Earnings Call: Q1 2018

May 1, 2018

Good day, and welcome to the Paycom Software First Quarter 2018 Quarterly Results Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I would now like to turn the conference over to Craig Maltese, 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 or make in this presentation are reasonable, actual results could differ materially because these 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 ks for the year ended December 31, 2017. 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 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. A reconciliation schedule showing GAAP versus non GAAP results is included in the press release that we issued after the close of the market today, which is available on our website at investors. Paycom.com. I will now turn the call over to Chad Richison, Paycom's President and Chief Executive Officer. Thanks, Craig, and thank you to everyone joining our call today to review our Q1 2018 results. I will start the call with some comments on our performance this quarter, provide an update on our perspective into payroll and human capital management or HCM software market and then address some exciting developments at Paycom. Then Craig will speak to our financials before opening the line for questions. We kicked off another new year with robust numbers. We recorded revenue of 153,900,000 dollars representing growth of 29% over the comparable prior year period. Our adjusted EBITDA of $80,700,000 represents a 52% margin. We were pleased with our performance and also that both metrics came in above the high end of our guidance range. Paycom continues to demonstrate leadership in the HCM sector. Earlier this year, one of the industry's most popular publications, hr.com, honored our organization at the 2018 Leadership Excellence and Development Awards. Our lead training and development program won the award for innovation in the deployment of leadership programs. This acknowledgment is a testament to our dedication towards training and developing our workforce, which is one of Paycom's core values. I'm very proud of this recognition and look forward to continuing to foster a winning culture with a strong focus on leadership development. Additionally, our marketing initiatives continue to receive positive recognition. In addition to winning a number of American advertising awards for our branding and national television campaign, Paycom also earned national recognition at the 2018 Killer Content Awards. We won the influencer marketing category, which recognized our brand for successfully tapping influential industry leaders to help validate content campaigns and increasing message credibility to our clients and prospects. These accolades stand as a testament to the strength of our culture and brand within the market and together with our service and software work to power our growth. Our single database HCM solution continues to gain converts in the marketplace. Our prospective clients are typically large enough to have significant HCM needs that span multiple areas, including not just payroll, but also recruiting, talent management, benefit administration and many others. With the Paycom solution, our clients receive a powerful yet flexible system that provides highly accurate employee data that allows HR executives to obtain actionable insights into their workforce. We believe the Paycom solution is the best option for companies looking to leverage the power of HCM technology to improve their organizations. At Paycom, we believe that today's workforce places increasing importance on an intuitive and easy to use HCM system. Because of this preference, we are highly focused on providing the best possible user experience. We recently released our redesigned employee self-service desktop and mobile app and feedback from our clients and their employees has been stellar. We believe these enhancements to our employee software makes it even easier for employees to use the Paycom system to its full potential. Having an easy to use HCM system can lead to higher employee engagement, increased productivity, drive job satisfaction and improve employee retention. Our product, especially our mobile app, empowers our clients' employees to take control of their HR functions. Today's generation is accustomed to using mobile apps for virtually every activity and our solution provides employees easy access to onboarding, training, enrolling in benefits and much more, when and where it's most convenient. In addition to this release, we also continue to maintain and improve every aspect of our solution to ensure that it remains best in class. We publish monthly system wide updates to our entire client base and are constantly improving our offering in order to preserve our competitive lead. Some examples of enhancements we released this quarter include improvements to our analytics dashboard. This tool now features improved chart and drill down functionality and offers employers a clear view into the crucial data that can help drive operational decisions. Additionally, we debuted taxes by geolocation. Clients use this functionality to automatically suggest the appropriate tax jurisdiction for inclusion in an employee's tax profile. We also enhanced our current mileage tracker by introducing smart mileage costing. This allows employers to save money by creating customized reimbursement programs that use the make and model and year of an employee's vehicle combined with the cost of fuel in the employee's region along with other factors, which allows the client to reimburse mileage at a