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Ultimate Software Group (NASDAQ:ULTI)

Q1 2011 Earnings Call

April 26, 2011 5:00 pm ET

Executives

Scott Scherr - Founder, Chairman of the Board, Chief Executive Officer, President and Chairman of Executive Committee

Mitchell Dauerman - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Analysts

Richard Davis - Canaccord Genuity

Laura Lederman - William Blair & Company L.L.C.

Ilya Grozovsky - Morgan Joseph TriArtisan LLC

Brian Schwartz - ThinkEquity LLC

Nathan Schneiderman - Roth Capital Partners, LLC

Richard Baldry - First Albany Capital

Mark Marcon - Robert W. Baird & Co. Incorporated

Operator

Hello, and welcome to Ultimate's First Quarter 2011 Financial Results Conference Call. [Operator Instructions] Today's conference is being recorded. Your presenters today will be Mr. Scott Scherr, Chief Executive Officer, President and Founder of Ultimate; and Mitchell K. Dauerman, Executive Vice President and Chief Financial Officer. We'll begin the comments for Mitchell Dauerman. Please go ahead, sir.

Mitchell Dauerman

Thank you, Robby. Good afternoon and thank you for your interest in Ultimate Software.

Before we begin, please be aware that we will be discussing our business outlook, and we'll be making other forward-looking statements regarding our current expectations of future events and the future financial performance of the company. These forward-looking statements are based upon information available to us as of today’s date and are subject to risks and uncertainties. We encourage you to review our filings with the SEC at www.sec.gov for additional information on risk factors that could cause actual results to differ materially from our current expectations. We assume no duty or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

I'm going to begin by reviewing our financial results for the first quarter of 2011 and then I'll provide guidance for the second quarter. Unless otherwise noted, our discussion will be on a non-GAAP basis for all costs, gross margins, operating and net income, as well as EPS, when comparing to the same period in the prior year.

The primary difference between GAAP and non-GAAP financial information is non-cash, stock-based compensation. Please refer to the reconciliation of our financial information on a GAAP basis to that on a non-GAAP basis included in the press release published on our website.

For the first quarter of 2011, Ultimate recorded recurring revenues of $49.9 million, representing a 27% growth over the same quarter last year. Annualized customer retention exceeded 96% for our recurring revenue customer base. Operating income was $4.9 million and our operating margin was 7.6% for the quarter. Non-GAAP net income was $2.8 million or $0.10 per diluted share compared with $2.3 million or $0.09 per diluted share for the same quarter last year.

Our first quarter recurring revenues were $49.9 million and represent 77% in total revenues compared with 71% for the first quarter of last year. The recurring revenue gross margin of 71.2% was ahead of our expectations mostly due to higher than expected revenues. The increase in recurring revenues was partly due to some modest acceleration of client start dates into the first quarter.

Service revenues were $13.7 million. The services gross margin was slightly below our expectation, which reflects our overall business strategy as we have invested and will continue to invest in our Partners for Life program.

License revenues were $800,000 for the quarter and were ahead of our expectations due to employment-related growth of our on-premise customers. Operating expenses were $31.5 million for the quarter, in line with our expectations. Our non-GAAP income tax rate for the quarter was 41%.

Turning to the balance sheet. Total cash and investments in marketable securities were $57.3 million. For the quarter, we generated $8.8 million in cash from operations compared to $4.9 million for the same quarter last year. We invested $4.5 million in total capital expenditures compared to $2.1 million in last year's first quarter. We used $2.4 million for the repurchase of shares required to settle employees' tax withholding obligations associated with the restricted stock units that vested during the quarter compared to $500,000 last year.

Accounts receivable increased to $45.6 million compared with $37.9 million at the end of March last year. DSOs were 64 days at the end of March 2011 compared to 61 days at the comparable time last year. Deferred revenues were $77.5 million on March 31 this year compared with $67.2 million at March 31 last year. As a reminder, deferred revenue in the first quarter reflects the seasonality in annual maintenance billings, where it's typical that maintenance revenues recognized in the income statement will exceed the annual maintenance billing recorded as deferred revenue on the balance sheet.

