Earnings Call: Q2 2015

Aug 4, 2015

Hello, and welcome to the Paycom Second Quarter 2015 Earnings Call and Webcast. All participants will be in listen only mode. After today's presentation, Please note this event is being recorded. At this time, I'd like to turn the conference over to Mr. Craig Bolte, Chief Financial Officer of Paycom. Mr. Bolte, you may begin. Thank you, and good afternoon. Before we get started, I would like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans, objectives and expected performance, are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements represent our outlook only as of the date of this conference call. While we believe any forward looking statements we have made are reasonable, actual results could differ materially because the statements are based on our current expectations and are subject to risks and uncertainties. These risks and uncertainties are discussed in our annual report on Form 10 ks that was filed with the Securities and Exchange Commission on February 26, 2015, and as may be supplemented by subsequent Form 10 Q filings. You should refer to and consider these factors when relying on such forward looking information. 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 us on today's call. In the Q2 of 2015, our sales momentum continued with revenue of $49,000,000 This represents growth of 47% compared to the Q2 of 2014. Revenue for the 1st 6 months of 2015 grew 48% compared to the comparable prior year period. Annualized new recurring revenue or ANRR was $16,500,000 representing growth of 43% over the Q2 of 2014. Our cloud based offering continues to gain traction in the marketplace as both managers and employees recognize the advantages they can enjoy with our intuitive single database system. The foundation of our ongoing sales success is our industry leading solution. To maintain this leadership, we are relentlessly focused on software development. In addition to rolling out new applications, we also continue to deepen the functionality within each of our existing offerings. As a result, we once again more than doubled our research and development expenditures, growing our investment 103% year over year on a non GAAP basis. In the second quarter, we augmented 2 of our existing solutions with the release of enhanced ACA and GL concierge. I will spend a few minutes describing each of these offerings and how they will provide businesses with the premier solution in their respective categories. We were excited to deliver a new Affordable Care Act compliance offering to the market in our enhanced ACA application. While we already provided an intuitive and convenient ACA dashboard that has been very well received, our enhanced ACA application offers even greater functionality to our clients. Based on feedback from our well attended monthly ACA webinars, we believe businesses are more concerned than ever by the employer mandate reporting requirements. With this in mind, we set out healthcare reform. Before enhanced ACA, we provided clients with the ability to run reports and track and set required ACA periods, all through our ACA dashboard. With enhanced ACA, users are able to get up to date information and proactive alerts when approaching applicable large employer status and when part time or hourly workers are nearing full time status. This new solution also offers easily accessible historical data for audit trial purposes, advanced reporting, including action items as well as updates on legislation and compliance requirements. Additionally, with enhanced ACA, we remit forms 1094 and 1095 on the client's behalf. As employers gear up to report for the first time in 2016, we have had numerous clients sign up for the enhanced ACA service. We expect this momentum to continue as we near the end of the year for which the required data and reports will be filed with the IRS and furnished to individual employees. Our second major development of this quarter was general ledger concierge. GL concierge gives accounting professionals expansive general ledger mapping, transparent auditing, customizable file layouts and intuitive reporting capabilities, as well as real time alerts on items impacting that reporting. Our general ledger application is completely customizable, allowing companies to automate the import feed to various accounting software solutions. Through our push reporting application introduced last summer, on demand GL reports can be automatically generated and sent to all necessary recipients within an organization. We are seeing strong demand for this payroll GL application and we expect this demand to continue. These new applications underscore the power of our substantial and growing solution. While we are seeing a strong reception of these new offerings, they are still an initial rollout and we anticipate their respective financial contributions will be modest this year. I'd like to take a moment to provide a quick update on Paycom Learning, our recently launched Learning Management System or LMS. We are proud that our software is streamlining and formalizing company's training processes and helping them enhance and maximize the value of their human capital. Since launching the application in February, we have seen a strong reception from the marketplace. Through Paycom Learning, tasks into 1. Here is a quick real world example of how our LMS application helps our clients. A large auto dealership group added Paycom Learning and is enjoying the functionality that derives from our single database solution. With our system, they are able to store certifications for dealership compliance audits in one system and can easily pull courses into employees' career paths to help those workers achieve individual career goals and fill mission critical roles. This is just one example of a trend