Paycom Software, Inc. (PAYC) Q2 2019 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Paycom Software Second Quarter 2019 Quarterly Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to James Samford, Head of Investor Relations. Please go ahead.

Thank you, and good afternoon, and welcome to Paycom's Second Quarter 2019 Earnings Conference Call. 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 way have made or make in this presentation 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 most recent annual report on Form 10-K. You should refer to and consider these factors when relying on such forward-looking information. Any forward-looking statements may speak only as of the date on which it is made, and we do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Also, during the course of today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP net income, adjusted gross profit, adjusted gross margin and certain adjusted expenses. We use these non-GAAP financial measures to review and assess our performance and for planning purposes. A reconciliation schedule showing GAAP versus non-GAAP results is included in the press release that we issued after the close of the market today, which is available on our website at investors.paycom.com. I'll now turn the call over to Chad Richison, Paycom's President and Chief Executive Officer. Chad?

Thanks, James, and thank you to everyone joining us on our call today. I'll begin my remarks by reviewing another strong quarter and provide you with some perspective on how our groundbreaking Direct Data Exchange and employee usage initiatives are redefining the relationship employees have with their Human Capital Management or HCM software in the workplace. I'll finish by discussing some additional business highlights, and Craig will review our financials and outlooks, before taking your questions. The second quarter results came in strong, thanks to robust new business adds and we remain well positioned for another excellent full year. Q2 revenue was approximately $169 million, representing growth of 31.5% versus the comparable prior year period. Our adjusted EBITDA of $69.4 million represented a 41% margin. With these results and our momentum, we are raising guidance for the full year, which Craig will discuss in more detail in his remarks. Employee usage of HCM technology is the future of our industry and our clients and their employees are embracing the digital transformation faster than ever. With Paycom, they can measure the estimated ROI on their HCM investments and benefit from higher employee engagement, increased productivity and better job satisfaction. Our early investments and employee usage are driving strong sales growth, but we believe this digital transformation is still in the early stages. Last quarter, we released our Direct Data Exchange or DDX for all of our clients, a highly differentiated enhancement to our software offering that reports all data changes made directly into the HCM database by employees, as well as all duplicative data changes typically input by other client representatives. As employee usage gains traction, our clients contract the financial benefits of eliminating these duplicative data input. Clients choose the pace of their digital transformation and Paycom can go as fast or as slow as they want. However, we are seeing clients embrace the transformation at a faster pace today than a year ago. Before the DDX, no one in our industry, let alone HR professionals knew what appropriate employee usage look like or how to measure. Now they can and they are embracing it. Turning to our sales initiatives. In addition to continuing to innovate our product offering, we are also innovating our sales strategy as buying habits across the industry, continue to change with more companies becoming comfortable buying online. This means we will increasingly employ a combination of traditional sales teams and non-traditional sales teams, such as our inside sales group. We recently brought one of our most successful outside sales managers to lead our inside sales initiative, because we have found that prospective clients are embracing this non-traditional sales model and buying online. We believe this initiative will aid our sales growth and complement our existing sales efforts. We also recently opened a new sales office in New Orleans. While we continue to expand our sales footprint, I want to emphasize, that the largest driver of our sales growth is coming from the sheer mass of our existing sales force and their increased productivity. On the technology side, we continue to add talent to our outstanding development teams to focus on new products and software enhancements. We are experiencing a lot of success, and I'm very pleased with the product line. In fact, we recently released Ask Here to all of our clients. This newest tool gives employees a direct line of communication to ask work related questions of their company representatives and receive timely answers, all through the convenience of Paycom self service technology. I'm excited about the many benefits, companies and their employees gain such as one online communication resource that ensures all increase are addressed, actions are taken and eliminating the needs for employees to follow up through email, phone call or added foot traffic. Now employees don't need to know exactly who to ask questions to, as this functionality empowers them to ask any business question, which has been routed to the most appropriate client representative with the relevant expertise. This latest innovation further enhances the employee-employer experience and strengthens the clients employee usage initiatives. To conclude, we believe Paycom is leading the digital transformation of the HCM industry, which positions us well to deliver value to our clients and their employees throughout the year and beyond. With that, I'll turn the call over to Craig for a review of our financials and updated guidance, Craig?

