Paycom Software Inc (PAYC) 2017 Q2 法說會逐字稿

Good day, everyone, and welcome to the Paycom Software, Inc.

Second Quarter 2017 Earnings Conference Call.

(Operator Instructions) And please do note that today's event is being recorded.

I would now like to turn the conference over to Craig Boelte, CFO.

Please go ahead, sir.

Thank you and good afternoon.

Before we get started, I would like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans, objectives and expected performance, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements represent our outlook only as of the date of this conference call.

While we believe any forward-looking statements we have made 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 annual report on Form 10-K for the year ended December 31, 2016.

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

Any forward-looking statements speak only as of the date on which it was made, and we do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements whether as a result of new information, future events or otherwise except as required by applicable law.

Also, during the course of today's call, we will refer to certain non-GAAP financial measures.

A reconciliation 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.paycom.com.

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

Thanks, Craig.

Welcome to everyone joining us on the call today.

I'll start with some comments on the quarter and our view into the industry, and then Craig will speak to our financials and guidance, then we'll take some questions.

Our second quarter results reflect ongoing momentum.

Revenue for the second quarter of 2017 was $98.2 million, representing growth of 33% over the comparable prior year period.

This performance is particularly impressive when you consider that we grew 51% in the comparable prior year quarter.

We are proud of our first half results as we continue to post very healthy growth even in the face of challenging prior year comps.

As the guidance provided in our press release implies, we anticipate we will continue to deliver robust growth throughout the year even as we will be lapping our first full year of ACA-related revenue.

HR leaders and executive management within every industry across the country are becoming increasingly aware of how to utilize technology-driven human capital management, or HCM, solutions to solve problems and gain efficiencies in their business.

At the same time, workers are becoming more reliant upon technology and increasingly expect their employers to keep pace by offering powerful yet easy-to-use software for their HR needs.

Executives are continuing to turn to advanced HCM functionality to gain a competitive advantage and also attract and retain talent.

This trend is demonstrated by our growth.

Additionally, we believe that Paycom is well positioned to benefit from these trends.

We believe our single database solution that allows employees to input and manage their own data is the best option for companies looking to streamline processes and realize the benefits of having their HCM functionality reside within a single database.

We recently conducted a survey of HR professionals in conjunction with HR.com that provides insight into how companies are utilizing HCM technology across their organizations.

Our findings showed that approximately 87% of HR executives agreed that self-service technology is the most efficient way to provide employees with HR information.

For companies with over 500 employees, this figure was 94%.

Additionally, ease of use and single log-on capability were amongst the most important aspects of HCM technology.

Even with this growing focus on HCM technology, our survey found that in nearly half of the organizations with self-service capabilities, HR department still manually enter on average 38% of their employees' data, indicating significant room for improvement.

These survey results echo what we hear from our prospective clients.

We believe that we are still in the early stages of a multi-year secular trend of companies turning to HR technology to help them succeed and that Paycom is in a favorable position to benefit from this shift and achieve sustainable growth for many years to come.

To support this growth, we've continued to execute on our strategy to expand our sales organization.

In June, we opened our Richmond office, and in July, we announced our new office in Long Island.

These offices, along with our Milwaukee office which launched in April, increased our total number of sales teams to 45.

All of our newer offices are developing in line with our plans, and we are pleased with their progress.

This more staggered cadence of office openings in 2017 is allowing us to focus more on developing our talent and minimize the disruption that occurs when we open new offices.

At Paycom, growth is a key goal.

With our market share still in the low single digits, we believe there remains a significant opportunity to win substantial new business, and we are hyper-focused on achieving this goal.

While we remain committed to growth, we are also mindful of continuing to improve our profitability along the way.

Our current full year adjusted EBITDA guidance of $122.5 million to $124.5 million or 29% at the midpoint exhibits continued improvement over the guidance we provided last quarter and also at the beginning of the year.

This performance underscores our ability to both leverage our top line growth and also improve our own internal processes to drive efficiencies.

Our profitable, cash-generative business model also allows us to return capital to stockholders.

During the second quarter, we repurchased approximately 460,000 shares as part of our $50 million share repurchase plan, including 235,000 shares in the open market purchases.

As a reminder, this is our second $50 million repurchase plan in the past 13 months as we completed our first $50 million share repurchase plan in December.

