Paycom Software - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered double‑digit growth and margin expansion: revenue $483.6M (+10.5% YoY), non‑GAAP diluted EPS $2.06 (+27% YoY), and adjusted EBITDA $198.3M (+24% YoY); management raised FY2025 revenue ($2.045–$2.055B) and adjusted EBITDA ($872–$882M) guidance.
• Results beat S&P Global consensus: revenue beat by ~$11.6M and non‑GAAP EPS beat by $0.28; recurring revenue grew 12.2% YoY to $455.1M (94.1% of total). Consensus values denoted with asterisks; Values retrieved from S&P Global.*
• Product catalyst: launch of IWant, a command‑driven AI engine intended to increase usage, satisfaction, and ROI; initial activation started Jul 31 with ~10–20% of clients turned on in the first week, with a plan to activate the entire base through Q3.
• Capital allocation and outlook: cash & equivalents $532.2M, no debt; declared $0.375 dividend payable Sept 8, 2025; CFO reiterated plans to reinvest margin gains into AI/CapEx while keeping free cash flow margin similar to last year.

What Went Well and What Went Wrong

What Went Well

• Strong topline and profitability with raised FY2025 targets: revenue $483.6M, adjusted EBITDA $198.3M (41% margin), non‑GAAP EPS $2.06; FY2025 revenue and adjusted EBITDA ranges increased vs prior quarter.
• Sales execution and product momentum: “Outside sales continues to set records,” and IWant is “the most significant product in our company's history” designed to eliminate navigation and deliver accurate results from a single database.
• Efficiency and margin drivers: adjusted EBITDA margin up ~450 bps YoY to 41%, aided by revenue upside, G&A efficiencies, and timing of marketing spend; focus on automation slowing hiring/backfills contributed to margin strength.

What Went Wrong

• Interest headwind: interest on funds held for clients declined 11% YoY to ~$28.5M (down from $32.0M), and FY2025 assumes two rate cuts with interest revenue of ~$113M.
• Higher investment needs: management will “increase our marketing and R&D budgets in the back half of the year” to support IWant, and CapEx for GPUs/AI infrastructure will be front‑loaded and transitory, tempering free cash flow uplift near‑term.
• Sequential seasonality: revenue decreased sequentially from Q1 ($530.5M) to Q2 ($483.6M), typical seasonality for payroll/HCM, while R&D expense rose YoY to $74.8M as the company leaned into product innovation.

Transcript

Speaker 8

Good afternoon. My name is Tamia, and I will be your conference operator today. At this time, I would like to welcome everyone to Paycom Software's second quarter 2025 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' 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 followed by the number two on your telephone keypad. Thank you. I will now turn the call over to James Samford, Head of Investor Relations. You may begin.

Speaker 6

Thank you, and welcome to Paycom Software's earnings conference call for the second 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 call. While we believe any forward-looking statements made on this call are reasonable, actual results may differ materially because the statements are based on our current expectations and subject to risks and uncertainties. These risks and uncertainties are discussed in our filings with the SEC, including our most recent annual report on Form 10-K. You should refer to and consider these factors when relying on such forward-looking information.

Any forward-looking statement made speaks only as of the date on which it is made, and we do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. Also, during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP net income, 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 Richison, Paycom Software's CEO and President. Chad?

Speaker 7

Thanks, James, and thank you to everyone joining our call today. I'll focus my comments on our second quarter achievements and highlight our latest AI command-driven product, IWAN. I'll then turn it over to Bob for a review of our second quarter results and an update on our full-year guidance. We will then take questions. With that, let's get started. We delivered very strong second quarter results, and we are building on our momentum by continuing to strengthen recurring revenue growth and margin expansion in 2025. Outside sales continue to set records, and we recently released IWAN, the most significant product in our company's history. We already have the most automated solution in the industry, and IWAN delivers even more value to our clients through AI and automation. IWAN will transform a client's relationship with Paycom Software and with its own business.

