Good afternoon. Welcome to the Paycom Software fourth quarter and full year 2017 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note that today's event is being recorded. I would now like to turn the conference over to Craig Boelte, Chief Financial Officer. Please go ahead.
Thank you. Good afternoon. Before we get started, I would like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans, objectives, and expected performance, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this conference call. While we believe any forward-looking statements we have made are reasonable, actual results could differ materially because the statements are based on our current expectations and are subject to risks and uncertainties. These risks and uncertainties are discussed in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2016. You should refer to and consider these factors when relying on such forward-looking information.
Any forward-looking statement speaks only as of the date on which it is made. 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. 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 market today, which is available on our website at investors.paycom.com. We also issued a presentation addressing the new accounting standard, ASC 606, which can be assessed on our investor relations website. I will now turn the call over to Chad Richison, Paycom's President and Chief Executive Officer.
Thanks, Craig. Thank you to everyone joining our call to review our fourth quarter and full year 2017 results. 2017 was a great year. We made substantial progress executing in pursuit of our goals. Before I review our results and provide comments on the quarter and the year, I want to thank all of our employees whose tireless efforts in both support of and growth of our client base allowed us to succeed in 2017. This year, we made significant enhancements to our service model, improving the client onboarding experience, usage patterns of the Paycom system, and other key processes. Thanks to the focused efforts of our employees through 2017, we have set ourselves up very well to achieve our 2018 goals. We had excellent results for our fourth quarter, with revenue coming in at $114 million, representing growth of 30% over the comparable prior year period.
For the full year, revenue was $433 million, representing growth of 32% over the prior year. The power of the Paycom solution continues to resonate with prospective clients. This drove our traction in the marketplace in 2017. For the sixth year in a row, our revenue retention rate was once again 91%, underscoring that our clients continue to see the value in partnering with Paycom. I'll take a moment to quickly review some highlights of 2017. Paycom received external recognition from several notable sources, placing second on Fortune Magazine's list of 100 fastest-growing publicly traded companies, finishing fourth on Forbes' Fast Tech 25 list of America's fastest-growing publicly traded technology companies, being named one of Oklahoma's top places to work for a fifth consecutive year.
We were proud to honor the legendary athlete and Oklahoman, Jim Thorpe, by sponsoring the Paycom Jim Thorpe Award, an award given to college football's top defensive back. We also debuted our first national television ad campaign. It has received very positive feedback. In 2017, we launched our mobile app in the Apple and Google Play stores and developed many enhancements to our current offering. We were able to achieve this impressive set of accomplishments and also our robust top-line growth while producing substantial margin and cash flow, allowing us to return value to our stockholders in the form of over 1.2 million shares repurchased over the course of 2017. In the fourth quarter alone, we repurchased 538,000 shares. Since we initiated the repurchase program less than 24 months ago, we have repurchased 2.3 million shares.
While we are proud of what we have achieved so far, we are even more excited about our future prospects, which are driven by our vision for the future of our industry. We believe the trend of increasing user engagement with human capital management systems, along with workers' insistence on robust yet intuitive digital HR experiences, is poised to continue. What we see in the marketplace makes us even more confident that we are in front of significant growth as these trends continue to gain traction, particularly across our target market of companies with 50 to 2,000 employees. Managers at these companies are becoming increasingly aware of cutting-edge HR technology and how it can help them produce efficiencies in their business. The broad functionality of the Paycom solution provides these organizations with best-in-class HR software functionality without the cost of third-party providers or integration.
At the same time, our system is intuitive and easy to use, allowing it to be used by every employee, often on a daily basis. This powerful functionality is why we believe Paycom is the best-positioned company in the industry to help clients achieve their potential by allowing them to unlock the value of their team members. Turning to our sales efforts, we opened three new sales offices in 2017: Milwaukee, Richmond, and Long Island. They are continuing to grow and mature. Today, after the market closed, we were pleased to announce the opening of an office in Salt Lake City. This brings our total number of sales teams to 46. Our 2017 sales offices are doing well. Of the offices opened in 2016, some will be hitting their initial maturity date soon.
