Earnings Call: Q1 2020

Oct 30, 2019

Ladies and gentlemen, thank you for standing by, and welcome to the Paylocity First Quarter Fiscal Year 2020 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to Ryan Glenn, Vice President of FP and A and Investor Relations. Good afternoon, and welcome to Paylocity's earnings results call for the Q1 of fiscal 2020, which ended on September 30, 2019. I'm Ryan Glenn, Vice President of FP and A and Investor Relations. And joining me on the call today is Steve Beauchamp, CEO of Paylocity and Toby Williams, CFO of Paylocity. Today, we will be discussing the results announced in our press release issued after the market closed. A webcast replay of this call will be available for the next 45 days on our website under the Investor Relations tab. Before beginning, we must caution you that today's remarks, including statements made during the question and answer session, contain forward looking statements. These statements are subject to numerous important factors, risks and uncertainties, which could cause actual results to differ from those results implied by these or other forward looking statements. Also, these statements are based solely on the present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in the forward looking statements. For additional information, please refer to our filings with the Securities and Exchange Commission for the risk factors contained therein and other disclosures. We do not undertake any duty to update any forward looking statements. Also during the course of today's call, we will refer to certain non GAAP financial measures. We believe that non GAAP measures are more representative of how we internally measure the business and there is a reconciliation schedule detailing these results currently available in our press release, which is located on our website at paylocity.com under the Investor Relations tab and filed with the Securities and Exchange Commission. Please note that we are unable to reconcile any forward looking non GAAP financial measure to the directly comparable GAAP financial measure because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort. In regards to our upcoming conference schedule, Toby and I will be attending the Stifel 2019 Midwest 1 on 1 Growth Conference in Chicago on November 7 and the RBC TIMT Conference in New York on November 19. Please let me know if you would like to schedule time with us at either of these events. With that, let me turn the call over to Steve. Thank you, Ryan, and thanks to all of you for joining us on our Q1 fiscal 2020 earnings call. We are off to a nice start in fiscal 2020 with 1st quarter total revenue of $126,700,000 an increase of 26.1% versus the same quarter last fiscal year, marking our 11th straight quarter with total revenue growth in the mid-20s. Recurring and other revenue grew by 25.7 percent driven by new client additions and an increase in average revenue per as we continue to see positive momentum with our newest product offerings. Channel referrals primarily from benefit brokers and financial advisors once again represented more than 25% of new business for the Q1. We have continued investing in our broker and financial advisor partnerships, while also investing in channels more broadly, including recently announced partnerships with Compete, a leading provider of restaurant software and evo share, a microsavings technology company. Adjusted EBITDA for the Q1 was $30,500,000 or 24.1 percent margin, which exceeded the midpoint of our guidance by $1,900,000 and represented a 100 basis point improvement from the same quarter last year. We remain focused on incremental investments in research and development and sales and marketing initiatives in fiscal 2020, while also continuing to drive operational leverage in the business as we work towards our revised adjusted EBITDA margin target of 30% to 35% of revenue. Last week, we held our annual Elevate client conference, where we hosted a record number of attendees. Clients and prospects were able to choose from over 100 breakout sessions focused on the needs of the modern workforce, including employee collaboration and communication, workforce learning and other trends in the HCM industry. Additionally, our product and technology teams were on-site in our connection zone to introduce clients to the latest features of our product suite and to provide product demonstrations. A key theme at the conference was our commitment to providing innovative software that appeals to the modern workforce. Changing employee needs are driving HR professionals to transform the way they use technology to recruit, retain and engage employees. Employees increasingly expect the technology they use at work to mirror the platforms they use every day. To that end, I'm pleased to announce the release of Community, an employee focused social communication platform designed for clients to increase employee connection, engagement and productivity. It enables HR professionals and employees to share the most meaningful, timely and relevant content with coworkers in a way that today's modern workforce expects. Early feedback has been outstanding. Clients have utilized community as a platform for company wide communication and collaboration to help build a better company culture, and they have leveraged insights provided around employee engagement and attitudes. Our clients have also received positive feedback from their employees who use community as a way to collaborate on projects, connect with other employees with common interest and drive broad based participation in key strategic initiatives. Our commitment to product development continues to pay dividends in the marketplace with our product suite being