Q3 2019 Earnings Call

Good day and welcome to the pay calm third quarter 2019 quarterly results conference call.

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At this time I'd like turn the conference over to James Samford.

<unk> head of Investor Relations. Please go ahead.

Thank you.

Welcome to say comps third quarter 2019 earnings call.

Certain statements made during this conference call that are not historical.

Including those related to our future plans objectives and expect to performance.

Our forward looking statements within the meaning of the private Securities Litigation Reform Act 1995.

These forward looking statements represent our outlook only after the date this conference call well, we believe any forward looking statements made in this presentation are reasonable actual results could differ materially because these statements are based on our current expectations and subject to risks and uncertainties.

These risks and uncertainties are discussed in our filings with the FCC.

Putting our most recent annual report on Form 10-K , and our most recent quarterly report on Form 10-Q .

Sure referred to I consider these factors when are relying on such forward looking information.

Any forward looking statement made speaks only as of the date on which is made when we do not undertake and expressly disclaim any obligation to update or alter our forward looking statements.

As a result of new information future events or otherwise, except as required by applicable.

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 under Sasol 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.

It is available on our website investors topic dotcom.

I'll now turn the call over to Chad Richison, Paycoms, President and Chief Executive Officer.

Yeah.

Thanks, James and thank you everyone joining our call today I'll start by reviewing another strong quarter of robust profitable growth and provide you. Some comments on employee usage direct data exchange and ask here [laughter] I'll finish by discussing the scale of the human capital management or H.C.M. industry, and the strength of our position within it.

Then Craig will review, our financials and outlook before taking your questions [laughter] third quarter results were strong driven by robust new business ads and are durable high margin recurring revenue business Q3 revenue was approximately 175 million representing growth of 31% over the prior year period adjusted EBITDA.

66.6 million in Q3 represented a year over year margin expansion of roughly one percentage point to 38% with these strong results and our expectations for continued strength in Q4, we're raising full year revenue growth guidance to approximately 30% year over year at the midpoint of the.

A range, which Greg will discuss in more detail in his remarks [noise].

We have a lot of great things happening here, a pay com, we'd been leading the charge in the H.C.M. industry with our focus on employee usage that we believe is fundamental to the future of our industry and we're starting to see this thing echoed in the marketplace with pay calm our clients benefit from higher employee engagement increased productivity in jobs.

Satisfaction, we continue to find new ways to encourage businesses and their employees to embrace the digital transformation in the workplace just as they already have in their daily lives easier to use solutions, including mobile apps continue to be important drivers of employee engagement earlier this year, we introduced.

Our clients to the direct data exchange or Dx and we recently demonstrated this disruptive tool as part of the awesome New Tech showcase it HR Tech.

The ability to track and measure all data changes made by employees and all duplicative data entries made by client Representatives allows us to quantify the cost savings that our clients might realize if they were operating at or near 100% de Excor, just like pay calm and many of our clients are already achieving.

Today perspective clients are taking notice of the de acts and we're receiving leads from it including perspective clients well above our stated targeted range.

Who upon implementation are achieving great results with the BDX.

To put the potential cost savings in perspective, well clients are achieving an average DD excor approaching 90% if all of our clients were operating at 100% de Xplore, we estimate that could save an aggregate of nearly a half billion dollars annually until the launch of Dx no one in our industry let alone.

Our professionals knew what appropriate employee usage look like where how to measure and now we can taken a step further in a tribute and measurable estimate of ROI to incentivize further employee usage, we're very pleased with the DDS adoption levels, we are seeing but there's still a lot of cost savings steel.

Yet to be captured by our clients as they migrate the de ex usage scale.

Last quarter, we launched ask here to our clients a tool that gives employees a direct line of communication to ask work related questions have their company representatives and receive time might answers all through the convenience of pay calm self service technology, while it's still early already half of our clients have enabled the new feature.

And the initial feedback has been very positive I'm very excited about the benefits companies and their employees are starting to experience and look forward to continuing to reiterate and develop this new tool.

These innovations further enhance the employee employer experience and strengthen the clients employee usage and mission.

