Good day, and welcome to the Paycom Software fourth quarter 2019 quarterly results conference call. All participants will be in a listen only mode. Should you need assistance, please signal the conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the call over to James Samford. Please go ahead.
Thank you, and welcome to Paycom's fourth quarter 2019 earnings conference call. Certain statements made on this call that are not historical facts, including those related to our future plans, objectives, and expected performance, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this conference call. While we believe any forward-looking statements made on this call are reasonable, actual results could differ materially because the statements are based on our current expectations and subject to risks and uncertainties. These risks and uncertainties are discussed in our filings with the SEC, including our most recent annual report on Form 10-K and our most recent quarterly report on Form 10-Q. You should refer to and consider these factors when relying on such forward-looking information.
Any forward-looking statement made speaks only as of the date on which it is made, and we do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. During the course of today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP net income, adjusted gross profit, adjusted gross margin, and certain adjusted expenses. We use these non-GAAP financial measures to review and assess our performance and for planning purposes. A reconciliation schedule showing GAAP versus non-GAAP results is included in the press release that we issued after the close of the market today and is available on our website at investors.paycom.com. I will now turn the call over to Chad Richison, Paycom's President and Chief Executive Officer. Chad?
Thanks, James, and thank you to everyone joining our call today. I'll spend a few minutes on the highlights of our fourth quarter 2019 results, review some of our notable achievements in 2019, and also discuss our goals for 2020. Following that, Craig will review our financials and our guidance, and then we'll take questions. 2019 was another exceptional year for Paycom as we continued to benefit from our differentiated employee strategy and measurement capabilities, along with our comprehensive product offering. We continued to strengthen our position in the human capital management, or HCM, software industry. I believe we will look back on 2019 as the year employee usage emerged as a key buying criteria for HCM technology as businesses provide their employees a more efficient way to interact with their own data.
I want to thank all of our employees who have helped Paycom change the way people use technology in our industry. We finished the year with very impressive results. Our 2019 fourth quarter revenue exceeded $193 million and represented growth of nearly 29% over the comparable prior year period. Our full year 2019 revenue of $738 million grew 30% compared to 2018. Our full year 2019 adjusted EBITDA was $318 million, representing an adjusted EBITDA margin of 43%. With this combination of revenue growth and margin, we again achieved the rule of 70, as we have done for many consecutive years. This accomplishment places Paycom in an elite group of companies that deliver an enviable combination of rapid revenue growth and high margins, and our goal is to maintain a healthy balance of both.
We believe our strong performance is due, at least in part, to growing employee usage of the Paycom system, which is generating substantial benefits for our clients, their employees, and Paycom. Employee usage rates as measured by our Direct Data Exchange, or DDX, now exceed 90% on average across our client base, which means our clients are generating substantial savings and high employee satisfaction. Ernst & Young recently updated its HR study that showed on average a single HR task or data entry point without self-service cost an organization $4.51 to complete, up from $4.39 previously. Our clients are embracing this concept and once again, by using our solution, are realizing the cost savings across their entire employment life cycle. In fact, DDX scores for new clients are starting off higher than average, including several large new clients running at or near 100% right out of the gate.
Our employee usage message is resonating across the industry, and we continue to promote the benefits to our clients of striving for 100% DDX scores over time. For Paycom, this trend is translating into increasing client interest in sales efficiency, more efficient customer service, high Paycom employee satisfaction, and higher revenue retention. I'm pleased to share that our annual revenue retention rate for 2019 increased once again to 93%, up from 92% in 2018, representing the second consecutive year of improvement after remaining steady at 91% for the prior six years. In addition to the DDX, in 2019, we rolled out over 1,500 software enhancements, including several important product launches, such as Ask Here, a communication platform that gives employees a direct line of communication to ask work-related questions that are routed to the appropriate company contact through the convenience of Paycom's self-service technology.
We also introduced substantial enhancements to our learning management platform with Performance Evidence and Video Content Creator. We are kicking off 2020 with what I believe will be one of the most significant product developments of the last two years. On Monday, we announced the official launch of Manager on-the-Go, a tool built into Paycom's existing mobile app, which empowers leaders with 24/7 accessibility to essential manager side functionality of our solution. I believe this is the single most important product release we've had since the launch of our employee self-service app. This easy-to-use functionality distributes the approval responsibilities more broadly and removes impediments to quick data flow. Just like employee self-service fundamentally changed the way employees engage with our solution, Manager on-the-Go fundamentally changes the way managers and decision-makers interact with our solutions.
