Paycom Software Inc (PAYC) 2019 Q3 法說會逐字稿

Good day, and welcome to the Paycom Third Quarter 2019 Quarterly Results Conference Call.

(Operator Instructions) Please note, this event is being recorded.

At this time, I'd like to turn the conference over to James Samford, Head of Investor Relations.

Please go ahead.

Thank you, and welcome to Paycom's Third Quarter 2019 Earnings Conference Call.

Certain statements made during conference call that are not historical facts, including those related to our future plans, objectives and expected performance, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

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

While we believe any forward-looking statements made in this presentation are reasonable, actual results could differ materially because these statements are based on our current expectations and subject to risks and uncertainties.

These risks and uncertainties are discussed in our filings with the SEC, including our most recent annual report on Form 10-K and our most recent quarterly report on Form 10-Q.

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

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

Also, during 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 and 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.

Chad?

Thanks, James, and thank you to everyone joining our call today.

I'll start by reviewing another strong quarter of robust, profitable growth and provide you some comments on employee usage, Direct Data Exchange and Ask Here.

I'll finish by discussing the scale of the human capital management, or HCM industry, and the strength of our position within it.

Then Craig will review our financials and outlook before taking your questions.

Third quarter results were strong driven by robust new business adds and our durable high-margin recurring revenue business.

Q3 revenue was approximately $175 million, representing growth of 31% over the prior year period.

Adjusted EBITDA of $66.6 million in Q3 represented a year-over-year margin expansion of roughly 1 percentage point to 38%.

With these strong results and our expectations for continued strength in Q4, we are raising full year revenue growth guidance to approximately 30% year-over-year at the midpoint of the range, which Craig will discuss in more detail in his remarks.

We have a lot of great things happening here at Paycom.

We've been leading the charge in the HCM industry with our focus on employee usage that we believe is fundamental to the future of our industry, and we are starting to see this theme echoed in the marketplace.

With Paycom, our clients benefit from higher employee engagement, increased productivity and job satisfaction.

We continue to find new ways to encourage businesses and their employees to embrace the digital transformation in the workplace just as they already have in their daily lives.

Easy-to-use solutions, including mobile apps, continue to be important drivers of employee engagement.

Earlier this year, we introduced all of our clients to the Direct Data Exchange, or DDX, and we recently demonstrated this disruptive tool as part of the awesome new tech showcased at HR Tech.

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

Prospective clients are taking notice of the DDX, and we are receiving leads from it, including prospective clients well above our stated targeted range, who upon implementation are achieving great results with the DDX.

To put the potential cost savings in perspective, while clients are achieving an average DDX score approaching 90%, if all of our clients were operating at 100% DDX score, we estimate they could save an aggregate of nearly $0.5 billion annually.

Until the launch of DDX, no one in our industry, let alone HR professionals, knew what appropriate employee usage looked like or how to measure it.

And now we can take it a step further and attribute a measurable estimate of ROI to incentivize further employee usage.

We are very pleased with the DDX adoption levels we are seeing.

But there is still a lot of cost savings still yet to be captured by our clients as they migrate up the DDX usage scale.

Last quarter, we launched Ask Here to our clients, a tool that gives employees a direct line of communication to ask work-related questions of their company representatives and receive timely answers, all through the convenience of Paycom's self-service technology.

While it is still early, already half of our clients have enabled the new feature, and the initial feedback has been very positive.

I'm very excited about the benefits companies and their employees are starting to experience and look forward to continuing to iterate and develop this new tool.

These innovations further enhance the employee-employer experience and strengthen the clients' employee usage initiative, which are contributing to our rapid sales growth and market share gains within a large and expanding HCM addressable market.

To conclude, I'm particularly pleased with this very strong third quarter with every metric pointing in the positive direction and continued strong demand and new sales growth.

With 98% recurring revenue, we're setting up really well for 2020.

I'm confident that our product strategy, our people and our high-performance culture position us well for the long term.