Which are contributing to our rapid sales growth in market share gains within a large and expanding HCM addressable market to conclude I'm, particularly pleased with this very strong third quarter with every metric pointing in the positive direction.

And continued strong demand and new sales growth with 98% recurring revenue, we're setting up really well for 2020, I'm confident that our product strategy, our people and our high performance culture position us well for the long term, we're delivering tremendous value to our clients and their employees as we lead them through.

The digital transformation of the HCM industry with that I'll turn the call over to Craig for a review of our financials and updates the guidance Craig.

Before I review, our third quarter results for 2019, as well as discuss our outlook for the fourth quarter and full year 2019, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis as Chad mentioned, we were pleased with our third quarter results, but total revenues of 175.

A million representing growth of 31.3% over the prior year period in our revenue growth continues to be primarily driven by new business wins within total revenues recurring revenue was 171.4 million for the third quarter of 2019, representing 98% of total revenues for the quarter.

And growing 31% from the comparable prior year period.

Total adjusted gross profit for the third quarter was 149.4 million representing an adjusted gross margin of 85.3% for the full year 2019, we anticipate that our adjusted gross margin will be between 85, an 86%.

Total adjusted administrative expenses were 94.4 million for the quarter, that's compared to 70.7 million in the third quarter of 2018, adjusted sales and marketing expense for the third quarter 2019 was 46.7 million as compared to 35.2 million and a third quarter of 2018.

Adjusted R&D expense was 18 million in the third quarter of 2019 were 10.3% of total revenues total adjusted R&D costs, including the capitalized portion were 24.8 million in the third quarter of 2019 compared to 16.1 million in the prior year period.

Adjusted EBITDA was 66.6 million or 38% of total revenues and the third quarter of 2019 compared to 49.2 million in the third quarter of 2018, our GAAP net income for the third quarter was at 39.2 million or 67 cents per diluted share based on a.

Approximately 58.4 million shares versus 28.8 million were 49 cents per diluted share based on approximately 58.5 million shares in the prior year period.

Our effective income tax rate was 22.5% for the third quarter and 18.1% for the nine months ended September Thirtyth 2019 for the fourth quarter, we expect our effective income tax rate to be roughly 27% to 28% for the full year, we expect our effective income tax rate to be roughly 20.

To 21% for the fourth quarter, we anticipate noncash stock based compensation expense to be approximately 6 million to $7 million.

non-GAAP net income for the third quarter of 2019 was 41.1 million, where 70 cents per diluted share based on approximately 58.4 million shares versus 30.6 million or 52 cents per diluted share in the prior year period, we anticipate fully diluted shares outstanding will be approximately 58.

Okay and shares in the fourth quarter of 2019.

Turning to the balance sheet, we ended the quarter with cash and cash equivalents of 108.1 million and total debt of 33.1 million. As a reminder, this that represents a financing of expansion related construction at our corporate headquarters. The average daily balance of funds held on behalf of clients was approximately 1.1 billion in that.

Third quarter of 2019.

During the quarter, we purchased 107.5 acres of land adjacent to our corporate headquarters in Oklahoma City for 19.2 million well. We currently do not have any plans to build on it it was an opportunity for us to establish additional space around our existing headquarters a future business needs required.

Now, let me turn to guidance for the fourth quarter of 2019, we expect total revenues in the range of 188.5 million to 190.5 million, representing a growth rate over the comparable prior year period of approximately 26% at the midpoint of the range, we expect adjusted EBITDA for the third quarter in.

The range of 72 million to 74 million, representing an adjusted EBITDA margin of approximately 38.5% at the midpoint of the range for fiscal 2019, we're increasing our revenue guidance to a range of 733 million to 735 million or approximately 30%.

Year over year growth at the midpoint of the range. We're also increasing our full year 2019, adjusted EBITDA guidance to a range of 311 million to 313 million, representing an adjusted EBITDA margin of approximately 42.5% at the midpoint of the range with that we will open the line.

For questions.

Operator.

Thank you.

We will now begin the question and answer session.

To ask a question you May Press Star then one on your touched 10 Fad.

If you are using a speakerphone. Please pick up your handset before passing the keys and to withdraw your question. Please press Star then too.

We ask questioners to please limit themselves to one question and one follow up.

