Paychex Q3 Earnings Conference Call: Full Transcript

Operator: Welcome and thank you for standing by. At this time, all participants will be on a listen-only mode until the question-and-answer session of today's conference. At that time to ask a question, you can press star and number one and record your name when prompted. This call is being recorded. If you have any objections, you may disconnect at this time and I would like to introduce Mr. Martin Mucci, President and Chief Executive Officer. Sir, you may begin. Martin Mucci: President and Chief Executive Officer: Thank you very much and thank you for joining us for our Third Quarter Fiscal 2016 Earnings Release Call and webcast. Joining me today is Efrain Rivera, our Chief Financial Officer. This morning before the market open, we released our financial results for the third quarter ended February 29, 2016. Our Form 10-Q which provides additional discussions and analysis of the results will be available later today. Our earnings release in Form 10-Q will be available on our Investor Relations webpage. This teleconference is being broadcast over the internet and will be archived and available on our website for about one month. On today's call I'll review the highlights of the third quarter related to sales and operations and product development, Efrain will review our third quarter financial results in more detail and discuss our full year guidance and then we'll opened it up for any questions. Once again, we've experienced growth across our major human capital management solutions during third quarter. Our third quarter financial results reflected total service revenue growth of 7% including 4% in payroll service revenue and continued double-digit growth in our HRS revenue. We experienced positive sales growth through the first nine months including a strong selling season. We were particularly pleased with our results in the mid-market space. Our HR outsourcing services also continue to reflect strong growth. Mark Bottini, our Head of Sales and his organization has done a terrific job working as a team to demonstrate to new clients the value of our full suite of products that are the full value of our full suite of products that they offer. Our sales force turnover is at its lowest level in years and we are already ramping up for additional reps to be fully staffed to further start fiscal 2017. Our service execution continues to excel demonstrated by continuing high levels of client satisfaction and retention. We completed a successful calendar yearend and our employees continued providing great service as we have moved to an even more flexible service options. Year-to-date, we are experiencing the best net client gain since the recession as a result of both positive and effective selling and solid retention results. In terms of product development, we continue to focus on enhancing the user experience and flexibility with Paychex Flex, our cloud-based human capital management platform. Paychex Flex delivers access to payroll, human resources, and benefits information creating a streamlined and integrated approach to workforce management. Earlier this fiscal year, we launched new and integrated modules within the Flex platform. This included the addition of Paychex Flex time, Paychex Flex benefits administration, and Paychex Flex hiring which includes paperless recruiting, screening, and on-boarding. This integrated allows for a simpler user interface that is supported by an industry leading service model. We are very proud of our Paychex Flex platform and we are pleased to be recognized for the value our technology brings to our clients. In addition for the recognition from the Brandon Hall Group and Gartner increasing our position in the Magic Quadrant earlier this year. PC Magazine recently recognized Paychex Flex as one of the best cloud-based payroll services for 2016. We are very proud of the increased recognition that Paychex Software-as-a-Service based products and service are experiencing and we see this played out with solid sales and retention performance. Last fiscal year we launched our Paychex employer shared responsibility service which is our full service Affordable Care Act, more commonly known as ACA Solution. Our ESR products include a multi-monitoring service with automatic alerts as well as yearend reporting. Our revenue from this ACA solution has increased as we assist clients with their monitoring and yearend reporting requirements. As a result of the demand for this service, we have increased our implementation and support spending. On December 22 we completed the acquisition of Advanced Partners. Advanced Partners offers customizable solutions to the temporary staffing industry including payroll funding and outsourcing services. We are excited about the opportunity this acquisition provides and believe it's a great fit. The temporary staffing industry has experienced expanded growth and clients are within in our targeted market of small and mid-size businesses. Our consolidated financial results include Advanced Partners from the date of the acquisition in late December. We remain committed to adding value to our shareholders, last July we increased our dividend by 11% to $0.42 a share and have maintained a strong dividend yield of over 3%, one of the highest in our industry. Our stock repurchase program remains in place and we've acquired 2.2 million shares of common stock during the first nine month of fiscal ‘16. I'd like to a take moment to mention something else we are very proud of. On March 10, we were recognized by Atmosphere Institute as a 2016 World's Most Ethical Company. As an 8 year we believe this award underscores our commitment to leading ethical business practices and standards and practices ensuring long-term value to key stock and stakeholders including our customers our investors and employees. We are one of only two companies in the outsourcing services category honored this year. In summary we saw continued strong execution from our sales and service teams. Our product and financial performance remained strong and I appreciate the great work of our Paychex employee team. We are focused on a strong finish to fiscal 2016 in a few months here and I will now turn the call over to Efrain to review our financial results in more detail. Efrain? Efrain Rivera: Chief Financial Officer: Thanks Marty. Good morning. I would like to remind everyone that today's -- during today's conference call we will make some forward-looking statements that refer to future events and does involve risks referred at the usual disclosures. As Marty indicated our third quarter financial results for this fiscal year reflect continued progress across major product lines. I'll cover the highlights and provide greater detail in certain areas than wrap with a review of the 2016 outlook. Total revenues as you saw grew 7% for the third quarter and nine months to $753 million and $2.2 billion respectively. Total service revenue also grew 7% for the third quarter and nine months to $741 million and $2.2 billion respectively. Interest on funds held for clients increased 11% for the third quarter and 8% for the nine months to $12 million and $34 million respectively. We are beginning to see some positive impact from recent increases in interest rates, average invested balances for clients' funds were basically flat year-over-year as positive impact from client growth was roughly offset by lower state employment insurance rates. Total expenses increased 7% for both the third quarter and nine months, compensation related costs were the largest contributor to this growth driven by higher wages and performance based comp. In addition, strong growth in the PEO and the additional costs for Advanced Partners in this quarter were factors in expense growth. Operating income net of certain items increased 6% for the third quarter and 9% for the nine months to $268 million and $837 million respectively. We maintain strong operating margins of 36% for the third quarter and 39% for the nine months. But anticipate that our full year will remain within our guidance of approximately 38%. As a reminder, we typically experience lower operating margins in the back half the fiscal year. Net income was up 7% to $118 million for the third quarter and 13% to $579 million for the nine months. Diluted earnings per share increased 9% to $0.50 per share for the third quarter and 13% to $1.60 per share for the nine months. The nine-month period was positively impacted by the net tax benefit related to prior year revenues that were recognized in the first quarter. Excluding this