Paycom Software Inc (PAYC) — Q1 2022 Earnings Call Transcript

Thank you. And welcome to Paycom’s first quarter 2022 earnings conference call. Certain statements made on this 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 on this call are reasonable, actual results may differ materially, because the 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. 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 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.

Thanks, James, and thank you to everyone joining our call today. I'll spend a few minutes on the highlights of the quarter. Then I'll focus on the opportunities that I expect to drive strong performance going forward. Our 2022 first quarter revenue of approximately $354 million came in very strong at 30% year-over-year and was well ahead of expectations, thanks to strong growth in recurring revenue from new business sales and modestly better revenue from seasonal forms, filings and adjustments. This quarter has set us up for strong financial performance for the remainder of the year and we are raising our full-year guidance as a result. With our new full-year outlook for revenue growth and adjusted EBITDA margin, I now believe we can exceed the Rule of 65. Employee usage continues to trend higher as more companies embrace our self-service solutions and push ownership of the data out to the employee. Increasing employee usage is a key component of the ROI that our clients realize, and we believe our employee usage strategy is a competitive advantage and a driver of our very strong growth. Already, well over a quarter of our clients have implemented and/or are in the process of implementing Beti, our most advanced employee usage payroll experience to date. In less than a year, over 10,000 of our clients have embraced Beti as the right way to do payroll. Beti is fundamentally a better way to run all payroll processes to the benefit of the employer and employee. We will continue to innovate Beti to deliver even more value to our clients, making it even more compelling. Beti is the future of payroll. Our marketing plan continues to perform very well, delivering strong demo leads and brand recognition across our target market. We are also having a lot of success with our retarget efforts and leveraging our digital assets. We recently launched a new ad campaign highlighting how employees have been given the wrong tools for their jobs. With Paycom, employees have the right HCM tools at their fingertips. Our marketing efforts target employee usage at both large and small clients, and we're having great success attracting new clients, which is a key component of our rapid revenue growth. On the sales front, I'm pleased with the execution and progress we are making to further penetrate the markets we are in. Just a few years ago, we celebrated leading sales reps who sold over $1 million in a year. Today, we are celebrating sales reps exceeding $2 million in sales in a year. Holly Faurot has done an outstanding job aligning the sales organization and the collaboration with the marketing organization is working very well. In fact, both organizations recently received Best Marketing department and Best Sales department awards. These awards are in addition to the awards we received for best companies for women and Forbes list of best mid-size employers and top workplaces. I am more confident than ever that we have the right team and culture in place to achieve our growth expectations. As a reminder, we only have approximately 5% of a very large and growing total addressable market and a long runway for rapid growth for many years to come. Also, I want to say thank you to Jon Evans, who was with Paycom for eight years and was our COO for four of those years, as he took over for Stacy. Jon did a great job for this company, like anyone who does a great job for Paycom, their DNA exists in the company long after they're gone. We are always excited to turn over the department to the next generation of leadership such as Justin Long, and we know he'll take this group to the next level, as has been proven every time we make strategic moves like this. To sum up, we kicked off the year with a great first quarter and are entering the second quarter with very strong momentum. Our differentiated strategy, our people, and the value we are delivering to our clients are fueling our long-term growth. I want to thank our employees for their hard work and exceptional performance this quarter. With that, I'll turn the call over to Craig for a review of our financials and guidance.

