Paycom Software, Inc. (PAYC) Q1 2015 Earnings Report, Transcript and Summary

Hello and welcome to the Paycom First Quarter Fiscal 2015 Financial Results conference call and webcast. All participants will be in listen-only mode. [Operator Instructions] Please also note this event is being recorded. I’d now like to turn the conference over to Mr. Craig Boelte, Chief Financial Officer of Paycom. Please go ahead.

Thank you, and good afternoon. Before we get started, I would like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans, objectives and expected performance, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this conference call. While we believe any forward-looking statements we have made are reasonable, actual results could differ materially because of statements are based on our current expectations and are subject to risks and uncertainties. These risks and uncertainties are discussed in our Annul Report on Form 10-K that was filed with the Securities and Exchange Commission on February 26, 2015. You should refer too and consider these factors when relying on such forward-looking information. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Also during the course of today's call, we will refer to certain non-GAAP financial measures. A reconciliation schedule showing GAAP versus non-GAAP results is currently available in our press release that we issued after the close of the market today, which is located on our Web site at investors.paycom.com. I'll now turn the call over to Chad Richison, Paycom's President and Chief Executive Officer. Chad?

Thanks, Craig. Thank you to everyone joining us for the call today. This April, we celebrated the one-year anniversary of our IPO. And our first full year as a public company Paycom has evolved across several fronts. We have broadened our application offerings further extending our lead as the best-in-class cloud based payroll and human capital management solution. We expanded our sales footprint to 3016s and we are continuing to develop our current and future sales leader. Most importantly we have built upon our already impressive revenue growth which underscores our continued and growing momentum. I'm pleased to announce very robust first quarter results. Total revenue for the first quarter was $55.2 million representing growth of nearly 50% over the comparable prior year period. Annualized new recurring revenue or ANNR was $20.2 million representing growth of 60.5% over the comparable prior year period. We benefited from several growth drivers in the first quarter. And I'll spend a few moments highlighting some of the key points of our growth. Then I will discuss the enhancements we have made to our platform and how they contribute to our current and ongoing growth. I will share some examples of new client wins in the quarter and show how these illustrate our progress. Craig will then provide some insight into our financials and outlook for the second quarter and fiscal 2015. Turning to our results and growth drivers in the first quarter, we were pleased to see certain synergies beginning to take effect in building momentum, namely the combination of our expanded industry-leading offering along with our increasingly experienced and confident sales force. Our record financial performance this quarter resulted primarily from our mature sales offices along with contributions from our new sales offices continuing to build momentum and adding new clients. That, coupled with increased success selling larger companies, drove our record growth. As many of you know, we opened five new sales offices in the first quarter of 2014 and another five in the same period of 2015. The sales offices launched in 2014 are becoming more seasoned and this is resulting in better financial performance. As we have stated in prior calls, it takes a new sales office approximately 24 months to reach maturity and the offices opened in 2014 are progressing in line with our expectations. In some cases we're even seeing certain new offices outperform our expectations, largely in the form of selling to increasingly larger companies. When a Paycom sales professional see as colleague successfully close a deal with a large business, the impact is electric and contagious. While our target client segment remains companies with 50 to 2,000 employees, we are seeing our sales professionals become increasingly inspired to sell to the large end of our target market and they are frequently seeing success in their efforts. Speaking of our strong and growing team of leaders, I'm incredibly proud of one award in particular, that we received in the first quarter. As an organization, we earned first place recognition among mid-sized companies in the 2015 leadership 500 excellent awards presented by HR.com. HR.com is the largest social networking site for human resource professionals and it is an important voice within our industry that our potential clients trust. We were recognized for our leadership development program and it was extremely satisfying to receive this award as we placed tremendous internal importance on our leadership development and are 100% convinced that our future success is dependent on developing our talents to achieve their highest protection. Let me take a moment to highlight some exciting new client wins we enjoyed in the first quarter. First, we converted a restaurant group with over 3500 employees that had been utilizing one of the large legacy provider SaaS solutions. With Paycom, they were able to eliminate redundant work due to the multiple database infrastructures with their existing provider. And looked forward to enjoying the efficiencies our system has brought to their processes. We also on-boarded a temporary staffing company with over 2500 employees. This company had not been using a competing service. With a clear perspective on the landscape of provider options, this client chose Paycom to help them grow and become more efficient. Finally, we signed a building products company with over 2,000 employees that had been using multiple SaaS providers. They desired a single vendor for both their payroll and human resource software and were attracted to the ability to use a single platform for both administrators as well as users across their 20 plus locations. As you can see, our cloud-based solution has broad appeal across a wide section of verticals. We anticipate this success will continue as the power and flexibility of the Paycom solution becomes increasingly well-known to both human resource professionals and see suite executives seeking to maximize the value of their human capital assets. As you might expect, larger companies have greater, more complex HCM needs and our solution is evolving to serve them. Paycom learning are recently adding Learning Management System or LMS is gaining steady traction with businesses that recognize the benefit of a powerful yet flexible training system that is completely unified with the payroll and other existing applications. Since releasing it in February, we have experienced several wins. Organizations across a wide range of sizes and verticals are switching to our software solution because of its easy to use reporting functionalities and customized courses all from within a single application that is tied to each employee's record. Many of our new LMS clients are switching to us from incumbent systems while for others this is the first time they are utilizing a robust LMS system after attempting to conduct everything in house. Additionally, Paycom's Affordable Care Act or ACA offering continues to act as a beacon to companies who recognized that their runway for compliance with this new law continues to shorten and our robust ACA dashboard and reporting capabilities are the best way to prepare for the upcoming requirements. The flexibility and scalability of our single database solution allows our development teams to create new applications and improve existing ones very quickly. As with prior quarters, we have increased our software development expense over 100% for the first quarter of 2015 as compared to the prior year period. We are very excited about the new applications and the further enhancements that we'll introduce throughout the year. In summary, we had an excellent first quarter. We remain energized and excited for the remainder of 2015 as we look to enhance our many value propositions, all of which are resonating well within the marketplace. Now, I will turn the call over to Craig and to discuss our financial results and outlook. Craig?