lower rate. These were just a few of the many enhancements that launched in the quarter as part of our relentless focus on driving value for our clients. Turning to our sales efforts. We recently announced the opening of our new sales office in Rochester, New York. This office is in addition to our Salt Lake City office that we opened in February and brings our total sales team's count to 47. We are excited to bring our solution to prospective clients in the Rochester area. As many of you know, we take a very deliberate and unique approach to expanding our sales organization by moving a successful sales manager to a new city or region and then building a new team around that relocated manager. We believe this gives new teams the strongest foundation possible and the greatest chance of future success. While we are committed to continuing to expand our sales organization through 2018 and beyond, we will do so at a pace that is most appropriate for our business and that we believe will allow us to achieve the greatest revenue growth, which is our first priority. I'd like to address some developments among our leadership team. In February, we added Janet Haugen to our Board of Directors. Janet brings a wealth of financial and operational experience to Paycom, most recently serving as CFO of the Unisys Corporation. Paycom will benefit from her insight and experience as we continue to grow. Next, we were very pleased to announce that we are promoting John Evans from Senior VP of Operations to Chief Operating Officer. John joined Paycom 4 years ago and has worked in both our finance and operations departments. He has been instrumental in driving important operational improvements over the past few years and we look forward to his continued contributions. Additionally, we are promoting Brad Smith from Director of Software Development to Chief Information Officer. Brad has been leading our software developments for some time now and we have benefited greatly from his vision and dedication. I'd like to also extend congratulations to both John and Brad for their promotions. Finally, I'd like to thank Stacy Pizold for her many years of service. Stacy is moving on from Paycom after several years in different roles and we are grateful for her contributions. We will wish her the best in her future endeavors. In conclusion, we had a very strong start to the year and I look forward to continued success through 2018. With that, I will turn the call over to Craig for a review of our financials and guidance. Craig? Before I review our Q1 results for 2018 and also our outlook for the Q2 and full year 2018, I would like to remind everyone that my comments related to certain financial measures will be on a non GAAP basis. As a reminder, we adopted the new accounting standard, ASC 606 on January 1, 2018 using the full retrospective method of transition, which required us to recast the prior period presented. Our comparisons discussed in today's call reflect those adjustments. We use adjusted EBITDA and non GAAP net income as supplemental measures to review and assess our performance and for planning purposes. Adjusted EBITDA and non GAAP net income are non GAAP financial measures that exclude non cash stock based compensation expense and certain transactions and other expenses that are not core to our operations. Non GAAP net income also reflects adjustments for the effective income taxes. Reconciliations of the GAAP to non GAAP measures discussed today are included in the earnings press release issued earlier this afternoon. As Chad mentioned, we were pleased with our Q1 results with total revenues of $153,900,000 representing growth of 29% over the comparable prior year period. Our revenue growth continues to be primarily driven by new business wins, and we are pleased with our continued excellent performance. Within total revenues, recurring revenue was $151,900,000 for the Q1 of 2018, representing 98.7 percent of total revenues for the quarter and growing 28.8% from the comparable prior year period. Total adjusted gross profit for the Q1 was $133,200,000 representing an adjusted gross margin of 86.5%. For the full year 2018, we anticipate that our adjusted gross margin will be within a range of 82% to 84%. Total adjusted administrative expenses were $58,700,000 for the quarter as compared to $46,900,000 in the Q1 of 2017. Adjusted sales and marketing expense for the Q1 of 2018 was $30,400,000 Adjusted R and D expense was $9,000,000 in the Q1 of 2018 or 5.8 percent of total revenues. Total adjusted R and D cost, including the capitalized portion, was $13,100,000 in the Q1 of 2018 compared to $9,200,000 in the prior year period. Adjusted EBITDA was $80,700,000 or 52.5 percent of total revenues in the Q1 of 2018 compared to $60,300,000 or 50.5 percent of total revenues in the Q1 of 2017 as adjusted. Our GAAP net income for the Q1 was 41,200,000 dollars or $0.70 per diluted share based on approximately 59,000,000 shares versus 33,700,000 dollars or $0.57 per diluted share based on approximately 59,000,000 shares in the prior year period. Our effective income tax rate for the Q1 2018 was 21%. This lower effective income tax rate was primarily the result of the decrease in the federal corporate tax rate that went into effect in December 2017 with the enactment of the Tax Cuts and Jobs Act of 2017. In the Q1, our non cash stock based compensation increased by $20,000,000 over the prior year period due to the issuance and subsequent vesting of restricted stock with market based conditions. For modeling purposes, we anticipate stock based compensation to be $5,000,000 