impact, net income and diluted earnings per share would have risen to 9% and 10% respectively, and what you see an EPS is a function also of the effective buybacks that we've done over the past year. Payroll service revenue increased 4% for both the third quarter and nine months to $440 million and $1.3 billion respectively. We benefited from increases in client base and revenue per check. Revenue per check grew as a result of price increases net of discounting, Advanced Partners contributed slightly less than 1% to payroll service revenue growth for the third quarter, let me repeat that, slightly less than 1% to payroll service revenue growth for the quarter, and I would say one other thing, checks per client in a quarter moderated. This was partly a result of two things, one is in the third quarter benefit, I should say bonus checks are typically we assume there going to be a little bit higher than year before that didn't end up being the case of this year. Although it's difficult to quantify, and we had a little bit of impact that was a result of clients mix in the quarter. So Q3 is a little bit tough to predict in that respect we ended up little bit lighter than we had projected. HRS revenue increased 12% to $301 million for the third quarter and 13% to $865 million for the nine months. We are pleased with growth for the quarter. If you recall last quarter we indicated that we anticipated Q3 HRS revenue growth to be below the low end of the range for our annual guidance. This was due to a comparison to a stronger quarter in the prior year. We exceeded expectations landing in the middle of the range. The increase reflected strong growth in both clients and works on employees the Paychex HR services, our largest HRS revenue stream, which includes ASO and PEO products, and we had continue to have strong growth in PEO revenue in the quarter. Insurance services benefited from continued growth of our ACA product that assists clients with healthcare reform and an increase in health and benefits action together with higher average premiums and clients in our workers comp insurance programs. One other note and we call this out in our Investor Day I want to just highlight this. HCM module revenues that assists clients in HR administration and time and attendance also were strong in the quarter. You don't see that in the payroll service revenue because of the way we account for it. But as we discussed during the, we will discuss during the call when we get questions on sales, we had a strong, a strong performance in mid-market and you see that reflected in HRS not in payroll. Advanced Partners contributed slightly more than 1% HRS revenue growth for the quarter. Now turning to our investment portfolio. Our goal continues to be the protection of principle and optimization on liquidity. On the short term side our primary short term interest vehicles were backed demand positive accounts U.S. Treasury securities and high quality commercial paper. In our longer term portfolio, we invest primarily in high credit quality municipal bonds, corporate bonds and U.S. government securities. Long term portfolio has an average yield to maturity currently of 1.7% and an average duration of 3.2 years. Combined portfolios have earned an average rate of return of 1% for the third quarter and 1.1% for the nine months. In December the fed raised federal funds rates by 25 basis points. It was a first interest rate hike in nearly a decade as you know. With this we have raised our guidance on our interest for clients to high single digits where we had previously indicated it will be relatively flat. That simply reflects what you're really seeing in the numbers. That's really not a significant change in guidance. I will now walk you through the highlights of our financial position. It remains strong. We had cash and total investments of $756 million as of the end of the quarter, no debt. Funds held for clients as of February 29 were $4.7 billion compared to $4.3 billion as of May 31, 2015. As you know, funds held for clients vary widely in a day-to-day basis an average $4.5 billion for the quarter and $4 billion for the nine months. Total available for sale investments included corporate investments and funds held for clients reflected net capitalized gains unrealized gains I should say gains of $61 million as of February 29 compared with net unrealized gains for $14 million as May 31, 2015. Total stockholders' equity was $1.9 million as of February 29 reflecting $455 million in dividends paid during the nine months and $108 million of common shares repurchased. Our a return on equity for the past 12 months was a sterling 39%. Our cash flows from operations were also strong this quarter and I want to call that out. It totaled $791 million for the first nine months and again a very, very strong 14% increase from the prior year. The change was a result of higher net income, higher non-cash adjustments in net income, positive fluctuations in working capital. So from a financial metrics perspective, we're very pleased with where we ended. Now, on to the 2016 guidance. I'd like to remind you that it's based on current view of economic and interest rate conditions guidance for the full year is unchanged from previous quarters except as I mentioned for interest on funds held for clients. I will reiterate some of our full year ranges and then give some concluding color. Payroll service revenue anticipated in the range of 4% to 5%. That obviously also includes the addition of Advanced payroll in that number. HRS revenue growth is anticipated to be in the range of 10% to 13%, again Advanced is in that number obviously expect that will be at the high-end of that number. Total service revenue is anticipated to be in the range of 7% to 8%, again towards the high end of that number and net income growth is expected to be in the range of 8% to 9%. Please note that range excludes the benefit of the net tax benefit we recorded in the first quarter. Effective tax rate for the year also excluding the impact of net tax benefit recorded in the first quarter will be approximately 36%. Interest on funds held for clients now expected to grow in a high single-digits as I said as a result of recent increases in interest rates, current guidance did not anticipate any additional increases in the fed funds rate for the remainder of the fiscal year and if someone can decipher what the fed is saying, I will I would be interested in getting schooled on this subject but finally we anticipate the contribution Advanced Partners is going to add somewhere between 1% and 1.5% to total service revenue in the fourth quarter. So that's a bit of color on what's happening there. Finally, we anticipate higher selling expense in the last quarter of the year. We had strong sales and comp will be up as a result of that and higher ops expense due to stronger sales also and also client on boarding for ACA compliant solution. We anticipate with all of this that our operating margins in the fourth quarter will be between 35% and 36% bringing the full year margin in line with our previous guidance of approximately 38% and with that, I will turn it back to Marty. Martin Mucci: Okay great thanks Efrain. Operator, we will now open it up for any questions or comments. Question & Answer Operator: Thank you. Our first question comes from Daniel Hussain of Morgan Stanley. Your line is now open. Daniel Hussai: Morgan Stanley: Hi, good morning Marti and Efrain. Thanks for taking the question. I wanted to start off asking about small business hiring. Your index suggests there's been stability in the past few quarters where we've seen mixed data points elsewhere about optimism in hiring and heard a more cautious tone from one of your competitors. Maybe could you just talk a little bit more about what trends you're seeing there? Martin Mucci: Yes what we've seen with the Paychex IHS Small Business Index which we released for the month yesterday, we saw that best three-month increase in the job growth rate for small businesses under 50 in two years. So you know this wiped out all the decrease that we saw kind of a decrease in the growth rate at the end of ‘15 calendar year 2015 and then in this first quarter we saw that bounce back and kind way wiped out all the decrease. So we think that small business hiring you know job growth is on the upswing right now it's not huge but it certainly as recover the decrease we saw last year. So we're pretty optimistic about it we're seeing it lot of there is some part time in there that we're seeing increase as well and you're seeing it in services like are in sectors of