity to move further up market, do

Speaker 6

you think that changes the Sales cycle length and if it does length and how do you manage that?

Speaker 2

I don't. I mean a little bit, it's hard for me to say that A 5,000 employee company sales cycle is going to be the same as a 150 employee Company sales cycle, I will say the 5,000 employee sales cycle is the same as a 10,000 employee sales cycle. So I don't know that there's some major differences between the two of those as far as what their sales cycles would be. We're still not looking to engage with long sales cycle that requires us to link up with The Bolt Dispirit Systems, so somebody has to be a fit for us to go into that. Something else I would say is we continue to have Down market, we continue to aggressively achieve our lead volumes and they continue to go up.

Speaker 2

And Oftentimes, those leads are also small business. And so 1st of this year, we had 4 sales teams and that was up from 1 The previous year, throughout this year, we've added another 6 inside sales teams. And so now we're at 10 inside sales teams, which sell The emerging business, so that would be the below 50 market. So we continue to do extremely well below 50 and we continue to be a pulled up market because again it's the same employee interface whether you work for a 15 employee company or whether you work for a 10,000 employee company, those employees expect ease of use and easy access to their system. And so we're seeing a lot of momentum being created based off of employee usage, needs And how much it makes it easier for them.

Speaker 6

That's great. And then one quick follow-up on Betty. Can you help us on the monetization? I'm sorry if I missed it. What type of uplift do you get from an existing customer that's adding Betty?

Speaker 6

And Ben, on net new, what type of uplift?

Speaker 2

Yes. And so we've added products in the past where We got 100% usage very quickly and I'm thinking of BDX and Manager on the Go and those were products that we just included in our pricing with Betty. It is Pricing product, even though it's now included on every single payroll deal. We believe our pricing is competitive, so I don't like to just put it out there. You may be able to find it out there.

Speaker 2

But All I would say is it's reasonably priced like many of our other modules.

Speaker 6

That's great. Thanks very much.

Speaker 2

Thank you.

Operator

Your next question comes from the line of Mark Marcon with Baird. Please go ahead.

Speaker 7

Hey, good afternoon. And let me add my congratulations. With regards to the rapid ramp terms of the clients that are using Betty, with the 100 that first came on, can you talk a little bit about like what sort of Experiences they were seeing, just did it really ease the or Increase the accuracy that they ended up experiencing? Are you getting any feedback from clients about, hey, Our payroll department doesn't need as many people. And how easy was it to lift, You opened it up on July 6, and now you've got over 1,000 on Betty.

Speaker 7

How easy was it to convert them to Betty?

Speaker 2

Yes. And so well, it's better you're already on it. It's something that we turn on for you. But what we have to work with you to convert your processes. You've got a lot of these processes that happen after the fact.

Speaker 2

We need to have those happen at the beginning or during the payroll transaction. And once you do that, a lot of the process You'd normally do after the fact are irrelevant. We're able to displace those. And so we eliminate a lot of processes. And then with some of the processes, we move them into earlier in the processing phase.

Speaker 2

And so but an answer to your question, we hadn't had anybody turn it off. Once you turn it on and that's what your employees are doing, you have a very high satisfaction rate with employees and you have a very Strong ROI, Betty itself 100% pays for itself. And it actually helps even pay for the payroll, the entire payroll module. There's an incredible amount of ROI when you're not having to do manual checks, voids, adjustments and wire money into employees' accounts to cover And SF fees they may have because their payroll was wrong. And so it also gives employees a visibility into what their checks going to be.

Speaker 2

A lot of people live check to check. I mean over 80%, 85% of the U. S. Employee lives check to check and They need to know exactly what the pay is going to be and if it's $30 off, that's a big difference for them. And so that it gives them visibility long before Check date gives them the ability to interact with their check to make sure it's accurate, which again increases ROI for the business, It also lowers the businesses exposure and certain risks associated with paying people.

Speaker 2

There's some pretty specific laws on making You pay your employees correctly and that you pay them on time and with Betty that's easily achieved.

Speaker 7

That's great. And did all of those clients have time and attendance already set up or did Some of them have to add that.

Speaker 2

That's a great question, Raimo. I would expect that most of our first Sorry, Mark. Sorry, Mark. Mark, I would expect that most of our clients already had Time and attendance because we'd like to go through there and get the ones using quickly that are already ready. Now I would say most of our clients At Paycom already have time in attendance, but you are right, there will be certain modules that as we go to move Betty would be required for a client to implement.

Speaker 7

Great. And then one last one, just on the increasing The target range from upper limit of 5000 to 10000 would be when you first expanded from 2000 5,000? How many of those 5,000 employee companies were kind of like inbound and kind of approaching you guys? Obviously, you've got a Great marketing campaign that's been very successful. I imagine that's drawn a number of inquiries.

