沛齊 (PAYX) 2014 Q2 法說會逐字稿

Welcome, everyone and thank you for standing by.

At this time all participants are in a listen-only mode until the question-and-answer period.

(operator instructions)

Today's conference is being recorded.

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

And now I'd like to turn your conference over to Martin Mucci, President and Chief Executive Officer.

You may begin, sir.

All right.

Thank you.

Good morning, and thank you for joining us today for our discussion of Paychex's second-quarter fiscal 2014 results.

Joining me today is Efrain Rivera, our Chief Financial Officer.

Yesterday afternoon, after the market closed, we released our financial results for the second quarter ended November 30, 2013.

We will file our Form 10-Q, which provides additional discussion and analysis of the results for the quarter tomorrow, on Friday.

This teleconference is being broadcast over the Internet and will be archived and available on a website for about one month.

On today's call I will share some thoughts on results and update you on how we're doing in operations, sales, and product development and Efrain will review our second-quarter financial highlights and discuss our full-year guidance.

And then we'll open it up for your questions or comments.

Let me start by saying we are pleased with second-quarter results.

We have made good progress toward our growth goals.

We've continued positive momentum in sales, new product enhancements and geographic expansion.

Client satisfaction and retention remain at record high levels for Paychex and Efrain will go into more detail on the financial results and comparisons; however, I'd like to provide you with some highlights from my perspective.

Total service revenue, and specifically payroll service revenue, showed good growth of 7% and 5% respectively.

Payroll service growth at 5% is compared to 2.5% or 2.4% growth in the first quarter.

HRS revenue continued to grow at double-digit rates in the second quarter as we continue to experience good success in selling and retaining 401(k) as well as HR outsourcing services under both the PEO and ASO models.

Our checks per payroll have improved for 15 consecutive quarters and in the second quarter experienced similar growth to the first quarter.

Our execution in surface operations has continued to be excellent demonstrated by our exceptionally strong client satisfaction results.

We believe that this industry-leading client service that we provide combined with the innovative technology sets us apart from our competition.

From a sales perspective, we saw continued positive momentum during the second quarter particularly in core payroll, SurePayroll and HR service areas.

And we are well positioned for our important selling season that we're in now.

We continue to grow revenue per unit, as well.

From a technology perspective, continued investment in our software-as-a-service solutions and mobility offerings position us well for the long-term growth.

We have market leading SaaS solutions leveraging the latest technologies and continue to invest significantly in online capabilities as well as our mobile applications.

Whether you are a client or a client employee, our mobile app provides a clean and efficient access to all of your information with one to two clicks as well as the ability for clients to start, edit and submit their payroll with the best mobility app we believe in the marketplace.

We have further broadened our SaaS solutions portfolio with the launch of Paychex Accounting Online.

This cloud-based accounting service is being delivered through a strategic partnership and investment we made in Kashoo, a leading provider of cloud accounting services.

Our entry into the cloud accounting market reflects our commitment to provide small businesses with the products they need to succeed.

This complements our industry-leading payroll and HR solutions by expanding our suite of services designed for small businesses and midsize businesses and entrepreneurs.

This product will also further enhance the strong partnership we have with the CPA communities.

In the past few quarters I have talked about our new products designed to help our clients manage the compliance requirements of the Affordable Care Act.

More importantly known as healthcare reform.

We continue to execute the rollout of our new product offerings in this area including our Paychex employer shared responsibility service, a more robust monitoring service and our Paychex benefit account.

We continue to see healthcare reform as an opportunity and have worked to get a great deal of information out in front of our clients as they work through all of the requirements of the Act.

This selling season our sales force is able to present options to clients and help them determine what will be beneficial for their businesses.

During the second quarter we completed an acquisition of a payroll service provider in Germany which we mentioned during our first-quarter call.

While our operations in Germany are immaterial to the overall Company results right now, we continue to expand our global footprint with this acquisition and our startup operation in Brazil and drive for more presence and growth in the markets that we serve.

We are pleased with the progress that we have made in product development and expansion as well and we continue to execute on what we have brought to market.

We have also continued with the shareholder friendly actions.

Our quarterly dividend is now at $0.35 per share increased from $0.33 back in July.

We have also continued to repurchase Paychex stock opportunistically and we have repurchased approximately 4 million shares of common stock for a total of $159 million in the first six months of fiscal 2014.

Recent results released from the Department of Labor are encouraging.

These results indicate, we believe, a continued addition of new jobs and a moderation in the unemployment rate.

This is indicative of the US economy as it continues its broad and steady job growth.

We have seen positive impacts in our checks-per-payroll growth.

And this bodes well for continued positive trends in our business.

In summary, I am pleased with what I see as solid results for our second quarter and continued momentum for the first half of fiscal 2014.

I appreciate the great work of our Paychex employee teams across the country and in Germany and Brazil, and I appreciate all the work that they're doing in service and sales operations.

I will now turn the call over to Efrain Rivera to review our financial results in more detail.