Paycom has been using Manager on-the-Go internally for two months, and for those managers who have been using the product, the vast majority of the manager actions previously done on desktop are now done on mobile. In 2019, we opened our New Orleans sales office and significantly expanded our inside sales capabilities. This brings us to 50 sales teams through the end of 2019. As we look to 2020, we continue to focus on increasing productivity and sales capacity within our existing teams, while at the same time opening new offices when they make sense to us. As of December 31st, 2019, our head count stood at 3,765 employees as we continued to hire aggressively across our organization to help further bolster the foundation of our future growth.
I'm very excited by the breadth and quality of our workforce and our ability to attract and retain top talent across the U.S. Paycom received national recognition from several organizations in 2019. In the fourth quarter, we earned two additional accolades. We earned Best Places to Work in the U.S. honors from Glassdoor for 2020, and The Wall Street Journal listed Paycom as one of the best-managed companies in the U.S. Both these awards are extremely rewarding and a testament to the culture we continue to develop and grow. Lastly, I want to congratulate the 2019 Paycom Jim Thorpe Award winner, Grant Delpit from Louisiana State University. This award recognizes the most outstanding defensive back in college football and memorializes one of the greatest athletes in Jim Thorpe, who also happens to be an Oklahoman. To sum up, 2019 was a banner year for Paycom.
I'd like to thank our employees for helping make 2019 our best year ever with a combination of 30% revenue growth, record adjusted EBITDA margin, and record revenue retention. With the momentum we're seeing, I'm excited about how 2020 is already shaping up. With that, I'll 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 2019, and also our outlook for the first quarter and full year 2020, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. As Chad mentioned, we are pleased with our fourth quarter results with total revenues of $193.4 million, representing growth of roughly 29% over the comparable prior year period. Our full year 2019 revenue was $737.7 million, representing growth of 30% compared to 2018. Our revenue growth continues to be primarily driven by new business wins. Within total revenues, recurring revenue was $190.2 million for the fourth quarter of 2019, representing 98% of total revenues for the quarter and growing 28.5% from the comparable prior year period.
Total adjusted gross profit for the fourth quarter was $165 million, representing an adjusted gross margin of 85.3%, up 100 basis points compared to the prior year period. For the full year 2019, our adjusted gross margin was 85.7%, also up 100 basis points compared to full year 2018. For 2020, our target adjusted gross margin range is expected to remain strong at 85%-86%. Adjusted total administrative expenses were $98.6 million for the fourth quarter as compared to $78.3 million in the fourth quarter of 2018. Adjusted sales and marketing expense for the fourth quarter of 2019 was $48.5 million or 25.1% of revenues. We are seeing positive results from our recent ad campaigns and plan to continue to invest in marketing in Q1 and throughout the year. Adjusted R&D expense was $17.9 million in the fourth quarter of 2019, or 9.3% of total revenues.
Adjusted total R&D costs, including the capitalized portion, were $25.1 million in the fourth quarter of 2019, compared to $17.7 million in the prior year period. Adjusted total R&D costs for the full year 2019, including the capitalized portion, were $93.3 million or 12.6% of total revenues, compared to $61.5 million or 10.9% of total revenues in the prior year. We plan to continue to attract great talent in R&D, and we plan to continue to invest in our future growth through innovation and new product development. Adjusted EBITDA was $78.6 million in the fourth quarter of 2019, or 40.6% of total revenues, compared to $57.5 million in the fourth quarter of 2018, or 38.2% of total revenues. For the full year 2019, adjusted EBITDA was $317.9 million, or 43.1% of total revenues, compared to $240.9 million or 42.5% of total revenues in 2018.
Our GAAP net income for the fourth quarter was $45.4 million, or $0.78 per diluted share based on approximately 58 million shares, versus $31.4 million or $0.54 per diluted share based on approximately 58 million shares in the prior year period. Our effective income tax rate for the fourth quarter of 2019 was 25.8%. For the full year 2019, our GAAP net income was $180.6 million or $3.09 per diluted share. Non-GAAP net income for the fourth quarter of 2019 was $50.5 million or $0.86 per diluted share based on approximately 58 million shares versus $35.4 million or $0.61 per diluted share based on approximately 58 million shares in the prior year period. We expect non-cash stock-based compensation for the first quarter of 2020 to be approximately $17 million. For the full year, we anticipate non-cash stock-based compensation will be approximately $78 million.