Thanks, Chad. Before I review our first quarter results, and also our outlook for the second quarter and fiscal year 2015, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. Adjusted EBITDA a non-GAAP net income or non-GAAP financial measures that excludes stock-based compensation and other non-recurring charges including transaction expenses relating to our initial public offering and our recent secondary offering. A reconciliation of our GAAP to non-GAAP results is included in our press release. We had a very robust first quarter with total revenues of $55.2 million representing year-over-year growth of 49.3% from the comparable prior year period. As Chad mentioned, we continued to see strong new client additions in the first quarter primarily driven by our mature sales teams. Additionally, our revenue in the first quarter was positively impacted by strength in our tax form filings business, which is a reminder consist of our annual tax form filing for our clients. As many of you know, this is a seasonal aspect of our business that we experience every first quarter. Strength in our tax form filing business resulted in approximately $1.5 million of revenue outperformance relative to our expectations in the first quarter of 2015. This outperformance in tax form filings was primarily driven by robust ANRR in the third and fourth quarter of 2014. This flowed through our financials positively impacting gross margin and adjusted EBITDA. Combined with the ongoing sales momentum, this resulted in a strong revenue performance in the first quarter of 2015. Within total revenues, recurring revenue was $54.4 million for the first quarter of 2015 representing 98.4% of total revenues for the quarter and growing 49.1% from the comparable prior year period. ANRR was $20.2 million for the first quarter of 2015 up from $12.6 million in the same period last year and representing 60.5% growth in the comparable prior year period. As a reminder, ANRR is an estimate based on the analyzed amount of the first full month of already on-boarded recurring revenue. While this quarter's ANRR was an overachievement, we expect to return to a more normalized ARNN growth rate throughout the remainder of 2015. Total adjusted gross profit for the first quarter was $46.9 million representing an adjusted gross margin of 85%. This compares to 81.3% in the first quarter of 2014. This is a very strong gross margin for Paycom and as mentioned earlier there were factors that positively impact gross margin. As we look to the remainder of 2015, we expect overall gross margin to be approximately 80% to 82%. Turning to operating expenses, as a reminder we will pay commissions to our sales reps based solely on new sales at the time of their first monthly billing cycle. This is a one-time commission paid which we recoup over the life of the client relationship. When we experience strong sales performance in a quarter, there's the potential for us to see increased expenses in that quarter depending on the timing of the client's onboard process. For the first quarter, total adjusted administrative expenses were $35.5 million. This compares to $26 million in the first quarter of 2014. Administrative expenses progressed according to internal expectations in the first quarter of 2015. A portion of our GAAP general and administrative expense was due to costs related to our follow-on offering in the first quarter of 2015. R&D expense increased to 111.7% from the comparable prior year period as we continue to build out and also refine our software offerings. Adjusted EBITDA was $13.6 million or 24.7% of revenue in the first quarter of 2015 compared to $6.6 million or 17.7% of revenue in the first quarter of 2014. Adjusted EBITDA benefited from the sales dynamics I mentioned at the beginning of my prepared remarks. Non-GAAP net income for the first quarter of 2015 was $6.7 million or $0.12 per diluted share based on approximately 57 million shares versus 1.6 million or $0.03 per diluted share based on approximately 48 million shares a year ago. Turning to the balance sheet. We ended the quarter with cash and cash equivalents of $35.7 million and debt of $26.5 million. As a reminder, this debt represents the financing on our corporate headquarters. With that, let me turn to guidance for the second quarter and for fiscal 2015. For the second quarter of 2015, we expect total revenues in the range of $45 million to $46 million representing a growth rate over the comparable prior year period of approximately 36.6% at the mid-point. We expect adjusted EBITDA on the range of $7.5 million to $8.5 million representing an adjusted EBITDA margin of nearly 17.6% at the mid-point. For fiscal 2015, we expect total revenues to be between $203 million or 35.2% year-over-year growth at the mid-point. We expect adjusted EBITDA in the range of $35 million to $37 million representing an adjusted EBITDA margin of 17.6% at the mid-point. In summary, we had an excellent first quarter and look forward to continued momentum through 2015. With that, we will open the lines up for questions. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from John DiFucci of Jefferies. Please go ahead.