And at this time, we will pause for a moment to assemble a roster.

My first question today will come from Raimo Lenschow of Barclays. Please go ahead.

Hey, Thanks for taking my question and congrats to another great quarter at two question.

Chad can you talk you mentioned earlier in your comments, that's a de acts it's kind of pulling you slightly high up in the market can you kind of expand them that little about is that like into that two to 5000, a employee category that you kind of had to kind of.

Given into the field force or last year or is that even above that and kind of what's the momentum that you're seeing there and then a question for cracked like even I have no discover it that to your EBITDA margins are higher compared to lock you can you talk a little bit about the drivers and in that.

While you're talking about that talk a little bit about as well what you saw from the TV advertisement that you saw last year and and if that kind of we're successful enough to kind of run. It again this year. Thank you.

All right well first dry mouth, I think you squeezed in about four questions, but I will handle.

[laughter] the de X or you know what I said was we are beginning to get leads from having the Dx and that's true.

In fact, one particular client that we had was double our stated range and they've already made 2 million changes in the last four months and they have a dx score of about 99% and so it is differentiating us out there in the marketplace for those businesses that do want their employees to have that direct.

Our relationship with the database as as it were for both the input and data retrieval I'll, let Craig talk a little bit about adjusted EBITDA, Yeah. Yeah in terms of our guidance for this quarter IMO. You know, we're we're currently guiding us basically where at the midpoint this year in this quarter.

Where we finished last year, so you know.

Nice of you didn't notice that.

Some of the given takes no we're continuing to.

Spend on the R&D and on the sales and marketing and then we're starting to see a the efficiencies in the DNA line. As we're you know if you remember last year.

Towards the end of the years when we bought that building online. So I was seeing some efficiencies there.

And then you know your question on the TV AD Yeah, we.

We are seeing some TV ads is for fourth quarter, but any of that is already baked into our current guidance and they were successful as we head into into last year, which is why we are continuing them into a.

A little bit in third quarter in fourth quarter this year.

Perfect well done okay. Thank you congrats.

<unk>.

And our next question today will come from Mark Murphy of JP Morgan. Please go ahead.

Yes. Thank you very much I'll add my congrats I chat I'm curious what percentage of the new logos that you're signing recently are.

Good are signing up for a 100% mandated employee usage.

Yeah, I mean, we've continued to have that growing as far as receipt getting to pledge or you know I'd have to look through exactly that is a growing number I can't say that it's 100% of them. What I will say, though is 100% of all of our clients that are onboarding. We are seeing increased dx scores from the big.

Beginning so they're out of the gate number of Dx for those companies that have converted in third quarter are higher than the out of the gate Dx scores from those that had converted or in the previous quarter and so we are continuing to see growth in the Dx initial scores month over month, which does continue to.

Push our aggregate number of Dx shop.

Okay, great. Okay, Great and then Craig it's impossible to quantify the any incremental drag you'd expect in 2020 from the a interest rate reductions in overall interest rate environment.

Yeah, I mean, we called out that a you know <unk> average daily fun balance was a 1.1 billion. So you know at 25 basis point decline would you know it would obviously layer in but are you know the full 25 would be somewhere in that too and I have to 3 million, yeah and last year, we did benefit from some interest rate.

[noise] raises a you know this year, we've had some interest rates headwinds as they've started to reverse we continued to put up the numbers in face of those headwinds last in the last 21 years I mean, we received yields as high as 5.9% on overnight sweep accounts and as low as zero.

You know we have a very small percent of the Tam and Oh, we have the most differentiated product in the marketplace and we feel comfortable about being able to whether whatever happens with interest rates. It is important to note, we sell more and new business and a week.

Than any quarter point drop in interest rates and so our annualized sales on average on any given week is greater than any quarter percent interest rate drops. So there. It is out there a you know it does create some headwind obviously, but we've been pushing through it as you've seen in this quarter.

Thank you very much.

Our next question today will come from Brad Zelnick of Credit Suisse. Please go ahead.

Great. Thank you so much.

And I'll Echo my congrats as well nice results.

It's it's the time of year, where we see enter a interesting product developments being rolled out across the H.M. space more broadly from a competitive viewpoint, whether it's on demand pay or layers of intelligence that are augmenting various HCM processes.

