沛齊 (PAYX) 2010 Q2 法說會逐字稿

Welcome and thank you for standing by.

At this time all participants in a listen-only mode.

During the question-and-answer session please press star one on your touch tone phone.

(Operator Instructions).Today's conference is being recorded.

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Now I'll turn the meeting over to Mr.

John Morphy, Senior Vice President and Chief Financial Officer of Paychex.

Thank you for joining us today for our second quarter earnings release.

Also joining us today is Jon Judge our President and CEO.

The teleconference call will be comprised of three sections.

A review of our second quarter 2010 financial results including comments and guidance for full year fiscal 2010.

An overview from John Judge and lastly a Q&A session.

Yesterday afternoon after the market closed we released our financial results for the second quarter ended November 30, 2009, and we have filed our Form 10-Q with the SEC which provides additional discussion and analysis for the results of the quarter.

These are available by accessing our Investor Relations page at Paychex.com.

In addition this teleconference is being broadcast over the Internet and will be archived and available on our website for approximately one month.

Here is a simple summary of the second quarter.

Our results for the quarter were in line with our expectations.

Our guidance for fiscal 2010 remains unchanged from that which we provided during our first quarter fiscal 2010.

This represents the first time since the second quarter of fiscal 2008 that we've been able to maintain our service revenue guidance.

While our results are not consistent with normal Paychex expectations, it's a welcome experience to be discussing stabilizing conditions versus weakening conditions.

The weak economic conditions continue to adversely affect our results causing unfavorable comparison toss the prior year.

The weak economy affects our ability to sell and retain clients, reduces our transaction volumes due few I employees in our client base and results in lower average investment balances in our funds held for clients.

Although the economy remains weak, our key indicators have stabilized for two consecutive quarters and our quarter-over-quarter comparisons continue to improve in fiscal 2010.

Some of the key indicators are as follows.

Our checks per client decreased 3.7% for the second quarter, compared to the same quarter last year.

This is an improvement over both the fiscal 2010 first quarter decline of 5.0%, and the fiscal 2009 fourth quarter decline of 5.2%.

Seasonally adjusted, we believe the actual checks per client number remained virtually the same during the second quarter.

Looking forward in comparison to the first quarter, we expect the seasonally adjusted actual checks per client number to remain constant throughout the remainder of the fiscal year.

Our new client sales of new business starts decreased 8% for the second quarter, compared to decreases of 13% seen in the first quarter of fiscal 2010, and 27% for the fourth quarter of fiscal 2009.

As expected, this indicator is normally the last to stabilize or improve.

Current conditions remain difficult due to the he'd consider it difficulties small businesses continue to experience in this recession, as compared to recessionary periods in the early 2000s.

Clients lost due to companies going out of business or no longer having any employees decreased 9% for the second quarter.

This compares to increases of 1% experienced for the first quarter and 19% for the fourth quarter of fiscal 2009.

Net client growth during the first half of fiscal 2010 declined by less than 1% which is similar to the first half of fiscal 2009.

For the full year, fiscal 2009, our client base declined 3%.

Client growth for fiscal 2010 will be dependent on the strength of the year-end selling season and our ability to retain clients during this period of time.

Throughout this challenging economic period we have continued to focus on providing excellent customer service, investing for our future, and maintaining a strong financial position.

Our investment efforts in health and benefits have been rewarded with greater than 50% growth in service revenues.

We are generating positive cash flow from operations and maintain a balance sheet without debt.

All of this positions us to capitalize on our opportunities as the economy recovers.

We will now move on to a discussion of our results as presented in the consolidated income statement.

I will give some highlights for the second quarter and six months ended November 30, 2009.

Payroll service revenue decreased 7% for both the second quarter and the six months to $351 million and $705 million respectively.

The primary reasons for the revenue decreases and information are key indicator were discussed in the opening comments of this teleconference call.

Human Resource Services revenue increased 3% to $132 million for the second quarter, and 2% to $264 million for the six months.

A more detailed discussion of HRS service revenue will be presented in a few moments.

Combined interest on funds held for clients and investment income decreased 32% for the quarter, and 40% year-to-date.

Operating income decreased 9% to $193 million for the second quarter, and 12% to $383 million for the six months.

Operating income excluding interest on funds held for clients decreased 7% to $180 million for the second quarter, and decreased 9% to $356 million for the six months.

Operating income excluding interest on funds held for clients as a percent of service revenues was better than expected in the second quarter.

We are optimistic about this key indicator for the last half of fiscal 2010, but also remain cautious since actual results will be dependent to some extent on net client growth for the last half of fiscal 2010.

Net income and diluted earnings per share decreased 10% to $126 million, and $0.35 per share respectively for the second quarter, and decreased 14% to $250 million and $0.69 per share respectively for the six months.

Human Resource Services revenue growth was affected by a couple of nonrecurring items.

In October we sold Stromberg time and attendance to Kronos.

This sale was due to the fact that the Stromberg products were no longer critical to us and were primarily servicing upper end customers larger than our norm.

We are still in the time and attendance business, will continue to be so and are using products that we either moved from Stromberg to us or products developed by Paychex.

While Stromberg operations were not material to our results the sale does have a moderate impact on our HRS revenue growth rates.

Also in fiscal 2009, we had billings for statutory retirement plan restatements that are required about once every six years.

Excluding both Stromberg revenue and the retirement plan restatement revenue our HRS revenue growth would have been 5% versus 2% reported for the six months, 9% versus 3% reported for the second quarter, and 2% versus 1% reported for the first quarter.

On the same basis, fiscal 2009 HRS revenue growth would have been 8% compared to the 11% that was reported.

Positively contributing to HRS revenue growth were the following factors.

Comprehensive human resource outsourcing services client, employees increased 5% year-over-year to 468,000 as of November 30, 2009.

Comprehensive human resource outsourcing services client base increased 8% to 19,000 clients.

Workers' Compensation client base increased 5% year-over-year to 78,000 clients as of November 30, 2009.

Our health and benefits services revenue increased 54% to 7 million for the second quarter and 46% to $14 million for the first six months of fiscal 2010.

Human Resource Services products that primarily support our major Market Services clients have experienced growth for the second quarter and the six months compared to the same periods last year.

Our major Market Services area with software as a service solution continues to be an area of opportunity.

Fluctuations in Workers' Compensation claims resulted in some favorability in PEO net service revenue during the quarter.

Somewhat offsetting the impact of the previously mentioned factors is the influence of weak economic conditions on the client base and fee revenue.