In addition, deferred revenues also reflect the change in contractual implementation services as a result of our Partners for Life program introduced in the second half of last year.

Now turning to Q2 guidance. We expect recurring revenues will be approximately $52 million and total revenues will be approximately $64 million. We expect operating expenses to be lower than Q1 for various reasons including the cost related to Connections, our National Customer Partner Conference, which occurred in Q1. We expect operating margins will be approximately 10%.

Turning to our upcoming conference schedule. During the next quarter, I will be at the JMP Securities Annual Research Conference on May 9th in San Francisco. And Scott and I will be at William Blair's 30th Annual Growth Stock Conference in Chicago on June 14th. If you're available at those conferences to meet, please let me know.

And now I'll turn the call over to Scott.

Scott Scherr

Thank you, Mitch, and everyone for participating on our call this evening. We are pleased to be on the positive side of our 3 top-level objectives: Recurring revenue growth, operating margin growth and customer retention. Our first quarter's recurring revenues were up 27% over those of last year's Q1 for $50 million. Our operating margin was slightly above expectations at 7.6% and our customer retention rate was greater than 96%.

Our enterprise sales team followed their best quarter ever with a solid Q1 opening for 2011. Attach rates were strong. Our talent management attach rate was 60% versus 54% in 2010. The onboarding attach rate was particularly notable at 72% compared with 50% in 2010 and our time management attach rate was 52% compared with 42% for 2010.

Some of our new enterprise test customers in the quarter were two 7,000 employee companies, one that selected onboarding, recruitment, performance management and time management in addition to core UltiPro and another that has salary planning and budgeting; a consortium with 4,500 employees that added salary planning and budgeting and time management; a service company with 3,700 employees that added onboarding, recruitment and salary planning and budgeting; a college with 2,500 employees that added onboarding, recruitment, performance management and time management; an energy company with 3,600 employees that added onboarding and salary planning and budgeting; and a business process outsourcing firm with 2,800 employees that added onboarding, recruitment, performance management and time management.

Turning to workplace. The team achieved 60% growth in total number of units sold over 2010's Q1. Activity level is extremely high and we are seeing more and more companies looking to evaluate our solutions, and attach rates were strong for new workplace customers as well. Both recruitment and performance management were above 70%. Benefits enrollment was 86% and time management was 67%.

Some new workplace accounts sold in the quarter were: A food distributor with 1,000 employees that added recruitment and benefits enrollment to the core solution; a transportation and supply chain management company with 900 employees that added recruitment, performance management, benefits enrollment and salary planning and budgeting; an international distributor of building products with 950 employees that added benefits enrollment; an accounts receivable management company with more than 800 employees that added time management; a bank with approximately 800 employees that added recruitment, performance management, benefits enrollment, time management and salary planning and budgeting; a manufacturer with 650 employees that added recruitment, performance management and benefits enrollment; and a service company, with more than 600 employees, that added recruitment, benefits enrollment, time management and salary, planning and budgeting.

The trend of our on-premise customers electing to move to a SaaS model of UltiPro continues. In Q1, we had 20 customers contract to convert from on-premise UltiPro to our SaaS model. One of our larger customers, Texas Roadhouse, who has 33,000 associates completed its transition from on-premise to SaaS in Q1. A key reason Texas Roadhouse made the move to SaaS was to create business efficiency. With Ultimate managing the hardware, software and system updates routinely behind the scene, Texas Roadhouse is able to minimize its need for internal IT support and focus on the people programs that are so important to its business success.