that we are seeing across many clients and industries. Our expanding solution and the growing awareness of our single database human capital management or HCM offering continue to allow us to reach up market to larger organizations. I'm happy to share that we continue to bring on larger clients in the support services organization that operates across several states. Prior to joining Paycom, the 5,000 plus employee company was using numerous tools that resulted in an incomplete HCM process. This client now uses multiple applications within our software to streamline their HCM practices and is extremely pleased with the benefits they receive by deploying our solution. Next, we won a facilities management company with nearly 2,500 employees. They also had been utilizing multiple methods to meet their payroll and HCM needs. They are now using several Paycom applications to enjoy a full HCM deployment that should greatly enhance their business practices. In addition to the anticipated $70,000 in annual cost savings, this client looks forward to a potential $200,000 in work opportunity tax credits that our solution will help them realize strategic candidate sourcing and hiring. Finally, we brought on a restaurant group that was utilizing a professional employer organization or PEO service prior to Paycom. The group, which has over 3,200 employees added numerous Paycom applications, including time and attendance, benefits administration, E Verify, applicant tracking and Paycom surveys. These are just 5 of the multiple Paycom products that the group added. Businesses like this restaurant group enjoy the flexibility and convenience of having an HCM provider that builds and develops its offerings in house and delivers it within a single application. As I've stated on previous calls, we are continuing our trend of bringing on clients at or above the top end of our target range as evidenced by these new client examples. These highlighted wins are indicative of our success in the marketplace demonstrate the power and scalability of our software. In conclusion, we had a very productive second quarter. Our sales success continued while our development engine fired on all cylinders. We are optimistic that our momentum will continue through the second half of the year and beyond. I will now turn the call over to Craig for an update on our financials and our guidance. Craig? Thanks, Chad. Before I review our Q2 results and also our outlook for the Q3 fiscal year 2015, I would like to remind everyone that my comments related to certain financial measures will be on a non GAAP basis. Adjusted EBITDA and non GAAP net income are non GAAP financial measures that exclude stock based compensation and other non recurring charges including transaction expenses related to our initial public offering our follow on public offering. A reconciliation of our GAAP to non GAAP results is included in our press release. Our sales momentum continued in the 2nd quarter with total revenues of $49,000,000 representing year over year growth of 47% from the comparable prior year period. Within total revenues, recurring revenue was $47,800,000 for the Q2 of 2015, representing 97.6 percent of the total revenues for the quarter and growing 46% from the comparable prior year period. ANRR was $16,500,000 for the Q2 of 2015 compared to $11,500,000 in the same period last year and representing 43% growth from the comparable prior year period. As a reminder, ANRR is an estimate based on the annualized amount of the 1st full month of already onboarded new recurring revenue. Total adjusted gross profit for the 2nd quarter was $41,000,000 representing an adjusted gross margin of 83.6%. This compares to 80.9% in the Q2 of 2014. Our gross margin strength was driven by our revenue outperformance as well as ongoing cost discipline. Turning to operating expenses. As a reminder, we pay commissions to our sales reps based solely on new sales at the time of their 1st monthly billing cycle. This is a one time commission that we recoup over the life of the client relationship. When we experienced strong sales performance in the quarter, there's a potential for us to see increased expenses in that quarter depending on the timing of the client's onboard process. For the Q2, total adjusted administrative expenses were $30,100,000 This compares to $23,200,000 in the Q2 of 2014. Administrative expenses declined as a percentage of revenue as compared to the Q1 of 20 15 as we are beginning to see some leverage in our model. R and D expense increased 103% from the comparable prior year period. As Chad detailed, we're continuing to make investments to broaden our suite of offerings. Adjusted EBITDA was 13,100,000 or 26.8 percent of revenue in the Q2 of 2015 compared to 6,100,000 dollars or 18.2 percent of revenue in the Q2 of 2014. Non GAAP net income for the Q2 of 2015 was $6,000,000 or $0.10 per diluted share based on approximately 58,000,000 shares versus $2,100,000 or $0.04 per diluted share based on approximately 52,000,000 shares a year ago. You should note for modeling purposes that our stock based compensation expense underperforming increased approximately 1,100,000 dollars per quarter as we issued restricted stock under our long term incentive plan in July. Turning to the balance sheet. We ended the quarter with cash and cash equivalents of $42,700,000 and debt of $26,300,000 As a reminder, this debt represents a financing in our corporate headquarters. With that, let me turn to guidance for the Q3 and for fiscal 2015. For the Q3 of 2015, we expect total revenues in the range of $51,000,000 to 52,000,000 dollars representing a growth rate over the comparable prior year period of approximately 40.7% at the midyear. We expect adjusted EBITDA for the Q3 in the range of $9,000,000 to $10,000,000 representing an