to $6,000,000 per quarter for the remainder of 2018. This vesting of shares had an impact on our Q1 tax rate, lowering at approximately 150 basis points. We anticipate our full year effective income tax rate to be 23% to 24% on a GAAP basis. On a non GAAP basis, we anticipate our full year effective income tax rate to be 25% to 26%. Non GAAP net income for the Q1 of 2018 was $55,800,000 or $0.95 per diluted share based on approximately 59,000,000 shares versus $35,500,000 or $0.61 per diluted share in the prior year period. In the Q1, we returned value to our stockholders by repurchasing nearly 170,000 shares, including over 60,000 shares purchased in the open market. Since we initiated the repurchase program less than 24 months ago, we have repurchased over 2,500,000 shares including nearly 1,700,000 shares in the open market. We anticipate fully diluted shares outstanding will be approximately 59,000,000 shares in the Q2 of 2018. Turning to the balance sheet. We ended the quarter with cash and cash equivalents of 68,100,000 dollars and total debt of $35,300,000 As a reminder, this debt represents a financing of construction at our corporate headquarters. Construction of our 4th building is nearing completion. Cash from operations was $57,700,000 for the Q1, 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 $1,000,000,000 in the Q1 of 2018. Now let me turn to guidance for the Q2 and full year for fiscal 2018. For the Q2 of 2018, we expect total revenues in the range of $123,000,000 to $125,000,000 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 2nd quarter in the range of $43,000,000 to $45,000,000 representing an adjusted EBITDA margin of approximately 35% at the midpoint of the range. For fiscal 2018, we are increasing our revenue guidance to a range of $545,000,000 to $547,000,000 or approximately 26% year over year growth at the midpoint of the range. We are increasing our full year 2018 adjusted EBITDA guidance to a range of 220,000,000 dollars to $222,000,000 representing an adjusted EBITDA margin of approximately 40% at the midpoint of the range. With that, we will open the line for questions. Operator? Thank you. We will now begin the question and answer session. Today's first question comes from Raimo Lenschow of Barclays. Please go ahead. Hey, congrats to a great start to the year. First question for you, Chad. If you look about the evolution of the industry, so you started doing cross selling beyond Paycom in terms of like the HR functionalities. There has been obviously you probably saw like an IPO in the space where workforce management now became an other area. Can you just talk a little bit how holistic you see that space evolving for you guys and where you are already at this point versus where you kind of could go? Thank you. Yes, Raimo. And so we started adding additional products to payroll in 2,004 and actually started out with workforce management from the time and attendance perspective. And then we've continued to add on and build additional modules on to that as we've stated all in a single system so that to eliminate the need for integration for clients. And now since that we've really focused on our employee usage strategy to be able to roll that out so that employees can assume and help with the responsibility for both accuracy of data as well as information retrieval. Perfect. And then can you talk a little bit about the progress you do on the learning product side that was the focus in the last couple of quarters? Yes. So we've been focused on continuing to develop our content. I believe I announced last quarter that we did develop 10 pieces of content, unique pieces of content developed internally with Paycom that we have included into our LMS system to again drive greater usage amongst that employee base for each of our clients. We have since added content to that. I think we've added another 12 to 14 courses to that as well. And over time, we will be charging for those courses, the additional courses. Perfect. And then a quick question for Greg. So if I think about the EBITDA evolution, where would be the focus areas for investment for the remainder of the year? I mean, obviously, you beat kind of nicely in Q1. What's the stuff that puts and takes you need to think about for the remainder of the year in terms of investment focus areas? Yes. In terms of the adjusted EBITDA in Q1, we did beat first quarter. Part of that was the revenue beat that really flows through to the bottom line. And then Q1, we kind of called out sales and marketing and R and D. Our sales and marketing, we look at the initiatives at the beginning of the year and some of those get moved around a little bit quarter to quarter as well as we take some and maybe add some and remove some on that. The R and D was actually up for the quarter and we had, but we had a little bit higher percent capitalized. So we were probably 100 basis points higher as a percent of revenue on the total R and D, but we capitalized at 31% rather than 27% where we were Q1 last year. And then we saw some efficiencies in the G and A So as we kind of move out throughout the rest of the year, we're going to continue to spend on the R and D and you would hope to see some efficiencies in the G and A line. Perfect. Thank you. Well done. Our next question today comes from Michael Novak of Credit Suisse. Please go ahead. Hey, guys. This is Alex Hu on for Michael. Thank you for taking our questions. Chad or Craig, can you give us a sense on the increase in productivity gains you've seen year to date compared to the prior year period now that we've been on