Paycom Software, Inc. (PAYC) Q2 2017 Earnings Report, Transcript and Summary

Good day everyone and welcome to the Paycom Software Incorporated Second Quarter 2017 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there’ll be an opportunity to ask questions. [Operator Instructions] And please do note that today’s event is being recorded. I would now like to turn the conference over to Craig Boelte, CFO, please go ahead, sir.

Thank you, and good afternoon. Before we get started, I would like to note that certain statements made during this conference call that are not historical facts including those regarding our future plans, objectives and expected performance are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this conference call. While we believe any forward-looking statements we have made are reasonable, actual results could differ materially because the statements are based on our current expectations and are subject to risks and uncertainties. These risks and uncertainties are discussed in our filings with the Securities and Exchange Commission including our Annual Report on Form 10-K for the quarter ended December 31, 2016. You should refer to and consider these factors when relying on such forward-looking information. Any forward-looking statements speak only as of the date on which it was 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. A reconciliation schedule showing GAAP versus non-GAAP results is included in the press release that we issued after the close of the market today, which is available on our website at investors.paycom.com. I will now turn the call over to Chad Richison, Paycom’s President and Chief Executive Officer.

Thanks, Craig. Welcome to everyone joining us on the call today. I’ll start with some comments on the quarter and our view into the industry, and then Craig will speak to our financials and guidance, then we’ll take some questions. Our second quarter results reflect ongoing momentum. Revenue for the second quarter of 2017 was $98.2 million, representing growth of 33% over the comparable prior year period. This performance is particularly impressive when you consider that we grew 51% in the comparable prior year quarter. We are proud of our first half results as we continue to post very healthy growth, even in the face of challenging prior year comps. As the guidance provided in our press release implies, we anticipate we will continue to deliver robust growth throughout the year, even as we will be lapping our first full year of ACA related revenue. HR leaders and executive management within every industry across the country are becoming increasingly aware of how to utilize technology-driven human capital management or HCM solutions to solve problems and gain efficiencies in their business. At the same time, workers are becoming more reliant upon technology and increasingly expect their employers to keep pace by offering powerful yet easy to use software for their HR needs. Executives are continuing to turn to advanced HCM functionality to gain a competitive advantage and also attract and retain talent. This trend is demonstrated by our growth. Additionally, we believe that Paycom is well-positioned to benefit from these trends. We believe our single database solution that allows employees to input and manage their own data is the best option for companies looking to streamline processes and realize the benefits of having their HCM functionality reside within a single database. We recently conducted a survey of HR professionals in conjunction with HR.com, that provides insight into how companies are utilizing HCM technology across their organizations. Our finding showed that approximately 87% of HR executives agreed that self-service technology is the most efficient way to provide employees with HR information. For companies with over 500 employees, this figure was 94%. Additionally, easy to use and single log on capability were amongst the most important aspects of HCM technology. Even with this growing focus on HCM technology, our survey found that in nearly half of the organizations with self-service capabilities, HR departments still manually enter on average 38% of their employees’ data, indicating significant room for improvement. These survey results echo what we hear from our prospective clients. We believe that we’re still in the early stages of a multiyear secular trend of companies, turning to HR technology to help them succeed and that Paycom is in a favorable position to benefit from this shift and achieve sustainable growth for many years to come. To support this growth, we continue to execute on our strategy to expand our sales organization. In June, we opened our Richmond office and in July, we announced our new office in Long Island. These offices along with our Milwaukee office, which launched in April, increased our total number of sales teams to 45. All of our newer offices are developing in line with our plans, and we’re pleased with their progress. This more staggered cadence of office openings in 2017 is allowing us to focus more on developing our talent and minimize the disruption that occurs when we open new offices. At Paycom, growth is a key goal. With our market share still in the low single digits, we believe there remains a significant opportunity to win substantial new business, and we’re hyper-focused on achieving this goal. While we remain committed to growth, we’re also mindful of continuing to improve our profitability along the way. Our current full year adjusted EBITDA guidance of $122.5 million to a $124.5 million or 29% at the midpoint, exhibits continued improvement over the guidance we provided last quarter and also at the beginning of the year. This performance underscores our ability to both leverage our topline growth and also improve our own internal processes to drive efficiencies. Our profitable cash generative business model also allows us to return capital to stockholders. During the second quarter, we repurchased approximately 460,000 shares as part of our $50 million share repurchase plan, including 235,000 shares in the open market purchases. As a reminder, this is our second $50 million repurchase plan in the past 13 months as we completed our first $50 million share repurchase plan in December. Before I turn the call over to Craig for an update on our financials and guidance, I want to highlight our recent sponsorship of the Jim Thorpe Award which is presented annually at the defensive back in college football, and will be named the Paycom Jim Thorpe Award, going forward. For those not familiar with Jim Thorpe, he was born and raised here in Oklahoma and was named the greatest athlete of the 20th century by ABC Sports. He played professional baseball, basketball and football and also won Olympic gold in the decathlon and pentathlon. Jim Thorpe exhibited many of the qualities we value highly at Paycom such as grit, versatility, perseverance and team work; and we’re proud to have the Paycom name associated with such a prestigious award. Now, I’ll let Craig comment on our financial performance for the quarter. Craig?

