paychex (payx) earnings report: q2 2016 conference call ... · the staffing outsourcing business is...

CompanyName:PaychexIncCompanyTicker:PAYXSector:ServicesIndustry:Diversif iedServices

EventDescription:Q22016EarningsCallMarketCapasofEventDate:18.91BPriceasofEventDate:52.825

©2014TheStreet,Inc.Al l R ightsReserved Page1of29

PayChex(PAYX)EarningsReport:Q22016ConferenceCallTranscriptThefollowingPayChexconferencecalltookplaceonDecember22,2015,09:30AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

MartinMucci;PaychexInc.;PresidentandCEOEfrainRivera;PaychexInc.;CFO

OtherPart icipants

JasonKupferberg;JefferiesLLC;AnalystDanyalHussain;MorganStanley;AnalystS.K.PrasadBorra;GoldmanSachs;AnalystUnidentifiedAnalyst;EvercorseISI;AnalystKartikMehta;NorthcoastResearch;AnalystGaryBisbee;RBCCapitalMarkets;AnalystJimMacDonald;FirstAnalysis;AnalystTimMcHugh;WilliamBlairCompany;AnalystRickEskelsen;WellsFargo;AnalystJeffSilber;BMOCapitalMarkets;AnalystAshwinShirvaikar;Citi;AnalystBryanKeane;DeutscheBank;AnalystSaraGubins;BankofAmerica;AnalystMarkMarcon;RobertW.Baird;AnalystLisaEllis;Bernstein;AnalystDavidGrossman;StifelNicolaus;AnalystTienTsinHuang;JPMorgan;AnalystGlennGreene;Oppenheimer;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Welcomeandthankyouforstandingby.

(OperatorInstructions)

Today'sconferenceisbeingrecorded.Ifyouhaveanyobjections,youmaydisconnectatthistime.Andit'smypleasuretoturnthecallovertoMr.MartinMucci,PresidentandChiefExecutiveOfficer.Sir,youmaybegin.

MartinMucci(PresidentandCEO):

Thankyouandthankyouforjoiningusforoursecond-quarterFY16earningsreleasecallandwebcast.JoiningmetodayisEfrainRivera,ourChiefFinancialOfficer.

Thismorningbeforethemarketopened,wereleasedourfinancialresultsforthesecondquarterended




November30,2015.Ourform10-Q,whichprovidesadditionaldiscussionsandanalysisfortheresultsofthequarter,willbeavailableinthenextfewdays.Ourearningsreleaseand10-QwillbeavailableonourInvestorRelationspageatwww.paychex.com.

Thisteleconferenceisbeingbroadcastovertheinternetandwillbearchivedandavailableonourwebsiteforapproximatelyonemonth.Ontoday'scall,Iwillreviewhighlightsforthesecondquarterrelatedtosales,operationsandproductdevelopment.Efrainwillbeviewoursecond-quarterfinancialresultsanddiscussourfull-yearguidance,andthenwewillopenitupforyourquestionsordiscussion.

Wemadegoodprogressacrossallmajorproductlinesduringthesecondquarter.Comparedtosecondquarteroflastyear,payrollrevenueadvanced4%asaresultofgrowthinclientbaseandrevenuepercheck.HRSrevenuegrewatdouble-digitratesinthesecondquarteronceagain,leadbyoursuccessinsellingHRoutsourcingsolutionstoourclients,andtotalservicerevenuegrew7%.

Wecontinuetoexperiencesolidresultsandmomentumacrossoursalesorganizationwithdouble-digitgrowthinrevenuesoldcomparedtolastyear.OurteamsellingapproachcontinuestoproduceresultsbyintroducingthefullsuiteofproductsthatPaychexcanofferourclientsupfront.Weareencouragedbythismomentumasweenterourmainsellingseasonrightnow.

Ourexecutioninserviceoperationsalsocontinuestobeexcellentasdemonstratedbyclientsatisfactionresultsandretentionlevelsthatremainconsistentwithrecenthighs.OftheemployeesinourserviceorganizationhavedoneagreatjobaswemovetoamoreflexibleserviceoptionswithPaychexFlex,including7/24service.

WeexpandedourhumanCapitalManagementproductsuiteagainwiththerecentlaunchofourintegratedPaychexFlexTimeandPaychexFlexBenefitsAdministrationmodules.Thesearetwoofthenewestmodulesforourcloud-basedHCMplatform.

PaychexFlexTimeisamarket-leadingTimeandAttendancecloud-basedsolution,providesreal-timedataaccessandisdesignedtobeexceptionallyeasyandintuitivetouseforourclients.Itgivesemployersunprecedentedvisibilityandcontroloverlaborscheduling,trackingandreporting.PaychexFlexBenefitsAdministrationprovidesemployerswitharobust,customizablesystembuilttoimproveemployeeproductivity,communicationanddecision-makingandallowingcompleteoversightandcontrolofemployeeinformationeffectivelytomanageacompany'sbenefitplans.

Wealsohavebest-in-marketmobilityofferingsinouropinionforbothadministrativeusersandemployeeselfservicethatallowaccesstoourHCMsuitefromasinglemobileapplication.WecontinuetoreceivepositivereviewsforourFlexplatformthatwe'reveryproudof,asevidencedbyourrecognitionfromtheBrandonHallGroupExcellenceAwardsforanadvancementinworkforcemanagementtechnologyforsmallandmid-sizebusinessesandPCMagazine'srecentreviewreferringtoPaychexFlexasexcellentandcallingitmorerobustandscalablethanmanyofthecompetitors'platformstheyreviewed.

TurningtotheAffordableCareAct,lastfiscalyearwelaunchedourPaychexEmployerSharedResponsibilityservicetoassistclientsnavigatingthehealthcarereform.OurESRproductincludesmonthlymonitoringwithautomaticalertsaswellasyear-endreporting,andwearepleasedwiththecontinuedlevelofclientacceptancethatwehaveexperienced.

Wehaveincreasedourimplementationandsupportspendingtoaddresstheincreaseddemandwe'vereceivedforESR.IappreciatethegreathardworkanddedicationofthisESRteamhelpingourclientsthroughthisfirstyearofcomplexACArequirements.

OurPaychexinsuranceagencywasnamedtheBusinessInsurancemagazine'slistofbestplacestoworkininsurancefortheveryfirsttime.Thisisanotablerecognition,andI'mveryproudoftheagency




employeesandthegrowthwe'veseenintheinsurancebusiness.

OnDecember2,weannouncedourplannedacquisitionofAdvancePartnersbasedjustoutsideofCleveland,Ohio.WeareenthusiasticabouttheopportunityAdvancePartnerspresentsandtheexperiencedandsuccessfulleadershipteamthatwillbejoiningPaychex.Theyoffercustomizablesolutionstothetemporarystaffingindustry,includingpayrollfundingandoutsourcingservicesthatincludepayrollprocessing,administrationandinvoicing.

Thestaffingoutsourcingbusinessisagrowingindustrythatservesmanysmallandmid-sizestaffingfirms,whichisanidealfitforusatPaychex.AlsogivenPaychex'sextensiveproductsuite,financialstrength,andaccesstocapital,wecanhelpexpandAdvancePartners'productofferingandaccelerateitsgrowth.Thisacquisitionwillcloseshortly.

Weremaincommittedtoaddingadditionalvalueforourshareholderswithourdividendat$0.42pershare.Wemaintainastrongdividendyield,oneofthehighestintheindustry.ThePaychexstockrepurchaseprogramremainsinplace,andwehaveacquiredoveramillionsharesofcommonstockinthefirstsixmonthsofFY16.

Andinsummary,Iamverypleasedwithacontinuedstrongexecutionofoursalesandserviceteams,ourproductstrengthandfinancialperformance,andIappreciatethegreatworkofourPaychexemployeeteam.IwillnowturnthecallovertoEfrainRiveratoreviewourfinancialresultsinmoredetail.Efrain?

Ef rainRivera(CFO):

Thanks,Martyandgoodmorningtoyouall.I'dliketoremindeveryonethatduringtoday'sconferencecall,wewillmakesomeforward-lookingstatementsthatrefertofutureeventsandthusinvolverisk.Refertotheusualdisclosures.

AsMartyindicated,second-quarterfinancialresultsforFY16representedacontinuationofthesolidstartwehadtotheyear.Iwillcoverthehighlightsandprovidegreaterdetailincertainareas,thenwrapwithareviewofour2016outlook.Iwillhavesomecommentsonsecond-halfguidance,soasIgetmidwaythroughmycomments,youwillstarttohearthose.

Totalrevenuegrew7%forthesecondquarter,8%forthesixmonthsto$722millionand$1.4billionrespectively.Totalservicerevenuealsogrew7%forthesecondquarterand8%forthesixmonthsto$711millionand$1.4billion.

Interestonfundsheldforclientsincreased8%forthesecondquarterand7%forthesixmonthsto$11millionand$22millionrespectively.Thesechangesweredrivenbyhigheraverageinterestratesandhigheraverageinvestmentbalances.

Expensesincreased5%forthesecondquarterand6%forthesixmonths,primarilyincompensation-relatedcostsandstronggrowthinthePEO.Theincreaseincompensation-relatedcostswasdrivenbyhigherwagesandperformance-basedcompensationcosts.

Operatingincomenetofcertainitemsincreased9%forthesecondquarterand10%forthesixmonthsto$283millionand$568millionrespectively.Wemaintainstrongoperatingmarginsof40%butanticipatethatourfullyearwillremainwithinourguidanceofapproximately38%.Thesecondhalfofthefiscalyear,consistentwithprioryears,isexpectedtoresultinlowermargins,primarilyduetohighersellingandoperationscostswhicharevariable,andmoredetailonthatlater.