adjusted EBITDA margin of nearly 18.4% at the midpoint. For fiscal 2015, we are raising our revenue guidance from $203,000,000 to $205,000,000 up to a range of $210,000,000 to $212,000,000 or 39.8 percent year over year growth at the midpoint. We expect adjusted EBITDA for fiscal 2015 in the range of $44,000,000 to $46,000,000 representing an adjusted EBITDA margin of 21.3% at the midpoint. In summary, we had an excellent second quarter and look forward to continued momentum through 2015. With that, we will open the line up for questions. Operator? We will now begin the question and answer And the first question comes from Raimo Lenschow with Barclays. Please go ahead. Hi, guys. This is Harry on for Raimo. Thanks for taking the question and congrats on a great quarter. I was just hoping you could give a little bit of color on progress around new office openings. And now that we're heading into the second half of the year, if you happen to have any clarity or just initial thoughts on office openings in the New Year, I'd really appreciate any color around either of those. You bet. And so this is Chad, Harry. We opened up 5 offices Q1 of this year, which was our largest year of office openings to date. Those offices are doing very well. All of our offices typically progress very close to the same rate, especially in aggregate when you look at all of them. And so they're continuing to progress as well as the ones in 2014. We are always reviewing new opportunities. We will in the future have additional office openings, but we haven't announced any plans for that right now. Got it. Great. Thank you guys and congrats again. All right. Thank you. The next question comes from Michael Nemeroff with Credit Suisse. Please go ahead. Hey, guys. Thanks for taking my questions. Just fantastic results again. Maybe if I can just ask Harry's question a different way. You're growing really fast. You opened up 5 new offices this year, and I understand how long it takes for the new offices to generate revenue and come up to speed. How many offices do you think you'd need to open in 2016 to keep the growth rate somewhat close to the same growth rate that you're performing in 2015? Well, I think the growth rate that we'll have in 2016 is substantially cooked with the offices we've opened today. I mean, as you know, and we've discussed prior in calls and in meetings, the offices that we open this year are going to have an impact a great impact in a couple of years. They're not going to have a significant impact this year and they're going to have a little bit of an impact next year, but not significant when you look at the overall number of offices that we have impacting our revenue. And so I mean to answer your question, the number of offices we would need to open in 20 16 to impact 2016 growth number is minimus. But the number of offices we would need to open in 2016 to continue to work our overall growth plans into the future. We're going to have to open up some offices. We know that. We continue to identify areas and we continue to be underpenetrated in the areas we're in today. And so we look at both current geographies for additional offices and or leadership teams. And then we also look at new geographies. And so we're still going through that process. We do have a bench of candidates that continue to build. And we do have matured sales managers who are also willing to help us expand in that area. And so that's really the way we view it. All right. Thanks, Chad. And then the ANRR this quarter, obviously, couldn't have matched the 61% last quarter, but still just incredibly strong again. What is driving that? Was there any pull forward again like you said last quarter into Q1 or anything anomalous? You mentioned ACA as a very strong uptake with customers. If you can maybe give us a sense of how much ACA impacted the ANRR this quarter and maybe thoughts on what the trajectory of ANRR might look like for the rest of the year? That would be helpful. Thanks. Right. ACA in itself our enhanced ACA itself has very little impact on this quarter's ANRR. I think our position as a thought leader in being able to provide an enhanced ACA software as well as corresponding service, I think helps us win some deals because of the importance of the legislation and the impact of the filing if you don't file things correctly. And so I think that's helping us. What's happening is that we have both mature cities and new cities maturing. But within each of those cities, we have reps that are maturing all the time. And these reps are selling deals and continue to bring in not only businesses that are at the top range of what our typical target has been, we're bringing in more of them. And so it gets harder and harder to grow a grown number, But with a proper product and a good sales staff and support group, we're able to do that. Okay, great. Thanks very much for taking my questions. The next question comes from John DiFucci with Jefferies. Please go ahead. Thanks a lot. I actually have a follow-up to Mike's question there on ANRR. We're seeing growth at elevated rates 43% this quarter, down a little bit from the very strong quarter as you pointed out last quarter, but still greater than the revenue growth rate last year, which obviously bodes well for growth this year, revenue. I guess, I'm just when I look back and I look at the numbers, it looks like there's an inflection point. Obviously, business is good, but over the last four quarters, we've sort of seen it. And I'm just curious if there's something you can comment on around that timing. Was it partially due, Chad, do you think maybe the increased brand awareness from the IPO? Was that helpful? Is it just the timing of new modules coming out? And then just help us to understand, I mean, it's a good thing, but just help us understand