Another reason was to have access to more strategic UltiPro functionality available only through SaaS. But the most important factor in the restaurant chain's decision to switch to our SaaS model, according to Patrick Sterling, a top level HR Executive at Texas Roadhouse, was partnership. In his words, years ago, we went with Ultimate because of their commitment to a partnership with us. The success of that many year partnership gave us the confidence to move our on-premise UltiPro solution to SaaS. And Ultimate did not let us down. Ultimate team was organized, always very responsive and made the conversion all happen right on schedule.

What was most surprising to the Texas Roadhouse team was the huge improvement in the system's performance. They were concerned that SaaS would slow down the processing speed and they were thrilled when the opposite was true. A process that involved many thousands of employees that used to take 45 minutes, now takes them 20 minutes. A 20-minute process now takes less than 10 minutes. They credit the enhanced performance to Ultimate's powerful servers, broad bandwidth and high-quality infrastructure.

Our marketing metrics indicate that we are on track to a strong year. In our Q1 workshop, 5x as many attendees said they are looking to purchase a new solution as 2010's first quarter. That was an all-time quarterly record. We also had the highest number ever of proactive call-ins from prospects requesting to speak with our salespeople, 166. And we had 15% more visitors to our website than we had in Q1 of 2010. That too was a record high.

In the area of activation. Some newly activated enterprise accounts in the quarter were P.F. Chang's restaurant chain with 27,000 employees. McLaren Health Care, a $4 billion operation with 15,000 employees in Michigan and JM Family Enterprises with more than 3,500 employees. We also activated JM Family Enterprises on UltiPro Canada and recruitment along with core UltiPro.

Also, our Partners for Life program continued to gain traction in Q1 this year as we had a greater than 40% increase in customers trained over Q1 2010. Tracy Bargielski, General Manager, Human Resource Division of Yamaha Corporation of America added a comment to her spring customer survey this year that was typical of many of our customers. Thank you so much for adding the Partners for Life program for training. Makes us feel valued as a customer and like a true partner. Our workplace activation team started 95 new customers in Q1, representing a 38% year-over-year increase, in number of workplace employees live. Some of these were intelligence solutions at Denso Technology and Management Company with 1,000 employees; Forum Energy Technologies with 1,000 employees; Daymar Colleges with 975 employees; Kansas University Physicians with 990 employees; and Allegro Senior Living with 750 employees. We also activated the United States employees of Ripley Entertainment Inc., best known for its Ripley's Believe It or Not publications and attractions. Ripley's has also purchased UltiPro Canada, recruitment, performance management and salary planning and budgeting. It plans to activate time management in May and Canada in June.

From the beginning, they said the reason they went with Ultimate was to have a single unified solution to the United States and Canadian operation and they wanted strategic reporting and analytics.

We had our largest customer conference ever in the quarter. Cosponsored by IBM and Dell, we held Connections, the Ultimate Partner Forum, in March and had 820 attendees. Our customers, partners and HR industry influences came to share ideas, hear about Ultimate’s future direction and expand their peer network. Some of our customer presenters were: Linda Mullenbach from International Dairy Queen with 3,000 employees; and Mary Brumm from NVIDIA, the world leader in visual computing technologies with 5,000-plus employees both spoke on developing a global workforce strategy. Tracy Nelson, from Wawanesa Mutual Insurance with 2,000 employees spoke on succession planning; Lisa Minott from Google spoke on success in the cloud with Ultimate; and Karen Sones from First Horizon with 13,000 employees spoke on optimizing employee onboarding processes.

Some comments from our conference attendees were: From Coty, a fragrance and global beauty company with 4,000 employees, "Thank God we've got UltiPro. We have been able to handle numerous acquisitions while simultaneously streamlining our HR and payroll operations. Our CEO was so impressed by the paperless benefits of UltiPro that he started a company-wide green program." From Yamaha Corporation of America, with 1,400 employees, "We had an unbelievable activation with UltiPro. Our payroll management has been with Yamaha for 20 years and couldn't believe how great it was." From Jed's [ph] Human Services with 5,500 employees, "UltiPro means freedom." The most common customer comment about the conference was that it felt like a partnership, a true forum for open communication. Naomi Bloom, a respected HCM analyst said, "With the Connections conference, Ultimate has done a very good job of developing session that cater to their customers, who represent a wide range of industries, sizes and HCM needs. I've known Ultimate cares about its customers. But being here in person, I could really see how and feel how seriously Ultimate takes the opportunity to listen to its user community."