The offices will continue to hit their full stride as they become staffed with the majority of senior reps who have the best production capability. For our sales representatives, time in the field is extremely important. A rep that has worked in his or her territory for several years has developed deep relationships and a reputation for helping clients improve their company operations through deploying the Paycom solution. As a result, we continue to see very senior sales reps outperform, and this drives our belief that we have the opportunity to continue to improve sales productivity. We believe that the market share that remains for us to capture is substantial and are building a sales organization that will allow us to leverage this opportunity. To sum up, 2017 was an excellent year for Paycom, and we are excited about continuing our momentum through 2018.
With that, I will turn the call over to Craig for a review of our financials and guidance. Craig?
Thanks, Chad. Before I review our fourth quarter and full year results for 2017 and also our outlook for the first quarter 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. 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 excludes non-cash stock-based compensation expense and certain transaction and other expenses that are not core to our operations. Non-GAAP net income also reflects adjustments for the effect of income taxes. Reconciliations of the GAAP to non-GAAP measures discussed today are included in the earnings press release issued earlier this afternoon.
Additionally, along with our earnings press release, we provided a presentation that outlines the impact to our financial statements of the new revenue recognition standard, ASC 606. This presentation is available to download on our investor relations website and was furnished as an exhibit to a Form 8-K filed this afternoon. I will discuss our fourth quarter and full year results on this call based on the historical revenue standard, ASC 605, but will provide forward-looking guidance based on the new revenue recognition standard, ASC 606. I will also talk a little bit later about the adoption of the new standard and the areas where it will have the most significant impact on Paycom's financials. As Chad mentioned, we had strong results in the fourth quarter, with total revenue of $114 million, representing year-over-year growth of 30% from the comparable prior year period.
Our full year 2017 revenues were $433 million, representing growth of 32% 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 performance. Within total revenues, recurring revenue was $111.7 million for the fourth quarter of 2017, representing 98% of total revenues for the quarter and growing 29% from the comparable prior year period. Total adjusted gross profit for the fourth quarter was $95.6 million, representing an adjusted gross margin of 83.8%. For the full year 2018, we anticipate that our adjusted gross margin will be within a range of 82%-84%. Total adjusted administrative expenses were $69.4 million for the quarter as compared to $56.5 million in the fourth quarter of 2016. Adjusted sales and marketing expense for the fourth quarter of 2017 was $42.5 million.
Adjusted R&D expense was $7 million in the fourth quarter of 2017, or 6.2% of total revenue. Total adjusted R&D costs, including the capitalized portion, was $11.1 million in the fourth quarter of 2017, compared to $8.4 million in the prior year period. Total adjusted R&D costs for the full year of 2017, including the capitalized portion, was $41.1 million or 9.5% of total revenues. Adjusted EBITDA was $31.8 million or 27.9% of total revenues in the fourth quarter of 2017 compared to $20.7 million or 23.6% of total revenues in the fourth quarter of 2016. For the full year 2017, adjusted EBITDA was $137 million or 31.6% of total revenues, compared to $94.5 million or 28.7% of total revenues in 2016.
Our GAAP net income for the fourth quarter was $12.9 million, or $0.22 per diluted share, based on approximately 59 million shares versus $8.6 million or $0.15 per diluted share, based on approximately 59 million shares in the prior year period. Our effective income tax rate for the fourth quarter 2017 was 27.7%. For the full year 2017, our GAAP net income was $66.8 million or $1.13 per diluted share. Non-GAAP net income for the fourth quarter of 2017 was $16.8 million or $0.29 per diluted share, based on approximately 59 million shares versus $10.8 million or $0.18 per diluted share in the prior year period. For the full year 2017, our non-GAAP net income was $76.7 million or $1.30 per diluted share.