Netincomeincreased9%to$189millionforthesecondquarterand16%to$398millionforthesixmonths.Dilutedearningspershareincreased11%to$0.52pershareforthesecondquarterand17%to$1.10pershareforthesixmonths.




Thesix-monthperiodwaspositivelyimpactedbythenettaxbenefitrelatedtoprior-yearrevenuesthatwasrecognizedinthefirstquarter.Whenweexcludethisimpact,netincomeanddilutedearningspersharewouldhaverisen10%and12%respectively.

Let'sturntopayrollrevenue.Payrollservicerevenueincreased4%forboththesecondquarterandsixmonthsto$427millionand$860millionrespectively.Webenefitedfromincreasesinclientbaseandrevenuepercheck.

Revenuepercheckgrewasaresultofpriceincrease,netofdiscounting.Checksperclientreallydidn'tbenefitpayrollrevenue.

HRSrevenueincreased11%to$284millionforthesecondquarterand13%to$564millionforthesixmonths.ThisincreasereflectsstronggrowthinbothclientsandworksiteemployeesofPaychexHRServices,whichincludesourASOandPEOproducts.InsuranceservicesbenefitedfromcontinuedgrowthofourESRproductthatassistsclientswithhealthcarereformandanincreaseinhealthandbenefitsapplicationsapplicantstogetherwithhigheraveragepremiumsandclientsinourworkers'compinsuranceproduct.

OurHRAdministrationandTimeandAttendanceproductscontributetothegrowththroughrobustsalesofthesesolutions.Retirementservicesrevenuebenefitedfromgrowthinthenumberofplansandanincreaseinassetfeerevenueearnedonthevalueparticipantfunds.Retirementservicesrevenuegrowthwasoffsetbypricingimpactsintherespectiveprior-yearperiod.

Let'slookatinvestmentsandincome.Ourgoal,asistoprotectprincipalandoptimizeliquidity.Ontheshort-termside,we--primaryshort-terminvestmentvehicleswerebankdemanddepositaccounts,high-qualitycommercialpaperandvariableratedemandnotes.

Inourlonger-termportfolio,weinvestprimarilyinhighcreditqualitymunicipalbonds,corporatebondsandUSgovernmentsecurities.Ourlong-termportfoliohasanaverageyieldof1.7%andanaveragedurationofapproximately3.3years.Ourcombinedportfolioshaveearnedanaveragereturnof1.1%forboththesecondquarterandthesixmonths.

OnDecember16,asyouallareaware,theFedraisedfederalfundsratesby25basispoints,thefirstinterestratehikeinnearlyadecade.Weexpecttheimpactforthebalanceofthefiscalyearwillbemodest.

Let'stakealookatourfinancialposition.Itremainsstrongwithcashandtotalcorporateinvestmentsof$913million.

FundsheldforclientsasofNovember30,2015were$3.7billioncomparedto$4.3billionasofMay31.Fundsheldforclientsvarywidelyonaday-to-daybasis,andtheyaverage$3.7billionforthequarterand$3.8billionforthesixmonths.

Ourtotalavailableforsaleinvestmentsincludingcorporateinvestmentsandfundsheldforclientsreflectednetunrealizedgainsof$34millionasofNovember30comparedwithnetunrealizedgainsof$14millionasofMay.Totalstockholdersequitywas$1.9billion,reflecting$304millionindividendspaidduringthesixmonthsand$63millionofcommonsharesrepurchased.Ourreturnonequityforthepast12monthswas39%.

Cashflowsfromoperationswere$420millionforthefirstsixmonths,a4%increasefromtheprioryear.Thischangewastheresultofhighernetincomeoncashflowfromoperationsoffsetbyfluctuationsinworkingcapital.Thefluctuationsinourworkingcapitalbetweenperiodswereprimarilyrelatedtothetimingofcollectionsfromclientsandpaymentsforcompensation,PEOpayrollandincometaxes.




NowI'dliketoturntoFY16guidance.Letmeremindyoufirstthatouroutlookisbasedonourcurrentviewofeconomicandinterestrateconditionsandthatguidanceforthefullyearisunchangedfromthepreviousquarter.Iwillreiterateourfull-yearrangesandthengivesomecoloronthebackhalfoftheyear.

Payrollservicerevenueanticipatedtoremainintherangeof4%to5%,HRSintherangeof10%to13%,totalservicerevenueintherangeof7%to8%,andnetincomegrowthisanticipatedtobeintherangeof8%to9%.Pleasenotethatrangeexcludesthebenefitofthenettaxbenefitwerecordedinthefirstquarter.

Oureffectivetaxratefortheyearexcludingtheimpactofthenettaxbenefitdiscussedabovewillbeapproximately36%.Ourinterestonfundsheldforclientsandoperatingmarginareexpectedtobeconsistentwithpriorguidance.

Now,currentguidancedoesn'tincludetheannouncementbytheFedofa25basispointchangeinrates.Thisisgoingtoequatetoapproximately$1millionaftertaxfortheremainderofthisfiscalyear.Onthecall,Iwilltalkalittlebitaboutwhyitmaybemoremodestthanyouassume,butIwouldjustsaytoprefacethatconversationthatmuchofthatimpactwon'tstarttobefeltuntilJanuary,andthenitwillbemodest.

Ourguidancealsodoesnotincludeanyexpectationoffutureincreases.Wedon'tlookatforwardratestodeterminewhatguidanceshouldbe.WesimplymakeanassumptiononcetheFedhasacted.

ThereobviouslyisachancethattheFedwillcontinuetoraise.Wewillupdateguidancewhenthathappens.

Full-yearguidancecurrentlyexcludestheimpactoftheAdvancePartnersacquisitionthatMartyreferencedearlierandwhichweexpecttocloseshortly.Itisnotexpectedtoimpactearningsinthecurrentfiscalyear,meaningitwillnotbedilutiveinthisyearneitherwillitbeaccretiveinthebalanceofthefiscalyear.IwilldescribeseparatelytheimpactofAdvanceshortly.

So,whileitisn'tourtypicalpracticetoprovidespecificguidanceonquarters,wedowanttobeastransparentaspossibleandprovideyouwithsomecoloronthirdandfourthquarterthisyear.Payrollrevenuegrowthforthethirdquarterisanticipatedtobeatthelowerendoftheguidancerange.Whilepayrollrevenuegrowthinthefourthquarter,weanticipatetobeatthehigherendoftherange.

Aswestatedinpreviouscalls,thefourthquarterwillbenefitfromoneadditionalprocessingdaythisyear.Thiswasthecaseinthefirstquarterasyouallremember.

HRSrevenuegrowthforthethirdquarterisanticipatedtofallbelowthelowendofthefull-yearguidancerangeasweindicatedinpreviouscalls.Icalledthatoutwhenwestartedtheyear.

ThisisaresultofstrongthirdquarterintheprioryearresultingfromverystrongPEOperformance,andwehadbenefitedfrompricinginourretirementservicesbusinesses.Whilebotharedoingfine,theyjustsimplyarenotasstrongastheywereintheprioryear.Forthefourthquarter,weexpectHRSrevenuegrowthwillbewithinthefullyearrange.

Inaddition,weanticipateasistypicallythecaseahighersellingexpensesinthesecondhalfoftheyear,butthisyear,giventhestrengthofoursalesperformanceinthefirstsixmonthsoftheyear,webelievethatsellingexpensewillbehigherthanwehadplanned.WealsoanticipatehigheroperationsexpenseduetostrongersalesthatIjustmentionedandalsoverystrongdemandforourACAcompliantsolutions,soyouwillfeelmuchofthatinthethirdquarter.Again,current-yearguidanceisnotchanged.

SoasIjustmentioned,theguidancethatIdiscusseddoesn'tincludeanyimpactfromAdvancePartners,




sowhenweclose,thisiswhatweanticipate.Forthebalanceoftheyear,webelievethattheacquisitionwillcontributeapproximately1%topayrollrevenuegrowthandapproximately1.5%toHRSrevenuegrowth.That'sinthebalanceoftheyear,secondhalf.

Thatimpactwillbeprimarily--willbesplitmoretowardsthefourthquarterthanthethirdquarterbecauseweanticipatethatwewillonlyrecognizetwomonthsofrevenueinQ3.Sotheweightingwillbealittlebitmoretowardsthefourthquarter.

Andweanticipatethatadditionalexpenses,operatingexpensefromtheacquisitionwilloffsetrevenueinthebalanceofthisyear.Won'tbedilutive,won'tbeaccretive,willessentiallybeneutral.SoIhopethatwasclear,andwiththat,I'mgoingtoturnitbacktoMartyforquestions.


Thanks,Efrain.Atthispoint,wewillnowopenthecalltoyourquestionsorcomments.Operator?

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

OurfirstquestioncomesfromJasonKupferbergfromJefferies.

JasonKupferberg (Analyst-JefferiesLLC):

Goodmorningguys,happyholidays.


Thankyou.


Iwantedtostartwithaquestiononsharebuyback.Idon'tthinkyouguysrepurchasedanysharesinthequarter,andIbelieveyougotabout$100millionleftontheauthorization.SowantedtojustgetasenseofwhetherthatwasbecauseyouseesomeadditionalM&AopportunitiesofsizeinthepipelinebeyondAdvancePartners,ordidyoujustfindthepriceofthestocknotattractiveenoughoranyotherfactorsatworkthere?

Ef rainRivera(CFO):

Jason,that'sagoodquestion.IthinkI'dgetabatupsidetheheadifIsaidthestockpricewasn'tattractive,butno.


(Laughter)very,veryhonestwithusthough,Efrain.

Ef rainRivera(CFO):

Iam,Itryto.No,wepurchaseopportunistically,sothat'spartofwhatourplanis.OntheM&Afront,Ithinkthere'sanelementofthat.