Thanks, Chad. Before I review our second quarter results and also our outlook for the third quarter and full year 2017, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. We use adjusted EBITDA and non-GAAP net income as supplemental measures to review and assess our performance and for planning purposes. Adjusted EBITDA is a non-GAAP financial measure that excludes non-cash stock-based compensation expense. Non-GAAP net income is a non-GAAP financial measure that also reflects the adjustment for non-cash stock-based compensation expense, which is further adjusted for the effective income taxes. Reconciliation of the GAAP to non-GAAP measures discussed today are included in the earnings press release issued earlier this afternoon. As Chad mentioned, we experienced a strong second quarter with total revenues of $98.2 million, representing year-over-year growth of 33% from the comparable prior year period. Our revenue was primarily driven by strong new business wins, and we are pleased with our performance in light of the tough comps from 2016. Within total revenues, recurring revenue was $96.4 million for the second quarter of 2017, representing 98% of total revenues for the quarter and growing 33% from the comparable prior year period. Total adjusted gross profit for the second quarter was $81.6 million, representing an adjusted gross margin of 83%. For the full year 2017, we continue to anticipate that our adjusted gross margin will be within a range of 82% to 84%. Total adjusted administrative expenses were $58.6 million for the quarter as compared to $43 million in the second quarter of 2016. Adjusted sales and marketing expense for the second quarter of 2017 was $32.5 million. Adjusted R&D was $7.5 million in the second quarter of 2017. We made substantial progress in building out our R&D organization over the past several quarters. We will continue to invest in R&D. We anticipate adjusted R&D expense in the third quarter of 2017 will increase by approximately 100 basis points as a percentage of revenue as compared to the third quarter of 2016. Adjusted EBITDA was $27.8 million or 28% of total revenues in the second quarter of 2017 compared to $22.6 million or 31% of total revenues in the second quarter of 2016. Our GAAP net income for the second quarter was $14.2 million or $0.24 per diluted share, based on approximately 59 million shares versus 410.4 million or $0.18 per diluted share based on approximately 59 million shares a year ago. Our effective income tax rate for the second quarter year-to-date 2017 was 16.1%. Non-GAAP net income for the second quarter of 2017 was $15.2 million or $0.26 per diluted share based on approximately 59 million shares versus $12.4 million or $0.21 per diluted share a year ago. Absent vesting events [ph] of performance shares, we expect stock-based comp to be approximately $7 million in both the third and fourth quarters of 2017. In the second quarter, we repurchased the total of approximately 30.2 million of stock under our $50 million share repurchase program including 15 million for share net downs [ph] as a result of stock awards vesting and 15.2 million in open market purchases. We look forward to continuing to return cash to our stockholders opportunistically via these open market purchases. For modeling purposes, we anticipate fully diluted shares outstanding will be approximately 59 million in the third quarter. Additionally, we expect our full year effective income tax rate to be approximately 22% to 24%. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $68.1 million and total debt of $34.6 million. As a reminder, this debt represents a financing of construction at our corporate headquarters. Construction of our fourth building continues to go well and according to schedule. Cash from operations was $15.1 million for the second quarter, reflecting our strong revenue performance and the profitability of our business model. The average daily balance of funds held on behalf of clients was approximately $802 million in the second quarter of 2017 which increased approximately 27% compared to the prior year period. Now, let me turn to guidance for the third quarter and full year for fiscal 2017. For the third quarter of 2017, we expect total revenues in the range of $99 million to $101 million, representing a growth rate over the comparable prior year period of approximately 29% at the midpoint of the range. We expect adjusted EBITDA for the third quarter in the range of $21 million to $23 million, representing an adjusted EBITDA margin of approximately 22% at the midpoint of the range. For fiscal 2017, we are raising our revenue guidance to a range of $429.5 million to $431.5 million or approximately 31% year-over-year growth at the midpoint of the range. We’re also increasing our full year 2017 adjusted EBITDA guidance to a range of a $122.5 million to a $124.5 million, representing an adjusted EBITDA margin of approximately 29% at the midpoint of the range. With that, we will open the line for questions. Operator?