As Chad mentioned earlier, we have returned value to our stockholders in the form of over 1.2 million shares repurchased over the course of 2017, including over 770,000 shares purchased in the open market. In the fourth quarter alone, we repurchased over 538,000 shares. Since we initiated the repurchase program less than 24 months ago, we have repurchased over 2.3 million shares, including nearly 1.6 million shares in the open market. We anticipate fully diluted shares outstanding will be approximately 59 million shares in the first quarter of 2018. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $46.1 million and total debt of $35.3 million. As a reminder, this debt represents the financing of construction at our corporate headquarters. Construction of our fourth building continues to go well and according to schedule.
Cash from operations was $38.2 million for the fourth quarter, reflecting our strong revenue performance and the profitability of our business model. The average daily balance of funds held on behalf of clients was approximately $820 million in the fourth quarter of 2017. We'll provide some comments regarding the impact on our financial statements of both the Tax Cuts and Jobs Act, and also ASC 606 accounting standard. As a reminder, Paycom historically has applied the 35% statutory corporate federal tax rate as part of its overall effective tax rate. In 2018, we anticipate that our GAAP tax rate will be within a range of 22%-24%. This will be driven by the decline in the federal rate to 21% and offset by a variety of factors, including the elimination of the Section 199 deduction, the 162(m) limitation, and a handful of other smaller factors.
Regarding the impact to our 2017 financials, the Tax Cuts and Jobs Act was signed into law in December, and this resulted in a $0.4 million or $0.01 per share reduction in net income for the fourth quarter of 2017. A decrease in the federal corporate tax rate from 35%-21% required us to revalue and write down certain deferred tax assets at December 31, 2017. This one-time write-down was necessary in order to reflect the expected recovery of those assets under lower future tax rates. Regarding ASC 606, effective January 1, 2018, we have adopted and are using the new accounting standard. We adopted the standard using the full retrospective method and will begin reporting under this new method beginning in the first quarter of 2018.
In order to provide early transparency into the impact on the 2016 and 2017 numbers, we have furnished a recast of our financial statements for the full year of 2016 and for each quarter in and the full year of 2017, as well as certain non-GAAP metrics. As mentioned earlier, these recast numbers can be found in the presentation that is available on our investor relations website, along with a brief description of the impact of the new standards on Paycom. In short, the new standard will not have any impact on how we recognize our revenues, only the timing of when we recognize certain expenses. This is primarily the result of the short-term nature of our contracts and the fact that we already have a practice of deferring and recognizing our implementation revenue over the life of the client, which has been determined to be 10 years.
Under the new standard, we will continue this practice. The primary impact on us will be a change in the timing of when we recognize certain expenses related to the cost to acquire new sales contracts, specifically commissions paid to our sales representatives, as well as the implementation and setup costs associated with those contracts. When one of our reps sells a deal, we pay that rep his or her commission after the deal has been live for 30 days. Historically, we have recognized that commission expense in the quarter it was incurred. Under 606, we will be capitalizing the commissions and contract costs as an asset on our balance sheet, and then subsequently recognizing those costs ratably over the period of benefit, which has been determined to be the 10-year life of the client. This will have the impact of spreading out sales commissions expense.
As such, it will reduce our sales and marketing expenses and to a lesser degree, our general and administrative expenses and will increase our adjusted EBITDA and earnings per share. Looking ahead to 2018, operating expenses on a quarterly basis, we expect general and administrative expenses will be fairly similar as a % of revenue to the recast 2017 figures and both sales and marketing and R&D expenses as a % of revenues will be slightly higher than the recast 2017 figures. We expect non-cash stock-based compensation for the first quarter of 2018 to be approximately $10 million. Let me turn to guidance for the first quarter and full year for fiscal 2018. As a reminder, this guidance takes into account the new ASC 606 standard, and growth rates are calculated using the recast numbers for the comparable 2017 periods.