For 2020, we anticipate our full-year effective income tax rate to be 23%-25% on a GAAP basis. On a non-GAAP basis, we anticipate our full-year effective income tax rate to be 26%-27%. We anticipate fully diluted shares outstanding will be approximately 58 million shares in the first quarter of 2020. Turning to the balance sheet. We ended the year with cash and cash equivalents of $134 million and total debt of $33 million. As a reminder, this debt represents a financing of construction at our corporate headquarters. Cash from operations was $47.8 million for the fourth quarter, reflecting our strong revenue performance and the profitability of our business model. Now let me turn to guidance. We are pleased to provide a strong initial guidance that is consistent with our historical guidance approach of guiding to what we can see as of today.
Our full year and first quarter 2020 guidance is as follows. For fiscal year 2020, we expect revenue in the range of $911 million-$913 million, or approximately 24% year-over-year growth at the midpoint of the range. We expect adjusted EBITDA in the range of $384 million-$386 million, representing an adjusted EBITDA margin of approximately 42% at the midpoint of the range. For the first quarter of 2020, we expect total revenues in the range of $240 million-$242 million, representing a growth rate over the comparable prior year period of approximately 21% at the midpoint of the range. We expect adjusted EBITDA for the first quarter in the range of $113 million-$115 million, representing an adjusted EBITDA margin of approximately 47% at the midpoint of the range. We receive approximately half of our weekly high margin recurring revenue on Wednesdays.
Because January 1st, 2020 fell on a Wednesday, there is a unique calendar anomaly this year that we will again experience in five years. In 2020, there are only 12 banking Wednesdays in the first quarter instead of the usual 13. In the third quarter, there are 14 banking Wednesdays instead of the usual 13. For quarterly modeling purposes, we expect recurring revenue and adjusted EBITDA to be impacted by approximately a half week of recurring revenue and adjusted EBITDA in the first quarter, or roughly $8 million each. In the third quarter, we regain an additional half week of existing recurring revenue and adjusted EBITDA. Next year returns to a normal cadence as each quarter contains 13 banking Wednesdays. 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 with Barclays. Please go ahead.
Hey, thanks for taking my question. Congrats on a great finish to the year. Two questions. First, Chad, your customer retention improved again this year. 93% is almost enterprise-type level. Can you talk a little bit to the drivers to that? Because your customer base is more mid-market, but 93% is really best in class. How do you get there? Can it go even higher, potentially? Then you kind of need to explain that Wednesday kind of thing again with the Wednesday receipts because, us not working in industry, it kind of seems a bit unusual, but maybe you can give us a little bit more background there. Thank you.
Sure, Raimo. I'll start off first with the retention. About three years ago, we really started driving toward the employee usage strategy, and that's where employees actually help employers through managing their own data with direct access. We started on that. We released the app. We started to see retention improve as that strategy continued to become prevalent across the organization. We did get some improvement both in 2018, in 2019 as we released the Direct Data Exchange, it actually helped our clients help us
Manage that process, put that score out there for them. They've embraced it, and we've got two types of clients. We do have those clients that have really embraced it, and we have those clients that are trying to, if you will. For everybody, it really does show the types of efficiencies that can be gained when those employees have a direct relationship with the database. That, as well as we've continued to enhance our products. I look at how much we enhanced our learning management product, included it in the price, and then we've also done that with Ask Here. Once again, with Manager on-the-Go, which I believe is the most significant product we've released since our app. I think we've done well on retention. Your question of can it continue to go higher?
Obviously, we do have some clients that may be bought, sold, merged, or out of business. It's harder to keep those. I think we've done a good job with that trending in the right direction. Shifting over to the quarterly anomaly that we are experiencing this year, I'm going to turn that over to Craig.
Yeah. Raimo, Wednesdays have historically been our largest processing day, and we process about half a week's worth of revenue on a Wednesday, and that's for a Friday pay date. We do it 48 hours before pay day, so anyone getting paid weekly or biweekly on that week, it impacts them. What we saw is that, first quarter, there's 12 as opposed to 13, and then we make that up in third quarter. That $8 million really shifts from first quarter to third quarter.
Raimo, I'll add one thing to that. It's important to remember, it's not new business revenue. This is current recurring revenue. This is from current clients. That means it's generated from current clients, and we don't have to go out and sell clients to get it.