Before I turn the call over to Craig for an update on our financials and guidance, I want to highlight our recent sponsorship of the Jim Thorpe Award, which is presented annually at the top defensive back in college football and will be named the Paycom Jim Thorpe Award going forward.

For those not familiar with Jim Thorpe, he was born and raised here in Oklahoma and was named the greatest athlete of the 20th century by ABC Sports.

He played professional baseball, basketball and football and also won Olympic gold in the decathlon and pentathlon.

Jim Thorpe exhibited many of the qualities we value highly at Paycom, such as grit, versatility, perseverance and teamwork, and we are proud to have the Paycom name associated with such a prestigious award.

Now I'll let Craig comment on our financial performance for the quarter.

Craig?

Thanks, Chad.

Before I review of our second quarter results and also our outlook for the third quarter and full year 2017, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis.

We use adjusted EBITDA and non-GAAP net income as supplemental measures to review and assess our performance and for planning purposes.

Adjusted EBITDA is a non-GAAP financial measure that excludes noncash stock-based compensation expense.

Non-GAAP net income is a non-GAAP financial measure that also reflects the adjustment for noncash stock-based compensation expense, which is further adjusted for the effective income taxes.

Reconciliation of the GAAP to non-GAAP measures discussed today are included in the earnings press release issued earlier this afternoon.

As Chad mentioned, we experienced a strong second quarter with total revenues of $98.2 million, representing year-over-year growth of 33% from the comparable prior year period.

Our revenue was primarily driven by strong new business wins, and we are pleased with our performance in light of the tough comps from 2016.

Within total revenues, recurring revenue was $96.4 million for the second quarter of 2017, representing 98% of total revenues for the quarter and growing 33% from the comparable prior year period.

Total adjusted gross profit for the second quarter was $81.6 million, representing an adjusted gross margin of 83%.

For the full year 2017, we continue to anticipate that our adjusted gross margin will be within a range of 82% to 84%.

Total adjusted administrative expenses were $58.6 million for the quarter, as compared to $43 million in the second quarter of 2016.

Adjusted sales and marketing expense for the second quarter of 2017 was $32.5 million.

Adjusted R&D expense was $7.5 million in the second quarter of 2017.

We made substantial progress in building out our R&D organization over the past several quarters.

We will continue to invest in R&D.

We anticipate adjusted R&D expense in the third quarter of 2017 will increase by approximately 100 basis points as a percentage of revenue as compared to the third quarter of 2016.

Adjusted EBITDA was $27.8 million or 28% of total revenues in the second quarter of 2017 compared to $22.6 million or 31% of total revenues in the second quarter of 2016.

Our GAAP net income for the second quarter was $14.2 million for $0.24 per diluted share based on approximately 59 million shares versus $10.4 million or $0.18 per diluted share based on approximately 59 million shares a year ago.

Our effective income tax rate for the second quarter year-to-date 2017 was 16.1%.

Non-GAAP net income for the second quarter of 2017 was $15.2 million or $0.26 per diluted share based on approximately 59 million shares versus $12.4 million or $0.21 per diluted share a year ago.

Absent vesting events of performance shares, we expect stock-based comp to be approximately $7 million in both the third and fourth quarters of 2017.

In the second quarter, we repurchased a total of approximately 30.2 million of stock under our $50 million share repurchase program, including 15 million for share net downs as a result of stock awards vesting and 15.2 million in open market purchases.

We look forward to continuing to return cash to our stockholders opportunistically via these open market purchases.

For modeling purposes, we anticipate fully diluted shares outstanding will be approximately 59 million in the third quarter.

Additionally, we expect our full year effective income tax rate to be approximately 22% to 24%.

Turning to the balance sheet.

We ended the quarter with cash and cash equivalents of $68.1 million and total debt of $34.6 million.

As a reminder, this debt represents a financing of construction at our corporate headquarters.

Construction of our fourth building continues to go well and according to schedule.

Cash from operations was $15.1 million for the second quarter, reflecting our strong revenue performance and the profitability of our business model.

The average daily balance of funds held on behalf of clients was approximately $802 million in the second quarter of 2017, which increased approximately 27% compared to the prior year period.

Now let me turn to guidance for the third quarter and full year for fiscal 2017.