jobs like others services and leisure and hospitality where there it tends to some part time jobs but we're definitely seeing some optimism in the job growth rate. Daniel Hussai: Got it thanks and you are expecting I think a potential second win with ACA selling as you approach or pass than the most recent employment a deadline it may be too early to say now but are you getting any read from your sales force and whether you're seeing interest pick up again over this past few weeks will accelerate? Martin Mucci: Haven't heard it yet but I think you know is the deadline for the 1095 sees tomorrow you know it's in there has been a lot of activity obviously in the last 30 days with clients and those who were not providing some of the data now we're scrambling to give data and make sure that they are covered I think we still expect that we will see second way pick up here somewhat in next quarter but we haven't really heard that yet but I do think it will pick up. Daniel Hussai: Thank you maybe one last one quick could you call that any non-recurring cost related to advance partners acquisition either the deal important integration cost Martin Mucci: There weren't any integration cost but obviously our expenses were higher I think I called it out in the comments that essentially in the quarter the additional revenue from Advanced Partners was matched by the additional expense. So it's recurring it's not non-recurring, but it's in those numbers. Daniel Hussai: Okay. Thank you. Martin Mucci: Okay. Operator: Thank you. Our next question comes from Jason Kupferberg of Jefferies. Your line is now open. Ryan Kerry: Jefferies & Company, Inc.: Good morning guys. This is Ryan Kerry calling in for Jason. I just wanted to ask you a question on the growth of the core payroll business in the quarter which came in a little bit below where we had modeled. I know you'd call that growth of the quarter with the low end of the full range and kind of the 4% to 5%. I want to exclude the benefit from Advanced, it's looks like the growth is more in that 3% range. So first is this the right way to be thinking about this, and second anything particular that was a drag in the quarter, and then just lastly, how should we think about the full year guidance range, should we now expect may be at the lower end of the range? Martin Mucci: Wow. You packed Ryan a lot of questions in one. So let me unpack that, so I think you are right that about 3% is correct. In my comments I called out specifically that the driver of that being the 3% which probably is up sequentially from last from the comparable quarter a year ago where we were a little bit over 2%. Really was driven by checks, and there is two things that happened. Because I will get a numbers of questions on this on the call. Third quarter is unusual compared to every other quarter in the year. Because third quarter is a quarter were you have more checks than normal to the bonus checks there a is simply no way to figure it out. Like I spend a lot of time looking at dollars to figure out whether they, they quite to checks. So we don't know whether they are just may have been lower check volume in part because of bonus checks, and then the second think that I called our is our climax is a little bit lower in the quarter than we modeled, and so the combination of those drove the rate down a little bit. We will have to see whether that's a trend net continuous impart there is a good point to that. Our units sales growth at this point trending about two times doubled what it was last year. So when you have that you tend to have a mix that excuse a little bit lower, and then one other point that I would make on that, is that the way we report numbers what you see is payroll is simply the portion of a bundle that is payroll. It really says nothing literally until you can aggregate to that the payroll the non-payroll portion of the sales that are made in the market, and there we saw some nice pick up in the quarter. So I think that the short of bit after settle was that checks will little bit later in the quarter than we anticipated. We will see whether that a trend that continuous client mix skid a little smaller than we have projected. But we will see where we go from here, and no when I say those of who know when we talk about guidance. When I say is between four and five you can pack where we expected today. Ryan Kerry: Great and then I believe in last couple of calls as you called that new bookings growth kind of the low double digits range. How should we think this trend to the key selling season. Would you its roughly in line with were spend the last couple of quarters, any color will be appreciated. Martin Mucci: Yes, I think we were pleased with the selling season, and I think year-to-date we have continue to see that double digit low double digit growth. So we are happy that's kind of across the board, so for the different division. So we are feeling good about it Ryan Kerry: Great. Thanks for taking my questions. Operator: Thank you. Our next question comes from Tim McHugh of William Blair, your line is now open. Tim McHugh: William Blair & Company: Yes, thanks. What, hey Efrain. Just wanted to ask you the comment you just made about unit sales team to ask last what they were trying last year I guess, when you say unit sales can be I mean is that client growth what do you unit sales Efrain Rivera: Yes, so unit sales are going to obviously you need to know what losses are. But that's one the first part of the equation. So, unit sales growth is trending higher than it was last year, and because sales --- I am sorry losses are trending in line with where they were last year. We are expecting obviously decent net client growth. Tim McHugh: Okay, and are you --- you are not welling the date I guess year-to-date were you are out that? Efrain Rivera: Well, year-to-date I'd say this Tim, that our net client growth year-to-date is higher than it was last year. Tim McHugh: Okay, and then can just going back to another comment you made. The margin 35 to 36 for Q4, was that excluding interest revenue or was that kind of the GAAP number? Efrain Rivera: Yes, that's our up income margin yes, excluding. Tim McHugh: Excluding interest. Efrain Rivera: Yes. Tim McHugh: Okay. Efrain Rivera: No, actually that your question. Thanks for clarifying. Tim McHugh: Okay, and then you highlighted lastly that your researching the middle market a few times is really a particular areas right, and I think you've talked about time and attendance in that. But can just I guess where are you seeing the strength in middle market, and can you remind us maybe at this point how bit big that is and I guess how much more quickly is that growing then even the core overall business I guess to add some perspective. Martin Mucci: Yes, Tim I will take that. Its--I think what we are excited about is I think we're seeing the payoff for other technology investment that we've made, and so with Flex having added that full product suite. We are selling a lot more of we are selling more clients and we're selling lot more full bundle clients with the full time and attendance, and HR support benefit enrollment benefit administration et cetera. So we don't breakout the client base specifically, but it is growing - the sales are growing very well year-to-date, and at the highest rate it has been probably pre-recession. So the mid-market is come on very strong year-to-date, and certainly you know seeing that growth stronger than on the small end. All sales are doing well year-to-date, but that's strongest we've seeing Tim McHugh: Okay, great. Thank you. Operator: Thank you our next question comes from Gary Bisbee of RBC Capital Markets. Your line is now open. Gary Bisbee: RBC Capital Markets: Hi guys, good morning. In light of the commentary on strong sales, retention you know remaining I guess stable. But at very good level, I guess about think to how we should think about what that means for service revenue growth. Because if we adjust last year for the change in PEO presentation, it really doesn't look like you've seen any acceleration in service revenue growth and if you back up the acquisition this quarter one might even argue you've seen modest deceleration in the last quarter versus last year's trends. So how should the better bookings and stable retention flow through I know you don't want talk but 2017 at this point. Is there any reason that we shouldn't expect that all the positive stuff you've talked about is going to be lead to the top line growth accelerating on a daily basis? Martin Mucci: Yes again I'd say Q3 is kind of a quarter in the