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Paycom Software (PAYC) Q2 2020 Earnings Call Transcript

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Paycom Software (NYSE: PAYC)
Q2 2020 Earnings Call
Aug 04, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by and welcome to the Paycom Software second-quarter 2020 quarterly results conference Call. [Operator instructions] I would now like to hand the conference over to your speaker today, James Samford, head of investor relations for Paycom. Please go ahead.

James Samford -- Head of Investor Relations

Thank you, and welcome to Paycom's second-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 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 statements 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.

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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 Richison, Paycom's president and chief executive officer. Chad?

Chad Richison -- President and Chief Executive Officer

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 lost 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 seams created by disparate HCM systems, and the increasing trend toward 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 in the Paycom's existing mobile app and empowers leaders with 24/7 accessibility to essential manager-side functionality of our solution. 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 workloads 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 have 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?

Craig Boelte -- Chief Financial Officer

Thanks, Chad. Before I review our second-quarter 2020 results, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. I'll briefly cover our Q2 results and trends, and I'll provide some high-level comments about Q3 guidance. Our approach is to be as transparent as possible based on what we know now, and we believe there has been enough predictability in the impact of the pandemic on our current client revenue to provide near-term guidance.

Before turning to the results, I want to briefly discuss the environment we faced in Q2. During the second quarter, our analysis of the impact of the pandemic was that declining employment rates at our existing clients became progressively worse and hit a low point at the end of April and then stabilized. We estimate that the effect of lower headcount at our clients on our current client revenue is a loss of approximately $2 million in weekly recurring revenue as of today. We also experienced the impact of 150-basis-point interest rate cuts that occurred in March, which amounts to a loss of roughly $350,000 in weekly recurring revenue.

Despite these anticipated headwinds, demand for our solution continues to strengthen, and we had increasing new client sales that were solidly ahead of pre-COVID sales levels. That success has continued into Q3 with accelerating demand and sales trends that are layering in nicely on top of our current client recurring revenue base. With that as a backdrop, I'll turn to the results. In the second quarter, we generated total revenues of $181.6 million, representing growth of roughly 7% over the comparable prior-year period driven by strong new business wins.

Within total revenues, recurring revenue was $178 million for the second quarter of 2020, representing 98% of total revenues for the quarter. Total adjusted gross profit for the second quarter was $153.8 million, representing adjusted gross margin of 84.7%. We continue to see improving efficiency in customer service and expect to see similar adjusted gross margins for the remainder of the year. Adjusted total administrative expenses were $106 million for the second quarter as compared to $85.9 million in the second quarter of 2019.

Adjusted sales and marketing expense for the second quarter of 2020 was $52.3 million or 28.8% of revenues, up from 23.1% in the prior-year quarter. We are seeing very positive results from our ad campaigns and marketing efforts. And as the second quarter progressed, we made the deliberate decision to further increase our advertising spend. As long as we continue to see positive results from these investments, we intend to continue to be aggressive in this area to drive market share gains.

We expect Q3 sales and marketing expense to be approximately $8 million to $10 million higher than Q2 on both a GAAP and adjusted basis. We are maximizing our opportunity to capture market share by spending more on advertising. Adjusted R&D expense was $18.8 million in the second quarter of 2020 or 10.3% of total revenues. Adjusted total R&D costs, including the capitalized portion, were $27.7 million in the second quarter 2020, compared to $22.3 million in the prior-year period.

We have a very ambitious product innovation road map, which is a key driver of our success, and we will continue to expand our R&D team with high-quality talent. Adjusted EBITDA was $61.2 million in the second quarter of 2020 or 33.7% of total revenues, compared to $69.4 million in the second quarter of 2019 or 41% of total revenues. We were able to partially offset the loss of high-margin revenue with reduced costs from lower travel expenses, but the biggest driver of the year-over-year adjusted EBITDA margin decline was our deliberate increase in advertising. Our GAAP net income for the second quarter was $28.6 million or $0.49 per diluted share based on approximately 58 million shares versus $48.8 million or $0.83 per diluted share based on approximately 58 million shares in the prior-year period.

For Q3 and Q4, we expect our effective income tax rate to be approximately 30% and our full-year effective income tax rate to be approximately 24% to 25%. Noncash stock-based compensation was $21.2 million in the second quarter, and we expect noncash stock-based compensation for the third quarter of 2020 to be approximately $20 million. For the full year, we anticipate noncash stock-based compensation will be approximately $75 million. Non-GAAP net income for the same quarter of 2020 was $35.9 million or $0.62 per diluted share based on approximately 58 million shares versus $43.7 million or $0.75 per diluted share based on approximately 58 million shares in the prior-year period.