I just want to our customers asking for things that competitors have been showcasing and in the past few quarters, you've had to hinted at additional products as well any teaser's on future product or right direction or.

Places, where you'd go or places, maybe where are you definitely wouldn't go that you'd even directionally be able to give us a sense of how you're thinking about things from a from an R&D perspective.

Yeah. So I mean, our R&D buckets have been substantially the same as far as what our spend as you are going to have a certain portion on compliance are the things we have to do to keep our software updated in accordance with the both labor laws as well as tax laws deposit violent you're going to have another piece of that that continue a third of that is going to be to continued.

To expand their not proportionate I'm, just saying there's three categories at any given time, you can be and want more and one category than the other but a second category. So first category is what I just mentioned more of the compliance side. A second category is continuing to develop out deeper within our current product set making them better and so we continued.

That that third category of the three would be innovation and that's us developing items like the Dx like ask here that are typically replacing nothing a within our industry or some other third party concept and so we do continue to work on that staying true to ourselves we don't disclose those products that were working.

On and tell their out but you will continue to see as you have in the past further innervate innovation from us as well as continued to go deep within our product set to drive more value for the client.

I appreciate that and I appreciate the commentary maybe just in follow up from a go to market perspective, again heading into a new year and I know, you're probably still in the midst in a thick of your planning cycle, but as we think about your go to market somewhat unique very definitive model that you have pursued you guys have a couple of quarters ago.

I think it was we talked about moving up market, which really wasn't a change from what you had been doing but is a great sales leader. Once said to me you know if you're doing the same things this year to be successful that you did last year. You know you gotta mix. It up any early thoughts on just the learnings from the changes in the tweaks that you've made to the model over the past year or so or.

Couple of years, and you know directionally, what what we might be in for as we look forward.

Yeah. So you are right you have to continuously change your your strategy. Your go to Marc Stratton. Your go to market strategy as the product continues to change too I mean, if we are going to market. The same way today is what we went three years ago. When we have a different product today than what we had three years ago that would be a a problem for us.

You know, we're only getting stronger as an organization I mean, we have a very small percent of a large tam we're creating a larger competitive moat. This year shaping up to be our best year as an organization and last year was hard to follow as probably our best year up until then I bet. You know here, we set up about ready to step out another third.

<unk> percent growth with a role Usseventy again, and you know so I feel like we're doing really well and we're set up very well for as we head into next year.

Oh, congrats on all the success thanks guys.

Our next question will come from Brad Reback of Stifel. Please go ahead.

Great. Thanks, very much can you give us an update on the inside sales initiative, how that's progressing.

Yeah. So we started that I believe I announced it last quarter, we had started a little bit before where I think we had five reps we had moved in outside sales manager and to build.

That group, we now do have a two teams a inside sales teams no change in strategy. There just in size. They do continue to catch those deals a businesses that are calling in below 50, as well as a catch those deals that might be out of territory areas, where we do not have an office where they can.

And picked up some low touch opportunities there so nothing's really changed there except they are staffed.

Great and then just one quick follow up R&D spend has increased as a percent of red again at a very nice pace since you've continued to obviously it could.

Good money back into the product any sense longer term, where we should expect that to stabilize as a percent of revenue.

Yeah, I mean, we continue to increase our R&D spend I mean from quarter to quarter I think sometimes it goes up a little bit and percent of revenue there are some quarters, where its fluctuated a the opposite way when you're looking to quarter over prior year quarter, but we do continue to.

Invest in our in our R&D strategies and so it's all relative two as as to our growth as well, we're still very focused on continuing to be a very strong growth company and that would require us to continue to invest in the product.

Great. Thanks, very much thank you.

And our next question today will come from Mark Mark Hahn of Baird. Please go ahead.

Hi, Good afternoon, and let me add my congrats.

You know with the DTN X.

Okay.

While connector Dx itself to usage. Good is good could pbxs measuring as that continues to track up can you talk a little bit about.

How that's impacting the sales force and.

The ability to go out and convert sales lead how well we've got resonating and then also what would you anticipate as we go through the year from a risk from a retention perspective, because it would seem like you've got some really nice proof point.