For the first quarter of 2018, we expect total revenues in the range of $150 million-$152 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 first quarter in the range of $74 million-$76 million, representing an adjusted EBITDA margin of approximately 50% at the midpoint of the range. For fiscal 2018, our revenue guidance is a range of $541 million-$543 million, or approximately 25% year-over-year growth at the midpoint of the range. Our full year 2018 adjusted EBITDA guidance is a range of $213 million-$215 million, representing an adjusted EBITDA margin of approximately 39% at the midpoint of the range. With that, we will open the line for questions. Operator?
We will now begin the question and answer session. To ask a question, you may press star, then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Raimo Lenschow of Barclays. Please go ahead.
Hey, thanks for taking my question and congratulations to a great year end. First question is for Chad. Chad, in 2017, you opened three offices. That's kind of below your normal run rate of five, six, and I know there's all different factors playing a role here. Can you talk a little bit about what impacted that year? Is that kind of the new normal that we need to think about it? Just kind of give us the puts and takes there. Thank you.
Sure, Raimo. Last year we did open up three. We staggered them out last year. Matter of fact, I don't even know that we opened one as early as we did this year. It's somewhat odd that we would open one early. I know that we've announced some before that we had opened early. I don't see us going back to the type of program where we try to open four or five in the same 10-day period. We did a lot of work in our sales organization last year, both preparing backfill and increasing the maturing numbers in our mature offices. We believe that set us up well to continue our staggered strategy throughout the year. We will be announcing additional office openings as we move forward.
Okay. If you think about this, the three, it's not a demand location issue, it's more like you guys kind of internally finding the senior people to move and the backfill, et cetera?
That's correct. That's really always been our gating factor, is talent development on the back end that's ready to both backfill as well as having managers being ready to relocate. I think we did a good job last year of changing our strategy and how we develop and enter a new market that way. It was successful. I would see us continuing that strategy throughout this year.
Perfect. Then a question for Craig. Craig, if I look at your new profitability guidance, I kind of see what we did last year in terms of EBITDA margin, it seems like it's ticking down a little bit in 2018 on the EBITDA margins. Can you talk a little bit about the puts and takes in terms of investment areas? You mentioned R&D, sales and marketing, and going a little bit higher. What's driving it? What's the thinking behind that?
Sure, Raimo. The two that I mentioned on the prepared remarks were R&D as well as some in the sales and marketing. Our gross margins, we finished the year pretty high for the full year, and guided for 2018 in that 82%-84%. That's really dependent on our hiring trends and certain times of the year, we may be a little behind on the hiring and certain times a little ahead. That's kind of where the puts and takes are. We'll continue to look for efficiencies in the model, though. G&A is one area where we're going to definitely look as well.
Okay, perfect. Then any idea in terms of, if I think about cash, that's kind of the thing that doesn't really change. Do I think about the same level of cash conversion, if I think about 2018 that you saw in 2016 and 2017?
I would assume that it would be fairly similar to what you saw in 2016 and 2017. Some of the bigger items that impact the cash or the CapEx. Other than that, I would expect it to be very similar on the cash.
Okay, perfect. Thank you. Well done.
Our next question comes from John DiFucci of Jefferies. Please go ahead.
Yes. Actually, I just have a follow-up to that last question there from Raimo, and I guess this is for Craig. The cash conversion, but really below the operating line, can you talk a little about the potential benefit to operating cash flow due to the lower tax rate? All your business is here in the States, and you guys have been profitable for a long time, unlike a lot of software companies. I would assume you'd see some benefit there. And I assume that ASC 606 has little to no impact on cash flow, even though you're moving some of the expenses out a little bit.
Sure. On the ASC 606, as it relates to cash, yeah, we'll have no impact on our cash position relative to 606. In terms of the tax rate, I called out the GAAP range of 22%-24%. We are full taxpayers and have been for several years. We would see some benefit from the lower taxes.
Okay, great. Well, thanks a lot, and nice job, guys.
Thank you.
Thank you.
Our next question comes from Mark Murphy of JPMorgan. Please go ahead.