Advancewasaniceacquisition,butIwouldsayasI'vebeensayingnowforanumberofmonthsandfinallywehavesomeevidenceofthis.Thepipelineisrobust,soweseealotofopportunitiesforM&Ainspaceswelikeatpriceswelike.SoIthinkthatit'sacombinationofboththosefactors.





Okay,andsojustasafollow-up,Iguessatwo-partquestion.Aswegointothatkeyyear-endsellingseason,howdoyoufeelyou'resetupwiththeproductset,thesalesforcecapability?

Shouldweexpectthedouble-digitsalesgrowththatyou'vebeenseeingtocontinue?Andthenjustalongwiththat,anymacrocommentsaboutnewbusinesscreationandgeneralhiringtrendsthatyou'dliketoshare?


Yes,thisisMarty,Jason.Ithinkwe'refeelingverygood.We'vegotgreatsalesmomentum.It'scontinuedQ1andQ2double-digitpargrowth,andwewouldexpectthattocontinue.

Thisisareallyimportantquarterobviouslyforusfromasalesperspective,butwe'regoinginwithgreatmomentum.Andinparticularinthemidmarket,verystronginthemidmarket.AndthisissomethingthattheproductdevelopmentworkandthetechnologyhasbeensoimportantforFlex,andwe'rereallyseeingthatpayoffnow.

We'rereallyseeingverystrongresultsonthemidmarketevenascompetitionisoutthereprettyconsistently,we'vetalkedaboutthat.We'rereallyseeingverypositiveresultsfromagrowthperspectiveandwhatsold,sowe'regoinginfeelinggoodaboutit.Wefeelliketheproductworkthatwe'vedoneandsomeofitherethislastquarteriswhenweintroducedthefullyintegratedTimeandAttendanceandBenefitAdministrationintoFlex,positionsusextremelywellforthissellingseasonandfranklyongoingfuturequarters.


Andjustthenewbusinesscreationandsmallbusinesshiring?


Yes,I'msorry.Infact,oursalesfromnewbusinessesisup,quiteabitstrongerthanlastyear.Sowhilethesmallbusinessindexwouldsayit'sconsistentfromemploymentgrowth,Iwouldsaysalestonewbusinessesareupabit.

Sowe'refeelingprettygoodaboutthat.Iwouldn'tsayit'sahugesurge,butit'scertainlyconsistentandupafewpointsfromlastyearatthistime,soIthinkthat'sverypositive.


Okay,Iappreciatethethoughts.Haveagoodholiday.


Thanks.

Operator :

OurnextquestioncomesfromDanyalHussainfromMorganStanley.

DanyalHussain (Analyst-MorganStanley):

Hi,goodmorning.Thankyoufortakingmyquestion.Justahigh-leveloneaboutAdvancePartnersandunderstandingithasn'tclosedyet,butwhenwe'relookingouttoFY17andbeyond,canyoujustgiveus




asenseforwhatthemarginprofilelookslike,whether--ifittucksrightin,whetherwecanexpectittobeinlinewiththeCompanyaverage?

Ef rainRivera(CFO):

Well,that'sagoodquestion.ButwhatwasinterestingaboutAdvance--nowI'mgoingtoexcludepurchaseaccountingbecausethatwillobviouslyimpactit,butifyoulookatfromanEBITDAmargin,whatwasreallyunusualaboutthebusinesswasthatitwasprettycomparabletowherePaychexwas,whichissayingsomething.

Imean,welookatalotofacquisitions.Werunintoveryfewthathaveverysolidgrowth,verysolidmargins.Theybuiltagreatbusiness,notaflashinthepant.They'vebeenatitforalmost20yearswithastrongtrackrecordofgrowth.


Wefeelobviouslyverygoodabouttheopportunityaswell.SonotonlyisitagoodmarginbusinessbutasEfrainsaid,theleadershipteamthereisstayingwithusandbeingpartofPaychexandthey'vebuiltitovertimeIthinkverycarefullyandverystrategicallyandcertainlyveryprofitablysowethinkit'sgoingtofitinextremelywellandwethinkwithouraccesstocapitalandproductthatwewillbeabletoaccelerateindistribution.We'regoingtobeabletoacceleratetheirgrowthevenmore.


GotitthanksandthenjustaquestiononFlex,soIthinkEfrainyoumentionedinthepastthatFlexconstitutesamajorityofnewsalesbutyouaren'tmandatingclientmigrationovertoFlexsoisthereapointwhereyoueventuallystopofferingsomeofthecoreproductsandreallypushtheFlexproductmoretonewsalesandthenlookingacoupleyearsfromnowisthereareasonabletimetableforwhenyouexpectamajorityofclientswillhaverolledoverandthenwhatimpactyoumightseefromaretentionormargin?


Yes,Ithinkatthispointwearen'tforcingit.Ithinkwe'redoingitthewaywehadhopedwhichisthisisattractingnewclientsandacceleratingthosesalesbythewaytonewclientsandit'sattractingcurrentclientstocomeoversowe'representingthatifyouwantyouhavecertainneedsfromtheproductthatifyouwanttomigrateoveryoucan.Wearen'tpushingthattoohardyetandwearen'tnecessarilyputtingadropdeaddateonmigrations.It'salwaysbettertobeonthenewestplatformbutfranklytheexistingplatformissatisfyingalotofneedsforexistingclientsandmanyofthemdon'tliketomovesowedon'thaveacertaindatebutwe'regoingtohandleitcarefullyandlettheclientsatthispointdoprobablymostofthemovementandwe'refeelinggoodaboutthat.CertainlythenewsalesthemajorityparticularlyinthemidmarketareallonFlexandthat'sgoingextremelywell.

Ef rainRivera(CFO):

TheotherthingI'daddDanyalisjusttoputitincontext,ifIexcludeandincludeitdoesn'treallychangewhatI'mabouttosay.90pluspercentofourclientsareoneitherFlexoronsureplatformwhichfranklyisahybridofcoreAdvanceandtheirownplatform,soit'snotahugepartofthebaseobviouslywearesellingprimarilymidmarketclientsonthenewplatform.


Gotitandmaybeaquickmodelingquestion.YoumentionedretirementservicesimpactedthegrowthrateIguessoverthetrailingfourquarters.Couldyoujustquantifythat?




Ef rainRivera(CFO):

Ididn'tcatchthefirstpart.


TheretirementservicesyouIthinkchangedpricing?

Ef rainRivera(CFO):

Yesthat'sbasicallywhat'scausingthegrowthratetodropabitinadditiontoPEO.Iwon'tquantifyitanymorethanthat.Butweperiodicallytakepricingindifferentsegmentsofthebusiness.HRSisalittledifferentthanpayrollwherepayrollit'sprettytypicaleveryyear.HRSwelookatdifferentproductsandtrytogaugewheremarketisanddecidedtotakesomeofthoseactionslastyearanddidn'trepeatthisyear.


Perfect,thankyou.

Operator :

OurnextquestioncomesfromiscanS.K.PrasadBorraGoldmanSachs.S.K.Prasad.

S.K.PrasadBorra(Analyst-GoldmanSachs):

Thanksfortakingmyquestions.[INAUDIBLE]

Ef rainRivera(CFO):

SoSK,ifIheardyourquestion,I'msorryIknowyou'retraveling.Thequestionwassetupforthesellingseasoncomparedtolastyearhowwefeelaboutthat.Wasthatwhatyouasked?


Exactly.


Yes,sorryjustcouldn'tmakeitout.Ifeelverygoodaboutit.Whenyou'recarryingthemomentum,thegoodthingaboutsellingseasonwhenyou'readdingintoitishowdidyoustarttheyearinparticularlyQ2becausethat'sthebeginningofitasyougetintoOctoberandNovemberisverygoodsowhenyou'reseeingdoubledigitgrowthinpar,wehadanincreaseinsalesrepsbutitwasprettysmallsingledigitincreasethatwenormallyhave,toseedoubledigitinwhatwe'resellingintheparrevenuethatwe'resellingconsistentlyinQ1andQ2wefeelgoodaboutQ3andaboutthesellingseason.Nowyouneverknowuntilyou'rethroughJanuarybutwefeelverygoodaboutit.Wegotfullproductsuite,wegotfullonBoardofreps,salesreps,wegotveryconsistentatdrivingleadershipthat'stheresoeverythingisveryfavorableforwhatwefeelwillbeaverygoodsellingseason.Greatmomentumgoingin.


Thankyou,Martin,andEfrain[INAUDIBLE],arethecommontheseinclinedtodomoreM&A?

Ef rainRivera(CFO):

Idon'tknowifmoreM&A.ItwasalwaysdifficulttotalkaboutalimitnoonesawexceptmeorMarty




andI,butIthinkIwouldsayatthemargin,Iwouldn'tsaywewillbeonanaccretiveandacquisitiontierherebutIsayatthemargin,wehavemorethingslinedupclosertobeingexecutedthanwehaveinthepast,soyouwillseeit.Nowjustbeforethatgetsmisinterpreted,they'reprimarilytuckin.IwouldsaythatAdvanceisagoodexampleofthekindsofthingswe'relookingat.Wearen'tlookingatlargescaletransformativeM&Abuttherearebetteropportunitiesoutthereandwe'relookingatopportunitiestofilloutbothproductsetandtuckintoexistingbusinesses.


Andlastone,obviouslyalotofdebateon[INAUDIBLE]thisyearonwhatmarginsolutionssojust[INAUDIBLE]youhavetotakeahitonthenearterm?

Ef rainRivera(CFO):

Oh,yesthisistheperenqualityquestion.Ithink,SK,look.Wetrytobalanceit.Obviouslyifwecangetmuchfastergrowthandsacrificealittlebitofmargin,wewouldlookatthatbutlifedoesn'tpresentthoseneatdichotomies.Alotofwhatwelookatareacquisitionsthatwethinkwon'tbedilutivetoourmarginswhenwerunacrossbusinessesthatwethinkhavegoodgrowthprospectsandI'dpointtosurepayrollasanexampleofthat.Whenweinitiallyboughtit,itwasdilutivetomarginsandnowit'scatchinguptoourmargins.Ifwehaveachancetoimprovethemarginsthenwewilltakeabetearlyontogetsomethingthatwillimprovegrowthandhelpustoimproveandwecanimprovetheirmarginsovertime.


