沛齊 (PAYX) 2004 Q3 法說會逐字稿

Good morning and thank you for holding.

Your lines will be on a listen-only mode until the question-and-answer session of today's conference.

Today's call is being recorded.

If you have any objections you may disconnect at this time.

I would now like to turn the call over to Mr. John Morphy.

Thank you, sir, you may begin.

Thank you for joining us today for our third quarter press release.

Tom Golisano, our Chairman, President and CEO, is also with us today.

Upon the completion of the review of our financial results we will conduct a Q&A session.

We released our financial results and filed our form 10-Q for the quarter ended February 29, 2004 yesterday afternoon after the market closed.

Both can be obtained by accessing our web site at www.Paychex.com, at our investor relations home page.

In addition, this teleconference is being broadcast over the Internet and will be archived and available for access on our web site until April 19, 2004.

Please refer to our web site for access to all recent news releases, current financial information, related SEC filings and investor relations presentations, which will be updated.

The earnings release is summarized as follows: For both the third quarter and first nine months of fiscal 2004 we generated record total revenues and net income.

Total revenue growth was 19% year-over-year for both the third quarter and nine month periods which generated increases in net income of 13% and 9% respectively.

Quarterly earnings per share were 21 cents versus 19 cents a year ago, up 12% on an unrounded basis.

Year-to-date earnings per share were 64 cents versus 59 cents a year ago, up 8% on an unrounded basis.

Operating income was up 15% and 14% in the third quarter and nine month period respectively.

The company's net income and earnings per share growth continues to be adversely impacted by the effect of lower interest rates on our funds held for clients and corporate investment portfolios.

Net income growth for the first nine months of fiscal 2004 was 9%, compared to a 15% increase in operating income excluding interest on funds held for clients.

The same comparison for the third quarter of fiscal 2004 were at 13% and 16%.

The more favorable comparison in the third quarter relates to the fact interest on funds held for clients was up slightly year-over-year, and more importantly, investment income decreased by only 16% in the quarter compared to almost 50% for the first nine months of the year.

We still expect year-over-year net income growth for fiscal 2004 to be in the 8 to 10% range.

Operating income, excluding interest on funds held for clients, as a percentage of total service revenues, was 31% and 33% in the third quarter and nine month period of fiscal 2004 compared with 32% and 34% in the respective prior year periods.

However, excluding the refund of the PEO workers compensation and the accrual for pending legal matters, both of which are described later in this call, the percentage of total service revenues would have been 33% for the quarter and 34% for the first nine months of fiscal 2004.

Our results of operations for the first nine months of fiscal 2004, were impacted by the fiscal 2003 acquisitions of Advantage on September 20, 2002, and InterPay on April 1, 2003.

The two acquisitions provided Paychex with over 80,000 new clients.

The acquisition of InterPay impacted the growth comparison for revenues and expenses for the third quarter and nine month period, whereas the acquisition of Advantage primarily impacted the comparisons for the nine month period only.

Integration of Advantage and InterPay continue as planned.

By the end of fiscal 2003 the sales forces of these companies were combined with the Paychex sales force and the responsibility for their operations and corporate support have been integrated into the management structure of Paychex.

Certain branch operations have been integrated into existing Paychex locations, with more consolidation expected to occur throughout the remainder of fiscal 2004.

Our primary integration focus has been on client service and retention.

The Advantage Corp payroll system is being retained for the foreseeable future in order to service clients affiliated with independently owned associate offices and Advantage co-branded products.

For InterPay approximately one-third of the clients were converted to the Paychex software platforms by the end of December, 2003 with the remaining clients expected to be converted by December, 2004.

We will now refer to the fourth page of the release, the consolidated income statement.

Total service revenues increased 20% in the third quarter and nine month period to 328.1 million and 921.6 million respectively.

Service revenues include service fees earned from our payroll and human resource and benefits product lines.

We estimate that organic service revenue growth was approximately 13% for the third quarter and 12% for the first nine months of fiscal 2004.

Payroll service revenues for the third quarter and first nine months increased 15% and 18% to 270.6 million and 780.3 million.

The increases are related to the acquisitions of Advantage and InterPay in fiscal 2003, organic client-base growth, increased utilization of ancillary services and price increases.

Checks per client, excluding Advantage and InterPay, for the first nine months of fiscal 2004 were comparable with the prior year period.

The change in checks per client as it relates to economic conditions appears to be stabilizing.

As of February 29, 2004, 88% of all clients utilized our tax filing and payment services and 62% utilized the employee payment services.

More than 90% of new clients purchase our tax filing and payment services and approximately 70% of new clients purchase employee payment services.

Major market services revenue increased 39% and 40% for the third quarter and nine month period of fiscal 2004 to 37.9 million and 102.6 million respectively.

Approximately one of third of our new major market services client are conversions from our core payroll service.

Human resource and benefit service revenue increased to 57.5 million, and 141.3 million for the third quarter and nine month period of fiscal 2004 respectively.

The increases reflect growth in retirement services clients and in client employees served by our PAS and PEO bundled service.

During the third quarter of fiscal 2004 the company recorded approximately 6.4 million in net incremental PEO revenue, resulting from a refund of PEO workers' compensation insurance premium and a reduction of the estimated claims loss exposure under the fiscal 2003 insurance policy.

Excluding this item, human resource and benefit service revenue increased 31% for the third quarter and 24% for the nine month period of fiscal 2004.

Retirement services revenue increased 17% in both the third quarter and nine month period of fiscal 2004 to 20.6 million and 57.9 million respectively.

At February 29, 2004, we had approximately 29,000 retirement services clients.

Paychex administrative services, PAS, and the professional employer organization, PEO, are comprehensive services that include payroll, employer compliance, employee benefit administration and risk management outsourcing services designed to make it easier to for businesses to manage their payroll and benefits costs.

Sales of PAS and PEO products have been strong with administrative fee revenue from these products increasing 34% and 31% in the third quarter and nine month period of fiscal 2004.

As of February 29, 2004, our PAS and PEO products serviced over 138,000 client employees compared to 103,000 at the end of May 2003.

Interest on funds held for clients increased 8% for the third quarter, and 6% for the nine month period of fiscal 2004, to 14.5 million and 42.4 million.

Higher net realized gains on the sale of available for sale securities and higher average portfolio balances were offset by lower average interest rates earned in fiscal 2004.

The higher average portfolio balances were driven by the acquisitions of Advantage and InterPay, and from organic client growth.