For the third quarter of 2017, we expect total revenues in the range of $99 million to $101 million, representing a growth rate over the comparable prior year period of approximately 29% at the midpoint of the range.

We expect adjusted EBITDA for the third quarter in the range of $21 million to $23 million, representing an adjusted EBITDA margin of approximately 22% at the midpoint of the range.

For fiscal 2017, we are raising our revenue guidance to a range of $429.5 million to $431.5 million or approximately 31% year-over-year growth at the midpoint of the range.

We are also increasing our full year 2017 adjusted EBITDA guidance to a range of $122.5 million to $124.5 million, representing an adjusted EBITDA margin of approximately 29% at the midpoint of the range.

With that, we will open the line for questions.

Operator?

(Operator Instructions) And the first questioner today is going to be Michael Nemeroff with Credit Suisse.

Guys, this is Alex Hu on for Michael.

My first question is given the new cadence on office openings with 3 announced year-to-date and more to come, can you comment on how the new staggered time line has impacted your business thus far compared to prior years, whether it's better sales productivity you're seeing on existing offices, employee retention, higher quality sales hires, et cetera?

Yes.

And so -- well, thanks for the question.

And so our goal in opening the offices in a more staggered -- taking a more staggered approach was to reduce the disruption that happens to those teams that we disrupt any time we open up an office.

Just as a reminder, we always open up an office with current sales reps who are ready and prepared -- or excuse me, current sales managers who are ready and prepared to open up an office.

And we backfill them with sales reps who are ready to be in management from another office, and then we backfill that sales rep with -- a sales rep, a new sales rep who has come onboard.

And so in the past, that's been disruptive.

And so by spreading out this disruption over a period of time versus taking it all in oftentimes the same week, I believe we opened up last year's offices all within a same 10-day period of time.

We felt like by a staggering amount, we have -- we're still able to accomplish our goal in the outer years because these offices does take 24 months for them to reach maturity.

So we feel good about that.

And also, it's caused less disruption.

We believe that's been reflected in the numbers we've been able to onboard this quarter and in our future guidance.

Okay, great.

And then just from a sales capacity perspective, I understand that it takes about 24 months before offices mature, but many offices do continue to ramp well past that.

Just curious, can you quantify or share the performance of some of your top offices currently?

How much -- specifically, how much new recurring revenue did they pull in typically for, let's say, the top 5 performing offices on average just so that we could get a flavor on what could transpire for your newer offices?

Sure.

So I gave out the sales capacity number of $260 million.

I believe I gave that out about this time last year.

I'm not going to update that today.

That number was given out when we had 40 -- it would have been 42 offices, 42 sales teams.

And so you could have somewhat -- for your averaging, you could have somewhat divided those 42 into the 260 to get, again, what we believe our capacity was.

But we're continuing to eat away at that.

I'm not ready to change that number yet.

What I can share with you anecdotally is that in the past 30 days, we've achieved our highest sales week that we've had here at Paycom as far as new revenue that was recently sold.

And so it's not something I going to share every quarter, but I do think it's reflective of the decisions that we've been making to increase our sales productivity.

And I'm very proud of the group and what they've been able to accomplish in achieving this in a month that, traditionally for our industry, is not one of our strongest new business signings month because it's in the summer.

But again, we had our highest week.

And from a booked sales perspective, we're very proud of that accomplishment.

So I think our group has done a great job in taking the strategy and running with it.

And I think what we're -- well, I know what we're seeing is the benefits of that through these results.

Great.

And just one last question for Craig.

Looking at your R&D guide for Q3, it suggests to us that you're continuing to invest heavily on the product side.

Just curious, can you comment on some of the near-term initiatives you're working on?

Specifically, what are those investment building towards?

Yes, we don't -- and this is Chad again.

We haven't -- I mean, true to form, we haven't ever discussed items that we're working on until they've actually been released.

One other thing I will mention is we were the top trending app on the iOS Apple Store for our employee self-service app that we put out again in earlier -- the month of July.

And so obviously, the increased R&D made an impact on that app.

We do continue to work on our other products.

As you guys are aware, we have a very broad product set.

And the more clients you have using that, the more specs you get.

We do want to continue to increase the value proposition for these clients, and so our R&D spend is directed toward that.

And we are increasing our R&D, but we've also been able to increase our margins as well.