It's just the way it flows, basically. Yeah. Okay.
Right.
Cool. Makes sense. Okay. Thank you. Congratulations.
Thank you.
Our next question comes from Mark Murphy with JP Morgan. Please go ahead.
Hey, guys. This is Pinjalim on behalf of Mark. Thank you for taking our questions, and congrats on the quarter. Quick question, is there any way to understand how bookings trended during the quarter? Was it within your expectations for Q4? Any color around maybe deals that closed above the 5,000 employee range, and how do you feel about the pipeline going forward?
It was about three years ago, we stopped giving specific deals. We never called out the names, but we would call out a 4,200-employee trucking company in the Northeast. We were kind of sharing too much information. We did continue to have wins throughout fourth quarter as we did every quarter last year at the top end of our range. It was a strong quarter. To be able to finish the year, first have a strong quarter, but also be able to finish the year at a 30% growth rate, 43% adjusted EBITDA, from where we started. When we started earlier in the year, I think our combined guide was at 66% when you combined our revenue and our adjusted EBITDA guide. To be able to finish at that level, we were happy with that. Our leads continue to be strong.
I will share this with you. Our leads in the first quarter, just for the first month of January, are already up 600%. We've continued to spend aggressively in marketing because we're having success with it. One other thing that I would provide is that we've actually expanded our inside sales group, another two teams, and so there's four there now. As you guys may have remembered last quarter, I did talk about how we had five inside salespeople. We turned that into two teams last year. That would be two teams of eight, so 16 salespeople and two managers. This year, the month of January, we had to add two more teams to clear the lead volume that's coming in because it did increase. Now we actually have 32 salespeople, inside sales, and four teams. It's not shifting our model and our focus.
We're driving at the 50- 5,000 market. We continue to do that. We're also continuing to have increased lead volume, and so, we remain focused on generating more leads this year as well.
Wow, that's great. The other question I had was on the guidance. Craig, is it possible to understand what is the assumption for interest rate cuts that might be baked into the 2020 guidance at this point in time?
Yeah. If you remember, there were three interest rate cuts at the end of last year. In our guidance, we're holding interest rates fairly stable with a possible cut towards the end of 2020, but pretty flat for the full year.
Our next question comes from Brad Zelnick with Credit Suisse. Please go ahead.
Hi, it's Bhav in on for Brad. Congrats on a great quarter and end to the year. As you look into next year, it looks like your adjusted EBITDA margins are down slightly from 2019. How much of that is due to float revenue versus increased investments into the business? Where should we think about those investments and where they're going?
Yeah. We guide to what we can see. Last year, I think we guided 40.5% -ish, if you will, in adjusted EBITDA. This year, we're guiding at 42%. We are continuing to spend. You guys probably watch some TV, and definitely if you're on digital, we're doing a lot there, too. We have an opportunity right now, we believe, to pick up market share. Our marketing initiatives are bearing fruit, if you will, and so we've continued them aggressively. I will say this, is that all of the advertising and marketing spend that we have planned this year is currently baked into that guide we delivered, which was very similar to last year's guide from a baking in the marketing spend, I mentioned the same thing last year as well.
That's helpful there. Just a follow-up, can you just speak about the productivity that you've seen with your existing sales offices? Is there anything specific that you would call out that is improving productivity here?
Yeah. I mean, the salespeople now will be able to, I would say, toward the end of this year. Usually, I say we have this many reps that continue to sell $1 million. We've got reps up at $1 million. We've got some reps at $2 million. I won't have those final numbers. The sales year's run for sales rep quota runs February through the end of January, so they actually end on their largest month. We'll have those commissions about February 15th, and we'll be able to talk more about that. What I will say is, I am able to see what different reps book. We do know that most all of our bookings, minus about 3%, turns into revenue or turns into sales or turns into, yeah, revenue, actually started business. We are seeing success there across the board with all of our sales reps.
Our next question comes from Brad Reback with Stifel. Please go ahead.
Oh, great. Thanks very much. Chad, on the inside sales efforts, can you remind us, are those net new customers they're going after, or is that upselling to the install base?
Yes, good question. That's actually net new customers, new logos. Those reps do not upsell to current clients.
What are you doing on that front?