Thanks, Chad. Before I review our first quarter and our outlook for the second quarter and full year 2022, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. First quarter 2022 results were excellent with total revenues of $353.5 million representing growth of 30% over the comparable prior year period. In Q1, we had very strong recurring revenue growth from strong starts and modestly better-than-expected annual forms, filings and adjustments revenue. Our revenue growth continues to be driven by strong demand for easy-to-use employee-focused solutions and our success in attracting new business wins. Within total revenues, recurring revenue was $348.2 million for the first quarter, representing 98% of total revenues for the quarter and growing 30% from the comparable prior year period. Total adjusted gross profit for the first quarter was $306 million representing an adjusted gross margin of 86.6%, and we remain on target to achieve strong full-year adjusted gross margin in the range of 85% to 86%. Adjusted sales and marketing expense for the first quarter of 2022 was $72.1 million or 20.4% of revenues compared to 21.8% of revenues in the prior year period. We continue to see strong return on investment from our advertising spend and plan to continue to invest aggressively in marketing and advertising throughout 2022. Adjusted R&D expense was $29.4 million in the first quarter of 2022 or 8.3% of total revenues. Adjusted total R&D costs, including the capitalized portion, were $42.9 million in the first quarter compared to $34 million in the prior year period. Innovation continues to be a key area of investment for us, and we have a deep pipeline of projects that we are pursuing. Adjusted EBITDA was $170.1 million in the first quarter of 2022 or 48.1% of total revenues compared to $133 million in the prior year or 48.9% of total revenues. Our GAAP net income for the first quarter was $91.9 million or $1.58 per diluted share versus $64.6 million or $1.11 per diluted share in the prior year period based on approximately 58 million shares. Non-GAAP net income for the first quarter of 2022 was $110.6 million or $1.90 per diluted share versus $85.9 million or $1.47 per diluted share in the prior year period. We anticipate our full-year effective income tax rate to be approximately 28% on a GAAP and non-GAAP basis. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of approximately $361 million and total debt of $29 million. The average daily balance of funds held on behalf of clients was approximately $2.2 billion in the first quarter of 2022. Now let me turn to guidance. Based on the very strong first quarter results and the strong demand trends we are seeing, we are raising our full-year 2022 guidance. We now expect revenue in the range of $1.333 billion to $1.335 billion or 26% year-over-year growth at the midpoint of the range. We expect adjusted EBITDA in the range of $533 million to $535 million representing adjusted EBITDA margin of 40% at the midpoint of the range. Combined revenue growth and adjusted EBITDA margin, we now expect to exceed the Rule of 65 that we reported last year. For the second quarter of 2022, we expect total revenues in the range of $308 million to $310 million representing a growth rate over the comparable prior period of approximately 28% at the midpoint of the range. We expect adjusted EBITDA for the second quarter in the range of $111 million to $113 million representing an adjusted EBITDA margin of 36% at the midpoint of the range. The strength of our results and our raised guidance clearly reflect our confidence in the market demand for our solutions and the success we are having in expanding our market share from the roughly 5% share of the total addressable market that we have today. We have a high-margin recurring revenue model, a strong balance sheet, and with the investments we are making and the success of our sales model, we are very well positioned to deliver another year of rapid revenue growth and robust adjusted EBITDA margin. With that we will open the line for questions.

Thank you and congrats from me. That's amazing quote and interesting guidance and very strong guidance. I wanted to kind of talk a little bit about what you're seeing in the market. Obviously there's like a nervousness about how your European situation might spill over to the US. Doesn't look like it, but like maybe any comments on that one Chad. But then also I wanted to hear more from you around momentum in the different customer segments around large customers, small customers inside skills, what what's driving the strong momentum especially if I look at Q2 guidance that looks stronger than what you've done historically. Thank you.

Yeah. So first, as you're aware, our focus is here domestic here in the US. We are focused on those businesses. Our system does allow people to store employees that work internationally. So, as far as the impact on what's going on in Europe, I think from a macro level, it somewhat impacts every business, but for us, we only have 5% of the total addressable market out there continuing to drive new business revenue and that's not keeping us from being able to do that although our hearts go out to what's going on over there. In your next question what's driving our momentum, we are having a lot of success above the 1,000 employee mark as more and more businesses look to deploy self-service technology in the hands of their employees. And then as long as you're deploying self-service technology in those employees' hands, you may as well deploy something that does the most for them or something that they can do the most on. And so that's definitely helping to drive our momentum as we continue to move forward.