[INAUDIBLE].

Ef rainRivera(CFO):

Yes,I'djustsayifIheardyourquestioncorrectlythattheyareonanEBITDAbasisprettyclosetoPaychexcorporatemargins.


ThanksMartin,thanksEfrain.Happyholidays.

Ef rainRivera(CFO):

Thankyou.

Operator :

OurnextquestioncomesfromDavidTogutfromEvercoreISI.

Unidentif iedAnalyst (Analyst-EvercorseISI):

GoodmorningthisisRainaforDavidTogut.

Ef rainRivera(CFO):

Hi.


Couldyoujustwalkusthroughthelargestdriverstoyour80basispointsoperatingmarginexpansionthisquarter?

Ef rainRivera(CFO):




Oh,thisquarter.IwouldsayalotofthatwasI'dsayit'sprimarilydrivenbytheloweroperatingexpenseinthequarter,sowewentintothequarterwithacertainexpectationaroundwhatweneededintermsofoperatingexpensescameoutofitalittlebitlighterthanweanticipated.That'sreallytheprimarydriver.


Gotit.Couldyouquantifynetpriceincreasesthatyou'rerealizinginbothpayrollandHRservicesthisyear?

Ef rainRivera(CFO):

Iwon'tgoanyfurtherthancallingoutwhatwetypicallysaythatonpayrollwe'regetting2-4%priceincreasewhereyoucanassumethat'sinthatrange.Wedon'ttypicallycalloutHRSbecauseitvariesyeartoyearsowe'regettingsomepriceincrease.It'snotcertainlyasgoodasImentionedonthecalliswhatwegotlastyearandtheotherthingIwouldsaytooRainaisoneofthethingsthat'soccurringparticularlyonthepayrollsideiswiththesalesforceabletosellmorefullfeaturedpackagesespeciallyunder50yougetsomemixedbenefittoosoallofthosethingshelpourrevenueperclientpicture.


Understood,thankyouandhappyholidays.


Thankyou.

Operator :

OurnextquestioncomesfromKartikMehtafromNorthcoastResearch.

KartikMehta(Analyst-NorthcoastResearch):

Hi,Marty,heyEfrain.

Ef rainRivera(CFO):

Hi.


EfrainyoutalkedalittlebitaboutAdvancePartners.Isthisanacquisitionoranindustrythatyouthinkhavetobuildscaletoreallybenefitfromthisoristhisyou'dliketoseewhatyouhaveandthendetermineifyouwanttotakethenextstepbyfurtherconsolidating.


Ithinkifyoumeanbyconsolidatingacquiringmore,wefeelgoodthiswasareallygoodfitforus.AsEfrainmentionedwehaveabigpipelinewelookatandifwelookedatthisCompanyheretheyareoutsourcingsupportpayrollandfundingsupporttosmallandmidsizestaffingcompanieslike7500staffingcompaniesplacing200,000tempsayear,thisisanicebusinessthatthere'sanumber,afewbusinessesthatdothisbutnobodyismuchIthinktothisscaleandhavedoneitverythoughtfullyovertheyears.Ithinkaswelookatthebusinesswe'vegotclientswithstaffingcompaniesthatIthinkaregreatopportunitiesforthefundingsideofthebusinessforthemandIthinkwe'vegotalotofproductwecouldoffertotheirclients.Ithinkthisisagoodfit.We'regoingtoseehowthisgoesbutwe'realwayslookingtoseeifitmakessensebothfromourstandpointandfromthere'saswellfromtheirleadership,Ithinktheremaybeconsolidation




effortsthatareavailableoutthere.


MartyIknowthisisafairlysmallacquisitioncomparedtotheoverallPaychexbutdidthischangetheriskprofile?Doestheacquisitionchangetheriskprofileoftheacquisitionyou'velookedatcomparedtotheacquisitionsyou'velookedatinthepast?


Idon'tthinkso.We'realwayslookingforasEfrainsaidthishasgotagoodstrongmargintoitthat'sclosetoours.Ithadnicesolidgrowth,Idon'tthinkitreallychangestheriskprofilemuch.Ithinkoneofthegreatthingsthattheydidfranklywashadverygoodriskpoliciesandprocedurestobesure,thisisabitofatrickierbusinesstobesureyou'rehandlingtherightriskandtakingontherightriskandtheyjusthavedonearemarkablejobandIthinkwithourriskManagementteamworkingwiththemIthinkwecanhelpthatevenmorewithmoretoolsandmoreinformationsoIdon'tthinkitreallychangestheriskprofileatall.


AndEfrainonthefullportfolio,anychangesyou'regoingtomakeasitseemsasthoughtheFedisprobablygoingtocontinueincreasingratesandis25basispointsabout2milliontonetincome,isthattherightwaytolookatitonanannualbasisoristheresomethingdifferentthistimearoundthatmightmutetheincreaseyou'dgetinnetincomefromrateincreases?

Ef rainRivera(CFO):

Okay,twogoodquestions.Sothesimpleansweristhatitdependsontheshapeoftheyieldcurveandiftheyieldcurvesteepends,thenyouhaveoneportfoliostrategyapproachandiftheyieldcurvestaysrelativelyflatyouhaveanother,sowelookatthatintheSpringsothat'swhyIcan'tsaydefinitivelythisiswhatitwilllooklikein17mentinadditionI'dliketoseeifaFeddoesdosomethingintheSpring.Itwillcertainlyaidtheportfolio.Thequestionishowmuchandhowwecanfiguretheportfolio.Onthe2millionIdon'tthinkthat'sfaroff,Kartik.TheonlytrickandthereasonwhyIcallout1millionisthatnumberone,wedon'treallyexpecttoseetoomuchbenefitexceptuntilsometimeinJanuary.It'snotthebesttimingbecauseourbalancesincreasesignificantlyinDecemberandbeginningofJanuarybytoottime,wewillbepastthepeakofourbalancesowedon'tgetquiteasmuchbythetimeyou'retalkingFebruarybeforewestarttoseealotofthe,someofthebenefitsyoudon'thavethatmanymonthsleftintheyearsothat'spartofwhat'sguidingitandthefinalthingI'dsayisthatifyou'relookingatforexample,money-marketratesandwhatbanksaredoingtheeffectsoftheinterestratearereallyslowrolling.Theywilleventuallygettherebutit'saslowrollatthispoint.


ThanksEfrain,Ireallyappreciateit.

Ef rainRivera(CFO):

You'rewelcome.

Operator :

OurnextquestioncomesfromGaryBisbeefromRBCCapitalMarkets.

GaryBisbee (Analyst-RBCCapitalMarkets):




Higuys,goodmorning.

Ef rainRivera(CFO):

Hi,Gary.


Justfollowinguponthatlastone,onratesodidIhearyourightyou'renotincludingintheguidancethe1millionbenefityouthinkyouwillgetfromaFedhikeandifIdidhearyourightwhynot?

Ef rainRivera(CFO):

Yes,noIguesswhatIwastryingtosaywasthatitdoesn'taltertheguidancesignificantly.Iamcallingitout.It'saboutamilliondollars.Itjustdoesn'tchangesignificantly,whereweareatintermsoftheguidanceoninterestrates.


GotyouandIknowyoudon'tassumeanyfutureincreasesbutintheguidancebutiftheFeddiddowhattheFedfolkssaywhichisinnextcalendaryearat1.375%,Iunderstanditdependsontheshapeoftheyieldcurvebutyoudohaveabouthalfofthefloatinovernightstuffthatwillbevaluedprettyquicklysowecanstarttoseethatreallybenefitiftheydogothroughwiththat.

Ef rainRivera(CFO):

Look,you'rerightGary.That'sabsolutelyright.I'mnottryingtobeexcessivethinkconservative.Iobviouslyamsomewhatgunshytotellpeoplewethinkthatthat'sexactlywhat'sgoingtohappenandIwilltellyouIwillbethehappiestpersonaroundifthat'swhereweendup.Iamextremelyhopefulbutyou'reright.That'sexactlywhatwouldhappenthatwouldripplethroughtheshort-termportfolioandhaveaprettysignificantimpactonthestock.


Okay,good.IthinkthewayyoudoitmakessenseandonequestiononACAdrivendemand.IknowinthelasttwoyearsHRShasbeenrealstrongasyou'vehadabroadhaloeffectmorecustomersareinterestedconsideringtheiroptionsandyou'reatrustedsourcetheyturnto,butshouldwethinkoftheACAcomplianceofferingashavingbeenasignificantpartofbookingsandsomethingthatcoulddriverealaccelerationincalendar16orshouldwethinkbecauseIknowADPtalkedthatway,EquifaxevenwiththeirACAcomplianceseemedmassivebookingsgrowthorshouldwethinkwithinthebroaderHRSportfolioit'scertainlyamonthOeverfactorbutjustoneofmanyandmoresteadyasshegoescontinuedstronggrowth.


Ithinkthatit'ssteadyasshegoesonHRSgrowth.Ithinkitcertainlyishelpinganditstillremainstobeseenafterthefirstfilingdatewhereclientsfalloutandaretheygoingtostaywithit,aremoreclientsgoingtocomein?IthinksomewillfalloutthatprobablywillsayIdidn'tneeditandIthinkotherswillsayIshouldhavehaditandwewilladdsoIthinkwewillstillhavegoodsaleswithESR,theACAproductthrough16cameafteryearbecauseIthinksomeclientswillfalloutandrealizetheyshouldhavehadtheproductandthendidn'tfilebecausewe'realreadygettingcallsonthatlikewhatdoIdoandit'salittlebitlatetogatherthatinformationsoIthinkit'salittlebitearlybutit'sverypositive.We'veseengreatacceptanceoftheproductandfranklyaswementionedinthepreparedcommentswe'vehadtorampupsomecostsinthequarterjusttohandlealloftheinflowofdataandeverythingthatclientsaregivingus




soIthinkitwillstillbeapositiveratethroughthecalendaryear.


