Paycom Software, Inc. (PAYC) Q4 2017 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Paycom Software Fourth Quarter and Full Year 2017 Financial Results Conference Call. [Operator Instructions] Please note that today's event is being recorded. I would now like to turn the conference over to Craig Boelte, Chief Financial Officer. 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 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 year ended December 31, 2016. You should refer to and consider these factors when relying on such forward-looking information. Any forward-looking statements speaks only as of the date on which it is made and we do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Also during the course of today's call, we will refer to certain non-GAAP financial measures. A reconciliation schedule showing GAAP versus non-GAAP results is included in the press release that we issued after the close of market today which is available on our website at investors.paycom.com. We also issued a presentation addressing the new accounting standard, ASC 606, which can be assessed on our Investor Relations website. I will now turn the call over to Chad Richison, Paycom's President and Chief Executive Officer.

Thanks, Craig, and thank you to everyone joining our call to review our fourth quarter and full-year 2017 results. 2017 was a great year, and we made substantial progress executing in pursuit of our goals. Before I review our results and provide comments on the quarter and the year, I want to thank all of our employees whose tireless efforts in both support of and growth of our client base allowed us to succeed in 2017. This year, we made significant enhancements to our service model, improving the client onboarding experience, usage patterns of the Paycom system, and other key processes. Thanks to the focused efforts of our employees through 2017, we have set ourselves up very well to achieve our 2018 goals. We had excellent results for our fourth quarter, with revenue coming in at $114 million, representing growth of 30% over the comparable prior-year period. For the full year, revenue was $433 million, representing growth of 32% over the prior year. The power of the Paycom solution continues to resonate with prospective clients, and this drove our traction in the marketplace in 2017. For the sixth year in a row, our revenue retention rate was once again 91%, underscoring that our clients continue to see the value in partnering with Paycom. I’ll take a moment to quickly review some highlights of 2017. Paycom received external recognition from several notable sources, placing second on Fortune magazine's list of 100 fastest-growing publicly-traded companies, finishing fourth on Forbes Fast Tech 25 list of America's fastest-growing publicly-traded technology companies and being named one of Oklahoma's top places to work for a fifth consecutive year. Also, we were proud to honor the legendary athlete and Oklahoman Jim Thorpe by sponsoring the Paycom Jim Thorpe Award, an award given to college football's top defensive back. We also debuted our first national television ad campaign, and it has received very positive feedback. Finally, in 2017, we launched our mobile app in the Apple and Google Play stores and developed many enhancements to our current offering. We were able to achieve this impressive set of accomplishments and also our robust top-line growth while producing substantial margin and cash flow allowing us to return value to our stockholders in the form of over 1.2 million shares repurchased over the course of 2017. In the fourth quarter alone, we repurchased 538,000 shares. Since we initiated the repurchase program less than 24 months ago, we have repurchased 2.3 million shares. While we are proud of what we have achieved so far, we are even more excited about our future prospects which are driven by our vision for the future of our industry. We believe the trend of increasing user engagement with human capital management systems along with workers insistence on robust yet intuitive digital HR experiences is poised to continue. What we see in the marketplace makes us even more confident that we are in front of significant growth as these trends continue to gain traction, particularly across our target market of companies with 1,500 to 2,000 employees. Managers of these companies are becoming increasingly aware of cutting-edge HR technology and how it can help them produce efficiencies in their business. The broad functionality of the Paycom solution provides these organizations with best-in-class HR software functionality without the cost of third-party providers or integration. At the same time, our system is intuitive and easy to use, allowing it to be used by every employee often on a daily basis. This powerful functionality is why we believe Paycom is the best-positioned company in the industry to help clients achieve their potential by allowing them to unlock the value of their team members. Turning to our sales efforts, we opened three new sales offices in 2017, Milwaukee, Richmond and Long Island. They are continuing to grow and mature. Today after the market closed, we were pleased to announce the opening of an office in Salt Lake City. This brings our total number of sales teams to 46. Our 2017 sales offices are doing well and of the offices opened in 2016, some will be hitting their initial maturity date soon, but the offices will continue to hit their full stride as they become staffed with the majority of senior reps who have the best production capability. For our sales representatives, time in the field is extremely important. A rep that has worked in his or her territory for several years has developed deep relationships and a reputation for helping clients improve their company operations through deploying the Paycom solution. As a result, we continue to see very senior sales reps outperform and this drives our belief that we have the opportunity to continue to improve sales productivity. We believe that the market share that remains for us to capture is substantial and are building a sales organization that will allow us to leverage this opportunity. To sum up, 2017 was an excellent year for Paycom and we are excited about continuing our momentum through 2018. With that, I'll turn the call over to Craig for a review of our financials and guidance. Craig?