We have a different group that does that, Brad, and that's our CRR group. That group continues to go out and meet with clients and, when it makes sense, be able to sell them additional products. That group also helps our products. That was one of the groups that really helped drive retention. I should go ahead and call them out. Two years ago, they actually went back into the client base and made sure everybody was set up for good usage. They were actually working with the clients, showing them the internal DDX score before we developed it. That group continues to work with clients as well as upsell them, when the opportunity arises.
Great. Thanks very much.
Yeah.
Our next question comes from Mark Marcon with Baird. Please go ahead.
Good afternoon, thanks for taking my questions, and congratulations on a great year. I was wondering, Chad, can you talk a little bit about Manager on-the-Go? Is there any additional revenue per client that you're anticipating? Can you tell us a little bit more about what you're seeing in terms of your inside usage already over the last few months and how rapidly it's been adopted?
Sure. Like DDX and Ask Here, Manager on -the -Go is actually included in the client's current pricing. It's a usage product. Work doesn't stop when you're away from your desk, whether you're walking around in your building away from your desk or whether you're driving around or off location. Manager on -the -Go changes the way managers and decision-makers interact with our solutions. We actually believe it also broadens the number of users within our system because there are several people that could be included in the time and attendance timecard approval process or the time-off request process or the expense management approval process. They could be included, but for they do not have access to that type of technology where they're located. Maybe they aren't someone that works in an office. We believe it'll help broaden it.
We believe it will increase the data flow. We also believe that as people use Manager on-the-Go, like our own employees who have been using it internally, it will become the way that they use the system for those specific tasks. It's important to note, not everything we have is within Manager on-the-Go. It's task-oriented. There are some things that a client would still use desktop for, specifically configuration and some other things. We've had it internally for two months. We actually, Mark, released it to our clients Thursday night, this past Thursday night. I believe we're going to have a lot of success with that, not unlike what we've seen with our employee app.
That's great. Can you talk a little bit, a couple of financial questions. One, just on the cash flows, when we take a look at them, in terms of the year-over-year growth and cash flow from operations. Can you talk a little bit about some of the things that would hinder the growth? I imagine sales commissions were quite strong this last quarter.
Yeah. Mark, in terms of cash flows from operations with 606, we do have some deferred costs in there. The other things would just be normal cash flow items. Obviously, taxes, you can have some variability from quarter-to-quarter on your tax payments and when certain stock comp vests, you can get some benefits from that, which may lower your tax rate. Those were some of the puts and takes on the cash flow.
Our next question comes from Arvind Ramnani with KeyBanc. Please go ahead.
Hey, thanks for taking my question. Certainly, we have got a good understanding of DDX and the benefits it's brought. Besides DDX, when you think of the other products and features you have rolled out over the last year or two, which of those has seen the biggest impact on win rates, and which of the products have seen a highest client interest?
Yeah. I will tell you when it comes to DDX, it's hard for me to call it a product. It's almost the scorecard of our strategy or a health check. In order for someone to even see that DDX is valuable, they've had to buy off on the strategy, right? When we're talking about that, DDX, I think, helps people visualize and understand how they win with the strategy. If you're a company that has just even an average DDX score, and let's say of your changes last year, 350,000 were made directly by employees, and let's just say maybe only 100, or the client made 150,000 changes.
If you're able to take that into any other setting in retail where you have 150,000 people going to a counter and 350,000 people going direct, and you're able to move those other 150,000 to direct versus the counter, for an overall business, there's quite a bit of not only cost savings, but as well as efficiency. What the DDX does is it helps us drive that strategy home and becomes a proof source of what success looks like in that. I will say that, I think Paycom Learning became a lot stronger product last year. When you think about we are replacing mundane data input tasks with tasks that help drive further value for a business, learning has to be at the top of that list.
The fact that we've added a product to the Paycom Learning system, which allows employees to actually demonstrate proficiency in what they just learned, as well as many other features and enhancements that we've made to the system, we believe that's moving in the right direction as well.
Great. One feature, if you could comment on, is essentially on-demand pay. Is that a focus area for you, or is that something clients bring up?
Well, on occasion. I will say this: our software has a functionality to calculate net pay to date. We don't stop our clients from using third-party options, but we do want to make sure we have our bases covered. We're an HCM vendor. It's important that we help keep our clients compliant. There are daily pay rules per state, and there's deposit filing requirements and rules per state, as well as the Fed. We do continue to engage with the IRS, looking for a letter ruling on this specific thing of how companies should actually be handling it and not get in trouble from the tax. I just want to say, I don't see on-demand pay or daily pay or whatever it wants to be called, I don't really see this as a technological differentiator for anyone in our industry.