Hopefully, everyone has seen the IWAN demo we linked in today's earnings press release issued at the close of the market. If you did, you saw numerous use cases for IWAN on the employee, manager, administrator, and executive side of the software. You also saw how IWAN eliminates the need for a Paycom Software user to be trained on our software. With IWAN's command-driven AI, users either type in or leverage voice-activated functionality to command the system, and IWAN is designed to immediately provide the answer with accurate results. This means that navigation and asking others for system information is rendered obsolete. A critical component of AI is the data it pulls from, and because IWAN pulls from Paycom Software's single-database architecture, it eliminates problems created by inconsistent or duplicative datasets. On the manager side, IWAN supports HR teams and organization leaders with instant employee information.

For example, a manager can use IWAN to pull data on when an employee returns from vacation, see who's clocked in for the day, or analyze an employee's pay history. These are just a few examples of the power of IWAN. Before IWAN, executives like myself were dependent upon others to complete reports and provide critical decision-making information. Today, in IWAN's executive mode, executives using Paycom Software now have the information they need at their fingertips, enabling them to be daily users of our solution without ever having to be trained on the system. Just tell it what you want, and IWAN delivers, making executives even smarter and more effective.

Now, I can quickly find any information about my staff available in our single-database architecture because we track the entire employee lifecycle and have data from applicant tracking, onboarding, Paycom Learning, expenses, benefits, time and attendance, payroll, schedules, surveys, and more, all accessible through IWAN. Early feedback has been phenomenal, with clients calling this a total game changer. IWAN's command-driven AI engine will increase usage among non-daily users in our system, and I fully expect IWAN to increase satisfaction and client ROI. Voice-activated command-driven functionality is the future for all software, and Paycom's future started last week. We invest in innovation to increase client value, and this is fueling strong sales for Paycom. Our sales teams continue to set new records every quarter, and I'm very pleased with their strong execution.

Our sales force was recently recognized by Selling Power Magazine as one of the best sales organizations in the country. This is a testament to our sales leadership, training, and culture. Finally, Time Magazine listed Paycom amongst its best companies for a second consecutive year. Newsweek placed Paycom in the top 20 of their inaugural ranking of America's best online platforms and Comparably recognized Paycom for best career growth and best leadership teams. I'd like to thank our employees for their hard work and commitment that are reflected in these awards. We had very strong results in the first half, and we are set up for continued strong momentum for the rest of 2025 and beyond. With that, let me turn it over to Bob.

Speaker 2

Thank you, Chad. Before I review our second 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 very strong second quarter results. Total revenue of $484 million increased 11% over the comparable prior year period, with even faster growth in recurring and other revenue of 12% year over year, reaching $455 million. Interest on funds held for clients declined 11% year over year, as expected, to approximately $28 million in the second quarter of 2025. GAAP net income in the quarter was $89 million, or $1.58 per diluted share, based on 56.5 million shares. Non-GAAP net income for the second quarter increased 27% year over year to $117 million, or $2.06 per diluted share.

Profitability in the second quarter also increased significantly, with adjusted EBITDA of $198 million, reflecting a 24% increase over the prior year period. Adjusted EBITDA margin was 41%, representing a 450 basis point increase over the prior year period. Margin strength in the quarter was driven by revenue upside, efficiency gains in G&A, and timing of marketing spend. We continue to invest in the areas of AI, product, and R&D, and as Chad mentioned last week, we introduced our most innovative development to date, IWAN. Based on the strength of the first half of 2025, I am pleased to report that Paycom Software is in a very strong financial position, and we are raising our revenue and adjusted EBITDA targets for the year. Our balance sheet is also very strong. We ended the second quarter with cash and cash equivalents of $532 million and no debt.

The average daily balance on funds held for clients was approximately $2.6 billion in the second quarter of 2025, up 10% over the prior year period. During the second quarter of 2025, we paid approximately $22 million in cash dividends. Earlier this week, the board approved our quarterly dividend of $37.50 per share, payable in mid-September. We also purchased roughly $33 million of common stock through net downs on vested stock during the second quarter of 2025, and we still have $1.44 billion remaining under our stock repurchase plan. Now, let me turn to guidance for 2025. We continue to have success selling and onboarding new logos. Based on our strong first half results and our outlook for the remainder of the year, we are raising our full-year revenue and adjusted EBITDA guidance ranges.