The most significant impacts have been to retirement services and comprehensive human resource outsourcing services.

Retirement services client base is flat compared to a year ago.

While comprehensive human resource service client base has grown, the rate of growth is lower than we have seen historically.

Our fee revenue related to retirement services client employees funds has declined for the six months.

The asset value of retirement services client employees funds has improved 43% to $10.3 billion as of November 30, 2009, compared to a year ago, as a result of the market recovery.

However, a shift in the mix of assets to investments earning lower fees from external money managers has more than offset the increases in fund balances and resulted in slightly lower retirement services client employee fund revenue for the six months of fiscal 2010.

Our interest on funds held for clients and corporate investment income continue to be impacted by lower interest rates.

The credit crisis in the financial markets caused a flight to quality investments resulting in lower available yields on high quality instruments.

In November we began to invest in select A-1/P-1 rated variable rate demand notes or variable rate demand notes for the first time since we had divested of these back in September 2008.

Variable rate demand notes are municipal issues with liquidity or letter of credit enhancement backed by the US Government agencies Fannie Mae and Freddie Mac.

Highly rated corporations and higher education or highly rated banks.

In September 2008 we divested our holding of these securities as a result of the market turmoil and began to utilize US agency discount notes as our primary short-term investment vehicle.

We have gradually seen improvement in certain money market sectors and therefore are beginning to invest in variable rate demand notes again.

We are currently earning approximately 18 basis points after tax for variable rate demand notes compared to approximately 4 basis points for US agency discount notes.

We continue to maintain a conservative investment strategy emphasizing maximum liquidity and principal protection first and then investment yield.

Our priority towards liquidity is to ensure we can meet all of our cash commitment to clients that take place as we transfer cash balances from their accounts.

Please refer to our most recent Form 10-Q for additional information related to our investment of funds held for clients and corporate investments.

We will now move to discussion of our balance sheet and related cash flow information as November 30, 2009.

In spite of the economic environment and volatility in the financial markets, we have maintained a strong financial position with cash and total corporate investments of $605 million, and no debt.

Our accounts receivable balance has increased from May 31, primarily as a result of timing of our billing cycles.

This is a normal increase we experience as we accrue W2 revenue throughout the year and bill and receive the money in January when the W2s are actually produced.

Funds held for clients as of the end of the quarter were $3.0 billion compared to $3.5 billion as of May 31, 2009.

Funds held for clients vary widely on a day-to-day basis and they average $2.8 billion during both the second quarter and six months representing a 10% decrease over the respective prior year periods.

Approximately 30% of the decrease related to the American Recovery and Reinvestment Act of 2009 or the stimulus package which reduced Federal Income Tax withholding tables.

For th full year average balances for client funds are expected to be down about 8%.

The stimulus package went into effect last April and the impact on a year-over-year comparisons related to that should abate in the fourth quarter.

The increase in cash used for client obligations for the six months of fiscal 2010 compared to last year was due to the day of the week timing.

Client fund obligations will vary based on timing of collections of client funds and remittance of those funds to tax or regulatory agencies or client employees.

Our stockholders equity increased to $1.4 billion as of November 30, 2009.

Our return on equity for the last 12 months was 36%.

Guidance.

Our guidance philosophy has been in place for a long time and that has been to provide guidance based upon what we are experiencing in financial terms and quantifying our expectations for the current fiscal year.

While we do not change the steepness of turn lines we do project current trends into future periods of time.

We believe it is extremely difficult if not impossible to accurately predict significant upturns, downturns in the economy and even more difficult to forecast increases, decreases to short-term interest rates.

We believe our guidance philosophy assists the many people developing and evaluating expectations for our future financial results.

They know it is based upon and they can if they choose to do so make their assumptions on what they believe are realistic assumptions of the future whether it be changes to interest rates, employment levels, et cetera.

That being said, our current outlook for the full year fiscal 2010 is based upon current economic and interest rate conditions and assumes these conditions will continue throughout the remainder of fiscal 2010.

Consistent with our policy regarding guidance, our projections do not anticipate or speculate on future changes to interest rates.

Projected changes in revenue and net income for fiscal 2010 remain unchanged from last quarter and are as follows.

Payroll service revenue is projected to decrease in the range of 5 to 7%.

HRS services revenue growth is projected to be in the range of 3 to 6%.

Total service revenue is projected to decrease in the range of 2 to 5%.

Interest on funds held for clients is expected to decrease by 25 to 30%.

Comparisons are expected to improve in the last two quarters of the year.

Total revenues projected to decrease in the range of 2 to 5%.

Investment income net is projected to decrease by 30 to 35%.

And net income is projected to decrease in the range of 10 to 12%.

Refer to the outlook section in our MD&A of our 10-Q for more information on guidance for full year fiscal 2010.

You should be aware that certain written and oral statements made by management 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 refer or review our Safe Harbor statement in the press release for our discussion of forward-looking statements and related risk factors.

At this time I'll turn the meeting over the to John Judge.

Great.

Thanks, John and thanks to everyone on the call for spending time with us today and happy holidays.

I'll just add a few comments and then John and I would be happy to entertain your questions.

When I look back on the quarter, I come one the same phrase that most of you did in your pre analyst call release and that phrase was solid quarter or better yet solid quarter with results that beat Street expectations.

We're obviously still fighting our way through the economic headwinds just like everyone else but as you can tell by looking at our results we're definitely focused, we're in the fight and we're managing the things we can manage quite well.

I'm very proud of our team as you can probably tell.

The fundamentals of our business are very strong.

Our client satisfaction remains the gold standard of the industry.

Our product line is second to none.

Our ability to attract and retain very high quality employees remains excellent and our relation to our key business partners are also excellent.

The major factors holding us back from normal Paychex record breaking performances are the same four issues that we've talked with you about before.

Those four are the unemployment rates, the interest rates, business failures, and new business originations.

Those four factors account for nearly 100% of the difference between performing at our business model of 12 and 15 and where we are currently executing.

To a certain extent, that's actually pretty good news.

It's good because we're not losing to competitors and it's good because those issues will abate.

We're starting to see some sign that's the abatement has started.

Look at unemployment.

While the national unemployment rate hit its highest point since 1983 in October at 10.2 before edging down to 10.0 in November, the average monthly job loss number last quarter was only 87,000 versus 445,000 the same quarter last year or 307,000 just the prior quarter.

Clearly getting better.