Before I review our second quarter results for 2019, as well as discuss our outlook for the third quarter and full year 2019, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. As Chad mentioned, we were pleased with our second quarter results, with total revenues of $169.3 million, representing growth of 31.5% over the prior year period. Our revenue growth continues to be primarily driven by new business wins. Within total revenues, recurring revenue was $166 million for the second quarter of 2019, representing 98% of total revenues for the quarter and growing 31.1% from the comparable prior year period. Total adjusted gross profit for the second quarter was $144.4 million, representing an adjusted gross margin of 85.3%. For the full year 2019, we anticipate that our adjusted gross margin will be within a range of 84% to 85%. Total adjusted administrative expenses were $85.9 million for the quarter as compared to $61.7 million in the second quarter of 2018. Adjusted sales and marketing expense for the second quarter of 2019 was $39 million, as compared to $30.2 million in the second quarter of 2018. Adjusted R&D expense was $16.3 million in the second quarter of 2019, or 9.6% of total revenues. Total adjusted R&D costs including the capitalized portion, were $22.3 million in the second quarter of 2019, compared to $14.6 million in the prior year period. Adjusted EBITDA was $69.4 million or 41% of total revenues in the second quarter of 2019, compared to $53.5 million in the second quarter of 2018. Our GAAP net income for the second quarter was at $48.8 million or $0.83 per diluted share based on approximately 58 million shares versus $35.7 million or $0.61 per diluted share based on approximately 59 million shares in the prior year period. Our effective income tax rate was 6.9% for the second quarter and 16.1% for the six months ended, June 30, 2019. For the full year, we expect our effective income tax rate to be roughly 22% to 23%. For the third quarter, we anticipate non-cash stock-based compensation expense to be approximately $5 million to $7 million. Non-GAAP net income for the second quarter of 2019 was $43.7 million or $0.75 per diluted share based on approximately 58 million shares versus $34.8 million or $0.59 per diluted share in the prior year period. We anticipate fully diluted shares outstanding will be approximately 58 million shares in the third quarter of 2019. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $94.8 million and total debt of $33.5 million. As a reminder, this debt represents a financing of expansion-related construction at our corporate headquarters. The average daily balance of funds held on behalf of clients, was approximately $1.2 billion in the second quarter of 2019. Now let me turn to guidance. For the third quarter of 2019, we expect total revenues in the range of $170 million to $172 million, representing a growth rate over the comparable prior year period of approximately 28% at the midpoint of the range. We expect adjusted EBITDA for the third quarter in the range of $61 million to $63 million, representing an adjusted EBITDA margin of approximately 36% at the midpoint of the range. For fiscal 2019, we are increasing our revenue guidance to a range of $728 million to $730 million or approximately 29% year-over-year growth at the midpoint of the range. We are also increasing our full year 2019 adjusted EBITDA guidance to a range of $306 million to $308 million, representing an adjusted EBITDA margin of approximately 42% at the midpoint of the range. With that, we will open the line for questions. Operator?

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Raimo Lenschow with Barclays. Please go ahead.

Hey, first of all, congrats from me for another great quarter. Chad, my question is around the new sales strategy. Can you expand a little bit on the move toward inside sales, that's obviously like a big step for you, because you had a very strong direct model? Inside sales historically has been more kind of slightly lower in the market, like how do you -- how do you plan of like how big is that's going to get and how do you try to do the client segmentation? Thank you.

Yes, so I appreciate the question. So if this is in a shift in strategy, we've been having success, selling online. You did allude to the fact that we've had a small inside sales organization here, that does sell the smaller either prospects that call us or potentially clients that have an easier situation. But anyway, we continue to have increased lead volume and in both inside and outside sales, and these inside sales efforts are just augmenting our traditional sales model, it's not replacing it and so this should be accretive. The plans we have to continue to expand our footprint and outside sales haven't changed. As I just mentioned, we did open up an office in New Orleans. So we continue to open up new offices in a staggered approach, when it makes sense, but we also are having increased lead volume coming in through inside sales. And in addition to innovating our product, we're also innovating our sales strategy as well. And so -- but I wouldn't -- I wouldn't call this a shift in, in strategy, we're expanding in both areas.

Perfect. Could be interesting. I'm going to follow it. Thank you.

The next question comes from Samad Samana with Jefferies. Please go ahead.