Hi, this is Albert Chi for Mark Murphy. Congrats on the great quarter, Chad and Craig, and thanks for taking my question. For the R&D, it looked like it declined a little bit sequentially and slowed down a lot year-over-year. I know you guys have the capitalized software development outside of that, but is there any change in direction or any points of leverage that you're seeing?
No, and as we mentioned, for 2018, we would expect that to continue to increase as a % of revenue. We did see a little higher capitalization in fourth quarter than what we had originally thought.
Okay, great. Then I guess one more point on the guidance. For the adjusted EBITDA numbers, you're talking about 39% guidance for the full year. Are you able to give us a sense of what that would've looked like under the older 605? Is there a margin number that you can kind of give us?
Since we adopted the full retrospective, we will not be showing any 605 numbers as we move into the first quarter. It's something that we really don't want to get into showing a what if under 605 because there'll be no area where we'll actually be reporting that.
Yep, understood. Thanks very much, and congrats.
Thank you.
Thank you.
Our next question comes from Mark Marcon of RW Baird. Please go ahead.
Let me add my congratulations. Great year. Wondering if you can talk a little bit about what you're seeing just in terms of client retention trends, sales productivity in some of the older markets versus the new markets, any sort of change in color from a competitive perspective. Then I've got an EBITDA margin question.
Yeah. Our sales productivity remains strong. The initiatives that we put into the group last year continue to produce for us. I'm very happy with that, and we're starting off the year strong with our starts and what have you. We're focused on that. What was the second part of the question?
The client retention.
Client retention.
Yeah, client retention. Mark, our client retention's been 91%. That's a trailing revenue, I believe, measured like our competitors. It's been 91% for the last six years. There are certain clients that we can't control loss on due to bought, sold, merged, and/or cash flow, and there's a certain number that we can control, and we've been focused on that. I do think it's important to point out we've maintained a 91% retention rate, and we have not taken the 4% to 5% routine price increase, which is somewhat standard for our industry. We continue to be focused on the client and produce pricing that allows the client and Paycom to experience the efficiencies that we drive through the ROI.
We're focused on that, and we are hoping to continue to make improvements amongst our client base in both service and product to make an impact on that rate. We have held the line at 91% for the last six years.
Great. With regards to the EBITDA margin projection for 2018 relative to 2017, you mentioned both sales and marketing and R&D will be going up. Would you expect one to go up on a basis point basis more than the other? Or are you proportional? How are you thinking about that in terms of heavier investment?
I would think the investment's going to be fairly similar between the two. One quarter, one might be slightly higher than the other, but overall, fairly similar in terms of the increase.
Great. Congratulations.
Thank you.
Our next question comes from Michael Nemeroff of Credit Suisse. Please go ahead.
Hey, guys. Thanks for taking my questions. I apologize if this was asked before. I just jumped off another call. Chad, if you could maybe just give us a sense, how many office openings do you plan to do in 2018, what's the average productivity improvement you're assuming in your initial 2018 growth outlook? Also, can you maybe share any metrics or give us a sense of how much productivity has improved in 2017 as a result of the staggered office openings?
Yeah. In 2017, I believe in 2016 actually, I'd put out toward the end the $260 million sales capacity number that we had in that. We had that currently. Obviously, that number's grown some. I have not updated it, we'll update that as we get closer to it. We have had efficiency gains throughout the organization. I should say productivity gains in the sales organization, which we pretty much do every year as something that we focus on. Those gains have set us up well as we head into this year. We haven't ever really guided to office openings, other than to say we're going to continue the strategy. We are set up better this year to open up offices, than what we were even last year.
Yeah. That's helpful, Chad. In the past, I think you've said that the office openings do drive the business on a forward-looking basis. Are you changing that now? Is it both office openings and productivity gains? How should we think about the lower number in 17 office openings, and only one so far year to date in February?
Yeah. Last year at this time, I think we had opened zero through the year. The office openings make an impact later on in their life cycle. I wouldn't say it's one or the other. I wouldn't say office openings drive our growth. It's a piece of our growth strategies, opening up offices, and obviously, when you're maturing mature offices, you don't really even get to talk about those offices unless they're open. It's important for us to continue to drive our office open strategy as well as gain productivity throughout the year with those mature offices.