a key differentiator versus our competition. I would now like to pass the call to Toby to review the quarter's results in detail and provide updated guidance. Thanks, Steve. Total revenue for Q1 was $126,700,000 an increase of 26.1 percent with recurring and other revenues up 25.7% from the same period last year. As Steve noted, we continue to be pleased by the consistency we're seeing in our business with Q1 marking our 11th straight quarter of total revenue growth in the mid-20s. Our adjusted gross profit was 71.2 percent for Q1, an increase of 120 basis points from the same period in the prior year as we continue to focus on consistent revenue growth while also driving scale in our business model. We continue to make significant investments in research and development. And to understand our overall investment in R and D, it is important to combine both what we expense and what we capitalize. On a combined non GAAP basis, total R and D investments were 15.2 percent of revenue in Q1. And on a dollar basis, our year over year investment in total R and D increased by 31%. On a non GAAP basis, sales and marketing expenses were 25.7 percent of revenue in Q1 as we remain focused on incremental investments in this area of our business in fiscal 2020. On a non GAAP basis, G and A costs were 15.1% of revenue in Q1 versus 16.6% in Q1 of last fiscal year, and we remain focused on consistent leverage in our G and A expenses on an annual basis. Our adjusted EBITDA was 30,500,000 or 24.1 percent of revenue for the quarter, which exceeded our guidance by $1,900,000 at the midpoint and represented an increase of 100 basis points from the same period in the prior year. Covering our GAAP results. For the quarter, gross profit was $84,100,000 operating income was $6,000,000 and net income was 13,900,000 dollars In regard to the balance sheet, we ended the quarter with cash, cash equivalents and invested corporate cash of $131,100,000 and we generated $8,300,000 in cash from operating activities in Q1 as compared to $7,300,000 for the same period last year. Finally, I'd like to provide our financial guidance for Q2 and updated guidance for fiscal 2020. For the Q2 of fiscal 2020, total revenue is expected to be in the range of $129,500,000 to $130,500,000 or approximately 21% to 22% growth over Q2 fiscal 2019 total revenue. And adjusted EBITDA is expected to be in the range of $30,000,000 to $31,000,000 And for fiscal 2020, total revenue is expected to be in the range of $567,000,000 to $569,000,000 or approximately 22% growth over fiscal 2019 total revenue. And adjusted EBITDA is expected to be in the range of $163,500,000 to $165,500,000 In conclusion, we are pleased with our Q1 results, including the mid-20s revenue growth we've generated over the last 11 quarters, our ability to continuously demonstrate scale in our business and the progress we're making towards our long term financial targets. Operator, we're now ready for questions. Thank you. And our first question comes from the line of Pat Walravens with JMP Securities. Hey, team. How are you doing? This is Joey on for Pat. Thank you for taking our questions. So our first question was we are wondering what does adoption typically look like for new clients? Do they usually buy multiple products or start with 1 and add more later on? Sure. So I think that continues to evolve over time as we've expanded our product portfolio. As you know, all of our clients definitely start with payroll, very typical that they also buy HR as a component of that. And then I think probably some of the more popular modules after that at the point of purchase would be time and labor, benefits, recruiting, onboarding. But we continue to see good traction in terms of being able to increase adoption across all of our modules for our new customers. Awesome. And then just on On Demand Pay, how's the feedback been for that in particular? And then what does the adoption look like? Thank you. Sure. So we're very early in our release of on demand pay. So we have that available to a number of customers, and they are actively using it, and we have employees that are requesting their pay in advance. We also have a number of customers that maybe are a little bit slow to adopt and are a little bit more reserved around that new feature. We think that it's a great benefit to employees. We're excited about the offering, and we think being one of the first to market with that new offering certainly helps from a differentiation perspective. Thank you. Thank you. Our next question comes from the line of Brad Ryback with Stifel. Great. Thanks very much. Steve, with another quarter under your belt as it relates to the down market efforts, are the economics continuing to prove out as you expected? Yes. I think we were really excited with our unit growth last fiscal year, kind of topping 20%. And I think as we move into this fiscal year, we're seeing traction in that under 50 employee market. They continue to look at products onboarding in many of our talent management products has actually been a differentiator of their ability to attract and retain talent. We're also seeing some of those smaller clients adopt their new product like Community as a great communication portal for them. So I think we continue to make progress there and we continue to gain traction that we really started building last fiscal year into that segment. Great. And one quick follow-up. On the partnership side, as it relates to the channel, these new investments that you're making or these new focuses, is that to sustain 25% of your leads from the channel or does that over time have the ability to grow that to north of 25? Thanks. Yes, it's a good question. Most of our partner revenue today comes