Average daily portfolio balances were 2.7 billion and 2.4 billion for the the quarter and first nine months of fiscal 2004 compared with 2.4 billion and 2.1 billion in the respective prior year periods.

The funds held for client's portfolio earned an average rate of return of 1.6% and 1.8% for the third quarter and first nine months of fiscal 2004 compared with 2.1% and 2.4% for the respective prior year periods.

Net realized gains on the sale of available for sale securities included an interest on funds held for clients or 3.5 million for the third quarter and 10.6 million for the nine month period of fiscal 2004 compared with net realized gains of 0.7 million, and 3.0 million for the respective fiscal 2003 periods.

Consolidated operating, selling, general and administrative expenses increased 21% for the the quarter and 22% for the nine month period.

The increases are due to additional costs resulting from the Advantage and InterPay acquisitions and investments in personnel, information technology and facility costs to support the organic growth of the company.

There are approximately 9300 employees at February 29, 2004 compared with approximately 8,250 at February 28, 2003.

During the third quarter of fiscal 2004 the company recorded approximately 9.2 million in reserves for pending legal matters.

Further discussion of legal contingencies will occur later on.

Excluding this item, consolidated expenses grew 16% and 20% year-over-year in the third quarter and year-to-date period of fiscal 2004.

During the second and the fourth quarters of fiscal 2003 we made additional investments to our direct sales force as we integrated the sales forces of Advantage and InterPay.

Also as a result of the acquisitions amortization of intangible assets increased to 4.1 million and 12.4 million in the third quarter and first nine months of fiscal 2004 from 2.8 million and 5.6 million in the respective prior year periods.

The impact of the acquisitions and the investment in the sales force on expense growth began to moderate in the third quarter and will continue to moderate as fiscal 2004 progresses.

Operating income increased 15% for the third quarter and 14% for the first nine months of fiscal 2004 to 116.5 million, and 346.4 million respectively.

Investment income net decreased 16% for the third quarter and 48% for the nine month period due to a decrease in average daily invested balances resulting from the sale of corporate investments to fund the Advantage and InterPay acquisitions and lower average interest rates.

For the third quarter investment income included higher net realized gains on the sale of available for sale securities whereas the nine month period reflected lower net realized gains.

The average daily balances invested were 466 million and 422 million in the third quarter and nine months of fiscal 2004 compared with 495 million and 585 million in the respective prior year periods.

The corporate investment portfolio earned an average rate of return of 2.2% and 2.5% for the third quarter and first nine months of fiscal 2004 compared with 3.2% and 3.3% in the respective prior year periods.

There were 1 million and 5.2 million in net realized gains for the third quarter and nine month period of fiscal 2004.

There were no net realized gains for the third quarter of fiscal 2003 and 9.6 million of net realized gains for the nine month period of fiscal 2003.

As previously disclosed, the funding of the Advantage acquisition generated 7 million of realized gains in September of 2002 and the funding of the InterPay acquisition generated 3.5 million of gains in the fourth quarter of fiscal 2003.

The use of corporate investments to fund the two acquisitions resulted in a year-over-year reduction in investment income of approximately 1.4 million for the third quarter and 7 million for the year-to-date period of fiscal 2004.

Our effective income tax rate was 32.7% and 32.6% in the third quarter and year-to-date period of fiscal 2004 compared with 32.0% in both the prior year periods.

The increase in the effective tax rate is a result of lower levels of tax exempt income on funds held for clients and corporate investments.

The full final 2004 income tax rate is expected to approximate 32.6%.

Our current outlook for the full fiscal 2004 is summarized as follows: Payroll service revenue growth is projected to be in the range of 15 to 17%, reflecting the benefits of the Advantage and InterPay acquisitions.

Human resource and benefit service revenue growth is expected to approximate 30% reflecting the benefit of the 6.4 million of incremental net P&O revenue discussed earlier.

Total service revenue growth is anticipated to be in the range of 17 to 19%.

We expect interest on funds held for clients, including realized gains to be relatively flat year-over-year.

From that comparison you can assume that the fourth quarter funds held for clients will actually be less than the prior year as we reach the low 50 million range on this estimate that we gave sometime ago.

Total revenue growth is estimated to be in the range of 16 to 18%.

Corporate investment income is expected to be down approximately 45% to 50% due primarily to the sale of investments to fund the acquisitions in fiscal 2003 and lower interest rates.

Net income growth is expected to be in the range of 8 to 10%.

In addition, we estimate that growth and operating income, excluding interest on funds held for clients, for the full year fiscal 2004 will be in the range of 15% to 20%.

These projections are based on current economic and interest rate conditions continuing with no significant changes.

As just mentioned we expect interest on funds held for clients to be flat and corporate investment income to be down 45% to 50% for the year.

I will now move to the balance sheet.

Moving to page 5 of our press release, our balance sheet since May 31, 2003 reflects our growth during the first nine months of fiscal 2004.

Cash and corporate investments have grown to 537 million.

Our total available for sale investments, including corporate investments and funds held for clients, reflected unrealized gains of 25.0 million at February 29, 2004, compared with unrealized gains of 45.0 million at May 31, 2003.

The volatile interest rate market is resulted in significant changes in the market value of our available for sale portfolios.

During the first nine months of 2004 the unrealized gain position ranged from approximately 18.0 million to 49.6 million.

The unrealized gain position was 26.4 million as of March 15, 2004.

Our net property and equipment balance activity during the first nine months of fiscal 2004 reflected capital expenditures of approximately 39 million and depreciation of expense of approximately 29 million.

For fiscal 2004 capital expenditures are expected to be in the range of 50 million to 55 million and depreciation expense is projected to be approximately 40 million.

The company records 395 million of goodwill and 95 million of intangible assets from the acquisition of Advantage and InterPay.

Intangible assets primarily represent client lists and license agreements with the associate offices which are amortized over periods ranging from 7 to 12 years using the accelerated or straight line methods.

Intangible asset amortization is projected to be in the range of 16 to 17 million for the full year of fiscal 2004.

Goodwill recorded from the purchase of Advantage and InterPay will not be amortized but instead be tested for impairment on an ongoing basis, assuming Paychex operates as a single reporting unit.

Total stock for equity increased to 1.2 billion at February 29, 2004 with 132 million in dividends paid during the first nine months of fiscal 2004 of payout at 55% of net income.

Our return on equity for the past 12 months was 28%.

Investment rates of return.

We continue to receive many questions on the impact of changing interest rates.