That's great. Thanks very much. Nice quarter, guys.
Thank you.
Our next question comes from David Hynes of Canaccord. Please go ahead.
Hey, guys. Nice set of numbers here. Chad, I wanted to start, maybe we could ask about the TV campaign. Curious why you felt like now is the right time. How's that working? Is it running in cities just where you have mature offices? Is it running across all regions? How do you think about tracking effectiveness? That sort of stuff. Anything you could share on maybe how that's contributing to the business?
Well, I have a certain view of advertising versus marketing, and specifically, as it relates to strategic selling. I think advertising allows for specific branding. We don't really put ads out there and expect our phones to start ringing. Advertising does provide branding. It was a national campaign that we embarked on, I want to say, middle part of last year that we ran, primarily on the news and some sporting events as a brand awareness type campaign. We haven't really talked about how much more of that or if we will continue that, but I think as we continue to grow, branding is important. It would be one piece of our strategic selling model.
Sure. Craig, maybe one on the numbers. We're going to bump up against 40% EBITDA margins almost here in 2018. How high is up on that front as we contemplate an updated long-term model?
We had a long-term model under 605. We're still looking at our long-term model under 606. We're going to continue to be a high-growth company, but also look to achieve some efficiencies along the way. As we get throughout the year, we may decide at some point to update that long-term model.
Yep. Okay. We'll leave it there. Thanks.
Thank you.
Our next question comes from Brent Bracelin of KeyBanc Capital Markets. Please go ahead.
Thanks for taking the question. First one for Chad. At a macro level, the NFIB Small Business Optimism Index, I think, hit a 30-year high this year here on small business hiring on optimism. What kind of impact does that have on either the pipeline or your business as you just think about macro factors? First question.
Yeah. Well, I do think any time you have a good business environment, that's good for our clients, and that can't help but on the margins be somewhat favorable to us as well. We're definitely an ROI-driven type of company, where we go in and have collaborative meetings with the client to drive that. ROI-driven results really can work regardless of current market environments, and we've seen that before. It's our 20th year in business, so we've lived through plenty. I do think that any time you have a very positive index out there, it can't help but to provide, again, on the margin, some level of a positive environment.
Okay, that's helpful. Just one follow-up here. As you think about the number of new software features that you've added to the cloud payroll and HCM stack here over the last several years, what's your view all around the value you're providing customers and in pricing? You mentioned you haven't raised pricing in a meaningful way in the past. What would change a scenario where you'd consider doing that?
Yeah. We haven't raised prices. We do produce additional software functionality that is for sale. At that point, we're actually delivering additional value to the client for that. In answer to your question, I believe that we are fairly priced when we go in and we have meetings with the client. We don't give prices where there's not an ROI that has been developed in conjunction with the client in those meetings. We're very focused on that ROI and making sure our client base receives The ROI that was discussed in the sales call, and then it's delivered through the transition process. We're focused on that. Over time, it should get easier to handle the same client as they become acclimated to the software as well.
We're definitely not the least expensive out there, but I believe when you include our ROI, we're still the low-cost provider.
Very helpful, (Cullen). Last one here for Craig. As you think about just cash flow impacts that we should think about in 2018 and 2019, can you remind us, CapEx outlays again 2018 and 2019, what are some of the expectations there that we should think about in our cash flow assumptions? If you could also talk about sales commissions. Are you going to continue to pay sales commissions the standard way from a cash payout perspective, or as the ASC 606 accounting changes, are you also changing cash payout to sales commissions as well?
I'll take the last one first. We really don't plan on changing the way we pay commissions. In the past, after the client has ran for 30 days, we estimate the annual revenue of the client, and we'll pay the sales rep commission based on that. ASC 606 will have no impact on the way we pay the commissions, only the way we recognize those expenses. In terms of CapEx, we don't guide to CapEx, but you could probably look back historically at how we've spent on the CapEx line. As we've mentioned, the fourth building's coming online sometime mid-year, and as we get close to that, we typically have a little bit of an elevated level of CapEx on some of those expenses.