Our client's new hire reporting was still negative by 30% better this quarter than it was last and last quarter was better than the one prior the to that.

And check per client was also better this quarter versus last.

The Fed Fund rate stayed at essentially zero versus 1% this time last year but we'll be at rate parody by the end of December and we'll start to see some relief in terms of the drag that's been on our compares.

Both business failures and new business creation numbers are also improving as John mentioned.

This is all not to say that the world will be back to normal tomorrow.

But I like the trend n the meantime we'll stay focused on managing those things that we can manage and continue to invest in our business while delivering solid results for our shareholders.

As I look to the future, I'm pretty optimistic.

The labor markets will ease.

The interest rates will rise.

Bankruptcies and business failures will decline.

New business formation will get back on track and when that happens we'll be back talking about record breaking financial results again.

I'd be happy to take some questions now.

John as well.

Take any comments or questions that you have.

(Operator Instructions).

One moment please for the first question.

Our first question comes from Glenn Greene with Oppenheimer.

Thank you.

Good morning.

I guess the first question is just a view of sort of the upcoming selling season, what are you seeing, is the environment loosening at all?

What's sort of your best prognosis based on what you're seeing out there?

Do you have sort of a forecast where customer growth may end up.

I know you're modestly down thus far in the year.

Do you think you'll be flat?

Slightly down?

Slightly up?

I didn't hear who this was.

If you could tell me that first.

Sure, Glenn Greene from Oppenheimer.

On the selling season, we're just right into it, right.

The big part of our selling season is December, January.

So we're sort of right in the middle of it and it's a little bit early for me to tell you how I think it's going to play out.

We've done all the things that we need to do to get ourselves ready.

We're not seeing anything dramatically different in terms of pricing pressure or those types of things.

I mean, it's -- we've been -- it's pretty much what we've been seeing for the last I'd say six to 12 months.

So but again, it's a little bit too early to give you an indication as to how it's going to play out because we're right in the middle of it.

We do a amount of our business in December and January.

I can tell you that in terms of feet on the Street, amount of our territories that are filled, the training that we've done for our people, the preparation that we've done for the season, the relationships we have with our business partners, all of those things are in very good shape and it's just going to -- I think it's just going to boil down to how robust is the buying season because we're ready for the selling season.

And then I guess just overall, any way to sort of give us a frame of referring where retention is overall?

I know you gave us the metric on number of clients lost due to bankruptcies and that's improving but do you have an overall retention rate?

Are you sort of running 80% or somewhat below that?

We basically last year ended the year around 23% loss factor and probably still pretty close to that.

Finally for John Morphy, the back half margin expectations, implicit in your guidance relative to the first half is that margins fall in the back half relative to the first half.

Is that the right -- ?

We expect them to fall.

This is where we're cautiously optimistic.

Some of this is going to depend on how good the selling season is and what we do on client losses, but they will fall because that's normally what happens.

Usually the first quarter is the best.

And they fall every quarter after.

This increase from the first to the second is probably the first increase that could be in ten years so that was us watching our costs very closely, revenues stayed pretty close to what we anticipated and -- but I do expect them to fall a little bit in the next half.

How much I'm not exactly sure.

So we're cautiously optimistic.

I think we looked at guidance, was probably times I felt I've been close to the bottom of the guidance.

Right now we think we're real good with the guidance and hopefully towards the upper end of it.

Thanks very much.

Thanks, Glen.

Next question comes from Michael Baker with Raymond James.

Thanks a lot.

I was wondering if you could give us a sense for what you're seeing early read on health insurance premiums.

I've heard that they've kind of spiked up a bit and I was wondering in terms of the businesses that you participate as it relates to that, such as the PEO, if you could give us an early read on your sense of retention and then on the agency business which obviously showed real nice growth this quarter, whether you anticipate that slowing a bit given the affordability dynamic out there?

I would say on -- this is Jon Judge.

On the insurance premiums, there's no issue going on out there right now.

There's a little bill of -- you'll see a little bit of rate increase from time to time but it's -- there's nothing dramatic going on to talk about.

Our PEO business is very healthy.

We're actually in a growth mode right now in the PEO business and so there's nothing going on there that I would tell you that was negative in any way and the business itself is running pretty well.

We're pushing the PEO across the country a little bit more than we have in the past and as a result of that we're able to get some clients who have a bit of adverse healthcare selection that's not quite fair to them into our health insurance in the PEO.

So actually, right now the environment's not hurting us at all.

Thanks for the update.

Our next question comes from Jim MacDonald with First Analysis.

Your line is open.

Thank you.

You talked about the seasonal adjustment with the checks per client effectively making you flat with last quarter.

Could you explain that a little more?

Isn't there -- aren't the comparisons getting easier there as well so won't that improve naturally?

When I do a comparison year-over-year, I've got pretty much apples-to-apples.

When I want to take a look and see what did checks per client do in the second quarter compared to the first quarter I've got apples and oranges because in the summer you've got summer help.

Each one of these quarters has a little bit of individual wall city to it.

So basically we take a look ate and we understand some of the seasonal factors and the question we have is did checks per client, the net number, stay constant?

Now, at the end of the first quarter, we told you -- I took ten people voting, I might get ten different votes.

This time we looked at it and we're pretty sure that basically in looking at what we've got to adjust for the numbers stayed constant.

That's a good thing when that stays constant because that means the number isn't continuing to erode.

Okay.

So then when we're thinking about it going forward --

The comparisons will get better.

Comparisons will get better, okay.

Give you an example, it went from 5.2 to 5.0 in the first quarter.

Sounds like it got better.

But it was so close, we looked at it, probably were still deteriorating slightly.

In this quarter, was I think 3.7, we looked at it, we think it stayed the same.

But that's pretty much what normally happens.

Your point on things like check per client getting better over time, they clearly will.

When new hires get positive, when unemployment starts to fall.

When employees and clients stabilize and start hiring again of course those numbers will get better.

Just one more minor part.

The client attrition seemed to be up a little bit in the second quarter versus the first quarter.

Is there any maybe up, down 4,000 instead of down 1,000 in the first quarter.

Any reason for that?

Last year was down about the same.

When you get down to measuring within one or 2,000 clients on a 500,000 plus you're into a -- it is what it is and it's not a major shift.

Okay of.

Thanks very much.

Our next question comes from Gary Bisbee from Barclays Capital.

Your line is open.

Yes, thanks.

Nice job on the costs this quarter.

I guess two questions on that.

