Ladies and gentlemen, thank you for standing by, and welcome to the Paylocity first-quarter fiscal-year 2020 earnings conference call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Ryan Glenn, Vice President of FP&A and Investor Relations.

Good afternoon, and welcome to Paylocity's earnings results call for the first quarter of fiscal 2020, which ended on September 30, 2019. I'm Ryan Glenn, Vice President of FP&A and Investor Relations, and joining me on the call today is Steve Beauchamp, CEO of Paylocity; and Toby Williams, CFO of Paylocity. Today, we will be discussing the results announced in our press release issued after the market closed. A webcast replay of this call will be available for the next 45 days on our website under the investor relations tab. Before beginning, we must caution you that today's remarks, including statements made during the question-and-answer session, contain forward-looking statements. These statements are subject to numerous important factors, risks and uncertainties, which could cause actual results to differ from those results implied by these or other forward-looking statements. Also, these statements are based solely on the present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in the forward-looking statements. For additional information, please refer to our filings with the Securities and Exchange Commission for the risk factors contained therein and other disclosures. We do not undertake any duty to update any forward-looking statements. Also, during the course of today's call, we will refer to certain non-GAAP financial measures. We believe that non-GAAP measures are more representative of how we internally measure the business, and there is a reconciliation schedule detailing these results currently available in our press release, which is located on our website at Paylocity.com under the investor relations tab and filed with the Securities and Exchange Commission. Please note that we are unable to reconcile any forward-looking non-GAAP financial measure to their directly comparable GAAP financial measure because the information, which is needed to complete a reconciliation is unavailable at this time without unreasonable effort. In regards for our upcoming conference schedule, Toby and I will be attending the Stifel 2019 Midwest one on one growth conference in Chicago on November 7 and the RBC TIMT conference in New York on November 19. Please let me know if you would like to schedule a time with us at either of these events. With that, let me turn the call over to Steve.

Thank you, Ryan, and thanks to all of you for joining us on our first-quarter of fiscal 2020 earnings call. We are off to a nice start in fiscal 2020 with first-quarter total revenue of $126.7 million, an increase of 26.1% versus the same quarter last fiscal year, marking our 11th straight quarter with total revenue growth in the mid-20s. Recurring and other revenue grew by 25.7% driven by new client additions and an increase in average revenue per client as we continue to see positive momentum with our newest product offerings. Channel referrals, primarily from benefit brokers and financial advisors, once again represented more than 25% of new business for the first quarter.

Thanks, Steve. Total revenue for Q1 was 126.7 million, an increase of 26.1% with recurring and other revenues up 25.7% from the same period last year. As Steve noted, we continue to be pleased by the consistency we're seeing in our business with Q1 marking our 11th straight quarter of total revenue growth in the mid-20s. Our adjusted gross profit was 71.2% for Q1, an increase of 120 basis points from the same period in the prior year as we continue to focus on consistent revenue growth while also driving scale in our business model. We continue to make significant investments in research and development. And to understand our overall investments in R&D, it is important to combine both what we expense and what we capitalize. On a combined non-GAAP basis, total R&D investments were 15.2% of revenue in Q1, and on a dollar basis, our year-over-year investment in total R&D increased by 31%. On a non-GAAP basis, sales and marketing expenses were 25.7% of revenue in Q1 as we remain focused on incremental investments in this area of our business in fiscal '20. On a non-GAAP basis, G&A costs were 15.1% of revenue in Q1 versus 16.6% in Q1 of last fiscal year, and we remain focused on consistent leverage in our G&A expenses on an annual basis. Our adjusted EBITDA was 30.5 million or 24.1% of revenue for the quarter, which exceeded our guidance by 1.9 million at the midpoint and represented an increase of 100 basis points from the same period in the prior year. Covering our GAAP results, for the quarter, gross profit was 84.1 million. Operating income was 6 million, and net income was 13.9 million. In regard to the balance sheet, we ended the quarter with cash, cash equivalents and invested corporate cash of 131.1 million, and we generated 8.3 million in cash from operating activities in Q1 as compared to 7.3 million for the same period last year. Finally, I'd like to provide our financial guidance for Q2 and updated guidance for fiscal '20. For the second quarter of fiscal '20, total revenue is expected to be in the range of 129.5 to 130.5 million or approximately 21 to 22% growth over second quarter of fiscal '19 total revenue. And adjusted EBITDA is expected to be in the range of 30 to 31 million. And for fiscal '20, total revenue is expected to be in the range of 567 to 569 million or approximately 22% growth over fiscal '19 total revenue. And adjusted EBITDA is expected to be in the range of 163.5 to 165.5 million. In conclusion, we are pleased with our Q1 results, including the mid-20s revenue growth we've generated over the last 11 quarters, our ability to continuously demonstrate scale in our business and the progress we're making toward our long-term financial targets. Operator, we're now ready for questions.