sense that there is always some elements of timing in it and if I just tick on the quarter and project Q3 forward and say what you assume about that I think you got to add in add in Q4 to get a better picture is the back half picks -- better picture and sequentially Q4 is going to be stronger than Q3 better can you detect both of those quarters together and that gives you more accurate picture of where the company is going and I think that obviously then you've got projections in there street projections out there and they seems reasonably in line with what we expect is going to happened and then will issue guidance all for that. So I don't -- you know this is not a business that where you can project one quarter to tell you what the rest of the years going to look like because there is always elements of timing when days fall for example this quarter ended on a Monday whether the quarter ends on a Monday or Thursday can have some impacts on revenue so I'd say you really need to look at 3 and 4 to kind a form a better opinion. Gary Bisbee: Okay, fair enough. Martin Mucci: But we're pleased just want to think when we look at the key indicators before this call I looked at 12 key indicators I am looking at client base, I am looking at discounting, I am looking at net client growth, I am looking at sales units, I am looking at sales annualized sales revenue, I mean every vector was pointing a in the right direction the only item in the quarter was little bit lighter than we anticipated was checks and there is some variability in that so it doesn't concerned me significantly. Gary Bisbee: Okay great thanks and then just I've asked this before but I feel like ask you had the strength in booking we have seen from a lot of other HR outsourcing companies and I think at some level sort of care active led companies to lot of businesses to take fresh look and decide they should outsource more and it's not just the -ACA compliance but I think broadly PEO and other had benefited do you have any better sense at this point if any that has been pulling forward future sales or there is risk of now having to at some point the next year comp this very strong growth in bookings you have seen and it gets a lot more difficult are you are hearing from your sales force and what not did you believe more that this is going to be a sustainable trend of more is that outsource? Thank you. Martin Mucci: Yes, it's a good question. I think it certainly has pulled some sales forward for clients who may not have made the choice to outsource before the Affordable Care Act kind of push them into it. But I also think in a general sense that we've talked about the last few years you see the need for HR and the acceptance of outsourcing and going to HR administration in the SaaS-based product for time and attendance HR administration benefit enrollment payroll we have seen that certainly come down in size from 50 employees to 100 employees down below 50. So I think there is still plenty of opportunity to have strong sales even it's not just the affordable Care Act so we still feel good about the opportunity for future sales because the demand has come down so meeting more clients are interested in it and gaining value from it and the fact that I think we've invested very timely in our products and service model to be able to respond to that increased demand. Gary Bisbee: Great, and then just one last one for me. If I am doing the math right on Advance partners it looks you being at pretty healthy multiple $0.08 or $0.09 sales with 20 times EBITDA or something like that for this business I guess can you just give us a better sense how you just wide up price as a reasonable price and particularly given the highly cyclical end market get operates and you know, how confident are you they can continue to grow the business at the rates they have been doing? Thanks a lot. Martin Mucci: Okay, hey Garry, I think your numbers are also, let me just correct your assumptions. So, we actually paid somewhere between 4 and 5 times revenue for it and we paid less than 10 times EBITDA for it. So, we don't typically, over paid that's part A. So, I think the numbers are slightly off. The second part is, we are not in the staffing business and we had no interest in being in the staffing business. But we have a lot of interest in providing back office services to the staffing business, because we think from a secular growth perspective and Marti eluded to it earlier in his comments we think temp staffing is going to do nothing but go up, part A. Part B is, there is lots of small and medium size staffing fronts and those who cover that industry know that and for every large staffing company there is always spin off that needs financing and funding and back office services. So, we had looked at this transaction literally for three year before we pull the trigger to convince ourselves that the growth rates were real and that there is an opportunity for someone with the right kind of both service and capital availability to come in and make an impact so we are very, very comfortable about both of those issues and that's really what drove the transaction and so far so good. Gary Bisbee: Alright. Thank you. I appreciate the color. Operator: Thank you our next question comes from Bryan Keane of Deutsche Bank your line is now open. Bryan Keane: Deutsche Bank Securities: Hi guys. Good morning. I heard the comments about the mid-market being strong just curious the low end and then the high-end any changes in the dynamics in the markets especially competitively that you guys saw in the key selling season? Martin Mucci: Yes that really Bryan we're not seeing much change from a competitive stand point frankly in any of the markets. We focus primarily on that small to mid-size and up to a 1,000 and primarily I'd say up to a 500 or so and again very strong and the mid-market and the low end was kind of as expected in a typical selling season as Efrain and we both mentioned. Year-to-date our net client gain is the best spend since -- session levels so we are feeling good about not only the sales side of it but also the retention. Bryan Keane: And then just thinking about this key selling season how they a net pricing look how did that come out for the for the quarter for year-to-date.? Efrain Rivera: Look I think Bryan pricing is always competitive during the selling season this was no difference and as I mentioned in a number of meetings you discount during the quarter at a level that's appropriate to get the business and then overtime if you deliver service you have a chance to recruit that discount and so I would it was comparable to what we've seen in prior years. Bryan Keane: Okay and then just finally from me on checks per clients I know they moderated and I think I understand that the third quarter what to that mean to the fourth quarter does it bounce back or is stay at this the first level thanks so much. Efrain Rivera: I wouldn't use depression, but I user work moderated. Look I don't completely I can't completely answer that question because bonus checks as I mentioned earlier in Q3 having impact. So it could be that we see a little bit later checks per client going into the fourth quarter. Because of client mix, but I would assume that will be a little later than we had initially projected in Q4. Bryan Keane: Okay, thanks for the color. Operator: Thank you our next question comes from Kartik Mehta of Northcoast Research. You're line is now open. Kartik Mehta: Northcoast Research: Hey, good morning Martin and Efrain. I wanted ask a little bit about he Advanced Partners acquisition, is this an acquisition were you talked about attempt business growing. So is this the business that you anticipate good growing organically by using your balance sheet and your distribution were is something were you have to go acquired some other companies and other geography to build little bit scale for this business Efrain Rivera: Well I think primarily it's organically, it's there may be some opportunity just like they would have if they were on their own to acquire others companies, and though always look that just like we are that are that are in that kind of business. But organically what we saw was a great leadership team that had been producing solid growth and it fits our market you know it's small and mid-size staffing companies that they provide everything from payroll funding to payroll funding to payroll outsourcing to HR support and we think it's a good fit, and we saw their clients that's are growing industry with their clients. We were when start to getting into this we were surprised