Sure well some prospects have that initiative and so they have an initiative to have their employees have a direct relationship with the database as we're in 2019 and beyond they see that as a huge benefit to the organization other clients or they might see it as a benefit to the organization.

Patient, but.

They're not yet ready to actually take it on and so with those clients. It. It is a different type sales process, where we have to acclimate them to the ideas something they haven't been used to in the past and so we continue to do that and so I would just say some sales it's much easier for us and some sale since we are.

Bringing something to market that's different than what they're used to Oh, we have to we have to sell a different way, but we haven't seen any elongated sales process times and or conversion times from it. It's just it's different as far as conversion I always think that the more value you bring to.

To clients in a more usage that you're able to establish a you know the longer clients look to stay with you as far as that retention, we do update that once a year.

We are updating that now and as we move through the end of the year the numbers start to change or as you go through October November and December and so we'll be updating that at the first of the year.

Great Great just ask a quick follow up with regards to theirs, because you're planning for next year.

What's the organizational readiness for expansion in terms of new offices.

Your your obviously doing a great job in them in the markets you're in but just wondering.

Broadening out the coverage.

Yeah. So we are opening up offices as part of our strategy. We did open up New Orleans as well as expand at an inside sales team. So far this year I will point out that of the more than 20 billion of Tam or that we have we've already got half of it covered in the markets that that we have opened our FFO.

Focus is on productivity of sales reps as well as careful expansion and execution and I mean as you can see from the results of strategy is working.

Correct.

And our next question today will come from Brian Schwartz of Oppenheimer. Please go ahead, yeah, hi, Thanks for taking my questions chat with just a thought maybe I'd ask you just a question out any update that you're aware of in terms of the competitive landscape are you seeing any changes in terms of the win rates that you're aware of.

Or maybe where the replacements are coming from and then the follow up question I had for Crag was just on the cash flow in the quarter. It it came in quite a bit higher than where I had modeled Dan just wondering if maybe you were able to spend everything that you want to spend in the quarter. Thanks.

Yes, I'll take the first question I would tell you its usual suspects for us as it has been a for a long time and our win rates aren't getting any.

Well that.

Our win rates aren't going down so I can just say that from there.

Hi, I'm in terms of the cash flow, it's kind of where we expected I mean, you know you're going to you're gonna have a unison some variation quarter to quarter as it relates to let's say tax payments and things like that but yeah I feel like we were probably spending at the right levels.

Thank you.

Our next question today will come from Nandan Amladi of Guggenheim Partners. Please go ahead.

Hi, good afternoon, not thanks for taking my question I'm sort of a gross margins how much of your gross margin improvement was driven by this push for automation versus just natural scaling the business as we get larger.

I mean, I mean, obviously, we're saying you know this employee usage strategy that it is having an impact.

On our gross margins you know, we're able to see that you know our specialists are able to handle a larger volume just because our clients are using the system in their employees are using the system, but kind of to the full of so it is having an impact on our gross margins.

Okay, and then on the move up market.

Would you characterize any change and sales cycles as you move up market Chad.

No I wouldn't and I want to say, we haven't moved any further up market. Our range is still the range. We've always continue to get a clients at the upper end of our range in the past. We just have had success with people contacting us with the strategy a little bit more so than what we had in the past so we kind of called that out as far as sales cycles.

And as well as conversion cycles does have stayed the same.

Okay. Thank you.

Our next question will come from some odd somebody of Jefferies. Please go ahead.

Hi, good afternoon, and thanks for taking my question Chad I guess can maybe following up on the on the up market success I'm curious if you see a different trend in the modules that are customers at a at the upper end of your of your customer base are adopting or if there's something in particular that that brings them over or.

You are seeing greater uptick of that's driving that success.

Yeah, I don't know that I could call out greater adoption up market. We've always had strong adoption of our products our clients take a greater than half of the products that we have at the time at conversion and that hasn't changed a market either.

You still there some oh great.

I did not have evolved question [laughter] hybrid debt it [laughter].

Our next question today will come from Arvind.

<unk> of Keybanc. Please go ahead.

Hi.

Thanks for taking the question good as I was.