Hi. This is Howard Ma on for Samad. Thanks for taking the question. I have one for Chad, and one for Craig. So for Chad, I'm curious, are you seeing any cases of larger customers, that are showing resistance to this fully employee self-service approach to HR. So it could be whether due to -- could be due to organizational complexities or industry or regulatory barriers? And -- or I guess another way of asking is, on the flip side, are there any industry verticals that are -- that have fewer organizational complexities and thus, they are more -- there -- it could be 5,000 to 10,000 employees, but they are more likely to switch to self service? And then for Craig. just if -- I'm looking at the revenue guidance and if I want to back into EBITDA, I think it implies that you guys are going to see tremendous sales and marketing leverage in 4Q. And so, is that true? And then, if that is true, what are the drivers? Thank you.

Yes. So I'll take the first question, I mean, I'm sure I could single out a specific prospect that for one reason or another might not embrace the strategy of employees having a direct relationship with the database. But I can't think of a good reason, why any prospect regardless of size, wouldn't want their employees to have a direct relationship with the database. In fact, I believe that's what the enterprise market has been trying to build too with the multiple interfaces and now you're even seeing companies lay over areas of technology onto those back end so that employees can actually have some level of experience with their data. And so, I think, whether you're a large client or a large prospect, whether you're a smaller prospect, this is the future of our industry, and we're experiencing that future today. And so I would expect that all enterprise level type clients would receive the same type of value that the others. And we're actually seeing that, we do continue to sell at the upper end of our range and even above that. And so our lead generations actually continues to drive results for us in those areas. I'll let Craig answer the guidance question.

Yes, in terms of the adjusted EBITDA in the back half. We would expect to see us some leverage in the sales and marketing, but also in the G&A line as well, kind of in the back half.

Okay. And if I may, just a follow-up, Craig. Have you guys updated long-term operating margin guidance, long-term targets or sales and marketing? What that could be over the -- I mean, I think, can we see it, perhaps dip below 20% of sales in over the next few years?

We have not given any long-term guidance on adjusted EBITDA.

Okay, great. Thank you.

Your next question comes from Mark Murphy with JP Morgan. Please go ahead.

Hi. This is Pinjalim on behalf of Mark. Congrats on the quarter guys. Two questions from me. Chad, you said you have opened one office this year, I think it was four offices in the first half of last year. How do you feel about the balance between the need for office openings, than the productivity gains of the existing offices? And in that context, I mean, could you talk about how sales productivity for mature office is tracking, maybe versus last year?

Yes, well, first I'd say without productivity gains, you don't need to open up any offices, productivity gains are very important. And so we continue to drive that, we've opened up a lot of offices, I've said this in the past, now we're 50 and at -- once those offices are full, they are averaging about eight reps each. And so that's 400 reps, for us, and that's quite a bit out there in the U.S. right now. And so when we look at the TAM, we already have covered, there's quite a bit there already. And so, yes, we are going to continue to expand at times, when it makes sense to us, but we also want to capture everything that's available to us now as well. And so again, I didn't say this to signal a shift in strategy, it's more a little bit and I wouldn't necessarily say that it's a shift. But we are seeing some buying habits change and a willingness depending on situation for people to buy online. And as I've said earlier, as we're innovating our product, we're also innovating our sales strategy. I don't think people are going to potentially by the same way, 10 years from now, that they're buying right now and we want to be looking at that. And what does that mean? I think the reasons why they buy actually, as we look into the future will probably be similar to why they're buying right now, as far as that goes, but I think how they buy, it can be a little bit different. We're not changing, what we're doing now. I just want to say that. We did open up an office, New Orleans. We do continue to focus on expanding that footprint. So anyway, I would just leave it with that. Second part of the question.

Yes, well, just to follow up on that. I know you don't disclose the revenue retention number quarterly, but any qualitative comment about directionally, how that is trending this year so far, would be helpful? And I've gotten this question few times. How should investors think about a net dollar retention number that is something gross retention plus including upsells?