Okay. And then quick one quick follow up, if I think about the flow of balance, how are potentially higher interest rates impacting you and how immediate does that affect?

Yeah, so Raimo, we had a 25 basis improvement towards the end of the first quarter. So, that takes a while to layer into our numbers. We're still investing in fairly short-term, but obviously looking at the best way to deploy those balances. So, as they would go up, then we would start to see impact over time on those increased rates.

Hi. Good evening. Thanks for taking my questions. So maybe Chad first for you just, I know the company opened several new offices. I'm curious if those have been fully staffed already and maybe how those staffing of that it was informed the kind of stronger than normal guidance that you gave for the rest of the year even on top of a very strong 1Q?

All the new offices have opened and are already producing. Each office requires about two years to reach full maturity, but we will continue to generate revenue from them during their maturation process. Some of the revenue growth we expect to see this year will come from these offices, although it will be modest. I believe you will see a larger contribution from them next year and as we move into 2024.

Great. And then Craig, maybe just a follow-up to Raimo's question. I know we've only seen a 25 raise in fed funds rate, but can you just help us understand, are you baking any further increases into the guidance or is the revised guidance just as of what's already been happened, not the scuttlebutt on future potential raises?

Yeah, the guidance we gave is really kind of where we are today on what we're earning today. So that included that first 25 basis point increase. So, they're talking about additional raises even this week. So, we kind of have to see how those layer into our earnings.

Great. Thanks very much. Chad, as your sellers get back to face-to-face interactions, have you seen any change of productivity as a result? I know you were really productive over the last few years, but any changes?

No, I wouldn't say we're back to face to face. We're doing some of them face to face. So we're definitely doing more this quarter than we did the last quarter. But I wouldn't say that we are back face to face the way we were pre-pandemic. I do believe going face to face has opportunities to impact in a positive way or close ratios as we do that. But as we sit here today, it would be hard for me to say that we've fully made that shift again. We're still meeting clients where they live and we're still walking through that process, and a substantial number of our clients, and definitely the overwhelming majority of our meetings, are still being held virtually, and I believe that we're doing that for the benefit of efficiency for both the client as well as us.

Great. And then switching gears, I think it was last week, ADP talked about more aggressive price increases to reflect the current inflationary environment. From your over the last 20 years, what type of impact does that have on the market and overall customer demand?

Well, as you know Brad, we did our very first pricing adjustment in 2019. It impacted a very small subset of our client base. And we generated around 1% at that time. At that time, I mentioned that as we look at pricing adjustments and we increase the ROI for our clients, it would only make sense that we were able to share in the ROI that we increased. And that's really how we look at it; regardless of inflation or anything else. If we are increasing the ROI for a client, there's an opportunity for us to share in that value that we create through pricing adjustments and if we don't do that, then it really doesn't matter if there's inflation or anything else. We really don't have that opportunity. So, as far as what another company might do, how that could impact us, not so sure on that. But, for us, our pricing adjustments to the extent we do one would be based on an increase over return on investment that our clients are achieving.

That's great. Thanks very much.

Thank you.

Hey, good afternoon and congratulations on the excellent results. Wondering if you can talk a little bit about the Beti conversions that you've had so far and what sort of revenue uplift you've seen and then, what's been the change in terms of the level of client engagement and satisfaction and early reads in terms of retention trends among those clients?

Yeah, well from a rolling out Beti, we started doing that in July for all new clients, all quotes for all quotes given in July had Beti as part of our ongoing strategy. And so the reason I'm saying that is the way a new client would approach Beti is a little bit different than the way a current client would approach Beti. A current client does have to go through a bit of conversion, and they're not necessarily in a conversion mode the way a new client. They're already in a conversion mode, and so there's a little bit difference there in how we work with one or the other, but we're also getting a lot better at deploying, making those conversions and helping the client set up their data sets that they have to feed into Beti in order to make it work for them payroll after payroll. And so in answer to your question from a retention, absolutely, the more of a product businesses use in our case, the more products that they use, the longer they stay and the happier that they are. So we're having a lot of success getting Beti out there.

