Q2 2019 Earnings Call

Good afternoon, and welcome to the Paycom software second quarter 2019 earnings Conference call.

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I would now like to turn the conference over to James Samford head of Investor Relations. Please go ahead.

Thank you and good afternoon, and welcome to pay calm second quarter 2019 earnings Conference call.

Certain statements made during this conference call that are not historical facts, including those regarding our future plans objectives unexpected 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, we have made or make in this presentation are reasonable actual results could differ materially because the statements are based on our current expectations and are subject to risks and uncertainties.

These risks and uncertainties are discussed in our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K .

You should refer to and consider these factors when relying on such forward looking information.

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

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

Also during the course of today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA non-GAAP net income adjusted gross profit adjusted gross margin and certain adjusted expenses.

We use these non-GAAP financial measures to review and assess our performance and for planning purposes.

A reconciliation schedule showing GAAP versus non-GAAP results is included in the press release that we issued after the close of the market today, which is available on our website at investors Dotcom dotcom.

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

Chad.

Thanks, James and thank you to everyone joining us on our call today I'll begin my remarks by reviewing another strong quarter and provide you with some perspective on how our groundbreaking direct data exchange and employee usage initiatives are redefining the relationship employees have with their human capital management or HCM software in the workplace.

I'll finish by discussing some additional business highlights and Craig will review, our financials and outlook before taking your questions.

The second quarter results came in strong thanks to a robust new business adds and we remain well positioned for another excellent full year.

Q2 revenue was approximately 169 million representing growth of 31.5% versus the comparable prior year period, our adjusted EBITDA of 69.4 million represented a 41% margin.

With these results and our momentum we are raising guidance for the full year, which Greg will discuss in more detail in his remarks.

Employee usage of HCM technology is the future of our industry and our clients and their employees are embracing the digital transformation faster than ever.

With pay calm they can measure the estimated ROI on their HCM investments and benefit from higher employee engagement increased productivity and better job satisfaction.

Our early investments in employee usage are driving strong sales growth, but we believe this digital transformation is still in the early stages.

Last quarter, we released our direct data exchange or DTN X for all of our clients.

Our highly differentiated enhancement to our software offering that reports all data changes made directly into the HCM database by employees as well as all duplicative data changes typically input by other client representatives as employee usage gains traction our clients can track the financial benefits of eliminating these duplicative data input.

[noise] clients choose the pace of their digital transformation and pay Tom can go as fast or as slow as they want. However, we are seeing clients embraced the transformation at a faster pace today than a year ago.

But for the Dx no one in our industry, let alone HR professionals knew what appropriate employee usage look like or how to measure it.

Now they can and they are embracing it.

Turning to our sales initiatives. In addition to continuing to innovate our product offering. We are also innovating our sales strategy as buying habits across the industry continue to change with more companies, becoming comfortable buying online. This means we will increasingly employ a combination of traditional sales teams and non traditional sales teams such as our inside sales group. We recently brought one of our most successful outside sales managers to lead our inside sales initiative. Because we have found that perspective clients are embracing this non traditional sales model in buying online.

We believe this initiative will aid our sales growth and complement our existing sales efforts. We also recently opened a new sales office in New Orleans.

While we continue to expand our sales footprint I want to emphasize that the largest driver of our sales growth is coming from the sheer mass of our existing sales force and our increased productivity.

On the technology side, we continue to add talent to our outstanding development teams to focus on new products and software enhancements. We are experiencing a lot of success and I'm very pleased with the product line. In fact, we recently released ask here to all of our clients. This newest tool gives employees a direct line of communication to ask work related questions of their company representatives and receive timely answers all through the convenience of Paycom self service technology.

I'm excited about the many benefits.

Companies and their employees gain such as one online communication resource that ensures all in core inquiries are addressed actions are taken and eliminating the needs for employees to follow up through E mail phone call or added foot traffic.

Now employees don't need to know exactly who to ask questions too is this functionality empowers them to ask any business question, which is then routed to the most appropriate client representative with the relevant expertise.

This latest innovation further enhances the employee employer experience and strengthens the clients employee at usage initiatives to conclude we believe pay calm as leading the digital transformation of the HCM industry, which positions us well to deliver value to our clients and their employees throughout the year and beyond.

With that I will turn the call over to Craig for a review of our financials and updated guidance Greg.