Number one, is there any risk that if employment and whatnot starts coming back more quickly and you just do a better job at signing that you've cut back too much and it's going to impact your growth or are you pretty comfortable that what you've done that sort of necessary per client growth you can ramp back at a pretty good productivity level quickly if that happens?

We're very comfortable.

I mean, that's one of the things that we spend a lot of time on and it's -- we have all of the officers in the Company that run the different parts of the business are all involved in the process and so what we're very careful about doing is making sure that we're cutting away things that will not impact anything in the near term or the medium term.

So we're pretty careful about that and it's gotten to a point where it's a very normal drum beat around here and it come back to something we've said before which is there's a lot of expense in our P&L that is there on the assumption that it's going to be earned by revenue.

If the revenue's not there then we take the expense out.

If most of the areas of our business we've done the planning for that before hand so we try to stay as flexible as we can.

Anything that is either revenue producing in the current year or in the short term, next one or two years, that we're careful to protect those investments as well.

Even in a year like this as an example, we added people into the sales front.

We continued our investments in the insurance arena.

There are lots of projects that we have going on in our IT infrastructure to improve the product line that we have today and put more feature function at into the product line as well as some of the things that we're developing in the future.

Those types of things we're really careful to protect and then the other things that don't have a direct impact are sort of nice to have things in this kind of environment because we're trying to keep full employment and we're trying to make sure that we're protecting our clients and our business partners.

We tend to cut the things that won't hurt us that much and our ability to bounce back we feel pretty comfortable about once the economy comes back.

Second question, on the costs.

I can appreciate the seasonal trend in margins but it would appear like the costs will go up fairly substantially and maybe slightly more so than the seasonal pattern.

Is there anything -- is there anything that you're planning to increase investment relative to the recent trend in the second half of the year?

Our margins do change as you go through the year.

What happens is first quarter the price increase goes in.

People either budget monies, they tend not to spend all of it and they really tend not to spend it in this marketplace.

Margins usually deteriorate a little bit as we start to staff up for the year end season.

The next period though becomes a very high revenue period in a way at the end of the -- in the selling season, we have a lot of year end costs, a lot of of overtime, the W2s go out, been booking that, booking the revenue so we have a lot of expenses, selling expenses go up so the margins go down and in the fourth quarter it tends to level out but you don't know.

So it's not a matter that we're looking at anything unusual going to happen in this last half.

I'm hoping that margins will be a little better than we're forecasting but when you're sitting on top of a big selling season, a big retention season, I think for us to change these numbers would be -- wouldn't be as cautious as the current requirement requires.

So we don't see anything happening that's unusual and hopefully it will be better.

Okay.

And then just one last one.

Just I guess the question's on the multi manager or the open architecture 401(K) platform that you rolled out a couple of years ago, can you give us an update on how that's going?

I saw in the 10-Q that revenue for retirement services was down year-over-year despite the big increase in assets.

Is that just that $3.4 million of the nonrecurring revenue you got last year or is the amount you earn on assets in that multi manager so much lower than the older system that that's part of the issue too?

Evolution here.

I think what we've got to get to the point to start saying that asset base fees don't matter that much anymore.

It didn't that disappeared.

It's just they don't matter as much.

The fund balances went up significantly.

Now, that should have raised the fees a lot in normal terms but it didn't because two reasons.

One, more and more of our clients are choosing fund management situations where we don't get any basis points.

But some of that is covered in the fact that the fee for ma plan is higher.

So it's almost like we're looking at chocolate and vanilla.

The vanilla is going to come down a little bit but some of it's over there in the chocolate.

It's basically moving around and we've got to go back and look at -- I don't know the exact number of how much in assets that I need to have that offsets the basis points because the fund charges more.

The market doesn't affect it as much as it used to and the real issue on 401(K) is you're in a marketplace where I think we're doing pretty well in view of what's going on the markets out there.

Small business, again, every time you go through one of these shocks, similar to the shock in the Earl 2000s, their lack of trust in this type of vehicle in the system starts to diminish a little bit.

We're holding our own.

The client base has stayed pretty constant around 50,000 so revenues in 401(K) are only up slightly in total and we'll keep continuing to push it but how this money comes in is just changing gradually but he we knew it would and if we had not changed these other products we would not maintain our number one status in 401(K).

Thank you.

There's one other important element on this thing and it sounds like you are sort of around it.

And that is when we made the investment to give us the ability to handle open architecture, handle some of these conversions, the time that we made the investment we were trying to give ourselves the opportunity to get involved with not only the new clients that were coming in that already had 401(K)s and get them to convert to us as their bookkeeper but also to convert some of our existing clients.

In the old way we had fixed funds that we don't do that.

With the open architecture we can take any.

What we didn't foresee though when we did that was these economic headwinds that we've been struggling with for the last couple years and as you would guess 401(k) originations and new clients is not as robust as it was in the past but we're able to cover that easily because we've got all of these conversions.

The good news about all of this is that once things start to get back to more of a normal environment we'll have the conversion business and we'll have the new business that comes back up to its normal level and we'll be in a much better place.

Our next question comes from David Grossman from Thomas Weisel.

Your line is open.

Thanks.

If I could just go back to that quarter for a minute, looks like the payroll number was down just under 7% for the quarter and sorry if I missed this in the prepared remarks but can you just help walk us through what the mechanics of that are when you bundle in the decline in checks per client, the price increase, and the change in the customer base just so we can understand kind of what the moving pieces are.

In that period the change in the customer base is really off the prior year 3%, didn't change much in the period.

You got checks per client down 4%.

And you got a price increase of 3%.

Then you got other stuff moving around because on the checks per client the revenue model doesn't stay exactly the same.

So you want to kind of look at every one of these pieces and you can look at them but you can't -- you're not going to be able to add them up and get to an exact number and we can't either.

It moves around.

The pieces move.

You've got the other element we're not going to comment too much on is what discounting is doing because of the competitive nature of the discussion.

In terms of the client growth, when you go back into prior cycles, when client growth started to improve was it mostly from new business creation or did it really just start with lower attrition in the base from bankruptcies, among other things?

Lower attrition starts first, then the selling comes last.

But it's both.

They're both affected by the same thing.

I mean, the rough economy is affecting both the creation of new businesses which is a big part of our new clients, and the pressure on existing clients, and causing them to go out of business.

Different perspective, slightly.

For most of this cycle last year, if you said what was the bigger issue on client growth, losses or not making sales, it was losses.

That's starting to shift.