that the thousands of small independent staffing firms that needed that support, and we thought they were providing a great product and had lots of growth opportunity. When you couple of that with the fact that we have number of staffing companies as clients, independent staffing companies as payroll clients. We now I think can take to our clients additional product and services that they offer, and then it will to growth even more. So we saw at is a really good fit and like my product to service to market and a leadership team we have at this point. Kartik Mehta: And then Efrain you are in a very enviable position in the second half with almost $700 million cash note debt. I saw you bought some shares this quarter, and I guess going forward what's the strategy. Do you think you would continue buying back shares, or this price kind of where the stock is prevent that are there acquisition opportunities or is there anything changing in that environment that will allow you take advantage of maybe acquiring a Company. Efrain Rivera: Yes so three questions. First I would say this that, when you look at the results for the quarter EPS was up 9% and shares were down. So we have been slowly battling away at the share count would anticipate. That will be flat to modestly down in the future, so we do have we added share buy backs into the our capital distribution approach ours. But currently the second point is that an Advance is one example of it. So for a number of years you heard of say that we wanted to keep some part to drive to able to move quickly to do acquisitions. I would have pipeline is as robust, it's really been in the last three or four years and there are number of acquisitions that we are looking at that could consume much or all are either more of that cash and so, we prefer at this point until that pipeline drives up to focus on the right kinds of selective M&A as we used to that cash if in the next 12 months that opportunities don't materialize than we'll have that discussion Marti and I have had that discussion with board and at this point Part A is to M&A and then Part B would be we'll reach that when M&A is no longer an opportunity. Kartik Mehta: Thanks Efrain and appreciate it. Operator: Thank you. Our next question comes from S.K.Prasad Borra of Goldman Sachs, your line is now open. S.K.Prasad Borra: Goldman Sachs: Thanks for taking my question. Questions couple if I may. First probably just a revenue visibility has anything changed this year compared to say the last few years you have seen, specifically from the point of view that the unit growth you are talking about that seems to have closer doubled competitive trends what you've seen last year and your revenue retention seems to be pretty stable what should stop from payroll growth to accelerate in the next few quarters? Efrain Rivera: So, S. K. just a few points on that. So I think we have been very effective at the low end of the market in capturing units as compared to last year. In order to have significant growth in unit acceleration that would be visible in 2 or 3 quarters we need to have sustained continued sustained unit growth and we look at strategies that drive there and we fairly unique and that we play both in the micro space with everything from short payroll to the mid-market space with our Paychex integrated solution so why have to have a number of continued strong quarters in terms of unit growth to drive that higher but one thing I want to emphasis which I said earlier for us as we think about payroll service revenue growth increasingly what we think about is HCM platform service growth and we're seeing that already. You see that in the HRS numbers what our sales people do a sales person in our 1 to 50 the small market sales force they are not simply selling a payroll only solution they are increasingly selling a bundled HCM solution and we are seeing benefits from that the benefits don't flow into the payroll service revenue line because the portion of the HCM platform particularly HR administration and time and attendance where we seeing really good growth really is reflected in HRS. So I think we're seeing a bit of both and we are going to focus on both driving revenue by selling more integrated HCM and also driving units by approaching that smaller market aggressively. S.K.Prasad Borra: Okay that's great. Probably just one on the cost side, both Marty and as you mentioned that the implementation cost have slightly been higher compared to recent quarters are you broadly now capturing that in terms of your headcount increase and would you expect the implementation cost to stabilize now specially the ones related to ACA or do you expect that to over the next few quarters? Martin Mucci: I think it stabilized at this point I mean unless we have big influx of new sales but I think you know this was the most difficult quarter to get through and getting all of the first time going through getting all the 1095-C forms out and so forth, so we ramped up for that I think that will be I am not sure that will decrease necessarily at this stage but I don't think it's I think we've ramped up and I think we are hoping you know pretty well at this stage and then the additional any other additional headcount will really dependent on sales and0 the number of net clients that we are adding obviously we said the net client gain is better than last year better than we've seen in a few years and so that may drive some headcount but I don't see any big jump over what we've already done. S.K.Prasad Borra: That's very helpful thanks Marti, thanks Efrain. Operator: Thank you our next question comes from David Togut from Evercore ISI. Your line is open. David Togut: Evercore ISI: Thanks, good morning just quick follow up on the strength in mid-market trying to piece together what you're saying with what ADP is seeing for example they called out an unusual drop in client retention in the December quarter particularly tie to slower than expected transition from a legacy platform to their cloud-based workforce now. So I am just trying to understand is the strength in the mid-market somehow tie to this probably short term drop at client retention at ADP or do you think it's all related to upgrades related to flex? Efrain Rivera: yes I think it's more the upgrades related to flex so I think we are holding and we are maintaining a good retention in our mid-market client but the sales have increased so it has and it hasn't been I don't think from any one competitor I think we are doing well against our main competitor there but I think we're winning we are just winning more because the products and the service levels were better. So I don't I don't think it doesn't feel like a one-time thing to me the sales have accelerated and slowed consistency. David Togut: When specifically did sales start accelerating in mid-market? Efrain Rivera: Pretty much in last two quarter but mostly this quarter as you get to year end it's a little bit skewed but really we got to the point last fall September, October when we really had kind of the full suite brought into the softwares or service product reflects, we added the complete time and attendance and benefits administration and enrollment and the electronic paper list on boarding really kind of came together on a single employee record in the September October time frame and that is when we started to pick up speed. David Togut: Okay. Thanks very much. Operator: Thank you our next question comes from Rick Eskelsen of Wells Fargo. Your line is now open. Rick Eskelsen: Wells Fargo: Hi. Good morning. Thank you for taking my question just wanted to ask a little bit on the HR outsourcing side and the -- PEO and ASO just sort of what do you seeing on demanding clients acceptance of one versus the other you seeing more clients move to the full service PEO model rather than ASO just trying to get that dynamics between the two of those and then just more on the demand which I believe was strong in the PEO? Efrain Rivera: Yes I think we haven't really seen a big shift there maybe a little bit leaning towards the PEO given the fact that the Affordable Care Act requirements but I think we're still seeing sales both sides grow pretty well it's just a preference and that's why we feel very good it. We have sales and service folks that kind of handle both. So they really respond to the client needs and what the best fit is. You still see PEL predominantly in certain states where there is a comfort level with it, and there is just the better knowledge of it. But we are seeing that expand do a few other states, but it's still primarily in