Efrain?

Thanks, Marty.

I'd like to remind everyone that during today's conference call we'll make some forward-looking statements that will refer to future events and as such involve risks.

Refer to our press release on a discussion of forward-looking statements and related risk factors.

As Marty indicated, second-quarter financial results for fiscal 2014 represented sequential improvement from the solid start we had for the year.

Here are some of the key highlights of the second quarter and the six months.

I'll provide greater detail in certain areas and wrap with a review of the full 2014 full-year outlook.

Total service revenue grew 7% in the second quarter to $601 million and 6% to $1.2 billion for the first six months.

Interest on funds held for clients increased about 1% the second quarter and was flat for the six months to $10 million and $20 million respectively.

Fluctuations were driven by an increase in average investment balances offset by the impact of continued lower average interest rates.

As you saw on our interest on funds, though, this was the first quarter in a long while we were actually up slightly.

Expenses increased 7% for the second quarter and 5% for the first six months.

We continued to invest at a high rate in product development and supporting technology and we experienced higher sales related costs attributable to solid sales execution during the first six months in both core and core payroll and HRS products.

Operating margin was 39.7% for the quarter and 40.4% for the first six months.

Operating income net of certain items increased 8% for both the second quarter and the six months.

We expect operating margin for the full year to be approximately 38% as we continue to plan investments during the balance of the fiscal year.

Net income increased 7% for both the second quarter and the six months to $159 million and $322 million respectively.

Diluted earnings per share increased 5% to $0.43 per share for the second quarter and 6% to $0.88 per share for the six months.

Now turning to payroll service revenue.

It increased 5% for the second quarter and 4% for the six months.

We benefited from increases in checks per payroll and revenue per check.

As Marty already mentioned, our checks per payroll increased during the second quarter consistent with the 1.6% we experienced for the first quarter of fiscal 2014.

Revenue per check grew as a result of price increases net of discount together with the impact of increased product penetration.

Our second-quarter growth benefitted from the absence of the disruptive effects of Hurricane Sandy a year ago.

During the second quarter last year, Sandy impacted our payroll revenue growth by approximately one-half of a percent.

As a reminder the growth rate for last quarter was impacted by timing of processing as there was one additional processing day in the comparative quarter for fiscal 2013.

And what I mean to say there is that that was a reference to what happened in Q1.

On HRS revenue, it increased 12% for both the second quarter and the six months.

Both ASO and PEO revenues grew at double-digit rates.

The HRS revenue increase reflects client growth primarily in retirement services, HR solutions, and eServices products.

eServices continues to grow due to success in the sales of SaaS solutions.

Retirement services revenue also benefited from an increase in average asset value participants funds.

Insurance services revenue growth reflected higher premiums from Worker's Comp insurance services and an increase in the number of health and benefits applicants.

HRS revenue growth was tempered modestly by a higher direct cost in our PEO.

Note that HRS revenue quarterly growth can vary due to the volume of clients, PEO workers' compensation and basis points earned on retirement services client employee funds.

Basis point changes due to fluctuations in the financial market and the asset value of funds invested.

PEO net service revenue also exhibits greater variability between quarters due to a number of factors including changes in Worker's Comp claims experience.

Now turning to our investment portfolio, our priority has been, and will continue to be, to ensure that we can meet all of our cash commitments to clients.

On the short-term side, our primary vehicle is high-quality variable rate demand notes and our longer-term portfolio we invest primarily in high credit quality municipal bonds.

Our long-term portfolio currently has an average yield of about 1.6% and an average duration of 3.3 years.

Our combined portfolios have earned an average rate of return of 1.1% for the second quarter in the six months compared to 1.2% for the same period last year.

Average balances for interest on funds held for clients increased during both the second quarter and the six months driven by the expiration of certain payroll tax cuts on December 31, 2012, which resulted in higher Social Security withholdings growth in checks per payroll and client growth.

Our investment income increased, decreased, for the first six months due to lower average interest rates earned partially offset by an increase in average investment balances resulting from the investment of cash generated from operations.

I'll now review the highlights of our financial position.

It remains strong with cash and total corporate investments of $839 million as of November 30, and we have no debt.

Funds held for clients as of November 30, 2013, were $3.9 billion compared to $4.1 billion as of May 31, 2013.

Funds held for clients vary widely on a day-to-day basis and average $3.5 billion for the six months, a year-over-year increase of 6%.

Our total available for sale investments including corporate investments and funds held for clients reflected net unrealized gains of $22 million as of number 30, 2013, compared with net unrealized gains of $35 million as of May 31, 2013.

Total stockholders' equity was $1.8 billion as of November 30, reflecting $256 million in dividends paid during the first six months.

A return on equity for the past 12 months was 34%.

Cash flow from operations were $400 million for the first six months, a 23% increase compared to the prior year.

The increase was driven by higher net income or non-cash adjustments from net income, mostly depreciation and amortization of premiums available for sale securities and changes in our operating assets and liabilities relating to timing.

