Earnings Call: Q4 2019

Feb 5, 2020

Good day, and welcome to the Paycom Software 4th Quarter 2019 Quarterly Results Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask Please note this event is being recorded. I would now like to turn the call over to James Sanford. Please go ahead. Thank you, and welcome to Paycom's Q4 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 ks 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. Also 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 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 Q4 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 continue to benefit from our differentiated employee strategy and measurement capabilities along with our comprehensive product offering. We continue 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 helped Paycom change the way people use technology in our industry. We finished the year with very impressive results. Our 2019 Q4 revenue exceeded $193,000,000 and represented growth of nearly 29 percent over the comparable prior year period. Our full year 2019 revenue of $738,000,000 grew 30 compared to 2018. Our full year 2019 adjusted EBITDA was $318,000,000 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 and 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 lifecycle. 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 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 and 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 2nd consecutive year of improvement after remaining steady at 91% for the prior 6 years. In addition to the DDX, in 2019, we rolled out over 1500 software enhancements including several important product launches such as AskEAR, 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 2 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 20 fourseven 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 2 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 31, 2019, our headcount stood at 3,765 employees as we continue 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 Q4, we earned 2 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 in Oklahoma. 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 Q4 and full year results for 2019 and also our outlook for the Q1 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 4th quarter results with total revenues of $193,400,000 representing growth of roughly 29% over the comparable prior year period. Our full year 2019 revenue was $737,700,000 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 190,200,000 dollars for the Q4 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 Q4 was $165,000,000 representing an adjusted gross margin of 85.3 percent, 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 20 20, our target adjusted gross margin range is expected to remain strong at 85% to 86%. Adjusted total administrative expenses were $98,600,000 for the Q4 as compared to $78,300,000 in the Q4 of 2018. Adjusted sales and marketing expense for the Q4 of 2019 was $48,500,000 or 25 0.1 percent 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 and D expense was $17,900,000 in the Q4 of 2019 or 9.3 percent of total revenues. Adjusted total R and D costs, including the capitalized portion, were $25,100,000 in the Q4 of 2019 compared to $17,700,000 in the prior year period. Adjusted total R and D costs for the full year 2019, including the capitalized portion, were $93,300,000 or 12.6 percent of total revenues compared to $61,500,000 or 10.9 percent of total revenues in the prior year. We continue to attract great talent in R and D, and we plan to continue to invest in our future growth through innovation and new product development. Adjusted EBITDA was $78,600,000 in the Q4 of 2019 or 40.6 percent of total revenues compared to $57,500,000 in the Q4 of 2018 or 38.2 percent of total revenues. For the full year 2019, adjusted EBITDA was $317,900,000 or 43.1 percent of total revenues compared to $240,900,000 or 42.5 percent of total revenues in 2018. Our GAAP net income for the Q4 was $45,400,000 or $0.78 per diluted share based on approximately 58,000,000 shares versus $31,400,000 or $0.54 per diluted share based on approximately 58,000,000 shares in the prior year period. Our effective income tax rate for the Q4 of 2019 was 25.8 percent. For the full year 2019, our GAAP net income was 180 point $6,000,000 or $3.09 per diluted share. Non GAAP net income for the Q4 of 20 19 was $50,500,000 or $0.86 per diluted share based on approximately 58,000,000 shares versus $35,400,000 or $0.61 per diluted share based on approximately 58,000,000 shares in the prior year period. We expect non cash stock based compensation for the Q1 of 2020 to be approximately $17,000,000 For the full year, we anticipate non cash stock based compensation will be approximately $78,000,000 For 2020, we anticipate our full year effective income tax rate to be 23 percent to 25% on a GAAP basis. On a non GAAP basis, we anticipate our full year effective income tax rate to be 20 6% to 27%. We anticipate fully diluted shares outstanding will be approximately 58,000,000 shares in the Q1 of 2020. Turning to the balance sheet. We ended the year with cash and cash equivalents of $134,000,000 and total debt of $33,000,000 As a reminder, this debt represents a financing of construction at our corporate headquarters. Cash from operations was $47,800,000 for the 4th 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 Q1 2020 guidance is as follows. For fiscal year 2020, we expect revenue in the range of $911,000,000 to $913,000,000 or approximately 24% year over year growth at the midpoint of the range. We expect adjusted EBITDA in the range of $384,000,000 to $386,000,000 representing an adjusted EBITDA margin of approximately 42% at the midpoint of the range. For the Q1 of 2020, we expect total revenues in the range of 240,000,000 to $242,000,000 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 Q1 in the range of $113,000,000 to $115,000,000 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 1, 2020 fell on a Wednesday, there is a unique calendar anomaly this year that we will again experience in 5 years. In 2020, there are only 12 Banking Wednesdays in the Q1 instead of the usual 13. And in the Q3, there are 14 banking Wednesdays instead of the usual 13. So 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 $8,000,000 each. In the 3rd quarter, we regained an additional half week of existing recurring revenue and adjusted 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? Our first question comes from Raimo Lenschow with Barclays. Please go ahead. Hey, thanks for taking my question and congrats on a great finish to the year. Two questions. First, Chad, your customer retention improved again this year. And I mean, 93% is almost enterprise type level. Can you talk a little bit to the drivers to that? Because your customer base is more kind of mid market, but 93% is kind of really best in class. And how do you get there and kind of can that go even higher potentially? And then you kind of need to explain that Wednesday kind of think 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. So I'll start off first with the retention. About 3 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. And so 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. And then in 2019, as we released the direct debt exchange, it actually helped our clients help us manage that process and put that score out there for them. And they've embraced it and we've got 2 types of clients. I mean, we do have those clients