Yes, well, I mean we've measured, our retention the same since 2007, and it's a trailing 12, and so we've measured at the same. Last year was a very first time we saw an increase in that over a period of about seven years. And so obviously, we're looking to increase that -- this year. Retention something that improves throughout the year, you're going to typically have your largest losses in the beginning and then retention improves throughout the year. And so that's why we updated once a year to stay consistent, but it's been our focus to focus on retention and really what drives that is client satisfaction and the ROI that they're generating off of using the software and how we're able to increase that ROI for them as well as for their employees. And so those types of things drive retention for us and we're in the middle of the year and we'll report that number at the end of this year.

The next question comes from Brad Reback with Stifel. Please go ahead.

Great, thanks very much. Chad, can you update us a bit on how the price increase in the quarter was received?

Sure. So we made -- mention of a modest price increase last quarter. And moving forward, we're not going to communicate any pricing in the future as we don't want to discuss our pricing strategy for our competitors. But I will say this, and I've said this in the past, as we drive greater ROI for our clients, it would only make sense that we would have the opportunity to share on the value that we're creating with our R&D spend. Ultimately, our clients are going to decide our value and I feel really good about the amount of No Fee functionality. We've added into the product to drive ROI for our clients, as well as their employees and I believe the clients are having a positive response to that enhancement.

Great, thanks very much.

All right. Thank you.

The next question comes from Brent Bracelin with KeyBanc Capital Markets. Please go ahead.

Thank you. One for Chad here and then a follow-up for Craig. Chad, just given tight labor market, it seems like improving employee experience is gaining kind of industry momentum as a tool to increase employee retention. I know this data direct exchange product is early, but can you just talk about what portion of the customer base is kind of embrace the new product so far. It's only out there for one quarter, is this 5%, 10% of the customer base now adopting the product? And just trying to gauge how fast this product can be embraced by the existing customer base. Given it is so differentiated? Thanks.

Yes. So the short answer is currently 95% of our clients have click through the DDX five times or more and the DDX has been out for four months. So we started the shift to employee usage to drive incremental ROI for the client and the employee about three years ago. We've already got 95% on click through. Currently if we look at our clients usage in aggregate for all of them, we're in the high 80s. But I will say this, I mean high 80 isn't a B plus on DDX. But it does show that clients are progressing. And how we see that even how they're using it, now we're having clients that want us to break down the DDX per user and per department and that tells us they're focused on it and they're using it to improve their scores as they are completing the digital transformation in HCM.

Got it. Very helpful And then just as a follow-up for Craig here, obviously, growth and billings -- revenue growth and billings growth accelerated this quarter that's against the backdrop of sales office locations kind of being flat here for the last four or five quarters. How much of that acceleration and growth was driven by kind of productivity gains, higher attach rates of different modules or the price increase. Any additional color there on what drove the acceleration would be super helpful? Thanks.

I mean, as we mentioned in the script, new client wins is the majority of the revenue acceleration. We have -- 49 of our 50 offices are out there that are bringing on new clients. And so that's going to represent the majority of that revenue acceleration.

Got it. Thank you.

The next question comes from Mark Marcon with Baird. Please go ahead.

Good afternoon. Let me add my congratulations. I was wondering if you could talk a little bit about the large client initiative and what we're seeing there in terms of the 2,000 to 5,000 employee range, just what the pipeline looks like, what the receptivity is, how incremental has that been to the acceleration that we've seen in terms of the revenue growth? And then I've got a follow-up. Thanks.

Yes. And so we had been selling above the 2,000 employee range for quite a long time before we actually formalized it and said okay, now we're moving up to 5,000 and now we're even seeing clients come in above that. So I would just say that we are continuing to get more of those, but we also have more at-bats, because we have more reps. And then as our value proposition is getting stronger, people who may not have been as interested in it six years ago, are more interested in it now, because the value proposition continues to get stronger.

Okay. And then with regards to the acceleration in terms of the revenue growth, I know new logos have always been the primary contributor, but to what extent relative to prior second quarters and kind of adjusting for seasonality would the additional attach rates in terms of modules versus more pace per control be, and then of course the pricing be impacting the acceleration? And can you also talk a little bit about the Ask Here module and is that an additional incremental charge?

Okay. Well, first I'll tell you, I mean as far as I think you're talking about the revenue growth and what really does that encompass and you talked about pricing up sell new logo adds.

It's really twisted the past.