We anticipate fully diluted shares outstanding will be approximately 58 million shares in the third quarter of 2020. From the time we increased our buyback on March 12, 2020, and through the end of the second quarter, we repurchased over 330,000 shares, including over 240,000 shares purchased in the open market. As of June 30, 2020, Paycom has repurchased over 4 million shares since 2016, with $175 million remaining in our buyback program. Turning to the balance sheet.

We ended the second quarter with cash and cash equivalents of $114 million and total debt of $32 million. Cash from operations was $25.5 million for the second quarter. The average daily balance of funds held for clients was approximately $1.2 billion in the second quarter of 2020. Now let me turn to our guidance.

With more clarity about headcount trends in our client base resulting from the pandemic, we believe our current client revenue has become more predictable, and we are now providing Q3 guidance based on what we can see as of today. For the third quarter of 2020, we expect total revenues in the range of $191 million to $193 million, representing a growth rate over the comparable prior-year period of approximately 10% at the midpoint of the range. We expect adjusted EBITDA for the third quarter in the range of $56 million to $58 million, representing an adjusted EBITDA margin of approximately 30% at the midpoint of the range. Our focus continues to be on mitigating the impact of the pandemic on our business by providing world-class service to our clients, rapidly developing new technologies, and increasing the number of new clients added to our platform.

We have a strong balance sheet, a highly profitable recurring business model and what we believe is the strongest value proposition in our industry. We are committed to taking advantage of our financial position to drive long-term market share gains. With that, we will open the line for questions. Operator?

Questions & Answers:


Operator

[Operator instructions] Your first question comes from Raimo Lenschow with Barclays. Please go ahead.

Raimo Lenschow -- Barclays Capital -- Analyst

Hey, thank you for taking my question. Can you -- I think the biggest question we were all going to get is like around the increase in sales and in the advertisement spending or on sales and marketing. Can you talk a little bit about your thinking there? Like why now? Like obviously, the level is kind of a lot higher than what you've seen before. Are you seeing like good results, good returns on that one? Is it like if I listen to ADP, they seem to be hurting a lot more, so is this a good opportunity? Just talk me around your thinking there and then how you measure success.

Chad Richison -- President and Chief Executive Officer

Sure. So on the last call, Raimo, end of April, I discussed how our numbers were back to pre-COVID numbers from booked sales. I've since on this call said that our second-quarter new client revenue numbers, and these are sales -- new sales that we go out and achieve, that we actually just completed our best quarter. Second quarter was the best quarter we've ever had from a new business sales perspective.

To follow up on that, July has been -- this July that we just finished up on today has been the best month we've ever had from a new business sales perspective, and so we're paying for that. Obviously, those leads I mentioned, that leads are up three times demo leads. These are people that hit our website and request a demo. We've always had leads where someone might download a brochure or download a white paper or come to a webinar, but these are leads where people are genuinely interested and they want a product demonstration.

And so about 90% of those turn into appointments. And so we have a lot more appointments than we've had in the past, and we're achieving greater sales. Of course, we're spending to do that. Our advertising spend in the second quarter was much more than we had spent in the past, and it's working.

And I've been saying this: as long as advertising is working, we'll continue to do it. We haven't made any purchases a month or two or three months out. And so our commitments are week-to-week type of commitment on advertising, but it's having -- we're having great success with it as I'm sure you, Raimo, and everybody else is seeing the ads on TV and online. And another point to make is we're not just advertising the Paycom brand.

We're advertising a new way to use this type of technology. It makes no sense that HR inputs this type of data. All businesses have deployed technology as we've moved toward a -- moved more toward an autonomous workforce. I think we're somewhat in the rise of the autonomous worker.

And it only makes sense that they would have technology in which both they win and the client. And so we've been aggressive with it, but it is yielding results from us on the sales side, which will continue to fold in and become current client revenue.

Raimo Lenschow -- Barclays Capital -- Analyst

OK, perfect. OK. That's really helpful. And then on -- you talked about the $2 million per week that, like, you're losing because of unemployment and the unemployment situation, and you talked about the stabilization since its peak in April.

Are we still kind of thinking about like the math you laid out in Q1? Or how do I think about that $2 million per week number now as unemployment rates are coming down? Is there kind of a new way to think about it? Or any help there in terms of like what to do with that?

Chad Richison -- President and Chief Executive Officer

Yes. I mean, the number was in between -- I mean, it was between $1.95 million and $2 million that we're seeing if we have maxed out toward the end of April, and it stayed consistent. I understand that unemployment has fluctuated, but the impact on our numbers stayed consistent. Maybe our clients took the hit in the beginning.