Right now I wouldn't say it's losses is the bigger piece.

They're starting to level off more.

The loss thing is starting to get a little better and the sales thing hasn't started to move too much yet.

The difference on that is a lost client is a lost client.

I don't sell a client I also don't have some of the selling costs.

Theoretically the lost client is a bigger hit, right, because theoretically a largest piece of business.

Not always.

That's helpful.

Thanks very much.

Our next question comes from Tien-Tsin Huang from JPMC.

Your line is open.

Check your mute button.

Our next question --

Can you hear me okay?

We can hear you.

Sorry, sorry about that.

I also wanted to ask about payroll revenue growth.

More on sequential trends.

Historically you typically add, just looking at the model about $12 million or so sequentially in 3Q over 4Q.

Obviously last year was different.

Do you think we get back to more normal sequential growth in the third quarter given some of the trends you see?

Don't know.

Hope so.

Is the delta I guess some of the discounting that's going on, the key selling season?

Is it the production of new client adds?

Just trying to better understand what the swing factor would be to get to the lower end of your payroll revenue guidance for the year.

I don't think there is necessarily a swing factor.

I think we think we're going to be pretty close on the revenue number but we don't give quarterly guidance and we're not.

It will be what it's going to be.

We think we have a good idea of what we think it's going to be but we don't know.

We haven't seen improvement.

Stabilization is nice.

Don't misread me.

Obviously we know the more we retain the better off we are and the more we sell the better off we are.

And we think we've got realistic ranges of what those will be.

Hopefully we've gotten to the point where we don't fall outside our ranges but we normally don't fall outside our ranges.

We're pretty narrow here.

I don't know how we would get in any narrower.

I guess it will be somewhere between last year and history.

Discipline on pricing going into the key selling season, has there been any change in the strategy there?

No.

I mean, we're pretty much where we've been and where we've stated we are which is we as a Company have done a pretty good job of managing discounting through the years.

And it's sort of a careful balance between giving enough delegation, authority delegation to the sales reps so that he or see can do what they have to do at the point of sale with the client but also not have it so lose that you loose control of pricing.

We've been actually exceptional in the way that we've managed it.

There's clearly been more pressure on discounting over the last four to six quarters I would say and there's nothing that I've seen so far to tell me that it's abated by any dramatic amount and it's not getting any worse but it's not getting a whole lot better either.

But relative to our position it's the same as it's always been which is we manage the amount of discount that is -- that happens by every territory in the country but by the same token if we get accosted by competitors with trying to stealing market share which using price as a vehicle we will not allow that to happen.

I haven't seen anything to that tells.

I really don't have any concerns about that.

I would like to see us get back to a more normal environment sometime soon but I don't see anything that tells me we're about to get even worse than we are.

Very good.

Thanks a lot.

Happy Holidays.

You too.

Next question comes from James Kissane from Bank of America.

Your line is open.

Thanks.

Jon, did you quantify the positive impact in the PEO business from I guess the upside in claims.

It's about $1 million.

We knock about these numbers.

The numbers shift from somewhere between minus $2 million to plus $2 million.

First quarter is watt like a 1.5 million.

Very small numbers but sometimes they move that revenue number just a little bit.

I was just surprised that you flag it if it was so small.

It's something you guys always ask but that's okay.

Jon Judge, any thoughts on emerging software and Internet based competitors, particularly the year end, are you seeing more participation there?

We are not.

But again, you've got to remember who we are and what market we serve.

The markets that we're in have a tendency to segment themselves between those clients that want to help and those clients that are perfectly willing to do it themselves.

The majority of the people we deal with are people that don't want to do it themselves.

They don't want to have anything to do with having to watch rate changes and the rest of it and so they tend to come to us for peace of mind reasons rather than anything else and they are in very good comfort levels when they know that they strike a deal with us, we take care of everything that needs to be taken care of for them.

If there are any mistakes made we pay for those mistakes and they focus on their business.

There's nothing that I've seen or that I'm aware of that would suggest that the landscape from that vantage point is changing any.

John, kind of a picture question.

So much uncertainty out there around healthcare and taxes.

Seems like this recession small business has gotten hit much, much harder than in past recessions.

You sound optimistic but there seems to be somewhat more uncertainty out there.

The piece that most people don't get in small business is the amount of churn that happens.

There's a lot of businesses that fail every year but there's a lot of businesses that start every year.

And that's always been extremely positive for our business.

The thing that's happened in this recession that's different than most is this whole credit crunch, when credit dried up and the areas that affected a lot of the people that started businesses would be things like second mortgages on their home or small business loans from regional or local banks, all of those credit markets dried up and it caused an issue there.

But when we look at the things that are hurting our business and they're all fundamentals and they're all essentially economic headwinds, they're not issues about competitors.

They're not issues about new offerings.

They're not issues about shifts in the buying habits of the client base.

That's why we get -- why we're optimistic is when the economy comes back, I mean, there's nothing that I know of or I've seen that would convince me that when the economy turns that new businesses aren't going to start forming again.

I mean, it's almost impossible to assume that they wouldn't.

There's nothing that would convince me that business failure rates that are high right now wouldn't return back to the normal rate.

So when we look at the fundamentals that are hurting our business, those are the things that to me you can argue about how long it will take for the world to get back to where it was and that's a fair argument by the way, but that it will get back, that interest rates will rise, I would be happy to have a bet with anybody on that.

I'm not so sure I would want to bet that it was time based.

When it would happen.

But I'd have that bet with anybody that unemployment will drop from 10.0 or 10.2.

million that bet with anybody.

So that's where -- if I felt like we were losing to a better mouse trap I would have much more serious concerns.

But that's not what's happening.

Okay.

Great.

I appreciate it, thanks.

Next question comes from Tim McHugh from William Blair.

Your line is open.

Yes, thank you.

You commented on the change in checks per client if you adjust for kind of the some of the seasonality, at least on a sequential basis.

Can you comment at all on a similar type of basis what new sales to new business is and clients going out of business did on a sequential basis?

We gave you that.

We told you what the things did quarter by quarter, basically said that checks out of business went from 9 to 1, plus 9, I mean decreased.

So we gave you all that.

All right.

And then can you also comment on the pricing environment right now if there's been any changes in that regard.

No, we just went through that with Tien-Tsin.

The pressures in terms -- I assume you're talking about discounting?

Yes, well, broadly, the pricing, discounting and any other factors, I guess.

Well, the price increase which we covered in the last call went in very similar to all the prior years, so there was no real big issue there.