I mean, we've increased our R&D anywhere from 80% to 100% each quarter over prior year quarter, and we've also been able to expand the margin.

And that's because the R&D expenses are turning into revenue-generating products that the clients are able to use.

And so we're not going to be turning around here being market high on R&D expense as it relates to a percent of our overall revenue.

Well, that's due to also strong revenue growth, but we are going to continue to focus our efforts in our R&D department as well.

And our next questioner today is going to be John DiFucci with Jefferies.

I have a question for Craig first and then a follow-up for Chad.

Craig, the results -- congrats, strong results, both top and bottom lines here.

But cash flow was below what we were modeling.

And it looks like there's a couple of things happening here, but the one that stands out is a $20 million use of cash in the accrued expenses line, accrued expenses and other liabilities.

So can you please explain a little bit what's happening there?

And should we expect this to reverse?

Or was this quarter a reverse of a previous benefit?

And I guess, is that related to the big incentive compensation, contribution of cash in the quarter?

And you talked a little bit about in your prepared remarks, that was a $14 million.

Yes, in terms of the cash flow and kind of what was going on in the quarter, some of that's just timing quarter-to-quarter.

We also had some tax payments that were made this quarter.

We kind of do -- we have a catch-up second quarter based on the first quarter's results.

So we had some additional tax payments as well in the quarter.

And we'll see some benefits kind of moving forward.

You saw our tax rate for the second quarter decline some as well because of the deduction related to some of that stock comp.

Okay, okay.

And then, Chad, great to hear the largest ever new sales week in this past month.

I mean, that is great to hear but -- and I'm just trying to think big picture, and that helps.

But when I look at this market and we realize a lot of your competitive wins are against what I'll call the incumbent HRO vendors.

But it seems that part of those deals could also be, I guess, greenfield, so to speak.

In other words, customers maybe are doing just payroll with the likes of ADP.

And then they come to Paycom, they realize, "Well, you know what, it's easy to consume this other stuff, too." And I don't know if you guys break that out or if you think that way, but can you even roughly quantify how much of a new deal on average might be incremental functionality for the customer?

Because we're just trying to get our arms around the addressable market.

What is the real opportunity here?

Yes.

I mean, well, yes -- so I'll try to answer that.

Our value proposition, we believe, is an expanded value proposition past the competition.

So we would hope that any client that comes on to our offering having less of the competitor would experience greater usage and have a more robust product.

So we would expect that would be the case that people that we onboard use more product.

But also, I believe we're starting to see the way that there's somewhat becoming a change in a way that companies use HCM technology.

I mean, I've said it before.

Companies for -- employees for 2,000-employee companies are using more technology when they buy their coffee than what they do when they're interacting with their HR department, and people that work for different-sized companies know that.

But that's shifting.

The HR departments are becoming more strategic.

They're leveraging technology.

They're leveraging what's in the hand of the employees.

And so I still believe we're in the early innings of that shift happening, but I think we're well positioned for that.

As far as how many of our deals are greenfield versus not, I've mentioned in the past greater than half of our business comes from legacy providers and everything else is a dogfight.

So whether we're competing against a traditional provider or a SaaS-type provider, every deal is competitive.

And we also do convert those companies that are doing it themselves, but even those situations are competitive.

So we're in a very competitive industry, and I think that drives innovation that ultimately benefits all clients out there or people looking to buy this type of technology.

Great.

Well, keep that attitude.

It's a dogfight.

Appreciate it.

And the next questioner today is going to be Mark Murphy with JPMorgan.

This is actually Albert Chi on for Mark.

Chad, on previous earnings calls, you'd normally highlight some of the larger notable wins that you sign in the quarter.

Can you talk about some of the trends that you might be seeing at the upper end?

And are there any changes that you detected in the competitive environment?

I know we ask that every quarter, but it's worth asking.

Yes.

Thanks, Albert.

I mean, I appreciate your point now that historically, we had provided a few examples -- actually not historically.

I think for the first year or so of -- after being a public company, we did not provide client wins and then started layering them in.

We provided those specific ones.

We highlighted some that we had one above our range.

And we primarily did this to provide proof points that our solution can scale and handle the needs of larger clients.

We believe we've established that at this point.

To kind of answer the next question, we did have clients both above our stated range and below our stated range, and obviously, this is also reflected in the numbers.