But I did want to make a point on -- and what you're talking about, as I mentioned that directionally in the last call, I said directionally it would be unreasonable to think that we wouldn't be impacted by unemployment. Because I did believe and do believe that we're an accurate sampling size, and so we should somewhat follow that. We now know that while we were directionally accurate, we now know the exact number that it is. And just to bring up, the numbers that are commonly reported for the unemployment claims via media, government, what have you, it's basically calculated two ways.

The first source is the unemployment insurance data, and this comes from a weekly compilation of -- that the DOL receives directly from unemployment agencies. You have both initial claims and continuing claims. It's -- a point to make is that initial claims peaked in the second quarter, early second quarter, they were 5 million and 6 million. You had a couple of weeks there where initial claims were 5 million and 6 million.

Last week, initial claims were 1.4 million. The week before that, initial claims were 1.4 million, and they've started to stabilize about at that level over July. An important point to make though is pre-COVID, they were stabilized at an average of about 200,000 claims a week. And so that's one calculation, not as reliable for unemployment.

A second calculation that's used by the U.S. Department of Labor is the current population survey. And that's where you get the 14.7% unemployment number for April and the 13.3% unemployment number for May and the 11.1% unemployment number for June. And how they get -- how this data is derived from actual interviews of 60,000 households in the U.S., about 110,000 people.

And so while we were directionally accurate, and while the impact of Paycom's current client revenue has been similar to the increase in unemployment numbers, we now know the exact impact it had on Paycom. We peaked toward the end of April, we stabilized. So while we can't call out improvement in the impact unemployment is having on current client revenue, we can state that the situation hasn't gotten worse and we've seen stabilization. Like I said, I'd like to think our clients took the hits early, so we'll have to see from there.

But lastly, I did want to make this point. I mean I'm not going to try to be the drugstore economist as it relates to unemployment. Our goal is to give directional guidance. And now that we're giving actual guidance, I don't feel like it's necessary for us to tie to the different methods of calculating unemployment, whether it be the initial claims, which are still elevated based on pre-COVID, or the sampling survey of 60,000 households.

So we've given that number, and we have not seen that number move to be worse or better since the end of April.

Raimo Lenschow -- Barclays Capital -- Analyst

OK. That's very helpful, Chad. Thank you.

Operator

Your next question comes from Samad Samana with Jefferies. Please go ahead.

Samad Samana -- Jefferies -- Analyst

Hi. Good afternoon, and thanks for taking my questions. As always, appreciate all the color you just gave. Maybe if I could just ask a follow-up on the new bookings side.

If I think about sales and marketing dollars, it's up about 33% in dollar terms year over year. How should we think about maybe framing the magnitude of that bookings growth, just because you spent the most you ever have in 2Q as well? So I'm just trying to understand maybe how to think about what new bookings growth looks like, either year over year or versus pre-COVID levels as a point of comparison. Then I have a couple of follow-ups.

Chad Richison -- President and Chief Executive Officer

Well, I mean, the bookings were up meaningfully and significantly from Q2 of last year. I will say that Q2 this year was our largest booking quarter ever, and Q2 is not typically the largest booking quarter. And then to add on to that, July has been the largest bookings month we've ever had. So while we continue to face the current client revenue headwind that's impacting us through the unemployment, we mentioned that's approximately $2 million.

And then you layer in the $350,000 a week in unemployment. We're hopeful to establish a floor and a new base for growth, and so we've been very focused on that. I do fully expect that, as we sell, just as in the past, we spend it, we sell it. As it folds into the revenue side, our margins continue to improve.

I actually still feel good about us being able to continue to focus on and hopefully achieve at least a rule of 50 this year, which we would expect to improve next year. And so we don't want to be penny wise and pound foolish when it comes to the opportunity that we have in front of us. And the spend is working. We're not going to be wasteful with it, but it's working.

And if you take $90 million out of a quarter for both revenue and -- as well as for the interest income, there's -- our margins are quite high at an 85%-ish, and so you've got the $75 million or so out there in margin that we've also potentially lost as well. And so we believe the advertise -- we know the advertising is working. And as long as it continues to work, we're going to continue to set ourselves up for the subsequent quarters. Because like I said, we have not yet seen, or the impact -- the negative impact to our numbers get worse or better.

And so like I said, I mean we're going to continue to focus on new business sales. And, look, it took a pandemic to slow and impact our current client revenue, but not even a pandemic could stop our new business sales because they're accelerating. So -- and that has to do with the advertising spend in part. The other part has to do with the value proposition.

Craig Boelte -- Chief Financial Officer

Yes. Samad, that's $30 million a quarter. $90 million would be the three quarters this year.

Chad Richison -- President and Chief Executive Officer

Right. $90 million for the three quarters, sorry.