that have really embraced it. And we have those clients that are trying to, if you will. And so but for everybody, it really does show the amount of the types of efficiencies that can be gained when those employees have a direct relationship with the database. And so that as well as we've continued to enhance our products. I mean, I look at how much we enhanced our learning management product, included it in the price And then we've also done that with AskEAR. And then once again with Manager on the Go, which I believe is the most significant product we've released since our app. And so I think we've done well on retention. Your question of can it continue to go higher? Obviously, we do have some clients that might maybe bought, sold, merged or out of business. It's harder to keep those, but 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. Yes. So 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. So we do it 48 hours before payday. So anyone getting paid weekly or biweekly on that week, it impacts them. So what we saw is that Q1, there's 12,000,000 as opposed to 13,000,000 and then we make that up in 3rd quarter. So that $8,000,000 really shifts from Q1 to Q3. And Raimo, I'll add one thing to that. It's important to remember this 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. Yes. It's just the way it flows basically. Yes. Okay. Makes sense. Okay. Thank you. Congratulations. Thank you. Our next question comes from Mark Murphy with JPMorgan. 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 on if you 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 ks employee range? And how do you feel about the pipeline going forward? No, it was about 3 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. So we kind of we were kind of sharing too much information. So we did continue to have wins throughout 4th quarter as we did every quarter last year at the top end of our range. And it was a strong quarter. I mean, to be able to finish the year, 1st have a strong quarter, but also be able to finish the year to 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. And so to be able to finish at that level, we were happy with that. So our leads continue to be strong. I will share this with you. Our leads in the Q1, just for the 1st month of January, already up 600%. And so 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 2 teams and so there's 4 there now. As you guys may have remembered last quarter, I did talk about how we had 5 inside salespeople. We turned that into 2 teams last year. That would be 2 teams of 8, so 16 salespeople and 2 managers. This year, the month of January, we had to add 2 more teams to clear the lead volume that's coming in because it did increase. And so now we have 32 salespeople inside sales and 4 teams. And so it's not shifting our model and our focus. I mean we're driving it to 50,000 to 5 1,000 market. We continue to do that. But we're also continuing to have increased lead volume. And so we remain focused on generating more leads this year as well. That's great. And 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? Yes. So if you remember, there were 3 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 Bhavan on for Brad. Congrats on a great quarter and 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? And then where should we think about those investments and where they're going? Yes. And so 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. And so I would say and I will say this is that all of the advertising and marketing spend that we have planned this year is currently baked in to that guide we delivered. And so 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. And then 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? Yes, I mean the sales people 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 $1,000,000 I mean, we've got reps up at $1,000,000 We've got some reps at $2,000,000 I won't have those final numbers. The sales years run for sales rep quota runs February through the end of January. So they actually end on their largest month. And so we'll have those commissions about February 15th and we'll be able to talk more about that. But 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 revenue actually started business. And so 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. 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 installed base? Yes, good question. That's actually net new customers, new logos. Those reps do not upsell to current clients. And what are you doing on that front? So we have a different group that does that Brad and that's our CRR group and that group continues to go out and meet with clients and when it makes sense be able to sell them additional products and that group also helps our products. That was one of the groups that really helped drive retention. I mean, I should go and call them out 2 years ago. They actually went back into the client base and made sure everybody was set up for good usage. And they were actually working with the clients showing them the internal DDX score before we developed it. And so that group continues to work with clients as well as upsell them when the opportunity arises. Great. Thanks very much. Our next question comes from Mark Marcon with Baird. Please go ahead. Good afternoon and thanks for taking my questions and congratulations on a great year. I was wondering, can you Chad, can you talk a little bit about Manager on the Go? Like how is there any additional revenue per client that you're anticipating? And 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. And so 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 and you're building away from your desk or whether you're driving around or off location. And so 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. So we believe it will help broaden it. We believe it will increase the data flow. And 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 that a client would still use desktop that a client would still use desktop for specifically configuration and some other things. And so we've had it internally for 2 months. We actually, Mark, released it to our clients Thursday night, this past Thursday night. And so 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. And can you talk a little bit a couple of financial questions. Just on the cash flows, when we take a look at them in terms of the year over year growth in 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. Yes. I mean, so Mark, in terms of cash flows from operations, with 606, we do have some deferred costs in there. But and the other things would just kind of 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 vest, you can get some benefits from that, which may lower your tax rate. So those were kind of some of the puts and takes on the cash flow. Our next question comes from Arvindra Ramani with KeyBanc. Please go ahead. Hey, thanks for taking my question. Certainly, we've got a good understanding of DDX and kind of the benefits it's broad. But besides DDX, when you think of the other products and features you have rolled out over the last year or 2, which of those has seen sort of the biggest impact on win rates and which has which of the products have seen sort of a highest client interest? Yes. 