Before I review, our second quarter results for 2019, as well as discuss our outlook for the third 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 second quarter results with total revenues of 169.3 million representing growth of 31.5% over the prior year period. Our revenue growth continues to be primarily driven by new business wins within total revenues recurring revenue was $166 million for the second quarter of 2019, representing 98% of total revenues for the quarter and growing 31.1% from the comparable prior year period.

Total adjusted gross profit for the second quarter was 144.4 million representing an adjusted gross margin of 85.3% for the full year 2019, we anticipate that our adjusted gross margin will be within a range of 84% to 85%.

Total adjusted administrative expenses were 85.9 million for the quarter as compared to 61.7 million in the second quarter of 2018, adjusted sales and marketing expense for the second quarter of 2019 was 39 million as compared to $30.2 million in the second quarter of 2018.

Adjusted R&D expense was $16.3 million in the second quarter of 2019 or 9.6% of total revenues total adjusted R&D costs, including the capitalized portion were $22.3 million in the second quarter of 2019 compared to $14.6 million in the prior year period.

Adjusted EBITDA was $69.4 million or 41% of total revenues in the second quarter of 2019 compared to $53.5 million in the second quarter of 2018.

Our GAAP net income for the second quarter was at $48.8 million or 83 cents per diluted share based on approximately 58 million shares versus $35.7 million or 61 cents per diluted share based on approximately 59 million shares in the prior year period, our effective income tax rate was 6.9% for the second quarter and 16.1% for the six months ended June Thirtyth 2019 for the full year, we expect our effective income tax rate to be roughly 22% to 23%.

For the third quarter, we anticipate non cash stock based compensation expense to be approximately $5 million to $7 million.

non-GAAP net income for the second quarter of 2019 was $43.7 million or 75 cents per diluted share based on approximately 58 million shares versus $34.8 million or 59 cents per diluted share in the prior year period, we anticipate fully diluted shares outstanding will be approximately 58 million shares in the third quarter of 2019, turning to the balance sheet. We ended the quarter with cash and cash equivalents of 94.8 million and total debt of $33.5 million. As a reminder, this debt represents a financing of expansion related construction at our corporate headquarters.

The average daily balance of funds held on behalf of clients was approximately $1.2 billion in the second quarter of 2019, now let me turn to guidance.

For the third quarter of 2019, we expect total revenues in the range of $170 million to $172 million, representing a growth rate over the comparable prior year period of approximately 28% at the midpoint of the range.

We expect adjusted EBITDA for the third quarter in the range of $61 million to $63 million, representing an adjusted EBITDA margin of approximately 36% at the midpoint of the range for fiscal 2019, we are increasing our revenue guidance to a range of 728 million to $730 million or approximately 29% 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 306 million to $308 million, representing an adjusted EBITDA margin of approximately 42% at the midpoint of the range with that we will open the line for questions operator.

We will now begin the question and answer session.

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If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then too.

Please limit your questions to one with a single follow up at this time, we will pause momentarily to assemble our roster.

Our first question comes from Raimo Lenschow with Barclays. Please go ahead.

Hey, first of all congrats from me for another great quarter and check My question is around the new sales strategy can you expand a little bit on the move to what the inside sales Thats, obviously youd like a big step for you because you had a very strong direct model and in fact field historically has been more kind of slightly lower in the market like how do you. How do you plan on like how big Thats going back again, and and how do you try to do the client segmentation. Thank you.

Yes. So appreciate the question so.

This isn't a shift in strategy, we've been having success selling online you did allude to the fact that we've had a small inside sales organization here that does sell the smaller either prospects that call lesser potentially.

Clients that have a an easier situation, but anyway.

We continue to have increased a lead volume.

And in both inside and outside sales in these inside sales efforts are just augmenting.

Our traditional sales model its not replacing it and so this should be accretive.

The plans we have to continue to expand our footprint in outside sales haven't changed as I. Just mentioned, we did open up an office in New Orleans.

So we continue to open up new offices in a staggered approach when it makes sense, but we also are having increased lead volume coming in through inside sales and.

In addition to innovating our product we're also innovating our sales.

Strategy as well and so but I wouldn't I wouldn't call. This a shift in strategy, we're expanding in both areas.

Perfect for me interest income going to follow up thank you.

Thank you.

The next question comes from some odd Simonton with Jefferies. Please go ahead.