Our investment portfolios and the earnings from these portfolios have been impacted by the decreasing interest rate environment, the federal funds rate, which was at 6.5% at the end of fiscal 2000, has decreased to a current level of 1%.

The decrease in interest rate environment has negatively effect net income growth and at the same time generated significant unrealized gains for our available for sale portfolios.

We have mitigated some of the impact of lower interest rates on earnings by realizing gains from the sale of investments.

When the interest rates begin to rise, the full benefit of higher interest rates will not immediately be reflected in net income due to the interaction of long and short-term interest rate changes accompanied by changes in the market value of the long-term investment portfolio.

Increases in interest rates immediately increase earnings on short-term investments which total 1.9 billion at February 29, 2004 and over time will increase earnings on the company's longer term available for sale securities which totals 1.3 billion at February 29, 2004.

Earnings from the available for sale investments, which currently have an average duration of 2.3 years will not reflect increases in interest rates until the investments are sold or matured and are reinvested at higher rates.

An increase in interest rate environment will also result in a decrease in the unrealized gain position of our investment portfolio and, over time, could produce an unrealized loss position.

Please refer to our recently filed Form 10-Q under the market risk factor section for additional discussion of changes and interest rates and related risk.

Legal contingencies.

Paychex is subject to various claims and legal matters that arise in the normal course of business.

During the third quarter of fiscal 2004 we recorded 9.2 million in expense to increase reserves for estimated costs associated with the resolution of pending legal matters.

Legal reserve totaled 10.8 million at February 29, 2004, and are included in other current liabilities on our consolidated balance sheet.

These reserves may change in the future due to new developments or changes in the company's strategies or assumptions related to any particular matter.

We currently believe that resolution of these matters will not have a material adverse effect on our financial position or results of operations.

However, they are subject to inherent uncertainties and there exists a possibility that the ultimate resolution of these matters could have a material adverse impact on our financial position and results of operations in the period in which any such effect is reported.

We refer you to our Form 10-Q for more detailed explanation of pending litigation, most of which is in the discovery stage.

At this time, I will now turn the meeting over to Tom Golisano who will provide his comments on the third quarter before we open the meeting for any questions.

Thank you, John.

First of all, of course, based on the financial results we were very pleased with what transpired during the third quarter.

More specifically, December, January, February is a huge selling part of the year for us.

And we were very, very happy and satisfied with our selling results during the months of December, January, and February.

I think we sold in excess of 25,000 new clients.

The same time our client retention seems consistent, not at record levels but very near record levels.

So considering the general overall economy we're very happy with that.

We have put into concrete our plans for our sales organization growth for next year.

Our core sales organization will probably grow in the 8 to 9% range, major market services in the 25% range, 401k sales organization will grow about 20% and our past Paychex administrative sales organization will grow by about 45%.

This is consistent with historical trends but may be a little bit more aggressive in the PAS area.

Generally speaking, our ability to sell new clients, retain clients, and doing that at the costs levels and expense levels that we're used to, we're pretty satisfied with where we are.

For the rest of this fiscal year and next year it looks like business as usual, execute the sales plan, do a good job of providing the service and watching our costs.

With that, I think we'llopen it up for questions.

Okay, Regina, we're ready to take questions.

Thank you.

At this time, if you have a question you may press star than one on your touchtone phone.

The questions are taken in the order that they are received.

Again, to ask a question press star than one, now.

Your first question comes from Adam Waldo.

Good morning, it's Adam Waldo from Lehman Brothers, how are you all.

Fine, Adam.

Two quick questions.

First for Tom and then for John.

Tom, just coming back to your comments around sales force headcount growth plans for fiscal year '05 at 45% and reflecting another very strong PAS result in the fiscal third quarter in terms of service bureau revenue.

Could you give us some sense for really why stepping on the accelerate yet another notch in fiscal '05.

Is it to try to anticipate some recent ASO launch announcements by the big rival down in New Jersey and some smaller competitors or maybe just give us a little more sense for that.

It's generally internally driven, Adam.

We have been very happy and satisfied with the results of our sales organization for our PAS project considering the fact that we had a huge jump in our sales organization last year for PAS and how inexperienced, as a whole, they are.

We're very satisfied.

It tells us the product is very salable and that we have priced it appropriately.

So based on that and our level of satisfaction with the growth, we want to continue to push hard in that area.

We think it's a long-term, very important factor and aspect of Paychex's world.

And we're going to continue to push it.

We're just very happy with the results and we think we can continue to be as successful as we have been proportionately.

Thanks very much for that.

And then just quickly, John, just building out Tom's comments around sales force headcount, additional plans for fiscal '05, could you give us some color on where you would expect overall company employment growth to trend in '05?

Well, I think the growth in all our employment base is going to get back to more normal since we don't have the two acquisitions.

The sales force, we have our normal things that we do have, but basically I would expect there would be some acceleration, primarily in the human resource areas but the payroll areas will be normal.

But right now we haven't finalized that yet.

Okay, thank you.

Thank you.

Your next question comes from Cindy Shaw with Schwab SoundView.

Yes, good morning.

Congratulations.

A couple questions for you.

First on services operating margin expansion.

It looks like we're getting some good traction here with the integration of the acquisitions.

Wondering what we can be looking for both in the current quarter and into fiscal '05, although I know you are not ready give guidance.

Around that, I was wondering, you still have a pretty wide range on the growth of services operating income with just one quarter left to go in this year.

We seem to have much tighter guidance around the top and the bottom line.

I wonder if you can explain that.

And then finally I will have a question on unrealized gains after that.

Well to answer the first one, on it being wider.

I like 15, Tom likes 20 and we know it's in between.

We both kind of kept our numbers.

We could have made that a little more defined but you should expect it to be reasonably consistent with what's been happening.

Maybe slightly better.

But you can focus in on that pretty close with all the guidance we gave with only one quarter left.

Cindy, as far as operating margin leverage, we're going to continue to leverage.

I think with the acquisitions we had a very successful year-end here in January.

Our operations was the best it's ever been.

Great job on W-2s.

We outsourced that.

We had most of the W-2s out by the middle of the month.

I think we'll still get some improvement with tie-in to what we disclosed in the fourth quarter.

I think next year we'll again to get it.

I don't know whether it accelerates andI'll know more about that when we absolutely finish the budget process because the amount of money you are now talking is right in that budget process and we'll be providing guidance on that, basically, when we do do the June release.

Wonderful.

And then on the unrealized games with the interest rate shifts we've had since you did your last quarterly call, it looks to me like you've got about a 10 million bump up on unrealized gains on what is left of the portfolio here.