Thank you. Hey, Chad and Craig, listen this was surprisingly strong quarter. You guys have been putting up strong numbers but this is even better than it has been. I guess my first question, I just have two. Can you tell us what the contribution was from tax form filing? I know that that helped, but I mean we expected it to help. I mean we expected it; we modeled that based on what you've done over the last year. Just trying to figure out if that was just a lot better than we expected.

John, as I mentioned in the prepared remarks, it was about around $1.5 million of an outperformance on the tax form filings and that really flowed through the entire financial statements through margin as well as to the earnings per share and net income.

Okay. But can you tell us, Craig, what exactly it was? We expected to see a lot of growth out of that anyway or is that something you just prefer not to at this point?

It really – John, the tax form filing really due to the ANRR achievement in third and fourth quarter of last year we on-boarded the those clients. And so any client, even if they've just been with us for two weeks of December, we have to provide them with the annual tax form filings as if they had been with us for a full year. And so, we did have some accelerated ANRR in both third quarter and fourth quarter of last year and those contributed to the annual tax form filings business for February and January.

Okay. And if I could ask another question. ANRR this quarter up 60.5%. As you point out just now, Chad indicates strong future revenue and that number is – and I know you said you expected to go back to more normalized rate going forward and I think that's prudent to expect that. I guess where are you seeing it? You mentioned you're seeing some – like some of the new offices are sort of in line although some of them seem to be outperforming, selling to some larger customers. Are you also seeing more attach? Are you seeing a higher attach of your HCM modules this quarter than you have in the past? And I guess how do you expect that to develop going forward?

Yes. And so what I will say is that the new offices even the ones from 2014 and 2015 contribute very little to this number. I mean really these are the mature offices that are continuing to sell more than they have in the past. And then it's almost in all of the above. Definitely you do have them not only selling more deals; they're selling larger businesses as well in some markets. And they're more comfortable with the products that we've released over the last couple of years. And so, although we're not necessarily disclosing exact attach rates, what would be true is that clients are taking more products today than what they have in the past. A lot of that has to do with maturity of the products as well as client size we're targeting.

Okay, great. Nice job, guys. Thanks.

All right. Thank you, John.

And our next question comes from Michael Nemeroff of Credit Suisse. Please go ahead.

Thanks for taking my questions. And I will echo John's incredulation about this really, really strong results. Congratulations on that. Chad, you talked in your prepared remarks about the strength in ANRR are coming from selling some larger customers. I was curious – can you give us a sense on what the average number of employees is? I don't know if that's something that you track and whether you could share the growth in that number as you start to move up slowly with larger customers?

Yes. It's not something that we're tracking. What I can say is that we are selling larger – more companies than what we had before and they tend to be at the larger end of our target market, which again, we still say is 50 employees to 2,000 employees. We are selling more as sales reps become more comfortable in that market. They're selling more of them. And so naturally, you could somewhat deduct it because of that the employee size is continuing to increase.

And so last week -- thanks, that's helpful, Chad. Last week Ultimate Software had mentioned that they saw a little bit of same-store sales decline in this their employee base, their customers shrank. I know you guys are growing through it because you're growing so fast. I was curious; did you notice the same dynamic at your existing customers that they saw in the quarter?