Speaker 7

But can you talk about like how much That is being pulled in as opposed to being pushed.

Speaker 2

Yes. I mean, we do not have strategy for companies above 5,000. We do targeted prospecting and our targeted prospecting strategies had been 3 years ago, they Companies below 2,000 and then we moved that to below 5,000 which we've experienced for the last 3 years. And now we're moving it to 10,000. And what that means is we'll start proactively targeting these.

Speaker 2

We have continued to have people call us Of employee sizes in that range. And again, the more that we've had, we've continued to move up our market. And so what it allows us to do now Is due targeted prospecting toward those and as salespeople make calls, they're able to proactively make those call. Sales reps have always been able to make a proactive call. Sales rep can go out there right now and sell a 50,000 employee company.

Speaker 2

I don't care. But as far as what we are our targeted prospecting efforts are toward those companies now that have between 50,000 and 10,000 employees and then in our more small business or emerging type companies, it would be for those that are also below 50.

Speaker 7

Great. Congratulations.

Speaker 2

Thank you.

Operator

Your next question comes from the line of Daniel Jester with Citi. Please go ahead.

Speaker 8

Great. Good afternoon. Thanks for taking my questions. It seems like every day there's a new story about how tight the labor market is. So I'm just wondering if you could talk about Sort of how the Tate labor market may or be or may not be impacting inbound demand that you're seeing?

Speaker 2

Inbound interest that we're seeing?

Speaker 8

Yes, that's right.

Speaker 2

Okay. Okay. Got it. Your last part there cut off. Well, I mean, definitely, I think it plays a role.

Speaker 2

We've done a lot of surveys that employees like Easy to use technology at work. I've said employees shouldn't have to work to work. And so you definitely have a frustrated employee base if you have Multiple pieces of technology that are difficult to use. Also, it's a hunt for talent out there. You want to retain your good employees.

Speaker 2

That's a must. Good technology helps you do that. You also need to deploy pretty good technology on the talent acquisition side because everybody's in a dog Fight for talent right now. It's a very tight labor market. So I do believe that there's some of that in there.

Speaker 2

But everything shifted To this digital transformation and the right way to do something and it only makes sense that employees would be the ones engaging with their data. And We're having success with that. But I think the labor market might be tight for a while here. We'll kind of see what happens after that. As far as our business, because of our new business adds, we've really what we've needed stability And we've had that since the summer of last year.

Speaker 2

We just we needed some stability within the labor market. And so I don't think even if There's different situations with the pandemic as we go through the remainder of this year. I still believe that we're dealing with So I don't feel like the macro on the go forward is going to impact us like it had Provided that we have some stability here and it looks like we will from an employment perspective.

Speaker 8

That's great. And then just as a Follow-up, you've been selling virtually for like 18 months now. You talked about adding 6 inside sales teams. I'm just wondering if you can kind of reflect on once we actually do get back to a normal environment, does this change your philosophy about adding new sales officers?

Speaker 2

No. No, I mean, it's timing. We're just now our managers are getting back into the office and throughout The rest of this year, people are going to be filtering back into our offices as we go back to the office To do our selling. As far as what type of model and hybrid model we're going to be using, we've been paying attention to why We've also been paying attention to how prospects buy. So we're going to be supporting the methods That best help both the prospect as well as us be able to, in our case, display What our product does and in their case have a clear understanding of what the ROI is for them.

Speaker 8

Great. Thank you very much.

Speaker 2

Thank you.

Operator

Your next question comes from the line of Brian Schwartz with Oppenheimer. Please go ahead.

Speaker 4

Yes. Hi. Thanks for taking my questions and congratulations on a great Quarter. Chad, maybe if I could just start there on the quarter. Can you shed any light on just how the bookings or the business activity trended In the quarter, just how the linearity was, we'll start from there.

Speaker 2

Yes. I mean, we've had really strong bookings since April of last year, things kind of took off and we were doing well anyway. But I mean, we've had very strong bookings. In fact, These last 2 weeks that we just had here in July, these last 2 weeks, that's the largest number we've put up ever in bookings. And so bookings have been strong as we've continued to push a differentiated strategy that's Getting a lot of momentum here in the marketplace.

Speaker 4

Thank you. And then Chad, one question I had just on the Target Expansion move here. I'm just wondering if there's any industry verticals that would have, I would Think about, fewer organizational complexities to them and therefore would just be right for Betty and more likely Switch to self-service when you target?