Just on the employee engagement and D.

So just wanted to see our yard.

Continuing to see more more success if this offering.

Do you think give me kind of.

Definitely our kind of anymore due to the charge modified you essentially be or kind of success our percentage of cost savings.

Thank you all think clients. So you don't think you may go that route.

Well no I mean, I don't I actually think the more you use our system the better it is for pay come to you know I will tell you that most business most software companies at least if you look historically, they're not necessarily advertising how much of the system, you're using we're actually measuring it or leading with it we want you to use the full system and so.

I don't see US you know charging clients more for using the system you know they've already bought the modules and so once you've made that investment you may as well I've always said cost you. The same whether you get the full value out of the system or not and in order to get the full value out of the system. That's about you.

Average and being able to measure that for our clients are that they received that value and that return on investment I think is making the difference.

Great and then.

Well the things we have talked about a is essentially you're focused on on automation.

Yes, correct like product set and offering.

Where do you say if anything has sort of the greatest.

Kind of opportunity for further automation.

Employee productivity.

Okay.

Great great. Thank you.

And our next question today will come from Ryan Macdonald of Needham and company. Please go ahead.

Hi, Chad and Craig Thanks for taking my questions. No first off I was interested to see that paycoms presence at HR Tech with a boost the first time in quite a while.

Just curious what really went on to that that decision, making process and you know if you could talk about any of the benefits that you've seen since then from either increased brand awareness or from a lead generation perspective.

Yeah I think this was our third year in a row to attend a HR tech, but you're right. We had we had been absent from it prior to that.

So yeah, I mean going through trade shows and what have you indefinitely HR Tech is something that we had started doing about three years ago. We did continue it this year and it gives us an opportunity to highlight a new products that we've developed I think we implemented DHR breakroom last year, where we had it I think somewhat in the middle the.

Floor and so we do continue to make those investments and in trade shows as well and HR Tech is a good one for us to go too.

Got it and then just a follow up on the ask your communication platform. I think you mentioned that about half of your customers and enable that since you had launched it or announced it what sort of usage trends are you starting to see you know even though it's early days there and you think this is something that had takes a similar path to what you're seeing with directed exchange. Thanks.

Yeah, I would say there are a little different I mean, DT access kind of the score card to the strategy that have that a business might implement and ask years actually something that should continue to grow I mean, you're somewhat limited by your imagination on questions. I mean, you set up the categories of questions. It can be whatever you want you set up who are the.

Company representative expert on a those questions whether its benefits administration question, where it's a how do I get a key.

A question or whatever I T questions resources, whatever they're all right there and so what it allows the company to do is set up those categories and then for employees oftentimes. They don't know who to ask with ask here you don't need nothing to ask you just ask your question of ask here and it knows who the approach.

I appreciate person to respond to that question is and so it just greater drives a employee adoption. If you will as well as that builds that conduit once again between the employer in the employee for stronger communication and so there are a little different ask your versus Dx, but both are strong.

Yes.

Thank you.

Our next question today will come from Daniel Jester of Citi. Please go ahead.

Hi, Thanks for taking my question I, just to kind of build off the last one when you're introducing the new functionality that platform like he acts like here can you just kinda philosophically talk to us about whether you want to charge for that what do you want to give it away for free like how do you think about when you're introducing new you.

<unk>, how do you think it get your clients, it's ultimately benefit most from.

Yeah, I mean, I see that as a kind of a it's hard for me to answer that question without giving out too much competitive strategy on exactly how we decide which products were going to develop in which we're going to charge for I can tell you. This though there are certain products that it's so important that you get a 100% usage on you probably don't.

When it goes to the time of trying to sell it over the next year two to clients Dx was definitely one of those types of products that could we have sold it maybe a you know on the margin, but I would rather have a 100% people using it and that's the same with ASCII or they just both creates so much value.

And and so I would just leave it at that we do continue to develop other products that would be for fee products, but these two I really felt like it's important for us to get a 100% usage out of it we're getting close on the data he acts as far as I mean, we've had at least every client click through it from that.

Perspective, and then on ask care, we actually have a 50% of the clients using it right now and I see that adoption rate only increasing as we head throughout the fourth quarter and into next year.