Hi, This is Howard non for small thanks for taking the question.

I have one for Chad and one for Craig So for Chad.

Im curious are you seeing any cases of larger customers that are showing resistance to to this fully employee self service approached HR. So it could be whether due to could be due to organizational complexity use or industry or regulatory barriers and I guess another way another way of asking is on the flip side are there are there any industry verticals that are that have fewer organizational complexities and thus they are more.

There you could be it could be five to 10000 employees, but they're more likely to switch.

You know to self service and then for Craig just.

If I'm looking at the revenue guidance and.

If I want it back in to EBITDA I think it implies that you guys are going to see tremendous sales and sales and marketing leverage in Fourq you and so is that true and then if that is true what are the drivers. Thank you.

Yes, so I'll take the first question.

I'm sure I could single out a specific prospect that.

For one reason or another might not embraced the strategy of employees, having a direct relationship with the database, but I can't think of a good reason why any prospect regardless of size.

Wouldn't want their employees to have a direct relationship with the database in fact, I believe that's what the enterprise markets been trying to build too with the multiple interfaces and now you're even seeing companies lay over.

Areas of technology onto onto those back end, so that employees can actually have some level of experience with their data and so now I think whether you're a large client or a large prospect whether you're a smaller prospects. This is the future of our industry and we're experiencing that future today and so.

I would I would expect that all enterprise level type clients would.

Receive the same type of value that the others and we're actually seeing that we do continue to sell at the upper end of our range and even above that and so.

Our lead generations actually continues to drive results for us in those areas I'll, let Craig answer the.

The guidance question, yes in terms of the adjusted EBITDA in the back half, we would expect to see us some leverage in the sales and marketing, but also in the DNA line as well.

Kind of in the back half.

Okay, and if I may just a follow up Craig have you guys updated long term operating margin guidance long term targets or sales and marketing and what that could be over the.

Can we see it perhaps get below 20% of sales and over the next few years.

We have not given any long term guidance on adjusted EBITDA.

Okay, great. Thank you.

The next question comes from Mark Murphy with JP Morgan. Please go ahead.

Hi, this is up into them on behalf of Mark Congrats on the quarter guys.

Two questions from me Ken You said you have opened one offices. This year I think it was four offices in the first half of last year.

How do you how do you feel about the balance between the need for office opening then the productivity gains of the existing offices and in that context, I mean could you talk about how sales productivity or mature office is tracking maybe versus last year.

Yes, well first I'd say without productivity gains you don't need to open up any offices productivity gains are very important.

And so we continue to drive that we've opened up a lot of offices Ive said this in the past now we're at 50 and.

At at once those offices are fully you know they are averaging about eight reps each and so.

That's 400 reps for us and that's that's quite a bit out there in the US right now and so when we look at the Tam we already have covered it theres quite a bit there already and so yes, we are going to continue to expand at times when it makes sense to us, but we also want to capture everything that's available to us now as well and so again.

I Didnt say this to signal a shift in strategy, it's more a little bit and I wouldn't necessarily say it it's a shift but we are seeing some buying habits change and a willingness depending on situation for people to buy online and as I've said earlier as we're innovating our product. We're also innovating ourselves.

Strategy I don't think people are going to potentially buy the same way 10 years from now that they're they're buying right now and we want to be looking at that and what does that mean.

I think the reasons why they buy are actually.

As we look into the future will probably be similar.

So why they're buying right now as far as far as that goes but I think how they buy it it can be a little bit different we're not changing what we're doing now I just want to say that we did open up an office.

New Orleans, we do continue to.

Focus on expanding that footprint so.

Anyway, I would just leave it with that second part of your question Okay.

Both.

Yeah, well just a follow up on that.

I know you don't disclose the revenue retention number quarterly, but any qualitative comment about that directionally. How that is trending this year. So far would be helpful and I've gotten this question a few times, how should chunks should investors think about a net dollar retention number that is.

Something.

Gross retention plus including Upsells.

Yes, well I mean, we've measured our retention the same since 2007.

And it's a trailing 12 and so weve measured at the same last year was the very first time.

We saw an increase in that over a period of about seven years and so you know obviously, we are looking to increase that this year retention something that improves throughout the year.