And our first question comes from the line of Pat Walravens with JMP Securities.

Hey, Steve, how are you doing? This is Joey on for Pat. So our first question was we were wondering what does adoption typically look like for new clients? Do they usually buy multiple products? Or start with one and add more later on?

Sure. So I think that continues to evolve over time as we've expanded our product portfolio. As you know, all of our clients definitely start with payroll, very typical that they also buy HR as a component of that. And then I think probably some of the more popular modules after that at the point of purchase would be time and labor, benefits, recruiting, onboarding, but we continue to see good traction in terms of being able to increase adoption across all of our modules for our new customers.

Awesome, and then just on on-demand pay, how's the feedback been for that in particular? And then what does the adoption look like?

Sure. So we're very early in our release of on-demand pay. So we have that available to a number of customers, and they are actively using it and we have employees that are requesting their pay in advance. We also have a number of customers that maybe are a little bit slow to adopt and are a little bit more reserved around that new feature. We think that it's a great benefit to employees. We're excited about the offering, and we think being one of the first to market with that new offering certainly helps from a differentiation perspective.

Thank you.

Thank you. Our next question comes from the line of Brad Reback from Stifel.

Great. Thanks very much. Steve, with another quarter under your belt, as it relates to the down market attributes are the economics continuing to prove out as you expected?

Yeah. I think we were really excited with our unit growth last fiscal year kind of topping 20%. And I think as we move into this fiscal year, we're seeing traction in that under 50 employee market. They continue to look at products like recruiting and onboarding. And many of our talent management products has actually been a differentiator of their ability to attract and retain talent. We're also seeing some of those smaller clients adopt our new product like Community as a great communication portal for them. So I think we continue to make progress there, and we continue to gain traction that we really started building last fiscal year into that segment.

Great. And one quick follow-up. On the partnership side, those relates to the channel, these new investments that you're making or these new focuses, is that just sustained 25% of your leads from the channel? Or does that over time have the ability to grow that to north of 25%?

Yeah. It's a good question. Most of our partner revenue today comes from brokers and financial advisors with health insurance brokerage being the biggest component. And that, we wouldn't anticipate necessarily changing. We're starting to formalize some of those relationships, do some co-marketing with some of our partners. And as you can see, we're starting to extend the concept of partners to other potential partners. So Compeat being a software, provider in the marketplace, EvoShare is being an add-on product for financial advisors. So we think that it can help us both maintain that 25% plus as we continue to be able to grow and potentially open new channels that could be interesting for us.

Great. Thanks very much.

Thank you. And our next question comes from the line of Brian Peterson with Raymond James.

Great, thanks. This is Alex Sklar on for Brian. There's been a lot of discussion about the adoption toolkit in the user conference and I'll maybe lump in the Community portal here as well. But could you just talk about if you see these products as being just valuable to kind of improving usage and thus retention? Or do they fit into kind of the broader efforts to sell back into the installed base over the next few years?