The yields look like they're going to be the yields that they normally are.

On the pricing pressure in terms of new business sales, they are -- they're more aggressive now than they've been historically but they're no different than they've been in the last four to six quarters.

So that world looks like it's going to -- it's stabilizing.

If anything it will probably get better.

So there's really nothing going on there that has us any concern.

We're obviously on the pricing side of it we're extremely focused on that.

I'm a big believer that once you give price away it's awfully difficult to get it back so we're managing that in an extremely disciplined way.

But as I've said in the past, with that said, I'm not going to let somebody come and just take our business away from us on price.

So hopefully craziness won't happen.

Next question comes from Rod Bourgeois from Bernstein.

Your line is open.

I'm just tried to get a better understanding of what drove the payroll revenue growth result which was very, very slightly worse than in the prior quarter.

What I'm trying to recognize that with a number of drivers that seem to show improvement.

If you look at checks per client, if you look at the number of clients lost to bankruptcy, if you look at the new client sales growth, if you look at client attrition.

All of those numbers seem to improve or at least they were less bad yet your payroll revenue growth was essentially the same year-over-year growth number as last quarter.

So is there something else that we're not seeing in the drivers that sort of accounts for the flattish year-over-year growth number versus last quarter and the overall payroll number?

No, payroll revenue is still worse than we thought it would be when we started the year and that is because checks per client started off a little bit worse.

The two quarters aren't always the same.

The summer's got a little more robust from some seasonal help.

Don't always get sequential things.

I think you're just trying to get -- you're looking for something that's not there to see.

It is what it is and these numbers can move a little bit and just because they move a little bit doesn't mean something bad happened.

Right.

So would you say it's a seasonal -- the seasonality was just less --

Inside noise level.

It's like John sometimes tells me to do the forecast.

You've got to get closer.

I don't know how I would get any closer than that.

I guess I understand that.

If I look at -- I just listed four drivers that all get better quarter-to-quarter and I've yet to hear one that got worse quarter-to-quarter unless we assume it was something related to indict counting which you're kind of saying discounting hasn't really changed so I'm trying to pinpoint what other factor may be out there.

There isn't any other major factor.

Too close to call.

On the sales force front.

Can you talk about how you might be weighting your sales investments right now in the small businesses versus the mid-market?

Are you more focused right now as an example maybe on the mid-market given soft small business formation out there?

Or do you kind of have the normal balance between small versus mid-market?

We go through this every year when we're doing our planning and it's -- we're got sort of a history, particularly in the small business environment, of adding salespeople every year.

And dividing territories or adding new territories or trying new things like this year for example we've got more emphasis on some of the tele sales investments that we're making, using people to cover remote territories or helping expand coverage in large Terries with the addition in.

Each year we make those decisions and our investments right now, we're clearly making investments in our major markets business because the major markets business had a terrific year last year in all regards, a normal year.

They grew almost 20% I think on the par basis and so we made investments there.

They're having another good year this year.

We're making selected investments in our HRS business.

Insurance is an example.

We continue to make investments in it.

And we are making investments in the core business as well which is our small business.

Each year we take a look at that and we make decisions on it and we move forward.

Our history, our culture has been to fuel our growth with feet on the street and we've done -- we did it again this year and in all likelihood we'll do it again next year.

On a pound per pound basis, is your weighting of investment a little heavier right now in mid-market.

Yes.

We have a lot more people in my core business, right.

So if you take the number of people that I add to mid-market versus the number of people I add to core, deeded divided by the number of people that are in there.

Next question comes from Ashwin Shirvaikar from Citigroup.

Your line is open.

Good quarter, first of all.

We're seeing some pretty sharp entries coming through.

Will this start benefiting the tax pay balances or is it not really a material impact?

If you could comment on that.

It will benefit but I don't think it will be substantial.

Okay.

And any view on sort of items such as bonuses and other factors that affect the overall balance?

The bonus season only lasts about four days, December 29 to January 2 or third.

We're eagerly looking forward to see what it does because a year ago it was a premonition.

It basically the dollars dropped 13% but the checks dropped 25%.

So that told you what those owners were getting ready to do.

Okay.

And I guess my last question is can you comment on the CapEx trends, if you could talk about long-term.

Major changes, we don't have anything that's unusual.

We can't get to a material number here.

We've got over $600 million of cash and a big change in CapEx would be $15 million.

Thanks.

Happy holiday.

Thank you.

Same to you.

Next question comes from Kartik Mehta from Northcoast Research .

I wanted to ask a question about the selling season and if you're going to change how you sell this season compared to previous seasons.

I he no you have a new head of sales and obviously the economy's a little different so any changes on how you will go to market this season?

Not anything dramatic.

I saw that you got your name changed there.

Not anything dramatic.

The new head of sales is by the way is on boarding extremely well.

He's been very, very busy.

He's traveled all over the country.

He's met with all of the regional managers of all the sales forces and spent a lot of time in the field, lot of time analyzing where we are and where we're not quite frankly and within the next probably month or so we'll be able to see exactly where his feeling is relative to things that he would like to start maybe making a different spin on.

But as it relates to the selling season, obviously when you have that much of your sales in a two month period, we traditionally get very geared up for it.

We do a lot of things relative to best practices approaches to how to spend your time in that two month period, all of the sales collateral that we make available to the sales reps and so on and so that's no different now than it's been before.

When we got into this tough economy, we like probably every other Company saw that some of the normal flows of our revenues were going to be disrupted and so we started doing things, getting focused on areas that we maybe hadn't spent as much time on before because they might have been lower yield activities or what have you but in the absence of doing nothing you end up trying to turn over every stone.

So we already started that process and since Del came in I think he's done an exceptional job of rallying with the.

And just getting a very solid, very detailed approach towards go-to-market through the sales season so that we don't miss any opportunity that's out there.

But in terms of are we going to new channels, are we doing -- have we created new bundles or new offerings and so on, the answer would be no to that.

I think we know the market pretty well but I would say we're pretty grossed up and ready to be as productive as we possibly can in the next couple months.

So what percentage of sales happen in December and January, John?

You talked about it's a significant number.

What percentage of sales would happen?

20 to 25% happens in January.

Okay.

And then new business starts obviously that's one of the keys to new sales.

Any way to quantify what normal new business starts have been and what they are currently?

No, we just know what we told you.

They were down.

The problem with new business starts is there's no metric that I know of in the United States that can measure new business starts because there's no way to do it.

