The moderator introduces the Paycom Software Third Quarter 2023 Quarterly Results Conference Call and passes it over to James Samford, Head of Investor Relations. Samford discusses the company's forward-looking statements and notes that actual results may differ due to risks and uncertainties. He also mentions the use of non-GAAP financial measures in assessing performance.

Paycom has delivered strong results in the third quarter, with a focus on innovations that are transforming the payroll and HCM industry. The company has shifted how businesses use core HR and payroll products, including the introduction of do-it-yourself payroll for employees with Beti. Paycom is also expanding its global payroll product to include Mexico and helping clients navigate to this new way of doing things. As a result, two-thirds of clients have already made the shift to Beti, providing immeasurable value to employees by ensuring perfect paychecks.

Paycom has been successful in helping employers measure the full value of perfect payrolls, which has resulted in savings for clients and lower revenue for Paycom. The company's third quarter results showed solid revenue and earnings growth, although it was slightly below their guidance range due to lower service revenues and unscheduled payroll runs. The focus on Beti adoption and system usage has led to lower cross-selling revenues.

In the third quarter of 2023, the company saw strong financial results, including a high margin, increased net income and adjusted EBITDA, and a significant return of capital to stockholders. The company also continued to invest in sales and marketing and research and development, and expects a strong balance sheet for the rest of the year.

In 2023, the company has seen an increase in usage and macro headwinds from inflation, leading to moderating upside to their guidance model. They expect fourth quarter revenues to be in the range of $420 million to $425 million, with adjusted EBITDA in the range of $169 million to $174 million. For the full fiscal year, they expect revenues to be in the range of $1.679 billion to $1.684 billion, with adjusted EBITDA in the range of $712 million to $717 million. The company is still on track to reach the Rule of 65 in 2023 and has strategic initiatives planned for 2024 to further strengthen the value for clients. Their focus is on achieving client value, and their guidance for the next 15 months takes into account strategic revenue decisions being made.

The company has set expectations for 2024 year-over-year revenue growth between 10% and 12%. More clarity will be provided in February. The Beti impact has been significant and has continued to increase throughout the year. The company has been close to its guidance every quarter. The impact of Beti has been seen in unscheduled runs to correct payrolls, CRR impact, and pre-employment services.

The speaker is responding to a question about the projected growth in 2024 and how it will affect the company's cost structure and sales headcount. They mention that they have not given any guidance on the cost structure and that they are just giving an indication of how 2024 may shape up. They also mention that outside and inside sales remain strong and that cross-selling with their CRR group continues. The next question asks if there will be any ERTC revenue in 2023.

Chad Richison, CEO of a company, addresses concerns about the impact of a recent revenue decrease on their client base. He explains that their clients are larger than their competitors' and some have applied for an employee retention credit. He also discusses the impact of efficiency measures and strategic revenue decisions on their growth. He clarifies that strong outside sales and new logo sales have contributed to their 11% to 12% growth, but inside sales have been weak due to cross-selling challenges.

The company plans to work closely with clients to ensure they are getting the most value out of their services. This strategy is focused on the company's base, rather than their go-to-market approach. Demand from small and mid-sized businesses remains strong, and the company is dedicated to onboarding new clients and providing value. There have been no changes in customer retention expectations since the last guidance, and this is not related to the surprise in the third quarter or the adjustment for the fourth quarter guidance.

The speaker, Siti Panigrahi, asks about the impact of Beti on Paycom's services revenue and whether the company has considered potential incremental revenue or raising prices for the new service.

Chad Richison, CEO of Paycom, discusses strategic changes to offset the decline in services revenue from unscheduled payroll. He emphasizes the importance of focusing on client value and mentions the success of the Beti rollout to new clients. He also mentions the potential for growth through new business sales and cross-selling within the current client base. The company's 2024 growth outlook is lower than previous years due to the transition to Beti, but new business sales remain strong.

The speaker discusses a paradigm shift and the impact of Beti usage on different client segments. They mention that the larger the company, the more potential impact Beti can have, but it ultimately depends on how well the company is managing their payroll. They also mention that the old model of charging for fixing mistakes only benefits the payroll company, and that they are now focused on helping clients achieve value.

The speaker mentions that the decisions being made today will lead to progress in the future. They also state that their strategy for Beti remains unchanged and they are actually putting more effort into it. Questions from analysts revolve around the impact of these decisions on bookings and revenue growth. The speaker does not disclose the specific strategic initiatives being taken, but assures that they are focused on maximizing value for their existing clients and not affecting their go-to-market or new clients. They also clarify that the projected 10-11% revenue growth for next year is due to a paradigm shift in their approach with their customer base.

The speaker discusses the company's current focus on its go-to market, which includes outside and inside sales for new logos. They mention a paradigm shift in the industry and their determination to create value for clients and drive shareholder value. The speaker is asked about revenue from international efforts and mentions that they are not giving specific numbers but are seeing growth and will continue to focus on their core market while expanding into other countries.

The speaker discusses the impact of the transition to using Beti for payroll services in Canada and Mexico. They mention that macro headwinds, specifically related to pre-employment services, may affect the fourth quarter and next year. However, they also highlight potential benefits for investors and shareholders, such as increased win rates and cost savings. The speaker emphasizes that this is a temporary period and that they hope to eventually have all clients using Beti for maximum value.

The last question on the earnings call was from Alex Zukin with Wolfe Research. He asked about the breakdown of recurring revenue versus services revenue for the fourth quarter and how it will trend in the future. Craig Boelte explained that there will be a decrease in services revenue in the fourth quarter due to a strategic shift, but some of it will carry over into 2024. Chad Richison added that 50% of clients using Beti have deployed it for their employees to do their own payroll, leading to increased efficiency. There were no further questions and the call ended.

The company will be attending several conferences in the next few months, including the TD Cowen and Needham Virtual conferences in mid-November, the UBS Global Tech Conference in Arizona on November 28, and the Barclays Global TMT Conference in San Francisco in December. They are excited to meet with attendees and the conference call has now ended.

This summary was generated with AI and may contain some inaccuracies.