Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Paylocity first quarter.
School year 2020 earnings conference call.
At this time all participants are in listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised the today's conference is being recorded if you require any further assistance. Please press star zero I.
I would now like to hand, the conference over to Ryan Glenn Vice President of S.P. in a in Investor Relations.
Good afternoon, and welcome to pay lots of these earnings results call for the first quarter fiscal 2020, which ended on September Thirtyth 2019, I'm, Ryan Glenn Vice President of S.P., Dane Investor Relations and joining me on the call today, a steep beauchamp CEO Paylocity and Toby Williams CFO Paylocity today, we will.
I'll be discussing the results announced in our press release issued after the market closed a webcast replay of this call will be available for the next 45 days on our website under the Investor Relations tab.
Before beginning we must caution you that today's remarks, including statements made during the question and answer session contain forward looking statements. These statements are subject to numerous important factors risks and uncertainties, which could cause actual results to differ from those results implied by these or other forward looking statements also.
These statements are based solely on the present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in the forward looking statements for additional information. Please refer to our filings with the Securities Exchange Commission for the risk factors contained therein and other disclosures.
We do not undertake any duty to update any forward looking statements.
Also during the course of today's call, we will refer to certain non-GAAP financial measures. We believe that non-GAAP measures are more representative of how we internally measured the business and there was a reconciliation schedule detailing. These results currently available in our press release, which is located on our website at Paylocity dotcom under the Investor Relations tab.
Bob and filed with the Securities Exchange Commission.
Please note that we are unable to reconcile any forward looking non-GAAP financial measure to the directly comparable GAAP financial measure because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort.
In regards to our upcoming conference schedule, Toby and I will be attending the Stifel 2019, Midwest one on one growth conference in Chicago on November seven and the RBC T. I M. T Conference in New York on November 19th. Please let me know if you would like to scheduled time with us at either of these events with that let me turn the call over to Steve.
Thank you Ryan and thanks to all of you for joining us on our first quarter fiscal 2020 earnings call. We're off to a nice start in fiscal 2020 with first quarter total revenue of 126.7 million, an increase of 26.1% versus the same quarter last fiscal year, marking our 11th straight quarter with total revenue growth.
In the mid Twentys.
Recurring and other revenue grew by 25.7% driven by new client additions and an increase in average revenue per client as we continue to see positive momentum with our newest product offerings.
Channel referrals, primarily from benefit brokers and financial advisors. Once again represented more than 25% of new business for the first quarter. We've continued investing in our broker and financial advisor partnerships. While also investing in channels more broadly, including recently announced partnerships with compete a leading provider of restaurant software and.
I will share a micro savings technology company.
Adjusted EBITDA for the first quarter was 30.5 million or 24.1% margin, which exceeded the midpoint of our guidance by 1.9 million and represented a 100 basis point improvement from the same quarter last year.
We remain focused on incremental investments in research and development and sales and marketing initiatives in fiscal 2020, well also continuing to drive operational leverage in the business as we work towards our revised adjusted EBITDA margin target of 30% to 35% of revenue.
Last week, we held our annual elevate client conference, where we hosted a record number of attendees quite and prospects were able to choose from over 100 breakout sessions focus on the needs at the modern workforce, including employee collaboration and communication workforce learning and other trends in the HCM industry.
Additionally, our product and technology teams were onsite in our connection zone to introduce clients to the latest features of our product suite and to provide product demonstrations.
I keep him at the conference was our commitment to providing innovative software that appeals to the modern workforce.
Changing employee needs are driving HR professionals to transform the way they use technology to recruit retain engage employees employees increasingly expected technology. They use at work to mirror the platforms. They use every day to that end I'm pleased to announce the release of community an employee focus social communication platform.
Designed for clients to increase employee connection engagement and productivity. It enables HR professionals and employees to share the most meaningful timely and relevant content with coworkers in a way that today's modern workforce expects.
Early feedback has been outstanding clients have you utilize community as a platform for companywide communication and collaboration to help build a better company culture and they have leveraged insights provided around employee engagement and attitudes are clients have also received positive feedback from their employees, who use community as a way to collaborate on projects connect.
Other employees with common interest and drive broad based participation in key strategic initiatives.
Our commitment to product development continues to pay dividends in the marketplace with our product suite being a key differentiator versus our competition.