Chad, do you get a revenue lift on the clients that you are converting to Beti? And if so…

We do, yes. Beti provides an incremental revenue opportunity for us. It's, as I said in the past, it's a nominal fee. It's one of 29 modules, but we do get a revenue uplift each time we sell Beti to a current client or if we sell Beti to a new client, their pricing includes Beti and so that would be a larger fee than what it would've been prior to Beti being included.

And so in terms of expectations, what's built into your expectations in terms of conversions among the client base that currently doesn't have Beti through the balance of the year? And then as it relates to the rate question and the float income, to what extent would you let that incremental benefit flow through to the operating line as opposed to investing it?

Well, taking the latter first, we're always trying to invest, our first opportunity is to invest in growth and so we're always looking to do that. But we were also very disciplined in what we do. The first question was as far as, is Beti built into our forecast, as far as what we're looking to do. It's been built into our forecast the whole time. I've been very aggressive about the expectations about our hopes for bringing Beti in. Although I'm happy with 10,000 clients on it, or well over a quarter of our clients, there are a lot of clients out there that aren't yet, as well as their employees, that aren't yet experiencing the benefits and the ROI that Beti can deliver. And so that's what we're focused on doing. I don't know that we're gonna hit, my expectations for speed on that we rarely do in situations like that. But what I will say is we're talking about 10,000 clients that have either signed up for it or already converted and this is a product that we started really putting out there on quotes beginning in July. So it's hard for me to find another product that's moving as fast as what Beti's moved with the exception of our ACA product like in 2016.

Terrific. Thank you, Chad.

Thanks for taking my question and congrats on a great quarter. Chad, last quarter on the call, there was discussion of a competitor of Paycom, dealing with a hack issue in December. Obviously, that competitor being at the higher end of the market, you mentioned those sales cycles take a bit longer to process through. Just curious, obviously now, sort of five months post that, how you're feeling competitively and if you've been able to successfully have some competitive wins there? Thanks.

Well, yeah, definitely. We've had competitive wins, but we always have, it's not that, we don't have a pull the thorn out of your strategy. Ours is a full strategy that we go through and definitely as clients were going through having their system down and having to implement all of these different technologies and/or do it manually so that their employees could get paid. Some of them didn't. That becomes a thorn out of the palm moment, where we can pull that thorn out and now you're not hurting exactly right now, but that's not necessarily driving an overall strategy for a business and how that changes. And most businesses of that size, I would say or all businesses of that size are pretty strategic and smart about how they move forward in it. And so all that's to say is that it would've been odd with at the time that that happened that we would've converted all these businesses overnight because we're not going to do unnatural things to bring in clients without them understanding what they're buying and how the value is created, because it's important for us to retain them in order for us to really generate revenue and especially margin and adjusted EBITDA from them.

Excellent. Thanks. And then just as a follow up, just curious at what you're seeing sort of down market in terms of inbound lead flow for your inside sales teams and how you're feeling about the capacity of those teams currently, any thoughts of sort of incremental investment to expand the number of teams through the remainder of the year? Thanks.

We would expand the number of teams to meet the demand. What's driving the demand is our advertising spend. We continue to spend heavily in advertising because it's working. So as our marketing and advertising efforts continue to drive more leads, then obviously we would want to make sure we have that group staffed to be able to handle those leads. The small market group, which handles under 50 employees represents about 5% of our revenue. So, when you're talking about how many resources that we would add to grow that into the future, definitely enough to service and be able to sell what the demand is that we're generating from our lead and marketing and advertising volume, but not so much that it shifts our focus and strategy away from what we're trying to capture here.