Yeah. So I think it definitely fits into our effort to sell back to the installed base and of course, get broader usage at the point of purchase. So if you think of the challenge a lot of the HR departments have, it's products like surveys, Learning Management, some of our journal capability and performance management, impressions and Community is really employees interacting with other employees. And many times, the HR department doesn't know how to roll that out, how do I introduce it, what are the types of things that I'm going to be able to survey, how do I teach managers how to write great journals. And so, this idea of incorporating best practices into our product is one that we're really wrapping up into the adoption toolkit. So if I were a customer and I wanted to turn on a product like Community or surveys, I'm actually going to be able to go into an adoption toolkit that will give you, here's the email you can send out to your employees, other clients are using this and gaining traction with it. Here's use cases that you can use. You could survey after a meeting to be able to get immediate feedback.

All right. Great. And then maybe one here for Toby. Last quarter, you talked about already being -- your target sales of rep count at the start of year. I'm wondering if you could talk about if we should see scale to that line item over the course of the year? Or should we expect you to move back to a more regular hiring cadence?

Well, I think what we've said before was that we were pleased with our ability to come into the year fully staffed, and I think we had come into the prior year fully staffed as well. And I think what we said was we were happy that that was a little bit earlier than prior year. And I think we would say that was days and weeks, not months and quarters, but I think we feel pretty good about where we came into the year, the ability to be fully staffed a little bit earlier. And I think as you can see by the results for the quarter, I think it reflects the sales momentum that we have. And so I think we feel pretty good as we're kicking off the year.

All right, great.

Thank you. And our next question comes from the line of Samad Samana with Jefferies.

Hi. Good afternoon and thanks for taking my questions. I guess first maybe on the channel partner side. Are there any noticeable differences in either retention rates or unit economics for customers that come to the partner channel versus direct yields? And then I have a follow-up.

Sure. So as a reminder, it's our sales force that's creating these relationships with the channel partners and the individual brokers. So the relationships are often less at the firm level, but at that individual broker level. And so one of the biggest benefits that we get is those individual brokers have relationships with the HR department and the decision makers at the client and therefore, when they bring us in as a trusted partner, we have a much higher close ratio for those. So it's a very efficient channel from a sales and marketing perspective. And then on an ongoing basis, that broker, if they're talking to the customer or they're running into questions or they're finding that there's something that we need to be aware of, they do keep us kind of in the loop. I wouldn't say that that necessarily translates to anything measurable from retention. We've got pretty consistent retention across the board. I'd say the primary benefit though is definitely the close rate on the front end.

Oh great. And then coming out of the conference and thinking about the PEPY, I think you guys have gotten to 400. You've set a new target range of getting to 500. I'm curious whether you think that 500 represents maybe what the total spend per employee is on HR technology and what's the cap above that 500 -- or is 500 kind of the cap on where you can get to over time?

Yeah. I think that has evolved over time. I think if you look at product portfolios in our industry as a whole, they have expanded. And I think people are buying more products. And some of these products, we might not have been able to completely imagine in years prior. So the fact that we're able to sell a survey product today is something very different than several years ago. The fact that we've launched Community as a product, that's creating collaboration in a way we wouldn't have anticipated. So I think our view point is $500 is a great next target for us, and we have initiatives that we are working on toward getting there. But by no means do we think that that's where we have to stop. We don't know exactly if there is a cap and where that is, but we're really convinced that if we continue to innovate, we listen to what our customers are asking for, that there's plenty of opportunity for new products.

Great. And then Toby, one, if I can just ask you. I'd be remiss not to. We had a 25 bip rate cut announced. Any -- I'm assuming that's factored into guidance for both next quarter and updated for the full year or just any thoughts around that that would be helpful.

Yeah. I mean, I think the short answer, Samad, is that yes, it is. I mean we had anticipated that that would come through and that's fully incorporated into the guide.

Okay, great. Just wanted clarification. Thanks again guys, and congrats on the quarter.

Thank you. And our next question comes from the line of Matt Pfau with William Blair.