I would now like to pass the call to Toby to review the quarter's results in detail and provide updated guidance. Thanks, Steve total revenue for Q1 was 126.7 million an increase of 26.1% with recurring and other revenues up 25.7% from the same period last year as Steve noted, we continued to be pleased by the consistent.
See we're seeing in our business with Q1, marking our 11th straight quarter of total revenue growth in the mid Twentys.
Our adjusted gross profit was 71.2% for Q1, an increase of 120 basis points from the same period in the prior year as we continue to focus on consistent revenue growth, while also driving scale in our business model.
We continue to make significant investments in research and development and to understand our overall investment in R&D. It is important to combine both what we expense and what we capitalize on a combined non-GAAP basis total R&D investments were 15.2% of revenue in Q1 and on a dollar basis, our year over year investment in total R&D increased by 31%.
On a non-GAAP basis sales and marketing expenses were 25.7% of revenue in Q1, as we remain focused on incremental investments in this area of our business in fiscal 2000.
On a non-GAAP basis, DNA costs were 15.1% of revenue in Q1 versus 16.6% in Q1 of last fiscal year and we remain focused on consistent leverage in our DNA expenses on an annual basis.
Our adjusted EBITDA was 30.5 million or 24.1% of revenue for the quarter, which exceeded our guidance by 1.9 million at the midpoint and represented an increase of 100 basis points from the same period in the prior year.
Covering our GAAP results for the quarter gross profit was 84.1 million operating income was 6 million and net income was 13.9 million in.
In regard to the balance sheet, we ended the quarter with cash cash equivalents and invested corporate cash of 131.1 million and we generated 8.3 million in cash from operating at could activities in Q1 as compared to $7.3 million for the same period last year finally, I'd like to provide our financial guidance for Q2 and updated guidance for fiscal.
20.
For the second quarter fiscal 20 total revenue is expected to be in the range of 129.5 to 130.5 million or approximately 21% to 22% growth over second quarter fiscal 19 total revenue and adjusted EBITDA is expected to be in the range of 30 to 31 million.
And for fiscal 2000 total revenue is expected to be in the range of 567 to 569 million or approximately 22% growth over fiscal 19 total revenue and adjusted EBITDA is expected to be in the range of 163.5 to 165.5 million.
In conclusion, we are pleased with our Q1 results, including the mid Twentys revenue growth we've generated over the last 11 quarters, our ability to continuously demonstrates scaling our business and the progress we're making towards our long term financial targets.
Operator, we're now ready for questions. Thank you.
As a reminder to ask a question you will need to press star one on your telephone.
To withdraw your question press the pound Keith.
Please standby, while we compiled the culinary roster.
Okay.
And our first question comes from the line of Pat Walravens with JMP Securities.
Hey team.
Yeah on for Pat. Thank you for taking my questions. So first question was we're wondering what does adoption typically look like for new clients.
They usually by multiple products or start with one and add more later on.
Sure. So I think that continues to evolve over time as we've expanded our product portfolio.
You know all of our clients definitely start with payroll very typical that they also by HR as a component of that and then I think probably some of them more popular modules. After that at the point of purchase would be time and labor benefits recruiting onboarding, but we continue to see good traction in terms of being able to increase adoption.
Across all of our modules for new customers.
Awesome and then just on Ondemand pay how's the feedback been for that in particular and then.
Does the adoption looked like thank you.
Sure. So we're very early in our release of on demand pace. So we have that available to a number of customers.
And they are actively using it and we have employees that are requesting their pay in advance. We also have a number of customers that maybe are little bit slow to adopt and are a little bit more reserved around that new feature we think that it's a great benefit to employees. We're excited about the offering and we think being one of the first to market with that new.
Offerings, certainly helps from a differentiation perspective.
Thank you.
Thank you. Our next question comes from the line of Brad Reback with Stifel.
Great. Thanks, very much Steve with another quarter under your belt.
As it relates to the down market absolutes are the economics, continuing to prove that as you expected.
Yeah, I think we were really excited with our unit growth last fiscal year, I'm kind of topping 20%.
And I think as we move into this fiscal year, we're seeing traction in that under 50 employee market.
They continue to look at products like recruiting and Onboarding in many of our talent management products has actually been a differentiator of their ability to attract and retain talent. We're also seeing some of those smaller clients adopt our new product like community as a great communication.
Portal for them. So I think we continue to make progress there and we continue to gain traction that we really started building last fiscal year into that segment.