from brokers and financial advisors with health insurance brokers being the biggest component and that we wouldn't anticipate necessarily changing. We're starting to formalize some of those relationships, do some co marketing with some of our partners. And as you can see, we're starting to extend the concept of partners to other potential partners. So Compete being a software provider in the marketplace, evo shares being an add on product for financial advisors. So we think that, it can help us both maintain that 25% plus as we continue to be able to grow and potentially open new channels that could be interesting for us. Great. Thanks very much. Thank you. And our next question comes from the line of Brian Peterson with Raymond James. Great. Thanks. This is Alex Sklar on for Brian. So there was a lot of discussion about the adoption toolkits at the user conference and I'll maybe lump in the community portal here as well. But could you just talk about if you see these products as being just valuable to kind of improving usage and thus retention? Or do they fit into kind of the broader efforts to sell back into the installed base over the next few years? Yes. So I think it definitely fits into our effort to sell back to the installed base and of course get broader usage at the point of purchase. So if you think of the challenge a lot of the HR departments have, it's products like surveys, learning management, some of our journal capability and performance management, impressions and community is really employees interacting with other employees. And many times, the HR department doesn't know how to roll that out. How do I introduce it? What are the types of things that I'm going to be able to survey? How do I teach managers how to write great journals? And so this idea of incorporating best practices into our product is one that we're really wrapping up into these adoption toolkit. So if I were a customer and I wanted to turn on a product like community or surveys, I'm actually going to be able to go into an adoption toolkit that will give you, here's the email you can send out to your employees. Here's how other clients are using this and gaining traction with it. Here's use cases that you can use. You could survey the entire organization. So we're building in this concept of best practices. We're doing the same thing in learning management. And we're finding that it's giving customers ideas on how they can really take these kind of powerful capabilities and use them on an everyday basis. And then what we're seeing is the clients that are doing that are getting much more employee usage. And so we definitely think this is the right strategy to drive utilization and we're excited about the early reports from our clients. Okay, great. And then maybe one here for Toby. Last quarter, you talked about already being at your target sales rep count at the start of the year. I'm wondering if you could talk about if we should see scale to that line item over the course of the year? Or should we expect you to move back to a more regular hiring cadence? Well, I think what we had said before was that we were pleased with our ability to come into the year fully staffed. And I think we had come into the prior year fully staffed as well. And I think what we said was we were happy that, that was a little bit earlier than prior year. And I think we would say that was days weeks, not months quarters. But I think we feel pretty good about where we came into the year, the ability to be fully staffed a little bit earlier. And I think as you can see by the results for the quarter, I think it reflects the sales momentum that we have. And so I think we feel pretty good as we're kicking off the year. All right, great. Thank you. Thank you. And our next question comes from the line of Samad Samana with Jefferies. Hi, good afternoon and thanks for taking my questions. I guess first maybe on the channel partner side, are there any noticeable differences in either retention rates or unit economics for customers that come to the partner channel versus direct deals? And then I have a follow-up. Sure. So as a reminder, it's our sales force that's creating these relationships with the channel partners and the individual brokers. So the relationships are often less at the firm level, but at that individual broker level. And so, one of the biggest benefits that we get is those individual brokers have relationships with the HR department and the decision makers at the client. And therefore, when they bring us in as a trusted partner, we have a much higher close ratio for those. So it's a very efficient channel from a sales and marketing perspective. And then on an ongoing basis, that broker, if they're talking to the customer or they're running into questions or they're finding that there's something that we need to be aware of, they do keep us kind of in the loop. I wouldn't say that, that necessarily translates to anything measurable from a retention. We've got pretty consistent retention across the board. I'd say the primary benefit though is definitely the close rate on the front end. Okay, great. And then coming out of the conference and thinking about the PEPI, I think you guys you've gotten to 400, you've set a new target range of getting to 500. I'm curious what you think that 500 represents of maybe what the total spend per employee is on HR technology and what the cap above that 500 or is 500 kind of the cap on where you can get to over time? Yes, I think that has evolved over time. I think if you look at product portfolios in our industry as a whole, they have expanded and I think people are buying more products. And some of these products, we might not have been able to completely imagine