We're delivering tremendous value to our clients and their employees as we lead them through the digital transformation of the HCM industry.

With that, I'll turn the call over to Craig for a review of our financials and updates to guidance.

Craig?

Before I review our third quarter results for 2019 as well as discuss our outlook for the fourth quarter and full year 2019, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis.

As Chad mentioned, we were pleased with our third quarter results with total revenues of $175 million, representing growth of 31.3% over the prior year period.

Our revenue growth continues to be primarily driven by new business wins.

Within total revenues, recurring revenue was $171.4 million for the third quarter of 2019, representing 98% of total revenues for the quarter and growing 31% from the comparable prior year period.

Total adjusted gross profit for the third quarter was $149.4 million, representing an adjusted gross margin of 85.3%.

For the full year 2019, we anticipate that our adjusted gross margin will be between 85% and 86%.

Total adjusted administrative expenses were $94.4 million for the quarter as compared to $70.7 million in the third quarter of 2018.

Adjusted sales and marketing expense for the third quarter of 2019 was $46.7 million as compared to $35.2 million in the third quarter of 2018.

Adjusted R&D expense was $18 million in the third quarter of 2019 or 10.3% of total revenues.

Total adjusted R&D costs, including the capitalized portion, were $24.8 million in the third quarter of 2019 compared to $16.1 million in the prior year period.

Adjusted EBITDA was $66.6 million or 38% of total revenues in the third quarter of 2019 compared to $49.2 million in the third quarter of 2018.

Our GAAP net income for the third quarter was at $39.2 million or $0.67 per diluted share based on approximately 58.4 million shares versus $28.8 million or $0.49 per diluted share based on approximately 58.5 million shares in the prior year period.

Our effective income tax rate was 22.5% for the third quarter and 18.1% for the 9 months ended September 30, 2019.

For the fourth quarter, we expect our effective income tax rate to be roughly 27% to 28%.

For the full year, we expect our effective income tax rate to be roughly 20% to 21%.

For the fourth quarter, we anticipate noncash stock-based compensation expense to be approximately $6 million to $7 million.

Non-GAAP net income for the third quarter of 2019 was $41.1 million or $0.70 per diluted share based on approximately 58.4 million shares versus $30.6 million or $0.52 per diluted share in the prior year period.

We anticipate fully diluted shares outstanding will be approximately 58 million shares in the fourth quarter of 2019.

Turning to the balance sheet.

We ended the quarter with cash and cash equivalents of $108.1 million and total debt of $33.1 million.

As a reminder, this 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 $1.1 billion in the third quarter of 2019.

During the quarter, we purchased 107.5 acres of land adjacent to our corporate headquarters in Oklahoma City for $19.2 million.

While we currently do not have any plans to build on it, it was an opportunity for us to establish additional space around our existing headquarters if future business needs require it.

Now let me turn to guidance.

For the fourth quarter of 2019, we expect total revenues in the range of $188.5 million to $190.5 million, representing a growth rate over the comparable prior year period of approximately 26% at the midpoint of the range.

We expect adjusted EBITDA for the third quarter in the range of $72 million to $74 million, representing an adjusted EBITDA margin of approximately 38.5% at the midpoint of the range.

For fiscal 2019, we are increasing our revenue guidance to a range of $733 million to $735 million or approximately 30% year-over-year growth at the midpoint of the range.

We are also increasing our full year 2019 adjusted EBITDA guidance to a range of $311 million to $313 million, representing an adjusted EBITDA margin of approximately 42.5% at the midpoint of the range.

With that, we will open the line for questions.

Operator?

(Operator Instructions) Our first question today will come from Raimo Lenschow of Barclays.

And congrats to another great quarter.

Two questions.

Chad, can you talk -- you mentioned earlier in your comments that DDX is kind of pulling you slightly higher up in the market.

Can you kind of expand on that a little bit?