Thanks for taking my question. Chad, just one clarification and then follow-up, you said this that revenue from filing and tax models better. So is it now to the pre-pandemic level?

No.

Okay. And then when you're thinking, in terms of product innovation, we heard about DDX now Beti, so how are you thinking about what's in terms of product innovation, adding more in features to differentiate further as you are moving up market?

Yeah, well, we have a deep pipeline of products that we continue to work on. You'll continue to see products released throughout the year. It's very important that we continue to drive and have success with our current as we have because they're a building block of what we do next as everything has been as we've rolled it out. So everything's a building block for what's next. So it's always important for us to roll products out and then get usage. I've been on these calls and listened to different competitors' calls and I'll hear them announce a product and two years later they have 300 clients on it, whereas we put this out in July to all clients and put it in all quotes and we're already at 10,000 and over a quarter of our clients and so that's very good and as you get version one done, you shift quickly and version two, version three, version four, you're never done developing products and so we're continuing to enhance the products we have to have greater usage on them, and that leads to other products which will continue to roll out through this year.

That's great. Thank you.

Hi guys. Good afternoon. Thank you. First one here on just the client employment base. Can you kind of comment on how client pays for control progressed during the quarter, and where do you estimate your client's employment base now stands relative to those pre-pandemic levels?

I wouldn't say that client employment had a big impact on us outside of the fact that it's stable. That's the main thing that we need, with the exception of massive unemployment, which we did see in the pandemic that happened very quickly. Quarter to quarter, I can't say that employment trends have big impacts on us due to the growth nature of our business, other than to say, if they're stable, I believe that they've been stable for quite some time now.

Okay. And then just on the salesforce, can you talk about the salesforce growth and your salesforce retention? How that has trended here over the last several quarters?

Substantially unchanged, but I would say it might be a bit better. Over the past year, we've noticed some improvement in our sales retention. Since Holly Faurot took over, we've had better sales retention, mainly because more representatives are moving into executive roles, resulting in higher retention rates for those groups. As they sell more quickly, they transition to the executive role even faster. While I can confirm that sales retention is higher than it has been, it continues to be a challenge because of our ambitious goals and the extensive offerings we have. Overall, I would say there has been some improvement, largely due to people advancing to executive roles faster than before.

Okay. Makes sense. Thanks.

Thank you for taking my question. Chad, considering this is one of the largest beats you've had in Q1 and one of the most significant raises, many of the questions we receive relate to how to understand your business regarding recession resiliency or exposure. You have managed this company through various economic cycles, and this one feels different due to the challenging hiring environment that many of your customers are facing. Could you comment on what is boosting your confidence despite these macro challenges? Additionally, I have a quick follow-up.

Well, I think tight labor markets, they do a couple of things. One thing it does is you have to do more with less and one way to do more with less is have the right technology that you're deploying for everyone. If you're in a business that move pipe around, not everybody drives the forklift, but everybody does use the app. So, with our system, you're able to really impact the entire company and to some extent, it gets more difficult to hire back office people as well. And so we're able to make that impact. So I think from that perspective, it's helpful. It's always a good time to automate and become more efficient for any business, and I think that when you run through markets like this, it forces people. In good times, you don't necessarily see what's going wrong and in times that get a little bit tougher, it forces you to make those changes within your business that creates efficiency through automation and that's where we come in. So, it provided again that we're not having massive unemployment shifts. I believe we're in really good shape as we move throughout this year.

Perfect. And then maybe just a bigger picture tech question, if you look at as you move up market, and as we move into an environment that's normalizing the concept of hybrid work, some of your competitors have native or have acquired native capabilities for doing kind of global payroll. How important is that as particularly as you move up market, as companies start hiring in various geographies and even on a global basis, how do you think about, I think you partnered for that technology today, but what's the longer-term plan to offer that type of functionality natively?