what's happened over the last 4 quarters. Not that I mean it was great it was nice growth before that too, but we certainly have seen an inflection point in the business. Yes. I mean, I can say, I definitely do think, I mean, having an IPO definitely didn't hurt brand awareness. I think there was also some significant motivation on our end, going through the IPO process, coming out the other end, standing where we stood at the time and just having this feeling of we can do a lot more than we're doing. And we really started down that track last year. But it was just one additional gear that we went to. I mean, we've had this type of growth or similar growth in the past as well. And so for us, it's just continuing to work the plan that we started working a while back. And I do believe that as our product has matured and we've gotten better at each module, we become a much stronger prospect for other clients that are wanting to utilize this technology. So we're having greater wins and more of them and which you're going to have to have to grow a grown number. If I might too, I noticed ADP Employer Services grew about 6% in the quarter on a constant currency basis. Obviously, a fraction of your growth here, but obviously, I mean that's a big opportunity for you, right, from a competitive standpoint. Are you seeing any changes in the competitive activity from ADP? Are you seeing any increased challenge? I mean, they talk about so called cloud solutions of their own now. Yes. I mean, I think the answer to your question is no. I think it's been business as usual. But I say that in respect ADP's, I wouldn't say ADP is a company that's necessarily been asleep at the wheel when it's come to getting out there selling business and driving growth for themselves. And so we see it as kind of business as usual. But I mean we continue to have success with ADP as we do all of our competitors. Okay, great. Nice job, guys. Thanks. The next question comes from Mark Murphy with JPMorgan. Please go ahead. Yes. Thank you. I'll add my congratulations as well. Chad, I wanted to ask you, you referenced that you're bringing in businesses at or above the top in terms of size and that definitely got my attention. So I was wondering if you can share any more color. Were there any unusually large clients you signed this quarter? Or are you seeing a change in that trend or the segmentation in the forward pipeline at all? No, the answer to that is no. I mean the size of clients, the difference between one client size and the other were very similar. There wasn't any client that stood out that made up the difference there. Well, the same as last quarter, there wasn't any client last quarter when we had the growth last quarter that stood out. But what's happening is we're receiving more of the clients at that level. And so I mean we were bringing on 4,005,000 employee companies 5 years ago. We just weren't bringing on as many of them as we do this year. And I think it's also important for me to know for everyone to know that our focus hasn't changed in the number in the size of clients we go at. We have a very strong value proposition. It's just that our products continue to mature. And as the value proposition resonates with people at the large end of our focus, more and more want to use it. And so but we're still very focused on the 50 employee to 2,000 in market as well. Thank you. And as a follow-up, I'd say the single biggest question that we hear from investors at an industry level is that there frankly is a pretty impressive breadth of HR software companies that are delivering profitable growth and seemingly living off the natural churn from ADP and Paychex and Ceridian and others and combined with some ERP replacements and of course some greenfield opportunity or new business formation. But even the companies that are providing the churn seem to be doing fine as I think you as I think you referenced in answering John's question. So there is a question of just when will the music end kind of at an industry level. And yet, we look at the combination of growth and margin that you're delivering here and it is in absolutely elite territory, no question about it. So I am curious, is there any change in the sourcing of the new deals that you're booking, for example, more or less success against the service bureaus or the ERPs or anything else? And is there anything you're seeing in the pipeline that would make you more or less confident in the ultimate size of the opportunity here for Paycom? Yes. And so it's a very large TAM. I believe that the TAM continues to grow. I mean, I believe we're just entering the HCM technology phase. If you really go out and visit with a client, many of them when you visit with clients are using new technology the old way still. And so I still believe we're at the beginning of where HCM is heading. Even with the deals that we've brought on from LMS, I mean, these are large companies and many of them were still doing it themselves through email and other ways. And so I believe it's still a developing industry and I think that probably accounts for some of the growth of others that are so large, the ones you've mentioned. The other I would mention is there's very few of us that do full service payroll. I know we talked about there's a lot of HCM companies out there and there may be. But as far as when you're talking about the ones that are doing full service, payroll tax depositing, filing, reciprocity law and everything else, I mean, 6 or 7 of us and you name 3 of them. And so I do believe that's a special expertise that a few of us have that we do that we're good at. And so I think the industry is growing and I don't see and the other part of your question was, are we seeing any difference in in house versus those deals that are using another