Samad Samana -- Jefferies -- Analyst

Great, very helpful. And then maybe if I could, just -- in reading the press release, the commentary around the client base still increasing the number of clients. It sounds like maybe churn -- or putting aside difference, maybe unit retention was better than expected or maybe better than what we might have expected given how severe the pandemic was. Maybe you could just comment on client unit retention or the number of customers and how that trended through the quarter versus just the pace for control change.

Chad Richison -- President and Chief Executive Officer

Yes. We're not going to give exact retention numbers because, obviously, we get those at the end of the year. But I mean, I will follow up on the same thing that I said last time. We're not really seeing units go away.

We are seeing clients that may have had 500 employees now have 60, but we're not seeing unit losses. We do have a few clients that may be on pause, and we're filing some zero returns for them. Those are going to be your smaller clients that may not have payrolls to run, but they do still have to file taxes. And so we can file zero returns for them, so they're still active.

So all that's to say is we're not seeing unit attrition.

Samad Samana -- Jefferies -- Analyst

Got you. That's very helpful. Appreciate you taking my questions, and congrats on the strong new bookings performance.

Operator

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

Mark Marcon -- Robert W. Baird -- Analyst

Chad and Craig, wondering if you can talk a little bit about any sort of differences in terms of the types of clients that you're seeing that are being driven by the advertising? Are they smaller, larger? How many modules are they typically taking? How do they compare to your established client base?

Chad Richison -- President and Chief Executive Officer

Same. They compare the same. I will say that we did sell our two largest accounts during this quarter just anecdotally, but they've been the same. We're getting more usage in the upfront out of them as we are now at 100% commitment to employee usage.

We now are getting that on all clients as they start. So we are seeing people's approach to conversion to be more in the effort to where employees would take a full usage strategy, so we're seeing that. But as far as the types of clients that we're seeing, usual suspects for us.

Mark Marcon -- Robert W. Baird -- Analyst

Any sort of change in terms of regional composition? Are you seeing more from areas that you haven't typically been in, that are basically being bought in by the national advertising? Or how would you characterize that?

Chad Richison -- President and Chief Executive Officer

No. I mean, our -- where we have our best reps is where we're going to sell the most, and so it doesn't really matter what state or your location they're in. That's what we're going to do the best. And our leads have continued to come from all over.

We do have leads that come from out of territory, and those would be places where we don't have specific coverage. But we've been handling them the way we always did. Now before, we would fly out and see if someone had over 100 employees in North Dakota. Today, we're doing it from the chair in our home office.

And so -- but we're still approaching out-of-territory sales as well.

Mark Marcon -- Robert W. Baird -- Analyst

OK, great. And then how should we think about the marketing spend, and "advertising is for wimps," I heard a really smart guy say that at one time. The -- if the advertising spend, if it keeps working the way it is, I mean, the fall selling season hasn't even really kicked off. Should we think about potentially the spend going up even further as we go into next year and the following year given that your market share still leaves lots of room for increase?

Chad Richison -- President and Chief Executive Officer

Well, I mean, you can get to a point of diminishing returns on advertising spend. You necessarily don't buy double digital and get double, and so you have to manage that. As we've identified different touch points of opportunities and advertising for a client through either initial or retargeting efforts, then that gives you an opportunity to spend incrementally on that. But you can still waste advertising dollars.

And so we take a strategy that -- where we look at it week by week. I mean, we're managing this on a weekly basis, and we turn up and down the dials in areas where it makes sense for us to do that.So our markets, our market, we are spending the advertising dollars. We are having success. But it's hard for me to say exactly where that would go, other than to say that we have an elevated advertising spend now.

We are achieving a commensurate result for that. And we would look to do more of that in the future, again without wasting ad dollars in areas that aren't going to produce results.

Mark Marcon -- Robert W. Baird -- Analyst

Historically, July, how does it typically rank relative to -- like what percentage of the typical best seasonal months would July be?

Chad Richison -- President and Chief Executive Officer

I think you can have different months that are better than others. As you know, Mark, even though we may not have said it, I said this, I believe our industry and I know almost every one of our competitors will tell you selling season's typically September through December as people come back from their vacations and what have you. So I think it's a little more difficult to compare with last year where potentially you had some people that may have been on vacation and getting back -- getting ready to get the kids into school and that type of thing. You don't have those distractions as much right now.

And so I'm not saying July was our best July ever. I'm saying July was the best month we've ever had for sales ever regardless of month in a year. And so -- but anyway, hopefully that answers the question.

Mark Marcon -- Robert W. Baird -- Analyst

I appreciate it. That's like I'm saying if July was the best month ever, and it's not even the key selling season, that should portend well for September through December. What's the average float balance, what sort of effect yield are you getting on that now, Craig?