We now expect total revenue to be between $2,045 million and $2,055 million, up 9% year over year at the midpoint of the range. For the full year 2025, we expect recurring and other revenue to be up 10% year over year, including quarterly growth of approximately 10.5% and 11% year over year in Q3 and Q4, respectively. Our revenue expectation for interest on funds held for clients is now $113 million in 2025, down 10% year over year, assuming two rate cuts later this year. Revenue upside, along with continued automation of HCM and payroll manual tasks, is driving margin improvement for Paycom Software. As a result, we are raising our full-year adjusted EBITDA guidance range to between $872 million and $882 million. This represents a second increase to our prior adjusted EBITDA margin guidance to approximately 43% at the midpoint of the range.

We plan to increase our marketing and R&D budgets in the back half of the year in support of the IWAN product launch and additional innovation focused on AI and automation. Other forward-looking items include full-year GAAP and non-GAAP tax rates of 27% and 26%, respectively, and stock compensation of approximately 7% of revenues. We are pleased to see employees across the organization executing very well, which is driving our solid performance year to date. Our go-to-market and product strategies are working, and we are well positioned to deliver on our raised expectations for the year. With that, we will open the line for questions. Operator?

Speaker 8

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 just a moment to compile the Q&A roster. The first question comes from Raymond Linshaw with Barclays. You may proceed.

Thanks. Two quick questions, and congrats from me as well. The first, Chad, is if I think about IWAN, how do we think about that in terms of, you know, driver for the overall business? Is it just like, you know, it's just a differentiation tool, and that basically helps you kind of against someone that doesn't have that sort of clean data structure that you guys have? You kind of, you know, sell better, and as far as I remember, there's not that many guys out there as clean as you. Do you think eventually down the road there will be some monetization offerings as well? One for Bob. If you think about more AI, it probably means you need some GPUs, et cetera. How should we think about gross margin impacts that potentially could come there? Obviously they need a lot more money and computer. Thank you.

Speaker 7

Yeah, I'll start, Raymond. IWAN is Paycom's voice command-driven AI tool, and it really just revolutionizes how people actually access and navigate a system now. Think of any piece of software or any system in your life that you have to navigate. Imagine just commanding it. We find that that makes it easier for the employees. They don't have to learn a system. They can just go in and command what they need or ask what they need. Employees don't enroll in benefits all the time. There are certain things in our system that they don't do all the time, and there's not a need for them to be experts at it. On the employee side, it automates everything. Same thing on the client side. For me, I'm not a daily user in our applicant tracking system.

If I wanted to get a resume, I had to make a phone call. I'm not a daily user in our benefits administration system. Because I'm not a daily user, because I'm not set up as a user in those systems, I couldn't get access to certain information without contacting people. Now I can get access to anything. I just ask IWAN. It'll go pull someone's resume for me. It'll pull all their past job history, pay history. It'll tell me who's off locked in right now, who's late for work today. Basically, right now, I'm an expert in our system because I'm utilizing the IWAN command-driven tool, which allows me to interact with our system differently.

What's happening is, as we turn this on and activated this for clients, more and more users and executives are actually engaging with the system, and it's eliminating the need for them to communicate with others in their organization or slow down the chain of data moving. All that Bob takes. As far as from a monetization process, this is everything. This is a different way to utilize software. I'm unfamiliar with any other SaaS company that has a command-driven navigation throughout their system. I do think this is going to be a thing for not only our industry, but any type of software where users are currently navigating it. I'll stop that and let Bob answer the GPU question.

Speaker 2

Thank you, Raymond. Yeah, we see that there'll be a need, so we are going to use, we're expanding margins as we've talked about, and we expect those to be up several percentage points throughout the rest of the year. We're going to take that and reinvest that back into CapEx, AI, and equipment. As a result, we do expect free cash flow to be similar to last year.