this sort of staggered office opening timeline for more than a year? And I believe it's been a while since you provided an update on the new business sales performance capacity metric. Curious if you had an update on that metric or any data points perhaps even new ANR growth that you would like to share for Q1? Sure. And so the $260,000,000 new business sales capacity number for an annualized number of new business that we add on. That number stands today. As far as your question of how throughout the throughout the year. But right now, it's at $260,000,000 And again, achievement is what drives that number. It's not something that we just make a decision on. And so but I believe what's reflected in the numbers both this quarter and what we are continuing to forecast. And again, we guide to what we can see, but as we continue to achieve those productivity gains throughout the year, I'll be looking to give an update to that number later. Okay, great. And then just one quick follow-up. I know you don't guide to the total number of expected office openings, but could you just give us maybe a rough sense? Should we expect 2018 office openings to be up from 3 in 2017? We're very focused on the offices that we've opened up to now. The staggered approach has produced results for us as well as our focus on continuing to look for new offices. And so we've opened up 2 so far this year. We're very focused on both development of our backfill opportunities as well as the relocation strategies of mature managers. And as we move throughout the year and identify those opportunities that work best for us, we'll definitely be making those decisions. Okay, great. Thanks, Chad. Thanks for taking the question. And our next question today comes from John DiFucci of Jefferies. Please go ahead. Thank you. So Chad, there's different levers for growth and your focus has primarily been to capture new customers and that makes sense given the market and it continues to make sense and you continue to go after that. However, I'm just curious about sort of add ons. And I know typically a customer, they end up using whatever they usually buy first. But is there it seems like there's some low hanging fruit, especially as you build out your portfolio of modules that you can be perhaps be a little more aggressive on trying to sell more into a customer over time. And I'm just curious, I know you do you have a team inside that tries to do that, but can you give us an update on that? And if there is any plan to try to do that more aggressively or maybe it's working, we just haven't heard more about it? Yes. I would like to say that we haven't been trying to do that aggressively, but I mean I would say that we have continued to try to deliver the correct software modules to each client, whether that's at the beginning or whether we've developed something after the fact that we've recognized a client that's needed. What we've been focusing on is proper usage of all the additional functionality that we've developed. Oftentimes, I can tell you it is easier to get a client to buy something than to use it. And it's very important with our ROI strategy that we produce pricing that works for the client so that they can receive the ROI out of each item. And so that's what we're focused on. I will tell you this, we are focused on usage strategy and the more a client uses a product, the more app they are to buy additional products. And so we are continuing to focus on that, but it's really always been a focus for us. I guess another sort of along the same lines question. I know you tend you'll sell to a customer and I believe the price the customer pays is pretty consistent. And I'm just curious if there's room here for over time for you to raise prices, just minimally cola type raises over time. And I understand customer success is most important to you. But at this point, is there any room for something like that? Well, it is standard in our industry. In fact, I'm unaware of a company that does not have routine price increases with the exception of us. It is standard for our industry. Again, we go after when we go out and work with the client, we want to work collaboratively with them. We want to produce fair pricing that also generates the ROI. I believe we're doing that. Now to your point, we are developing an incredible amount of additional functionality that we do update for clients every month. And so as far as is there an opportunity as time goes on, there's an opportunity, but I will say that I believe that it's based off of the ROI we're delivering to our client. A price increase without an ROI, I don't think it's good business. And so I think that we're going to continue to focus on our usage and drive that. And I believe that's an opportunity that you earn over time. And so for us, we're focused on our current strategy. Got it. And that makes sense. And if I might just a quick one for Craig. CapEx is a little higher just a little bit higher than we anticipated. I'm just curious, can you give us a little bit of guidance on how we should be thinking about that for the rest of the year? Sure. As we I mentioned that we're kind of coming to the completion of the 4th building. And as a reminder, that building is the size of all 3 of our others combined. So it's a pretty large endeavor. As you see us coming to the completion of a building, you'll see elevated levels of the CapEx. And after we get that completed, we would see that maybe it would moderate some after Q2. Okay, great. Thanks a lot guys. All right. Thank you. And our next question today comes from Mark Murphy of