Is that like into the 2,000- to 5,000-employee category that you kind of had -- kind of given into the sales force last year?

Or is that even above that?

And kind of what's the momentum that you're seeing there?

And then a question for Craig.

Like, even I have now discovered that your EBITDA margins are higher compared to last year.

Can you talk a little bit about the drivers in that?

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

All right.

Well, first, Raimo, I think you squeezed in about four questions, but I will handle it.

The DDX, what I've said was we are beginning to get leads from having the DDX, and that's true.

In fact, one particular client that we had was double our stated range, and they've already made 2 million changes in the last 4 months.

And they have a DDX score of about 99%.

And so it is differentiating us out there in the marketplace for those businesses that do want their employees to have that direct relationship with the database, as it were, for both input and data retrieval.

I'll let Craig talk a little bit about the adjusted EBITDA.

Yes.

In terms of our guidance for this quarter, Raimo, we're currently guiding, basically, where -- at the midpoint this year and this quarter at where we finished last year.

So nice of you to notice that.

Some of the give and takes, we're continuing to spend on the R&D and on the sales and marketing, and then we're starting to see the efficiencies in the G&A line as we're -- if you remember last year, towards the end of the year is when we brought that building online.

So I'm seeing some efficiencies there.

And then your question on the TV ad, yes, we -- you are seeing some TV ads this fourth quarter, but any of that is already baked into current guidance.

And they were successful as we headed into last year, which is why we are continuing them into a little bit in third quarter and fourth quarter this year.

And our next question today will come from Mark Murphy of JPMorgan.

I'll add my congrats.

Chad, I'm curious, what percentage of the new logos that you're signing recently are signing up for 100% mandated employee usage?

Yes.

I mean we continue to have that growing as far as we're getting the pledge.

I'd have to look through exactly.

That is a growing number.

I can't say that it's 100% of them.

What I will say, though, is 100% of all of our clients that are onboarding, we are seeing increased DDX scores from the beginning.

So their out-of-the-gate number of DDX, for those companies that have converted in third quarter, are higher than the out-of-the-gate DDX scores from those that had converted in the previous quarter.

And so we are continuing to see growth in the DDX initial scores month-over-month, which does continue to push our aggregate number of DDX up.

Okay.

Great.

And then, Craig, is it possible to quantify the -- any incremental drag you'd expect in 2020 from the interest rate reductions and the overall interest rate environment?

Yes.

I mean we called out that our average daily fund balance was $1.1 billion.

So a 25 basis point decline with the -- it will obviously layer in, but the full 25 will be somewhere in the $2.5 million to $3 million.

Yes.

And last year, we did benefit from some interest rate raises.

This year, we've had some interest rates headwinds as they've started to reverse.

We continue to put up the numbers in face of those headwinds.

The last -- in the last 21 years, I mean, we received yields as high as 5.9% on overnight sweep accounts and as low as 0. We have a very small percent of the TAM, and we have the most differentiated product in the marketplace, and we feel comfortable about being able to weather whatever happens with the interest rates.

It is important to note, we sell more in new business in a week than any 0.25 point drop in interest rates.

And so our annualized sales on average on any given week is greater than any 0.25% interest rate drop.

So there -- it is out there.

It does create some headwind, obviously, but we've been pushing through it as you've seen in this quarter.

Our next question today will come from Brad Zelnick of Crédit Suisse.

Great.

And I'll echo my congrats as well, nice results.

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

I just wonder, are customers asking for things that competitors have been showcasing?

And in the past few quarters, you've hinted at additional products as well.

Any teasers on future product direction or places where you'd go or places maybe where you definitely wouldn't go that you'd even directionally be able to give us a sense of how you're thinking about things from an R&D perspective?

Yes.

So I mean our R&D buckets have been substantially the same as far as what our spend is.

You are going to have a certain portion on compliance, the things we have to do to keep our software updated in accordance with the -- both labor laws as well as tax laws, deposit and filing.