Greatandjustonequickone.Asyouadd-ontheseincrementalcomponentstotheFlexoffering,shouldwethinkofitasamaterialrevenueopportunitytohaveexistingcustomersturnthoseonoristheremoreofasaleseffortthatwilltakesometimetodrivethatincrementalrevenueasyouaddtheseimportantcomponents,thankyou.


Sure,IthinkitwilltakealittlebitoftimeIthinkwemakesurethatwe'rebringingtheclientsalongcarefully.Imeanwe'repayingcloseattentionnowtotheoperationsteamandtheclientretentionteamistalkingtothoseclientsrealizesthenetbenefitthenwemakethesaleoftheadditionalproductsandturnonthoseadditionalmodules,thebiggestbenefitiswhenyou'resellingtheentireproductcombinedtothenewclientsbutwearecertainlygoingbackandMarketingtothebasethatyounowhaveavailablemoremodulesthatyoucanturnon,soIthinkthere'scertainlyanopportunitytherebutwearen'tgoingtorushitandblitzthebase,we'relettingtheclientsgetcomfortablewithFlexandthenshowthemthatthere'sadditionalmoduleswhichwillhelpnotonlysalesbutretentionmoreimportantlyaswell.


Great,thankyouhappyholidays.

Ef rainRivera(CFO):

Youtoo.

Operator :

OurnextquestioncomesfromJimMacDonaldfromFirstAnalysis.

JimMacDonald (Analyst-FirstAnalysis):

Yesgoodmorningguys.Acouplefollow-ups.AdvancePartnersyoutalkedabout1.5%increaseintheHRSsidefromthateventually.Whatcategoriesisthatarenewtoyoulikefinancing?

Ef rainRivera(CFO):

That'sprimarilythefinancingpartofthebusinesssoitwillbeHRSother,wewillhavetofigureoutlongertermwhereitgoes.Theotherpartanticipatedquestionsomeonewillaskandtheotherpartispayrollservices,thebusinessissplitprettyevenlybetweenthetwo.


MartymentionedthatMMSisgrowingstronglynow,besidestheobviouscompetitors,isthatcomingfromanyothersourcesandexpansionofthemarketorjustwhereyouthinkthat'scomingfrom?


Ithinkthere'ssomeexpansionforthefactwetalkedabouttheneedforthetotalproductsethascomedownsothere'smoreclientsinthat50plusmaybe50-150employeesthatareneedingmoreproductandmoreservicesandtheymayhavebeenonaninhousesolutionthatwasmuchmoresimpleandtheyneededandadministrationandHRbenefitsandadministrationsoIdothinkthemarketisexpandingabitinthefactofwhoneedsthecompletesuiteofserviceswhichhasbeenpositivebutIalsothink




obviouslywe'retakingsharefromsomecompetitorsaswelleventhoughthere'smorecompetitorsoutthereandtalkingaboutthingsandIthinkyou'veseenalittlebitmoresharewe'retakingaswehaveacompleteproductsetHCMsuitecloud-basedSASservices.


Greathappyholidaysguys.

Operator :

You'renextquestioncomesfromTimMcHughfromWilliamBlairCompany.

T imMcHugh (Analyst-WilliamBlairCompany):

Yesthanksguys.Justwanttoclarifyacouplethings.ThecommentsonAdvance,thatrevenuecontributionappointtopayrollpointandahalftoHRSthat'sforthesixmonthsleftintheFiscalYearandtherightwaytothinkaboutit?

Ef rainRivera(CFO):

That'scorrect,Tim.


Butyouwillonlyhaveitforfivesoifwe'rethinkingaboutthequarterlyrunrate,it'squarterlycontributionIguessfullquarterishigherthanthat,so?

Ef rainRivera(CFO):

Itwouldbe.Assumingweclosethismonthwhichweinalllikelihoodwilldoweexpecttocloseshortly.Yes,you'dhavetwomonthsinQ3andthenthreemonthsinQ4.


Didyouquantifythesizeofthepurchaseprice?Iguesswewillseeit.

Ef rainRivera(CFO):

No,youwillseeit.


AndthecommentonretirementaboutpricingIguessIwasn'tclearexactly,isthecommentjustyou'retakinglesspricethanyoudidayearagosothegrowthrateislower?

Ef rainRivera(CFO):

Yes,that'sit.


Itwasn'taone-timebumplastyearthatwasone-timerevenuesourceIguess?

Ef rainRivera(CFO):

WereviewpricingalongallofourbusinessesandperiodicallyinHRSinparticular,don'tnecessarilyinagivenyearincreasepricebutmayincreaseit.





Didyouseesomeclientpushbackwhyyoudidn'ttakepriceagainthisyear?

Ef rainRivera(CFO):

No.Wejusttrytofigureoutwhat,wedoalotofworkonpricingtofigureoutwhatmakessensesowedon'tenduphavinganattritionorretentionproblem.


Okay,thanks.

Ef rainRivera(CFO):

Thankyou.

Operator :

OurnextquestioncomesfromRickEskelsenfromWellsFargo.

RickEskelsen (Analyst-WellsFargo):

Higoodmorning,thankyoufor,hihowareyou?Thankyoufortakingmyquestionandhappyholidays.

Ef rainRivera(CFO):

Yes,same.


ThefirstonejustontheminimumpremiumplanandthePEO,you'vehaditinplacenowforoverayear,justwonderingifyoucouldtalkaboutthesuccessthatyou'veseenthereifyouhaveanyplanstoextendittherefurtherandanyimpactontheriskinthePEObook?


Ithinkthatwe'vedoneagoodjobontheriskaswehandlethatverycarefullyandIthinkthesalesandtheriskManagementteamthereworkedverywelltogetherwhichiswhatweexpectandthey'vedoneagoodjob.Itsbeenverysuccessful,Ithinkit'sfairlylimitedtotheareabutitsdonewellandIthinkwe'realwayslookingforawaytoexpanditiftheopportunityopensitselfsowe'reveryopentodoingthat.


Thanksandjustfollowingupwonderingifyoucouldjusttalkalittlebitaboutthemarginsagain.CanyoujustreminduswhatyourinvestmentplansareforareaslikeIT?Ithinkyou'dtalkedaboutinthepastnowit'sgrowinginlinewithrevenue,isthattheright?

Ef rainRivera(CFO):

It'sstillgrowingalittlefasterthanrevenueanditwillcontinuetogrowalittlefasterthanrevenue.ItjustwasgrowingatsignificantlyhigherthanrevenuegrowthsoIthinkitsmoderatedabitbutIthinkifyou'reinthetechnologyenabledservicesbusiness,techspendingisgoingtooutpacerevenuegrowthatleastovertheintermediateterm.Anditwilldothatforusandthatjustthepriceofbeinginthebusinessandwehavetolookatotherwaystoleveragethebusinesstoinsurethatwedeliverthebottomline.





Okaythenjustthelastquestion.JustphilosophicallywiththeAdvancePartnersacquisitionjustwonderinghowmuchofitwasinterestinaddingmorecapabilitiesthanthestaffingmarketandmoreinlinewiththestuffthatyoualreadydoandhowmuchofitwasgettingsomeofthefundingstuffsoit'sexpandingyourservicesandfutureacquisitionshowmuchdoeitherofthosetwo,bulkinguptheexistingversusexpandingintonewplayintoit?Thanks.


Ithinkit'salittleofboth.We'relookingtodrivetoplinegrowthandcontinuetoleverageandbeingaveryprofitableCompanyitmakestheM&Atighttheselectionverytightandgetitataveryvaluablegoodvalue,soIthinkit'salittlebitofboth.Ithinkwecanexpandwhatwesawwasagreatopportunityjustasyousaidtotakewhattheirproductsareandexpandittoanumberofclientsthatwehaveatourstaffingfirmsmalltomidsizestaffingfirmsandwethinkthat'sanimmediatebenefitandthenalsoaddingmorenotonlyproducttowhatthey'reofferingbuttheaccesstocapital,thisbusinessneedscapitalaccesstocapitaltocontinuetogrowthefundingbusinessandwecertainlyhavethatnotonlyincashbutinaccesstomorecapitalbesidessowethinkbetweenthetwoofthemwecanacceleratetheirgrowthandthereforourgrowthanddoitataveryprofitablewaytodoit.Andit'sveryfocusedonthesmalltomidsizestaffingfirmwhichthere'sthousands10,000ofthemandIthinktheyhadaverydecentmarketsharebutstillalotofroomtogrowandwethinkthattemporarystaffingbusinessfranklyisgoingtocontinuetogrow.We'reseeingparttimeemploymenthasgrownalmost3%inthelasttwoyearssowethinkwithovertimerules,ACA,andstaffingbusinessandtemporaryemployeebusinesswillcontinuetogrowandwewanttobepartofit.

Ef rainRivera(CFO):

Thegigeconomyisheretostay.


Thankyouverymuch.

Ef rainRivera(CFO):

Okay.

Operator :

OurnextquestioncomesfromJeffSilberfromBMOCapitalMarkets.

Jef f Silber (Analyst-BMOCapitalMarkets):

Thankyousomuch.Lastweek,whenCongresssignedtheyear-endbudgetBilltherewereanumberofso-calledtaxextendersthatwereextendedoverlongertimeperiodsthantheyusuallyare.Inooneofyourcompetitorswentouttrumpetingoneofthemspecifically,theworkopportunitytaxcredit.Isthatsomethingthatyouthinkwillbeadvantagetoyouarethereanyotheritemsthatareintherethatmighthelpsomethingforusforabusinessgoingforward?Thankyou.