But at some point, when we keep calling out the name or the industry that a company is in and the size, a 5,200-employee trucking company that we took from a legacy provider, at some point, it's not that difficult for people to somewhat triangulate or, for lack of a better word, reverse engineer the company that we're talking about and definitely for the person that just had them.

And so I feel like we're kind of giving out more information than what's really valuable.

And so moving forward, we don't really feel the need to share that other than to say that this quarter, when you look at a client makeup or to makeup -- or profile, client profile, the profile of the clients that we onboarded in this quarter, we're in line with the clients that we've onboarded in any other quarter.

And that completely makes sense.

I appreciate that.

And just one more follow-up is -- I kind of want to ask about the acceleration of revenue growth in the quarter especially after some tough comps.

And I think we saw some of that in services, but revenue -- or recurring revenue also accelerated.

And you also mentioned that there are some decisions that you've made to increase sales productivity.

Could you kind of walk us through a little bit about what those are and maybe what drove the strength in the quarter?

Well, yes, I don't want to get too specific on -- we do get very specific when we start talking about sales metrics and our sales strategy and how we drive productivity internally.

I don't necessarily want to telegraph all that.

But I will say this: we, on purpose, focused on reducing disruption as we open up offices, and I think our cadence in the last 3 years has been opening up all the offices in the first quarter.

And so when you take a strategy of causing less disruption and it works, you are going to produce.

You are going to produce.

And so that's really what's happening for us as we're producing.

And the new offices that we've opened are doing very well as well but -- so we're proud of that and we've -- it's something we really needed to do to continue to be the type of growth company that we are.

And so I'm very happy with what's going on there with the sales group.

And the next questioner today is going to be Mark Marcon with Robert W. Baird.

I'm wondering if you can talk a little bit about some of your internal efforts just in terms of what you're seeing from a recruiting, training perspective.

What are you seeing in terms of customer satisfaction metrics?

How do you think the client retention trends over the next 2 to 3 years relative to historical levels?

Well, we update our client retention every year.

We just updated it.

Was it in the February?

February.

Okay, in the February earnings call.

It has remained unchanged, I believe, for the last 4 or 5 years that we've done it at 91%.

And so there's that from that standpoint.

As far as retention of our own staff, I have to say it's probably been in line.

I don't -- even on the sales side, I mean, we made significant efforts over there to continue to improve productivity.

We've done that.

I can't say we've made a great impact on attrition of the newer reps.

And we haven't experienced more attrition from the senior reps, from the executive rep status.

As far as the training and development, I mean, we're a training and development staff.

I think we get beat up for hiring people with recent college graduates.

And of course, over the course of 20 years, those are -- they're no longer recent college graduates when they're out there running their different levels.

And so I don't know.

I mean, we just continue to develop and train.

We continue to identify areas of improvement for us, whether it be through client training, client onboarding or even our own employees and onboarding, and we remain very focused on that.

Great.

I just meant with regards to the success that you've had, I was wondering if it's changing at all the profile or the types of people that are looking to join Paycom and whether or not that's having some impact.

And then lastly, can you talk a little bit about just the capacity to implement new clients as you continue to grow rapidly?

Anything that's occurring from that perspective that next few quarters is great, but things may have lengthened.

Or do we think we can stick on the same metrics?

Well, I mean, first, I'll take the first one.

I mean, I do believe it's easier for us to find people now than what it was 3 or 4 years ago.

And I think that's just due to the profile and the momentum we have and that type of thing.

And so -- but again, the type of person that we look for and the training that we put them through, although that's all continued to expand, it falls within our current strategy.

As far as onboarding clients, I mean, that's something we do.

There is no such thing as an easy client transition.

They all have their complexities to it, but it's something we wake up and do every day.

So we do a lot of them.

And so just like anything you do a lot of, you get better and better at it.

And we continue to improve our onboarding process.

And really, the key there is driving usage.

At the end of the day, clients -- it's easier to get clients to buy products than to use them.

And you definitely want clients to experience their overall value proposition and their ROI or cost justification that they have for making the purchase.

And really, that's about using the product.

And so a lot of the initiatives that we have that we're working on today is to get clients to use the technology that's available to them today.

And the next questioner today is going to be David Hynes with Canaccord.

It's actually Mark Belcarz on for David today.