Thanks Chad. Before we review our fourth quarter and full year results for 2017 and also our outlook for the first quarter and full year 2018, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. We used adjusted EBITDA non-GAAP net income as supplemental measures to review and assess our performance and for planning purposes. Adjusted EBITDA and non-GAAP net income are non-GAAP financial measures that excludes noncash stock-based compensation expense and certain transaction and other expenses that are not cored to our operations. Non-GAAP net income also reflects adjustments for the effective income taxes. Reconciliations of the GAAP to non-GAAP measures discussed today are included in the earnings press release issued earlier this afternoon. Additionally, along with our earnings press release, we provided a presentation that outlines the impact to our financial statements of the new revenue recognition standard ASC 606. This presentation is available to download on our Investor Relations website and was furnished as an exhibit to Form 8-K filed this afternoon. I will discuss our fourth quarter and full year results on this call based on the historical revenue standard ASC 605 that will provide forward-looking guidance based on the new revenue recognition standard ASC 606. I'll also talk more a little bit later about the adoption of the new standard and the areas where it will have the most significant impact on Paycom’s financials. As Chad mentioned, we had strong results in the fourth quarter, with total revenue of $114 million, representing year-over-year growth of 30% from the comparable prior-year period. Our full-year 2017 revenues were $433 million, representing growth of 32% over the comparable prior-year period. Our revenue growth continues to be primarily driven by new business wins, and we are pleased with our continued performance. Within total revenues, recurring revenue was $111.7 million for the fourth quarter of 2017, representing 98% of total revenues for the quarter and growing 29% from the comparable prior-year period. Total adjusted gross profit for the fourth quarter was $95.6 million, representing an adjusted gross margin of 83.8%. For the full year 2018, we anticipate that our adjusted gross margin will be within a range of 82% to 84%. Total adjusted administrative expenses were $69.4 million for the quarter as compared to $56.5 million in the fourth quarter of 2016. Adjusted sales and marketing expense for the fourth quarter of 2017 was $42.5 million. Adjusted R&D expense was $7 million in the fourth quarter of 2017 or 6.2% of total revenue. Total adjusted R&D costs, including the capitalized portion, was $11.1 million in the fourth quarter of 2017 compared to $8.4 million in the prior-year period. Total adjusted R&D costs for the full year of 2017, including the capitalized portion, was $41.1 million or 9.5% of total revenues. Adjusted EBITDA was $31.8 million or 27.9% of total revenues in the fourth quarter of 2017 compared to $20.7 million or 23.6% of total revenues in the fourth quarter of 2016. For the full year of 2017 adjusted EBITDA was $137 million or 31.6% of total revenues compared to $94.5 million or 28.7% of total revenues in 2016. Our GAAP net income for the fourth quarter was $12.9 million $0.22 per diluted share based on approximately 59 million shares versus $8.6 million or $0.15 per diluted share based on approximately 59 million shares in the prior year period. Our effective income tax rate for the fourth quarter of 2017 was 27.7%. For the full year 2017, our GAAP net income was $66.8 million or $1.13 per diluted share. Non-GAAP net income for the fourth quarter of 2017 was $16.8 million or $0.29 per diluted share based on approximately 59 million shares versus $10.8 million or $0.18 per diluted share in the prior year period. For the full year of 2017, our non-GAAP net income was $76.7 million or $1.30 per diluted share. As Chad mentioned earlier, we have returned value to our stockholders in the form of over 1.2 million shares repurchased over the course of 2017, including over 770,000 shares purchased in the open market. In the fourth quarter alone, we repurchased over 538,000 shares. Since we initiated the repurchased program that some 24 months ago, we have repurchased over 2.3 million shares including nearly 1.6 million shares in the open market. We anticipate fully diluted shares outstanding will be approximately 59 million shares in the first quarter of 2018. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $46.1 million and total debt of $35.3 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 $38.2 million for the fourth 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 $820 million in the fourth quarter of 2017. Now, we'll provide some comments regarding the impact on our financial statements that both the federal Tax Cuts and Jobs Act and also ASC 606 accounting standard. As a reminder, Paycom historically has applied to 35% statutory corporate federal tax rate as part of its overall effective tax rate. In 2018, we anticipate that our GAAP tax rate will be within a range of 22% to 24%. This will be driven by the decline in the federal rate to 21% and offset by a variety of factors, including the elimination of the Section 199 deduction, the Section 162 (m) limitation, and handful of other smaller factors. Regarding the impact to our 2017 financials, the Tax Cuts and Jobs Act was signed into law in December, and this resulted in a $0.4 million or $0.01 per share reduction in net income for the fourth quarter of 2017. A decrease in the federal corporate tax rate from 35% to 21% required us to revalue and write down certain deferred tax assets at December 31, 2017. This onetime write-down was necessary in order to reflect the expected recovery of those assets under lower future tax rates. Regarding ASC 606, effective January 1, 2018, we have adopted and are using the new accounting standard. We adopted the standard using the full retrospective method and will begin reporting under this new method beginning in the first quarter of 2018. However, in order to provide early transparency into the impact on the 2016 and 2017 numbers, we have furnished a recast of our financial statements for the full year of 2016 and for each quarter end and the full year of 2017 as well as certain non-GAAP metrics. As mentioned earlier, these recast numbers can be found in the presentation that is available on our Investor Relations website site along with a brief description of the impact of the new standards on Paycom. In short, the new standard will not have any impact on how we recognize our revenues, only the timing of when we recognize certain expenses. This is primarily the result of the short-term nature of our contracts and the fact that we already have a practice of deferring and recognizing our implementation revenue over the life of the client which has been determined to be 10 years. Under the new standard, we will continue this practice. The primary impact on us will be a change in the timing of when we recognize certain expenses related to the costs to acquire new sales contracts, specifically commissions paid to our sales representatives as well as the implementation and setup costs associated with those contracts. When one of our reps sells a deal, we pay that rep his or her commission after the deal has been live for 30 days. Historically, we have recognized that commission expense in the quarter it was incurred. Now, under 606, we will be capitalizing the commissions and contract costs as an asset on our balance sheet and then subsequently recognizing those costs ratably over the period of benefit which has been determined to be the 10-year life of the client. This will have the impact of spreading out sales commission's expense. As such, it will reduce our sales and marketing expenses and, to a lesser degree, our general and administrative expenses and will increase our adjusted EBITDA and earnings per share. Looking ahead to 2018 operating expenses on a quarterly basis, we expect general and administrative expenses will be fairly similar as a percent of revenue to the recast 2017 figures, and both sales and marketing and R&D expenses as a percent of revenues will be slightly higher than the recast 2017 figures. We expect noncash stock-based compensation for the first quarter of 2018 to be approximately $10 million. Now let me turn to guidance for the first quarter and full year for fiscal 2018. As a reminder, this guidance takes into account the new ASC 606 standard, and growth rates are calculated using the recast numbers for the comparable 2017 periods. For the first quarter of 2018, we expect total revenues in the range of $150 million to $152 million, representing a growth rate over the comparable prior year period of approximately 26% at the midpoint of the range. We expect adjusted EBITDA for the first quarter in the range of $74 million to $76 million, representing an adjusted EBITDA margin of approximately 50% at the midpoint of the range. For fiscal 2018, our revenue guidance is a range of $541 million to $543 million or approximately 25% year-over-year growth at the midpoint of the range. Our full-year 2018 adjusted EBITDA guidance has a range of $213 million to $215 million, representing an adjusted EBITDA margin of approximately 39% at the midpoint of the range. With that, we will open the line for questions. Operator?