No. And it's not something that I can say we specifically looked at either. But, I can't say, confirm or not whether that's happening with us. I do know that if it were, it hasn't been anything material that we've seen.

That's great. That's helpful also. And then Craig, you had mentioned in your prepared remark that given the strength of ANRR growth in this quarter that you would expect it to sort of go back to normalized levels. I'm just curious, is there anything specific or kickers or spiffs that caused ANRR growth in this quarter to spike that you're expecting it to fall back down to more normalized levels or is it just a little bit of conservatism there.

Yes. So Mike, this is Chad. If you kind of looked at last year, Q1 we had 31% ANRR growth and then Q2 we had 38% and then Q3 we had 52%. We followed that up Q4 with 44% and just as a remainder to everyone, ANRR is when a deal starts, not necessarily when it's sold. We did have some deals pull into the March time period that might have otherwise started in a subsequent quarter. And so I don't have the forward look all the way out to what's going to happen toward the end of June, but that does impact, ANRRs less about when we sold it and really about when it converts again a full month's revenue that hits commission. And so with that, I mean it was a very strong ANRR performance this quarter. It was 60% and that's the largest we've had. And so we're just, we're wanting to make sure we're responsible with our future forecasts and that's why we do believe it will be more at the normalized level moving forward.

That's really helpful. And approximately how much do you think was kind of pulled forward from maybe the Q2 ANRR that you started to bill for? How much of that ANRR was possibly pulled forward I guess.

Yes. I mean it is our – it's hard to state that because every, this isn't uncommon. I mean every month you are going to have something move on you whether it pulls in or pushes out of when it comes to start date, something could have been ready to go in December and pushed out to January and caused it to happen that way as well. And so, second quarter it will just really depend on starts. But, I just thought that was important to point out that we have had a little bit of fluctuation in ANRR growth although it’s been strong from quarter-to-quarter, will have a little bit of fluctuation. And it's really important to look at ANRR is an annualized metric. We do report it quarter-to-quarter, but it levels out as an annualized metric for us.

Very helpful. Guys, congratulations. Great results this quarter. Thank you.

All right. Thank you.

And our next question comes from Raimo Lenschow of Barclays. Please go ahead.

Hey, guys. This is Harry on for Raimo. Thanks for taking the question and again congrats on a great quarter. It's really impressive, impressive result. I just wanted to touch on kind of obviously this is very, very strong quarter and kind of pretty meaningful acceleration I guess on a year-over-year perspective from Q1 last year. Do you think that there's been any sort of change in the model or is there just a better demand environment than you were expecting because it seems as though you're kind of discounting the newer offices and which is great because obviously sometime down the line you expect those to be more productive, but it seems like you would have pretty good visibility with the mature offices and all of a sudden you're getting this very, very positive result. So can you just kind of talk about how you view the success there?

Yes. We do expect our mature offices to continue to mature. I mean I don't believe we're ever done and we continue to hit new highs and mature office sales year-after-year. I mean we've been doing this a while and it should happen that if we do it on a continual basis, we'll continue to get better at it. And so that's really what's happening. Our offices are becoming more mature about the managers and salespeople are having more success. We're doing a good job converting the business and we have more to sell than what we've had in the past too. I mean we released several new products over the last 18 months and all of them are making meaningful impacts. And not really just on the revenue side but to the client's business and so we're going to continue to do that and look forward to the future.

Great. And just a quick follow-up. Thanks for the color there. But, it might be a little too early to say so I appreciate that, but in any event, is the success that you're seeing with some of these larger customers something that you think with time could change your general outlook in terms of the good market effort? Perhaps it's something you need to allocate more dedicated resources to whether it's on the sales side or support side of things. Obviously, it's really great from the revenue side when it works out that you close these large deals. But, you do you think at any point if you see the demand there at the upper end of your target customer size ranges is much better than expected that you have to kind of change how you're thinking about managing the installed base and going after new business?

Well, we definitely continue to change the way we implement our services to clients regardless of size. I mean we continue to get better at it. I can tell you back when we were a staff of ten and I myself was a salesperson, I went out and brought on a company that had 1500 to 2,000 employees. So we've always been in this business. Now back then it was only payroll. But it was online. And so we've always been in this market. This has always been our target market, true. They are becoming more sophisticated as our products become more sophisticated to meet those needs and we continue to get more of them as we creep even higher. And, you're going to convert and implement a company differently that has 3500 employees with 3500 employee users and maybe 400 or 500 manager level users that use all your products. It takes a little bit more time, but also it takes training as well. And so we've been focused on that. I'm not going to say that this year's been uncharacteristic in those training efforts or changes to our implementation services as they have been in the past. I think you're just seeing us sell more of them because we do have more mature offices and a stronger sales force than what we've had in the past and more product to sell.