I mean, you could count the new federal IDs that are formed.

All we can look at is say okay we don't think market conditions are changing.

We know that because we look at our other sources of business.

And then you go look at new business starts and we say okay the new business we got, how many did we get from new business starts a year ago compared to now and last quarter it was down 8%.

It's been down more than that.

And that's the best indicator we have.

Unfortunately, I wish there was a better one, but I don't know of it.

So --

We know in gross terms, though.

We know it's somewhere 800 to 1 million new business starts every year.

We have a pretty good understanding of what percentage of those businesses outsource.

We have a great understanding of which ones come to us.

We can watch what's happened to us in the period in terms of what percentage of those businesses that started came to us as a client which kind of gives us a feel for the yield that we're getting out of those businesses and everything that we can see tells us that the issue is not the percentage of new businesses that are converting to us.

The issue is the number of new business that's are starting and that number as John said, there's not a bureau of labor statistics number that will tell you exactly how many started but we can get close approximations and we know that those numbers are down and we know that our yield for the numbers is remaining constant.

Our issue is just the number of businesses that are starting.

And just one last question, John.

You talked a little bit about your portfolio and you're starting to invest in variable demand notes.

Any changes to the portfolio going forward or how aggressive you might get in trying to get into fewer basis points.

We really haven't gotten more aggressive.

The instruments we want to invest in have gotten safer.

Better way to think of it.

The move we made was about $350 million so it wasn't small.

For us to really move this the rate's got to go up.

Thanks, John.

Appreciate it.

Our next question comes from Jason Kupferberg from UBS.

Your line is open.

Thanks.

Hey, guys.

It appears increasingly likely that the worst is over in your business coming out of the cycle which is good.

So we're really starting to get a lot more questions from investors regarding the post recession growth profile of the business.

I would love to get your latest thoughts in terms of what an achievable top and bottom line growth model excluding float might look like for the Company in a more normalized macro environment.

Passing reference to the 12 and 15 model.

Is that something you guys are highly confident you guys can reattain when we truly come out of this downturn?

Well, the tough part, Jason in this as I mentioned to you, there's no question in my mind that these indicators are going to turn.

The fair question is is how long is it going to take to get back to normal.

But when we look at the business and we look at the things that are causing us issues, and by the way these aren't sort of.

Check per client numbers, frequency of payroll numbers and so on and we look at what's happening to us and whether it's happening to us because we're losing to competitors, or because the market has stopped outsourcing, or whether it's the things that are causing us the consternation of the economic headwinds and then we take a measure of that.

As I mentioned when we finished last year and we took a look at how we finished, and then we took a look at what a normal year would have been for us, we accounted for almost 100% of the difference being in those four things I mentioned earlier.

If the economy returns to the way the economy was, there's nothing that I can see that would tell me that we wouldn't be back in the 12 and 15 world.

Okay.

Okay.

That's helpful.

Is there's a lot of wins in there.

That's why the important thing to us is if we were losing share to competitors, if there was a major shift in the marketplace going from a fully outsourced model to a fully in sourced model or a do it yourself model, that would be a different issue.

That's not going on.

Okay.

Okay.

Latest thoughts on use of cash, besides the the dividend obviously?

Again, not to lose it.

We're still looking at everything.

The dividend is as sacred as anything can get and keep looking at acquisition opportunities.

Haven't turned over the right one yet but I think cash is still very valuable in this environment, until where this environment's going you're going to watch it carefully.

We're also not at a point yet Jason where we've got like we were a year and-a-half ago where we felt like we had too much cash on the balance.

Improper to have that much cash on the balance sheet.

We're not quite there cigarette yet.

Last question, thoughts on longer term diversification of the business.

Also from a geographic perspective, I know it was several years ago at least that you made kind of a test run into Germany and I don't think it really became that material.

Should we read that as a sign that you guys are really going to just strictly stick with the US on a medium to long-term basis, based on what right now?

I'll leave you to guess whatever it is that you would like to guess.

I mean, we're not going to talk to you about things that we're working on until they're ready to be talked about but if your point is have we landed on a strategy that says we're going to stay exactly where we are and just try to execute the out of it that would not be an accurate statement.

What about the geographic angle, though is there the potential for International expansion?

Yes.

What I've said in the past is the thing that will drive that is when the geographic opportunity presents itself in a way where the return to us, short, medium term return to us is better than the other uses of that investment.

Both people and dollars.

So for example, the issue on Germany is not that Germany has not been successful.

Germany has done fine.

I mean, we learned a lot from the Germany experience.

We've grown Germany faster than we've grown any city that we opened in the United States.

All of that piece was fine.

The issue about the further expansion in Europe was not that.

The issue was that we had much better returns coming out of the investments that we made in the insurance business as an example.

So as long as we continue to see things that make more sense to us to take that incremental investment dollar.

Then we'll do that.

If we had unlimited resources both financial and people maybe we would be International and do some the other product things that we're doing locally at the same time but we don't have that luxury.

Fair enough.

Thanks for the comments, guys.

See you, Jason.

Next question comes from Mark Marcon from RW Baird.

Your line is open.

Good morning, John and John.

Hey, Mark.

Just wanted to ask, delve into the expense profile, both in terms of what happened from Q1 to Q2, and how we should think about it going forward.

On the direct expenses, it looked like you had a little sequential decline which isn't normal based on prior seasonality.

Are you becoming more efficient in terms of servicing the clients or how should we look at this to direct expenses and then I want to come back to SG&A.

We're watching all our expenses.

We're becoming a little more efficient, yes.

And we also have walking through that conversion program, we put in the new core advanced process which had some bubble costs which we're getting out so I don't -- I think we're -- I wouldn't say we're doing much different than we do even in good times.

Watch our costs aggressively.

We don't do anything stupid.

We make sure whatever we do, we do not sacrifice customer service.

Well, you mentioned the core sad advanced process.

How much of the improvement that we saw this last quarter was due to that?

Do we still see some more improvements coming.

Again, I think there's no magic bullet here.

Everybody is hankering down.

The only place we don't hunker down is selling costs.

We watch the selling costs.

Doesn't mean we don't watch them.

We're not trying to lower them.

All the other areas we're very cost efficient.

Then with regards to the SG&A, you had a bigger than normal sequential decline there.

You got, first off, Mark, we talked about this before, I is I never look at SG&A in the operations together.

I look at one number.

Now --

Yes.

The only reason I've got two lines is I think the SEC wants us to have two lines.