Craig Boelte -- Chief Financial Officer

Yes. We haven't disclosed the yield on our float balance, but we mentioned that 150-basis-point cut in March had about a $4.5 million per-quarter impact on us. We have some that's layered out. We probably -- we may not layer out as much as some of our competitors on that.

We're extremely -- we're conservative on the way we're investing those funds. But as our renewing, obviously the rates are pretty low on those funds.

Mark Marcon -- Robert W. Baird -- Analyst

Thank you. Congrats on the quarter.

Craig Boelte -- Chief Financial Officer

Thank you. Thank you.

Operator

Your next question comes from Steven Chang with Stifel. Please go ahead.

Steven Chang -- Stifel Financial Corp. -- Analyst

This is Steven Chang coming on for Brad. I just have one quick question calendar-wise. I believe that you mentioned in first quarter that that quarter had one less Wednesday than normal. Am I correct to assume that the September quarter will have an extra Wednesday this year versus a year ago?

Chad Richison -- President and Chief Executive Officer

That is correct. The quarter beginning -- yes, the quarter ending in September will have one extra Wednesday. And so I think it happened in 2015 last time. It's happened now in 2020 where Q1 had 12 processing Wednesdays and Q3 has 14.

And the point that we made in first quarter when we talked about this is that a Wednesday has roughly half of the week's revenue billing.

Steven Chang -- Stifel Financial Corp. -- Analyst

OK, great. Thank you so much for clearing that up.

Operator

Your next question comes from Brad Zelnick with Credit Suisse. Please go ahead.

Brad Zelnick -- Credit Suisse -- Analyst

Excellent. Thank you so much, guys. I got a couple of questions. Maybe just for starters.

Chad, I've always been very impressed by your go to market, your very disciplined approach to opening in maturing offices in geographies where you see opportunity. But given the success you're having with virtual sales now, does it change your long-term thinking about your go to market?

Chad Richison -- President and Chief Executive Officer

Not yet. I mean, we're going to go where prospects are buying and how they buy. If prospects continue to buy online, which -- I mean, I think it's a pretty good model. It removes all distractions.

And we're watching deals that normally, you'd have had a meeting this week and a meeting two weeks from now and a meeting two weeks from then. I mean, we're seeing in some deals, you have a meeting on Tuesday, a meeting on Thursday and a meeting the following Monday. So I think as you remove the distractions out of the way, I think even buyers are able to focus more on functionality as well and product replacement. So not yet, but we're looking at it.

We're definitely gaining some efficiencies within our sales process throughout management leadership, better development with salespeople because we're obviously on a lot more calls with them than what we were able to be physically in person. So -- as well as sales achievements continue to go up. So I like the environment we're in. Could have done without the whole impact to our current client recurring revenue.

But we like this type of sales environment that we're going through right now. But the fact is that the clients return back to having people in their office to buy this type of technology, then we're going to be in the office with them.

Brad Zelnick -- Credit Suisse -- Analyst

It makes perfect sense. And maybe if I could just follow up with one on pricing. You've now got the government's PPP program that's expired. Are customers asking for concessions when we think about PEPM on a like-for-like basis? How is that trending?

Chad Richison -- President and Chief Executive Officer

Yes. So we have a fair pricing model. You only pay for the employees that you pay. So if you have active employees within our system and you're not paying them, we're not charging you for them.

So that company that had 500 employees, that may now have 60 employees, we're only charging you for those 60 employees as you pay them. So it's a fair model. Does that mean we haven't had a client here or there that may have asked for that? I'm sure we have. But our model is a fair model in that you pay for who you pay.

Brad Zelnick -- Credit Suisse -- Analyst

Thanks so much. Excellent. And congrats to you on all the success in generating new business in the environment. thanks, guys.

Chad Richison -- President and Chief Executive Officer

Thank you.

Operator

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

Daniel Jester -- Citi -- Analyst

Great. Thanks for taking my questions. Just, first, on the product side. I think you briefly mentioned the Manager on-the-Go update.

It's been out six months now. Can you just talk about sort of adoption? And maybe more generally as you think about sort of the product, are there any big themes you're looking about in terms of sort of evolving and rolling out new features that have come across through client conversations in the last couple of months?

Chad Richison -- President and Chief Executive Officer

Yes. We've had a product road map for a while now, and you got to do first things first. And so for us, it was first getting employees to interact with the database. We've done a good job on that, but we can do better.

And again, I don't think there should ever be one change that the employee didn't make on their own. Because anytime someone else does it for them, it's duplicative. No HR department's reading an employee's mind. And so that said, there are some things obviously an HR person has to do that an employee is not privy to be able to do themselves.

So you have that. We came up with the app. Now we've moved into Manager on-the-Go. And the good thing about Manager on-the-Go is it's very similar to the app.