I wouldn't say that it's changed much at all, is in the past, I mean, I know that our new client wins percentage and our up sell percentage are very consistent as they have been in the past with the exception of the ACA year. With the exception of that year, where we did have an upside in Internal up sales to current clients just because of the sheer mass that kind of all came on at once. With the exception to that, our percentages have been very consistent and always overweighted very heavy toward the new logo side. As for the Ask Here, like the DDX and even like our app, Ask Here is one of those no fee functionality products that we do include within our stack, so that people will use the product correctly. And so Ask Here helps employees embrace the technology even more. Ask Here has a lot of benefits for both the company as well as the employee as an online communication resource where they can ask their inquiries online and it's set up by the client to have each question and each subject is answered by the expertise of that organization are client representative. And so, we just believe this strengthens employee usage and further drives the ROI for the business. And so -- and answer to your question that we aren't charging separately for Ask Here.

Perfect. Congrats again.

Thank you.

The next question comes from Brian Schwartz with Oppenheimer. Please go ahead.

Yes, hi, thanks for taking my question, question this afternoon. I just have one. I think, Chad, we've talked before in the past. I know it hasn't been the business sales strategy, it's been a new customer acquisition story and clearly that's working really well. We have talked about in the past about maybe tapping the install base going back to increase to usage and get full penetration within the installed base. I don't know if I know any software company that's full penetration. The question I want to ask you was on the expansion of the inside sales force. Clearly, it sounds like that's geared toward continue in the new customer acquisition. But over time, do you think there is an opportunity to maybe leverage those investments and maybe look back into the install base and see if you can further the penetration within that base Thanks.

Sure. Well, first of all, appreciate the question, allows me to put a little bit more clarity around the inside sales efforts and strategy that I was mentioning earlier. You are correct. Those inside sales are completely for new business wins, they are not for up-sales to current clients. When I was talking about how we relocated a manager to be able to build inside sales, that's the handled new business leads that's not up-sales to current clients. We have now and continue to have and have had for some time, a group of client relations reps that do upside or up-sales to current clients. And they also help us focus on usage and that groups really done both. As I've said in the past, it's important that clients use the products that we've sold them correctly, before we're selling them additional products. And so, we focused on that. I wouldn't ever say that our companies ever had this opinion that, we're just going to sell them some things now and then come back later and really sell them what they need. We've always been focused in making sure that the clients have what they need, when they need it, but at some level, you have to earn the right through an ROI achievement to sell the additional products. And so -- but I just wanted to state that, we have not ignored inside sales. It's not some grand plan that someday, we're going to come back and start selling everybody, all the products they really need. We do that today and we're focused on usage. In fact, something I said earlier about the DDX, I said in high 80s, is not to a B. At Paycom, our DDX score when I looked at it on Thursday was 99.7%, all right. Well for this month, we've had 164,000 or 165,000 changes so far, 164,000, 700, of those were made by employees. We had about 300 changes made by HR. So we have a 99.7% DDX score. So if we had an 88% DDX score, that wouldn't be the B, just because of the sure amount of changes that HR would have made. I mean if we had that type of score, you're probably looking at closer to 20,000 changes that HR would have made. And so that's why it's important and that's why, brought it out. The DDX -- we're watching our clients get there an aggregate, everyone is excited about it and that's really what's helping us drive results, and also we're seeing -- it makes it easier for people to understand what they're buying. If you look at this industry over time, we are bolting on all these things, even as I explained it to the investors, it can get kind of difficult to understand, okay, what is everything someone is doing, as we're looking at -- you're looking into the DDX, I do think it makes it easier for a client to understand what they're buying and what their ROI is going to be and because of that, you're seeing some buying habits change.

The next question comes from Shankar Subramanian with Bank of America. Please go ahead.

Hi, thanks for taking my question and congrats on the results. I just have a couple of questions, one on your marketing spend. I know the last couple of years, you've kind of accelerated the spent in marketing and you've done -- and seen good results. Can you talk about how much of that benefit you have seen in the first half in terms of your results? And then maybe qualitatively comment on how you're thinking about second half in terms of your marketing spend?

Yes. So, we did the national ad campaign. Last year, we actually continue to use those assets. Some of those assets, we had to actually repurchase rights to. We've done that, we do continue to use that. We do have strong marketing initiatives both this quarter, as well as through the end of the year and that is all baked into our current guidance. And we are having success with showing an industry, how to use a product in different way.