Great one quick follow up on the partnership side. It was it relates to the channel.
These new investments that you're making are these new focuses is that just sustained 25% of your lead from the channel or does that overtime has the ability to grow that can look at 25. Thanks.
Yeah. It's good question most of our partner revenue today comes from brokers and financial advisors with health insurance brokers being the biggest component and that we wouldn't anticipate necessarily changing we're starting to formalize some of those relationships do some co marketing with some of our partners and as you can see we're starting to extend the concept.
Just to other potential partners, so compete being a software provider in the marketplace evil shares being an add on product for financial advisors. So we think that it can help us both maintain that 25% plus as we continue to be able to grow and potentially open new channels.
That could be interesting for us.
Great. Thanks very much.
Thank you and our next question comes from the line of Brian Peterson with Raymond James.
Great. Thanks, Alex Sklar on for Brian . So there was a lot of discussion about the adoption tool kits are the user conferences and I'll, maybe lump in the community portal here as well, but could you just talk about you see these products it being just valuable to kind of improving usage and thus retention or do they fit into kind of the broader efforts to sell back in the install.
All base over the next few years.
Yeah, So I think it definitely fits into our effort to in cell back to the installed base and of course get broader usage at the point of purchase. So if you think of the challenge a lot of the HR departments have is products like surveys learning management some of our journal capability in performance management impressions in community is really employees interacting.
With other employees and many times the HR Department doesn't know how to roll that out how do I introduce it what are the types of things that I'm going to be able to survey.
How do I teach managers had a right great journals and so this idea of incorporating best practices into our product.
Is one that we're really wrapping up into the adoption tool kit. So if I were a customer and I wanted to turn on a product like community or surveys I'm actually going to be able to go into an adoption tool kit that will give you hear the email you can send that to your employees here is how other clients are using this and gaining traction with it hears use cases that you can use you could survey after meeting to.
Be able to get immediate feedback you can.
Use community to make announcements you could announce all your new hires to the entire organization. So we're building in this concept, but best practices.
We're doing the same thing and learning management, and we're finding that is giving customers ideas and how they can really take these kind of powerful capabilities and use them on an everyday basis and then what we're seeing is the clients that are doing that are getting much more employee usage.
And so we definitely think this is the right strategy to drive utilization and we're excited about the early reports from our clients.
Okay, Great and then maybe one here for for Toby last quarter, you talked about already being your target sales rep count at the start of the year I'm wondering if you could talk about if we should see scale that line item over the course of the or should we expect you to move back to a more regular hiring cadence.
Well I think what we've said before was that we were pleased with our ability to come into the year fully staffed and yeah. I think we had come into the prior year fully staffed as well and I think what what we said was we were happy that that was a little bit earlier than prior year and I think we would say that was days and weeks not.
Months in quarters, but I think we feel pretty good about where we came into the year the ability to be fully staffed a little bit earlier and I think as you can see bye bye.
The results for the quarter I think it reflects the sales momentum that we have and so I think we feel pretty good as we're kicking off the year.
Alright, great. Thank you.
Thank you.
Your next question comes from the line of some.
With Jefferies.
Hi, good afternoon, and thanks for taking my question.
I guess first maybe on the on a channel partner side are there any noticeable differences in either retention rates are unit economics for our customers that come to the partner channel versus direct deals and then I've a follow up.
Sure. So as a reminder, is our salesforce thats, creating these relationships with the channel partners and the individual brokers. So the relationships are often less at the firm level, but at that individual broker level and so.
One of the biggest benefits that we get is those individual brokers have relationships with the HR Department and the decision makers are the client and therefore, when they bring us in as a trusted partner we have a much higher close ratio for those so it's a very efficient channel from a sales and marketing perspective.
And then you know on an ongoing basis that broker if they're talking to the customer where they're running into questions or they're finding that there is something that we be aware of they do keep us kind of in the loop I wouldn't say that that necessarily translates to anything measurable from a retention, we've got pretty consistent retention across the board I'd say the primary benefit though is definitely the close rate on the front end.
Okay, Great and then coming out of coming out of the conference in thinking about that.
Uh huh.
Thank you guys you get gotten a 400 you've said.
New target range of getting to 500 I'm curious what you think that that 500 represents maybe what the total spend per employee is on HR technology and what the cap above that 500, arsfive hundred kind of debt to cap on where you can get to overtime.