Speaker 8

Thank you. The next question comes from Mark Steven Marcon with Robert W. Baird & Co. You may proceed.

Speaker 0

Good afternoon. Thanks for taking my questions, and congratulations on a strong quarter. Chad, the product is really slick. I like it. I'm wondering if you can talk a little bit about what the marketing plan is. Is it already turned on with all of your existing clients? If not, what do they need to do? What's the training methodology just in terms of making them all aware of it and how they can use it? How are you going to unfold that in terms of national advertising? Are you going to switch your campaign in order to focus on this?

Speaker 7

All right. The marketing plan for IWAN, first of all, we started turning on our first clients on July 31. We've turned on 10% of our clients so far this week. I would say by the end of this week, we're at 15% to 20% activated. By turning on, IWAN doesn't, you can still navigate our system if you want to. I mean, you can still navigate it if you want to. Most people, once they get on IWAN, they stop navigating it at the employee and other levels. It doesn't, if someone wants to keep using the system after IWAN the way they used to use it, they can. Once IWAN's there, we found that people don't. Activation is about turning it on and making sure people understand what IWAN does.

If you ask it where the closest gas station is to your location, you're not going to get a good response. It's important that people understand how to use IWAN. We go through a list of about 20 prompts once we turn people on and they understand it, and then they're off to the races. We do expect to be able to activate all of our clients throughout the remainder of this quarter. There's not really any lift for the client on this. This gets them easy access. It's almost a reward. It's a reward for our sales reps for all the hard work they've been doing to get us to this point. It's a reward for our service individuals for all the hard work they've been doing. Now they're calling clients with very positive news.

It's a reward for these clients that have implemented these different modules, believe in the single-database architecture, and now they get instant access to all of it without having to be trained or what have you. This will be everything for us in the future. I do see this being the way that every company, and I mean every company that has business-to-business type software or even consumer software, I see this as the way it's going because there's just no need to be trained in a software now that we have new tools available to us. As far as the training, there's not much to it. As far as the national advertising, we're doing a lot of full solution automation. I want to think of that as a way that you access it. You still want to be set up on GON. You want to be having decisioning logic.

You want to be set up on Beti. IWAN is just how you get to access all that. You don't have to become an expert. We're really excited about it into the future, and you know everything we develop now will have an IWAN component to make sure we keep it clean.

Speaker 8

Thank you. The next question comes from Kevin Damien McVeigh with UBS Investment Bank. You may proceed.

Great, thanks so much. My congratulations as well. I guess in terms of IWAN, how are you going to monetize it, Chad? Is it kind of part of a base Paycom? Is it an individual, or is it just a core package you have to adopt based on a certain number of modules? Any way to think about just the pricing and go-to-market motion on it?

Speaker 7

Yeah. I was with somebody in the elevator earlier, and I wanted to look them up and see how long they've been here and what their resume looked like and their job history and everything at Paycom. That requires me to have some modules. One way that IWAN will also expose data that maybe you haven't looked at in a long time, so you're able to see it. If I'm asking IWAN, if one of our clients is asking IWAN for resume information, or if they ask them for prior work history information and they're not on our applicant tracking system, they're not going to have success pulling that information. In one way, it'll help us. I do think there'll be more full solution deployments across our client base so that you get access to it. Another way is we do expect it to increase our sales volume.

It's a revolutionary product. It's easy to use. I do think it's going to, over time, impact our retention as these clients become more engaged in the software and get the full value available to them. IWAN removes all the impediments to value, so now you just get it. You didn't have to work for it as much. We're really excited about what it can do for us on all those fronts.

Speaker 8

Thank you. The next question comes from Steve Enders with Citi. You may proceed.

Speaker 9

Okay. Great. Thanks for taking the question here. I guess just to start, I just want to understand what actually maybe was different versus what you were expecting coming into the quarter because it looks like the upside looks pretty solid versus maybe what we've seen in the past few quarters. I guess, A, what just kind of happened there? Secondly, just as we think about, you know, IWAN and what that means, is there any implications for what that means for, you know, Beti adoption or really need to adopt Beti to get the kind of full functionality of IWAN?