[Operator Instructions] Our first question comes from Raimo Lenschow of Barclays. Please go ahead.

First question is for Chad. Chad, in 2017, you opened three offices. That's kind of below your normal run rate of like five, six, and I know there's all different factors playing a role here. Can you talk a little bit about what impacted that year, is that kind of the new normal that we need to think about it? Just kind of give us the puts and takes there. Thank you.

And you're right. Last year, we did open up three. We staggered the amount last year. Matter of fact, I don't even know that we opened one as early as we did this year. And it's somewhat odd that we would open one early. I know that we've announced some before that we had opened early, and I don't see us going back to the type of program where we try to open four or five in the same 10-day period. We did a lot of work in our sales organization last year both preparing backfill and increasing the maturing numbers in our mature offices, and so we believe that set us up well to continue our staggered strategy throughout the year, and we will be announcing additional office openings as we move forward.

So it's not - if you think about this, the three is not - it’s not a demand location issue. It’s more like you guys kind of internally finding the senior people to move and the backfill, et cetera.

That's really always been our gating factor. It is talent development on the back end. It's ready to both backfill, as well as having managers being ready to relocate. And I think we did a good job last year of changing our strategy in how we develop and enter a new market that way. It was successful, and I would see us continuing that strategy throughout this year.

And a question for Craig. Craig, if I look at your new profitability guidance and I kind of see what we did last year in terms of EBITDA margin, it seems like it's ticking down a little bit in 2018 on the EBITDA margins. Can you talk a little bit about the puts and takes in terms of investment areas, you mentioned R&D, sales and marketing going little higher, a little bit higher, like what's driving it and what’s the thinking behind then?

The two that I mentioned on the prepared remarks were R&D, as well as some in the sales and marketing. Our gross margins we finished the year pretty high for the full year and I guided for 2018 in that 82% to 84%. That's really dependent on our hiring trends and making - certain times of the year we may be a little behind on the hiring and certain times a little ahead. So that's kind of where the puts and takes are. We'll continue to look for efficiencies in the model though. G&A is one area where we're going to definitely look as well.

And then, have any idea in terms of like how - like if I think about cash that's kind of the number, the thing that doesn't really change so kind of do I think about the same level of cash conversion as I think about 2018 that you saw in 2016 and 2017?

I mean, I would assume that it would be fairly similar to what you saw in 2016 and 2017. Some of the bigger items that impact the cash or the CapEx and so other than that, I would expect it to be very similar.

Our next question comes from John DiFucci of Jefferies. Please go ahead.

Actually, I just have a follow-up to that last question there from Raimo, and I guess this is for Craig. The cash conversion really below the operating line, can you talk a little about the potential benefit to operating cash flow due to the lower tax rate? All your businesses are here in the States, so I assume - and you guys have been profitable for a long time unlike a lot of software companies. So I assume you’d see some benefit there. And I assume that ASC 606 has little to no impact on cash flow even though you're moving some of the expenses out a little bit.

On the ASC 606, as it relates to cash, yeah, it will have no impact on our cash position relative to 606. In terms of the tax rate, I called out the gap range of 22 to 24. We are full tax payers and have been for several years, so we would see some benefit from the lower taxes.

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

This is Albert Chi on for Mark Murphy. Congrats on a great quarter, Chad and Craig, and thanks for taking my question. For the R&D, it looks like it declined a little bit sequentially and slowed down a lot year-over-year. And I know you guys have the capitalized software development outside of that but is there any change in direction or any points of leverage that you're seeing?

No. And as we mentioned, for 2018, we would expect that to continue to increase as a percent of revenue. Well, we did see a little higher capitalization in fourth quarter than what we had originally thought.

And then I guess one more point on the guidance. For the adjusted EBITDA numbers that you're talking about 39% guidance for the full year, are you able to give us a sense of what that would have looked like under the older ASC 605? Like is there a margin number that you can kind of give us?

I mean, we will not be - since we adopted the full retrospective, we will not be showing any ASC 605 numbers as we move into the first quarter. So, it's something that we really don't want to get into, showing a what-if under ASC 605 because there will be no area where we'll actually be reporting that.

Our next question comes from Mark Marcon of R.W. Baird. Please go ahead.

Let me add my congratulations, great year. I'm wondering if you can talk a little bit about what you're seeing just in terms of client retention trends, sales productivity in some of the older markets versus the new markets, any sort of change in color from a competitive perspective. And then, I've got an EBITDA margin question.

And so, our sales productivity remains strong. The initiatives that we've put into the group last year continue to produce for us. And so I'm very happy with that. We're starting off the year strong with our starts and what have you. So, we're focused on that. What was the second part of the question? No.

Your client retention.

Yes, client retention. And so, Mark, our client retention has been 91%, that’s a trailing revenue, I believe and measured like our competitors, and it's been 91% for the last six years. There are certain clients that we can't control loss on due to bought-sold, merged and/or cash flow. And there’s a certain number that we can control, and we've been focused on that. I do think it's important to point out we've maintained a 91% retention rate, and we have not taken the 4% to 5% routine price increase which is somewhat standard for our industry. And so we continue to be focused on the client and produce pricing that allows the client and Paycom to experience the efficiencies that we drive through the ROI. And so we're focused on that. And we are hoping to continue to make improvements amongst our client base in both service and product to make an impact on that rate, but we have held the line at 91% for the last six years.