those PEO states I guess I would say. Rick Eskelsen: Thanks. Then just one follow up, which is written in the press some stories about funding getting tougher for startups in certain situations, two parts for the question I guess. First, what impact of any does that have on your client base and the growth in new client opportunities for you, and then second what impact might that have on the comparative environment out there for you guys. Thank you. Martin Mucci: No, I would start by saying I haven't -- we haven't heard or seen to get that much more difficult. I think some small business lenders if come down, but there is been actually, it's always difficult to fund new startups, and the hardest, the biggest that was the drop in the home equity. Because that's really how a lot of these guys started, and that happened back in the recession. So, if anything, I think some of that has come back and that so much tightened. Now, you've got also on explosion of online offerings that we provide lending to small business if they have some credits. So, I don't we haven't seen it have much of an impact on us at all, there was really a big impact in the recession, and I think that is why we come back, Efrain? Efrain Rivera: Yes, just a couple of little bit more color on that just to build on what Martin already said. I mentioned earlier that payroll sales, or sales units this year are trending about last year actually sales units are growing about twice at the rate they did last year sales unit does not client base. What interesting is when you disaggregate that number are sales units from new business startups actually were up about 7% in the quarter. So it looks like the environment and that's good development for us. Because obviously 50% of more of our sales in the given quarter come nearly started businesses. So that's a good development, and as the environment is good for sales. Rick Eskelsen: Thank you very much. Operator: Thank you. Our next question comes from Jim MacDonald of Analysis. Your lines is now open. Jim MacDonald: First Analysis: Yes. Good morning guys, I had couple of follow up questions on it Advanced Partners. I think I heard that the impact on the payroll side was less than 1% did you --- and I couldn't quite hear the impact there is also impact on the HR side was that more exciting more than 1%. PAYX: Yes slightly more than 1%. Jim MacDonald: And so on advanced partners what kind of integration plan do you have and what kind of timing to maybe bring it to the rest of year your clients base. PAYX: Yes Jim we are already in process of we've identified the clients that we have that our independent staffing agencies were working with the sales team. At advance to get them out and talking to them they already have relationship with Paychex and now we will see this is additional offering and certainly stage we closed at the end of December. But I think we have already been working on a having identified the clients get them hands of sales team make sure the sales team understand, and be very careful with all the approach those clients because they're Paychex clients and we are trying to approach them. But offer them additional services and support, and I don't as Efrain said earlier we don't see any big one -time integration costs for this. It's another great thing about the acquisition and bringing them in to the Paychex family. We saw on going expense and ongoing revenue and expense for no big one-time integration cost. It's just really brining the groups together. Efrain Rivera: By the way Jim just a point I was asked earlier about specific integration cost in the quarter. There were modest amount may be between a million and two in the quarter we just absorbed didn't call it out so especially in the numbers thought it was just not important. Jim MacDonald: Great and may be just one follow up but so do you expect to be able to accelerate Advanced Partners growth now that you're bring them to your base? Martin Mucci: Yes we hope so I mean we certainly would model it that way as we did the acquisition we felt that they had good growth but they were somewhat limited from a capital perspective obviously and from a cash perspective for their funding for the funding of their clients and the work that they do and then just a client base that we have I think between those two we do expect to be able to help them accelerate their growth. Jim MacDonald: Great. Thanks very much. Operator: Thank you. Our next question comes from Jeff Silber of BMO Capital Market. Your line is now open. Jeffrey Silber: BMO Capital Markets: Thanks so much just a couple of quick follow on questions. Marty at the beginning of the call I think you said that year-to-date you've seen your best client gains since the recession. Are you talking about total clients are you talking payroll clients, HR clients can you just qualify that a little bit? Martin Mucci: Sure it's payroll clients. We always had a talk about payroll clients and so its net client gain of the total payroll base the one that we get kind of once a year at the end of the year we give the base and year-to-date we've seen the best client -- net client gain because of a combination of both better sales and solid retention since the recession. Efrain Rivera: We typically have been saying that will be between 1 and 3 and if you looked at our numbers we have been slightly under two in prior years and we're trending pretty solidly between two and three. So it takes a while for client base of 600,000 clients to grow but we feel pretty good about where we are at. Jeffrey Silber: Okay great I just wanted to double check on that. And then Efrain, you were asked about the purchase price for Advanced Partners. I think that was something in the range of 4 to 5 times revenues and less than 10 times EBITDA. What timeframe are we talking for revenues and EBITDA as it forward-looking backward looking? Efrain Rivera: It's backward looking. It would have been their calendar 2015 which of course you don't have any access to but yes so we acquired them the end of December and we paid between 4 and 5 times revenue but I would just say this about Advanced and they've done a phenomenal job. There are very business that we have looked at and we have looked at many many whose EBITDA margins are at or exceed Paychex's so obviously that got our attention. Jeffrey Silber: Okay and then I'm sorry just a little more clarification on that, that includes the debt that you have absorbed in the transaction that net of cash? Efrain Rivera: Yes. So no, Jeff, so part of the you'll see when we do the two disclosures we settle it out. We pay off an existing loan that they had chosen to not refund it will fund it again that's the way the business works but then we acquired a number of receivables that basically offset the amount of the loan so on a net basis when you filter through that, that's what I am talking about. It will have a disclosure in the Q which we'll file at the end of the day. It's pretty explicit. Jeffrey Silber: Okay great. We'll take a look at it then. Thanks so much. Operator: Thank you. Our next question comes from David Grossman from Stifel Financial. Your line is now open. David Grossman: Stifel Financial: Thanks. Good morning. Sorry to ask another question on gross so late in the call here but I am just looking at the numbers that have appeared if my math is right but Advanced has about 60 basis points to the service growth to the year. So we maintain the guidance for the year for service revenue growth that sort of momentum of the businesses remain pretty strong. You're tone is very positive. So I guess I understand the timing issues with bookings among some of the other things that you mentioned but I guess I am still having a little trouble reconciling your tone and with the guide for the year vis-a-vis the acquisition. So if you clearly address as we take this offline or do you have anything incremental to add that may clarify that would be great. Efrain Rivera: No I get it David. I understand the point you're making. So I think I said at during my comments that we expected the guide for revenue to be at the high end of the range and I am not going to call out a 10 or 20 basis point difference. So obviously when we guide to 7 to 8, we think we're going to be somewhere in the middle of the range at the beginning of the year. I don't know whether 60 basis points is the exactly correct it's not probably directionally all that far off but now I am into discussing whether it's going to be 8.1 or 7.9, it's just too close to call especially because as I mentioned, checks were a little bit softer