JPMorgan. Please go ahead. Hi, Chad and Craig. This is Albert Shee on for Mark. Congrats on the quarter. Asking about the redesigned employee self-service product and that's great that you've gotten some pretty stellar customer service so far and especially with the employee retention. But do you think on the Paycom side that ever moves the needle for the company beyond the 91% retention rate? Definitely. I mean well, I mean definitely employee usage can help drive retention as well as client usage drives retention. We've had a similar I would say we've been in a similar retention rate for the last 6 years, I believe, 91%. And so that's something we continuously work on. Some of the times we lose a client, it's not controllable, but oftentimes it is and it typically revolves around usage. And it's very important that clients use our products correctly because they are somewhat different than what's out there as far as our strategy goes. As far as the employee redesign, before we had a desktop version and we used responsive coding to reflect that on a mobile device. Now we have taken the mobile first approach to where when you're on the desktop, you receive a mobile view and then when you move to mobile, it's the same type view. And so it makes it easier for navigation. It's very important at the employee level, that it's easy for them because for employees, it's work and it's something that they're having to do. And so we want to make it as easy as possible so that we generate the greatest amount of usage. And maybe one more on the promotions, particularly the COO role. I want to know if you expect any change in sales strategy with the new appointment. It's worked really well so far, but is there a preview that you can give us in terms of how the field might look going forward? So as far as our COO, John has been running operations, I believe, since about February of last year as our Executive Vice President of Operations. His promotion into that role of COO would not change our approach to sales. We have, I believe, made improvements to both how we onboard clients and generate usage early on our product and we're continue to focus on that. And John is going to be and has been a key component of that. Great. Thanks again. Thank you. And our next question today comes from David Hynes, Canaccord. Please go ahead. Hey, guys. Nice quarter. Chad, just one question for me. Raimo alluded to the Assertion IPO earlier and I thought it was interesting. 1 of the perspective growth drivers that they were talking about was an ability to address the gig economy, right, freelance workers, it's all about same day onboarding and getting those folks up and paid quickly. And it's something I really hadn't thought of before. So I'm curious, do you think that that's a real opportunity? Is it something that Paycom could and would pursue? How do you think about that opportunity impacting the market? Yes. I mean, I'll let Ceridian talk about their strategy. What I will say is this, is that we create development that's going to be used by our clients. And to the extent we see something that has a significant use case, it's something we would develop. The other part that I would say is that we're not a company that has talked about what we're going to be doing. We always wait until it's developed first. So I guess I would just leave it with that. Yes. Okay. Sounds good. I'll pass the line. Thanks. Okay. Thank you. And the next question today comes from Brent Bracelin of KeyBanc. Please go ahead. Thanks for taking the question here. 2, if I could. Chad, let's start with the new office expansions. We've seen a couple now openings this year. They're staggered. How should we kind of think about the pace? What have you learned by staggering kind of the open the new office openings? And is this the type of pace that you feel matches your growth aspirations? Well, yes, I mean, look, we have the goal of staggered office openings was for us to be able to develop our bench of sales managers. And just as a reminder, we do take mature sales managers, we locate them to a new office for opening it, And then we backfill those mature sales managers with a salesperson who is now ready to be in management. And so the staggered approach allowed us to focus on development of those managers as well as we opened up new cities that allowed us to absorb those clients and those strategies. And so we do continue to work on that. And I'm excited we were we've already opened up 2 this year. I'm also excited that our productivity gains are going according to plan and we're going to continue to focus on both those productivity gains as well as the backbench development and as we look to the future. Great. Thank you. So just shifting gears, Craig, perhaps on the EBITDA margin side, obviously, you guided to 39% EBITDA margin at the midpoint entering the year. You had very strong EBITDA margins here in Q1 raising EBITDA. How should we kind of think about the full year EBITDA margins as we look out even farther? How much room do you have to kind of improve the margin profile here? And the reason why I ask is, it sounded like there was some timing issues that drove some of the upside in Q1. And so I want to put together the perspective of kind of some of the timing issues that you benefited from this quarter versus what your kind of mid term aspirations are on the margin side? Thank you. Yes. I mean, I would say, it wasn't necessarily the timing, but more the different types of marketing initiatives that had as it related to the sales and marketing line. R and D, we're going to continue to focus