And then, with regards to the EBITDA margin projection for 2018 relative to 2017. You mentioned both sales and marketing and R&D will be going up. Would you expect one to go up on a basis-point basis more than the other or are you proportional, how are you thinking about that in terms of heavier investment?

We think the investment is going to be fairly similar between the two. I mean, one quarter might be slightly higher than the other but overall fairly similar in terms of the increase.

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

I just jumped off another call. Chad, if you can maybe just give us a sense how many office openings do you plan to do in 2018, and what's the average productivity improvement you're assuming in your initial 2018 growth outlook? And then also, can you maybe share any metrics or give us a sense of how much productivity has improved in 2017 as a result of the staggered office openings?

And so in 2017, I believe in 2016, actually, I'd put out toward the end the $260 million sales capacity number that we had and that we had that currently. Obviously, that number has grown some but I have not updated it. And we'll update that as we get closer to it. But we have had efficiency gains throughout the organization, so I should say productivity gains in the sales organization which we pretty much do every year as something that we focus on. Those gains have set us up well as we head into this year. We haven't ever really guided to office openings other than to say, we're going to continue the strategy. But we are set up better this year to open up offices than what we were even last year.

In the past, I think you've said that the office openings do drive the business on a forward-looking basis. Are you changing that now? So is it both office openings and productivity gains? How should we think about the lower number in 2017 office openings and only one so far year-to-date in February?

So last year, at this time, I think we had opened zero through the year and so from that standpoint. But the office openings make an impact later on in their life cycle. I wouldn't say it's one of the other. I wouldn't say office openings drive our growth. It's a piece of our growth strategies opening up offices. And obviously when you're maturing mature offices, you don't really get to talk about those offices unless they're open. And so, it's important for us to continue to drive our office open strategy, as well as gain productivity throughout the year with those mature offices.

Our next question comes from David Hynes of Canaccord. Please go ahead.

Nice set of numbers here. Chad, I want to start maybe we could ask about the TV campaign. Curious why you felt like now is the right time, how is that working? Is that running in cities just to have mature offices? Is that running across all regions? How do you think about tracking effectiveness? That sort of stuff. Anything you could share on maybe how that's contributing to the business.

Well, I mean, I have a certain view of advertising versus marketing and specifically as it relates to strategic selling. I think advertising allows for specific branding. We don't really put ads out there and expect our phones to start ringing. But advertising does provide branding. It was a national campaign that we embarked on, I want to say, middle part of last year that we ran primarily on the news and some sporting events as a brand awareness-type campaign. We haven't really talked about how much more of that or if we will continue that. But I think as we continue to grow, our branding is important. But it would be one piece of our strategic selling of model.

And then, Craig, maybe on the numbers. We're going to bump up against 40% EBITDA margins almost here in 2018. How high is that up on that front as we contemplate an updated long-term model?

We had a long-term model under ASC 605. We’re still looking at our long-term model under ASC 606. We’re going to continue to be a high-growth company, but also look to achieve some efficiencies along the way. So, as we get throughout the year, we may decide at some point to update that long-term model.

Our next question comes from Brent Bracelin of KeyBanc. Please go ahead.

First one for Chad, I mean at a macro level, the NFIB Small Business Index I think hit a 30-year high this year here on small business hiring on optimism. What kind of impact does that have on either the pipeline or your business as you just think about kind of macro factors? First question.

Well, I do think any time you have a good business environment that's good for our clients and that can't help but on the margins be somewhat favorable to us as well. We're definitely an ROI-driven type company where we go in and have collaborative meetings with the client to drive that. I mean, ROI-driven results really can work regardless of current market environments and we've seen that before. We've been a company that - it's our 20th year in business. So, we've lived through plenty. But I do think that any time you have a very positive index out there, it can't help but to provide again on the margin some level of a positive environment.

And then just one follow up here as you think about the number of new software features that you've added to the cloud payroll and HCM stack here over the last several years, what's your view around the value you’re providing customers and in pricing? You mentioned you haven’t raised pricing in a meaningful way in the past. What would change the scenario where you’d consider doing that?