Speaker 2

Yes. I mean, I really look at it as it's a product for everybody from the employees' perspective. I would even say that the more complex it is, the more you need to deploy Betty. The more data points you have on a check, The more important it is to deploy something like Betty. So I'm not going to say that any specific vertical or Either easy or complex type of company that Betty would be best for.

Speaker 2

I think it's best for everybody and it's 100% best for the American worker to have a product like this to where they can engage themselves with their data And something that's going to significantly impact their ability to work their financial plan.

Speaker 4

And then last question for Craig, just on the marketing and advertising campaigns. Given the bookings momentum here in the business, the commentary, Wondering if you have any plans to increase your advertising spend here in the second half of the year in support of the Betty product cycle and the current momentum in the business? Thanks.

Speaker 2

Yes. We're going to continue to spend aggressively on sales and marketing. You've seen that in the past, The back half of the year where we've kind of ramped up sales and marketing. So I would expect to kind of see the same for us through the rest of the year. Obviously, in the marketing plans, we've currently baked into our Q3 and full year guidance.

Speaker 2

Thank you.

Operator

Your next question is from the line of Ryan MacDonald with Needham. Please go ahead.

Speaker 6

Hi, this is Michael Rackers. I'm on for Ryan McDonald. Thanks for taking my question. So we've heard from multiple vendors that churn ticked up slightly in the quarter Some of the customers that may have wanted to make a change last year couldn't do so because of the other pandemic driven priorities. Did you experience any similar uptick in churn within your customer base?

Speaker 6

And did you see any more opportunities

Speaker 2

Yes. What I would first say is it's a bad idea to use our competitors when in relation to is a proxy to us, but we do not report either gains or no gains as it relates to retention until the end of each year. What I would say though is that we're having a lot of success deploying Differentiated product, both to new customers as well as to current customers. And those clients that are buying product are staying. And so we're having a lot of success.

Speaker 2

It's a differentiated strategy. And as we continue to have increased DDX usage, where more and more employees are the ones making the impressions on the database and not a intermediary through To another department within the company, we would have an expectation that we would continue to have a strong retention rate with our clients.

Speaker 6

Great. Thank you.

Speaker 2

Thank you.

Operator

Your next question is from the line of Siti Ana Grasey with Mizuho. Please go ahead.

Speaker 9

Hey, guys. This is Matt Simon on the line for Citi. I want to add my congrats for the Solid results. The one question that's come up and we've alluded to it a little bit is around Betty. It was mentioned that there was going to be 3 Four quarters of continued pretty above normal cross selling.

Speaker 9

We also know that Betty necessitates all of the Paycom modules in order To for a client to be eligible for Bedi, can you help us handicap what's really what size of the existing client base has all of those modules? T and A, it sounds like it's pretty widespread. So that we can get an idea of what the magnitude of that cross sell opportunity looks like over the next three

Speaker 2

Sure. And so I do want to say one thing, Betty does not require you to have all of our modules. There's a lot of modules you don't need To utilize Bay, now it would make sense that someone would take the modules, but things like talent acquisition as far as recruiting, Cobra, a lot of our modules, you don't necessarily have to have to run Betty, but it's a good idea that you implement it within your business so that Your employees can use one system. But there are modules that would be required to use BETI like paid Time off, time and attendance, expense management, benefits administration. There are some of them definitely that you're going to want to use them because without them, you wouldn't be able to use, Betty.

Speaker 2

A lot of those are fairly popular products to us, but We have several clients that don't have them. And so I would like to think our sales reps are probably Out there right now, our CRRs are probably working with a lot of those clients that are already ready to go where we just go and click a button, eliminate most of your processes and Shipped a few to the beginning, but I'm sure that we will have our internal sales group, our client relations group Continuing to reach out to clients of all characteristics whether they have all of the products currently required or just partial. So there is an opportunity there for us. As far as handicapping it again, we consider our pricing competitive In nature, but there are opportunities for us out there. I do want to say this though, our revenue gains are going to be primarily driven by new This wins just because of what and I'm saying new logo wins just because of the size of the new logo Compared to the potential upsell of that same logo.

Speaker 9

That's a perfect segue to my next Is there anything that's being done differently or that's being adjusted on the product side To address these 10 ks customers and above, this employees with 10 ks employees and above, it doesn't seem to be the case, but Anything that could be commented on in regards to R and D spend and what's being prioritized for that customer base would be helpful.

Speaker 2

No. There's no we're not doing anything different for a 10,000 employee company that we're doing for a 2,300 employee company.

Operator

Your next question is from the line of Bryan Bergin with Cowen. Please go ahead.