there on our spending there. You'll see some efficiencies in the G and A line. And we really for the year, we've increased our guidance to the 40% at the midpoint and we'll continue to look to efficiencies throughout the year. Okay, great. And any sort of update on aspirations? What the balance is as you think about sustaining a 20%, 25% plus growth rate in this market? Is 40% EBITDA the right balance to sustain investments to sustain 25% growth? Or do you think there's room for EBITDA margins to be higher than that while sustaining kind of that type of growth rate? Under the new 606, I think we were asked, are we going to update our long term EBITDA margin guidance? And we're really not prepared to quite at this point, but we're continuing to look at that. So we'll probably be updating that in the future. Okay, very helpful. That's all I had. Thank you. Thank you. And our next question today comes from Brad Reback of Stifel. Please go ahead. Great. Thanks very much. Hey, Chad. Quick question. Can you give us any sense how the really strong economic backdrop is helping, if at all, on the growth side? Or is it purely just continued market share gains? Well, definitely anything that impacts our clients positively, I think impacts us positively now at our scale and the way we grow this, I can't say that it's necessarily new employee or employee adds into our current client base and we rarely would see much of that whether it's to the positive or negative as we've been doing this close to 20 years in the type of growth environment. And so our additions are primarily coming from new logo ads that's been always been the overwhelming majority of all of our revenue growth and that remained so this quarter as well. Great. Thanks very much. Thank you. And our next question today comes from Mark Marcon of R. W. Baird. Please go ahead. Good afternoon, Chad and Craig, and congratulations. I was wondering if you could talk a little bit about the some of the differences that you're seeing across the various regions and also in terms of client sizes, where are you seeing the most success? And in addition to that, if you could just talk a little bit about some of those clients that were impacted by the hurricane that did they just get delayed and shifted into this quarter or did that help at all during this quarter? And so I guess I'll attack your first question on the hurricane side. All clients, mean, we didn't have any lingering effect from the hurricane in Q1. All clients that we had had were either set up at the beginning of Q4 toward the end of Q4 and all were definitely set up by January or on January 1. So we wouldn't have had much of a negative impact from that. As far as different regions, I mean, at this point, our region that does the best has the best regional manager. Our city that does the best has the best city manager. Our sales our city salesperson that does the best has the best salesperson. And so there's a lot of opportunity for us in there and we're oftentimes driving those results through both prospecting and collaborative sales and consultative sales. And so the impact we're going to have on any one region since there is so much business out there is going to be based on the person running it. As far as client size, which is one of your other questions, our client size have been very similar. We continue to sell in range as well as above our range. But I couldn't point out to anything that is different than what we've done in the past in regards to size of client range. Okay, great. And then just to go back on the markets. Are you still seeing like uniform levels of growth across the entire country? Or is there a little bit more disparity? And are some of the older offices continuing to grow at a decent rate? Yes, for sure. Especially if we had not disrupted them. If it's a mature office that we did not pull a manager from and put a new manager in and then maybe even take a rep out of and relocate them to backfill, yes, you would continue to see growth in mature offices that have their same manager that wasn't disrupted on average. I mean, that's not to say you couldn't have an office that might do something similar as it has done in the past. But for the most part, mature offices that remain undisruptive continue to have growth within those offices. Great. And then just on the float balance, what sort of yield do you think you're going to be able to get with the way the systems are set up relative to what's happening in terms of shorter term interest rates? Yes. I mean, the interest rates have continued to tick up, I would say. Those are things that we try to negotiate. Conservative in how conservative in how we do things. However, I mean as interest rates tick up, so do overnight sweep account rates and what have you. And so we haven't disclosed that other than to say that is a part of the revenue that's out there. We don't disclose the specific interest and or yield that we receive. But that is something that as rates tick up should be accretive for our revenue. Great. Thank you. Thank you. And our next question comes from Corey Greendale, First Analysis. Please go ahead. Hey, just thanks for taking my questions. Just quickly clarification, the interest you're getting, is that running through revenue? I thought it was running through other income. No, it runs through revenue. It runs through revenue. It does run through revenue. Okay. I'm glad I clarified that. And then I just had two quick questions on sales. First of all, could you comment on kind of the overall sort of hiring environment? Like is it getting tougher to find