Well, everything has its time and place and there's certain things that you're able to provide for a customer ahead of some others even, but everything has its time and place and, I would say everything is important, not everything's urgent. So we continue to review those things that make sense for us. Again, we don't preclude our clients that have international employees from using a third party. I would even go to say that using one system for all your US and even putting your expats and other international employees into that system and using a third party for payroll because you're in Germany. I can honestly say that even in that environment, we're a better fit than the eight-legged octopus with no head they would use otherwise. All that said, everything does have its time and place for what we develop and win, and we continue to be ambitious with being the largest in our industry and that takes some time, and I believe that we've got a lot of strong momentum and we're heading the right way on that.

Perfect. Well, keep doing good work again.

Thanks for taking the question. Some of your competitors that are your biggest sources of wins, you've talked about retention rates holding up better than expected. So I'm wondering, what do you see in terms of the source of your new clients and also just the general switching environment?

We aren't seeing any changes in how this impacts us. Our competitors have been discussing retention for the past 24 years as I've been in this field. Our focus is on gaining market share, as we currently only hold 5% of the total addressable market. Therefore, we remain dedicated to that goal. I can't identify any changes made by others in our industry that would enhance their retention rates. However, I can say that we are having significant success in attracting businesses, as demonstrated by our first-quarter results and our expectations for the upcoming quarter and the year.

Got it. And then on capital allocation, now that the company's business model has been asset-tested and you're throwing off consistently good cash flow. Have you given much thought to paying out a dividend?

Yes. And it's one to seven every board meeting, or one to six, every board meeting.

Great. Thanks for taking my question and echo my congrats on the strong year to start of the year. Just, first on the success you're seeing and probably the 1K employee level, what's driving that and how much of that is maybe attributed to product improvements versus sales execution and then are there any specific verticals or geos you're seeing stronger success here?

I believe the main factor driving this is the necessity for businesses to adapt. Regardless of labor market conditions, companies must continually do more to comply with new laws and regulations at various levels. There are limits to what businesses can manage, so providing employees with accessible tools that simplify their tasks can save time and reduce liability. As a result, employees increasingly expect effective technology. Our latest campaign addresses the issue of inadequate tools, highlighting that employees anticipate having the right resources to perform their jobs. The demand for technology that enables efficient data management is growing, leading larger businesses to feel compelled to comply, and we are witnessing a significant trend in that direction.

Got it. That's helpful and just a quick follow-up, just with the change in CEO to Justin from Josh, anything changing in terms of structure or strategy that Justin might look to employ?

No, Justin has been leading our implementation side for the past four years with a strong focus on usage. He works closely with Holly, and John did an excellent job as well. I spoke with John yesterday and we're continuing to move forward. I want to mention this point, as we've received various questions on the topic. Normally, we only provide a retention number at the end of the year, and I look forward to sharing that then. However, I can share that our current retention number, when compared to the same period last year, is either stable or better. John performed admirably while he was here, and Justin is well-prepared, having collaborated with Holly and the rest of the team throughout this time. We're very excited about what he will contribute.

Thanks for doing my questions.

Yeah. Good afternoon. Thanks for taking my questions. Maybe just to circle back on Beti, have you said on average how long it takes a conversion to go from signing to go live? And I asked because given your comments that this is the fastest selling module since ACA, do you have better visibility when you're giving your second quarter guidance today because of this big backlog relative to a typical second quarter?

No, but we have great, I wouldn't say we have better visibility, but we've always had great visibility. We've been guiding in a $2 million range since we IPO in 2014 with $107 million. So we've always had great visibility. In regards to Betty again, it's a nominal fee for us and the answer to your question from a conversion, it doesn't impact the conversion on a new client. Where you would see an impact would be on current clients that are converting over, and it's kind of a mixed bag on how long that conversion might take them because of the data sets that have to be loaded into Beti that might exist outside of our system, such as they're doing commissions and the way they calculate commissions is in a completely different system than Paycom and they're fed in. When those commissions are fed in and at what time period they're fed in and how they're fed in matters and that's how we walk through a process with them. But that would be part of their conversion that currently they're already data feeding it in toward the end and we move that toward the beginning based on what employees they're paid. That's one point; there are many others, but it just depends on what's going on with that client as to what the conversion would be into Beti. It doesn't take a long time necessarily if you have a motivated client ready to go, but there is some things that have to be done on the client's end to prepare them to make that conversion. Of course, once they do now, let's, set it and forget it and the employees work the system from there.