Speaker 7

Yeah. I mean, I think as far as the quarter, we've been talking about record sales, and eventually those things materialize, and they turn into revenue as they start. That's something that we've been focused on. I would say our sales organization's been doing a great job. We've had some outperformance there, and I think you're seeing some of that here. As well as, on the margin side, we continue to see efficiency through our full automation goals. It does slow our pace of hiring a bit and also our willingness to backfill some open positions just because of all of the automation. We're getting some more efficiencies on that too. As far as implications for Beti adoption, it's not required that you've implemented Beti to get value out of IWAN.

I do think that the more of Paycom Software's products that you use, which would include Beti, the greater the value you're going to get from it, and the more questions it will answer for you, the more insight it will give you. I do think IWAN makes it easier to use all that additional functionality, but there's not a requirement that someone would have Beti. Although I will say, I believe Beti is a very important product, and I still say that it's the best way to do payroll for employees. Actually, we have a lot of clients that boomerang back to us because they felt it when they left and the need for having accurate payrolls to prevent errors before they become problems.

Speaker 8

Thank you. The following comes from Jason Vincent Celino with KeyBanc Capital Markets. You may proceed.

Speaker 4

Yep. Admittingly, I looked at the demo 30 minutes before this, and it looks pretty intuitive and helpful. Chad, I think you're calling it the biggest release since the company's founding. That's quite a bold statement, but you're obviously not charging for it. How do you envision recognizing the full value that you're providing here? I hear you on the full platform sales, but what are some other mile markers we can kind of think about?

Speaker 7

I just mean what I said. It is the biggest. An F-16 is hard to fly. Sometimes you can have a lot of different people that know it, and the more you add to it, but we've made it one button or a command that now you can fly the whole thing. That's what I mean; it's our biggest development. We've removed the barriers to value. The more you add, the more functionality you have in these types of systems, in enterprise-type systems, it does require a level of training for someone to really be able to deploy it. Even some employees require some level of training. This removes all of it. It's the biggest innovation that we've ever done at our company since its founding just because of the impact that it has. Clients are just overjoyed by it. They're really overjoyed.

You walk the floor here in service and you hear them talking to our clients. They're amazed and it's working very well for them. They deserve to have it. I'm going to really stand by that. Not only is it the biggest development, I think by the time we do version two and three, I don't even know what else I could develop after that as we have the full solution automation on the back end. I'm going to really stick by that. How we're going to recognize the full value, I think was your other part, is obviously in our go-to-market. It impacts that. When you remove barrier to value, that increases the value that your clients are getting.

When you can do that and they don't have to do that work, we do think that that's going to create more meaningful relationships with our clients, more meaningful relationships that they have with our system. We do think that will impact retention.

Speaker 4

Just a quick follow-up for Bob. You know, the 12% you saw in recurring in the quarter, you know, very impressive. I hear you on the back half, you know, the slight decel. Was there anything in the second quarter from like a one-time perspective or timing related? I'm just trying to understand the, you know, the beat and then the implied decel in the second half. Thanks.

Speaker 2

Yeah. Thanks, Jason. No, there wasn't anything on a one-time beat other than the timing of the marketing spend that we've been pretty consistent about in the first and second quarter. Obviously, we never know what we can anticipate in the fourth quarter for bonus runs and et cetera.

Speaker 8

Thank you. The next question comes from Daniel William Jester with BMO Capital Markets. You may proceed.

Hey, good afternoon. Thank you for taking my question. Bob, I wanted to go back to a question earlier in the company about free cash flow. I just wanted to clarify, is that free cash flow in dollars, or is that free cash flow margin? I wanted to see if you had contemplated any sort of tax benefits from the new tax bill.

Speaker 2

Yeah, Daniel. That was margin, and we are evaluating the BBB now. There will be some cash flow benefits in that in 2025, and that's built into our guide.