We were expecting, as we exited this quarter, that they would be pretty much wiped out.

Looks like you could exit the year now with about 20 million.

Wondering how you are looking a - based on your comments about what you are going to do with the interest and investment income in this quarter, it looks like you're not going to take advantage of that.

Wondering how you are looking at that for next year.

First place is to go back.

When we started the year our guidance and our desire on taking gains was simply to keep float income year-over-year flat with the longer term belief or optimism that rates would go up and that would be fine.

We're going to continue to do that.

That number is right around 53 million and we will, in the fourth quarter, get that to hit 53 million, which means year-over-year in the fourth quarter, float income will be down, not a big concern.

We took some of the gains a little bit earlier in the year because we didn't know whether they would still be there and they did wind up being there.

I think when you look at '05 on interest rates, and there's been a lot of discussion on this over the past three months which ties into our December 20 call, Not everybody reacted immediately but I think people are now.

Float income will be about 53 million and that's going to contain somewhere between 15 and 20 million of gains in fiscal 2004.

So we take the 15 million out, you're at 38 million.

I think it's realistic to put some level of gains back in.

It's also realistic to say well, if you don't have gains you must add something on rate.

But I don't believe right now, as I look at fiscal 2005, that float income will be able to be flat year-over-year.

I think it's going to go down some.

Your guess is as good as mine.

But I do believe that the operating income statistics we have and those things we can control are going to remain strong and maybe even a little better than I think.

I know Tom is always the more optimistic than I am, but we usually wind up in the middle and maybe that will offset some.

So right now we feel comfortable but even with the 25 million I don't think it's totally changed.

A little more under our control but we'll wait and see.

But what are your thoughts in terms of gains on the corporate portfolio?

Are you just letting that go?

The corporate portfolio, there will be some down there but it shouldn't be significant.

Great.

Thanks.

$25 million reflects all the gain potential.

Good deal.

Thank you and congrats on a nice quarter.

Okay.

Thank you.

Your next question comes from Stephen Weber with SG Cowen.

Yes.

Good morning.

I would like to discuss the underlying growth in human resource services.

The implication is that it's going to be pretty close to 30% again in the fourth quarter.

I take it that this is really being driven by the PEO/PAS steep growth.

Is that a sustainable kind of number and then I have a followup question on something else.

What I want to do is I want to make a statement on that and then I will pass it over to Tom for a more general answer.

One of the reason the strength is stronger here in the second half is not-- we had the one adjustment applied last year.

We also right now are doing a great job on worker's comp and in the last half of the year we're getting some benefit from that.

Next year, I would hope, again, we're going to get some benefit but as we have historically said we're going to be slightly conservative on worker's comp income until we see it in the whites of our eyes.

So right now I still think that momentum is going to continue.

We're doing a great job.

The fourth quarter will be very similar, I think, to the third.

Next year, in the beginning, we may go slightly conservative and making sure we are okay until we see claims history.

But that's some of the change.

Now for some other things on that, I will refer to Tom.

Generally speaking, the 401k growth has been very steady.

What's been really moving it has been Paychex's administrative services.

You may remember that our average revenue per client is about $11,000 per year per client and right now we're selling between 250 and 300 of those a month.

If you try to equate that to our payroll, the core payroll products, it's equivalent to selling about another 1500 of those a month.

Quite frankly, the growth of our sales organization and the historical trend in PAS is what's driving a lot of this.

I mentioned early we are going to expand the sales force from about 80 people to about 115 to 120, which is almost between 45 and 50%.

And it is mainly because of the acceptability and our ability to sell the PAS product.

Fine.

A follow-up question.

John, I was going back through my notes and in last year's fourth quarter there was one less billing day.

Is that billing day come back this year?

No, year-over-year it can change.

I don't think there's any difference in billing days.

We're pretty confident on what we think is going to happen in the fourth quarter.

What we've given the guidance on, I think the days are the same.

My people haven't talked to me about them being different.

If it was different, we would talk to about it., but it's factored in if it is.

But I don't think it is.

Okay.

Thank you.

Thank you.

Your next question comes from Glen Greene of ThinkEquity Partners.

Thank you.

Nice quarter.

A couple of questions.

The first on the new client signings that you alluded to, the 25 or 26,000 or so.

Wondering if you can give some color sort of contrasting the core payroll business and the major market services.

Well, quite frankly, through this quarter, their ability to sell to quota was pretty much even, with maybe a slight edge to major market services.

The amount of clients that are new business start-ups as a percentage of the whole, have gone up over the last two or three quarters and that continues and that's an indication that there are more new business start-ups.

We continue to work very hard in the referral and the CPA marketplaces.

So generally speaking, the only real difference this past quarter over the last year or two is the number of new business start-ups changing.

And just a little bit of color on the overall pricing environment.

What kind of pricing increasing on existing and the new business, the pricing environment for the new business as well.

Paychex historically raises their prices once a year in the spring and it's generally to the entire client base and historically we have been 3 to 3.5% range, somewhere around there.

I don't see that changing significantly in either direction going forward.

And it's been historically where we have been for about the last 20 years.

Thank you.

Thank you.

Your next question comes from Adam Frisch of UBS.

Thank you and good morning.

The tone of your message today, guys, seems to be a little bit more upbeat but I'm wondering if you can differentiate between - are things looking better because they are off a relatively weak base or do you feel that right now in your business we're in a market that's strong?

We're upbeat because it's not snowing in Rochester and the sun is out! [ LAUGHTER ]

If I'd given you the answer to that question, I was going to give the same answer.

It just seems like (inaudible) kind of flattish, retention is okay, as you said, it's steady, not great but steady.

It seems like things are just okay, do you think your business right now is strong?

Is the market strong for what you are doing?

Are we still kind of in a rebound mode?

We are relative to the marketplace and our ability to sell our products.

And that's including the internal and the external factors.

So I would say, if I were to compare this to any period during the last three years, we're about as happy as we've been.

Okay.

But you've been pretty miserable in the last three years so I guess we should take that in context.

Turnover in the sales force.

I know you said you are aggressively hiring there.

Can you talk about if there's been any kind of noticeable change in the turnover there.

In our payroll sales organization, we're doing extremely well, probably the best we have done in five years.

It looks like our turnover rate on the annualized basis would be in the low 30s.

For 401k, traditionally where we have been, mid-30s to slightly higher.

Major markets turnover is always very low.

Okay.

So we've had marked improvement this year and overall sales rep retention.

Great.