Hey, guys, Thanks for taking my question. Wanted to ask on the sub-50 employee market. What are you seeing there in terms of competition? Is that market more competitive than the above 50 employee market? Because there's certainly probably a different set of competitors that you run in there versus the above 50 market.

Sure. Yes. I think ADP and Paychex are the biggest in the space. They're the ones that we would certainly run into the most, even more so in that below 50 space then maybe as you creep up toward the 1,000 employee market, which sometimes drags some of the more enterprise-oriented focused players. But you also see a bunch of smaller, independent payroll providers. There's hundreds of those across the country. And so I think it's a combination of ADP, Paychex and then some of the smaller independents that we see primarily below 50 employees.

Got it. And in terms of the new products that you're seeing the most traction with, anything you would call out there? I assume some of the ones you're referencing was LMS and TPA, but anything to call out?

Yeah. I think we just launched LMS this summer, so it's still relatively new. I think we're getting really good traction during our selling season in terms of the reports back from the sales force. I think people definitely are buying into the idea of sharing learning across the organization as being a challenge they're running into. So we've been really happy with that as a new product. Community, we just launched formally at our user conference. We definitely had a bunch of early adopters prior to that. And we're seeing a growing number of use cases with that product. And then we have I think a lot of ideas in terms of being able to enhance that on a go-forward basis. So those would be the two I'd call out.

Thank you. And our next question comes from the line of Mark Marcon with Baird.

Good afternoon and thanks for taking my question. Just wondering with regards to the sub-20 employee market, can you give us any updated thoughts with regards to the approaches to that channel? And what the expectation should be over the course of this year?

I think if you look at last year where we grew units in that 20% range, we definitely had a bigger contribution of the under 50, and even some of that, as you indicate, Mark, under 20 employees. So we're probably going to be a little bit more focused on that 10 to 20 employee range than maybe the sub-10 employees. At this point in time, sometimes, our core sales force sells those accounts, sometimes it's the newer emerging market team that sells those accounts. And I think we also indicated they -- it does take a while to build the channels, TPA being the primary channel in that market. So I think we're early in continuing to build out more success. What we really like is the product resonates well with that marketplace. We understand how to build channels. We've done it really well kind of in majors. And so, I think as we look past this first quarter, it's kind of continued progress.

Great. And then with regards to channels, can you talk a little bit about the size of Compeat and Evo?

Yeah. I think the reason that we wanted to make sure that we called that out is really the concept here is you'll probably see us expand what was channels in the past. We were very squarely focused on financial advisors and brokers, health insurance brokers, and one of the things is we're looking at other products they might interact with that could be potential partners. That's the EvoShare example from a financial advisor. They've brought us into that relationship. And then we're also looking at potential software providers in different space. So you've got a vertical market, restaurant-focused software provider that was looking for a partner and we thought that was going to be a great fit. And so we'll entertain options like that on a go-forward basis. I don't think I would call out any of those individually as being material. We think they're great relationships. We're happy to have them. But I think you'll see us continue to be able to expand the idea behind channels to go a little bit beyond financial advisors and brokers. And that was one of the reasons we called it out.

Great. And then last one. Just in terms of what's embedded in the guidance, obviously, we saw the rate cut today. If we take a look at the interest income on the float, a little bit of a change relative to the pace that we've been seeing. How should we think about that playing out over the course of the year, anticipating that from here on out there's going to be limited changes?

Yeah. Mark, it's Toby. I mean I think I said a few minutes ago that we had incorporated that rate cut that we saw today into the guidance and that's definitely true. I mean we saw the Fed quotes, and it looked like maybe there's a pause. We'll obviously see how that plays out over the course of the fiscal year, but I think we feel good about the ability, if you go back to how we guided for the year initially, we have said we baked in two rate cuts, which we saw. We have now with the updated guidance, which we've raised on both revenue and EBITDA for the year, baked in the third rate cut. I think we feel generally pretty good about the ability to not just set what we thought was a pretty nice guide for the year initially but incorporated the rate cuts, but to take that up after the quarter baking in the third. And so I think again, I feel good about the momentum and the consistency that we're seeing, so.