Thank you. On the sales and marketing investment, should we anticipate, you know, this is a very intuitive product, but maybe you want to devote a little more resource back to the base to sort of help people out in those initial phases. Is that where this is maybe temporary investment that we're going to be able to harvest in 2026, or do you think this would be more substantial? Thank you.

Speaker 7

I think you're talking about our sales and marketing spend as we look into the remainder of the year. We did know IWAN was coming out, and we have been preparing for that spend in the third and fourth quarter. I've always said with marketing, you don't just throw dollars at it. You have to measure it. It's got to be having a return. We're always cautious on marketing spend, and we measure it. It's our intent right now to maximize our budget in the third and fourth quarter for marketing just because of the opportunity that we have right now with this.

Speaker 8

Thank you. The next question comes from Jared Marshall Levine with TD Cowen. You may proceed.

Speaker 0

Thank you. I just wanted to dig in in terms of Q2. You had a pretty notable sequential increase within CapEx, specifically on PP&E, and it sounds like you're contemplating pretty healthy spend there as well for the remainder of the year. Can you dig into what exactly you're spending there and kind of when potentially that could taper off?

Speaker 7

Yeah. I mean, I can take a little bit of this, Bob, and then you can jump in. We've always developed and hosted our own platforms. As we move into AI, it does require a certain level of spend. As we look at that, I do believe it to be more transitory in nature. As we look at that, that's going to be front-end loaded for us right now, and that's really what we're looking at. A lot of that's going to be through CapEx. I think Bob explained we do expect to take the benefit that we're receiving in the additional margin creation right now and put that into some of these CapEx expenditures. We would expect our margin for free cash flow to be not dissimilar this year to what it was last year. I do believe these spends will be more front-end loaded and transitory.

We'll go from there. I don't know, Bob, if you have anything to add to it.

Speaker 2

No. The only thing I'll add, Chad, is that we see this as a growth opportunity for us, and we have the capital to take advantage of it right now, and that's what we're doing.

Speaker 0

Got it. Just one more here. Can you talk about your back-to-base sales productivity by CRRs year to date?

Speaker 7

I mean, they've been back in the field. As I've mentioned before, it's kind of a per-territory basis. We did change the way that group books and starts deals a while back that I mentioned, and that really became the new normal. They are having success. They're more successful this year than what they were last year. We'll just see how time works those out. I do think IWAN is going to help them quite a bit because, again, in order for you to get the full solution automation, you need to have the full solution. There's no better way to get it than just asking for it. That's what IWAN helps you with.

Speaker 8

Thank you. The following question comes from Aleksandr J. Zukin with Wolfe Research. You may proceed.

Yeah. Hey, guys. Maybe on IWAN specifically, when you think about how it fits into the overall product strategy with Beti, maybe help us a little bit where you're getting the most customer interest. What does success look like for IWAN? Also, any update or mix around retention with Beti and kind of as you see that mix with Beti and IWAN across your customers growing, where is the opportunity for retention in that world to go to?

Speaker 7

Yeah. I think both produce significant retention opportunities. I mean, I think they're both the best way to do something. You know, the way to think of IWAN, it just runs through our entire system. You know, Beti touches multiple modules. IWAN touches every module and every piece of data in our system, every field, everywhere. It's quite a bit different. Your users of IWAN are going to be everyone. Your users of Beti, you're going to obviously have the employee at the time where they're doing payroll, and then you have the payroll department and what have you. Both significant and very important. Think of IWAN as just a new way to access information. You could look at this the way you access your bank, the way you would just talk to it and tell it what you need.

Like I can go into IWAN right now and say, you know, I had a baby. I need to add him. It'll add him. I can go into IWAN right now and ask who somebody's spouse or wife is. It does it. It'll bring it up for me. I can ask it anything. If the data is in our system, it's going to respond and give me that data. We're really excited. That's really a giant change in our industry, but really any industry where you use software, where you're now voice-activated, command-driven throughout the software. They work a little bit different than each other, but IWAN is just going to make Beti sweeter, I guess would be a better way to put that.

