Paycom Software, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Paycom Software Second Quarter 2020 Quarterly Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. If you would like to ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, James Samford, Head of Investor Relations for Paycom. Please go ahead.

Thank you and welcome to PACOM's second quarter 2020 earnings conference call. Certain statements made on this call that are not historical facts, including those related to our future plan, 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 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 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. I'll now turn the call over to Chad Richeson, Paycom's President and Chief Executive Officer. Chad?

Thanks, James, and thank you to everyone joining our call today. I want to thank our employees who continue to thrive in this ever-changing environment. For today's call, I'll spend a few minutes on our second quarter 2020 results and some notable trends. Following that, Craig will review our financials and provide some perspective on guidance, and then we'll take questions. I'm very pleased with our performance in the second quarter and the demand we are seeing. As expected, our second quarter results were impacted by the headwinds we outlined in our last call, namely the impact of unemployment across our current client base due to the pandemic and a 150 basis point cut in interest rates in March. Despite these headwinds, we continued to see very strong lead volume and new business sales achievements, which have set us up very well for the future. Q2 revenue and adjusted EBITDA came in at $181.6 million and $61.2 million respectively. While we expected there to be similarities between the increase in the unemployment rate and the impact on our client base, we now know the actual impact on our client base, even as unemployment has fluctuated throughout the quarter. Headcount reductions at our clients and the impact on current client revenue peaked at the end of April and began to stabilize. Based on the trends we've seen throughout the second quarter, we estimate the impact on current client recurring revenue is a loss of approximately $2 million per week. Interest rate cuts added another $350,000 in weekly loss to recurring revenues. We've seen these numbers stabilize at these rates for over the last few months, thus making the impact on our revenue more predictable. I'm pleased we are in a position to provide Q3 guidance, which Craig will walk you through shortly. We began the second quarter with strong demand and elevated lead volumes driven by our deliberate investments in advertising. Q2 demo leads were roughly three times higher than in the comparable prior year quarter. As I mentioned last quarter, the pandemic is exposing scenes created by disparate HCM systems and the increasing trend towards a more autonomous workforce is creating high demand for the Paycom single database solution. We believe the value proposition of our solution is stronger than ever, and we continue to see success in both outbound and inbound sales efforts. Our sales teams continue to operate in a virtual model without disruption, and they had strong success in Q2. We continue to see strong usage patterns of our products as measured by our direct data exchange, or DDX. With the increasing importance of working autonomously, it is critical that companies enable their employees to have a direct relationship with the database. With Paycom, the employee wins from an easier and more comprehensive experience and the company wins from real savings. Throughout the second quarter, we continued to invest in product development and released several thousand product enhancements. One product that continued to be enhanced during the quarter was Manager on the Go. This tool is built into Paycom's existing mobile app and empowers leaders with 24-7 accessibility to essential manager-side functionality of our solutions. Manager on the go continues to be widely adopted by managers across our client base with already almost 90% of our clients deploying it in just the first five months since launch. Manager on the go is transforming manager workflows and accelerating the speed that data moves throughout the system, which further increases the ROI of our solution and sets up future usage patterns that pave the way for future product innovation and automation. Going forward, we will continue to 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'm very pleased with the execution we have delivered on all three of these fronts to date, which I believe will further strengthen our market position in the quarters and years to come. We are overcoming the revenue headwind created by the pandemic. As I'm sure many of you've seen our commercials on TV and our advertising assets online, we have spent more in advertising in Q2 than we've ever spent in a single quarter by a significant margin. This advertising spend coupled with our world-class sales organization yielded great results for us in the second quarter. In fact, Q2 was our best quarter ever from a new business sales perspective by a large margin. and we will continue to spend aggressively on advertising throughout Q3 and Q4 above the Q2 levels as we deliver our value proposition to our massive target market. With less than 5% of the total addressable market already captured, we have a long way to go. The digital transformation for business is accelerating and our investment in expanding our market share is working. I'll stop there and hand it over to Craig to review our financials and guidance. Craig? Thanks, Chad.