I'd like to remind you that our outlook is based upon our current view of economic and interest rate conditions, continue with no significant changes with the exception of HRS revenue guidance is unchanged from the previous quarter.

So payroll revenue growth we expected to be 3% to 4% for the year, that remains unchanged.

HRS, given the strong performance in the first half of the year, we bump that up a point to 10% to 11%.

We think that total service revenue will still be in the range of 5% to 6% albeit on the high end of that range.

Net income growth we predict to be in the range of 8% to 9%.

This growth rate is impacted or affected because the fourth quarter last year we recognized an additional tax provision for the settlement of a state tax issue, which impacted our diluted earnings per share.

Another way of saying that we ended the year at $1.56 and that's the rate at which we're computing that growth rate.

Our operating margin for the year is anticipated to be approximately 38%.

This is lower than the margin experienced in the first half of fiscal 2014 but as I previously mentioned margins are historically lower in the second half of the fiscal year.

We don't expect the expense leveraging realized in the first half of the fiscal year to continue throughout the remainder of fiscal 2014 as we continue our planned spending.

We didn't disclose the anticipated range for interest on funds held for clients in investment income net.

These ranges were provided in June and we don't anticipate a material change from those ranges.

I'll turn it back over to Marty.

Great, thank you, Efrain.

We will now open the meeting to questions, please, Teresa.

(operator instructions) Jason.

Just a question on the core payroll.

So it was interesting to us to see that on a quarter-over-quarter bases core payroll was actually up a hair.

I think usually for seasonal reasons it tends to be down quarter-over-quarter, so was this an issue in terms of number of processing days quarter-over-quarter?

I knew there was no change year-over-year, but if you could just comment on that.

And then maybe just remind us as we think about the back half of the year in terms of quarter-over-quarter changes in processing days we should be considering for Q3 and Q4 because I think year-over-year Q3 has one more day?

Again, year-over-year while Q4 has one less, if I'm not mistaken?

Yes, so, good memory, Jason.

The answer is Q2 did not have any additional days.

So we had 65 processing days in Q2 of 2013, we had 65 processing days in Q2 of 2014.

You are correct in both statements that you made.

So in Q3 we will have one additional day of processing.

We'll still have 65 but it turns out that last year in Q3 and to then 2013 we had 64 and we will have one less day in the final quarter of the year then we had the year before.

When you total all of this up for the year we have one less day overall.

I am happy to report that next year we have the exact same days in the exact same quarters, so we want have to keep discussing days.

But you're right, this quarter was even with the prior quarter in terms of days plus one in Q3 minus 1 in Q4.

So we'll have one less processing day overall than we had last year.

So no issues from a compare standpoint.

Okay, but what about even just quarter-over-quarter?

Fiscal Q1 2014 versus fiscal Q2 2014, was that also flat?

Processing days?

No, in fiscal 2014 versus 2013, I mentioned that in the call, we had one less day this year than we had last year.

Right.

I was just asking Q2 this year versus Q1 this year.

Sorry.

Q2 versus Q1 (multiple speakers)

I'm trying to get to how you guys saw a little bit of an increase in revenue sequentially here in core payroll (multiple speakers)

We're comparable in terms of number of days in this quarter versus last year.

So to answer your question, it really is three pieces.

So the first we mentioned checks per payroll about 1.6% comparable to Q2.

We keep saying that checks per payroll will moderate.

They have moderated but very slowly.

The second is we see better pricing environment.

And the third is we've had some client growth.

So those are the three components of why we did better.

Was there as much as a couple of million or so from the acquisitions and the Brazil JV in (multiple speakers)

No.

The acquisition, which Marty mentioned, loan data, that was less than 0.2%.

So it's really tiny to call it out specifically.

And the JV isn't generating any revenue.

Okay, and then just lastly, the organic client growth I think you're targeting for this current fiscal year is 1% to 3%.

So I want to understand kind of where you're running at the midpoint of the fiscal year to date here and any better sense of where you might fall within that range obviously understanding that the key selling season is upon us and that may be a key swing factor, but any color there would be great.

We still feel good about the range.

We certainly through the first two quarters feel comfortable where we're at.

Having said all of that, I'd just caveat what we say all the time, which is that the third quarter is a critical quarter for us not just from a sales standpoint but also from a loss standpoint.

So good trends, we feel pretty good, we're in the middle of selling season, we'll update you on where we're at.

Okay.

All right, thanks.

Paul Thomas, Goldman Sachs.

Just following up on that last question, could you talk a little bit more specifically about the price increases, how much of a benefit that was in the quarter and, Marty, I think you also mentioned that some of that was a product benefit as well?

So if you could talk a little bit about the benefit of both of those in the quarter.

Yes.

Just generally we talked about price increases, we don't give specifically what we increase, but it was a consistent range.

But what we're finding is the price increase is holding very well.

We're not having to discount more and, in fact, we're getting a little bit more revenue per unit that we're selling, as well.

So we're feeling good.