You're going to have another piece of that, that continue -- 1/3 of that is going to be to -- continue to expand.

They're not proportionate.

I'm just saying there's 3 categories.

At any given time, you can be in 1 -- more in 1 category than the other.

But a second category -- so first category is what I just mentioned, more on the compliance side.

The second category is continuing to develop out deeper within our current product set, making them better.

And so we continue to update that.

The third category of the 3 would be innovation.

And that's us developing items like the DDX, like Ask Here that are typically replacing nothing within our industry or some other third-party concept.

And so we do continue to work on that.

Staying true to ourselves, we don't disclose those products that we're working on until they're out.

But you will continue to see, as you have in the past, further innovation from us as well as continuing to go deep within our product set to make -- drive more value for the client.

I appreciate that, and I appreciate the commentary.

Maybe just in follow-up from a go-to-market perspective.

Again, heading into a new year, and I know you're probably still in the midst and the thick of your planning cycle, but as we think about your go-to-market, somewhat unique, very definitive model that you've pursued.

As of a couple of quarters ago, I think it was, we talked about moving upmarket, which really wasn't a change from what you had been doing.

But as a great sales leader once said to me, if you're doing the same things this year to be successful that you did last year, you got to mix it up.

Any early thoughts on just the learnings from the changes and the tweaks that you've made to the model over the past year or so or a couple of years?

And directionally, what we might be in for as we look forward?

Yes.

So you are right.

You have to continuously change your strategy, your go-to-market strategy as the product continues to change, too.

I mean if we are going to market the same way today as what we went 3 years ago when we have a different product today than what we had 3 years ago, that would be a problem for us.

We're only getting stronger as an organization.

I mean we have a very small percent of a large TAM.

We're creating a larger competitive moat.

This year is shaping up to be our best year as an organization.

And last year was hard to follow as probably our best year up until then.

But here we sit, about ready to stamp out another 30% growth with the rule of 70 again.

And so I feel like we're doing really well, and we're set up very well for -- as we head into next year.

Well, congrats on all the success.

Thank you.

Our next question will come from Brad Reback of Stifel.

Chad, can you give us an update on the inside sales initiative, how that's progressing?

Yes.

So we started that.

I believe I announced it last quarter, we had started a little bit before, where I think we had 5 reps.

We had moved an outside sales manager in to build that group.

We now do have 2 teams, inside sales teams.

No change in strategy there, just in size.

They do continue to catch those deals, businesses that are calling in below 50 as well as catch those deals that might be out of territory areas where we do not have an office, where they can pick up some low-touch opportunities there.

So nothing's really changed there, except they are staffed.

Great.

And then just one quick follow-up.

R&D spend has increased as a percent of revenue at a very nice pace as you continue to obviously put money back into the product.

Any sense longer term where we should expect that to stabilize as a percent of revenue?

Yes.

I mean we continue to increase our R&D spend.

I mean from quarter-to-quarter, I think sometimes it goes up a little bit in percent of revenue.

There's been quarters where it's fluctuated the opposite way when you're looking at quarter over prior year quarter.

But we do continue to invest in our R&D strategies.

And so it's all relative to -- as to our growth as well.

We're still very focused on continuing to be a very strong growth company, and that would require us to continue to invest in the product.

And our next question today will come from Mark Marcon of Baird.

Let me add my congrats.

With the DDX -- well, it's not the DDX itself, it's the usage that is -- that the DDX is measuring as that continues to track up.

Can you talk a little bit about how that's impacting the sales force and the ability to go out and convert sales leads?

How well is that resonating?

And then also what would you anticipate as we go through the year from a retention perspective?

Because it would seem like you've got some really nice proof points.

Sure.

Well, some prospects have that initiative.

And so they have an initiative to have their employees have a direct relationship with the database as we're in 2019 and beyond.

They see that as a huge benefit to the organization.

Other clients, they might see it as a benefit to the organization, but they're not yet ready to actually take it on.