Ithinkgenerallyallofthose.Theytendtoencouragemostoftheminvestment,newbusinessstartupsandexistingbusinessestoinvestmoreintheirbusinessandtogivetaxbenefitandthat'sallpositiveandmakestheeconomystrongerIthinkthefactthatifthoseexpireditwouldhavedampenedtheinvestmentparticularlyinsmalltomidsizebusinessessoIthinktheyareallpositive.Idon'tthinktherewasanyonethatwouldstandouttoustobethatbigofabenefitbuttheyarecertainlypositivefortheoverall




businessenvironment.


That'shelpfulandEfrainI'mapologizinginadvanceIhaveanotherinterestratequestionforyou.

Ef rainRivera(CFO):

Oh,goahead.


YoumentionedIthinkyouweregoingtorelookatthestrategyinthespring.Isthatbecauseyou'rejustdoingplanningfornextyearorareyouanticipatinginterestrateincreasescominginthespring?

Ef rainRivera(CFO):

Ithinkit'sboth,Jeff.SohowUConnfiguretheportfolionottogointoalongdigestionhereandwon'tboreyoubutwhatADPdoesisdifferentthanwhatwedo.Theyborrowshort-term,theyinvestlongterm,wedon'tdothattoasignificantextent.Wejusthaven'tseenthevalueaddinrecentyearstodothatputshapeoftheyieldcurvereallyhasabigimpactonwhetheryoudothatoryoudon'tdothatandsowe'realittlebitinwaitandsee.WethinkourinternalbettingSmittiSrethapramotethattheFedwillprobablyraiseagaininthespringandthenitwillstarttobecomealittlebitmorecleartouswhattheshapeoftheyieldcurveisgoingtobesowecanplaninto17,soit'salittlebitofboth.


Great,thankssomuch.

Ef rainRivera(CFO):

Okay.

Operator :

OurnextquestioncomesfromAshwinShirvaikarfromCiti.

AshwinShirvaikar (Analyst-Citi):

Thankyouguys.Goodmorning.

Ef rainRivera(CFO):

Goodmorning.


SoIjustwantedtostartoffwithaclarificationquestionwiththeguidancebeingwhatitis.ItdoesincludeafewmonthsofAdvance.Itdoesincludethemodestimpactofhigherinterestrates,whatyou'rereallysayingisthatneitherofthosefactorstakentogetherisenoughtochangeyourguidanceprofilebutthey'restillincludedinthere?

Ef rainRivera(CFO):

That'scorrect.That'sthepoint,sowecouldcharacterizeitinanumberofdifferentwaysbuttheguidancerangesthatwegiveevenwithallofthosechangesatthispoint,wedon'tanticipatesignificantchangefromwhatwesaidatthebeginningoftheyear.





GotitandthenconceptuallyasyoursalesforcesellsawiderrangeofproductssoyouincludeAdvanceinthereforexample,andit'smorecomplexoffering,thatmakessenseintermsofrevenueperclientbutasyoutrytomanagethat,whatspecificallyistheforwardriskprofileassociatedwithpayrollfundingwhichfranklyisnotanendmarketthatIfullyunderstandyetanddoesthatmeananeedformoresalesforcetraining,moreexpenseinthatarea?


Yes,IthinkthatoneIthinkthatitwillbesoldbyaspecificsalesforce.ItmaybereferredanditverymuchwillbereferredbythebroadersalesforcebutthatsaleisveryspecificandsomethingthatAdvancehasdoneaverygoodjobonishavinghighlytrainedsalesrepswhobringproperriskclient,riskprofileclienttothem,thenitgoesthroughunderwritingaswell,sothat'swhyIthinkthey'vedoneaverygoodjobonrisksowewon'thavetotrainourentiresalesforce.Wewilllookforthem,wewilltrainthemontheopportunityintheproductbutjusttogetthereferraltoaspecificsalesforcethatwewillevaluatetheriskprofileoftheopportunityandthenbringittounderwriting.

Ef rainRivera(CFO):

Theotherthing,AshwinthatwelikedaboutthebusinesswasthatasI'vesaid,approximatelyhalfofwhatwesellareservicestheyareveryfamiliarwithsotheyaresellingpayrollandoutsourcingservicebutinaparticularverticalwhichhappenstobethesestaffingfirms,sotheprofilereallyisnotsignificantlydifferentotherthanthefundingpieceofitthatwethinktheydoexceptionallywell.


Gotit,andIapologizeifthiswasaskedbutIhadtohopoffforjustabriefbit.ThepushoutofcertainelementsofACAandCadillactaxspecifically,isthat,howareyouthinkingaboutthatfullyearspecificclientbase?Doesithaveanimpact?


Idon'tthinkthatonehasanimpact.VerymuchonoursmalltomidsizebusinessesIdon'tthinkyouusuallytheywon'tnormallyrunintothatissuesoIdon'tthinkitwill.Idothinkthatit'sgoingtobeaveryinterestingstillyearcalendaryearaheadofusin16fortheAffordableCareActproducts.Rightnow,asIsaidIdidmentionthisearlierthatthedemandhasbeenverystrongandinfactwe'veaddedsomeexpensetosupportallofthatinflowofdatafromclientsandIthinkthatthesaleswillsomeclientsmaysayafterthefilingdateIdon'tneedthisproduct.OtherswillrealizetheydidneeditandtherewillbeanothersurgeinsalesIthinkin16,soIthinkthesaleswillstillcontinuetobeprettystrongincalendaryear16.


Gotit.Mylastquestionreallyisandthisispotentiallyafewmonthstooearly,butdoyouworryabouttheinterestratesensitivityobviouslyhigherinterestrateisgoodforyoubutinterestratesensitivityofyourclientbase?Imean,dotheycareasiflookingatoneofyoursharepayrollservicewhichappliestoapieceofyourclientbasethat45%ofclientsdon'tcare,butthatmeansthat55%docare.Anythoughtsthere?


Yes,Ithinkfirstofall,we'renewbusinesses,smallbusinessesandthoseareworthstartinguptypicallydon'tgothroughabankfortheircreditanywaysoIdon'tthinktheywillbetooimpactedbyanumberof




increasesthatuntilitgetsmuchhigher,soIdon'tthinkwe'regoingtoseeabigimpactonsmallbusinesstostart.Theyusuallyuseotherfundingsourcesandsoforth,soIdon'tthinkabigimpactthere.Ithinkmidsizebusinessesthataremorecapitalintensivethatneedtoborrowwewillseesomeimpactastheratesstarttogoupbutinthenearfutureit'shardtoanticipatethattheyaregoingtogoupenoughtodrivethatmuchimpactofthem.Efrain?

Ef rainRivera(CFO):

I'dagree.


Okay,gotithappyholidaysguys.

Ef rainRivera(CFO):

Thankyou.

Operator :

OurnextquestioncomesfromBryanKeanefromDeutscheBank.

BryanKeane (Analyst-DeutscheBank):

Higuys.Justacouplefollow-upquestions.Haveyouguysthoughtaboutusingyourbalancesheetmoretodosmallbusinesslending?


Youknow,we'vethoughtaboutit.It'saprettycrowdedspaceouttherewithanumberofcompaniesouttheredoingitandwehave,wecontinuetolookatthatasanopportunity.Wehavesomepartnershipwithbusinesstocreditanddosomereferralswiththembutwe'vecontinuedtolookatthebusinessaswell,butit'saprettycrowdedspacethesedays.


Yes,youguysjusthaveprettygoodaccesstofinancials,soyouwouldhaveaprettygoodideaofgoodandbadloanpotentialsoIthoughtitwouldbeaninterestingoption.


Yes.Wehavewatchedit.


Ijustwanttoaskaboutretentiongoingintothebigsellingseason.Howdoyouguysfeelaboutretentiongoingforwardcomingintothesellingseasonhere?


Prettygoodsofaratthispoint.We'refeelinggoodwhenwetalkedearlieraboutpriceincrease,weheldourprice,we'veheldtheincreasewellandourretentionhasbeennearitshistoricbestandsoit'searlybecauseyoureallygetthatbestsenseattheendofDecemberandintoJanuarybutatthispointwefeelgoodaboutit.Ourretentionscontinuingtohold.





Okay,andthencanyouquantifyyoutalkedaboutsalesgrowthbeingdoubledigitsandaheadofplan.Canyouquantifyhowmuchaheadofplanthatis?

Ef rainRivera(CFO):

No,butit'sstrong.Iwouldjustsaythis,Brian.SoIcalledouthighersalesexpensewhichItypicallydon'tdobecausewe'vegotarangeandfranklythestreetcanfigureoutwhatthatrangeisbutIwouldsaythroughthefirstsixmonths,whenwearepreparingforthecallwehadadiscussionaboutwhethertocallitoutbecausesomequartersyouhavebettersalesgrowththanothersbutgiventhestrengthofwhatwe'veseeninthebacksixmonthsandinourplanningprocesswethoughtwehadtoaddtosellingexpensebecausethey'reofftoaverystrongstartsoit'sstrongbyourstandards.


Okay,andthenthecommonquestionwe'regoingtogetonthatishowdoesthattranslatethosestrongsalestodoubledigitsintorevenuegrowth.MaybeyoucouldjustremindusEfrainbestway?

Ef rainRivera(CFO):

Yes,typically,you'renotseeingthatsalesgrowthprobablyforanotherfourtosixmonthsgoingforward,sothere'sabitofalag.Someofityouwillseeassoonastwotothreemonthsandsomeofitalittlebitlongercyclebecauseyouhavetosetclientsup,soyou'dstarttoseethattranslatinginto17sales.


Okaygreatthat'sallIhad.Happyholidays.