You know you're going to typically have your largest losses in the beginning and then retention improves throughout the year and so that's why we update it once a year to stay consistent but it's been our focus to focus on retention and really what drives that is client satisfaction and the ROI and that theyre generating off of using the software and how were able to increase that ROI.

For them as well as for their employees and so those types of things drive.

Retention for us and we're in the middle of the year and we'll report that number at the end of this year.

Okay. Thank you.

The next question comes from Brad Reback with Stifel. Please go ahead.

Great. Thanks, very much Chad can you update us a bit on how the price increase in the quarter was received.

Sure. So we made mention of a modest price increase last quarter.

In moving forward, we're not going to communicate any pricing in the future as we don't want to discuss our pricing strategy.

For our competitors, but I will say this and I've said this in the past as we drive greater ROI for our clients. It would only make sense that we would have the opportunity to share.

On the value that we're creating with our R&D span.

Ultimately our clients are going to decide our value and I feel really good about the amount of no fee functionality.

We've added into the product to drive ROI for for our clients as well as their employees and I believe the clients are having a positive response to that enhancement.

Great. Thanks very much.

All right. Thank you.

The next question comes from Brent Bracelin with Keybanc capital markets. Please go ahead.

Hi, Thank you one for chat here and then a follow up for Craig Chad.

Just given the tight labor market.

It seems like improving employee experience is gaining kind of industry momentum as a tool to increase employee retention.

I know this data direct exchange product is early but can you just talk about what portion of the customer base is kind of embrace the new product. So far it's only out there for one quarter.

Is it 510% of the customer base now adopting.

The product and just trying to gauge how fast this product can be embraced by by the existing customer base.

Given it is so differentiated thanks.

Yes. So the short answer is currently 95% of our clients of click through the Dx five times or more.

On the Dx has been out for four months. So we started to shift to employ usage to drive incremental ROI for the client and the employee about three years ago.

We've already got 95% on click through.

Currently if we look at our clients usage in aggregate for all of them were in the high Eightys.

But I will say this I mean, an aide high 80 is an a b plus dx.

You know.

But it does show that clients are progressing.

And how we see that even how they're using it now we're having clients that want us to break down the dx per user and per department and that tells us they're focused on it and they are using it to improve their scores as they are.

Completing the digital transformation in HCM.

Got it very helpful. And then just a follow up for Craig here, obviously growth in billings and revenue growth in billings growth accelerated this quarter.

Thats against a backdrop of field office locations kind of being flat here for the last four or five quarters.

How much of that acceleration in growth was driven by kind of productivity gains.

Higher attach rates of different modules or the price increase any additional color there on what drove the acceleration would be super helpful. Thanks.

I mean.

As we mentioned in the script.

New client wins is that the majority of.

The.

Revenue acceleration, we have 49 of our 50 offices are out there that are bringing on new clients.

And so.

It's going to represent the majority of that revenue acceleration.

Got it thanks. Thank you.

The next question comes from Mark Mark on with Baird. Please go ahead.

Good afternoon, and let me add my congratulations I was wondering if you could talk a little bit about the large client initiative and what we're seeing there in terms of the two to 5000 employee range just what the pipeline looks like what the receptivity is.

How how incremental has that been to the acceleration that we've seen in terms of the revenue growth and then I'm going to follow up thanks.

Yes, and so we had been selling above the 2000 employee range for quite a long time before we actually formalized it and said okay.

Now, we're moving up to 5000 and now we're even seeing clients come in above that so I would just say that we are continuing to get more of those but we also have more at bats, because we have.

More reps and then as our value proposition is getting stronger you know people, who may not have been as interested in it.

Six years ago are more interested in it now because the value proposition continues.

To get stronger.

Okay, and then with regards to this acceleration in terms of the revenue growth I know new logos, we've always been the primary contributor.

But to what extent relative to prior second quarters and kind of adjusting for seasonality would be additional.

Attach rate in terms of modules versus.

More pays per control.

B and then of course pricing.

Be impacting the kind of the acceleration and can you also talk a little bit about.

You know the ask here.

Module and it's not just an additional incremental charge.

Okay, well first I'll tell you I mean as as far as I think you're talking about the revenue growth and what what really does that encompass and you talked about pricing up sell.

New logo ads has really created a pack.

I wouldn't say I wouldn't say that it's changed much at all in the past I mean, I know that our new client wins.

Percentage and our up sell percentage are very consistent as they have been in the past with the exception of the AC a year.