And so with those clients, it is a different-type sales process where we have to acclimate them to the idea.

It's something that they haven't been used to in the past.

And so we continue to do that.

And so I would just say some sales, it's much easier for us.

And some sales, since we are bringing something to market that's different than what they're used to, we have to sell a different way.

But we haven't seen any elongated sales process times and/or conversion times from it, it's just -- it's different.

As far as conversion, I always think that the more value you bring to clients and the more usage that you're able to establish, the longer clients look to stay with you.

As far as retention, we do update that once a year.

We aren't updating that now.

And as we move through the end of the year, the numbers start to change as you go through October, November and December.

And so we'll be updating that at the first of the year.

Great.

And can I just ask a quick follow-up with regards to just as you're planning for next year?

Chad, what's the organizational readiness for expansion in terms of new offices?

You're obviously doing a great job in the markets you're in, but just wondering, broadening out the coverage.

Yes.

So we are opening up offices as part of our strategy.

We did open up New Orleans as well as expanded an inside sales team so far this year.

I will point out that of the more than $20 billion of TAM that we have, we've already got half of it covered in the markets that we have open.

Our focus is on productivity of sales reps as well as careful expansion and execution.

And I mean as you can see from the results, the strategy is working.

And our next question today will come from Brian Schwartz of Oppenheimer.

Chad, just a thought, maybe I'd ask you just a question.

Any update that you're aware of in terms of the competitive landscape?

Are you seeing any changes in terms of the win rates that you're aware of or maybe where the replacements are coming from?

And then the follow-up question I had for Craig was just on the cash flow in the quarter.

It came in quite a bit higher than where I had modeled it.

And just wondering if maybe you're able to spend everything that you wanted to spend in the quarter.

Yes.

So I'll take the first question.

I would tell you, it's usual suspects for us as it has been for a long time.

And our win rates aren't getting any -- well, the -- our win rates aren't going down.

So I can just say that from there.

Yes.

I mean in terms of the cash flow, it's kind of where we expect it.

I mean you're going to have some variation quarter-to-quarter as it relates to, let's say, tax payments and things like that.

But yes, I feel like we're probably spending at the right levels.

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

So on the gross margins, how much of your gross margin improvement is driven by this push for automation versus just natural scale in the business as you get larger?

I mean, obviously, we're seeing this employee usage strategy, that it is having an impact on our gross margins.

We're able to see that our specialists are able to handle a larger volume just because our clients are using the system and their employees are using the system kind to the fullest.

So it is having an impact on our gross margins.

Okay.

And then on the move upmarket, would you characterize any change in sales cycles as you move upmarket, Chad?

No.

I wouldn't.

And I want to say, we haven't moved any further upmarket.

Our range is still the range.

We've always continued to get clients at the upper end of our range in the past.

We just have had success with people contacting us with the strategy a little bit more so than what we had in the past.

So we kind of called that out.

As far as sales cycles and as well as conversion cycles, those have stayed the same.

Our next question will come from Samad Samana of Jefferies.

Chad, I guess kind of maybe following up on the upmarket success.

I'm curious if you see a different trend in the modules that customers at the upper end of your customer base are adopting, or if there's something in particular that brings them over, or that you're seeing greater uptake of that's driving that success.

Yes.

I don't know that I could call out greater adoption upmarket.

We've always had strong adoption of our products.

Our clients take greater than half of the products that we have at the time of conversion, and that hasn't changed upmarket either.

Are you still there, Samad?

Oh, yes.

Great.

No, I did not have a follow-up question.

Our next question today will come from Arvind Ramnani of KeyBanc.

Good results.

Just on the employee engagement and DDE, just wanted to see, are you all -- I just continue to see more success of this offering.

Do you think you may kind of tilt your kind of revenue model to charge more of a usage-based or kind of success or percentage of cost savings that you're offering clients?

Or you don't think you may go that route?

Well, no.

I mean I don't.