Yeah, I think that has evolved overtime I think if you look at product portfolios in our industry as a whole they have expanded and I think people are buying more products and some of these products.
We might not have been able to completely imagine in years. Prior so the fact that we're able to sell a survey product today, something very different than several years ago. The fact that we've launched community as a product thats, creating collaboration in a way we wouldn't have anticipated. So I think our viewpoint is five hundreds great next target for us.
And we have initiatives that we are working on towards getting there, but by no means do we think that that that's where we have to stop.
Don't know exactly if there is a cap and where that is but we're really convinced that if we continue to innovate we listen to what our customers are asking for that theres plenty of opportunity for new products.
Great and Toby Wann, if I could ask you I'd be remiss not.
We had at 25 bit rate cut an ounce.
Any im assuming thats factored into guidance for both next quarter and updated for the full year or just any thoughts around that level.
Yes, I mean, I think the short answer smart as the yes. It is I mean, we had anticipated that that would that would come through and thats fully incorporated into the into the guide.
Okay, great, but just wanted to clarification. Thanks again, guys congrats on the quarter.
Thank you and our next question comes from the line of Matt.
With William Blair.
Hey, guys. Thanks for taking my question wanted to ask on those sub 50 employee market.
What are you seeing there in terms of competition as that market more competitive than in the above 50 employee market because there's certainly probably at a different set of competitors that you run in there.
Versus the the above 50 market.
Sure, Yeah, I think ATP and paychex or are the biggest in the space. They are the ones that we would certainly running into the most even more so in that below 50 space than maybe as you creep up towards the 1000 them employee market, which sometimes drag some of the more enterprise oriented focus players.
But you also see a bunch of smaller independent payroll providers, there's hundreds of those across the country.
And so I think its combination of ATP Paychex and then some of the smaller independents that we see primarily below 50 employees.
Got it and in terms of the new products that you're seeing the most traction with anything you'd call out there I assume the some of the ones you are referencing was LMS and ta, but but anything to call out.
Yeah, I think we just launched.
LMS. This summer so it's still relatively new I think we're getting really good traction during our selling season in terms of the reports back from the Salesforce I think people.
Definitely are buying into the idea of sharing learning across the organization as being a challenge there running into.
So we've been really happy with that as a new product.
Community, We just launched formally at our user conference, we definitely had a bunch of early adopters prior to that.
And we're seeing a growing number of use cases.
With that product in that we have I think a lot of ideas in terms of me able to enhance that on a go forward basis. So those would be the two I'd call. It.
Great. That's it for me guys. Thanks, a lot.
Thank you.
Thank you.
Next question comes from the line of Marc Mcconnell with Baird.
Good afternoon, and thanks for taking my question.
Just wondering with regard to.
Good.
Sorry, 20 employee market can you give us any updated thoughts with regards to be approaches direct channel and and what your expectation should be over the course with this year.
I think if you look at last year, where we grew units in that 20% range. We definitely had a bigger contribution of the under 50 and even some of that as you indicate mark under 20 employees. So we're probably going to be a little bit more focused on that tend to 20 employee range than maybe the sub 10 employees.
At this point in time, sometimes our core salesforce cells those accounts, sometimes it's the newer emerging market team that tells those accounts.
And I think we also indicated they does take a while to build the channels SCPA being the primary channel in that market. So I think we're early in continuing to build out more success. What we really like is the product resonates well with that marketplace, we understand how to build channels. We've done it really well kind of in majors and so.
I think as we look past this first quarter, it's kind of continued progress.
Great and then with regards to two channels can you talk a little bit about the size of compete and.
Eva.
Yeah, I think the reason that we wanted to make sure that we called that out is really the concept here is you'll probably see us expand what was channels in the past we were very squarely focused on financial advisors, and and brokers health insurance brokers.
And one of the things as we're looking at other products they might interact with that could be potential partners thats that Ebo share example from a financial advisor they brought us into that relationship and then we're also looking at potential software providers in different space. We've got a vertical market restaurant focused software provider that we're looking for a partner and we thought that was going to be a great fit and so.
So we'll entertain options like that on a go forward basis, I don't think I would call out any of those individually is being material. We think there great relationships, we're happy to have them.
But I think you'll see us continue to be able to expand the idea behind channels to go a little bit beyond financial advisors and brokers and that was one of the reasons, we called it out.
Great and then last one.