Speaker 10

Hey, good afternoon. Thank you. Question here on Betty. Can you comment on what level of client adoption you're anticipating By the end of 2021 and a clarification on the new sales, I understand it's being included in each deal you bid, but are you seeing near 100% attach On it as well here for the last several weeks?

Speaker 2

Well, again, yes, we just like you said, I mean, we started selling it July 6. And As it relates to new clients, a lot of them would be in conversion. It would be rare that we'd sell a client on July 6, then they would have Started by now, unless they're a smaller business and on the smaller business side, then you definitely could have had some of that. Yes, I mean, because it's the way we're training and setting them up, We're not training you on the old model now. I mean, when you're going through conversion and training, we're training you on how employees do their own payroll.

Speaker 2

We're not training you how you input your employees' data into our system. And so yes, it's part of the conversion and so it would be illogical for me to think that anybody would even try to do it the old way. And also it's included in the ROI. I mean, Now our ROI cases include Betty and it's an important part of the ROI. I mean, you can use Betty and actually it'll pay It can help pay for the entire system depending upon how many true issues you've been having in payroll.

Speaker 2

Payrolls It's a high risk, low reward activity. If you get it right, who cares? Employees expect it. And if you get it wrong, you upset employees, They have NSF fees and then you get to pay tax penalties. And so having perfect payroll is extremely important and it just wouldn't make any sense to me That any client would buy our product without betting.

Speaker 2

And it wouldn't make any sense that they would since they bought it, it wouldn't make any sense that they wouldn't use it because their employees want to use

Speaker 9

Okay. And then just

Speaker 10

a follow-up, a common question we're getting around, Betty, the potential offsets of existing service Can you help kind of frame the magnitude of that work within your business to begin with as far as error correction and things like that? And then clarify your view on the revenue accretion of Betty versus those types of services that might automate away?

Speaker 2

I mean, there's definitely going to be Betty is going to replace some what I'm going to call bad revenue for the client. The client didn't have visibility, the Employee didn't have visibility, so they have to void a check and they have to do a manual, then they have to send a wire. And then to the extent there's A tax event created because it extends a different quarter, a different tax period. You've got to deal with that. And so there are definitely some fees Margin as it read in regards to that, but or higher expense to both us and the client.

Speaker 2

From a Betty perspective, There's not anything we're doing to it on our end and there's not anything the clients having to do. And what I tell clients is, hey, our competitors got themselves out of doing your payroll, We get you out of doing your payroll.

Speaker 10

Thank you.

Operator

Your next question comes from the line of Alex Zukin with Wolfe Research. Please go ahead.

Speaker 11

Hey, this is Alan on Alex, Zukin. I just wanted to drill in on the new business going forward. Obviously, it sounds like you guys are seeing a lot of strength there. I I was wondering if you can help kind of put to context what you're seeing at the lower end of your customer employee range and the top end and kind of how you're thinking about that for the second half? Thanks.

Speaker 2

Yes, I mean, I would say more of the same. We don't really get to dictate what size companies coming in from Lead volume. As we use our advertising assets, you could have a 3 employee company clicking on it that has a pet store and you could have A 10,000 employee company clicking on it. And we're going to be going after those of And have been. And so I wouldn't see how we would expect it to be dramatically different than what we're seeing right now.

Speaker 2

Again, our move up market, we're already there. I'm just announcing it. I mean, we're already there. We're already getting the leads. We're already selling the deals.

Speaker 2

We've got deals larger than 10,000 that are already using our company. So we're just making it more official And kind of flying the flag out there right now that we're open for business and we're going to be targeted prospecting those clients up to 10,000 as well.

Speaker 11

Thank you.

Operator

And at this time, there are no further questions. I will now turn the call Back over to Mr. Chad Richardson.

Speaker 2

All right. Thank you. I want to thank everyone for joining us today on the call. As we communicated internally, we're gradually making our way back to the offices and hope to be back as soon as conditions Safely permit, I want to thank all of the Paycom employees for their perseverance through the pandemic. Over 70% of our After either fully vaccinated or in the process, I'd like to reiterate that I believe getting vaccinated saves lives for every 100,000 fully vaccinated people.

Speaker 2

It's estimated that less than one will lose their life from a breakthrough COVID-nineteen case. Please get your vaccinations and let's end this pandemic. On the investor outreach side, this quarter we'll be presenting at the Oppenheimer Conference on August 10th, followed by the Wolf Conference on September 8th and the Citi conference on September 14. Paycom will also be hosting 1 on 1 meetings in August September at KeyBanc and Piper Sandler Conferences. We look forward to speaking with many of you very soon and appreciate your continued support of Paycom.

Speaker 2

Thank you, operator. You may disconnect.

Operator

Thank you. And this does conclude today's conference call. You may now disconnect.

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