some a little bit cautious about kind of where we end up in Q4. That's the color on that number. The trends are strong. David Grossman: And then on the dynamic between the strengthening the market and how that gets recorded as payroll versus HRS, so is that dynamic then continuing into the fiscal ‘17. So you see that you would probably see better HRS growth on the relative basis and payroll because of that mix dynamic. Efrain Rivera: Yeah, that's right David and look frankly, just a kind of expand on that and you've covered the company for a long time. Ten years ago what we've did was we saw a payroll sales person either in the small market sold payroll. That's what they sold and then if they were ancillaries, they were sold by an ancillary sales force. That was the product we had. I would say in the last five years, certainly since Marty was CEO that dynamic has changed pretty significantly. Our financials reflect the old dynamic not the new one, and the new dynamic is this. Two things a much, much better sales efficiency so that when Mark has a client of a certain type that we have identified, it's a team sale. But we've already discussed that in prior calls what's changed really over the last 18 months is that a small market payroll sales person has is able to sell a HCM bundled product and they are increasingly doing that, meaning our client, our payroll sales people who used to sell payroll only now sell products that are actually included in the HRS revenue which is time and attendance and also HR administration. So it is very, very possible that total revenue can grow nicely and payroll service revenue doesn't seem to be moving significantly and that's the function of where the technology is being more than market is heading. So we're going to have to figure out how we represent that a little bit more clearly. I think it is the case as we put more emphasis on selling more integrated bundles that you could very well see payroll service revenue not growing quietest fast. But you're seeing sustained growth in HRS, because that's where the other components of the HCM revenue are being recoded. It wasn't a big deal several years ago it's a bigger deal now. David Grossman: Alright, well thanks for clarifying that, and if I could just one last question on advanced. Can you give us any sense of how much balance sheet exposure you have and at any given point in time now that you've done an acquisition? Efrain Rivera: Yes so again I'll just pointing to the queue our we established a dedicated line of credit for advance and that numbers is going to be somewhere between $125 million to $150 million. David Grossman: Okay and so that maturity is outstanding at any given time. Efrain Rivera: Yes it's going to be outstanding at any given time, and by the way just in a side David because I think it's a great question. One of the things that we looked at they've been around for 20 years, and obviously I not I, we had a look at the acquisitions very carefully they've had very, very few proms, because they have very, very expensive credit that in process, and we have a really first () group that also does that. So, we have got there is lot of safeguards to go into what we do. David Grossman: Very good thank you. Operator: Thank you. Our next question comes from Mark Marcon of RW Baird. Your line is now open. Mark Marcon: Robert W Baird & Co.: Good morning, Martin and Efrain. Martin Mucci: Hi Mark Efrain Rivera: Hi Mark Mark Marcon: Good thank you. Couple of quick follow up. So, first while you said that the retention rate has improved can you give us a little bit of for how much it improved? Martin Mucci: And actually what I, we've -- when we looking that client game retention is held pretty steady and which is been around our best ever. So we're right in our best ever retention it hasn't really improved all that much as. But it is holding very well, even as the client even as the sales have gone up. So, we feel very good about that, because sometimes as a sales increase obviously a retention becomes more difficult, as we bringing in more client. The sales have gone up the retention I'd say is can of it stayed pretty level at its best ever that we saw last year. Mark Marcon: Just doing that 81% range? Martin Mucci: Yes, it will better, little close to 82 I think. Mark Marcon: Great, and then with regards to comments on the mid-market. Can you just qualify what portion of the mid-market you're seeing the strongest growth and in other words. Small market is up to 50 employees, and is it to 50 to 100, 50 to 200 how would you characterize that area that you're seeing the best growth in? Martin Mucci: Yes, probably further broader its 50 I say 50 to 300 that's where the most a new activity is I think when you see it. Because that's where is need particularly with ACA compliance. So forth is coming down and more are outsourcing an interested in outsourcing. So, I think that's where we seeing probably the biggest jump. It's not in the 500 plus the I'll say 300 plus 250 plus we are still doing fine but the acceleration is been more that 50 to 250 or 300 Mark Marcon: And then given all your comments with regard to selling additional modules, it sounds like you should have some confidence that the HRS growth is going to hold steady at these current levels that you seeing for this year going forward just given the dynamics or is there something that would drive that down lower? Martin Mucci: No I feel pretty good about it. You never know but at this stage the only questionable thing would be we call it ESR would be ACA compliance. Does that catch that second wave or not but overall, I think you may see a second wave in ACA as well as our health and benefit insurance more people needing insurance we make catch some way there but the 401(k), the PEOASO all seem very steady and as Efrain said, a lot of our bundled products and low and mid being HR administration, on boarding time and attendance all seem to be very continuing to be very strong. So yes I would expect that. Mark Marcon: What do you think ACA on a direct basis is contributing to this second half of this year's growth? Efrain Rivera: Yes Mark, it's so I'll answer. That's my pause. I am trying to figure out how to best--it's probably less than 1% Mark Marcon: Great and then one follow up with regards to the comment or the question around acquisitions. that you're looking at, are looking at things that are still more in the advanced size range or was there some suggestion that perhaps we could look at things that are even bigger and could potentially be a bigger impact with regards to the balance sheet and what's the minimal level of cash that you're comfortable holding on the balance sheet? Efrain Rivera: Yes, right. That's three questions. So let me answer. So part A Mark would be that much of what we are looking at is in that advanced kind of sure payroll advanced range. So that's part A. Part B and if you've heard me in conferences say this, we do look at larger acquisitions that would have to be right. The numbers would have to add up and it would have to give us some sort of durable sustainable competitive advantage in the market we would look not likely but it's not out of the question. Minimum cash it's lower than what we have on the balance sheet now but this is a business where you have to project a sense of financial strength to the customers to whom we are entrusting $4.5 billion of cash. So I don't know precisely where that is but certainly you need I would take not just cash but liquidity and if you've looked at what we've done, we've been adding greater and greater liquidity over the last two or three years quietly to make sure that we are never in a position where there's any issues on that. Mark Marcon: Great and just to go back to the mid-market, it sounds like most of the mid-market growth has really been through adding more modules as opposed to necessarily early an increasing terms of competitive wins is that a collect interpretation or do you think your competitor wins of actually increased as well? Efrain Rivera: Yes no yes I don't think so I think our number of competitive wins have increased and I think particularly as I mentioned in the fall as those products is the full product suite get into that single employee record and we have that full single sign on kind of flexibility know they definitely have picked up. So while we certainly are bullish how well we have done an ancillary sales and add-ons and full packages it's been also the payroll in the mid-market has been very strong strongest in years so we feel very good about the mid very payroll sales