After that mid-year elevated CapEx spend, you should start to normalize. Is that the right way to think about it?
We really haven't given any guidance past that. We might see a slight drop off once that building's completed.
Okay. Thank you.
Our next question comes from Corey Greendale of First Analysis. Please go ahead.
Thanks. This is Ken Wang on for Corey. Congratulations on a strong year-end, thank you for taking my question. Just wondering if you can speak a little bit about your revenue growth split during 2017, just between new customers and upsell. I'm just wondering if you saw any change during Q4 and whether or not your expectation is for the split to remain about the same in 2018.
I would expect, yes, the split to remain about the same. We've always, even through the year where we had our ACA sales, our sales were always the overwhelming majority of all of our revenues delivered from new client wins, primarily because the dollar revenue value for a new client win is so much larger than what any one product is that you can sell into your current client base. As well as with Paycom, our salespeople are incentivized to make sure that the client is using and receives the number of products they require at the time of the initial purchase. I wouldn't expect in 2018 to be any different than what it was in 2019 as far as the breakdown on that.
Great. Thank you. Just one more for me. Just wondering if you can comment, has the addition of your LMS course content, has that had any positive effect on sales of the module or the platform more broadly?
Well, we announced those LMS courses in November. They followed upon the LMS product that we actually developed probably two or three years prior, at least three years prior. We do expect that those courses would be able to produce greater adoption rates of that LMS module. We're still in the early stages of that, but I would expect that that would continue to aid in our value proposition as we're out there in the market.
Thank you. Congratulations again.
Thank you.
Our next question is from Siti Panigrahi of Wells Fargo. Please go ahead.
Hi, this is Ankit for Citi. Could you talk about what kind of penetration trends you're seeing in the market relative to the overall addressable market?
I think you're talking about new client wins penetration, perhaps.
Uh, y-
I'm sorry?
Yeah, that's what I'm trying to figure out.
Yeah, I would say that we do continue to achieve our goals in regards to that, our wins versus our at bats. That's not something that we talk about for competitive reasons. We have some sales teams that are stronger than the others. I will say this, we still represent 2%-3% of the overall TAM available to us, it's a growing TAM, we're still very focused on those new business wins.
Got it. Thank you.
Our next question comes from Shekhar Savravi of Bank of America Merrill Lynch. Please go ahead.
Hi, guys. Lots of good question asked. My question is on just the revenue growth rate projections for fiscal 2018. Can you talk about the visibility of that growth rate of the revenue for 2018? The reason I'm asking is, you had about 36 mature teams or so in fiscal 2017, and this year should be a little bit more than that. Because of the higher revenue per customer that you can sell through this year, is your revenue growth including the upside in ARPU as well as the improved productivity? Or what are the upside opportunities that you're expecting in fiscal 2018, is what I'm looking at.
Yeah. Well, the greatest upside, I think, to any year's performance is new client wins, and number of new client wins that you're bringing on. That's really important. Our approach to our guidance this year didn't change from last year or the year before, or really from quarter to quarter. We focus on what we can see based on both our pipeline as well as those deals that have already hit the backlog and will be converting within an eight-week period, most of them. We're very focused on that, and then as we move throughout the year, we will update both the numbers and the guidance based on what we can see at that time.
Got it. Thank you, guys.
Thank you.
Our next question is from Brad Reback of Stifel. Please go ahead.
Oh, hey, Chad. How are you?
Good.
Good. I think last year you talked about promoting 37 people to executive reps last January. Can you give us a sense of what the promotion looked like this year?
I do not have those numbers specifically as far as that. We would have more information on that after the February commissions, because someone either hits executive rep toward the end, typically in December and January, as those oftentimes can be strong starts for us. I don't have those numbers to update at this time.
Great. Just real quickly, with interest rates continuing to rise, how should we think about the sensitivity of the float balance and interest rates?