All right. Great guys. Thanks and congrats again.

Thanks, Harry.

And our next question comes from Mark Murphy of JPMorgan. Please go ahead.

Yes. Chad and Craig, this is Albert Chi for Mark. Congratulations again on the great quarter. Great results. But, I want to ask you about the outperformance of some of your offices versus the others that you have mentioned. And I know that you've had a diverse set of openings across the geographies, and are you seeing any differences or patterns in a way that certain cities or geographies are ramping up verses others? You mentioned Brooklyn, Cincinnati and City et cetera?

Yes. With those office it's really too early. I could more speak to the 2014 offices. I mean our 2015 offices are just really getting their first trainees back into their office and trained. They may have sold a few deals, but very limited on information from those offices. Now the offices that have been open a year, it's typically manager specific and so it really depends on which manager opened that up office, what their history was with us in the past and how they go in there. They're all trending as we have expected and they're all doing well. I did mention some are doing better than others. But they're all doing exactly what we expect them to do and they will all mature within the next year or so.

Got it. That's helpful. And just one more actually. So you mentioned that you had some traction with the LMS, Learning Management System. And I know it's early, but can you talk a little bit maybe about how it's affecting some of the other competitors in the learning management space? Thanks.

Yes, I can tell you I am aware, I have stayed close to the learning management and watching that traction. I do know we have had some competitor takeaways from your traditional learning management systems and we've also converted companies over that may have been using – maybe an off-the-shelf for lack of a better term-type provider or even a patch together in-house-type system. So at the end of the day, all companies provide training to their employees through several different methods and we've found a way to automate that and leverage the same system that perspective clients and current clients would be using. And so we've had success. Again, we're still new to that. It's a new product. But we're very comfortable with the traction that we're having at this point.

All right. Thanks. Congratulations again.

Thank you.

And our next question comes from Richard Davis of Canaccord. Please go ahead.

Hey, guys, it's DJ on for Richard. So Chad, maybe just back to the 5 Q1 office starts. Are those offices fully staffed? How quickly does that happen? I guess what are you seeing on the sales hiring front? And I guess the related question to that would be curious about your bench of sales leaders. I know you typically relocate guys when you open a new office. How do you feel you are in terms of quantity of leaders to relocate and kind of implications for how you think about office starts for the rest of the year?

Right. Well, I'll take that last question first. Just through numbers, the more teams you have, the larger the bench you have. And so as we continue to add teams, it definitely increases the bench there. Now the first question as far as offices open this past quarter. It does take an office 24 months to get to maturity and really the most that – the largest number of sales reps that one manager can manage effectively that are brand new is kind of three right off the bat. You might have one that could manage four. And so those offices that we started first quarter of 2015, they're really just building. I would be surprised I mean from the numbers I do know of, I don't think any of them have more than two at this point being trained and in the field. And so we'll look for those offices to reach maturity and full staff with 7 to 9 sales reps as well as a strong backlog and pipeline as we round first quarter 2017. 2014, it's a little bit different. You do have some ramping up quicker than others because they're at different parts, different cycle within their – or different part within their maturity cycle. But they continue to grow as well and so we've been monitoring that and again they're all progressing as we expect.

Got it. And then maybe for Craig, I guess on the R & D side, you guys continue to call out the growth on that front. Shall we think of Q1 as kind of a new run rate level or were there extraordinary expenses related to kind of getting the LMS product out the door? How should we have think about that line going forward?

On the R&D side, we're going to continue to invest. Our group was also developing the LMS but also working on additional products and as well as our existing ones. So moving forward, we've had over 100% for the last several quarters and we're going to continue to spend in the R&D area.

Got it. Okay. Thanks, guys.

All right. Thank you.

And our next question comes from Corey Greendale of First Analysis. Please go ahead.

Hey, good afternoon and my congratulations as well. I had a couple of questions about the guidance. So Chad as you pointed out, the growth in new ANRR has been somewhat, that's been great throughout the quarters but as low as 30%, as high as 60%. But, when you say a more normalized levels, not to be too cute about this, but are you talking more like a 30% or 40% or what do you have in mind?