people? Are you seeing increases in turnover or wage pressure or commission pressure, I'm particularly thinking about the sales force? Yes. Okay. So speaking directly to the sales force, first of all across the board at Paycom anytime you're looking to find the best, You have to be good at recruiting, you have to have a good comp package, you have to have a good culture and that's all very important. Specifically to the sales staff, it's always important that you have a good culture. But really for salespeople, it's also important you have a great product to sell. You're not going to keep good salespeople if they aren't able to go out and sell a product where clients are able to convert and experience value out of it to where they're happy and referable or referenceable so that they can provide you referrals so that you can continue to do that. And so I do think that it's important for us to maintain our competitive advantage if we want to continue to get recruit our salespeople. Now I will also say this, as is the Paycom model, we are not someone that recruits from within the industry. So we are not dependent upon our industry to turn over their best salespeople to us. We are a development organization and a development sales organization. And so we do take intelligent people who are out there who have persuasive skills and are honest and want to learn consultative selling and we teach them that and help them build a career here. Got it. And then my other question, my sense is that, at least you don't talk as much about kind of a channel strategy as some others do. But could you just give us like a quick summary of are you doing much that some of us may not be aware of? Or are you looking at doing things more through channel partners? I don't know the term channel specifically and how you are using I mean, I know what it means, but I'm going to try to make it more relative to our industry and specifically us. We do referral selling where this is a very high touch sell in the mid market. I mean you're not going to not go out and work with the client in the mid market. It's a very high touch sale. You have to have collaborative meetings. You have to do in-depth analysis. And so for us, we are always going to be the lead on that. Now that said, we have many partners who refer us into business based on references they receive from their own client base, whether or not that's brokers, whether or not that's health insurance, 401, private equity, I mean I can go on and on, other software companies and what have you. And so within certain markets of Paycom, it's the manager's responsibility as well as our regional manager's responsibility to develop those relationships that they think are going to be mutually beneficial for both the referring organization as well as us and the client. And so we do continue to focus on referral sources as well. Great. Thanks very much. Our next question today comes from Brian Schwartz of Oppenheimer. Please go ahead. Yes. Hi. Thanks for taking my questions this afternoon. Just had two questions here. First question, I was wondering if you could just provide even if it's just qualitative any commentary on how win rates are trending when you are able to assess the competition? Yes. I mean, again, win rates is going to be based on the salesperson that's out there. I mean, we have some sales reps that they rarely lose. We have some that are improving as well. And so but overall, I mean, I think that our win rate has continued to be strong. I haven't noticed any difference in it one way or the other. But we are continuing to gain market share. I think that we've had a strong quarter. I think our guide both into next quarter and the year, I feel good about that and we'll continue to update that as we move throughout the year. And then Chad, a follow-up question that I had is really just a topical and a strategic question, but it's very much a follow-up with John Di Fucci's question earlier. And just all around the opportunity as a new driver for the business monetizing within the installed base. So John pointed out correctly that you don't raise prices. We've seen in our research that you don't charge for data services. And we certainly know in the cloud world here, the API world, there's only going to be more and more data services activities that's going to take place in the future. So I guess the question is what is kind of that trigger or the indicator that you look for when maybe it would make sense to maybe tap on the accelerator and look to monetize greater on the installed base versus new customer acquisition? Thanks. Yes. I mean, I would say you're they're somewhat connected. I mean, the value you're driving for new customers flows over once they're a current client. I mean, it's the same type of thing. And so we're very I think your question was at what point in time would we have maybe a different pricing model. We're very, very focused right now on delivering value to the client. To the extent, the value we are delivering is greater than the price that we're charging, that would make sense for us to increase that price and solve that problem. Right now, we're focused on solving the problem for clients through a single product that they're able to roll out to their employees for a strong usage case and change the way the clients are using this type of technology and that's what we're focused on. We are always going to be looking at ways to deliver more value to the client in a way that both the client and Paycom can share in that ROI as well. And so I'll just leave that with that. Thank you very much for