Thank you. We’ll now begin the question-and-answer session. [Operator Instructions] And the first questioner today is going to be Michael Nemeroff with Credit Suisse. Please go ahead.

Guys, this is Alex Hu on for Michael. Thank you for taking our questions, and congrats on the strong quarter. My first question is, given the new cadence on office openings with three announced year-to-date and more to come, can you comment on how the new staggered timeline has impacted your business thus far compared to prior years, whether it’s better sales productivity you’re seeing in existing offices, employee retention, higher quality sales hires, et cetera?

So, our goal in opening the offices in a more staggered -- taking a more staggered approach, was to reduce the disruption that happens to those teams that we disrupt, anytime we open up an office. Just as a reminder, we always open up an office with current sales reps who are ready and prepared -- or excuse me, current sales managers who are ready and prepared to open up an office, and then we backfill them with sales reps who are ready to be in management from another office and then we backfill that sales rep with a sales rep, a new sales rep who’s come onboard. And so, in the past that’s been disruptive. And so by spreading out this disruption, over a period of time versus taking it all and often times the same week, I believe we opened up last year’s offices all within the same 10-day period of time. We felt like by staggering them out we’ve -- we’re still able to accomplish our goal in the outer years, because these offices take 24 months for them to reach maturity. So, we feel good about that and also it’s caused less disruption. We believe that’s been reflected in the numbers we’ve been able to onboard this quarter and in our future guidance.

And then, just from a sales capacity perspective. I understand that it takes about 24 months before an office is matured, but many offices do continue to ramp well past that. Just curious can you quantify or share the performance of some of the top offices currently? Specifically, how much new recurring revenue did at point typically, for let’s say the top five performing offices on average, just so that we could get a flavor on what could transpire for your newer offices?

Sure. So, I gave out this sales capacity number of $260 million, I believe, I gave that out about this time last year. I’m not going to update that today. That number was given out when we had -- would have been 42 offices, 42 sales teams. And so, you could -- somewhat for your averaging, you could have somewhat divided those 42 into the 260 to get, again what we believe our capacity was. But we’re continuing to eat away of that. I’m not ready to change that number yet. Something I can sure with you anecdotally is that in the past 30 days we’ve achieved our highest sales week that we’ve had here at Paycom, as far as new revenue that was recently sold. And so not that I’m going to share every quarter, but I do think it’s reflective of the decisions that we’ve been making to increase ourselves productivity. And I’m proud of the group and what they’ve been able to accomplish in achieving this in a month that traditionally for our industry is not one of our strongest new business signings month, because it’s in the summer. But again, we had our highest week and from both sales perspective and we’re very proud of that accomplishment. So, I think our group’s done a great job in taking the strategy and running with it. And I think, I know what we’re saying is the benefit to that through these results.

And just one last question for Craig. Looking at your R&D guide for Q3, it suggests to us that you’re continuing to invest heavily on the product side. Just curious, can you comment on some of the near-term initiatives working on specifically where are those investments going towards?