Great. Thank you very much.

Great. Thanks so much. And I wonder if you could just follow up on that improvement retention, just help us understand what's driving that? Is that kind of the increased module adoption? Just any thoughts around that would be helpful?

Sure. So what I said it was either equal to or greater than, and then what's been driving our retention for the last three, four years has been usage of the product and clients actually getting the return on investment out of the product as more and more employees continue to have a direct interface with the database and skip the middle person on it and that's really what's driving that usage.

Got it. And then on the client success upmarket, is that kind of primarily organic or is that existing clients moving up? Like is you're able to quantify how much is existing clients versus new clients that you're winning out in the marketplace above that 1,000 mark?

Well, what I'm talking about some new clients. I'm sure we've had some current clients that have gone from 878 employees to 1,012, but that's not the group that I'm talking about. When I'm talking about we've had success onboarding clients above 1,000 and much larger than 1,000 employees as well as we continue to go up market. Of course we've always had success in that market. We're just continuing to have more and more of it because we've gone even further up and we've got more people in the field now.

Hi, thanks for taking my question. I just wanted to ask about the competitive environment. You've certainly been an innovation engine. You had the direct change a couple of years back and now you have Beti. Are you seeing any of your competitors, whether it is the kind of the larger ones or more of the cloud players or even some of private companies, essentially be fast followers or sort of come up with innovations that are sort of keeping you up at night?

Well, not keeping me up at night, but I will say that I don't know anybody that beat us onto the internet, and now everybody is. I don't know that being first is something is ever enough. You have to continue to innovate something. We've always been in a very competitive industry; I think competition is really what drives innovation. If we didn't have strong competitors, there'd be no reason for us to come up with new innovative ways to drive stronger return on investment, but we are. We do have strong competition out there throughout the market. I believe we have the better model, and I believe if somebody wants to do less work, they should implement our model and I think that our competitors have a long way to catch up to that and I do think as you look into the future, I think that employees doing their own payroll and employees making all changes into the database through the direct data exchange, the way the direct data exchange measures, I think that's gonna be just an established expectation for any employee going to work. And so I think that's really a change you're starting to see happen: what do employees expect to use when they go to work? And I think that's shifting. I think up to now, employees expected to go to work and use the eight-legged octopus with no head, which is what I like to call multiple systems cobbled together with multiple passwords and emails and everything else. I think there's an expectation starting to change on the employee side of how much work they actually want to have to do to manage those types of systems. And so I believe we're at the forefront of making those changes. I think we're putting out a lot of proof sources of success as we've gone through that. And I would expect only more of the same. Can a competitor do what we're doing? Yeah. I think anybody can do anything. You've had people build space shuttles over a two-year period of time. So can someone do this? Yeah. But I do think you have to be intentional for how you do it and you've got to have that expectation. And I believe we're the ones leading. I know we're the ones leading that and like I said with all my calls earlier this year, we're really set up this year to do a lot of good things and we're already seeing those things happen. So a lot of success right now.

Perfect. Thanks for that.

All right. I would like to thank everyone for joining us today on the call. I want to reiterate my thanks to our employees for making this another outstanding quarter. This month, we will be hosting meetings at the Needham and JPMorgan conferences In June, we'll be hosting meetings at the Cohen, Jefferies, Baird and Stifel conferences. Thank you for your continued support of Paycom. Operator, you may disconnect.