Ef rainRivera(CFO):

Thanks,youtoo.

Operator :

OurnextquestioncomesfromSaraGubinsofBankofAmerica.

SaraGubins (Analyst-BankofAmerica):

Hi,thankyou.

Ef rainRivera(CFO):

Hi,Sarah.


QuestionfirstonACA.PriortotheadoptionofthecomplianceproducttrendduringthesecondquarterandIguesswhatI'mwonderingisyoutalkedaboutbeingatabout50%adoptionlastquarterandthathadbeenupfrom25-33%inthepriorquartersoI'mwonderingwhatthepenetrationislookinglike?

Ef rainRivera(CFO):

Ithinkthatit'salittlebithigherthanthat,Sarah,butnotdramaticallyhigher.Weneverthoughtthatwewouldget100%adoptioninthebasebecausethereareothersolutionsoutthere,soIthinkwe'retrendingabovecertainlyabove50%butit'snot100%andwedon'tanticipatethatitwillbe.





Okay,andthenquickquestiononAdvancePartners.Howcyclicalhastheirbusinessbeeninthepastgiventheendmarket?

Ef rainRivera(CFO):

Yes,notvery.Imeanobviously,Iguessthere'scountercurrencyIhaven'tlookedatwheretheywerein08-09butthey'vehadprettysteadytrackrecordofgrowth.Youcanarguethatwhenthingstakeadownturnyouhaveslightlyincreaseddemandfortemporaryversusfulltimeemployees,sobuttheirgrowthpatternsbeenprettysteadysothatwasoneofthethingsthatwelookedat.


Okay,maybethey'retakinggoodshare.

Ef rainRivera(CFO):

Itcould,yes,itcould.


Okay,andthenyoutalkedaboutsalesexpensebeinghigher.Didyouchangetheplansforsalesheadcountgrowth,youtalkedabout3%FiscalYearversusforthe5%lastyear?

Ef rainRivera(CFO):

Yes,nowedidn't.Whateverwesaidatthebeginningoftheyearisstillholding.We'reaboveinsalesheads,particularlyonthepayrollside,sothat'strue.Whenwecallouthighersalesexpenseit'snotheadcount.It'sbecauseoursalesarevariableandsoifweanticipatethatsalesisgoingtohaveagoodsellingseasonwhichiswhatwebelievewillhappenandwearerarelytalkaboutitthatway,we'realittlebitmorecautiousthanwejustbumpexpensesandsorightnow,inthestreetmodelsthatI'veseeninThirdQuarterarenottakingintoaccountthatsellingexpense.


Okay,great.Thanksalot.

Operator :

OurnextquestioncomesfromMarkMarconofRobertW.Baird.

MarkMarcon (Analyst-RobertW.Baird):

GoodmorningMartyandEfrain.Happyholidays.

Ef rainRivera(CFO):

Thanks,youtoo.


Justasafollow-uponthatthesalesexpensesupandupbecauseofheadcountbutbecauseofbetterperformance,ittakesaboutfourtosixmonths.Ifit'supdoubledigitsthenwhatincrementalbumpdoesthatdotorevenuerelativetoasteadyState?

Ef rainRivera(CFO):

Yes,IguessMark,IwillgothroughthearithmeticbutIthinkthethingalwaystorememberisthatour




revenueretentionaveragesabout86%soyougetalittlebitofeffectthisyearandthenyougettherestofitnextyear.Inorderforyoutostartacceleratinguptodoubledigityou'dhavetohaveamulti-yearperiodofverystrongsalesperformancenowwehopewe'resomewhatonthattrendbutyouneedmorethanonetomakeitoccur.That'spartA.PartBoftheexplanationwhichisgoingtoleadmetopartC,partBissimplytosaythatsalesisonecomponentoftheequation,obviouslyretentionistheothercomponentoftheequationandhowthepiecesofthatfittogetherweputtogetheraplantellsmewheresalesgrowthisgoingtogo.Youhaveseenthatinthelastthreeyearscertainlyevenexcludingtheimpactsoftheminimumpremiumplan,we'veseenrevenuebumpupbecausesalestheleadingindicatorhasbeengrowing,soIseeitassimplythatIwillhavetogetto17whenIgiveyouguidancebutIthinkwefeelgood.Ifweseethissalesgrowthcontinuingthroughtheyearthat'sgoingtobeapositivefornextyear.


Allotherthingsbeingequalweshouldendupseeingtotalservicesrevenueaccelerateslightlyatleast?

Ef rainRivera(CFO):

Iwouldsayifwecontinuewiththestrongperformance,yes.


GreatandthenhowmuchcanyoujustreminduswhattheACAERSisaddingintermsofrevenue?

Ef rainRivera(CFO):

Wedon'tdiscloseit.What'strickyaboutthatisifIweretogiveyouanumberI'dhavetosayalsothenthatESRcutsbothwaysinthatitrepresentsopportunityforadditionalsalesbutit'salsoothersaleswemightnotgetbecausepeoplearefocusedonsellingitandthere'stremendousamountofdemandsoit'sburiedintheHRSnumberandthat'saboutasfaraswewillgo.


OkayisallofAdvancedonHRS?

Ef rainRivera(CFO):

Nothat'sMark,soIcalledoutverycarefullythebalanceoftheyearandIthinkTimaskedearlier,soIcalledouta1%fortheincreaseofthebalanceoftheyearonservicerevenueand1.5%forHRSforthebalanceoftheyearasTimmentionedearlierisaboutfivemonthsorsothatweexpectsonoactuallythebusinessisevenlysplitbetweenpayrollserviceswhatwewouldconsiderpayrollservicesrevenueandfunding,whichwe'regoingtolumpintoHRSfornowuntilwefigureoutwhereabettercategoryisforit.


GreatandAdvanceisgrowingdoubledigits?

Ef rainRivera(CFO):

Yestheyareandstrongprofitable.


Andsothepipelinethatyoumentionedhowrareisittoseesomethingthat'sreasonablypriced,growingatadecentrateandasprofitableasyouare.





Wellwhatwedisclosedthecashflowyouguyscandeterminehowreasonablepriceisbutwethoughtitwasareasonablepricefortheprospectsofthebusiness.Itisfairlyrare,Iwouldsaythat.


Yes,anythoughtswithregardstosalesheadcountgoingintonextyearhowyou'rethinkingabouttrendingthat?


Yes,Iwouldthinkpartyitwouldbeconsistentdependingonwhichareaandsoforthwe'regettingintostudyingthatnowandwewillactuallyaftersellingseason,butIthinkwewouldcontinuetoprobablyincreasealittlebitmore.Youmayseealittlebitmorevirtualbecausethat'swherewe'veseenthegrowthinlastfewyearsbutthere'sstillfieldresourceswouldcontinuetogoupaswell.


Okayandthenonelastquestion,justontheinternationalfrontwhetheryouthinkaboutGermanyorBrazil,anyupdatesthere?


Germanyhascontinuedtodowell.Theclientbaseisreallygettingupthere.PerformanceissosalesperformanceisgoodandretentionisverygoodsoIthinkwe'redoingwellthereandBrazilhasjustbeenslowerthanweexpectedanumberofthingshavechanged,theeconomyisnotasstrong,there'spoliticalstuffgoingonandthelegislationthatweexpectedthatwouldbemoreofadisruptionwhichwasrequiringmoreelectronicfilingforsmallbusinesseshasbeendelayednowforacoupleofyears.Weexpectittostillgetdonebutitstakinglongersothatdisruptiontodrivemorepayrollfromaccountantsintoathirdpartyhasbeenslowermuchslowertohappenthanweexpected.

Ef rainRivera(CFO):

TheotherthingtobuildonwhatMartysaidweremaininterestedbuildingouttheinternationalportionofthebusinessandM&Aisfocusedonlookingatthoseopportunitiestoo.


Great,thankyouhappyholidays.

Ef rainRivera(CFO):

YoutooMark.

Operator :

OurnextquestioncomesfromLisaEllisfromBernstein.

LisaEllis (Analyst-Bernstein):

Higoodmorningguys.Aquestion,you'vetalkedforacouplequartersnowaboutthetransitiontothisbundledsellingapproachoutinthefield.CanyougiveanideawithinHRSparsalittlebittherelativegrowthratesoftheancillaryservicesandhowthey'vebeenimpactedbythatbundledsellingapproachversustheASO/PEOpieceofHRS?





Wedon'treallybreakitdowntothatlevelbutitdefinitelyhashelpedourattachmentrateatthebeginningofthesale.Ouroldapproachwaswewillsellpayroll.Thisparticularlythesmallbusinesseswewillsellyoupayrollandthencomebackwithdifferentsalesforcesandthisteamsellingnowwiththe20employeeorsosizehasreallygonemuchbetter.It'sstillearlyintheprocessbutwe'reseeingniceresultswheretheclientsnotonlyisitwe'resellingmoreofacompletebundlebutalsotheclientshavea,they'rehappierbecausetheyweren'tlookingforjustpayroll.Theywerelookingformoreandwe'rebeingabletosatisfythemtherightwayIthinkupfrontbutwedon'treallybreakitdownmuchmorethanthat.


OkaysecondoneisFlexrelated.Youmentionedthatthatisappealingtomoreofamidmarketclient.Canyougiveanideaofwhatsizeofclientyou'reseeinganewuptickinintermsofdemandandIguessanyotherchangesordifferencesyou'renoticingaboutFlex?