We don’t -- and this Chad again. We haven’t, I mean to your form, we haven’t ever discussed items that we’re working on until they’ve actually been released. One other thing I will mention is, we were the top trending app on the iOS Apple Store for our employee self-service app that we put out again in earlier the month of July. So, obviously, increased R&D made an impact on that app. We do continue to work on our other products. As you guys are aware, we have a very broad product set and the more clients you have using that, the more specs you get. We do want to continue to increase the value proposition for these clients. And so, our R&D spend is directed toward that. And we are increasing R&D but we’ve also been able to increase our margin as well. I mean, we’ve increased our R&D anywhere from 80% to 100% each quarter of a prior year quarter. And we’ve also been able to expand the margin. And that’s because the R&D expenses are turning into revenue generating products that the clients are able to use. So, we’re not going to be turning around here being market- high on R&D expense as it relates to a percent of overall revenue. But that’s due to also strong revenue growth. But, we are going to continue to focus our efforts in our R&D department as well.

And our next questioner today is going to be John DiFucci with Jefferies. Please go ahead.

I have a question for Craig first and then a follow-up for Chad. Craig, the results -- congrats, strong results, both top, bottom-lines here. But cash flow was below what we were modeling. And it looks like there was couple of things happening here. But the one that stands out is $20 million use of cash and the accrued expenses line, accrued in expenses and other liability. So, can you please explain a little bit what’s happening there and should we expect this to reverse or was this quarter the reverse of a previous benefit? And I guess is that related to the big incentive compensation contribution of cash in the quarter? And you talked a little bit about in your prepared remarks that was $14 million.

In terms of the cash flow and kind of what was going on in the quarter, some of that’s just timing, quarter-to-quarter. We also had some tax payments that were made this quarter. We kind of do -- we had a catch-up second quarter based on the first quarter’s results, so we had some additional tax payments as well in the quarter. And we’ll see some benefits kind of moving forward. You saw our tax rate for the second quarter decline some as well because of the deduction related to some of that stock comp.

And then, Chad, great to hear the largest ever new sales week in this past month. I mean that is great to hear. And I’m just trying to think big picture and that helps, but, when I look at this market and we’ve realized a lot of your competitive wins are against what I’ll call the incumbent HRO vendors. But it seems that part of those deals could also be, I guess Greenfield, so to speak. In other words customers, maybe are doing just payroll with the likes of ADP and then they come to Paycom, they realize, you know what, it’s easy to consume this other stuff too. And I don’t know if you guys break that out or if you think that way. But can you even roughly quantify how much of a new deal on average might be incremental functionality for the customer? Because we’re just trying to get our arms around the addressable market, what is the real opportunity here?

Yes. I mean, I’ll try to answer that. Our value proposition, we believe is an expanded value proposition, past the competition. So, would hope that any client that comes on to our offering having less as a competitor, would experience a greater usage and have a more robust product. So, we would expect that would be the case that people that we onboard use more product. But also the late work, we’re starting to see the way that there’s somewhat becoming a change in a way that companies use HCM technology, and I’ve said it before. Companies for employees, for 2,000-employee companies are using more technology when they buy their coffee than what they do when they’re interacting with their HR department and people that work for different-size companies know that, but that’s shifting. The HR departments are becoming more strategic, they’re leveraging technology, they’re leveraging what’s in the hand of the employees. And so, I still believe we’re in the early innings of that shift happening but I think we’re well-positioned for that. As far as how many of our deals are Greenfield versus not. I’ve mentioned in the past, greater than half of our business comes from legacy providers and everything else is a dogfight by. So, whether we’re competing against a traditional provider or SaaS type provider, every deal is competitive, and we also do convert those companies that are doing it themselves. But even those situations are competitive. So, we’re in a very competitive industry and I think that drives innovation that ultimately benefits all clients out there where people looking to buy this type of technology.

Okay. Keep that attitude, it’s a dogfight. I appreciate it. thank you.

And the next questioner to today is going to be Mark Murphy with JP Morgan. Please go ahead.

Hey, guys. This is actually Albert Chi on for Mark. Great job in the quarter, Chad and Craig, and thanks for taking my question. Chad, on previous earnings calls, you normally highlight some of the larger, notable wins that you sign in the quarter. Can you talk about some of the trends that you might be seeing at the upper end? And are there any changes that you detected in the competitive environment? And I know we ask that every quarter, but it’s worth asking. Thank you.