I would say the competitive market is about the same but we're actually doing well from a price and a revenue per unit perspective.

And then we're continuing to get more product per client, as well, so more revenue per client in what we're selling.

We've obviously offered some additional products.

And so we're able to not only get good payroll pricing but also sell some additional products as well.

Okay, thanks for that.

And could you talk a little bit more about the partnership with Kashoo?

Should we think about that more as an attachment to SurePayroll clients?

Or are there opportunities for that in the 50-plus market as well?

Well, I think it's primarily targeted to certainly under 20, I would say.

And I think it's for a startup, it's a simple cloud accounting software package.

We just saw it as another way to get into small businesses, help them get started, offer a broad range of products and suite of products that tie to payroll.

It will tie to SurePayroll.

It could also certainly tie to core payroll, our small business payroll at Paychex because a lot of clients, obviously, 80% of our clients are under 20.

So I think it's a good fit for both of them.

We're kind of just getting started but it's getting some nice attention already just as we've rolled out the Paychex accounting online private-label version of it.

All right, thanks a lot, guys.

Rod Bourgeois, Bernstein.

I just wanted to inquire about the PEO business and to what extent there will be impact from Obama Care.

Can you just summarize, I'm assuming there are some significant positives but there also could be some negative implications of Obama Care.

Can you does outline that for us?

What are the major positives and the potential negatives that could stem from Obama Care as you look at the PEO business going forward?

From the PEO business I think for the most part it's been a positive that we've experienced so far, which is the fact that in that PEO co-employer status it's making the -- it's a great sales opportunity to get in front of people and say that we're going to be able to help them by bringing them into the PEO, being a co-employer and working them through the requirements and that we have the expertise to be able to handle their needs.

So I think it's been certainly a positive for those clients who are concerned about the requirements.

Everything keeps changing.

When things are due, when it's going to take effect.

And so the PEO business is seeing, I think, a nice uptick from that.

Not huge, but it's certainly seeing some positive momentum for it.

From a negative perspective I think it's, overall, I think the negative perspective is just the disruption that it causes new business startups in general as to whether to add an additional business, whether to start up your business, whether to invest in health care at all because you're just not sure what it's going to cost you and what the requirements and possible tax implications are going to be for your employees.

So I'm not so sure, Rod.

I think the negatives are, frankly, across the board more than they are specifically for the PEO, and right now at least in the short term it's a positive for the PEO.

Efrain, anything you want to add to that?

No.

Rod, the other thing I'd add to what Marty's saying is that in the short term the pluses are dwarfing any negatives.

And one of the things that was implicit in what Marty said was that you have an ability to underwrite pretty successfully within the PEO in a time when most insurance companies are struggling to figure out what their requirements are.

And so in this window of time PEOs have an advantage because they understand their cost structure, self-insured to some extent, and are able to go to market with a pretty clear offering.

Over time that could change.

I would say that's a potential negative as the changes get up and running and then become perhaps pricing changes, but in the short term we're certainly seeing, reaping the benefits of that trend.

Thank you.

That's helpful.

One other question.

When we spoke three months ago we were inquiring about whether you think your payroll client base can show positive growth for the fiscal year and you expressed confidence that that could be achieved.

How do you stand on that now?

Do you feel more confident at this point that you can have growth in the number of payroll clients for fiscal 2014?

I think we feel reasonably confident.

But, again, I caveat all of that by saying we have to win our share in the third quarter and not lose more than our share in the third quarter, and we're in the middle of that.

Any early signs on how that's going that you can comment on?

I guess I would just say that we're feeling continued positive momentum on the sales forces across the board whether it's core payroll, SurePayroll, 401(k), HR outsourcing, all feeling a good momentum there that has continued from the first quarter right into the second.

Thank you.

Sara Gubins, Bank of America Merrill Lynch.

You mentioned seeing some more client growth in this past quarter.

Is there some synthesis coming from any improvement on the new business formation front or is it better sales in existing small businesses?

I would say it's not very much from the new business.

I would say that the negatives seem to be flattening out a little bit there where we were, that was where we were down year-over-year on new business growth.

So that seems to be flattening out.

I'm not saying we're getting any wind behind us on new business growth yet, so I think that's still very slowly improving.

It's more from, I think, some of the focus we've put on banking channels and for referrals and franchises and the CPA community.

So that's where we're seeing more positive momentum from a sales perspective.

Great.

And then separately, I was hoping to learn a bit more about the relationship with Kashoo.

Could you give us any color of your ownership of it and whether or not you see a pathway to total ownership?

And then also you mentioned that you thought it could help strengthen the relationship with CPAs.

I'm trying to understand that a bit better as it looks like maybe it could be a competing product with them.

Yes.

We see it as an alternative -- let me take the last part first.

From CPA perspective I think what we got from research we had that they're constantly looking for alternatives to what they have today.

And that if a client, this is a simple accounting, cloud accounting package that can help a business, a brand new business maybe get started, but as they build and get larger they would move toward a CPA.