And so we haven't raised prices. We do produce additional software functionality that is for sale. But at that point, we're actually delivering additional value to the client for that. In answer to your question, I believe that we are fairly priced when we go in and we have meetings with the client. And we don't give prices where there's not in ROI that has been developed in conjunction within those client - in conjunction with the client in those meetings. And so we're very focused on that ROI and making sure our client base receives the ROI that was discussed in the sales call and then it's delivered through the transition process. And so we're focused on that. And you know, over time, it should get easier to handle the same client as they become acclimated to the software as well. And so we're definitely not the least expensive out there. But I believe when you include our ROI, we’re still the low cost provider.

And then last one here for Craig, as you think about just cash flow impacts that we should think about in 2018 and 2019, can you remind us CapEx outlays again 2018 and 2019, what are some of the expectations there that we should think about in our cash flow assumptions? And then if you could also talk about sales commissions, are you going to continue to pay sales commissions the standard way from a cash payout perspective or as the ASC 606 accounting changes, are you also changing cash payout to sales commissions as well?

I'll take the last one first. I mean, we really don't plan on changing the way we pay commissions and in the past, we've, after the client is ran for 30 days, we estimate the annual revenue the client will pay the sales rep commission based on that. And so ASC 606 will have no impact on the way we pay the commissions, only the way we recognize those expenses. In terms of CapEx, we don't guide the CapEx but you could probably look back historically at how we've spent on the CapEx line and you know as we've mentioned the fourth billing is coming online, sometime mid-year. And as we get close to that, we typically have a little bit of an elevated level of CapEx on some of those expenses.

And then after that mid-year elevated CapEx spend, you should start to normalize, is that the right way to think about it?

We really haven't given any guidance past that. We might see a slight drop off once that billings is completed.

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

This is Ken Wang on for Corey. Congratulations on a strong year-end and thank you for taking my question. So just wondering if you can speak a little bit about your revenue growth split during 2017 just between new customers and upsell, just wondering if you saw any change during Q4 and whether or not your expectation is for the split to remain about the same in 2018.

I would expect, yes, the split to remain about the same. We’ve always, even through the year where we - and I guess I’m going to be the first one to say this, but even through the year where we had our ACA sales, our sales were always the overwhelming majority of all of our revenues delivered from new client wins primarily because the dollar revenue value for a new client win is so much larger than what any one product is that you can sell into your current client base. As well as with Paycom, our salespeople are incentivized to make sure that the client is using and receives the number of products they require at the time of the initial purchase. And so I wouldn't expect in 2018 to be any different than what it was in 2019 as far as the breakdown on that.

And then just one more for me, just wondering if you can comment, has the addition of your LMS course content, has that had any positive effect on sales of the module or the platform more broadly?

Well, we announced that LMS course in November, those LMS courses in November. They followed upon the LMS product that we actually developed probably two or three years prior, at least three years prior. And so we do expect that those courses would be able to produce greater adoption rates of that LMS module. We’re still in the early stages of that. But I would expect that that would continue to aid in our value proposition as we're out there in the market.

Our next question is from Siti Panigrahi of Wells Fargo. Please go ahead.

This is Ankit for Siti. Could you talk about what kind of penetration trends you're seeing in the market to the overall addressable market?

I think you're talking about new client wins penetration perhaps and…

That's what I'm trying to figure out.

I would say that we do continue to achieve our goals in regards to that, our wins versus our add backs. That's not something that we talk about for competitive reasons. And we have some sales teams that are stronger than the others. I will say this. We still represent 2% to 3% of the overall TAM available to us and it's a growing TAM. And so, we're still very focused on those new business wins.

Our next question comes from Shankar Subramanian of Bank of America/Merrill Lynch. Please go ahead.

My question is on - with the revenue growth rate projections for fiscal 2018. Can you talk about the visibility of that growth of the revenue for 2018? The reason I'm asking is if you had about 36 maturity and so in fiscal 2017 and this year should be a little bit more than that, and because of the higher revenue per customer that you can sell through this year, is your revenue growth including the upside and ARPU as well as the improved productivity or what are the upside opportunities that you're expecting in fiscal 2018 is what I'm looking at.