It's within the same technology, and it keeps the data flow moving: time card approvals, performance reviews, time-off approvals and what have you. And so it allows us to get to further automation as we move along. And so our goal right now is to be making sure that people are using all the products we have. The more use cases we have for these, the more companies that buy a full solution set because it's going to take the full solution set to have full automation.

And so yes, we continue to be aggressive with our R&D efforts. We rolled out thousands of updates this quarter. We're also finding efficiency throughout our R&D group from a number of hours that they are actually producing. We assign hours to a project.

Hours -- a project takes so many hours. We're producing more hours of development in this environment as well, and so we continue to be ambitious. And as we've laid the road map and especially as clients and their employees use these products, it gets us even closer to other areas of innovation and automation that we continue to move in.

Daniel Jester -- Citi -- Analyst

Great. And then maybe just a little bit of a longer-term question here. Over the years, you've invested a lot in sort of physical space, right? You've built a new campus in Texas. Last year, you made a big land purchase right next to your affiliate in Oklahoma City.

I guess, given how you've been able to pivot to more of a remote work environment, how do you think about the physical need for safety and the physical need to invest to help you grow the business over the next year or two?

Chad Richison -- President and Chief Executive Officer

Well, I've got -- I think we've got about 50-or-so people in -- occupying 1 million square feet right now, so we're overbuilt for the environment that we're in right now. I think it's too early to say. I mean, I do think there is something to be said about building relationships in face-to-face environments. So do I see a model where we're virtual? Not really, not from where I'm sitting right now.

I think had we not had those face-to-face interactions and built those relationships, working the way we are right now could have been a little bit difficult. But we're going to see what happens. I don't think we need to make those decisions today. But if there's an opportunity to be more efficient, obviously that's something we'd be looking to achieve, provided that supports the strong business continuity that -- objectives that we have today.

Daniel Jester -- Citi -- Analyst

Great. Thank you very much.

Chad Richison -- President and Chief Executive Officer

Thank you.

Operator

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

Brian Schwartz -- Oppenheimer and Company Inc. -- Analyst

Yes. Hi. Thanks for taking my questions. Chad, just wanted to drill down into the record sales and try to see if anything is changing out there in the market.

What I just wanted to ask you really, I know you've been pushing the self-service messaging for a couple of years now. You've really been evangelizing it. And I wonder if COVID-19 and the work-from-home trend now that that's taken hold, if that is somehow accelerating the messaging around self-service and that could be one of the drivers of the bookings momentum.

Chad Richison -- President and Chief Executive Officer

Yes. Absolutely. I mean, we've been running these ads for a while. I do believe people are getting it.

Also, people are having a lot of success with usage. So as employees leave one company and go to another, we're getting leads that way. Or even people that use the Paycom solution as an administrator whether they're in HR, payroll, benefits administration, procurement, performance, whatever they're in, they leave one company, go to another, they're bringing in an easier-to-use solution whereby the client wins. So absolutely a differentiated product is what's driving our sales results, but advertising, the differentiation is getting us those at bats, and so we've been focused on that.

Brian Schwartz -- Oppenheimer and Company Inc. -- Analyst

And then the one follow-up I had for either you or Craig was just trying to get, if possible, any more color in terms of what that growth is on the bookings. Is there anything that maybe you can help us, maybe even share what the bookings growth was last year in this quarter, since we know it's above that? Or maybe what your best month was in the company's history, since we know July would be above that, without necessarily giving the exact rate?

Chad Richison -- President and Chief Executive Officer

Yes. I mean, we haven't disclosed that, and that's kind of a rabbit hole we go down that we just continue to go down once we do. It is a fact that our Q2 bookings of this year was the highest booking quarter we've ever had. We've had great booking quarters before.

This is the highest we've ever had. And then it's also a fact that July, the month we're in right now, is the highest month we've ever had, which would tell you that our July month was better than any month we had in Q2. And Q2 was our largest new business quarter. So we just finished our largest month after having just finished our largest quarter.

So we'll see what happens the rest of Q3, but we've kept momentum ever since I shut us down for two weeks end of March. My mistake cost us about 50% of booked sales revenue for those two weeks. We got back to about 80% of where we were the first week of April. We got right back to where we were on pace toward the end of April.

And then as you've heard during this, that accelerated throughout the rest of the quarter, making it the largest quarter we've ever had for new business bookings. And then now we've just followed that up with our largest month. And we believe that right now, at least from what we can see and as we sit here today, our -- the impact of our current client revenue has stabilized, and that's why we've returned to guidance for Q3.

Brian Schwartz -- Oppenheimer and Company Inc. -- Analyst

Thank you for that additional color.

Chad Richison -- President and Chief Executive Officer

Thanks, Brian.