vendor? And it's still true today that the overwhelming majority or greater than 80% of the business that we do receive comes from companies that had another vendor at the time of decision. And so we don't really see that changing. And again, we don't expect the competitors to stop innovating or trying to keep their client base. I mean, we expect them to do that. And we have our own strategy here for imposing our will and what we want for this company. Thank you very much. All right. Thank you. The next question comes from Brendan Barnicle with Pacific Crest Securities. Please go ahead. Thanks so much. Craig, I might have missed this, but did you share with us customer retention rates for Q2? No. We typically report customer retention rates on an annual basis and we reported that at the end of 2014. And it was very consistent from prior years. Okay. Any color on it in terms of change or anything along those lines? No. Great. Chad, on the Learning Management Systems, I was wondering who you were seeing competitively. You mentioned in the prior question, you're largely replacing going into situations where nobody had anything. But are you seeing competitors when you go in to bid for those for that business? Yes. I mean, we do see competitors and it's all over the board. I mean, it's a mixed bag of what I'm going to call point solution providers, which are providing just LMS and maybe mix them with a little bit of something else from even our maybe our premier competitors even, which we've kind of mentioned some on this call. And so it's a mixed bag. I was more trying to illustrate the fact that there are several there are still very large companies out there that are really not even in an automated system for even LMS. And so I was really just trying to kind of set the stage for how I do believe we're still at the beginning of overall HCM usage, not necessarily being sold, but how it's being used. Great. And I know you talked about it on prior calls, but can you just remind us about your economic sensitivity and what you guys have seen in prior economic slowdowns? We've been through I mean, we started our company in 1998. I can't really speak for everybody else's. But this business, I do believe it takes a while to build it and then it's also fairly strong once you're there. You do have base fees. You do have price per seats. But we haven't really experienced well, we haven't. We haven't experienced any type of hiccup through this economic downturn, if we want to call it that, which definitely when you look at some industries, it qualifies. Nor did we in 2,008, when we had the mortgage companies and the financial institutions as well as energy going through something very similar. And so we're very diversified across all industries and many geographies. Our Florida office didn't go down in 2,008 or our Arizona office didn't go down in 2,008 when you had the housing market and everything else. And so we typically well, we're definitely I mean, we're industry agnostic when it comes to that. Terrific. Thanks a lot, guys. The next question comes from David Hynes with Canaccord. Please go ahead. Hey, thanks. Chad, maybe a couple of questions around pricing to help us get a feel for attach rates and penetration of the customer base. I guess I'm curious on a per employee per month basis, what's a customer paying if they sign up for just base payroll? And then what's kind of the average new customer onboarding at? And then if they bought everything, what would they be paying you? So it will help us get a sense for how successful you are attaching adjacent modules and then penetration of the base. Yes. We don't disclose individual pricing or what each module will cost publicly. We have discussed in the past our annualized opportunity for any one employee is around $400 annualized. So we have discussed that in prior calls. And then any sense of kind of where your average employee is now to give us a feel for how much growth there could be within the installed base? Yes. It's not something that I could disclose, but I mean it's definitely something that we monitor. Okay. And then Craig, maybe help us a little bit on the seasonality of the sales and marketing spend. I mean you obviously talked a little bit about the variable comp. But what are the factors that go into that line item as we kind of think about our models going forward? Okay. On the sales and marketing, typically, Q1 is going to be fairly high. Our sales season ends at the end of January. So typically, the sales reps will be at one of the highest rates in that Q1. And then throughout the year, they'll hit certain gates and their rates will continue to increase in terms of commissions. So, Q2 is typically a little lower and it builds throughout the year through Q1. Okay. Got it. Thanks guys. Thank you. The next question comes from Jim MacDonald with First Analysis. Please go ahead. Yes. Great quarter guys. I'd like to go into the ACA a little more. How big an opportunity do you think that is? And can you tell us whether you plan to price that monthly or are you going to price the form separately like a W-two? Yes. With ACA, we came out initially with the ACA dashboard, because we were still kind of waiting on the regs. Now we've implemented enhanced ACA. There was a fee for enhanced ACA and that fee also rolls over into an annualized fee for forms filing. It's really hard for us to sit here today and say, okay, what exactly is the revenue opportunity for that? But what I will say is, I believe every client or prospect out there well, first of all, I believe every prospect out there should be using us. But then from that standpoint, once someone becomes a client, I believe every client that has 30 employees or more really needs to pay attention and get on some type of ACA program. With the new bill