I think all systems can pretty much provide it. It's just a question of choice, not so much capability.
Our next question comes from Brian Schwartz with Oppenheimer. Please go ahead.
Hi. Thanks for taking my question today. Chad, maybe just looking out a little bit longer, just wondering if you feel like a 25% recurring revenue growth rate is something the business could sustain here as we look out over the next few years. It looks like you're guiding that with Q1, when you normalize the impact of the bank holiday. When I think about it, you gave us a lot of stats, but during the Q&A, you mentioned how the lead flow has really accelerated here, and you're continuing with the advertising spend throughout the year. I'm just wondering if, in terms of your pipeline, if you're actually seeing an acceleration in the pipeline as some of these initiatives are starting to bear out fruit for you. Thanks.
Yeah, certainly. If your leads go up 600%, it's going to impact your pipeline for sure, and that would be the case here at Paycom. We do continue to spend on the advertising provided that it works. I will tell you this. I would have a problem spending money. You can waste money in advertising. You can waste money in marketing. That's something we track week by week. Leads came in that converted to appointments, that convert to deals, and those are percentages that we track. The tip of that spear is the leads actually coming in, and they're good leads. We do continue to look to increase lead volume.
Thank you. Then the follow-up question that I had, Chad, was I noticed in your introductory comments you talked about looking back in 2019 could be I can't remember your language, but something a significant year in terms of improving the positioning for the business in the industry. I was just wondering with that comment, were you referring to all the new technology, product-related announcements that you had, or maybe the self-service messaging is resonating faster, or is anything happening out there with the competition or anything else in the industry that gave you the conviction here to make that comment about the improved positioning of the business? Thanks.
Sure. Well, I called 2019 our best year because all metrics were up. We've had years where we've had good growth, we've had years where we've had good adjusted EBITDA. When you're looking at what we're doing now, we're growing on a higher number. Retention's going up, which is actually harder on a higher number when it's revenue retention, when you're not getting 40% growth that we had three, four years ago. Retention's going up. Our own employee retention's going up. It's continued to march up. That's been good. Our clients are happier. Our clients are starting out the gate with higher usage scores. We have cleaner conversions because of that. We have more motivated clients to convert. Our lead volume's up. We're getting momentum.
All that's to say is, as I look back on 2019, and we shifted our entire strategy over the last three years. We introduced an app and then wanted people to actually use it, which changed the way people used this technology. It changed the way we service the technology, changed the way we sell the technology. We went through all of that with what I would say was without a blip. If you look at 2019, it's kind of how everything came together, if you will. As I looked at the metrics across the board at Paycom, all of them were good. That's why I called out 2019 as the best year we've had.
Our next question comes from Robert Simmons with RBC. Please go ahead.
Hi, thanks for taking the question. You touched on this a little bit, but can you go into what were the actual drivers of the net retention improving? Not necessarily the numbers, of course, but was it both gross churn improving and better upsell, or was there anything else going on there?
Yeah, I would say you always have the same components of retention, which would include your trailing 12 revenue, which would include business you bring on. It would include upsells, it would include all the rest of it. It's been very stagnant, if you will, at 91%, and then it jumped up 92% and jumped up 93%. What was different? What's different is the amount of usage we have in these systems. If you listen back to past quarters, you would hear me say things like, it costs the client the same whether they get all the value out of it or just a little bit of value out of it, and we're driving clients to get all the value out of it.
I believe as clients have gained more value, and some, all of the value, they're less likely to look, and they're less likely to be sold away from Paycom as they continue to get that value here, as well as we continue to create more value for them included in their current fee with many of the products that I've mentioned just last year with Ask Here, enhanced learning, as well as now, Manager on the -Go.
Got it. Given the more efficient support you're able to provide people now, given they're getting better usage, do you see upside to your gross margin either this year or potentially in the long run?
Yeah. We actually saw gross margin move up this year. We're extremely happy about that. As Chad mentioned, the more the clients use it, the easier it is to service a client. We did see the gross margin tick up this year.
Our next question comes from Daniel Jester with Citigroup. Please go ahead.