Yes. No, thank Albert. I mean, I appreciate your point now that historically we’ve be provided a few example -- actually not historically, I think for the first year or so after being public company, we did not provide client wins and started layering them in. And we provided those specific once, we highlighted some that we had won above our range. And we primarily did this to provide the proof points that our solution can scale and handle the needs of larger clients. We believe, we’ve established that at this point. To kind of answer the next question, we did have clients both above our stated range and below our stated range. And we say this is also reflected in the numbers. But, at some point, when we keep calling out the name or the industry that a company is in and the sizing, a 5,200-employee trucking company that we took from a legacy provider, at some point, it’s not that difficult for people to somewhat triangulate or for lack of a better word, reverse engineer the company that we’re talking about and definitely for the person it just happened. And so, I feel like, we’re kind of giving out more information than what’s really valuable. And so, moving forward, we don’t really feel a need to share that, other than to say that this quarter when you look at a client make-up, or the make-up of profile, client profile, the profile of the clients that we on-boarded in this quarter, we’re in line with the clients that we’ve on-boarded in any other quarter.

Just one more follow-up is, I kind of want to ask you about the acceleration of revenue growth in the quarter, especially absent tough comps. And I think we saw some of that in services. But revenue or recurring revenue also accelerated. And you also mentioned that there are decisions that you’ve made to increase sales productivity. Could you kind of walk us through a little bit of about what those are and maybe what drove the strength in the quarter? Thanks.

Yes. I don’t want to get too specific on -- we do get very specific when we start talking about sales metrics and our sales strategy and how we drive productivity internally. I don’t necessarily want to telegraph all that, but I will say this. We on purpose focus on reducing disruption as we open up offices. And I think our cadence in the last three years has been opening up all the offices in the first quarter. So, when you take a strategy of causing less disruption and it works, you are going to produce, you are going to produce. And so that’s really what’s happening for us is we’re producing. And the new offices that we’ve opened are doing very well as well. But, so we’re proud of that and it’s something we really needed to do to continue to be the type of growth company that we are. And so, I’m very happy with what’s going on there with the sales group.

And our next questioner today is going to be Mark Marcon with Robert W Baird. Please go ahead.

Wondering, if you can talk a little bit about some of your internal efforts just in terms of what you’re seeing from a recruiting, training perspective, what are you seeing in terms of customer satisfaction metrics. How do you think that client retention trends over the next two to three years relative to historical levels?

Well, we update our client retention every year. We just updated it, was it in the February?

February.

Okay, in the February earnings call. It has remained unchanged I believe for the last four or five years that we’ve done it at 91% and so there’s that -- from that standpoint. As far as retention of our own staff, I have to say it’s probably been in line. I don’t -- even on the sales side, I mean we’ve made significant efforts over there to continue to improve productivity. We’ve done that, I can’t say we’ve made a great impact on attrition of the new reps, and we haven’t experienced more attrition from the single [ph] reps, from the executive reps data. So, as far as the training and development, I mean we’re at training and development staff, I think we get speed up for hiring people with recent college graduates and over the course of 20 years, those are -- they’re no longer recent college graduates, when they’re out there running the different levels. And so, I don’t know. I mean, we just continue to develop and train; we continue to identify areas of improvement for us whether it be through client training, client on-boarding or even our own employees and on-boarding, and we remain very focused on that.

Great. I just meant with regards to the success that you’ve had. I was wondering if it’s changing all the profile or the types of people that are looking to join Paycom, and whether or not that’s having some impact. And then, lastly, can you talk a little bit about just the capacity to implement new clients as you continue to grow rapidly anything that’s occurring from that perspective that next few quarters, great, but where things may lengthen or do we think we can stick on the same metrics?

Well, I mean, first, I’ll take the first one. I mean, I do believe it’s easier for us to find people now than what it was three or four years ago, and I think that’s just due to the profile and the momentum we have and that type of thing. And so, but again, the type of person that we look for and the training that we put them through, although that’s all continued to expand, it falls within our current strategy. As far as on-boarding clients, I mean that’s something we do. There’s no such thing as an easy client transition. They’re all -- they all have their complexities to it. But, it’s something we wake up and do every day, so we do a lot of them. So, just like anything you do a lot of, you get better and better at it. And we continue to improve our on-boarding process. And really the key there is driving usage. At the end of the day, clients -- it’s easier to get clients to buy products than to use them. And you definitely want clients to experience their overall value proposition and there’re a lot of cross [ph] justifications that they have for making the purchase and really that’s about using the product. And so, a lot of the initiatives that we’ve that we’re working on today is to get clients to use the technology that’s available to them today.