And a CPA can very easily work on the same Kashoo work on their accounting package with the client, which of course they like.

So we're trying to do it always encouraging the client who gets on the product to use their CPA, do the work in conjunction with their CPA because that's still an important relationship for us.

So, we think that the CPA, one, is looking for other choices in accounting packages and especially for a brand-new business that is starting up this might be a way to start them, then they realize that they could go to an accountant and help them either with Kashoo's package, our package, or move to something else.

I would say from the investment standpoint we made an investment into the Company, a minority investment.

And there is always an opportunity for future increase in investment but right now we're pleased with having an investment in them, having a white labeled product under Paychex accounting online that we offer and see how it goes from here.

Thank you.

Jim MacDonald, First Analysis.

Back to the ACA impact.

What about the impact on your health brokered business given the taxes that the ACA puts into place?

Is that going to slow the growth?

We're thinking generally, first of all the opportunity is for us to get in front of clients and explain what all the requirements are.

And that we have some products that will help them.

Second, I think we're always thinking that if small businesses move more to the shops, to the exchanges, that could hurt us a little bit.

That would be a negative for us because some of the small business would move to the exchanges,

But again right now we're not seeing much of that because the exchanges are not really in very good shape.

And they're not necessarily set up and the rates aren't necessarily that much better than what we can offer through various carriers and so forth.

So I think in the longer term if they get up and running and get efficient and have competitive rates, it could hurt us a little on the small end; however, we had started to focus already on a little bit more of our mid-market or larger market clients with insurance.

We cover the gamut, but we have focused the expansion teams, the increase in sales people on the 50-plus market and that won't impact.

If anything, that will drive more sales, I think, to us because I we can give a very competitive offering.

And remember that our offering helps integrate with payroll.

It provides additional information.

We help with the billing and we help you set up a client, I'm sorry, a new employee.

And we also help you with COBRA.

So I think there could be some negative piece to it that we've talked about on the small end but there's a positive piece I think on the mid-market, which we're also selling insurance in.

And, Jim, I think that everyone is feeling the fact that the ACA is tacking on some additional fees that clients have.

So I don't think anyone is disadvantaged or advantaged in that process.

We, as Marty said, we do the lower end of the market, eventually we'll gravitate into an exchange that probably at the margin makes that a little bit more quick to happen.

But we've pivoted our sales force to address that to position ourselves for that anyway.

Okay, thanks.

The G&A this quarter seemed to be up a bit more than I would've expected.

Any issues there?

No.

There's no issues whatsoever other than good ones.

So the first is our IT spending was about where we expected it.

We expected it to be a little bit higher in the first half of the year.

It was up and then the other part was we're just having a very strong selling season.

We typically wouldn't call that out unless it was a bit above where we expected it to be.

And we just have to make provisions on the assumption that that will continue throughout the year.

So if we don't call it out it's because it's about where we expected it.

And then as Marty's been saying now for two quarters, sales execution has been really strong, so those are the two buckets where it increased.

Great.

Thanks.

[Daniel Hussein], Morgan Stanley.

I'm calling in for Smitty.

I was hoping you guys could just help us quantify the Hurricane Sandy impact.

I think last year you mentioned maybe a negative 50 bp impact to payroll revenue?

So would you say that the benefit this quarter has been approximately the opposite, a 50 bp benefit positive?

Yes, I would say is 50 bps.

That's our best estimate.

Okay, thanks.

And then heading into the year, you guys gave guidance around expecting EPS to be evenly split from the first half to the second half.

So I guess now that you had this strong first half, are you guys still expecting that same distribution?

No, not quite.

I think we are obviously a little bit ahead in the first half, and we reiterated where we are in our EPS guidance for the year as I read it out.

So we are still in the 8% to 9% range.

Got it, thanks.

And then maybe if we could just revisit buyback.

So you guys had that authorization last year and the share count was ticking up.

And now it's second quarter in a row where you've done the buybacks.

I'm wondering if there's anything you are thinking that is changed and whether you expect to continue this going forward?

Look, I think that what we have done through the first two quarters is buy back opportunistically, primarily to offset dilution.

Some quarters were a little bit more successful than others.

And we will do that through the balance of the year.

No specific program purchases per se, but we will look at opportunities to offset some of the dilution.

We've had a pretty significant dilution, by our standards, over the last year or so, 18 months and we're just trying to offset a bit of that.

Okay, great.

Thanks a lot, guys.

Happy holidays.

Ashwin Shirvaikar, Citibank.

Nice quarter.

I guess I wanted to go back to the product roadmap, the comments on IT spending.

If you could give us an update on key initiatives that you have coming up.

And also remind us how much of the spend on these multi channels in the recent past, how do you think of it in terms of one time spend versus something you have to keep doing on an ongoing basis?

What's the split there?

I think there's always going to be a consistent, some level of consistent spend there.

I think we had been on a higher end of some of the spend now, but as you capitalize it and amortize that, obviously, that takes over for some of the expense you had.