And then I guess my last question here, I think you said your organic revenue growth goal for the next, let's say, three years or so is somewhere in the mid double digits, 13 or 15%, some where around there.

Is that still true and if so could you walk us through what gets you there in terms of client adds, adding 6% and then losing and all that kind of stuff.

What's that.

We really commit to the 12 until we know what type of economic environment we're in and how much it may or may not improve us.

I sometimes go 7% client growth, 4% price, 4% ancillaries, nets 15, cut it back.

A better way to look at it, probably, is 5% client growth, 3.5 price and 3.5 ancillary gets your rate to 12.

One thing to recognize when we bought these two companies, we added 80,000 clients.

One way or the other, whether we like it or not, we're going to lose approximately 20,000 of them.

Doesn't matter what we do, we're going to lose them.

Yet, at the same time, getting the 80,000 clients to not give us any ability to automatically sell them anymore.

So we are really pleased with our sales efforts this year because we gave them a very aggressive goal.

Walter was choking but we said so what, you're going to have to do this.

We're doing very good against it.

You're probably not going to see client growth at 5% this year primarily because of those acquisitions.

Over time we'll get back to it.

Hopefully we'll get much closer next year but it's too early to tell.

At the same time, though, we get some margin expansion so whether we're right at 12%, we still are very confident we can hit our 15% plus factor on operating income.

That's the number that drives us.

We know we've got to get revenue growth but we know we've got to produce net income growth.

We got the problem with the interest rates that we can't do anything about but we stay very focused on doing what we can control.

Okay.

And then just on that note, though, has there been any significant change in client turnover rates or it's pretty much tracking to normal.

As I mentioned earlier, client retention is running at near record rates.

And it's been consistent over the last nine months.

Okay.

Thanks, guys.

Thank you.

Your next question comes from Jim Kissane of Bear Stearns.

Tom, ADP said it's trying to wholesale it's payroll services through CPAs and the small employer market.

Do you see this putting any pressure on you to share revenue, ultimately put pressure on your margins there.

No.

We heard about this announcement and we're watching it with interest.

We wonder sometimes about the logic of that kind of a situation because if you have a referring CPA, and all of a sudden you have the CPA doing payroll processing, it not only means you're not going to get as many new clients, but you may lose some of your existing ones and start reaping in a negative way revenue growth from existing clients that you already have.

So consequently we're not high in that idea, we don't think conceptionally long-term it's going to be a good idea.

Butwe're going to watch them with interest and see how they do.

No impact whatsoever as of this date.

Okay, great.

And in the PEO business, I mean just given your positive experience on the claim side and the new policy, will you go up on the risk curve, at all, to grow that business faster?

No, not in the PEO.

Okay.

In the PAS.

The PEO we won't because that's how we'll get in trouble.

We have a quality PEO down there and to give you an indication on the quality, sales growth there is still a little more challenging than it's been but retention in January, the loss is, like, half of normal.

There's no place for people to go.

We take more risk, you will get into workers comp problems and you will very quickly give the profits back.

That's what I think of it, so thanks.

Jim, it's definitely on PAS rather than the PEO.

Gotcha, great.

Thank you.

The next question comes from David Farina of William Blair, Inc.

Back to the PEO question, Tom/John.

How big is it today?

I mean you kind of lump them together in your queue and you show a 30% plus growth rate.

Is that holding back the PAS business?

Is PAS growing a lot faster or are they comparable?

No, because in Florida you really can't operate as a PAS, if you could we would do it.

We don't believe we can do that because of healthcare and some other issues.

I think right now I would say that if you took the business and divided it into thirds the PEO is a third and PAS is two-thirds but PAS is growing much faster than PEO.

PAS really hasn't been out there that long and PEO's has been around since '96.

It's just cruising right by it.

One 's got 49 states and the other one's got one.

Sure it makes sense.

And then also you guys have talked about this target model which we talked about a few questions ago.

Next year looks like, at worst case, stable interest rates, year-over-year comparison and stable employments worst case.

Wouldn't that be the year, assuming no changes at the target model, would kind of come through because you don't have any plus or minus from any of the two big macro factors.

We believe next year that operating income without float will be in the 15 to 20% range.

I can't tell you net income because I don't know interest rates.

Okay, fair enough.

Thank you.

Thank you.

Your next question comes from Dave Koning of RW Baird.

Good morning, Tom and John and congratulations on a great quarter.

Thank you.

Just to be clear, you mentioned organic fee growth of 13%.

Does that exclude both InterPay and the 6.4 million PEO benefit?

Yes.

Okay.

And then secondly --.

[ Inaudible ] Again we had a great year-end.

The economy is a little bit better this year than the year before.

In the year-end this quarter we have a lot of unusual, not unusual, but normal charges.

They are not right in the day-to-day thing.

The year-end produces extra revenue growth.

Okay and then secondly, you mentioned a little bit about ADP.

Just wondering any changes in the competitive environment over the last few months.

No, it's typically during year-end more intense than it is during the year, but if I were to compare this year-end to prior year-ends in the last two or three years I would say this was probably the least competitive of the last three years.

Okay.

Thank you.

Thank you.

Your next question comes from Craig Peckham of Jefferies.

Hi, it's Craig Peckham at Jefferies.

I think in your last call you said that you'd seen uptick in some of the expenses pertaining to new locations and Germany, specifically.

Can you give us a snapshot of where you are there and I'm particularly interested in the internation (inaudible).

We opened four new locations at calendar year-end and so that gave us a slight uptick in operating costs.

As far as Germany is concerned, we are in position to start selling clients within 30 to 60 days.

And we're opening the office with about 10 employees, I believe.

The software has been secured on the licensing basis.

So we're pretty much ready to go.

If I were to sort of give you an overall financial perspective on Germany in the first year, it's not going to be a very large investment, not very material at all.

We basically have ten employees, the software license, which wasn't very much initially, and day-to-day operating costs.

Offset against that will be any revenue we derive.

And a followup to one of John's comments earlier on how great a job you are doing on the worker's comp side.

John, can you elaborate a little bit more what you mean about that.

Are you talking about the sale side of it or are you more focused on the claims element.

The claims element.

We monitor it very closely.

We have budgets for each degree of claims and we look at them and we make sure and Craig Hill and his people down there are doing a good job of making sure they are taking clients where risk is proportional to what we receive.

Okay.

Are there any particular markets or states where you see any volatility one way or the other.

The PEO is only in Florida and that's a tough market that we are doing a good job on.

The California market has improved slightly.

The rest of the country at about the same.