Again, when I was speaking earlier, I was also talking to the best way to look at ANRR is on an annualized basis. And so as I talk about ANRR I really do view it as an annualized basis because quarter-to-quarter really depends on when a company can converts or when a company actually transitions and converts on to our system for a full month and naturally how you have to look at it.

Okay. So looking at the full year in 2014, I think new ANRR was up 42%. Is that what you mean by a normalized rate?

I believe that a normalized rate for us would be consistent with prior years for us. I don't have those numbers exactly in front of me. But again, I look at it on an annualized basis of what we should experience on a going forward -- as we go forward.

Okay. And then looking at the full year guidance, so I know your philosophy is to operate the company in a profitable way. If I look at the full year EBITDA guidance, I think the beat in Q1 more than accounts for how much you write, in other words you raised your EBITDA guidance by $3 million and I think you beat by $3 million just in Q1, which suggests that you are basically not changing your EBITDA guidance for the rest of the year despite raising the revenue guidance. So I just wanted to ask you about that. Where is the incremental spending that is resulting in that offset to revenue?

Yes. And so for us as we continue to bring on new business revenue, we have to hire. I mean this month we grew over 40%. As you continue to grow, at a very high rate, you have to hire people and get them trained and prepare to service these clients and it requires the resources that have knowledge to be able to do that. And so we always have to hire those people ahead of the revenue received and so sometimes you'll carry people with you a little bit longer so that you can get them trained, up to speed and ready to catch the revenue that's going to be coming in, in subsequent quarters. And so we would expect to spend to be on staffing and staffing at staffing levels which will allow us to do that.

Okay. Would some of that be in sales to potentially drive more growth, not this year, but maybe next year?

Well, you'll definitely have additional sales reps added in the cities that are still maturing which I believe at this point we have 8 or 9 or no, excuse me, 10 or 11 that are still maturing. And so you're definitely going to have some of that. But, it all just contributes to that.

Okay. And then just one quick one on the learning product. It sounds like you're getting some good adoption early on. Is that largely up-sell to existing customers, or are you finding new customers adopting the learning product right away?

Yes. It's primarily new customers that we're bringing on to our system. I know that we have had some current customers because we do take feedback from current customers and that's really sometimes where you learn which products you're going to release. And but for us, I know that the majority of what we've brought on were brought in with the deal.

Okay. Great. Thank you.

And our nest question comes from Sarah Hindlian of Brean Capital. Please go ahead.

Hey, guys, congratulations on a great quarter. I think I missed a question in there for a second; I got distracted so I apologize if this is a repeat, but I did have a couple for you. You mentioned that you were displacing some staff vendors. I was wondering if you could give a little bit more color in terms of who else you're displacing if you're entirely displacing staff vendors with these larger clients, or if there's some more legacy in there as well. And then, I did hear you speak a little bit about new offices and I know you added five. Last year you've already added five. And I apologize if you've already answered this, but are there any plans to do any more this year?

All right. So on the legacy – on the legacy SaaS providers or SaaS providers; however you set it out, it is rare that we would replace any provider that isn't a SaaS provider at some level whether they're a legacy provider providing a client solution or whether they have started out a SaaS provider. That's who we're displacing. It would be rare that we would displace somebody at this day and age that has an installed product. Now you might – we have might also have some people that aren't using a vendor, but they're using it in-house product that they're using themselves and we might run into a little bit of that. But primarily any time we're replacing another vendor, we're replacing either a legacy provider SaaS product or version of SaaS product or we are replacing another SaaS provider. As it relates to the offices, we've added five so far this year. We're continuing to absorb those and watch those mature and support them. We're always looking for additional opportunities. I wouldn't say that we would not open up another office this year, but I can't confirm that we're doing that either. We're continuing to look at all of our options and if something makes sense for us, we'll definitely be communicating that with everybody and move forward.

Okay. Great. Thank you guys. That helps a lot. I appreciate it and congratulations.

All right. Thank you.

And this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Chad Richison for any closing remarks.

All right. Thank you. So our first quarter marked an important milestone as our company celebrated our first full year as a public company. We remain as excited as ever regarding our prospects and opportunity to transform the payroll and HCM industry. We'll be presenting at the Jefferies Global Technology Media and Telecom Conference in Miami on May 12 and at the JPMorgan Global Technology Media and Telecom Conference in Boston on May 19. And I look forward to meeting with many of you in person in the coming months. So thank you guys for participating on our call today.

And thank you, sir. Today's conference as now concluded. And we thank you all for attending today's presentation. You may now disconnect your lines.