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 health check. And so in order for someone to even see the DDX is valuable, they've had to buy off on the strategy, right? And so when we're talking about that, DDX, I think helps people visualize and understand how they win with the strategy. I mean, if you're a company that has a 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 3 50,000 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. And so 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 learning management 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. And the fact that we've added a product to the learning management 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 that's moving in the right direction well. Great. And one feature if you could comment on is essentially on demand pay. Is that a focus area for you? Is that something clients bring up? Well, on occasion, I mean, I will say this, our software has a functionality to calculate net pay to date. And we don't stop our clients from using third party options. But we do want to make sure we have our basis covered. I mean, we're an HCM vendor. It's important that we 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. And so we do continue to engage with the IRS looking for a letter ruling on this specific thing of how companies can should actually be handling it and not get in trouble from the tax. But 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. Yes. 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 kind of look out over the next few years. It looks like you're guiding that with Q1 when you kind of normalize the impact of the bank holiday. And when I think about it, you gave us a lot of stats, but during the Q and A, you mentioned how the lead flow has really accelerated here and you're continuing with the advertising spend throughout the year. So 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. Yes, certainly. I mean, 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 mean, I will tell you this, I would have a problem spending money. You can waste money in advertising. You can waste money in marketing. And so 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. And at the tip of that spear is the leads actually coming in and they're good leads. And so we do continue to look to increase lead volume. Thank you. And 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 significant year in terms of improving the positioning for the business in the industry. And 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. I mean, we've had years where we've had good growth. We've had years where we've had good adjusted EBITDA. But when you're looking at what we're doing now, we're growing on a higher number, retention is going up, which is actually harder on a higher number when it's revenue retention, when you're not getting 40 percent growth that we had 3, 4 years ago. And so retention is going up, our own employee retention is 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 is up. We're getting momentum. And so all that's to say is, as I look back on 2019, and we shifted our entire strategy over the last 3 years. I mean, we introduced an app and then wanted people to actually use it, which changed the way people use this technology. It changed the way we service the technology, changed the way we sell the technology. And so we went through all of that with what I would say was without a blip. And if you look at 2019, it's kind of how everything came together, if you will. And as I looked at the metrics across the board at Paycom, all of them were good. And so 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. So you've 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? Yes. I mean, 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. However, it's been very stagnant, if you will, at 91% and then it jumped up 92% and jumped up 93%. So what was different? What's different is the amount of usage we have in these systems. If you look back, 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 are 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 are 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 AskEAR enhanced learning as well as now Manager on the Go. Got it. And then given the more efficient support you're able to provide people now given that they're getting better usage, do you see upside to your gross margin either this year or potentially in the long run? Yes. I mean, we actually saw gross margin move up this year. So we're extremely happy about that. And as Chad mentioned, the more the clients use it, the easier it is to service the client. So we see the gross margin tick up this year. Our next question comes from Daniel Jester with Citigroup. Please go ahead. Thanks for taking my question. Just maybe a kind of a big somatic one. I know you're not going to give me sort of a product roadmap over the coming year. But I think thematically, if you think about where you're investing R and D dollars, are there any kind of scenes 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. Yes. 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, AECOM 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 mean, I believe to some extent everybody that uses our system that isn't in the approval process flow, if you will, will be using Manager on the go. And so I don't think mobile usage is going to retreat anytime soon in our industry. And 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 and Company. Please go ahead. Yes. Thanks for taking my question. Chad, you mentioned that you expanded inside sales groups to 2 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 or inside sales teams, but they are doing extremely well. So 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. And then just a quick follow-up. You mentioned that the CRR group is responsible for upsells. Can you talk about the growth of that team and what it's been like say over the past year and perhaps thoughts on how that team is expected to grow in 2020 as well? Thanks. Yes. 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. You have those CRRs are going to be responsible for clients, a certain amount of clients that they will carry. So 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. And so they have certain duties they do on a weekly basis that keeps them focused on a set number of clients. And so there is a correlation between number of clients we have and CRRs. Yes. And 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. And we also stored data for over 4 point 9,000,000 employees of our clients last year. Our next question comes from Citi Panagrahia with Mizuho. Please go ahead. Hey, thanks for taking my question. This is Michael on for Citi. 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 marketing? Obviously, you've been in some offices more than others. But is that a concern at some point? Or would that lead to more sales office openings down 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. I mean, 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. And so 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. And so there's a lot of prospects out there and we have a lot of opportunity. So now we're not running into any saturation. And then 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 where we the success we had last year. So we're the same company. In a stronger position this year coming out of last year from product, staffing and everything else. And so we're going to focus on what we have to do this year to end on a good note. 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 3 and at the KeyBanc Conference on March 4. 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 has now concluded. Thank you for attending today's presentation. You may now disconnect.