Paycom Software, Inc.

Welcome to the Paycom Software first quarter 2020 quarterly results conference call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there'll be an opportunity to ask questions. To ask a question, please press star, then one. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over. Please go ahead.

Thank you. Welcome to PACOM's first quarter 2020 earnings conference call. 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 facts could 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 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. 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 the course of 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. We'll now turn the call over to Chad Richardson, Paycom's President and Chief Executive Officer.

Thanks, James, and thank you to everyone joining our call today. First, my thoughts go out to those whose health has been impacted by the pandemic. We also sympathize with businesses who are faced with unavoidable reductions in their workforces and the employees who have lost their jobs. Additionally, I'd also like to extend my sincere thanks to first responders, medical personnel, and those involved in the supply chain who are on the front line. Finally, I want to thank our employees who continue to execute while working from home and also our Phase 4 team who remain working at the office. For today's call, I'll spend a few minutes on our first quarter 2020 results and some notable achievements. Following that, Craig will review our financials and provide some perspective on financial trends, and then we will take questions. I am particularly pleased with our performance in the first quarter. First quarter results were strong driven by our high margin recurring revenue business model and continued strength of new business ads. Q1 revenue of $242.4 million came in above the high end of our guidance range in spite of the effects of unexpected interest rate cuts and an unemployment spike in March. Adjusted EBITDA of $117.9 million and Q1 was also above our guidance range as a result of record gross margins. We entered the year with strong momentum following record revenue retention in 2019 and a value proposition that is stronger than ever. Even though the month of March was impacted by declining revenues from our current client base due to the effects of COVID-19, we continue to see strong addition of new clients. We are also experiencing elevated lead volumes compared to the same period last year, which we are driving through our marketing efforts and the strength of our value proposition. The pandemic is exposing scenes created by the disparate systems, and that is creating a higher demand for the Paycom single database solution. I am pleased with the incredible results and collaboration I'm seeing across the sales and marketing organizations. The appropriate usage of human capital management solutions has never been more important than today, and we will continue to invest and innovate to strengthen our position. More employees and managers are accessing the system, and HR and employees are doing less paperwork and manual input than ever before. We continue to see strong usage patterns of our products as measured by our direct data exchange, or DDX, with usage scores well above Q4 levels. DDX numbers continue to be strong and improved as companies adopt a full employee usage strategy. When employees have a direct relationship with the database, the employee wins, the company wins, from real savings estimated at $4.51 per HR task or data entry point, as well as higher efficiency and overall employee satisfaction. In February, we launched Manager on the Go, the tool built into Paycom's existing mobile app which empowers leaders with 24-7 accessibility to essential manager-side functionality of our solution. I said at the time that I believe this was the single most important product release we had since the launch of our employee self-service app, and while we are still early, it's proving to be very popular. Within the first 12 weeks since its launch, Manager on the Go has significantly exceeded the employee self-service product adoption over the 12-week comparable post-launch period. This easy-to-use functionality distributes approval responsibilities more broadly and removes impediments to quick data flow, and managers across our client base are embracing it. Once managers use Manager on the go, the vast majority of them fundamentally change the way they interact with our solutions, and actions previously completed on the desktop are now completed on the mobile app. I'm very pleased with the trends we are seeing. While many of our clients are unfortunately experiencing significant fluctuation in their employment trends due to COVID-19, we remain focused on three controllable activities, providing world-class service to our clients, rapidly developing new technologies, and increasing the number of new clients added to our platform. I am more confident and ever than our product's value proposition and go-to-market strategy. I've been saying for some time we may be early with our strategy, but we're not wrong, and today we're no longer early. The digital transformation for business is accelerating. I'd like to thank all of our employees for their grit and the winning spirit they display every day in this changing environment. With that, I'll turn the call over to Craig. Craig?