I actually think the more you use our system, the better it is for Paycom, too.

I will tell you that most business -- most software companies, at least, if you look historically, they're not necessarily advertising how much of the system you're using.

We're actually measuring it.

We're leading with it.

We want you to use the full system.

And so I don't see us -- that we're charging clients more for using the system.

They've already bought the modules.

And so once you've made that investment, you may as well -- I've always said, costs you the same whether you get the full value out of the system or not.

And in order to get the full value out of the system, that's about usage and being able to measure that for our clients so that they receive that value.

And that return on investment, I think, is making the difference.

Great.

And then where are things -- we have talked about is -- essentially, your focus on automation.

With your current, like, product set and offering, where do you think is sort of the greatest kind of opportunity for further automation?

Employee productivity.

And our next question today will come from Ryan MacDonald of Needham & Company.

First off, Chad, I was interested to see that Paycom's presence at HR Tech with a booth for the first time in quite a while.

Just curious what really went on to that decision-making process.

And if you could talk about any of the benefits that you've seen since then from either increased brand awareness or from a lead-generation perspective.

Yes.

I think this was our third year in a row to attend HR Tech.

But you're right, we have -- we had been absent from it prior to that.

So yes.

I mean going through trade shows and what have you, and definitely, HR Tech is something that we had started doing about 3 years ago.

We did continue it this year.

It gives us an opportunity to highlight new products that we've developed.

I think we implemented the HR Break Room last year, where we had it I think somewhat in the middle of the floor.

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

Got it.

And then just a follow-up.

On the Ask Here communication platform, I think you mentioned that about half of your customers had enabled it since you had launched it or announced it.

What sort of usage trends are you starting to see, even though it's early days there?

And do you think this is something that takes a similar path to what you're seeing with Direct Data Exchange?

Yes.

I would say they're a little different.

I mean DDX is kind of the scorecard to the strategy that a business might implement, and Ask Here is actually something that should continue to grow.

I mean you're somewhat limited by your imagination on questions.

I mean you set up the categories of questions, it can be whatever you want.

You set up who are the company representative experts on those questions, whether it's a benefits administration question, where it's a "how do I get a key" question or whatever, IT questions, resources, whatever, they're all right there.

And so what it allows the company to do is set up those categories.

And then for employees, oftentimes, they don't know who to ask.

With Ask Here, you don't need to know who to ask.

You just ask your question of Ask Here, and it knows who the appropriate person to respond to that question is.

And so it just greater drives employee adoption, if you will, as well as that it builds that conduit, once again, between the employer and the employee for stronger communication.

And so they're a little different, Ask Here versus DDX, but both are strong differentiators.

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

Just to kind of build off the last one, when you're introducing some of the new functionalities to the platform, like DDX, like Ask Here, can you just kind of philosophically talk to us about whether you want to charge for that, whether you want to give it away for free?

Like how do you think about -- when you're introducing new features, how do you think to get your clients to ultimately benefit the most from it?

Yes.

I mean I see that as a kind of a -- it's hard for me to answer that question without giving out too much competitive strategy on exactly how we decide which products we're going to develop and which we're going to charge for.

I can tell you this, though.

There are certain products that it's so important that you get 100% usage on.

You really don't want to go through the time of trying to sell it over the next year or 2 to clients.

DDX was definitely one of those types of products that -- could we have sold it?

Maybe, on the margin, but I would rather have 100% people using it.

And that's the same with Ask Here.

They just both create so much value.

And so I would just leave it at that.

We do continue to develop other products that would be for-a-fee products.

But these 2, I really felt like it's important for us to get 100% usage out of it.

We're getting close on the DDX as far as -- I mean, we've had at least every client click through it from that perspective.

And then on Ask Here, we actually have 50% of the clients using it right now.

And I see that adoption rate only increasing as we head throughout the fourth quarter and into next year.

Great.

And then on the balance sheet, ending with over $100 million on the balance sheet.