Great. Thanks, and then on the balance sheet, and you're ending with over 100 million on the balance sheet.

He just sort of talked about.

How you how you view deploying that cash and is there a time in which you will become more structured with letting you know investors know about whether you're going to be using that cash for for buybacks et cetera. Thanks.

Yeah, I mean, we are approaching over or were over 100 million now on the balance sheet and a you know I mean, our first.

Priority is to invest in growth and the R&D side and a you know as you're aware you know, we still have 120 million available under our current or existing buyback plan and that is one of the ways that we returned capital to shareholders. We were very opportunistic in 2018 towards the end and have continued to.

Bill back our cash position throughout this year.

And our next question today will come from through <unk>.

Cantor Fitzgerald. Please go ahead right.

Hi, Thanks for taking my question just one for me on Dx and ask here, but are you seeing any differences on people picking it up quicker maybe they're larger clients are smaller clients. Just anything you can point to of how quickly people are adopting it in different areas.

Yeah. So you know all products start off right. When you put it out then you got to train the sales organization and what have you seen it takes a little while before the sales organization is necessarily selling it that way from the beginning I can tell you on both of those products if clients are coming into day, there on those products, but we've got a lot of clients that we've had in the past that we.

Didnt sell on those products from the beginning but new business coming and should all be using the Dx and ask here, but we still have a large client base that we've had to circle back to and we've done a good job as I mentioned with the Dx last quarter and as I've mentioned on this call with ask here, we've done a good job circling back to those clients and make.

I'm sure there capturing the value of these products that are just included to further drive ROI.

Thank you.

And our next question today will come from Citi Panigrahi Mizuho. Please go ahead.

John I just wanted to.

Drill into the Q4 pipeline I would just easy it is strong quarter in done so new customer iron. So are you seeing any more and more traction in terms of by playing in suits sport like 502, K. range or are you seeing more than the opposite end side you know.

2000 to 5000.

Any come out in terms of demand environment.

I mean, no real change there I mean I used to talk about the top end of our range and I was talking about above 2000, now when I talk about the top end of our range I'm talking about above 5000. So I mean, that's a that's had some change a little bit you know we've got a strong guide going into Q4.

In fact, our guide or this year heading into Q4 is larger of a percentage than it was last year heading into Q4, and so we feel really strong about what we have in the pipe for Q4.

And we're seeing strong demand across the market would be the answer to that question.

That's great. Thank you.

And our next question today will come from Robert Simmons of RBC capital. Please go ahead.

Hi, natural gas.

What has been the response or pushback or to the recent price increase you put through.

Yes, so I mean, we did a pricing adjustment. If you guys remember we did that it had it had very little to no impact on fourth on first quarter excuse me. It will have about a one per cent impact for the full year I mentioned that I believe and second quarter I said at that time week.

Consider pricing adjustments to be competitive in nature. So it's not something that I'm going to talk about moving forward and how we choose to price or our product.

Hi can you talk to have you seen any clients I'm, having a negative reaction to it or are they basically just taken and strikes that such a small percent.

Yeah, I feel really good about our pricing strategy and as I've said before we were able to have a price adjustment to a select group of clients. It had a very small impact on first quarter.

On the quarters subsequent to that we expect about a 1% total impact on our on our organization for this year and moving forward pricing I do consider to be competitive and it's not something I want to talk about.

On these calls.

Alright, great. Thanks, Thank you and ladies and gentlemen, this will now conclude our question and answer session. At this time I'd like to turn the conference back over to Chad Richison for any closing remarks.

All right well I want to thank everybody for joining us on the call today over the next couple of months will be on the road meeting with investors at the following conferences, Craig and James will be hosting investor meetings at the Stifel growth Conference in Chicago on November 7th ended the RBC Tech Conference in New York on November 19th I'll be presenting at the credit Suisse.

The conference on December 3rd and Arizona as well as at the Barclays Tech and media conference in San Francisco on December 11th. We appreciate your continued interest in pay Com, we'll look forward to meeting with many of you soon on the road. Thank you operator, you may disconnect.

Thank you Sir the conference has now concluded we thank everyone for attending today's presentation and you may now disconnect your lines.