Just one more on the competitive landscape, obviously, sales execution for you guys has been going well.

But when you're out there in new deals, is there anyone that you're seeing more or less of maybe this quarter than you've seen in the past?

No, it's been substantially the same.

Okay.

And then just quickly on -- maybe on the numbers.

Cash flow, it was brought up earlier.

It was also a little lower than what we had.

It's just what -- and you called out the facilities build-out.

So I was just wondering on CapEx, what can we expect in the back half of the year relative either to as a percent of revenue or relative to the first half?

How should we think about that?

Well, our CapEx for really the first and the second quarter of this year have been very consistent on a dollar basis.

We're continuing to complete the construction of the fourth building.

We would expect those levels to be fairly similar on a dollar basis.

And then as we get closer to the completion of the building, you would see CapEx increase a little.

So -- and then as I mentioned earlier, we base those tax payments on, the first quarters based on prior year.

And when you have a strong first quarter like we did this first quarter, you get -- you have some catch-up on that.

So in terms of the cash flow, that was a part of that, and I mentioned that on the earlier question.

And the next questioner today is going to be Corey Greendale with First Analysis.

So Chad, not to get too hung up on the point that you had a record week in July -- that's great, congratulations.

Is there anything you'd point to, to suggest like in terms of process or something that's actually going to be repeatable and you would be disappointed if you don't have another record set in August or September?

Or do you think it's more kind of a great week but let's -- no reason to expect that's going to happen again and "Let's see what happens?"

I mean, I can imagine a situation where as we continue on as a company, we're not having additional record week.

So I just think that this was somewhat timely.

And the fact that it was in a summer month, I thought, was something I wanted to point out.

And again, it really comes down to us being less disruptive within our model and continuing to increase productivity.

I mean, it's something I've been talking about that was going to be our focus when I talked about the $260 million new business sales capacity metric that we put out there.

I said we're going to be very focused on bridging the gap in this so that we can expand it, but we need to have the achievement.

That was our focus.

That's been our focus.

I think we're seeing signs of that coming to fruition, but we're not done.

I mean, we're continuing to focus on that, heads down, and again continue to get our value proposition out there with as many potential clients as we can.

Great.

And then just on the regulatory environment, has the -- out of D.C., kind of the stop and start on ACA, has any of that filtered through to your discussions with customers affect conversations at all?

Or is it sort of, "Who cares, we're looking at our HCM system for a different reason and we'll see what happens?"

Well, if you're a prospect, you have to have an -- you have to have -- you have to go to a company that has an ACA option.

If you're a client, you already have the ACA option.

It's the law today.

We talked about in the past it's a nominal fee from our clients.

It just is.

And when you take into consideration everything, there is the year-end forms filing, but it's an ongoing fee that they pay.

I believe it's somewhat nominal.

We talked about the overall percentage, approximate percentage of our revenue that it impacts.

And so no, I don't have a clue what's going on with ACA.

I mean, every time it comes up, I think something is going to happen and it hasn't.

I don't think anything is going to happen overnight.

I think we're going to have plenty of warning as it relates to -- if there is a wind-down.

I think there will be a wind-down.

I don't think it just automatically stops right away, but I don't know.

We're going to wait and see what happens.

Once we get the regs, our clients can rest assured we're going to do the work that needs to be done to make sure they stay and compliant and -- with whatever that might be.

Great, and one last quick one.

Can you remind me -- or if you haven't disclosed, can you tell us, if you look at your revenue growth, like roughly the split, how much of the growth is coming from number of new customers and how much from a higher ARPU per customer?

No, we don't break that out, but I've said it in the past and I wouldn't mind repeating it now.

I mean, the overwhelming majority of our revenue growth comes from new client adds.

Now -- then those new clients adds might be adding additional products to that as they come into the fold, but I mean, that's where the overwhelming majority of all of our revenue growth comes from.

Yes.

I'm sorry.

I meant growth from the fact that -- I'm guessing new clients today are paying more than new clients last year just because your suite is larger now.

I can't confirm that, that would be a -- I would have to -- no, I mean, I can't confirm that.

I think that our suite has been pretty built out last year as well.

Now I will tell you that the longer you've had a product, I mean, the more popular it becomes with usage.

And so I think someone might be able to surmise that there could be some of that, but I don't really think that's what's driving revenue.