Everyone at Ultimate is focused on our 2011 objective, and we are confident in achieving them. Our customers are continuing to buy for the same reasons that they have in the past. They want the highest quality, unified HCM. They want strategic functionality, a proven SaaS solution and customer service responsiveness.

Shortly after being activated, Revlon’s Vice President of Shared Services, Jeanie Derr, summed up our customer value proposition. "With UltiPro, our employee information is unified across a single platform and our teams and resources are free from being so painstakingly involved. While most importantly, we have an incredibly responsive team at Ultimate that is open to our feedback. Making our partnership all the more effective and efficient. Ultimate has more than lived up to its stellar 20-year reputation in the tech industry."

Our business strategy remains the same as it has always been. We invest in our employees and they, in turn, create innovative, award-winning products and take care of our customers with a passion unlike anywhere else in our industry. The resulting enthusiasm that our customers have for our products and services translate to a readiness to be references for us, as we pursue future business opportunities.

We finished the quarter with 1,185 associates. We continue to execute on our plans and are in an excellent position to take advantage of the huge opportunity before us, both for 2011 and beyond. Thank you, everyone, for your support.

Let's go to the Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Laura Lederman with William Blair.

Laura Lederman - William Blair & Company L.L.C.

Thank you so much for taking my question. Just a few quick ones. 1, can you give us an update on tax filing. I know that you guys were doing hiring there and making a lot of changes. Maybe you can talk about the opportunity there and where you stand on capitalizing on it. And separately, some parts of the business is great and the interest generating and the marketing events for Q1 was very strong. And is this a better economy, are you being more effective at the events, is your name getting out there more. As to a better understanding of [indiscernible] levels.

Mitchell Dauerman

Laura, let me handle the tax filing. It continues to grow. The attach rates in workplace remained at 100% and enterprise was over 75%. We continued to invest in that business. The tax flow––the average flow was $187 million for the quarter. It's an indication of the growth in that business. So it's going well.

Scott Scherr

I think I definitely see momentum starting Q4 as well. But I think it might be the branding point in time where we're getting more customers, and we're doing more shows. The sales team is becoming more tenured especially in workplace. I think when you have more people on the street, doing more marketing programs, the company gets older, you have more customers, word gets out there. And we've always had a good track record of when we can get into a process of very high percentage of closing that business. There is definitely momentum though.

Laura Lederman - William Blair & Company L.L.C.

Okay. So you think in the end very little of it relates to better economy and really much more of it relates to what you're doing in your specific efforts?

Scott Scherr

I think it could be the economy. It seems like a lot more people are looking right now.

Mitchell Dauerman

So that certainly would be the economy.

Laura Lederman - William Blair & Company L.L.C.

Okay. I’ll pass it on and come back in the queue. Thank you.

Operator

Thank you. We'll go next to Richard Davis with Canaccord.

Richard Davis - Canaccord Genuity

Thanks very much. Have you guys seen -- there's been a lot of talk about learning management systems and success factors again today, [indiscernible] and stuff. Have you found that this is -- in your experience, is that a corner stone? Have you seen people say, we really need a learning management system? Or is it typically a separate purchase? I'm just trying to really gauge it from your perspective.

Scott Scherr

I think it comes up. I think it's mostly a separate purchase. We have a very thin learning management product. But I think in the future, it’s certainly on our roadmap to go deeper with it.