Operator

Your next question comes from Alex Zukin with RBC Capital Markets. Please go ahead.

Robert Simmons -- RBC Capital Markets -- Analyst

Hi. This is Robert Simmons on for Alex. So I believe you've opened one new sales office in the last two-plus years. Given the usual ramp time for new office, will this now be a good opportunistic time to open a few new ones? Or alternately -- alternatively, are you expanding your team sizes?

Chad Richison -- President and Chief Executive Officer

Yes. We haven't necessarily expanded team sizes. Now we did talk about how we've added inside sales teams. We started adding those.

We had one that we really put together through last year and then continued to add additional teams to that. Right now, everybody is an inside sales rep on an inside sales team. It's just our inside sales, by definition, focuses on below-50-employee companies, and our outside sales group, which again is working inside, focuses on above 50 employees. But we're just having great success with performance.

I think that the amount that any one rep sells is continuing to increase, and it has been. I mean, this isn't a phenomenon that just happened right now. Our top reps have continued to increase the amount that one rep can sell. And so it's not that we've hired a bunch of extra reps, it's that we're having very strong performance among our sales rep group with some moderate increases in inside sales teams as we fill them out.

Robert Simmons -- RBC Capital Markets -- Analyst

Got it. Great. And then can you size the impact of lower unemployment levels on 2Q revenue? Can we take that $2 million and multiply it by 13? Or is that too simple?

Chad Richison -- President and Chief Executive Officer

Roughly, it will be -- yes, it will be $2 million multiplied by 13 for the quarter.

Craig Boelte -- Chief Financial Officer

Yes, plus the impact on the interest.

Chad Richison -- President and Chief Executive Officer

And then the interest would be what we called out last quarter was $4.5 million per quarter, which I think--

Craig Boelte -- Chief Financial Officer

You're again close to $30 million.

Chad Richison -- President and Chief Executive Officer

Yes. $30 million total for the quarter.

Robert Simmons -- RBC Capital Markets -- Analyst

Got it. Great. Thank you.

Operator

Our next question comes from Ryan MacDonald with Needham. Please go ahead.

Josh Reilly -- Needham and Company -- Analyst

Hey, guys. This is Josh on for Ryan. What assumptions are you baking in the Q3 guidance for improvement in employment trends versus new customer growth? Do you expect that $2 million per week to remain steady in your assumptions? And then the benefit of the extra Wednesday, is that roughly an $8 million benefit to the quarter with a half week of recurring revenues?

Craig Boelte -- Chief Financial Officer

Yes. The -- first off on the extra Wednesday, that would have been kind of the pre-COVID levels. Now you're looking at more of a $6.5 million to $7 million range on that impact on the quarter. In terms of the Q3 guidance, what we've seen so far as it relates to our current client base is not much of an improvement.

It kind of hit that $2 million level and has stayed there. And any improvements kind of ending unemployment level would have minimal impact on us, unlike what obviously happened in April where it went up so much, so we really haven't baked in any improvements. We haven't seen any, so far, for the quarter.

Josh Reilly -- Needham and Company -- Analyst

OK, great. And then just one follow-up. How should we think about your hiring plans in the back half of the year versus pre-COVID plans earlier this year? Do you feel like this is also a time to ramp up hiring more than you had maybe originally expected at the beginning of the year?

Chad Richison -- President and Chief Executive Officer

I think it depends on the department. I think that you're going to see every business come out of this more efficient. I think we all sent groups of people to work from home, and we all had groups of people working different ways from home. And as you go through any business and you start identifying who's doing what, there's opportunities to become more efficient across the board, which we've taken advantage of that.

So I think all businesses come out of this leaner than what they did going into it, to be honest with you. And I think that we've seen some of that. Now that said, just like we pulled back a little bit on getting people out there selling for those couple of weeks, we did very similar with our recruiting and hiring opportunities. Those have kicked back up, especially on sales, R&D side and some of the others.

And so -- but we'll continue to look at that and staff at what we need. So yes, I mean, we have started to rehire again, for sure.

Josh Reilly -- Needham and Company -- Analyst

Got it. Thanks, guys.

Operator

[Operator instructions] Your next question comes from Arvind Ramnani with Piper Sandler. Please go ahead.

Arvind Ramnani -- Piper Sandler -- Analyst

Hi. Congrats on a good quarter. Just an overall question. Certainly when the pandemic hit, you went into changing how you sell your product, how you sell to your clients.

Now that that's settled, two questions here. What areas were you most surprised about from upside and downside perspectives? And secondly, are there any sort of permanent changes you're looking to kind of put in place?