in years prior. So the fact that we're able to sell a survey product today, something very different than several years ago. The fact that we've launched community as a product that's creating collaboration in a way we wouldn't have anticipated. So I think our viewpoint is 500 is a great next target for us, and we have initiatives that we are working on towards getting there. But by no means do we think that, that's where we have to stop. We don't know exactly if there is a cap and where that is, but we're really convinced that if we continue to innovate, we listen to what our customers are asking for, that there's plenty of opportunity for new products. Great. And then Toby, one, if I could just ask you, I'd be remiss not to. We had a 25 bps rate cut announced. Any I'm assuming that's factored into guidance for both next quarter and updated for the full year or just any thoughts around that, that would be helpful. Yes. I mean, I think the short answer, Samad, is that yes, it is. I mean, we had anticipated that, that would come through and that's fully incorporated into the guide. Okay, great. But just wanted that clarification. Thanks again, guys. Congrats on the quarter. Thank you. And our next question comes from the line of Matt Pfau with William Blair. Hey guys, thanks for taking my question. Wanted to ask on the sub-fifty employee market. What are you seeing there in terms of competition? Is that market more competitive than the above-fifty employee 50 employee market? Because there's certainly probably a different set of competitors that you run-in there versus the above 50 market? Sure. Yes. I think ADP and Paychex are the biggest in the space. They're the ones that we would certainly run into the most, even more so in that below 50 space than maybe as you creep up towards the 1,000 employee market, which sometimes drag some of the more enterprise oriented focused players. But you also see a bunch of smaller independent payroll providers. There's hundreds of those across the country. And so I think it's a combination of ADP, Paychex and then some of the smaller independents that we see primarily below 50 employees. Got it. And in terms of the new products that you're seeing the most traction with, anything you would call out there? I assume that some of the ones you're referencing was LMS and TPA, but anything to call out? Yes. I think we just launched LMS this summer, so it's still relatively new. I think we're getting really good traction during our selling season in terms of the reports back from the sales force. I think people definitely are buying into the idea of sharing learning across the organization as being a challenge they're running into. So we've been really happy with that as a new product. Community, we just launched formally at our user conference. We definitely had a bunch of early adopters prior to that. And we're seeing a growing number of use cases with that product. And then we have, I think, a lot of ideas in terms of me able to enhance that on a go forward basis. So those would be the 2 I'd call out. Great. That's it for me, guys. Thanks a lot. Thank you. Thank you. And our next question comes from the line of Mark Marcon with Baird. Good afternoon and thanks for taking my question. Just wondering with regards to the sub-twenty employee market, can you give us any updated thoughts with regards to the approaches to that channel and what the expectation should be over the course of this year? I think if you look at last year where we grew units in that 20% range, we definitely had a bigger contribution of the under 50 and even some of that, as you indicate, Mark, under 20 employees. So we're probably going to be a little bit more focused on that 10 to 20 employee range than maybe the sub-ten employees. At this point in time, sometimes our core sales force sells those accounts, sometimes it's the newer emerging market team that sells those accounts. And I think we also indicated it does take a while to build the channels, CPA being the primary channel in that market. So I think we're early in continuing to build out more success. What we really like is the product resonates well with that marketplace. We understand how to build channels. We've done it really well in majors. And so I think as we look past this Q1, it's continued progress. Great. And then with regards to channels, can you talk a little bit about the size of compete and EVO? Yes. I think the reason that we wanted to make sure that we called that out is really the concept here is you'll probably see us expand what was channels in the past. We were very squarely focused on financial advisors and brokers, health insurance brokers. And one of the things is we're looking at other products they might interact with that could be potential partners. That's the Evo share example from a financial advisor. They brought us into that relationship. And then we're also looking at potential software providers in different space. So you've got a vertical market restaurant focused software provider that was looking for a partner, and we thought that was going to be a great fit. And so we'll entertain options like that on a go forward basis. I don't think I would call out any of those individually as being material. We think they're great relationships. We're happy to have them. But I think you'll see us continue to be able to expand the idea behind channels to go a little bit beyond financial advisors and brokers, and that was one of the reasons we called it out. Great. And then last one, just in terms of what's embedded in the guidance. Obviously, we saw the rate cut today. If we take a look at the interest income on the float, a little bit of a change relative to the pace that we've