And our next questioner today is going to be David Hynes with Canaccord. Please go ahead.

Thanks, it’s actually Mark Belcarz on for David today. Just one more on the competitive landscape. Obviously, sales execution for you guys has been going well. But, when you’re out there in new deals, is there any one that you’re seeing more or less of maybe this quarter than you’ve seen in the past?

No, it’s been substantially the same.

And then, just quickly on -- maybe on the numbers, cash flow, it was brought up earlier, was also little lower than what we had, and you called out the facilities build out. So, I was just wondering on CapEx, what can we expect in the back half of the year relative either to as a percent of revenue or relative to the first half? How should we think about that?

Our CapEx for really the first and second quarter of this year have been very consistent on a dollar basis. We’re continuing to complete the construction of the fourth building. We would expect those levels to be fairly similar on a dollar basis. And then, as we get closer to the completion of the billing, you would see CapEx increase a little. So, I mean, as I’ve mentioned earlier, we based those tax payments on the first quarters based on prior year. And then, when you have a strong first quarter, like we did this first quarter, you have some catch-up on that. So, in terms of the cash flow that was part of that ad I mentioned that on the earlier question.

And the next questioner today is going to be Corey Greendale with First Analysis. Please go ahead.

So, Chad, not to get too hung up on the point that you had a record week in July, that’s great, congratulations. Is there anything you would point to suggest like in terms of process or something that’s actually going to be repeatable and you would be disappointed, if you don’t have another record set in August or September or do you think it’s more kind of great week, but let’s [indiscernible] expect that’s going to happen again and let’s see what happens?

I mean, I can imagine a situation where as we continue on as a company, we’re not having additional record weeks. I just think that this was somewhat timing. And the fact that it was in the summer month, I thought it was something I wanted to point out. And again, it really comes down to us being less disruptive within our model and continuing to increase productivity. I mean it’s something I’ve been talking about that was going to be our focus. When I talked about the $260 million new business sales capacity metric that we put out there, I said, we’re going to be very focused on bridging the gap in this, so that we can expand it, but we need to have the achievement. That was our focus, that’s been our focus. I think we’re seeing signs of that coming to fruition. But we’re not done. I mean, we’re continuing to focus on that heads down, and again, continue to get a value proposition out there with as many potential clients as we can.

Great. And then, just on the regulatory environment. Do you see the stop and start on ACA, has any of that filtered through to your discussions with customers effects conversations at all or is it sort of who cares, we’re looking at our HCM system for different reason and we’ll see what happens?

To your prospects, you have to have an AC, you have to go to a company that has an ACA option. If you are a client, you already have ACA option. It’s for a while today, we’ve talked about in the past, it’s a nominal fee from our clients, it is. And when you take into consideration everything, there is the year-end homes filing. But it’s an ongoing fee that they pay, I believe it’s somewhat nominal. We’ve talked about the overall percentage, approximate percentage of our revenue that it impacts. And so, no, I don’t have a clue what’s going on with ACA. I mean every time it comes up, I think, it’s going to happen and it has. I don’t think anything is going to happen overnight. I think we’re going to have plenty of warning as it relates to, if there is a wind down, I think there will be a wind down. I don’t think it just automatically stops right away. But I don’t know, we’re going to wait and see what happens. Once we get the reds, our clients can rest assured we’re going to do the work that needs to be done to make sure, they stay in compliance and with whatever that might be.

And then, one last quick one. Can you remind me or if you haven’t disclosed, can you tell us if we look at your revenue growth that roughly the split, how much of the growth is coming from number of new customers and how much from a higher ARPU per customer?

No, we don’t break that out, but I’ve said it in the past and I wouldn’t mind repeating it now. I mean, the overwhelming majority of our revenue growth comes from new client adds. Now, then those new client adds might be adding additional products to that as they come into the fold. But, I mean that’s where the overwhelming majority of our revenue growth comes from.

Yes. And that’s growth from the fact that -- I’m guessing new clients today are paying more than new clients last year just because your suite is larger now?

I can’t confirm that that would be a -- I would have to -- no, I mean, I can’t confirm that. I think that our suite’s been pretty built out last year as well. Now, I’ll tell you, the longer you have a product, I mean the more popular it becomes with usage. And so, I think someone might be able to surmise that there could be some of that but I don’t really think that’s what’s driving revenue.