Well, so the greatest upside I think to any years’ performance is new client wins, a number of new client wins that you’re bringing on. That’s really important. Our approach to our guidance this year didn’t change from last year or the year before or really from quarter-to-quarter. I mean we focused on what we can see based on both our pipeline as well as those deals that have already hit the backlog and we'll be converting within an eight-week period on most of them. And so we're very focused on that. And then as we move throughout the year, we will update both the numbers and the guidance based on what we can see at that time.

Our next question is from Brad Reback of Stifel. Please go ahead.

Did I think last year you’ve talked about promoting 37 people to executive reps last January. Can you give us a sense of what the promotional look like this year?

You know I do not have those numbers specifically as far as that. We would have more information on that after the February commissions because someone either hits executive rep toward the end typically in December and January as those are often times can be strong starts for us. And so I don't have those numbers to update at this time.

And just really quickly with interest rate continuing to rise. How should we think about the sensitivity of flow balance and interest rates?

I mean our balances have increased, but our investment strategy has not changed. A lot of that most of that money spends very little time in our account. We are very conservative in the way that we invest that. Obviously as interest rates go up, we're going to receive some gain for that with the same investment strategy. But we haven't guided to what that is within our revenue and it would represent a very small portion of revenue and or gain for us.

Our next question comes from Brian Schwartz of Oppenheimer. Please go ahead.

Chad, I want to switch it up and ask an industry question here. Kind of building on one of your responses. You mentioned that the greatest upside potential for the business is the pace of the new client wins that they occur. The question I wanted to ask you about the industry and really the buyer preference. In the upper markets - so let's call it the upper and mid-markets, not in your market, we've seen a big shift here in the market over the last year and a half with the buyer preferences moving towards wanting to standardize on a strategic vendor. They want [your staff], and they want an HCM platform approach to the services and workflow. And so the question I just wanted to ask you is I'm just wondering if those trends have started to trickle down into your market and maybe creating a tailwind here within the market? And then the third question about this is, if those trends are starting to pop off in the deal engagement, is it possible to rank them in regards to which could be the biggest tailwind to the new customer acquisition trend moving forward? Thanks.

I'll try to answer the way I understand it. I think it really depends on where you draw that line between where, we'll call it, enterprise starts and mid-market stops or what have you. And we used to talk about client wins each quarter as we rolled them out, and it was obvious that we were gaining client wins above our target market. And I had even said in the past that those are typically a pool opportunity and that we're being pulled into those organizations and so I don't disagree with you that the large business market or enterprise market is realizing the benefits of having a relationship and one software package that could actually handle their needs and I think they're coming to that realization. In the mid-market, I will say that's pretty much been the case. I mean, I've said this before, I'm not 100% sure always, depending on the clients' unique situation that we're always 100% exactly right for a client, but they sure want us to be. Clients sure do want to use one system for everything. And we've had a lot of success with our value proposition which we stayed true to. And so, we'll continue to do that. If it gets easier, to move up market because we do have so much opportunity for us right now on the mid-market, we do have a good product fit for larger businesses as well. We just have a little bit lower tolerance for year-long type sales process and conversion.

Our next question comes from Abhey Lamba of Mizuho. Please go ahead.

This is Parthiv on for Abhey. Congrats on the results. Just a couple of quick ones. For the 46 offices that you currently have, just wanted to get an update on the on the split between those that are fully mature and those are ramping up toward full productivity. And then, maybe where you expect the mix to end up towards the end of 2018.

So, right now, we still have. How many is that maturing?

Nine maturing.

We have nine maturing throughout this year and we have five that will come into maturity in the year. Is that right? Six that will come into maturity in the year.

Six in this year.

And nine that are not mature at this point.

Okay.

And it is important to note that what we call maturity is your initial staffing in the market and beginning of mature quota. In fact those offices continue to mature in our offices that have been opened five, six years will typically outsell even an office that's been opened a couple two or three to one.

And then one more with respect to the restatements, we understand that change in sort of sales and marketing expense recognition with the $11 million G&A expense was written. What is the driver over there?

I mean, as we were going through the 606 recast numbers, you really look at the cost to obtain and fulfill and the ones that are in the G&A are more of the fulfilled costs.

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

Well, I want to thank everyone for joining the call today. And I also want to congratulate Minkah Fitzpatrick, the defensive back from the University of Alabama for winning the Paycom Jim Thorpe Award this year. Like Minkah, we're all excited for what 2018 has in store for us. Thank you and we'll be talking to you guys next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.