With the exception of that year.

Where we did have an an upside and and internal upsells to current clients just because of the sheer mass that kind of all came on at once with the exception to that our percentages have been.

Very consistent and always.

Over weighted very heavy toward.

The new logo side as for the ask here.

Like the Dx and even like our App.

Ask here is one of those no fee functionality products that we do include.

Within our stack so that people will use the product correctly.

And so ask here helps employees embrace the technology even more.

Ask your has a lot of benefits for both the both of the company as well as the employee with all as an online communication, our resource where they can ask their inquiries online.

And that you know, it's set up by the client to have.

Each question and each subject is answered by the expertise of that organization or client representative and so we just believe this strengthens employee usage and further drives the ROI for the business and so in answer to your question that we are charging separately for ask here.

Terrific Congrats again.

Thank you.

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

Yes, hi, Thanks for taking my question. This afternoon, just have one I think Chad we've talked before in the past I know it hasn't been the business sales strategy, it's been a new customer acquisition story and clearly that's working really well we have talked about in the past about maybe.

Tapping the install base going back to UAM increased the use amgen and get full penetration within the installed base.

No if I know any software company that is full penetration. The question I wanted to ask you was on the expansion of the inside sales force.

Clearly it sounds like Thats geared toward.

Continuing the new customer acquisition, but over time do you think there's an opportunity to maybe less leverage those investments and.

Maybe look back into the installed base and see if you can further penetration.

Within that base. Thanks.

Sure well first of all I. Appreciate the question allows me to put a little bit more clarity around the inside sales efforts and strategy that I was mentioning earlier you are correct. Those inside sales are completely for new business wins. They are not for upsells to current clients. When I was talking about how we relocated a manager.

To to be able to build inside cells, that's to handle new business leads that's not up sells to current clients. We have now and continue to have and have had for some time a group of our client relations reps it do upside or upsells to current clients and they also help us focus on usage and that groups really done both as I've said in the past.

It's important that clients use the products that we've sold them correctly before we're selling them additional products and and so we focused on that I wouldn't ever say that our company has ever had this opinion that yeah. We're just going to sell him. Some things now and then come back later and really sell them what they need.

We've always been focused in making sure that the clients have what they need when they need it.

But at some level you have to earn the right through an ROI achievement too.

No to sell the additional products and so but I just wanted to state that we have not ignored inside sales. It's not some grand plan that someday were going to come back and start selling everybody all the products. They really need we do that today and we're focused on on usage in fact, something I said earlier about the Dx I said high Eightys is not a b.

Hey, Com Rdx score when I looked at it on Thursday was 99.7, alright, well for this month, we've had 164000 or 165000 changes so far.

164700 of those were made by employees. We had about 300 changes made by HR. So we have a 97.1 and 99.7% Dx score. So if we had an 88% dx score that wouldn't be a b just because of the sheer amount of changes that HR would've made I mean, if we had that type of score you're probably looking at Uh huh.

Closer to 20000 changes that HR would have made and so that's why it's important and Thats why I brought it out that adx, we're watching our clients get there an aggregate everyone's excited about it and and that's really what's helping us.

Drive results and also we're seeing a lot.

It makes it easier for people to understand what they are buying.

You know if you look at this industry over time, where you are bolting on all of these things.

Even as I explained it to investors it can get kind of difficult to understand what is everything someone's doing as we are looking at you are looking into the DDS I do think it makes it easier for a client to understand what they're buying and what their ROI is going to be and because that you're seeing some buying habits change.

Thank you very much.

The next question comes from Shankar, So remaining with Bank of America. Please go ahead.

Hi, Thanks for taking my question and congrats on the results.

I just have a couple of questions one on.

No marketing spend.

I know the last couple of years, you kind of.

So they're going to be spend on marketing and get done and seen good results.

Can you talk about how much benefit you have seen in the first half in terms of service homes.

And then maybe qualitatively comment on how you're thinking about.

Second half in terms of your marketing.

Yes, So we did do the National AD campaign last year, we actually continue to use those assets. Some of those assets, we had to actually repurchase rights to we've done that we do continue to use that we do have a strong marketing initiatives.

Both this quarter as well as through the end of the year and that is all baked into our current.

Guidance.

And we are having success with.

Showing an industry how to use a product a different way.

Got it got it and from a competitive perspective any change you've seen notably over the past three months is that.