So you end up with more expense and depreciation and the amortization of the capitalized software and so forth.

I think we're at a pretty steady rate.

I think we had reached our peak kind of over the last year or so, and I think it will stay steady.

I don't think it's going to go down a lot, but you won't see it going up as much as it had.

It was the only expense that has grown double digits over the last four or five years and I think it will stay relative low double digit or below kind of growth in the future.

There's some one time but I think there's a constant level of spend and it's just a matter of setting your priorities on where you spend most.

The focus will continue to be on integration of all the products.

You don't have a wide suite of products and so it will be on integration, certainly continue to be on mobility, although we feel very good where we are now with the mobility product being able to get at basically any of your information as an employer and employee and being able to submit or edit payroll, as well.

So I think it is mobility.

It's integration, and certainly it's always about making it easy.

So from a user interface standpoint how do you continue to keep up with the trends of making things very easy and client friendly to get at their information when they want it and how they want it and do what they want.

That's useful.

Just to clarify, though, steady in the low double digit.

Were you referring to growth, in which case it would keep growing faster than revenues or are you saying steady as --

Yes, Ashwin, so the answer is we expect it to grow faster than revenue, but we expect other areas obviously, ops, operation expenses and G&A to offset part of that increase.

The price of being in this game is to constantly spend in technology and the game we're in increasingly is creating a suite of services that become the point that gets sticky for the customer.

So payroll alone is not the only thing that many customers want.

They want an integrated solution.

So what you've got to do is invest in creating the technology, which Marty was just mentioning to deliver that information in mobile fashion and give them access across all platforms to that information.

So we anticipate that spending on IT will tend to grow at a faster rate than sales whereas the spending on ops will grow at a slower rate.

Yes, I think it will be a continuation of what you have seen.

Even when IT spend, we've mentioned this, was probably more mid to high single-digits increases, growth increases, we always offset that.

And so when we look at total expenses we're always looking for some leverage in most everything we're doing.

But that's in total, so where you drive productivity in one side the technology spend will tend to be the higher end of the expense.

Marty was saying mid to higher teens.

So, 15% to 20%, which was our peak.

Understood.

That data is quite useful.

One other question I had was more for clarification again.

The payroll client count, the OR number, does include SurePayroll, right?

Yes, it does.

That part is increasing nicely and you're saying it's really the core is still sluggish?

I didn't say any of that, but it sure is increasing nicely and overall we're increasing, we've increased in the first half of the year.

But I caveat for the third time, we need to get through the sale season to see where we end up.

Right.

Is there any early intel in terms of competitive dynamics with regards to the selling season?

(multiple speakers)

No, I think it's a little too early for that but we don't see, at least at this point, we don't see the environment any different anymore or any less competitive than we have in the past.

So it's a little bit early but we don't really, haven't really seen much change in the competitive environment.

If anything I think we're feeling good about the progress we're making at this stage.

Understood.

Thank you, guys, and happy holidays.

Joseph Foresi, Janney Montgomery Scott.

So my first question here is just on trying to frame the demand environment.

I know we've had a couple of years here where we're kind of slogging it out, but is this still currently a market share game?

In other words, is it displacement and cross-selling just for the fact that the small business growth has been mediocre?

Let me characterize it this way, so two answers to that, Joe.

The first is, I think there's a couple of glimmers that indicate that the market itself is growing a little bit.

It's still early but we've got some data points that suggest it's getting better.

So I don't think it's purely a market share game, but I think it's still primarily one, so that's the first part of it.

But it think the second part of it, the second way I'd answer that is that increasingly what we have seen over the last year is that when you go into talk to a client they want an integrated solution and they want integrated access to the data.

So over time what we believe is that the person, I should say the Company, that can provide that suite of services the best will win in the marketplace.

Not just payroll, payroll is important, but it's also payroll and integrated data also.

And that's where we had really gotten much better in our sales execution efforts both on the HRS core and mid-market.

And so I guess that's the way I'd frame the market in the opportunity.

Just as Efrain said, there is some glimmer.

I'd still say it's, we would call it sluggish, but it's still there is some glimmer of some formation.

And housing I think is still one as we've mentioned a few times that looks like it's coming back in certain areas.

And the housing gives us jobs all around that.

As the inventories come down new homes are going up, prices are going up a little bit, interest rates will be interesting on that.

But it doesn't look like they're going to go up quickly or anything that would cause that to stall out.

Just to be clear so we not trying to extrapolate because I think people have asked you for data points on the selling season throughout the call.

The glimmers you're talking about are more what you see on the macro side, not necessarily anything you're picking up on the selling season?

Correct.

Yes, correct.

Okay.

All right.

I figured I'd help you guys out on that one.

One last one for me.

It's a very kind of tough one but if you had to kind of break up your selling into displacement versus cross-selling versus new business, or selling into existing accounts, I'm not asking for percentages, but where does that scale way right now?

How much of this new business is displacement, how much of it is cross-selling, how much is new business?