That's great. Thank you.

Thank you. And our next question comes from the line of Siti Panigrahi with Mizuho. Your line is now open.

Hi. Thanks for taking my question. Steve, now since Q1 is now behind and post your user conference, I just wanted to get a sense of your confidence level this year versus last year and in terms of customer demand or your product positioning or any competitive landscape. And also, where do you see most of the opportunity in terms of a customer segment whether in a downmarket or in your sweet spot? And is there any particular product that you think would drive incremental growth opportunity?

Yeah. So obviously, we've been growing kind of in that mid-20s rate for a long time now, and we were really happy with the first quarter in terms of performance from our sales team. That really drove our ability to increase revenue guidance for the year and drove the beat in the quarter, so a really strong performance from our sales organization. So that's always great in a recurring revenue business to get off to a great start. That's really positive. I think on the product side, equally excited about some of the newer offerings. I think they are creating some differentiation, which is also helping our sales force win business. And the strength is coming across our size segment. So we're doing well on the under 50 marketplace, but we're really doing well in our core market and at the upper end of our target market. And so that's probably the most positive thing to take out of the first quarter is we're seeing strength across the board.

And when you think about getting new logos versus cross-sell opportunities to your installed base, what's the percentage right now? And do you think now that you have enough product sets now to go back and cross sell to your installed base?

Sure. I mean I still think with the size of this market, 20,000-plus customers in a market of 600,000 -- more than 600,000 businesses, we think there's still a huge opportunity to land new customers. And that will be our primary goal as we move forward. At the same time, as we land those new customers, we are selling them more product, and so that's certainly helpful. And then secondly, we will continue to gradually expand our efforts on selling products back to the client base. So we have an inside sales team. They are selling products back to the client base currently. A lot of times at our user conference, clients that have been with us a while don't know that we've had these products over the last several years. We think it's a great opportunity, and so we'll continue to focus selling back to the client base. But what I would tell you is you're still going to see us focus on unit growth and bringing new clients to the platform, first and foremost, and then think about the growth of sales back to the client base maybe being faster than our revenue growth but not being a primary driver.

Appreciate the color. Thank you.

Thank you. Our next question comes from the line of Drew Kootman with Cantor Fitzgerald.

Thanks for taking my question. Just curious, tagging on that. You mentioned you're seeing strength in the upper end of your market. Maybe you can dive a little more into that group.

Yeah. So as you know, we focus on 20 employees to 1,000 employees, and there's times where we even bring on customers above that 1,000 employees, if we feel like they're going to be a fit and they obviously feel the same way. And so we often will try to get our most experienced reps in front of those customers. We've had great retention of our most experienced reps, so we got a lot of confidence with those folks. I think when you look at some of our product initiatives, that has certainly helped us upmarket, having learning management, having Community, having products like that, I think it really filled out the product portfolio. Obviously, if you look over the last three or four years, we've added compensation management, we've added recruiting, we've added expense management. So we feel like we've got a really strong portfolio for the upper end of our market, even stronger than two or three years ago. And so I think just the combination of having really experienced sales reps and a broader breadth in our product portfolio is what's driven the success upmarket.

Great. And then now that you do have Community driving engagement and that's more of the focus, maybe you can touch on as much as you're willing to say, some of the new releases that you expect in the pipeline moving forward.

Yeah. So I think the way we like to talk about the releases is we get them in early adopter with our customers. We learn -- we really believe strongly in client as a cocreator. We learn what they use, what changes they'd like to have to the product and what features we need to add. And then you see us kind of announce that once we kind of launch it. And so we don't typically kind of preannounce. What I would tell you though is I think for Community as an example, we've got a long list of features that we think we can add to that product to make that even more robust. We also think that there is a possibility at some point in time there might be a monetized premium version of that with some feature sets that are being asked. So that would be an example of something that we'll continue to look at from a road map perspective. But right now, it's a free offering. We're driving utilization, and we're focused on adding features based off client feedback.