I think the worker's comp cycle, which is generally an eight to ten year cycle, I think it reached its bottom, hopefully, about six or eight months ago but we'll see.

Okay.

Thanks for the insight.

Thank you.

Your next question comes from David Grossman of Thomas Weisel Partners.

Thanks.

Two questions.

One, Tom, could you just expand a little bit and maybe give us an update on how those four new offices that you opened at the end of the year or tracking and what your plans may be for further geographic expansion here in the U.S.?

And, John, just a quick question for you, just assuming the rate environment stays relatively flat from here, when would you start seeing the average yield on the longer term portfolio flattening out.

On the new office situation, as I mentioned earlier, we did four of them this year-end.

My guess is we'll probably do four or five again at the end of 2004.

They have no material impact either revenue or profitability or even loss-wise during their first year or two.

It is like planting a little tree, a little bush.

Some day it will be of more value to the company, both in revenue and profitability.

If you were to combine the investment that we make for those four locations in total, it's still a fairly insignificant amount of money.

Remember, Paychex sells mainly by client referral and CPA referral, and you don't start getting the impact of that selling mode until you have some clients.

So it takes a while for these branches to start producing clients but then when they start growing they almost grow geometrically rather than arithmetically.

So we planted four of them this past year-end and we'll probably do four or five more next year year-end.

David, on your rate question, I believe when you take the interest on funds held portfolio and it's got returns of 1.5 to, say, 2% and the corporate oneage(ph) is in the low twos.

Most of the interest rate unfavorability, I think, that occurres this year over next relates to the factor of gains in this year's portfolio.

I don't think rates can change too much more on a constant factor.

Okay.

And just one other question on the margin ex-float.

Without getting into specific guidance for next year, can you give us what a reasonable target is given all the different factors that you mentioned earlier.

It's interesting and you people all focus on this now we don't.

We don't have a target.

Our target is we're going to reach that goal that we talk about, an operating income going up year-over-year and we squeeze these margins but they really aren't cost reductions.

They are really related to the revenue streams on ancillary.

We go through the budget process.

I'm fairly confident that some amount'sgoing to show up.

I think we talk enough about our formula that you can get pretty close.

Thanks.

Thank you.

Your next question comes from Brandt Sakakeeny of Deutsche Bank.

Thanks.

Good morning, John and Tom.

Question on the major market services segment.

That has been growing quite rapidly.

Do you think in a more normalized environment we could actually expect to see that accelerate or do you start to encounter a lot of large numbers at some point in the next couple of years?

Thanks.

You know what, I don't think we have enough history on this to make that kind of a speculation.

We've only been in this business for four or five years and we have been very aggressive in growing the sales organization.

And the results have been there for that effort.

But to say what kind of impact on the sales process the economy will or will not have, I tell you I would be just guessing Okay.

You guys aren't too demanding here, you know?

I'm going to have $125 million business that's grown at 40% and you're looking for more!

No, I was saying it's a great business.

I'm just curious -

I'm only kidding you.

Okay.

Thank you.

Thank you.

Your next question comes from Marta Nichols of Banc of America Securities.

Good morning, thanks.

You mentioned, John, that you are doing a great job on the PEO side.

Can you say if it's possible, particularly with workers' comp, and can you say there if it's possible whether you end up with more workers' comp refunds and whether that's being driven by the fact that you are being too conservative on your claims expectations.

Here's what happened.

If you go back to 2002, we were not self-insured in workers comp at all.

Okay?

Mm-hmm.

We wrote a policy.

Our liability was defined and we booked the max.

The insurance companies really don't want to write PEO insurance right now.

They will deal with us in past but they don't like the PEOs just because they don't like them.

They don't like the Florida market place.

So last year we basically were a self-insurer on the PEO.

At the same time, the insurance company came at us very hard saying that our claims were going to go up substantially.

We didn't believe them.

But it's pretty hard when you are doing the accounting process that they are telling you that is going to happen.

So we kind of went, I won't say halfway, but we looked at it, evaluated it and then what happened was they finally took a hard look at this.

It was sometime towards the end of December and we got a refund check.

And the check was a little bigger than we expected, not that we didn't expect one.

So we had that happen.

What we have done this year is we've shaved our conservatism down a little bit but I still want to be on the basis -- worker's comp can move very quickly.

All you have to take is all of a sudden get a couple of very large accidents where someone is -- they go up to the $500,000 level, the amount of money here isn't that significant to us in total.

So we're going to continue to watch it.

We're going to be slightly on the conservative side but we'll try to get it closer and closer.

I don't expect that we'll get a refund that big again different from what we booked.

Okay and can you remind us what the risk profile of your employee mix is there.

Are you mostly white or blue collar.

White collar but some blue.

We don't do roofers and stuff but I would have to have a PEO expert to answer that question.

I don't know that well enough.

Okay,

And then just a final question on the legal reserve that you took, is that related just to the rapid payroll situation that you mentioned in the 10-Q.

Majority of it is related to that.

We're not going to discuss that in detail.

I would refer you back to the 10-Q.

The matters are in the discovery stage.

It's too early to tell exactly.

The other thing I would point out would make so clearly that both Tom and I feel this.

This is a lawsuit that is there.

And you have some lawsuits that not only affect that you have to pay some money but then they have an adverse impact on your business going forward.

Fortunately, or unfortunately because I don't like lawsuits ever, in this case it's only about some money that's eventually going to change hands.

There is no impact on our business going forward because this business is totally immaterial to us and of no consequences.

Okay.

Great.

Thanks.

At the same time, satisfying the licensees is very important to us.

When I talk about the no consequences, it's really a matter of size and dollars.

What are the licensees do going forward to have that software supported?

Some of them have totally converted to other software and others we're going to continue to support.

But continue to support only as long as the lawsuit is outstanding?

As long as necessary for the licensee, either by arrangement we've made by contract or negotiations.

That's probably going to be the driving force.

Okay, great.

Thanks.

Thank you.

Your next question comes from Mark Marcon of Wachovia Securities.

Good morning.

With regard to MMS and you mentioned that one-third of the wins are come from people who are graduating to this service.

The other two-thirds, how much of that is competitive wins as opposed to people who haven't used outsource payroll before?

I would probably say that of the remaining two-thirds, more than probably two-thirds of the remaining two-thirds are on somebody else's processing system.

In otherwards, overall, one-third of our new clients switch over from our core service to MMS, another third come from ADP, approximately, and another third from every other source.

Mm-hmm.