Yeah. Our balances have increased, but our investment strategy has not changed. Most of that money spends very little time in our account. We are very conservative in the way that we invest that. Obviously, as interest rates go up, we're going to receive some gain for that with the same investment strategy. We haven't guided to what that is within our revenue, and it would represent a very small portion of revenue and/or gain for us.
Got it. Thanks very much.
Thank you.
Our next question comes from Brian Schwartz of Oppenheimer. Please go ahead.
Yeah. Hi. Thanks for taking my question. Chad, I wanted to switch it up and ask an industry question here, and kind of building on one of your responses, you mentioned that the greatest upside potential for the business is the pace of the new client wins, that they occur. The question I wanted to ask you about the industry and really the buyer preferences is, in the upper markets, so let's call it the upper mid-markets, not in your market, we've seen a big shift here in the market over the last year and a half with the buyer preferences moving towards wanting to standardize on a strategic vendor. They want pure SaaS, and they want an HCM platform approach to the services and workflow.
The question I just wanted to ask you is, I'm just wondering if those trends have started to trickle down into your market and may be creating a tailwind here within the market. The third question about this is, if those trends are starting to pop up in the deal engagements, is it possible to rank them in regards to which could be the biggest tailwind to the new customer acquisition trend moving forward? Thanks.
Okay, I'll try to answer that the way I understand it. I think it really depends on where you draw that line between where, we'll call it enterprise starts and mid-market stops or what have you. We used to talk about client wins each quarter as we rolled them out, it was obvious that we were gaining client wins above our target market. I had even said in the past that those are typically a pull opportunity, that we're being pulled into those organizations. I don't disagree with you that the large business market or enterprise market is realizing the benefits of having a relationship and one software package that could actually handle their needs. I think they're coming to that realization. In the mid-market, I will say that's pretty much been the case.
I've said this before, I'm not 100% sure always, depending on the client's unique situation, that we're always 100% exactly right for a client, but they sure want us to be. Clients sure do want to use one system for everything. We've had a lot of success with our value proposition, which we stayed true to. We'll continue to do that. If it gets easier to move up market, because we do have so much opportunity for us right now in the mid-market, we do have a good product fit for larger businesses as well. We just have a little bit lower tolerance for a year-long type sales process and conversion.
Thank you for that color.
Our next question comes from Ebi Lambert of Mizuho. Please go ahead.
Hi, guys. Thanks. This is Parth Vanfara . Congrats on the results. Just a couple of quick ones. For the 46 offices that you currently have, just wanted to get an update on the split between those that are fully mature and those ramping up toward full productivity, and then maybe where you expect the mix to end up towards the end of 2018.
Right now we still have, how many is that maturing?
Nine maturing.
Right. We have nine maturing throughout this year, and we have five that will come into maturity in the year. Is that right?
No, those five were for the.
Six that'll come into maturity in the year.
During the year, yeah. Six in next year.
Nine that are not mature at this point.
Okay.
It is important to note that what we call maturity is your initial staffing in the market and beginning of mature quota. In fact, those offices continue to mature, and our offices that have been open five, six years will typically outsell even an office that's been open a couple, 2 or 3 to 1.
Got you. That's very helpful. Then one more. With respect to the restatements, we understand the change in sort of sales and marketing expense recognition, but the $11 million G&A expense restatement, what is the driver over there?
As we were going through the 606 recast numbers, you really look at the cost to obtain and fulfill, and the ones that are in the G&A are more of the fulfill cost.
Okay. Got it. Very helpful. Thanks, guys.
This concludes our question and answer session. I would like to turn the conference back over to Mr. Chad Richison for any closing remarks.
All right. Well, I want to thank everyone for joining the call today, and I also want to congratulate Minkah Fitzpatrick, the defensive back from the University of Alabama, for winning the Paycom Jim Thorpe Award this year. Like Minkah, we're all excited for what 2018 has in store for us. Thank you, and we'll be talking to you guys next quarter.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.