Yeah, thanks for taking my question. Just maybe a kind of a big thematic one. I know you're not going to give me sort of a product roadmap over the coming year. I think thematically, if you think about where you're investing R&D dollars, are there any kind of themes that strike that you can kind of help us think about how you're looking at the business for 2020? I know in the past, you've talked about worker productivity as a big theme. Is that still the idea or any shifts from that? Thanks.
Yeah, I want to make sure I understood the question. It sounds like you're asking about the product roadmap and what our focus are for this year. While we don't describe the very specific products that we're coming out with, I will say this: Paycom looks to develop products that drive not just usage, but value to the employer that is measurable. We continue to identify opportunities for that, which fit within the HCM realm, if you will. Manager on -the -Go is one way to get to some of that. I think as we move forward into this year, and especially as we look back and measure what happened, I believe to some extent, everybody that uses our system that is in the approval process flow, if you will be using Manager on -the -Go.
I don't think mobile usage is going to retreat anytime soon in our industry. Honestly, I think it's becoming more prevalent as your younger generation move into management roles.
Thank you.
Our next question comes from Ryan MacDonald with Needham & Company. Please go ahead.
Yes, thanks for taking my question. Chad, you mentioned that you expanded inside sales groups to two additional teams so far this year. How should we think about the additional rollout of teams moving forward? Is this something that we'd expect in terms of the pace of launches to be similar to what you did over the past few years with new office openings?
We continue to be focused on new office openings. I'm not going to call inside sales teams new office openings. They're inside sales teams, they are doing extremely well. We're going to continue to open up offices when it makes sense to us, which would include identifying opportunities throughout this year.
Got it. Just a quick follow-up. You mentioned that the CRR group is obviously responsible for upsells. Can you talk about the growth of that team and what it's been like in, say, over the past year? Perhaps thoughts on how that team is expected to grow in 2020 as well. Thanks.
Yeah, we haven't given any specifics out on the size of that team or exactly how much it grows, but I can say it keeps up with about the growth percentage of revenue. Those CRRs are going to be responsible for clients, a certain amount of clients that they will carry. Obviously, as your client count goes up, revenue goes up, you're going to have some of that. Now, while we'll say they're more focused on the client versus the size of the revenue of the client, they have certain duties that they do on a weekly basis that keeps them focused on a set number of clients. There is a correlation between number of clients we have and CRRs.
Yeah. Kind of a housekeeping item I wanted to mention as well, just our client count at the end of the year. Our client count at the end of the year was 26,527, and on a parent company group, it would be 13,581. We also stored data for over 4.9 million employees of our clients last year.
Our next question comes from Siti Panigrahi with Mizuho. Please go ahead.
Hey, thanks for taking my question. This is Michael on for Siti. I just wanted to ask on the sales efficiency piece of the equation, how can we think about, I guess, saturation in some of your markets? Obviously, you've been in some offices more than others. Is that a concern at some point, or would that lead to more sales office openings in the future? How can we think about that dynamic?
Well, I hope it becomes a concern at some point. I wouldn't say we're at that now. You can take any city, even the smallest ones we're in, that we've been in there for the longest period of time, and our calculation of our TAM is still there, a very small percent of the overall TAM that exists. We continue to have opportunities everywhere, and I don't see us running out of those opportunities at any given time. As you guys can see, there's all types of competition out there, and everybody and their dog wants to get into the next one. There's a lot of prospects out there, and we have a lot of opportunities. No, we're not running into any saturation.
A quick follow-up on that, is there any change in the competitive landscape? Obviously, you guys are seeing a nice uptick in your pipeline. Has your win rates changed dramatically in one direction or the other?
We don't discuss win rates except to say they've been very healthy, and we didn't wake up this year retreating back from the success we had last year. We're the same company. We're in a stronger position this year coming out of last year from product, staffing, and everything else. We're going to focus on what we have to do this year to end on a good note.
Again, if you'd like to ask a question, please press star, then one. At this time, there are no further questions. I would like to turn the conference back over to Chad Richison for any closing remarks.
All right. Well, I would like to thank everyone for joining us on the call today, and I'd like to send a special thank you out to all the Paycom employees for a great 2019 and a strong start to 2020. Over the next couple of months, we'll be on the road meeting with investors. Craig and James will be hosting investor meetings in San Francisco at the Morgan Stanley conference on March 3rd and at the KeyBanc conference on March 4th. We appreciate your continued interest in Paycom and look forward to meeting with many of you soon. Thank you, operator. You may disconnect.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.