And what's the key driver between the competitive wins, in terms of somebody coming from an alternative provider?

Boy, ask the question again.

What's the primary reason for somebody to switch from ADP or a different provider?

Oh, okay.

Generally speaking they've had some sort of problem with what they consider to be the service rendering.

Secondly, it could be features of and benefits of a particular software system and we happen to think our software system is extremely feature rich.

That will will drive it.

Seldom is it price but once in a while that happens.

Basically I would say service, software features and benefits and then lastly price.

Great.

And with regards to, John, what you said about the interest income that we can look for next year, can you expand a little bit about what sort of rate assumptions you would have in terms of interest income being relatively equal next year from both sources in terms of corporate as well as ENS.

First of all, I don't think they will be equal.

I said they're going to be down somewhat.

I don't know exactly how much and I think that what you had is a little bit better unrealized gain situation.

Sure.

But I'm in the same situation.

And I don't know.

What will happen is right now we don't assume anything changing but sometime in the next three months, Tom and I will sit down and decide how much we want to put in the plan or how much do we want to think it's going to be.

But that changes every day.

So right now I just don't know.

But I know the answer isn't 53 million in funds held but the number isn't 38 million either.

So, I mean, when you're saying it's going to be down somewhat, I mean, are you assuming that based on -- would you extrapolate that based on current rates with no change, or are you thinking that rates are going up?

I'm saying current rates with no change.

We don't ever anticipate rate changes because we've learned we don't have anyway to do that.

I don't know what they are going to do.

Right.

Okay, great.

And then the last question is you had great growth in terms of just the core payroll.

I'm wondering did you actually see any sort of referrals coming out of InterPay and Advantage?

Yes, we did.

But not to the degree that we would see them out of our existing client base.

I have a feeling, though, that will improve as time goes on.

But when you have small companies that have been placed in this situation where they have a new payroll service provider, it takes them a while to develop a comfort level with us and a relationship with our payroll specialists.

But as time goes on, I think we'll get that referral level up to the same as it is with our core existing base.

Just initially it was a little too much to expect.

So when you say you've got to grow over that base, that base at some point is going to stabilize and is actually going to start growing on its own as well, isn't it?

We are going to sell more clients because of that base.

To say that that base itself is going to stabilize and get larger, is not verbiage that we would use.

What we would say is because we have 80,000 more clients, we should sell a lot more new clients because of it.

But we don't think of it as growing the existing base rather than growing it overall.

We wouldn't even know, Mark, because if we sell Advantage customers because they referred, they go on the Paychex system.

Right.

I just meant that it's not like that group of clients is just going to be a group that is going to wither away over time, just because of natural attrition without contributing anything in terms of referrals or sales force growth, or anything along those lines.

On the referrals and new sales we get because of those client bases, we'll replace what was already there that may have either gone out of business or left us for some reason or another.

So that client base will generate more new clients.

There's no question about it.

Terrific.

And then lastly, along those same lines, when you're talking about the price increases of roughly 3.5%, would we see probably a little bit more for the InterPay and Advantage clients given that they were paying less?

Yes.

The answer is yes.

Traditionally between the two organizations, the price spreads are anywhere from, generally speaking, from 20 to 30% lower.

We do understand we cannot move that all at once but we are going to be more aggressive than 3%, some of them might be 7, 8 or 9% for one year.

Terrific.

Thank you.

Thank you.

Your next question comes from Greg Gould of Goldman Sachs.

Thanks.

John, on the capital expenditure outlook, it is down year-over-year for fiscal '04, what is your thought on fiscal '05.

Is there anything that would cause it to grow faster than normal then?

I don't think it's going to change significantly except for one thing, we're in the process of revisiting our printer capacity, and this happens about every three to five years and where in the past we have leased the printers from Xerox, I think this time we may purchase them so there could be a $20 million blip that really isn't a blip because it would have been in the leases.

What we've found is we're using printers longer than we thought, the quality of the printers is getting better and Xerox's pricing, which used to be really big push towards leasing because of the way they priced their maintenance, is changing.

So other than that, normal, and actually the whole thing is normal.

It's just I got something that used to be a lease that might be a purchase.

So what does that translate into cap ex that we see on the -- it wouldn't be a full $20 million, right?

It could be.

Okay.

And then thinking about expense growth, going forward, once you anniversary the acquisitions, should expense growth be in the mid to high single digits annually?

I would assume so.

I haven't done the whole budget yet so I don't know, but you are not far off.

Okay.

And one last question, in the HR and benefit services area, the growth was faster than we were looking for, even excluding the refund.

Is there anything else that's changed that has caused business to pick up there a little bit?

Is the tail cycle shorter or competition easier.

The worker's comp we talked about, you could take the growth rate up some, but I wouldn't go too far till we give you guidance because I haven't looked at the number all the way yet.

I think it's getting better and PAS is better but I don't think it's going to go to 30.

Okay.

Thank you.

Thank you.

Your next question comes from Greg Smith with Merrill Lynch.

Hey, good morning.

Just two quick ones.

Can you comment on the 401k sales in the quarter and then also are you seeing any increased migration of clients to data entry on the web?

401k sales in the prior quarter was pretty consistent with the rest of the year.

It's up significantly.

We set a high target for it this year and it is up significantly.

So we're pretty well satisfied with it.

As far as migration on the web, our online payroll, we've probably got several thousand clients using it now.

And I think we've all been a little surprised at how fast it's moving.

But that is now available throughout the country.

We've set up a second processing center for it on the western half of the U.S.

So based on the trends that we see today, it's going to continue to grow.

Okay.

Great.

Thanks a lot.

Thank you.

Your next question comes from Bryan Keane of Prudential.

Thanks, good morning.

This is actually Rick Patzman on for Bryan Keane.

I just wanted to follow up on the Advantage/InterPay pricing increases.

I wanted to get some color on the progress that you guys have made and whether or not you think that is going to negatively impact attrition of those customers.

We don't think it will.

And based on a little bit of experience, because we did some of them last year.

The pricing that they are going to -- actually they are going to it in three stages, probably, and they're only through one stage.

Still from a competitive landscape perspective, those prices are still significantly lower than anything else that they can find out there either with ourselves or ADP or anybody else.

So we feel pretty secure in what we are doing.

We do have one section of experience with some of the Advantage customers to rely on.

So we feel pretty comfortable that it's not going to materially affect our retention.

Okay.

Thanks.

Thank you.

Your next question comes from Patrick Burton of Smith Barney.

Hi, it's actually Rob Tung for Pat.