But to gain with ultimate going private any any kind of color on that that would be helpful.

I have not its usual suspects for us.

As far as who's out there.

Okay. Thank you guys.

Thank you.

The next question comes from Ryan Macdonald with Needham. Please go ahead.

Hey, guys. This is Josh on for Ryan.

I was just wondering.

What application and or modules are you are helping driving the greatest increase in employee usage on the platform today.

Maybe just some.

Color on that would be helpful.

Sure, it's somewhat going to depend on the client as far as when you're talking about what what product drives the greatest usage for them.

If you have a.

Hourly employees with schedules and their swap you're going to have a lot of usage in the system. If you have a salaried salaried employees, you're not going to have as much time and attendance you might be in other areas of usage and so.

It's really somewhat client specific we're going to be delivered all to them.

That meets their needs at the time, obviously and then how they're using it is going to really depend on what type of industry, there and how many employees. They have are they de centralized our more of their people in in one area and so usage is different.

Per client, but 100% usage looks like a 100% usage, we might be talking about the difference in a client that made 200000 changes total in their database for a.

For a month versus a client that only made 80000, because they have a different employee base that doesn't require.

The same level of data input and retrieval that you're going to have.

With other types of of employee basis.

Okay, Great and then just one other question when looking at your larger customers with 2000 employees and above how much room is there for seat expansion with these customers R&D typically getting every employee on the initial deal fine.

Well for seat expansion you would have it from the beginning I mean for us.

Let let's say this they wanted to add additional.

Master users or department users, even after all their employees are users that can add as many users as they want we don't we charge.

On a per employee basis as far as number of users. They can have as many users as they want on the platform.

But for your larger customers are typically signing up every employee in the company initially.

Well for any.

So you might have you might have terminated employees that want access to their data and it would be a best practice to keep an HCM technology turned on for terminated employees. So that you do not have to.

Respond on certain issues that they can actually actually gather that information for themselves. So from an employee side, we're going to set up or.

Okay, great. Thanks, guys.

Thank you.

The next question comes from drew commitment with Cantor Fitzgerald. Please go ahead.

Hi, guys good quarter at just wanted to ask on.

As you guys move into those larger businesses and I know you guys have already sold to that group, but just are you seeing any changes.

From what the client needs do you have to change your sales tactic at all as you move up that group.

No I Wouldnt know, we're not changing our sales tactics. Its the same group what I will say this though as you move up what's the difference in an employee that works for a 200 employee company and an employee that works for a 10000 employee company.

There is no difference in the past the difference was the size of the company and that is still important because.

Size of company and how their how they are set up is going to.

Give you.

Some type of view of complexity and what have you, but the employee usage users are the same.

And employee at at 300 employee company is going to be needing and using.

The same type of thing that employee at a at a 3000 employee company and so as far as when you're making an impact to an employee those 10000 employee companies. They see their employees as the same way as a 300 employee company might see them as far as a user I mean, you know you're going to have.

Department leads and salespeople and everything else and so.

That's I think what's more.

Evening out for everyone, which is making it easier for people to understand the value proposition I mean in our industry often times people bought off of the brochure and then you're trying to figure out what you have over the next three years of conversion and so with this you are seeing it up front you know what you're aiming for.

And we are having all getting a lot of leads just from rank and file employees that leave one company and go into another company and I don't really want to work with multiple systems and really go backwards and in that technology.

Got it and then just one quick follow up on the really strong adjusted EBITDA any color on what led to that higher number, especially versus the guidance you guys were expecting.

I mean, primarily you know you saw the revenue beat flowed through to the adjusted EBITDA line.

We are very similar so it was it was really a lot of the revenue beat was able to flow through to the bottom line.

Got it thank you.

This concludes our question and answer session I would like to turn the conference back over to Chad Richison for any closing remarks.

All right well I want to thank everyone for joining us on the call today next month, we'll be on the road meeting with investors at the following conferences I will be presenting at the Keybanc Technology leadership Forum on August 13th in Vale, and Craig and James will be hosting investor meetings at both the Oppenheimer and Canaccord technology and growth conferences in Boston on August six than August 7th. We appreciate your continued interest in Paycom and look forward to meeting with many of you. Soon thanks, operator, you may disconnect.

The conference is now concluded. Thank you for attending today's presentation you may now disconnect.