Got it, got it. And from a competitive churn perspective, any change you have seen notably over the past three months. Is that particularly with ultimate going forward. Any kind of color on that would be helpful?

I have not, its usual suspects for us as far as, who is out there.

The next question comes from Ryan MacDonald with Needham. Please go ahead.

Hey guys. This is Josh on for Ryan. I was just wondering what application into modules are helping driving the greatest increase in employee usage on the platform today, maybe just some color around that would be helpful?

Sure. It's somewhat going to depend on the client as far as when you talking about what product drives the greatest usage for them, if you have hourly employees with schedules and their swap, you're going to have a lot of usage in the system. If you have a salaried employees, you're not going to have as much time and attendance you might be in other areas of usage. And so it's really somewhat client-specific, we're going to deliver all to them that meets their needs at the time, obviously. And then how they're using it, is going to really depend on what type of industry they are in, how many employees they have, are they decentralized, are more of their people in one area. And so, usage is different per client, but 100% usage looks like a 100% usage. We might be talking about the difference in a client that made 200,000 changes total in their database for a month versus a client, that only made 80,000, because they have a different employee base, that doesn't require the same level of data input retrieval, that you're going to have with other types of employee basis.

Okay, great. And then just one other question. When looking at your larger customers with 2,000 employees and above. How much room is there for seat expansion with these customers? Or are they typically getting every employee on the initial deal front?

Well, for seat expansion, you would have it from the beginning. I mean for us, let's say this, they wanted to add additional master users or department users, even after all their employees are users, they can add as many users as they want, we don't -- we charge on a per employee basis, as far as number of users, they can have as many users as they want on the platform.

But for your larger customers you're typically signing up every employee in the company initially?

Well, for any for any sized organization, we are signing up every employee, because we have to do the payroll, we have to input all the totals. We have to balance so even terminated employees are set up in our system. So anybody that had balances and we work through that with the client. And so, you might have -- you might have terminated employees, that want access to their data and it would be a best practice to keep an HCM technology turned on for terminated employees, so that you do not have to respond on certain issues that they can actually gather that information for themselves. So from an employee side, we're going to set up all.

The next question comes from Drew Kootman with Cantor Fitzgerald. Please go ahead.

Hi guys, good quarter. Just wanted to ask on, as you guys move into those larger businesses and I know you guys have already sold to that group, but just are you seeing any changes from what the client needs. You have to change your sales tactic at all, as you move up that group?

I would -- no, we're not changing our sales tactics. It's the same group. What I will say is this, though, as you move up, what's the difference in an employee that works for a 200 employee company and an employee that works for a 10,000 employee company. There is no difference. In the past, the difference was the size of the company and that is still important, because size of company and how they're -- how they're set up is going to give you some type of view of complexity and what have you, but the employee users are the same. An employee at a 300 employee company is going to be meeting and using the same type of thing, that employee at a 3,000 employee company. And so as far as when you're making an impact to an employee, those 10,000 employee companies they see their employees, as the same way as a 300 employee company might see them as far as a user, I mean you're going to have department leads and salespeople and everything else. And so that's I think what's more evening out for everyone, which is making it easier for people to understand the value proposition. I mean in our industry often times, people bought off of the brochure and then you're trying to figure out what you have over the next three years of conversion. And so with this, you're seeing it upfront, you know what you're aiming for and we're having -- getting a lot of leads just from ranking file employees that leave one company and go into another company and don't really want to work with multiple systems and really go backwards in the technology.

And then just one quick follow-up on the really strong adjusted EBITDA, any color on what led to that higher number specialty versus the guidance you guys were expecting?

I mean, primarily, you saw the revenue beat flow through to the adjusted EBITDA line, very similar. So it was really -- lot of the revenue beat was able to flow through to the bottom line.

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

All right, well, I want to thank everyone for joining us on the call today. Next month, we'll be on the road meeting with investors at the following conferences, I'll be presenting at the KeyBanc Technology Leadership Forum on August 13th in Vail; and Craig and James will be hosting investor meetings at both the Oppenheimer and Canaccord Technology and Growth conferences in Boston on August 6th and August 7th. We appreciate your continued interest in Paycom, and look forward, meeting with many of you soon. Thanks, operator. You may disconnect.

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