Just in terms of what's embedded in the guidance, obviously, we saw the rig today.
We take a look at the interest income on the float.
Little bit of a change relative to the pace that we've been seeing how should we think about kind of playing out over the course of the year.
Anticipating that you know from Q1 out there there's going to be limited changes.
Yeah, Hey markets Tobey I mean, I think said a few minutes ago that we hit incorporated that that rate cut that we saw today into the guidance and that's that's definitely true I mean, we saw the.
Fed quotes on it looked like maybe there's a pause.
Obviously see how that plays out over the course of the fiscal year, but I think we feel good about the ability. If you go back to how we guided for the year initially.
We had said we'd baked in.
We have now with the updated guidance, which we've raised on both revenue and EBITDA for the year baked in the third rate cut I think we feel generally pretty good about the ability to.
Not just set what we thought it was a was a pretty nice guide for the year initially that incorporated the rate cuts, but to take that up after the quarter baking in the third and so I think again feel good about the momentum and and the consistency that we're seeing so.
Thats great. Thank you.
Yes.
Thank you.
Our next question comes from the mine of City Center.
With Mizuho your line is now.
Hi, Thanks for taking my question.
Steve now since Q1 is now behind and forced you to user conference I just wanted to get a sense up your confidence level this year versus last year income.
Customer demand already or product, which is running on any competition landscape and also what you see most of the opportunity in terms of a customer segment without.
Don market or.
Suits flawed and it doesnt make any particular products that you think or drive incremental growth opportunities.
Yeah. So obviously, we've been growing kind of in that mid twentys rate for a long time now.
And we were really happy with the first quarter in terms of performance from our sales team that really drove our drove our ability to increase revenue guidance for the year and drove the beat in the quarter. So a really strong performance from our sales organization.
So that's always great in a recurring revenue business to get off to a great. Great start that's really positive I think on the product side equally excited about some of the newer offerings I think they are creating some differentiation, which is also helping our salesforce wind business.
The strength is coming across our size segment. So we're doing well in the under 50 marketplace, but we're really doing well in our core market and at the upper end of our target market and so that's probably the most positive thing to take out of the first quarter is we're seeing strength across the board.
And when you think about.
Getting new logos versus cross sell opportunity to install that what the first person visit I now and do you think now that you have enough products, it's not to go back and cross sell installed base.
Sure I mean, I still think with the size of this market 20000, plus customers in a market of 600000 more than 600000 businesses, we think theres still a huge opportunity to land new customers and that will be our primary goal.
As we move forward.
At the same time as we land those new customers, we are selling the more product and so that's that's certainly helpful. And then secondly, we will continue to gradually expand our efforts on selling products back to the client base. So we have an inside sales team they are selling products back to the client base currently.
A lot of times that are user conference clients that have been with as a while don't know that we've had these products over the last several years. So we think it's a great opportunity.
And so we'll continue to focus on selling back to the client base, but what I would tell you is you're still going to see us focus on on unit growth and bringing new caught clients to the platform first and foremost and then think about the growth of sales back to the client base, maybe being faster than our revenue growth, but not being the primary driver.
I appreciate the color. Thank you.
Thank you.
Next question comes from the lineup drew.
Cancer Fitzgerald.
Hi, Thanks for taking my question just curious tagging on that you mentioned, you're seeing strength in the upper end of your market, maybe you could dive in a little more into that group.
Yeah. So yes, as we focus on 20 employees to 1000 employees and there's times, where we even bring on customers above that thousand employees. If they if we feel like they're going to be a fit and they obviously feel the same way.
And so we often will try to get our most experienced reps in front of those customers. We've had great retention of our most experienced reps. So we've got a lot of confidence with those folks I think when you look at some of our product initiatives that has certainly helped us up market, having learning management.
Having community.
Having products like that I think of really filled out the product portfolio. Obviously, if you look over the last three or four years, we've added compensation management, we've added recruiting.
We've added expense management. So we feel like we've got a really strong portfolio for the upper end of our market, even stronger than two or three years ago and so I think just the combination of haven't really experienced sales reps and a broader breadth in our product portfolio is what's driven the success up market.
Great and then now that you do have community driving engagement and that's more of the focus maybe you could touch on as much as.
You are willing to say some of the new releases that you expect in the pipeline moving forward.
Yes, so I think the way we like to talk about the releases is we get them in early adopter with our customers. We learn we really believe strongly and client is a co creator we learn.