Speaker 8

Thank you. The following comes from James Samford with Deutsche Bank. You may proceed.

Great. Thanks for taking my questions. Chad, you just kind of mentioned earlier that you think the CapEx will be a little bit more transitory as you build this out. With you owning the entire tech stack and once the entire customer base is up and running on IWAN and extending usage, why shouldn't there be more continuous spend from a CapEx perspective as users use it more and you're running through GPU cycles?

Speaker 7

I think there's a certain amount of spend you have to do just to get to the starting line, you know, and then I think on an ongoing, it becomes more incremental. As you're looking at rolling out massive usage, like I said, we would expect to activate all of our clients this quarter. There's going to be a certain level of first hit as they're using it, which we're already seeing. In subsequent quarters and years, of course, we will add to that. You also kind of see over time, the cost of technology comes down, but the cost of power doesn't, you know. There are just different things you have to look at as you go through building these things out. We've incorporated all of that in our guidance and in our comments today.

Just following on that, given how useful IWAN looks and how intuitive it is, why not more directly monetize it on a per-pay basis or a usage basis versus kind of indirectly monetizing it on better sales and driving adoption of other modules?

I believe that every client should access their data this way. We've had clients that have been with us a long time, and there's no reason to make them pay to get the value that's available for them. I really think that this is just going to take off for us. I really just don't think we need to do that. Plus, I don't want to spend a lot of time having to go out and sell clients and charge them on things that I can really get them to use the full utilization of the system. I believe that will create other opportunities for us, both with these clients and definitely with prospects.

I think we have to be careful to stop and pick up the change on the ground when there's opportunities out there if we remain disciplined and really help the clients achieve the value available to them.

Speaker 8

Thank you. The next question comes from Joshua Christopher Reilly with Needham & Company. You may proceed.

All right. Thanks for taking my question. I was just curious, maybe a little different angle than some of the other things we've been talking about, but how are you adjusting your sales and marketing processes internally with all the new different AI sales tools that are out there for front-end lead automation? Also, along with that, the way that customers find you might be changing as well with organic Google search traffic declining kind of on a secular basis over time. How do you kind of square all these items up to manage sales efficiency over the next few years?

Speaker 7

Yeah. I mean, I would divide marketing separate from sales. I would say our marketing group's been using those tools efficiently for quite some time and continue, you know, the tools available to them and continue to seek more to that. I mean, from a sales process, we went right back to the way we were selling back in 2000. We went right back to that type of training, leverage, and influence when Amy took over, and that's been working very well. I'd love to think a product sells itself, but that's not true. At the end of the day, you have to have great salespeople who are out there working with the client to help them understand the value that's going to be created, and you have to have a very strong ROI case. We're going to continue to sell the way we've been selling.

I would think about this as a just it just changes. I mean, it's night and day. When we rolled this out on July 30 or 23rd to our very first client, it's night and day how you utilize our system on a go-forward from a simplicity standpoint. I do think that that's going to weave itself into sales. Again, and by the way, we turned our first client on July 23rd. I don't even think we gave it to sales until last Monday. They're just now a week in maybe at the most to actually being able to go out there and talk about it. We'll kind of see the impact that IWAN has on the sales organization here over the coming quarters and years for sure.

Just a quick follow-up. Is it fair to say that the new sales activity was up sequentially from Q1 to Q2? How do you think about that in terms of visibility for revenue in the second half and how, you know, level of visibility that you have into the updated revenue guidance? Thanks, guys.

What I would say is, if we were talking about record sales in the first quarter and we just reported second quarter, and now we've talked about record sales in the second quarter, obviously, a lot of those haven't started yet. I'd say most of those haven't started yet. Those will be reflected in subsequent quarters. We always guide to what we can see, but I would say there's a level of excitement across Paycom right now that's different than it's been in a long time. We've always been a pretty exciting company anyway.

Speaker 8

Thank you. The following comes from Siti Panistrahi with Mizuho. You may proceed.