Chad Richison -- President and Chief Executive Officer

Yes. I mean, I would say the upside perspective's obviously the sales piece. And I do think that this has, like I said, the pandemic has exposed weaknesses and also create opportunities. I think probably every business would like their employee to have a direct relationship with the database.

Maybe they just didn't want to have that conversation, and now it's much easier to do that. From a surprise to the downside, I guess I'm surprised that our number -- the impact to our number got to where it was, and it stayed there consistently week to week. I would have expected some fluctuation in it getting worse over time and then getting better over time. It seemed to have gotten really bad at the beginning and stayed there.

But I also think maybe clients took their hits early. And hopefully, if that's the case, we will see -- continue to see stabilization in the number. We have thus far -- I mean, we've seen stabilization in the number now for almost three months. And unemployment, as you guys have seen, has moved up and down.

But I will just go back to what I say. The most accurate unemployment data is derived from a random survey of 60,000 households that have 110,000 people. So that's the most accurate number that we're all trying to tie to, and it's difficult to tie to. You can take that number.

And then also what I said is pre-COVID, the number of initial unemployment claims was around 200,000. I mean specifically first week in January was 212,000; second week, 207,000; the next week, 220,000; the next week, 212,000; first week of February, 201,000 and 204,000. You get to the thing. And then we get to the third weekend of March, it jumps to 3.3 million.

The next week, it's 6.8 million. The next week, it's 6.6 million. And then it goes until over these last, I'm going to call it six weeks, you've been in between 1.35 million and 1.5 million for weekly initial unemployment claims filed. Far cry, almost seven times the number of initial claims filed pre-COVID, and we're still -- our numbers are continuing to be stabilized.

We're not seeing that impact. And so we're going to separate ourselves from that comment. It was an important comment. We weren't giving guidance.

We needed to give directional, and so we did that. But now we know the direct impact that it's going to have on our numbers. And so like I said, we're building a new baseline here. Hopefully, it's built, and we'll see.

But we're also building the launch pad as we head forward into next year, and that's what we're focused on. If unemployment numbers get better with our clients, then we're going to experience some growth. If unemployment numbers get better from a survey and not with our clients, then we will not experience organic growth of current client revenue. It's going to come from the heavy lifting of new business sales, which we continue to achieve in great fashion right now.

Arvind Ramnani -- Piper Sandler -- Analyst

Yes. That's super helpful. On the existing clients, the clients have been reducing headcount, you talked about some level of stabilization. Are you able to help us think through what regards you all are seeing for that return, where existing clients go back and rehire employees that either furloughed or laid off?

Chad Richison -- President and Chief Executive Officer

Yes. I mean, I believe that. Some of the ones that I'd mentioned before, I mean, I know we had health clubs. We had hotels.

We had -- we had some different groups that were impacted by that. Could we get some uplift? Yes, we could. We absolutely could. Could we be negatively impacted more in areas that haven't yet experienced a significant shutdown? I don't know.

Maybe, but we're just going to have to wait and see. But one thing we did was we went through an analysis of what were the impacts on the current client revenue. What were those numbers? When did they start? And what's been the movement since? And I believe that's the most relative number to us. And so we've seen stabilization.

I'm hopeful that that stabilization continues. We feel good about third quarter. That's why we've gone ahead and returned to guidance here in the third quarter, and then we'll see what happens subsequent to that. But thus far, for the last three months, our numbers have been stabilized as far as the negative impact on our current clients' unemployment trends.

Operator

There are no further questions at this time. I'll turn the call back to Chad Richardson for closing remarks.

Chad Richison -- President and Chief Executive Officer

All right. Well, I want to thank everyone for joining us on the call today, and I'd like to spend -- send a special thank you to all the employees for all the valuable work they're doing. Over the next couple of months, we'll be meeting with investors virtually at the Oppenheimer conference on August 12. And in September, we plan to participate in the Citi and Jefferies virtual conferences.

We appreciate your continued interest in Paycom and look forward to connecting with many of you soon. Thank you, operator. You may disconnect.

Operator

[Operator signoff]

Duration: 60 minutes

Call participants:

James Samford -- Head of Investor Relations

Chad Richison -- President and Chief Executive Officer

Craig Boelte -- Chief Financial Officer

Raimo Lenschow -- Barclays Capital -- Analyst

Samad Samana -- Jefferies -- Analyst

Mark Marcon -- Robert W. Baird -- Analyst

Steven Chang -- Stifel Financial Corp. -- Analyst

Brad Zelnick -- Credit Suisse -- Analyst

Daniel Jester -- Citi -- Analyst

Brian Schwartz -- Oppenheimer and Company Inc. -- Analyst

Robert Simmons -- RBC Capital Markets -- Analyst

Josh Reilly -- Needham and Company -- Analyst

Arvind Ramnani -- Piper Sandler -- Analyst

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