been seeing. How should we think about that playing out over the course of the year, anticipating that from here on out there's going to be limited changes? Yes. Hey, Mark, it's Toby. I mean, I think I said a few minutes ago that we had incorporated that rate cut that we saw today into the guidance, and that's definitely true. I mean, we saw the Fed quotes, and it looked like maybe there's a pause. We'll obviously see how that plays out over the course of the fiscal year. But I think we feel good about the ability. If you go back to how we guided for the year initially, we had said we'd baked in 2 rate cuts, which we saw. We have now with the updated guidance, which we've raised on both revenue and EBITDA for the year, baked in the 3rd rate cut, I think we feel generally pretty good about the ability to not just set what we thought was a pretty nice guide for the year initially that incorporated the rate cuts, but to take that up after the quarter, baking in the 3rd. And so I think, again, feel good about the momentum and the consistency that we're seeing. That's great. Thank you. Yes. Thank you. And our next question comes from the line of Siti Tanagrahi with Mizuho. Your line is now open. Hi, thanks for taking my question. Steve, now since Q1 is now behind and post year user conference, I just wanted to get a sense of your confidence level this year versus last year in terms of customer demand or your product positioning or any competitive landscape? And also, where do you see most of the opportunity in terms of like customer segment, whether in a down market or you're in a sweet spot? And is there any particular product that you think would drive incremental growth opportunity? Yes. So obviously, we've been growing kind of in that mid-20s rate for a long time now. And we were really happy with the Q1 in terms of the performance from our sales team. That really drove our ability to increase revenue guidance for the year and drove the beat in the quarter. So a really strong performance from our sales organization. So that's always great in a recurring revenue business to get off to a great start. That's really positive. I think on the product side, equally excited about some of the newer offerings. I think they are creating some differentiation, which is also helping our sales force win business. And the strength is coming across our size segment. So we're doing well in the under-fifty marketplace, but we're really doing well in our core market and at the upper end of our target market. And so that's probably the most positive thing to take out of the Q1 as we're seeing strength across the board. And when you think about getting new logos versus cross sell opportunity to your installed base, what's the percentage right now? And do you think now that you have enough product sets now to go back and cross sell to your installed base? Sure. I mean, I still think with the size of this market, 20,000 plus customers in a market of 600,000 more than 600,000 businesses, we think there's still a huge opportunity to land new customers. And that will be our primary goal, as we move forward. At the same time, as we land those new customers, we are selling them more product. And so that's certainly helpful. And then secondly, we will continue to gradually expand our efforts on selling products back to the client base. So we have an inside sales team. They are selling products back to the client base currently. A lot of times at our user conference, clients that have been with us a while don't know that we've had these products over the last several years. So we think it's a great opportunity. And so we'll continue to focus on selling back to the client base. But what I would tell you is you're still going to see us focus on unit growth and bringing new clients to the platform 1st and foremost and then think about the growth of sales back to the client base, maybe being faster than our revenue growth, but not being the primary driver. I appreciate the color. Thank you. Thank you. Our next question comes from the line of Drew Koopman with Cantor Fitzgerald. Hi, thanks for taking my question. Just curious tagging on that, you mentioned you're seeing strength in the upper end of your market. Maybe you could dive in a little more into that group? Yes. So yes, as you know, we focus on 20 employees to 1,000 employees. And there's times where we even bring on customers above that 1,000 employees if they if we feel like they're going to be a fit and they We've got a lot of confidence with those folks. I think when you look at some of our product initiatives, that has certainly helped us upmarket. Having learning management, having community, having products like that, I think, have really filled out the product portfolio. Obviously, if you look over the last 3 or 4 years, we've added compensation management, we've added management, we've added recruiting, we've added expense management. So we feel like we've got a really strong portfolio for the upper end of our market, even stronger than 2 or 3 years ago. And so I think just the combination of having really experienced sales reps and a broader breadth in our product portfolio is what's driven the success upmarket. Great. And then now that you do have community driving engagement and that's more of the focus, maybe you could touch on as much as you're willing to say some of the new releases that you expect in the pipeline moving forward. Yes. So I think the way we like to talk about the releases is we get them in early adopter with our customers. We learn. We really believe strongly in client as a co creator. We learn what they use, what changes they'd like to have to the product and what features we need to add. And then you see us