And the next questioner of today is going to be Siti Panigrahi with Wells Fargo. Please go ahead.

Hi. This is Ankit [ph] for Siti Panigrahi. Could you talk about your general investment plan in R&D and if you’re coming up with any new modules to drive PETY [ph] higher?

So, we don’t -- we haven’t ever disclosed any modules that we’re working on or any -- that be new modules or any current modules that we’re expanding usage cases for. And so, but I mean, we’re investing in R&D. I mean, like I said, we’ve had 80% to 100% of growth in R&D each quarter over prior year quarter, depending upon what you look at. I doubt very seriously, we’ll be talking too much time from now and people are still probably saying that our R&D is low compared to others. And so, from an overall percentage of revenue, I really don’t see us moving away from bottom of the pack anytime soon. But, we do have initiatives that want to continue in R&D group. That does take resources to do that. Anytime you see us adding to R&D, that’s headcount. I mean, we’re hiring individuals and bringing them in there, into Paycom. And we expect them to perform and produce the type of software that we’re able to turn into revenue, and so which then continues to keep the R&D as an expense of revenue, somewhat in line with the trajectory we’ve shown in the past. And so I would expect that to be somewhat the same but we’re not going to be market high R&D as a percent of revenue compared to any of our closest SaaS peers, primarily just because it’d be natural for us to make that type of investment. It’s unnecessary for us with where we’re sitting today.

And the next questioner today is going to be Abhey Lamba with Mizuho Securities. Please go ahead.

Hi, guys. Thanks, this is Parthiv in for Abhey, congrats for the results. Can you comment on attainment during the quarter and how attainment relative to plan? And then, any directional color on quotas during the quarter would be very helpful.

I’m sorry, comment on achievement during the quarter and how it came relative to plan?

Attainment?

Yes, as it relates to quota?

Yes.

Yes, I mean, we don’t really ever talk about what percent of quota our staff is. But I think it was a good quarter for us. When we talk about quota achievement, we’d be talking about how somebody booked sales last quarter, its last quarter’s book sales that returns into this quarter’s new business revenue, to kind of keep that in mind. But I’m very happy with what’s going on with the organization. I mean, sales group does continue to increase their level of not only knowledge, but production and activity. And we’re really happy with what’s going on there as we sit today.

And then for your current sales office base. I guess, could you give us a sense of how many of close 45 or either mid ramped or fully ramped or any high level commentary on where you expect to end up by the end of the year?

Yes. So let me see here. You’re going to have 14 of them that are either, almost to maturity or maybe have just having hit maturity, either brand new or mid-ramp. So, I’m probably going to say maybe 10 in that area you’re talking about, 9 to 10 in that area you’re talking about. They are still in the ramping -- either brand new or ramping phase.

And the next questioner is going to be Brad Reback with Stifel. Please go ahead.

Chad, building on the sales force question, how is the hiring environment out there right now?

I mean, I think it’s been a good hiring environment. I mean, if you’re looking for top talent, you’re going to have to have a good strategy to get it. We go through several interviews to find the right people. But, I mean, I would say, it’s been in line with the way it’s been in the past. Again, I think, our profile of being a public company on the margins helped us attract certain people. And we get a lot of -- especially from the sales side, a lot of our talent comes from referrals, from our own sales people. And they’re pretty good proof sources of what’s possible. So, we get some there as well. So, hopefully that answers your question. I wouldn’t say it’s getting any bit more difficult to find people.

And one other unrelated question. Last week, ADP talked about better retention, as they sort of finish up the workforce now migration. Have you seen any of that in the field or is that really that no impact?

No, I think, I mean ADP is the 300-pound gorilla. I mean, I think we continue to gain the business that we look to gain. And I still see that momentum continuing. I don’t -- I would be close enough to their overall retention numbers to be able to comment on that.

This will conclude the question-and-answer session. I would now like to turn the conference back over to Chad Richison for his closing remarks.

All right. Well, I want to thank everyone for joining us on the call today. And we appreciate your time and interest in Paycom. We look forward to meeting with investors at the Canaccord conference on August 9th in Boston and also on the road this quarter. Thanks to all.