sharing that color. Thank you. All right. Thank you. And our next question comes from Shankar Subramanian of Bank of America Merrill Lynch. Please go ahead. Hi. Thanks for taking the question and great quarter. Just have a question on the mature teams. Last quarter you said 6 mature teams will come on board this year. Is the as you think about the teams coming on giving mature this year, are they more like second half weighted in terms of how they in terms of the experience or is it more staggered across the year? And I'm thinking about how you would think about the revenue growth in the second half versus first half, trying to get an understanding of how the team the sales team structure changes over the year? Yes. And so those offices that we're talking about that were opened up in 2016, those would have been 1st of the year offices. That was before we started our staggered office approach. And so we would be counting those 6 offices opened up in 2016 as mature. It is very important though to note that an initial maturing office, an office that has been open for 20 4 months and just hit maturity is going to sell one amount, but an office that has been open 5 years, I mean, they continue to mature. And so an office that might have been open 5 or 6 years because it's going to outsell that office that's only been opened up a couple of years, oftentimes 2 or 3 times more they're going to sell. And so it's a beginning stage of maturity where they're fully staffed. They'll start off with 2 or 3 reps in the 1st 6 months and then we'll add a couple of more reps and then you turn the year and they're adding a couple more. It usually takes them 24 months before they're fully staffed with a pipeline of clients that we've been going out and talking to that we've built. And then they continue to mature from that point as those reps that they've brought on continue to become executive reps for us. And so those six offices, we would count for initial maturity in this quarter, in this Q1, as I believe most of them were opened Q1 2016. Actually, I think most of them were open within about 14 days of each other. Right. Got it. Got it. So my second follow-up is in terms of the competition of the the question was already asked. Could you add some color as to are you seeing anybody new relative to this year versus last year that you need to compete with or is it pretty much the same that you've seen last year? I mean, I would say it's pretty much the same the competitive environment, but I also want to state this, it's always been competitive, which is good for clients. I mean, the more products you have in the marketplace, the better pricing and the better products you're going to get, the better use cases you're going to get. So we've always had new entrants into the market. Some of them hang around, some of them are gone very quickly. That's always happened. I mean, I can name all types of companies in the last 20 years. This is our 20th year in business. But as far as where we are gaining our clients, I mean, it's typically coming from the same companies we've been talking about, which oftentimes follows the market share that each company has. That's a proportion of them we're going to see. And so I can't say that anything has changed from a competitive perspective other than to say it remains as competitive as it's been in the past. Got it. Understood. And then last question for Greg. You talked about EBITDA margins, but on a free cash flow basis, I think you did a 25% free cash flow margin this year. CapEx maybe trimming down in the second half. If I look at the margin free cash flow margin, do you see that kind of going from the 25% range like maybe 30%, mid-30s over the long term or is there any kind of guideline you can give us on that? I mean, we really haven't guided to the free cash flow margins in the past. So I would say you're really not on that. It really depends on the CapEx. Got it. Okay. Thanks. And our next question comes from Abi Lamba of Mizuho Securities. Please go ahead. Hi, guys. Thanks. This is Pata on for Abi and congrats on the results. Just a quick follow-up to the previous question around cash flows. I know you don't I realize you don't guide to cash flows, but it came just shy of where the Street was despite the EBITDA beat. Could you give us a sense of whether there were any special items in the quarter's cash flows or anything else we should be thinking about? Not really. I think as you saw the CapEx was probably slightly elevated because we're wrapping up that building. As you see that last the last couple of quarters on the building, the CapEx is obviously at the highest levels at that during that time. Okay, got it. Thank you. And ladies and gentlemen, this concludes the question and answer session. I'd like to turn the conference back over to the management team for any final remarks. All right. I want to thank everyone for joining us on the call today. Over the next few months, we'll be on the road meeting with investors at the following conferences: the Jefferies Global Technology Conference on May 9 in Beverly Hills We'll be at the JPMorgan Technology Media and Communications Conference on May 15 in Boston. We will be at the Baird Consumer Technology and Services Conferences on June 5 in New York. And finally, we will be at the Stifel Cross Sector Insight Conference on June 12 in Boston. We appreciate your continued interest in Paycom and look forward to meeting with many of you soon. Thank you, operator. Thank you, sir. Today's conference has now concluded and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.