They use.
Changes they'd like to have the product and what features we need to add.
And then you see us kind of announced that once we kind of launch it and so we don't typically kind of Preannounce, what I would tell you, though is I think for community. As an example, we've got a long list of features that we think we can add to that product to make that even more robust. We also think that there is a possibility at some point in time, there might be monetized premium version of that with some feature sets that are being asked so that would be it is.
Sample something that we'll continue to look at from a roadmap perspective, but right now it's a free offering we're driving utilization and we're focused on adding features based off client feedback.
Perfect. Thank you.
Thank you. Our next question comes from the line of Daniel Jester with Citi.
Hey, good afternoon, everyone. Thanks for taking my question. So just maybe to tie all fell last one you just had your user conference spend a lot of time with clients what are the one or two cinematic things Advair most focused on for the next year ahead.
Yeah, I think the magically.
If you take a step back one of the challenges I think that they have is really to be able to attract and retain talent in this type of environment. So there's a lot of things facing the HR departments, whether it's the new generation to the younger generations entering the workforce or millennials getting in decision making.
Positions or the remote nature of the workforce the giga economy in people moving one job to the next a lot of state legislation, that's changing so I what I would say is the one theme is there's a lot of change going on in HR and so HR users are really trying to figure out how to be able to manage that and then become much more mark.
Cutting oriented in terms of how they treat employees I.
I think the second thing is they're really looking for a partner to help them and so this idea of service and partnership adoption kits are a great example of things we're rolling out the really looking for more than just transactional advice.
In questions, they're looking for best practices and.
So I think they're worlds getting more complicated therefore, they need a lot more advice best practice.
Really aligns to some of the key initiatives that we're trying to drive towards.
That's really helpful. Thank you and then Toby in your script I thought I heard you say that maybe you're making a little bit of incremental investments in sales and marketing I guess first at a cash that right and second if you are can you share any color and kind of tie and how that could impact margins as the year progresses. Thanks.
Yes, it and I think.
What we have talked about with relative consistency has been.
The fact that we were continuing to invest in sales and marketing.
In relatively consistent way I mean, its weren't one of the bigger growth drivers in the business and our level of investment in sales and marketing has been pretty consistent overtime, we've laid out the range in our financial targets and I think our intention would be.
It certainly in the near term too to remain consistently invested in that sales and marketing line.
Okay. Thank you.
Thank you and our next question comes from a line of Scott Berg with Needham.
Hey, guys. Congrats on good quarter. Thanks for taking my question.
In long term, you'll see it spend I think six days.
[laughter].
I guess the one question I have is as we get some customer work, there and kind of thinking through the space is how do you think about growth in the overall business maybe over the intermediate term up 345 years. Your core Midmarket you moved into this strategic you're looking at 20 employees and a little bit.
Lower if were to thinks about mix of bookings three to five years out what does that look like.
95, four and one maybe or whatever the numbers are.
Yes, I think.
It's probably more of a subtle shift than probably you know a big in different initiative. If you go back now three years ago, I think we disclose the fact that 50% of our employees had 50% of our clients had less than 50 employees and so we've always kind of been in that segment I think if anything we're seeing a little more traction in that 10 2030 employees space. Then then weve.
Had before and so in some cases, we think there's different ways to approach that market. So that to me is more the subtle shift we've always been really strong in the 50 to 500 and actually had a pretty darn. Good presence in that 500 to 1000. So I don't think Thats changed I think if anything we've become a stronger competitor in that space based off the additional modules that weve.
Good to our product portfolio and at the same time at the lower end, they're demanding a little bit more product. So I just think more than anything we feel better position today than we have several years ago.
Got it and I.
I guess I'd be remiss to not asking an interest rate question.
You guys took some interesting.
Or maybe some interesting changes around how you invest your funds I think it was year ago now last summer when into some slightly longer duration.
Securities was slightly better yields as you I know, you'll probably tell me your perpetually looking at different opportunities there, but are you doing anything different today with those funds you're holding from clients. Maybe you did a year ago in other any opportunities maybe change that composition too.
Again drive a little bit higher yield maybe than some others in the space.
Hey, Scott its Tobey I mean, I think what you might be referring to is we I think just started investing a little bit in client funds I think going back two years now we haven't made any major changes over the course of that period of time in duration or any other sort of elements of profile of that sort of investment strategy.