kind of announce that once we kind of launch it. And so we don't typically kind of preannounce. What I would tell you though is I think for Community as an example, we've got a long list of features that we think we can add to that product to make that even more robust. We also think that there is a possibility at some point in time there might be a monetized premium version of that with some feature sets that are being asked. So that would be an example of something that we'll continue to look at from a road map perspective. But right now, it's a free offering. We're driving utilization, and we're focused on adding features based off client feedback. Perfect. Thank you. Thank you. Our next question comes from the line of Daniel Jester with Citi. Hey, good afternoon, everyone. Thanks for taking my question. So just maybe to tie off that last one, you just had your user conference, spent a lot of time with clients. What are the 1 or 2 thematic things they're most focused on for the next year ahead? Yes. I think thematically, if you take a step back, one of the challenges I think that they have is really to be able to attract entering the workforce or millennials getting in decision making, entering the workforce or millennials getting in decision making positions or the remote nature of the workforce, the gig economy and people moving from one job to the next, a lot of state legislation that's changing. So what I would say is the one theme is there's a lot of change going on in HR. And so HR users are really trying to figure out how to be able to manage that and then become much more marketing oriented in terms of how they treat employees. I think the second thing is they're really looking for a partner to help them. And so this idea of service and partnership, adoption kits are a great example of things we're rolling out. They're really looking for more than just transactional advice and questions. They're looking for best practices. And so I think their world is getting more complicated. Therefore, they need a lot more advice, best practice, really aligns to some of the key initiatives that we're trying to drive towards. That's really helpful. Thank you. And then Toby, in your script, I thought I heard you say that maybe you're making a little bit of incremental investments in sales and marketing. I guess, first, did I catch that right? And second, if you are, can you share any color and kind of tie in how that could impact margins as the year progresses? Thanks. Yes. Hey, Dan. I mean, I think what we have talked about with relative consistency has been the fact that we were continuing to invest in sales and marketing in a relatively consistent way. I mean, it's one of the bigger growth drivers in the business. And our level of investment in sales and marketing has been pretty consistent over time. We've laid out the range in our financial targets. And I think our intention would be, certainly in the near term, to remain consistently invested in that sales and marketing line. Okay. Thank you. Thank you. And our next question comes from the line of Scott Berg with Needham. Hey, guys. Congrats on a good quarter. Thanks for taking my question. In long time, no see, it's been, I think, 6 days. I guess the one question I have is, as we did some customer work there and kind of thinking through the space is, how do you think about growth in the overall business maybe over the intermediate term of 3, 4, 5 years? Your core mid market, you moved into the strategic, you're looking at 20 employees and a little bit lower. If we were to think about mix of bookings 3 to 5 years out, what does that look like? It's 95, 41 maybe or whatever the numbers are. Yes. I think it's probably more of a subtle shift than probably a big and different initiative. If you go back now 3 years ago, I think we disclosed the fact that 50% of our employees had 50% of our clients had less than 50 employees. And so we've always kind of been in that segment. I think if anything, we're seeing a little more traction in that 10, 20, 30 employee space than we've had before. And so in some cases, we think there's different ways to approach that market. So that to me is more of the subtle shift. We've always been really strong in the 50 to 500 and actually had a pretty darn good presence in that 500 to 1,000. So I don't think that's changed. I think if anything, we become a stronger competitor in that space based off the additional modules that we've added to our product portfolio. And at the same time, at the lower end, they're demanding a little bit more product. So I just think more than anything, we feel better positioned today than we have several years ago. Got it. And I guess I'd be remiss of not asking an interest rate question. You guys took some interesting or made some interesting changes around how you invest your funds. I think it was a year ago now last summer, went into some slightly longer duration securities with slightly better yields. As you I know you'll probably tell me you're perpetually looking at different opportunities there, but are you doing anything different today with those funds you're holding from clients maybe you did a year ago? And are there any opportunities to maybe change that composition to again, drive a little bit higher yield maybe than some others in the space? Hey, Scott, it's Toby. I mean, I think what you might be referring to is we, I think, just started investing a little bit in client funds, I think, going back 2 years now. We haven't made any major changes over the course of that period of time in duration or any other sort of element of profile of that sort of investment strategy. And I mean, I think that probably doesn't change a whole lot over the course