And you can just rank them, you don't have to give me any kind of particular percentages.

You really have to look at it by segments, Joe.

Primarily, what we're doing on the HRS, not exclusively, but HRS is selling into the base.

So you can say that's cross-selling or upselling or whatever you want to call it, right?

On the core payroll side, traditionally 50% of our sales are to new businesses.

So that's good new and then the remainder we're in a competition with everyone else in the market.

So if you weigh all of that, a lot of it's cross-selling and up selling, for which we have a large opportunity in the base.

And then in core it breaks out kind of half and half.

Great.

Thank you.

David Togut, Evercore.

Marty, a couple of times you've mentioned improved sales execution over the last couple of quarters.

Can you bracket for us what bookings growth has been over the last couple quarters and compare it to what you saw in the previous fiscal year?

Well, we don't necessarily give a percentage but I would just say that it is certainly positive across the board over last year.

It was in first quarter and it is in second quarter.

So across the board what they're doing is, and Efrain just went through this in a sense of we're selling better into the base for the HRS products, 401(k), ASO and PEO.

We're selling I think better in the additional products that we've brought on and certainly the ancillaries of time and attendance and HR administration into the mid-market.

So I would just say that I don't want to be overly enthusiastic but we're feeling really good progress on how sales is performing kind of across the board.

SurePayroll is very strong and so when you look at kind of payroll HRS, SurePayroll across the board all of them are doing better.

And I think that's better execution.

I think we've focused a lot better in things that we've gone after and we've executed well on that.

And I think that's probably the best I can give you.

We don't necessarily go into percentages.

But I think it's been positive and it's been consistent.

Without going into exact percentages can you bracket for us whether growth is in the single digits or the double digits?

It's good, David.

We won't go any farther than that.

Especially before selling season I wouldn't (multiple speakers).

It's been strong, so I'll just say that.

Okay.

And then just as a quick follow-up, you highlighted that the launch of Paychex accounting online.

What was the date of the launch of the product and can you quantify for us some of the sales you've seen from that product, client traction?

Yes, we just launched it within the last about 30 days ago and so it's been a lot of interest.

You sign up over the web and we do have a team to support those sales and so forth, but it is basically sold right now over the web and we're getting a lot of good interest in it.

It's done by search more than anything and then some advertising and we're just getting started.

But I think what you're finding is you know this is a very competitive space right now, very interesting space that you'll see a lot of players in that and it's something we thought as we've researched it the last couple of years that it was a good thing to get into and we thought Kashoo had a very strong product in the simple cloud accounting app basis.

So just getting started but we're getting a lot of good interest in it.

And we think it'll help also lead, obviously, to payroll sales and integration in payroll sales both the SurePayroll and in core Paychex payroll, as well.

Final question for me, as you look out to the next fiscal year how are you thinking about your dividend payout ratio versus share repurchase in terms of overall capital allocation priorities?

I think, David, our position is that we'll first look at dividend increases before we look at share repurchases, but we'll have some element in the mix of share repurchase at least to offset dilution.

That's our thinking going forward.

And you can see that we've been pretty consistent on where we are from a dividend payout ratio.

And I would expect, it's a Board decision, but I would expect that that would remain pretty consistent.

Thank you very much.

Bryan Keane, Deutsche Bank.

Wanted to just ask on HRS services, obviously you increased the guidance there for that range.

What's causing the surprise, or where's the strength actually coming from better than your expectations?

I think it's across-the-board.

401(k) has been very strong.

We went after expanding, about a year and half ago, expanding our large market going after a little bit larger 401(k)s than we had in the past in our base and that's been very successful.

And I think, so 401(k) across the board has done very well in their growth.

And then on the ASO and PEO side, we talked a little bit earlier why the PEO I think is certainly getting a bump from healthcare reform and that's helping.

But I think we also are executing a lot better in our PEO business.

There's some new folks in there, some new plans and leadership and over the last couple of years.

And that's really starting to pick back up and do well.

And so I think with all the insurance confusion that's out there, I think people have been much more open to go toward the PEO and that's helped us.

And the ASO I just think there's more and more regulations.

I think as the economy gets slightly better businesses are willing to spend a little bit more and also see the value of the product and how much it can help you with all the compliance and so forth that we offer.

And we've been at it a long time.

So I think it's all kind of coming together to hit our stride between execution and the environment.

Okay, that's helpful.

Just on payroll services, obviously the growth rate was a little faster than I think our and Street expectations.

Thinking about that longer-term, what's the right growth rate?

Is 3% to 4% the right growth rate on a longer-term basis or do -- it's a little better client growth, a little better pricing we can actually see that more higher number than that as we go forward?

I think, Brian, we need to work through the remainder of the year.

But I would just say our internal expectation is that 3% to 4% is not a number we want to be at and we think that there are probably a number of ways to get that above that.

That's our guidance for the year.

We'll walk through it and get a better sense.

We've been feeling our way through this coming off a year where we had just barely 2% for a number of reasons.