Perfect.

Thank you. Our next question comes from the line of Daniel Jester with Citi.

Good afternoon everyone thanks for taking my question. So just maybe to tie off the last one. You just had your user conference, spent a lot of time with clients. What are the one or two thematic things they're most focused on for the next year ahead?

Yeah. I think thematically, if you take a step back, one of the challenges I think that they have is really to be able to attract and retain talent in this type of environment. So there's a lot of things facing the HR departments, whether it's the new generations, the younger generations entering the workforce or millennials getting in decision-making positions or the remote nature of the workforce, the gig economy and people moving from one job to the next, a lot of state legislation that's changing. So I would say the one theme is there's a lot of change going on in HR. And so HR users are really trying to figure out how to be able to manage that and then become much more marketing-oriented in terms of how they treat employees. I think the second thing is they're really looking for a partner to help them. And so this idea of service and partnership, adoption kits are a great example of things we're rolling out. They're really looking for more than just transactional advice and questions. They're looking for best practices. And so I think their world is getting more complicated, therefore, they need a lot more advice, best practice, really aligns to some of the key initiatives that we're trying to drive toward.

That's really helpful. And then, Toby, in your script, I thought I heard you say that maybe you're making a little bit of incremental investments in sales and marketing. I guess first did I catch that right? And second, if you are, can you share any color and kind of tie in how that could impact margins as the year progresses?

Yeah. Dan, I mean I think what we have talked about with relative consistency has been the fact that we were continuing to invest in sales and marketing in a relatively consistent way. I mean it's one of the bigger growth drivers in the business, and our level of investment in sales and marketing has been pretty consistent over time. We've laid out the range in our financial targets and I think our intention would be, certainly in the near term, to remain consistently invested in that sales and marketing line.

Thank you.

Thank you. And our next question comes from the line of Scott Berg with Needham.

Congrats on a good quarter. Thanks for taking my question. I guess the one question I have is, as we did some customer work there and kind of thinking through the space, is how do you think about growth in your overall business maybe over there in the immediate term of three, four, five years. You're core mid-market, you moved into the strategic. You're looking at 20 employees and a little bit lower. If we were to think about mix of bookings three to five years out, what does that look like, if 95, four and one maybe, or whatever the numbers are?

Yeah. I think it's probably more of a subtle shift than probably a big and different initiative. If you go back now three years ago, I think we disclosed the fact that 50% of our employees -- 50% of our clients had less than 50 employees. And so we've always kind of been in that segment. I think if anything, we're seeing a little more traction in that 10, 20, 30 employee space than we've had before. And so in some cases, we think there's different ways to approach that market. So that to me is more of a subtle shift. We've always been really strong in the 50 to 500 and actually had a pretty darn good presence in that 500 to 1,000. So I don't think that's changed. I think, if anything, we'd become a stronger competitor in that space based off the additional module that we've added to our product portfolio. And at the same time, at the lower end, they're demanding a little bit more product. So I just think, more than anything, we feel better positioned today than we have several years ago.

Got it. And I guess I'd be remiss not asking an interest rate question. You guys took some interesting -- or made some interesting changes around how you invest your funds. I think it was a year ago now last summer, went into some slightly longer duration securities with slightly better yields. As you -- I know you'll probably tell me you're perpetually looking at different opportunities there. But are you doing anything different today with those funds you're holding from clients maybe you did a year ago? And are there any opportunities to maybe change that composition to again drive a little bit higher yield maybe than some others in the space?

Scott, it's Toby. I mean I think what you might be referring to is we I think just started investing a little bit in client funds I think going back two years now. We haven't made any major changes over the course of that period of time in duration or any other sort of element of profile of that sort of investment strategy. And I think that probably doesn't change a whole lot over the course of time. I think we're pretty consistent there.

Got it. Thanks for taking my questions.

Thank you. And our next question comes from the line of Robert Simmons with RBC Capital Markets.