of time. I think we're pretty consistent there. Got it. Thanks for taking my questions. Sure. Thank you. And our next question comes from the line of Robert Simmons with RBC Capital Markets. Hi, thanks for taking the question. So you touched on this topic a little bit, but could you go over what's your take on what Straying is offering in terms of the on demand pay in the gig economy versus what you have? Yes. So I'm not necessarily perfectly familiar with all our competitors are doing. I think this is a developing space. And I think my understanding is I think Ceridian talked about having an offering in the New Year available. So what I would tell you, not specific to Ceridian, but there's a couple of different approaches that people I believe can take and actually might be able to take both. And so one of the approaches is you go for us, you go into the mobile app, you ask for any pay that you've earned, you will absolutely see real time what you've earned from gross all the way to net in the application. So it tells you what you've got available and you say how much of that that you want to be able to have. We give a whole bunch of administrative tools to our clients so they can kind of manage who they want to give this to and who they might not want to. And then we leverage kind of direct deposit to put that into your account either later that day if you request it in the morning or the next day. So that's one approach. A second approach could be basically a wallet or a card or a digital card where those funds are put on that wallet slash card. And then as disbursements are made from that card, either to the employee's bank account or to you could use it as a card and actually make purchases. And I think those are, generally speaking, some type of alternative network to direct deposit are the 2 different approaches. We're starting with direct deposit. It doesn't mean that we can't do that second alternative over time. But I think those are the 2 approaches that are at least being discussed that I'm aware of. Got it. Great. Thanks. Thank you. Our next question comes from the line of Arvind Ramnani with KeyBanc. Your line is now open. Hi. Thanks for taking my question. One of the things that you talked about when we met last week was, there are a number of your customers where they're paying off basically more at the $200 PEPY level. How much of a focus is to sort of take those customers up closer to the $400 mark versus kind of really going out and signing up new customers? Yes. So I think, if you think a little more than 5 years ago, so 5.5 years ago, we were at $200 per employee per year. So we've doubled the available product in that time period. And so obviously, we have customers that have been with us well before that time frame, and we've added a lot of customers in the last 5 years. So what I would tell you is we want to make sure if a customer has a need, we're able to solve it. We have an inside sales team that we've grown faster than the rest of our sales force over the last 2 years, And their job is to identify customers that could benefit from some of our newer offerings. So we're actively doing that. I think if you were to look at our mid-20s revenue growth rate, what I would tell you is a lot of that is still coming from unit growth. So although it's an important initiative for us, we think it's an opportunity that we can continue to grow. I would tell you that most of our growth is still going to come from landing new customers and selling those customers more. And then we get the benefit of continued sales back to the client base and we'll continue to grow those teams. Great, great. And then not really sort of asking for any sort of guidance anything for 2020, but just sort of looking at where you are now and you kind of look at the next couple of years, how do you all feel about the business? And are there sort of major areas of investments you need to make either from a sales side or product side? Where does a major portion of investment really need to come or is it just equal across all areas of the business? Yes. So I'm going to go back to one of the great things about the market that we're going after is it's very large. And so between 20,001,000 employees, there's 600,000 plus businesses. And then it gets even larger when you think of under 20 employees. And we've only got 20,000 clients. So we think we're in the very early innings of basically a land and expand strategy where we're really focused on landing new customers. We also feel really good about the product innovation that we've been able to drive over the last 5 plus years. And so if you think of that, it's a matter of continuing to invest in our sales and marketing organization to be able to capitalize on that opportunity combined with our R and D group such that we can innovate and differentiate. And then obviously, we had great retention over the years. And so those that's the magic formula. We want to invest in R and D. We will invest in sales and marketing. We'll continue to drive great retention with our customers. And in doing that, it's a natural scale business where we think we can hit those long term targets that we put out there. All right. Thank you very much. Thanks. Thank you. And I'm showing no further questions at this time. I will now turn the call back over to CEO, Steve Beauchamp, for closing remarks. Well, I want to just take a quick second to thank all of our employees for all the efforts over this last quarter. We are in the middle of selling season and coming up to a very busy time with year end. And then of course, thank all of you for your questions and your interest in Paylocity. Have a great night. Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.