Speaker 3

Thank you for taking my question. Chad, I want to ask about the demand environment, how you're seeing in the first half and your expectation for the second half. Are you seeing any kind of changes in the competitive landscape, especially with all the consolidation that happened recently in your space?

Speaker 7

Yeah. I mean, I would say our demand environment remains strong. I've always said we also create demand. Remember, we have less than 5% of the total addressable market just in the U.S. even, and there are many opportunities. From a change in the competitive market, I think they all got a lot less competitive a couple of weeks ago, to be honest with you. This is going to be a thing. You guys will kind of see this will be a thing moving forward. Our client feedback's been really good. I think that I know competitors will say they have the most automated, the most this, the most that. If you can't talk to it, it's not the most automated. It's not the most modern. People might want to drive an old car or motorcycle or fly an old plane. Those things are nostalgic and cool, you know.

Driving an old HCM system around, it's not cool. It's just sad. I do think that you're going to see a lot of clients gravitate toward this type of experience because why should they work extra hard to get the value, which is why we created it in the first place?

Speaker 3

Great. Thank you.

Speaker 8

Thank you. The final question comes from Jacob Roberge with William Blair & Company. You may proceed.

Yeah, thanks for taking the questions. When you talk about IWAN taking off for you, where do you think it shows up most? Is that new logos? Is it retention? Is it new product adoption? I guess, what should we be looking for on our end? When do you think it actually starts showing up more meaningfully in the numbers?

Speaker 7

I think it's going to start showing up in all those areas. I'm very bullish on it showing up in all those areas. Obviously, new sales, new logo ads has always been the largest opportunity we have to increase and drive revenue growth. I would definitely expect that to be probably the largest bucket of that. I will also tell you, I expect to have a huge impact on our retention over time as people are using it and becoming more acclimated to it.

I also think it's going to have an impact on our CRRs being able to go out there and be able to talk to someone about, if you want to be able to pull data from the complete employee lifecycle and if you want your employees to actually be able to leverage all of this, it's really important that you have these other modules that we have. I also think it's going to make an impact there. I believe win-backs, we're already seeing that. We're seeing clients that were gone from us a real short period of time come right back because of Beti or IWAN or some of these other things or just client service that they like. This just changes all of that. I don't know how you go from being used to commanding a system and just telling it your problem that it solves.

I don't know how you go back to navigating and trying to find out how to fix your own problem. It just seems like people don't usually go backwards in technology. They don't do that too well. None of us, even our consumer lives, none of us go backwards in technology very well. I think that IWAN has made it easier to access all the automation. I just think it would be very difficult for clients once they're getting full value to want to have less.

Okay. That's helpful. Can you talk about how the initial rollouts of the new offices in LA, Raleigh, and Providence have been going? Now that it feels like the business is in a much healthier place, should we expect a more regular cadence of office launches moving forward?

I mean, you know, I don't know that we've had as much of a regular cadence. Maybe there for a while we were doing three or four. You know, our sales organization is doing very well right now. In fact, one of those offices, I'll go ahead and call them out, I think it's Providence, hit $1 million in new sales faster than any of our offices have ever gotten to it. They're ramping up well. The more successful offices we have, the more successful managers we have, the more successful backfill for those managers we have, the better the opportunity we have to open up additional markets. That is a part of what we're doing, as well as increasing the dollar volume in every territory that kind of gets us to those next levels.

Speaker 8

Thank you. This concludes the question and answer portion of today's call. I will now turn the call back over to Mr. Chad Richison for closing remarks.

Speaker 7

Thank you everyone for joining the call today. We look forward to speaking with many of you over the coming months. We will be participating in several investor events this quarter, including the Deutsche Bank Technology Conference on August 27th in Dana Point. On September 3rd, we will be attending the Citi Global TMT Conference in New York City. We will also be hosting meetings at the Wolfe TMT Conference in San Francisco on September 10th. With the strong results and the recent launch of IWAN, I'm even more excited about how the future is shaping up for Paycom. I want to thank all of our employees for their contributions to our success. With that, operator, you may end the call. Thank you.

Speaker 8

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