Richard Davis - Canaccord Genuity

Got it. Okay. And then the second question is, you kind of you're in North America, you've got a good position. What about if – have you done a lot international or do you see demand for like having, I don’t know, Europe or Asia and things like that? Is that something that's on the roadmap? Or does that make sense at this point? Or kind of what's your thoughts on that?

Scott Scherr

I think we're focused on North America and states in Canada. We're still over 1,000 United States less than 9% in enterprise and less than 2% in workplace. I think internationally we look at our global product. People wanted -- North American companies want to track employees throughout the world. We're doing a lot of that. So, I don’t see going gross to net internationally in the near future.

Richard Davis - Canaccord Genuity

Yes. That's what I wanted to figure out. Okay, good. Well, good work. Thanks very much.

Operator

We'll go next to Richard Baldry with Signal Hill Capital.

Richard Baldry - First Albany Capital

Thanks. Just a little bit about the license bump from existing client hiring, I'm curious if you’d talk a little about, I guess, you’d call same-store sales in the SaaS group, whether you've seen hiring start to pick up? And outside of the table as well?

Scott Scherr

We've stopped talking specifically about the growth, Rick. But I would say that same-store sales has modestly improved across all our companies.

Richard Baldry - First Albany Capital

And you talked about a modest acceleration on clients' start dates in Q1, do you think that's more a function of you completing the work sort of faster than expected? Or are clients pushing you to get these things up and running faster to get out of their existing providers sooner than later?

Scott Scherr

Well, I think part of it is attributable to the overall Partners for Life program. But certainly we're focused on helping our customers get up and running as fast as they can. But always focused on a quality implementation.

Richard Baldry - First Albany Capital

And on the deployment side, just to continue on that side. You had your largest deal ever last quarter. Sort of curious, as you start to move into deploying that customer, if you think there's any major changes to how that will roll out versus prior customers' scale-to-scale difference?

Scott Scherr

No. None, Rich. Really it is based on the customer and their needs, and when they want to activate. But size generally doesn't matter that much in that. It's really the customer, what they want to do. We can activate them as fast as they're willing to go.

Richard Baldry - First Albany Capital

Great. And just the last question would be, any real changes in the competitive environment? It doesn't sound like anything may be getting easier if your inbound sort of activity interest levels are going up?

Scott Scherr

No, I think it's mostly the same. I think yes, it's mostly the same, Rich.

Richard Baldry - First Albany Capital

Okay, thanks. Congrats on a great quarter.

Operator

Thank you. We'll go next to Ilya Grozovsky with Morgan Joseph.

Ilya Grozovsky - Morgan Joseph TriArtisan LLC

Thanks, guys. I have a question about the services, the cost of revenues in the services line. How do you see that, I guess, trending over the next several quarters here? I mean it had been in the past, the margin was around 12%. This quarter, it looks like it's pretty much flat. Do you see that kind of being flat? Or is there some margin there to be had?

Mitchell Dauerman

Okay, Ilya, as you know and everybody knows services is not the driver of our business. The driver is obviously attaining our financial goals for the year, the 13% operating margin. But long story short, is the -- we probably see flattish service margins, maybe a little bit single digits in the second quarter. But then trending up towards the end of the year.

Ilya Grozovsky - Morgan Joseph TriArtisan LLC

Okay, great. Thank you.

Operator

And we'll take our next question from Mark Marcon with Robert W. Baird.

Mark Marcon - Robert W. Baird & Co. Incorporated

I'm just wondering on the fund held for clients, a big increase, I know that you've been focusing on that and, obviously, it's excellent in season. But can you talk a little bit about the outlook there. And how well that's being executed?

Mitchell Dauerman

Well, the outlook on the funds held for clients, obviously, we believe it will continue to grow. I think at the end of last quarter, we talked about where we saw that average balance going, believing that it'll be around $600 million by the time we hit 2013. We're probably a little bit ahead of where we thought we’d be for 2011. The upside from that gets driven by what we can earn on it. Our primary concern with earning money on our customers’ funds is 100% protection of our customer funds. So in this environment, the yields are extremely low.