I wanted to see where you guys were thinking in terms of use of excess cash flows between acquisitions, either acquiring other large regional players that might still be out there or into HR benefits side, whether you have new thinking about adding capabilities there.

And versus, say, dividend, increasing the dividend and with dividend yields for companies across the board kind of going up, whether you are thinking of using some cash, giving some more cash back to investors there.

I think we're sort of back where we were a couple of years ago.

Cash is going to accumulate.

We've been very aggressive on the dividends and I believe we're a little bit over 50%.

Our earnings are going back to our shareholders.

We think that's a very good comfort zone to be in.

So as our earnings increase, the use of dividend, cash dividends will increase.

But on the other side of that coin, there are, at this point, does not appear to be any regional payroll processors that would be available to us that would have a significant impact on our cash position.

They just aren't out there.

With Advantage and InterPay leaving the landscape, and even ProBusiness leaving the landscape, not that we were ever interested in that one, but there just aren't any regional processors out there of any consequence that would tell us, save a couple or $300 million to make an acquisition in the near future.

So we'll stay aggressive with the cash dividend and we'll let cash build.

In terms of kind of on the HR and benefits side, do you see any capabilities or acquisitions out there that you might want to build on?

Well, we just recently bought some things in the time box arena.

We're going to keep looking but the real problem, again, in all of these acquisitions is that somewhere north of 50% of the revenues come from 20% of the customers.

We've also found that one of our strengths is integration.

So we still have a tend to try to find things and then connect them to what we have.

Our strength in 401k is a good example.

It's a fact we have the payroll data, we don't have to go get it.

It's the fact we know how to move money that makes us successful.

I think the good news is we don't need to go buy anything big and expensive in the software area.

Though we 'll keep looking.

Let me refine that answer.

The thing that makes our HR products, 401k and worker's comp and so forth, so profitable and so acceptable to us is the fact that we do the payroll.

So to go out and acquire organizations that just provide HR services without providing payroll processing, it doesn't make a lot of sense to us.

And just in terms of kind of anecdotal color on the macro hiring and outlook.

I guess a lot of surveys out there, like the NFIB, has a well-known one that's saying that small businesses are more optimistic about hiring and FBA loans apparently are up.

I was wondering whether you see the similar anecdotal evidence in not only a small business but also in the major market segment of clients being more optimistic about hiring despite kind of productivity increases.

We don't survey our clients for this type of information so basically we have two economic barometer.

The number of new businesses that we see being formed as a percentage of our total sales and the number of checks per client.

And we certainly already talked about both of them.

New business start-ups are definitely up, but checks per client are definitely stagnant.

And just finally in terms of Intuit, I know you guys are probably sick of this question.

In listening to their last conference call, they are saying that they're planning to ramp up the outsource payroll business in the March, April time frame, one of the things is that their sales cycles need to go down.

Especially in California.

Have you guys been seeing any more activity in the March time frame from Intuit?

No.

We saw very little activity during the last six months and we've seen no change in that.

Okay.

Thanks a lot.

Thank you.

Your next question comes from Adam Waldo of Lehman Brothers.

Gentlemen, just a quick follow-up.

If memory serves me properly, when you signed the InterPay acquisition purchase agreement you also inked a three year marketing alliance deal with Fleet.

In light of Banc of America having received shareholder approval this week to close the acquisition of Fleet, could you update us on how that change of control would affect that marketing alliance, positively or negatively, going forward.

Quite candidly we're not sure at this moment.

I can tell you that we have secured, though, a level of referrals from the Fleet Bank organization.

And since the Fleet Bank organization is mainly functioning in the northeastern part of the country, we think that that relationship will probably continue, because they seem to be very satisfied with the results we're producing.

Now, who knows?

Who will be making those kind of decisions on a regional or national level and what department of the bank.

So we expect to be in there plugging.

It is a source of revenue for us.

If we lost it, for any reason, it certainly wouldn't be the end of the world.

We could make up for the loss.

Sure, Tom, I realize it hasn't been material, yet.

But I just wonder philosophically are you seeking to have some fairly high-level discussions within the new Banc of America about a nationwide strategic alliance following closing.

Absolutely.

Okay, we'll check in with you in future quarters.

Thanks.

Thank you.

Your next question comes from Stephen Weber of SG Cowen.

I have a couple of followup questions.

Number one, John, when you were talking about float income you used a number like 38 million for the interest income.

You're at almost 32 for the year-to-date.

That would imply a very low fourth quarter.

Is there something going on, or were you just kind of rounding those numbers?

38 is pure rate, no gains.

I said I don't know the exact number.

I took 53 million and subtracted out 15 to 20 million of gains and I just used 15.

Okay.

Number two, when you were talking about the PEO refund, should we build something like that into our model or was this truly extraordinary?

You always take margins up, it will leak through there.

I don't think you should need to do anything specific.

Should we use --

A million to a million and a half a quarter.

It's not like it's a big number.

Okay.

But I mean, we should use the base of what HR turns out to be to delta for next year then.

I think what you're going to have is you've got to take HR for the whole year and calendarize it.

What we have got is some some stuff in the fourth.

We got this adjustment.

I wouldn't count this adjustment going through, because I've got also some improvement on worker's comp in the quarter.

I think you're inside the noise level but --

Okay.

And then lastly, you said something about the client growth not being 5% this year.

Where is it coming out?

Can you give us a feel?

We only announce number of clients once a year and we'll do that in June.

Okay.

Thank you.

Thank you.

At this time I show no further questions.

Again, if you would like to ask a question, please press star and then one now.

We have a question from Chris Saratowski of GE Asset Management.

Hi, guys, just a quick follow-up.

I apologize if it's already been answered but the growth of the client portfolio balance on an organic basis, stripping out those acquisitions, was what?

I'm just trying to reconcile what you guys saw versus ADP's number.

We do that at our (inaudible) in June we will probably give the client growth number and we'll probably try to take a crack at what it is, if the Advantage and InterPay acquisition did not happen.

But I haven't done it yet.

Thanks.

At this time we'll close the meeting but I want to say that you should be aware that certain written and oral statements made by the company's management do constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

These statements should be evaluated in light of certain risk factors which could cause actual results to differ materially from anticipated results.

Please review our Safe Harbor statement on page three of the press release for our discussion of forward-looking statements and the related risk factors.

At this time, I want to thank you for participating in the call and I hope you all have a good day and hopefully the sun in the east will stay and the snow will disappear.

So take care.

Thanks a lot.

Thank you.

This concludes today presentation.

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