that was signed after the Supreme Court ruling, If you try to do ACA correctly and you don't, it's $2.50 a form with a $300,000 or with a $3,000,000 minimum. If you don't even try to do it right, it's a $50 to it's $500 a form and there's no cap of what you can be penalized in the year. So I mean it's a serious filing. It's something that's new obviously to our industry. It's something we are looked at to perform on behalf of a client. I think companies that use a company like ours or some of our competitors, I mean they depend on this. So they don't have to have that expertise in house. And so I do believe on an ongoing and this is just the beginning. We don't know where ACA filing and reporting requirements are going to end. I mean, you typically start off one way and then it'll change over time. And so I do believe ACA represents an opportunity as much for Paycom, but also for our industry as a whole. I think ACA definitely represents a revenue opportunity. And just my follow-up on the ACA. When do you think this revenue will I mean will it start to hit in the September quarter? Will it sort of get to a level it's going to get to by Q1 next year? Any thoughts on how this revenue will layer in? I mean, I would expect Q1 of next year there to be some ACA revenue. Now how measurable is it and what impact does it make or I don't know. I mean the same question could be asked for rising interest rates. What does that do to us as they rise as well? And so, but I do believe there's going to be something there. Well, I know there will be something there. It's just to what extent it's substantial or how measurable it is, I don't know yet. Okay. Thanks very much. You bet. Thank you. The next question comes from Sarah Hindlian with Breen Capital. Please go ahead. Hey, guys. Just one quick housekeeping question and then a couple others. How much R and D was capitalized in the quarter? Craig, if you wouldn't mind. And then less housekeeping, I know we were just talking about ACA. Is the Treasury going to be issuing any updates on Form 1090 5 before the end of the year? Or do you think everything is still on track there for fiscal year 2016 reporting? And then finally just one more question. How should we be thinking about your normalized ANRR going forward? Should we still be thinking of it on an annualized basis in the mid-30s percent growth range? Or should we be thinking about it trending higher? All right. So I'll answer the last 2. I'll let Craig finish up with the how much of R and D did we capitalize for this particular quarter. On the ANRR, we're not going to give any future guidance on that. ANRR is somewhat guidance itself into future quarters. And so moving forward, we're going to report ANRR. It has been strong. I did say that last quarter just to kind of let people know that we really jumped out there. But you never know what happens with us. And so moving forward, ANRR isn't something we're going to forecast. As far as what the IRS is going to do with the ACA, I mean, we expect them to continue to address forms both 1094 as well as Form 1095. And then you have both Form B and C for both of those depending on if you're an insurance company or an actual business that's issuing these. And so with anything, anytime something new comes out, there's always an after the fact thought of how can it be better, what other information do we need, how do we make others compliant. And so I would find it very hard to believe that there's not more coming down the pipe from the reporting agencies. I would also be surprised if we're not full steam ahead, Katie bar the door on this right now. I don't see it changing. It's here. Those people that aren't compliant are going to be in some trouble. And I do believe that. And in terms of the capitalized R and D, it's around 30%, so slightly above 30%. Okay, great. Thank you, guys. The next question comes from Brad Ryback with Stifel. Please go ahead. Hey, guys. A quick question. I'm sorry if I missed this. How is the productivity from the new offices you've layered on in the last 12 months going? Yes. So I did talk about that earlier, Brad. Yes, it is. It's going well. It does take an office 24 months to mature. And these offices that we've opened at the 1st of the quarter are each maturing as they should be. And given how strong your growth has been, have you given thought to going even faster with new office openings? We definitely look at those opportunities. I mean, it's important for us to have assured success each time we do open up an office and we're very happy with the way they're progressing now. And then as opportunities present itself through both backfill opportunities and new manager relo opportunities and prospect revenue opportunities, then we'll look to move into additional markets in the future. And geographically, have you seen any unevenness in growth around the country? We have not, not geographically. I mean, you're going to have some offices that do better than others, but you could have an Orange County doing better than an L. A. Or San Fran doing better than a San Jose. So I wouldn't really be able to point geographically if there's a difference there. Great. Thanks very much. All right. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Chad Richison for any closing remarks. All right. And so I want to thank everybody for joining. We did sustain our momentum through the first half of twenty fifteen and are extremely proud of our progress we achieved in broadening our industry leading solution. We're going to be presenting at the Pacific Crest Global Technology Leadership Forum in Vail on August 11 and then again at the Canaccord Growth Conference in Boston on August 12. And we look forward to meeting with you guys at the end. Thanks a lot. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.