Mark Marcon - Robert W. Baird & Co. Incorporated

Yes, understood. But I mean, it sounds like the execution’s gone really well.

Mitchell Dauerman

Yes.

Mark Marcon - Robert W. Baird & Co. Incorporated

Great. And then can you talk about services revenue on gross margin. I mean that's obviously not the focus and you've clearly changed the service model. Can you talk about the client response, and also how should we think about that over the next few quarters as we look out for the year?

Mitchell Dauerman

Well, I think these services are kind of indicative of our ability to invest our Partners for Life program. Philosophically, we'll take any excess return revenues and excess license until we can to invest in the customers, try to reduce their activation costs but still attain the financial goals for the year. I think we said, you know we said we think service revenues could be flat to slightly up for the year. That's probably still a fair statement.

Scott Scherr

And the response of our customers even at Connections, which – we made a big deal about it at Connections, our user conference. It was very well received. Obviously, we're giving them now free trainings on the customer base as they were thrilled about that. And new clients coming in, I think are equally as thrilled that we're willing to make that commitment, upfront and ongoing to train them for free. So it's been very positive for us.

Mark Marcon - Robert W. Baird & Co. Incorporated

I guess what I meant is, I think part of the motivation was to make sure that the clients fully participate in the training so that they've got to learn the system. And I'm wondering, are you seeing more clients actually participating in terms of the training? And does it seem to reduce questions and snags on the back end?

Scott Scherr

Yes. We had 40% more training in Q1 this year than a year ago. We're definitely seeing that.

Mark Marcon - Robert W. Baird & Co. Incorporated

Super. Thank you.

Operator

Thank you, we'll take our next question from Nathan Schneiderman with Roth Capital.

Nathan Schneiderman - Roth Capital Partners, LLC

Scott, Mitch, thanks in advance for taking my questions. I wanted to start off with a question just on the modeling of services and the revenue seasonality of the business. So your guide is basically that the revenue will dip a little bit sequentially, which really wasn't the way the consensus was modeled and you've had some changes with the Partners for Life and the tax filing. But I'm just wondering on a go-forward basis, do you now think that Q2 is a quarter that should be sequentially down from Q1? Or can you just talk about that seasonality in general and how do you see that changing.

Scott Scherr

Sure, Nathan. And just for clarification, the revenues from tax filing go into recurring revenues. But seasonality in services has always been a dip down from Q1 to Q2 because we do W-2s in Q1 of each year. And that will always drop down to Q2. So I can't speak for a consensus. But we expected it drop down and we expect it to sequentially increase each quarter leading up to a strong fourth quarter that precedes the January Go Live season.

Nathan Schneiderman - Roth Capital Partners, LLC

Do you see in general Q2 total revenue as a down quarter going forward sequentially?

Mitchell Dauerman

Well, for this year, we're guiding to approximately $64 million. So it's roughly the same as Q1. I doubt a year from now, my guess is it will go up because the growth from recurring revenues is going to outpace the shrinkage from the W-2s.

Scott Scherr

It was similar a year ago, Q1 to Q2.

Nathan Schneiderman - Roth Capital Partners, LLC

Right. Okay. Thanks, that's helpful. Scott, last quarter you gave us workplace as a percent of the bookings. I believe it was 40% last quarter. What was it this quarter?

Scott Scherr

Roughly the same.

Nathan Schneiderman - Roth Capital Partners, LLC

Okay. The 20 customers that shifted from on-premise to SaaS, that sounded like a pretty good number, and I'm curious what had the pace of that shift been in recent quarters? And then how many on-premise customers do you have left? And what percent of that mix do you think would likely convert over the next 5 years or so?