FirstofallasEfrainsaidthemajorityoftheclientsareonFlex.WhatIshouldsayisthemidmarketthat50plusit'smoreinterestedthefullbundleofthesuiteofcompletesuiteofproducts,soFlexcanbepayrollonly,itcanbeacompletebundleofservicesandwe'reseeingbiggeruptakeinthebundleforthoseprobablyeven20andabovebecausethatneedhascomedown,soIthinkit'sjustTimeandAttendanceforexample.Inthepast,you'dbeprettygoodsizenecessarilyinemployeebeforeyou'dbeinterestedTimeandAttendancenowwithovertimerulesAffordableCareAct,andalsobythewaythetechnologyofTimeandAttendance,there'sjustamuchgreaterneedforit.Clientswantit.It'seasier,youcandoitonyourmobileAppnowclientemployeescanpunchinandoutontheirphone,soIthinktheneedhasdrivendowninsizeandthetechnologyandourbreadthofproductsandmobilityhasmadeitaloteasierforclientstoincorporateitintotheirbusinesses,soIthinktheimpactisthatthemajorityofclientsareonFlexandthe20plus30plusemployeeclientsaretakingmuchmoreofafullsuiteorsomeportionofthatsuiteofproducts.


Okay,terrificthankyou.


Thankyou.

Operator :

OurnextquestioncomesfromDavidGrossmanofStifelNicolaus.

DavidGrossman (Analyst-StifelNicolaus):

Hi,thankyou.Ihadtodropforaminutesoifthingshavebeenansweredwecantaketheseofflinebutjusthadacoupleofveryquickfollow-upssothefirstisIthinkyourcommentaryimpliedthatforchecksforclientwererelativelyflatandcanyouremindus,isthatafunctionofwhereweareinthecycleoristheresomethingelsedrivingthatmetric?

Ef rainRivera(CFO):

Yes,soDavidifyou'lllookatouraverageclientsize,we'rebalancingaround17orsoandit'sreallynothingmorethanthefactthatunder50,wewerehavingalotofmoregrowththanwewereinpreviousyearsandyouhaveatendansweritthenthathasatendencytodepressthenumberofchecksper




client.IfIsame-storeityou'reatsomewherebetween0-1%,sobecausechecksperclientarenotreallyasignificantcontributor,wereallyjustdon'tcallitoutsothat'sbasicallythedynamicofwhat'soccurring.Asyougrowthatyoutendtoseethatimpact.


RightIguessIwasjusttryingtoreconcilethatwithyourcommentaryaboutsomeofthegrowthmomentuminyournewbookingsbeingdrivenbyMMS.

Ef rainRivera(CFO):

GoodpointandIthinkthat'safairpoint.It'searlyinthecyclesoifintheendweweretostartskewinghigherthenyouwouldseethatpop-up.Butit'sgoingtotakealittlebitoftimebeforeyoustarttoseethat.


AndthenthesecondquestionIhadwasonHRS.IthinkIunderstandtheimpactoftheretirementservicespricingaction,howeverwhatifanythingmaybegoingonintheunderlyingPEObusiness?Justcuriouswhatthetrendsareinthatbusinessrelativetowherethey'vebeenbecausethey'vebeenrelativelystrong.

Ef rainRivera(CFO):

Yes,they'restillverystrongsojusttoremindyouwhat'sincludedinHRS,soyou'vegotinsuranceservices,you'vegotHROutsourcing,youhaveretirementservicesandyouhaveactuallyonlineservicesandI'lljustremindeveryonethatwhenwehadtheInvestorDay,Isaidwereallyneedtothinkabouthowwerepresentpayrollservicesgoingforwardbecauseitreallydoesn'tcapturetheactivitythat'sgoingoninthatsegmentofrevenue.Havingsaidallofthat,PEOstillisrelativelysmallasapercentageofrevenuefortheCompanyasawholeandevenwithinHRS.It'sstillcertainlywellsouthof50%butit'sgrowingveryrapidly.Faster,muchfasterthanHRSisgrowingasawhole.


Ithinkit'sstillaverystrongmarketfortheproductparticularlywiththeAffordableCareActandtheneedforHR,moreHR,becauseoftheregulationssoyesitcontinuestobeverystrongdemand.


Sono,thetakeawaySmittiSrethapramotenochangeinthetrajectoryofthatbusinessdespitethegrowthrateofthecategory?

Ef rainRivera(CFO):

Wefeelprettyoptimisticaboutthat.


Justonefinalquestion.Iguesstherehavebeenseveralquestionsaboutthebookingsmomentumthatyou'rereporting.Canyouhelpus,youcalledoutMMSasbeingacomponentofthatmomentumbutisthereanythingelseinthereintermsofmixwhetheritbeafullyoutsourcedsolutionversusnot?Yousaiditrevenueperclientgoingupwithmoremodulesbeingpurchasedbutjustcuriousifthere'sanynewtrendemergingthatmaybedrivingthatmetricup?

Ef rainRivera(CFO):




Well,Ithinkobviously,employeeshareholderresponsibilityhelpstoosothat'spartoftheequationtherebutifIlookatallofthedifferentsalesforcesandtheproductsthattheysell,thecombinedeffectisreallystrong.Wedon'thavesalesforcesthatwedon'thaveanythatareperformingunderwhereweexpect,sowe'vegotalotofcylindershittingallatonce.


Ithinkthemidmarketisthestrongestifyoulookedatthatthat'sthebiggestandthePEOandHROutsourcinghavebeenparticularlystrongasEfrainmentionedsoIthinkoverallthoughaswe'veseennicegrowthinallofthesalesforces,nicepargrowthbuttheleadershavebeenatthisstage,themidmarket,andtheyhaveremembertheyhaveamuchfullerproductsuitenowandtwocomponentsjustwerejustadded,fullyintegratedandsothey'resellingahigherrevenueperclientandthesuccessisup.


Greatwellcongratulationsandhaveagreatholiday.

Ef rainRivera(CFO):

ThanksDavid,youtoo.


Thankyou.

Operator :

OurnextquestioncomesfromTienTsinHuangofJPMorgan.

T ienT sinHuang (Analyst-JPMorgan):

Hithanks.JustwantedtoaskOnDemandaswecrossintothenewcalendaryear,anychangeinyourthinkingaroundlevelofdemandingeneralforPEO?


Noitcontinuestobereallystrongandsellingseasonwilltellthetealherebutitcontinuestobeverystrongandfranklyhaspickedupinsomepartsofthecountrywherewe'veaddedmorerepswherewewerenotsellingasmuchPEO,sonoIthinkthedemandthereisstillgoodandlookssustainable.


Okay,good.JustonemoreontheHRSside,IknowwealwayswereroundingandwhatnotbutIthinkyoumentionedtofallbelowthe10-13%range.Arewetalkingaboutaroundingto9%issueorisitgoingtobedifferentthanthat?

Ef rainRivera(CFO):

Thankyouforaskingthequestion.Everyoneisfiguringitoutsoweanticipatesomewhereinthat9%range.


Okay.Justwanttomakesure.Haveasafeandhappyyear.

Ef rainRivera(CFO):




Thanks,TienTsin.

Operator :

OurlastquestioncomesfromGlennGreeneofOppenheimer.

GlennGreene (Analyst-Oppenheimer):

Thankyouandthanksforfittingmein.Justtwoquestionsandclarifications.Thefirstoneisonthebookingsmomentumcommentary.IfI'llrecallthelastcouplequartershavebeenstrongaswell,soisit,didweaccelerateintermsofbookingmomentum,isthismoreasustainabletrendswe'veseenoverthelastfewquartersjusthowyouwouldcharacterizeit?


Ithinkthatit'supalittlestrongerparticularlyinthemidmarket,butit'ssustaineddoubledigitforatleastthelastfewquarterssoI'dsayit'supalittlebitbutcertainlyandthat'sagoodthing.It'snotlikeitpoppeduponequarterandthenitsloweddown.We'veseennicemomentumgoingintothesellingseasonhere.


OkayandthenjusttoclarifyEfrainonAdvancePartners,youinyourpreparedcommentsyousaiditwasexcludedfromtheguidanceandthenIthinkinnoresponsetoaquestionsaidincludedinguidanceandmaybejustanuancebutmaybetheanswerisjustthatitdoesn'tmovetheneedleenoughbutkindofjustwanttocheckmymaththatit'slike60basispointstogrowthand120basispointstothebackhalf?

Ef rainRivera(CFO):

Yes,Glenn.SowhatIwastryingtodowascarefullyparstwothings.FirsttellyouwhatgrowthlookedlikebeforeIaddedinAdvancePartners,soItalkedaboutthatandthenafterIdidthatIsaidokay,afteryou'vegottenthatrightbecauseyouhavetogetyourmodelsright,thenwhatwillAdvanceincludewhenitisclosedsothat'swhenIsaidinthebalanceoftheyear,whateveryourmodelssaybasedonwhatIguidedyouto,you'regoingtogetabout1%inthebalanceoftheyearforpayrollservicerevenuegrowthand1.5%forHRSgrowthinthebalanceoftheyearandwasclarifiedthatthat'sprobablygoingtobeaboutfivemonthsorso.SoIjustwastryingtosaytheoverlayofAdvancelookslikethat.Whenyouputallthattogetherwithguidancewe'vegivenfortheyear,we'restilloverallwithintherangeofguidancethatweprovidedfortheyear.


Okayandjustthequickmathonafullyearrunrate,somethinglike35millionofrevenueisthatreasonable?

Ef rainRivera(CFO):

IseewhereyourmathworksandIcan'tdisagreewithit.


Okay,great.Thanksalot.


Okay,Ithinkthat'sallthequestionsatthispointwewillclosethecall.Ifyou'reinterestedreplayingtheWebcastofthisConferenceCallitwillbearchiveduntilapproximatelyJanuary22.Thankyoufortaking




thetimetoparticipateinoursecondquarterPressReleaseConferenceCall,andforyourinterestinPaychex.Weverymuchappreciatethatandwewishyouallaveryhappyholidayseason.Thankyou.

Ef rainRivera(CFO):

Takecare.

Operator :

Thankyou.Thatconcludestoday'sconference.Thankyouallforyourparticipation,youmaydisconnectatthistime.

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