as well. Payroll and full bundle. Mark Marcon: Great. Thanks for the clarification. Operator: Thank you our next question comes from Lisa Ellis from Bernstein. Your line is now open. Lisa Ellis: Bernstein: Hi. Good morning guys. I have a question about Flex I know one of the unique aspects of Flex that you've got the -- service structure to it. How are you seeing client response to that work what types of service levels are the most are the most popular and how are you seeing that evolve now that you've rolled it out? Efrain Rivera: Yes I think for the mid-market where we've been talking a lot about this morning. I think the biggest the best impact for our client has been the multi product centers that we've been putting together. So in the past you would have your payroll support and then you would you have your additional products in unique support whether uniquely trained on that product time and attendance a nature and well that worked well sometimes client would say -- even better if you were kind of more connected as a team so the things between various products if I had questions on how to use something or best get the most value out of it and so those multi product centers have been established by John Gibson and the team and we're staffing those up now and we're seeing more clients come into those multi product centers that's probably been the biggest benefit the other one is you know last year we went to 7x24 service and that's benefit I would say that's more of a benefit on the small end of clients and we've seen an increase use of that where hey they are doing payrolls themselves online and it's off hours at Saturday and Sunday the week night, late at night and they get hung up on something that they want to do than they can call for that 7x24 support now and that's gained you know a lot of interest and lot of positive feedback as well. So I think it's that flexibility or and as well of course they can do a lot more self-service they can do a lot more things themselves and we're finding that clients don't actually stick to what service model there this week might want to be doing more things themselves than get hung up on creating the couple of special bonuses or something that next need support and the next week they might need after hour support so it's that flexibility that we're finding is getting positive feedback. Lisa Ellis: Got it and then so in that example just a clarification like how does the pricing structure works in? Efrain Rivera: Not a significant change in pricing there you know we don't really charge a lot extra for this week what we charge in the price you know if you're taking a full bundle of products and you supported by the multi product center we feel you're paying for that level of support in the price of the product so we're not having new signed up for various support levels we feel that when you are buying a full product suite from us we're going to give you a full multi product service response to your needs. Lisa Ellis: Got it. Okay and so you're seeing like as you have got new client coming onto Flex they are generally buying in the full service because you have got like different a tiered pricing structure to it right with different. Efrain Rivera: Yes, I mean there is payroll only, there is obviously a various bundles, and we are seeing more take multiple products never enough for us we always like to see even more of that. But we certainly have a lot of, we certainly have a lot of payroll only, but we also are picking up a lot steam as Efrain mentioned we are taking the full products suit right up front. Our model used to be, let me tell you payroll once you are used to its working well you are feeling good about our relationship two months later we come in with a sales force and on for 401 K or sales force on time and attendance whatever. Now we are selling much more the full suite of products right up front in the sale through integrated or team selling. Lisa Ellis: Perfect thank you. Operator: Thank you. Our last question comes from Tan Chin Wang of JPMorgan. Your line is now open. Tian Jing Wang: JPMorgan: Hi great. Good morning, just want to ask given the selling commentary here can you refer that full service outsourcing demand is giving demand is giving better versus self-service -- points in the past but I wonder if you can tie those things together. Efrain Rivera: I think it's Tian Jing it's kind of mix I do think there is its going both ways you're seeing those with needs coming down. So I'd say even 20 plus employees sometimes 15 depending on the business. They want more of a full service solution, so they are just looking for payroll they looking for help with recruiting and boarding their clients and screening and all of that that's tight right in with their payroll they are not just looking for payroll. So there that growth and demand, and there is also on the low end much more clients who say hey I just I just want online solution with 7 by 24 support when I needed and I am willing to do, and I want to do more things myself. So we are trying the changes we have been making last few years in technology and service models have been respond kind of all that. So if you are an online client we made the online and continuing to that actually this next 12 months. Make it much easier make it kind of an employee journey for the clients, so they can walk through all the way from hiring right through to payroll HR et cetera in a very self-service format if that's the way they want to do it. Tian Jing Wang: Okay. Thanks for clarifying that, and I am curious I mean impact from benefits and what's going on there have you seen any sort of client change or coming back to Paychex. Efrain Rivera: A little bit I don't think we lost a lot of them, but I we have seen a little bit of a pick and the on the health insurance side I think we're they probably lost some clients due to the concern a bottom and so forth on the licensing and compliance. So we picked up some there I wouldn't say it's big measurable or anything, but particularly in those markets on the Midwest and West Coast were they it's been most visible I think we probably picked up a little but a demand there. Tian Jing Wang: Okay, great. Thanks for the time guys. Operator: We have our last question from Sara Gubins of Bank of America. Your line is now open. Sara Gubins: Bank of America: Hi. Thank you. Just a couple of quick ones, do you have that the final year one adoption of the ECA product was I think you talked about the being a prefect little bit of 50% ? Martin Mucci: Yes that's kind of where we ended up Sara. Now just to clarify that and Martin talked little bit about the second way. So as new clients were coming on particularly mid-market clients you get a chance to sell the serve so that number as a percentage on the base could end up higher. But as the initial way was a little bit north of 50%. Sara Gubins: Okay and then Efrain there was discussion about mix trending down and outlook impact on the quarter you also talked about new business sales being about at 7% which is pretty impressive. If pickup versus recent quarters and I am trying to understand how much of the mix down might be because of new business formation as oppose to growth in payroll. I know I missing mixing terms between total client growth? Martin Mucci: I get it. That's a fair question. So, we've seen sales to new business is trending up Q3 was a strong quarter in terms of sales to new businesses so that's number one when you do that you're correct that the units that you sell than have this impact of driving checks down a bit and in Q3 its particular, it's tricky because you lose the most amount of clients obviously and you again a lot of clients and if that mix is a little bit off from what we project you can get checks being a little bit more moderate than we expected, and by the way when I say that I am talking about a and I am talking about 4 or 3 I am talking about being of by one tenth and what you project. So, it was a little bit lighter there sure had a good quarter but sure really wasn't driving that result. Operator: Thank you. We show no further questions at this time. Martin Mucci: Alright at this point we'll close the call. If you interested in replying the you're just stated replaying the web cast of this conference call. You're guidance till about made second thank you taking the time to participate our third quarter press release conference call and for your interest in Paychex. Have a great day. Operator: Thank you. Now that concludes today's conference thanks all of your participation. You may disconnect at this time.