Can you just sort of talk about how do you view deploying that cash?

And is there a time in which you'll become more structured with letting investors know about whether you're going to be using that cash for buybacks, et cetera?

Yes.

I mean we are approaching over -- we're over $100 million now on the balance sheet.

And I mean our first priority is to invest in growth in the R&D side.

And as you're aware, we still have $120 million available under our current or existing buyback plan.

And that is one of the ways that we return capital to shareholders.

We were very opportunistic in 2018 towards the end and have continued to build back our cash position throughout this year.

And our next question today will come from Drew Kootman of Cantor Fitzgerald.

Just one for me.

On DDX and Ask Here buttons, are you seeing any differences on people picking it up quicker, maybe they're larger clients or smaller clients?

Just anything you can point to of how quickly people are adopting it in different areas?

Yes.

And so all products start off right when you put it out, then you got to train the sales organization and what have you, and it takes a little while before the sales organization is necessarily selling it that way from the beginning.

I can tell you on both of those products, if clients are coming in today, they're on those products.

But we've got a lot of clients that we've had in the past that we didn't sell on those products from the beginning.

But new business coming in should all be using the DDX and Ask Here, but we still have a large client base that we've had to circle back to.

And we've done a good job, as I mentioned, with the DDX last quarter, and as I've mentioned on this call with Ask Here.

We've done a good job of circling back to those clients and making sure they're capturing the value of these products that are just included to further drive ROI.

And our next question today will come from Siti Panigrahi of Mizuho.

Chad, I just wanted to drill into the Q4 pipeline, which is easily a strong quarter in terms of new customer adds.

So are you seeing any more -- more traction in terms of pipeline in your switch for like 500 to 2,000 range?

Or are you seeing more on the upper end side, 2,000 to 5,000?

Any comments in terms of demand environment?

I mean no real change there.

I mean I used to talk about the top end of our range, and I was talking about above 2,000.

Now when I talk about the top end of our range, I'm talking about above 5,000.

So I mean that's -- that's had some change a little bit.

We've got a strong guide going into Q4.

In fact, our guide this year heading into Q4 is larger of a percentage than it was last year heading into Q4.

And so we feel really strong about what we have in the pipe for Q4.

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

And our next question today will come from Robert Simmons of RBC Capital.

Nice results, guys.

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

Yes.

So I mean we did a pricing adjustment.

If you guys remember, we did that.

It had very little to no impact on fourth -- on first quarter, excuse me.

It'll have about a 1% impact for the full year.

I mentioned that, I believe, in second quarter.

I said at that time, we consider pricing adjustments to be competitive in nature.

So it's not something that I'm going to talk about moving forward in how we choose to price our product.

Can you talk, though, have you seen any clients having a negative reaction to it?

Or are they basically just taking it in stride because it's such a small percent?

Yes.

I feel really good about our pricing strategy.

And as I've said before, we were able to have a price adjustment to a select group of clients.

It had a very small impact on first quarter.

On the quarters subsequent to that, we expect about a 1% total impact on our organization for this year.

And moving forward, pricing, I do consider to be competitive, and it's not something I want to talk about on these calls.

And ladies and gentlemen, this will now conclude our question-and-answer session.

At this time, I'd like to turn the conference back over to Chad Richison for any closing remarks.

All right.

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

Over the next couple of months, we'll be on the road, meeting with investors at the following conferences: Craig and James will be hosting investor meetings at the Stifel Growth Conference in Chicago on November 7 and at the RBC Tech Conference in New York on November 19.

I'll be presenting at the Crédit Suisse Tech Conference on December 3 in Arizona as well as at the Barclays Tech and Media Conference in San Francisco on December 11.

We appreciate your continued interest in Paycom, and we look forward to meeting with many of you soon on the road.

Thank you, operator.

You may disconnect.

Thank you, sir.

The conference has now concluded.

We thank everyone for attending today's presentation, and you may now disconnect your lines.