Hi, I mean, I think you know that probably doesn't change a whole lot over the course of time.
I think we're pretty consistent there.
Got it thanks for taking my questions.
Sure.
Thank you.
Next question comes from the line of Robert Simmons with RBC capital markets.
Hi, Thanks for taking my question, so you've touched on this topic, a little bit but could you offer what's your take on whats trading is offering in terms of the on demand and the economy versus what you have.
Yes, so I'm not necessarily perfectly familiar with all our competitors are doing I think this is a developing space and I think my understanding is I think ceridian talked about having offering in the new year available.
So what I would tell you not specific to ceridian, but there's a couple of different approaches that people I believe can take and actually might be able to take both and so one of the approaches as you go for US you go into the mobile App you ask for any pay that you've earned you will absolutely see real time, what you've earned from gross all the way to net in the application. So it tells you what you've got available.
And you say how much of that that you want to be able to have we give a whole bunch of administrative tools to our clients. So they can kind of managed who they want to give this too and who they might not want to.
And then we leverage kind of direct deposit to put that into your account either later that day. If you requested in the morning or the next day. So thats one approach a second approach could be basically a wallet or a card or a digital card where those funds are put on that wallet slash card and then as disbursements are made from that card either to the and.
Always bank account or to that.
You could use it as a card and actually make purchases and I think those are generally speaking some type of alternative network to direct deposit.
Are the two different approaches we're starting with direct deposit doesn't mean that we can't do that second alternative overtime.
But I think those are the two approaches that are at least being discussed that I'm aware.
Got it great. Thanks.
Thank you and as a reminder, ladies and gentlemen to ask a question. Please press Star then one on your telephone.
Our next question comes from the line are buying Romney with Keybanc Your line.
Hi, Thanks, taking my question.
One other things you had talked about when we met last week was.
There are number for your customers where.
Being basically more to the 200 dollar the right level, how much of a focus is to sort of take take those customers up closer to the 400 dollar Mark west as well, so it's kind of really going out on signing up new customers.
Yes, so I think.
If you think a little more than five years ago, So five and half years ago, we're at $200 per employee per year. So we've doubled the available product in that time period, and so obviously, we have customers that had been with us well before that timeframe and we've added a lot of customers in the last five years.
So what I would tell you is we want to make sure if a customer has a need we're able to solve it we have an inside sales team that we have growing faster than the rest of our salesforce over the last two years and their job is to identify customers that could benefit from some of our newer offerings. So we're actively doing that I think if you were to look at our mid Twentys revenue growth rate, what I would tell you is a lot.
That is still coming from unit growth. So although it's an important initiative for US we think it's an opportunity that we can continue to grow.
Yeah, I would tell you that most of our growth is still going to come from landing new customers and selling those customers more and then we get the benefit of continue sales back to the client base and we'll continue to grow those teams.
Great Great and then.
Yes.
No not just any sort of asking for funny sort of guidance anything for 2020, but just sort of looking at at value are now and you kind of look at the next couple of years.
Yes.
I guess, we love the business and sort of are there other sort of mid may Jay as have investments you need to make either from a sales side a product side.
Where does and major.
Portion of investment really really need to need to come or the just equal across across all areas of the business.
Yes, so I want to go back to one of the great things about the market that we're going after his is very large and so between 21000 employees. There is 600000 plus businesses and Netiquette, even larger when you think of under 20 employees and we've only got 20000 clients. So we think we're in the very early innings of.
Basically a land and expand strategy, where we're really focused on landing new customers. We also feel really good about the product innovation that we've been able to drive over the last five plus years and so if you think of that it's a matter of continue to invest in our sales and marketing organization to be able to capitalize on that opportunity combined with our R&D group such that we can innovate and differentiate.
Great and.
And then obviously, we had great retention over the years until those that that's the magic Formula we want to invest in R&D, we will invest in sales and marketing will continue to drive great retention with our customers and be in doing that it's a natural scale business, where we think we can hit those long term margin targets that we put out there.
Alright, Thank you very much.
Thanks.
Thank you.
I'm showing no further questions at this time I will now turn the call back over to CEO , Steve both for closing remarks.
Well I want to just take a quick second to thank all of our employees for all the efforts over this last quarter. We are in the middle of selling season and coming up to a very busy time with year end.
And then of course, thank all of you for your questions and your interest in Paylocity have a great night.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating and you may now disconnect.
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