And the next questioner today is going to be Siti Panigrahi with Wells Fargo.

This is Ankit for Siti Panigrahi.

Could you talk about your general investment plan in R&D and if you're coming up with any new modules to drive (inaudible)?

Yes.

So we don't -- we haven't ever disclosed any modules that we're working on or any that -- the new modules or any current modules that we're expanding usage cases for and so -- but I mean, we are investing in R&D.

I mean, like I said, we've had 80% to 100% of growth in R&D each quarter over prior year quarter dependent upon what you'll look at.

I doubt very seriously we'll be talking too much time from now, and people are still probably saying that our R&D is low compared to others.

And so from an overall percentage of revenue, I really don't see us moving away from bottom of the pack anytime soon.

But we do have initiatives that we want to continue in R&D group.

That does take resources to do that.

Anytime you see us adding to R&D, that's headcount.

I mean, we are hiring individuals and bringing them in there into Paycom, and we expect them to perform and produce the type of software that we're able to turn into revenue and so -- which then continues to keep the R&D as an expense of revenue somewhat in line with the trajectory we've shown in the past.

And so I would expect that to be somewhat the same, but we're not going to be market-high R&D as a percent of revenue compared to any of our closest SaaS peers primarily just because it'd be unnatural for us to make that type of investment.

It's not necessary for us with where we're sitting today.

And the next questioner today is going to be Abhey Lamba with Mizuho Securities.

This is Parthiv on for Abhey.

Can you comment on attainment during the quarter and how it came in relative to plan?

And then any directional color on quotas during the quarter would be very helpful.

I'm sorry, comment on achievement during the quarter and how it came in relative to plan?

Attainment, attainment.

Yes, as it relates to quota?

Yes.

Yes.

I mean, we don't really ever talk about what percent of quota our staff is, but I think it was a good quarter for us.

And we talked about quota achievement.

We'd be talking about how somebody booked sales the last quarter.

It's last quarter's booked sales that turns into this quarter's new business revenue if you kind of keep that in mind.

But I'm very happy with what's going on with the organization.

I mean, the sales group does continue to increase their level of not only knowledge but production and activity.

And we're really happy with what's going on there as we said today.

Okay, got it.

And then for your current sales office space, I guess, could you give us a sense of how many of those 45 are either mid-ramped or fully ramped or any high-level commentary on where you expect to end up by the end of the year?

Yes.

So let me see here, 6 -- 11 plus 3. You're going to have 14 of them that are either almost to maturity or maybe have -- just having hit maturity, either brand new or mid-ramped.

So I'm probably going to say maybe 10 in that area you're talking about, 9 to 10 in that area you're talking about.

They are still in the ramping -- either brand new or ramping phase.

And the next questioner is going to be Brad Reback with Stifel.

Chad, building on the sales force question, how is the hiring environment out there right now?

I mean, I think it's been a good hiring environment.

I mean, if you are looking for top talent, you're going to have to have a good strategy to get it.

We go through several interviews to find the right people and so -- but I mean, I would say it's been in line with the way it's been in the past.

Again, I think our profile of being a public company is -- on the margins helped us attract certain people and so -- and we get a lot of the -- especially from the sales side, a lot of our talent comes from referrals from our own sales people, and they're pretty good proof sources of what's possible.

And so we get some there as well.

And so hopefully, that answers your question.

I wouldn't say it's getting any more difficult to find people.

Well, that's good.

And one other unrelated question, last week, ADP talked about better retention as they sort of finish up the Workforce Now migration.

Have you seen any of that in the field?

Or is that really have no impact on...

No.

I mean, I think ADP is the 300-pound gorilla.

I mean, I think we continue to gain the business that we looked to gain, and I still see that momentum continuing.

I don't -- I wouldn't be close enough to their overall retention numbers to be able to comment on them.

This will conclude the question-and-answer session.

I would now like to turn the conference back over to Chad Richison for his closing remarks.

All right.

Well, I want to thank everyone for joining us on the call today.

I mean, we appreciate your time and interest in Paycom.

We look forward to meeting with investors at the Canaccord Conference on August 9 in Boston and also on the road this quarter.

Thanks to all.

Ladies and gentlemen, the conference has now concluded.

Thank you all for attending today's presentation, and you may now disconnect your lines.