The problem we have, this was true when I got here, I didn't have a better solution to put it in perspective, in a branch there's not selling.

There's G&A in a branch.

Normally I would think a branch didn't have any G&A in it.

What's G&A and what's the branch.

And it's very difficult especially since we move stuff into the branch, back out of the branch, give you an example.

Payroll online used to be centralized.

Now it's in the branch.

The exact SG&A definition of that change, possibly.

You take IT.

There was a time when all the IT was in a branch.

Now all the IT is centralized in Rochester.

So I don't look at those two.

The only reason we don't give you the selling number which would be the most beneficial number is because of competitive reasons.

When you look at SG&A, don't look at SG&A.

Lump the two together.

I know that takes away a comparison but if you're going to look at something and say that got a lot better when it might just have been a classification shift.

What I was trying to understand is on the SG&A, that's -- I mean, I'm assuming that all of the commissions go in there and so I was just wondering is the the primary driver just reduced commissions because new sales are down?

Or -- commissions are an element but they're not the primary driver.

When we think about sales going forward, I imagine that right now most of your salespeople are running below normal quota which would suggest that you have significant excess capacity.

Does that mean that when things start getting better we won't necessarily have to add as many salespeople to still achieve the growth March targets we would like to.

Sometimes it takes more effort on a salesperson when he's not selling as much.

Our sales force is geared to sell for.

They're working their butts off right now.

Isn't because they're loafing or they got idle time.

It's because they've got to chase business harder and some of the business just isn't there.

Got it.

Thank you.

Next question comes from Kris Mammone from Deutsche Bank.

Your line is open.

Hi.

Hi, guys.

I guess following on the macro discussion, looks like from the monthly data that job losses could be poised to turn into job gains any time here.

And I don't know, I guess given that it seems that larger organizations in general seem to be more flush with cash in this environment after held back and given all the ongoing pressures that the small business world is facing, I mean, just from your perspective do you think that the early stages of this jobs recovery that most of the hiring will go the way of larger businesses at the expense of smaller businesses?

How are you thinking about that?

That's an interesting question.

I was actually pretty pleased to see that President Obama is now -- has now gotten focused on small business and getting focused on the banks extending credit to small business and that there's a belief, a general belief from what I hear and read that Washington is now getting focused on believing that some of the jobs recovery is going to come out of small business, not out of large business.

But our crystal ball isn't any different than yours.

Some of the things that you hear, Inger .

When the recovery starts there's a question as to whether or not large businesses will start hiring aggressively or even at all or will they wait and wait to see whether or not it's a blip on the radar screen or whether it's more permanent.

I think the credit part will have more to do with small business formation getting back to normal rates than anything else.

But I would feel comfortable, I believe that most of the job recovery or I hope that most of the job recovery is going to come in the small and medium size businesses as we would be normal but we'll have to wait and see how that plays

Okay.

Last question, just on the guidance and the selling season.

I guess what sensitivities are built into perhaps a result in the key selling season being below your expectations into the current guidance?

Ask.

We were basically slightly conservative in what we're expecting.

We did not get -- we are not going to spend before we see it.

So we're cautious.

We're optimistic.

But careful.

Okay.

That makes sense.

That's what I was looking for.

Okay, thanks, guys.

You're welcome.

Once again, to ask a question, please press star one.

Our last question comes from Sasa Zorovic from Janney.

Your line is open.

A couple of questions here.

One would be firstly sort of talked about this briefly, just kind of really want to sort of focus on it.

Downturn is a terrific opportunity to waste.

We look kind of hopefully at some point post this downturn, you say the rates go below 10% and what not.

When we look back at Paychex and say you how has the Company been different.

Did you execute very nimbly.

Specifically that stands out.

How we performed through the recession, is that your question.

How you have come out of the recession.

Was it by executing nimbly across the board or was there a couple specifics things that you would say stand out as those are the two specific things you did to take advantage of this.

Better position in the market and so forth.

Sure.

I'll take a stab at it.

Sounds more like a question for a magazine article.

What I think about what we did as we got into this recession, is we got our team together and we did the best job that we could to make sure that we got as much of our expense profile agile and nimble as we possibly could and we got all of our modeling that we were doing, financial modeling that we were doing inside the Company to give us the ability as best we could to see what was in front of us so that we could react so as we came through this period we didn't find ourselves in a situation where we were losing revenue in the majority of the case through things that we couldn't control but kept all the expense up there and our shareholder returns so we tried to stay as nimble as we could.

He we tried to do as much analysis as we could on the marketplace, on our performance in the marketplace, not being defensive about where we were strong and where we were web weak and basically try to control those things that we could control and keep ourselves as financially stable as possible so that when the world started to turn that we would be as well positioned or better than anybody else in the marketplace and we stayed focused on that.

I think the story that will be written when this thing is finished, sort of climbs its way out will be one where we were realistic about what we were facing.

We did the best job we could to manage the expenses, protect our employees, protect our clients, protect our business partners, protect our shareholders, and then when the thing started to turn, that we were in the best position to accelerate our business, based on that turn.

And perhaps even most importantly is not kill the important investments that we needed to keep us strong through this period and more importantly to keep us strong when the period ended.

Thank you.

My second question here was specifically competition, you mentioned it quite briefly here but there hasn't really been much change.

Would you say sort of to that that you have been actually gaining share or do you think it just hasn't really shifted much.

Frustrating discussion for me because this is one of the industries, and I guess luckily there aren't that many of them but this is one of the industries where it is extremely hard to get share data.

Essentially you've got two large players and a bunch of medium and small players in the marketplace and so the two large players are obviously us and ADP.

We know very well what we're doing and we know almost very well what they're doing so I can watch how many clients they take from me every year, how many I take from them.

I can see what's happening relative to the Street price, the average selling price.

Based on that we're in pretty good -- we feel pretty good that we continue to hold and take share.

Now, again, it's the industry, this is one of the industries where there's not a lot of good share data out there so it's kind of difficult to say exactly what's going on but just based on us and our major competitor we're in pretty good shape relative to how we're doing versus them and we'll stay focused and just keep trying to do that.

Terrific.

Thank you very much.

We have no further questions at this time.

Once again, if you would like to ask a question, please press star one.

Sounds like there are no more questions.

I want to thank you again for your interest in Paychex.

We are glad to see things stabilize.

We feel pretty good and I wish you and your families the best holiday season.

So take care and good luck.

Thank you.

This concludes today's conference.

You may disconnect at this time.