Scott Scherr

The maintenance from our on-site clients represents about 14% of our recurring revenue. I think the reason and every quarter we seem to be getting more and more people to convert to SaaS. I think SaaS is becoming mainstream. And I think we've been banging on these customers for so long. We had multiple connections about it moving, we’ve had client testimonials about moving. But I'd say, SaaS has definitely become mainstream. And we have a good story to tell to our on-site clients. So I would think that 14% next year could be single digits. And then down from there in the following years.

Nathan Schneiderman - Roth Capital Partners, LLC

Okay. And my final question area for you is on the sales organization. I was curious where you are now on quota reps and how do you see that changing between now and where do you think you'll get to by the end of the year.

Scott Scherr

We have 62 quota reps, some of them are not on full quota. Most are on full quota. I think we're set for this year, the adds will be the beginning of next year. And I'm not 100% sure on what that number is going to be at this point. I think we'll see where we go this year with our results and how the team is. But the adds will come in next year at the first half of the year.

Nathan Schneiderman - Roth Capital Partners, LLC

Thank you very much.

Operator

[Operator Instructions] And we'll go next to Brian Schwartz with ThinkEquity.

Brian Schwartz - ThinkEquity LLC

Thank you for taking my questions in advance. Scott, couple of questions just on the competitive environment and maybe what you're seeing within your pipelines. On the competitive side, it looks like this quarter, you talked about you've seen a real good shift from your license customers onto your SaaS. How about competitively, are you seeing when you look at your wins and the increased momentum of replacing other in-house license on-premise payroll providers versus maybe what the competitive win rate was 6 months ago?

Scott Scherr

I mean, it's similar. The on-premise win has gone up. I think we were about 5% a year ago, we run about 5% of our deals in enterprise were coming from in-house and we're running around 10% right now. But still 65% of the business in enterprise is coming from service bureaus.

Brian Schwartz - ThinkEquity LLC

Okay. And then the second question I just wanted to ask you again maybe just looking into the pipeline, looking into your enterprise group pipeline. You know last quarter you won the biggest deal, I think in the company's history, I think I saw a press releases this quarter about a nice win at Avon, probably occurred last year. If you look into your enterprise group pipeline, are you seeing an increase in the size of the opportunities that you have ahead of you compared to, say, this time last year?

Scott Scherr

Yes, 100%, as well as workplace. The average unit size that we're selling is larger and the average unit size in the pipeline is larger for both groups.

Brian Schwartz - ThinkEquity LLC

Okay. Thank you. And just a last question. And I don't know if it's too early to tell here from an analysis. But you've had a couple of quarters now with the Partners for Life program, is it possible to analyze and see how that is affecting your recurrent revenue growth so far?

Scott Scherr

I think it's too early. We were ahead of where we thought we'd be in recurring revenue, which was nice. And I think for me just to say it had to do 100% with that would be [indiscernible]. But I think it had something to do with it. And I think when we lap it in a year, I think we'll get better at figuring it out. But I know it's going to get claims faster, get claims activated faster and even with more quality than we've been doing in the past. I have huge confidence in that.

Brian Schwartz - ThinkEquity LLC

Great, thank you. And just 1 more for you, Scott. Following up I think on Richard's question earlier about the international market. I just wanted to ask you about Canada. You've been in that market now for a couple of years now. Just wondering if you could possibly talk about the traction that you're seeing? And if you think that there might be an opportunity there to increase investments to accelerate your recurring revenue growth up in that market? That’s all I have. Thank you.

Scott Scherr

Well, we've been doing great in Canada, both from Canadian-based companies and companies in the United States who have subsidiaries in Canada. It's done more than we thought. And I think it's a huge opportunity up there. And we definitely will invest appropriately to take advantage of that opportunity.

Brian Schwartz - ThinkEquity LLC

Thank you.

Operator

Thank you and that was our last question. I'd like to turn the program back over to Mr. Scott Scherr for any additional or closing comments.

Scott Scherr

Yes. Thanks to all. I appreciate your time. And we'll see you next quarter or before. Take care.

Operator

That does conclude today's call. Thank you for your participation.

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