Thanks for taking the questions. So you touched on this topic a little bit, but could you go for what's your take on what Ceridian is offering in terms of the on-demand pay and the gig economy versus what you have?

Yeah. So I'm not necessarily perfectly familiar what all our competitors are doing. I think this is a developing space. And I think my understanding is I think Ceridian talked about having an offering in the new year available. So what I would tell you, not specific to Ceridian, but there's a couple of different approaches that people I believe can take and actually might be able to take both. And so one of the approaches is you go for us, you go into the mobile app, you ask for any pay that you've earned, you will absolutely see real-time what you've earned, from gross all the way to net in the application, so it tells you which you've got available, and you say how much of that that you want to be able to have. And we give a whole bunch of administrative tools to our clients so they can kind of manage who they want to give this to and who they might not want to. And then we leverage kind of direct deposit to put that into your account either later that day if you request it in the morning or the next day. So that's one approach. A second approach could be basically a wallet or a card or a digital card where those funds are put on that wallet card and then as disbursements are made from that card, either to the employee's bank account or to -- you could use it as a card and actually make purchases. And I think those are generally speaking some type of alternative network to direct deposit, are the two different approaches. We're starting with direct deposit. Doesn't mean that we can't do that second alternative over time. But I think those are the two approaches that are at least being discussed that I'm aware of.

Got it. Great. Thanks.

Thank you. And our next question comes from the line of Arvind Ramnani with KeyBanc. Your line is now open.

Hi, hi. Thanks for taking my question. One of the things that you talked about when we met last week was there are a number of our customers where they're paying basically more at the $200 PEPY level. How much of a focus is to sort of take those customers up closer to the $400 mark versus kind of really going out and signing up new customers?

Yeah. So I think if you think a little more than five years ago, so five and a half years ago, we were at $200 per employee per year, so we doubled the available product in that time period. And so obviously, we have customers that have been with us well before that time frame and we've added a lot of customers in the last five years. So what I would tell you is we want to make sure, if a customer has a need, we're able to solve it. We have an inside sales team that we've grown faster than the rest of our sales force over the last two years, and their job is to identify customers that could benefit from some of our newer offerings. So we're actively doing that. I think if you were to look at our mid-20s revenue growth rate, what I would tell you is a lot of that is still coming from unit growth. So although it's an important initiative for us, we think it's an opportunity that we can continue to grow. I would tell you that most of our growth is still going to come from landing new customers and selling those customers more, and then we get the benefit of continued sales back to the client base. So we'll continue to grow those teams.

Great. And then not that I'm sort of asking for any sort of guidance, anything for 2020, but just sort of looking at where you are now and you kind of look at the next couple of years, how do you feel about the business? And are there sort of major areas of investments you need to make either from a sales side or product side? Where does the major portion of investment really need to come? Or are they just equal across all areas of the business?

Yeah. So I need to go back to one of the great things about the market that we're going after is it's very large. And so between 20 and 1,000 employees, there's 600,000 plus businesses. And then it gets even larger when you think of under 20 employees. And we've only got 20,000 clients. So we think we're in the very early innings of basically a land and expand strategy where we're really focused on landing new customers. We also feel really good about the product innovation that we've been able to drive over the last five-plus years. And so if you think of that, it's a matter of continuing to invest in our sales and marketing organization to be able to capitalize on that opportunity, combined with our R&D groups such that we can innovate and differentiate. And then obviously, we had great retention over the years. And so those -- that's the magic formula. We want to invest in R&D. We will invest in sales and marketing. We'll continue to drive great retention with our customers. And in doing that, it's a natural scale business where we think we can hit those long-term targets that we put out there.

All right. Thank you very much.

Thank you. And I'm showing no further questions at this time. I will now turn the call back over to CEO, Steve Beauchamp, for closing remarks.

Well, I want to just take a quick second to thank all of our employees for all the efforts over this last quarter. We are in the middle of selling season and coming up to a very busy time with year-end. And then of course thank all of you for your questions and your interest in Paylocity. Have a great night.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.