We're really pleased with the acceleration and we think, we want to get it about 3% to 4%, put it that way.

Okay.

All right, thanks, guys.

Kartik Mehta, Northcoast Research.

I wanted to ask you a little bit about the SurePayroll business and if you're seeing any more competition or more pricing competition?

It seems like lots of cloud players out there, people want to be cloud players wanting to get into the payroll business, and has that resulted in any more pricing competition?

I missed that first part, it was on SurePayroll, right?

Yes.

There have been some more players that you hear of that startup but right now they're doing very well.

They've continued to have great sales growth and we're not seeing a lot of change from a pricing-per-unit standpoint at all.

They've been very effective in selling.

A lot of it's web search and they complete the sale over the phone and they've done a good job, so we really haven't seen an impact on the pricing there.

And then, Marty, on the Kashoo business, any thoughts about changing the price you charge for customers for that business model to try to gain some market share?

And then is there a need for more investment in that business to add any modules or other services that you think would give you a competitive advantage?

Well, on the pricing I think it's pretty competitive right now.

It's in that $25 to $30 range per month and there are certain various promotions the go on.

So I think that's pretty competitive, very competitive with what's out there.

And I think you're right on the long term, we do see this as a growth opportunity for us.

We've done everything around payroll.

We've hooked almost every service around payroll and I think have done well at continuing to drive up the penetration of those products, 401(k), Worker's Comp, insurance, etc.

When you kind of backup in that whole system of offerings and you look at accounting, now you've got a lot of other offerings that you could come off of that and begin to offer and expand, increase that penetration.

Right now we're just trying to build this base.

We're at a stage of just getting started and saying, one, can we help clients get started with this, can we link them to payroll, can we build that client base?

And then once the base is building at a good rate than look to what you can add to it, but there's certainly some opportunities that we are continuing to look at to do that.

So, Marty, will this be just sold over the Internet or will your payroll salespeople also sell it to accountants and you'll use that distribution channel as well?

Well, right now it's going to be over the Internet given the cost of the service and so forth.

Plus I think that that seems to be the most effective way to get it because you're getting brand new businesses just as they're getting started.

And so I think selling over the Internet we're going to try that first.

We're going to trial some telesales type of effort as well on that and direct call-in and so forth.

And we'll try various ways but right now it's going to be mostly web-based search and then sell it all over the phone.

And then just one last question, Efrain.

Any thoughts on changing strategies for the flow to maybe increase the yield on the portfolio?

Or do you stay where you are?

It seems like we're going to have pretty low rates for a while, for some time now.

I characterize it as a tweak.

Yes, so I read what Bernanke said.

And the notes I saw post call were that they thought that short-term interest rates might increase by 25 bps by next summer.

That wasn't sort of our thinking going into the call but that's where he's signaling.

If you're in that environment I would say there is a tweak to say go longer.

So we'll look at that as we go through the year.

Thank you, very much.

I appreciate it.

Jeff Silber, BMO Capital Markets.

Just to continue the discussion on your interest on funds line.

If I remember, at the beginning of the year, you talked about that line item being down about 7% and 9%.

Year to date it's running roughly flat.

You didn't change your guidance for the back half of the year.

Is there something going on in the back half of the year that we need to be aware of or do you think you're just being conservative?

I think we're being a little bit conservative, Jeff, but I will say that the recent Fed pronouncements are literally a day old.

So it's a little bit tough to incorporate all of that thinking into our back half.

We don't expect material improvement because we only replace about 15% to 20% of the portfolio.

So we've made a lot of those decisions already.

So you may not see a lot of the upside, or I shouldn't say, sounds like a lot of upside, but any modest upside during the remainder of the year.

We'll look at the portfolio and if there's any changes we'll update next quarter.

I think it really is more a kind of what next year looks like, that's what the recent decisions will cause us to revisit.

Okay, great.

On the fund balances side I know at the beginning of calendar year 2013 you had mentioned you had an influx of funds because of an increase in withholding.

Is there anything going on at the beginning of calendar year 2014?

No, don't anticipate anything.

We're up 6% year to date.

It's really just going to depend on client balances and number of clients and funds.

So no structural changes, I'll call it, expected.

Okay, great.

Thanks a much.

David Grossman, Stifel.

I wonder if we could go back to the HRS business and could you just maybe help us better understand at least in your own view what the relative maturity of each of these different segments are that reside in that disclosure and perhaps the relative scale of each of these businesses?

Well, I think there's still a lot of room.

The highest penetrated product would be 401(k) and that still has a lot of room.

We don't usually give out the product penetration anymore.

But that would be the highest penetrated and yet still we have a number of clients in our payroll base that do not have our 401(k) and give us a great opportunity there but have a 401(k), but not with us.

And so I think that's probably the highest penetrated.

All of them, I think we've said, are certainly well under 20% penetrated into the payroll base.

And the newer products, what I'd say newer, like insurance, health insurance, are way down into single digits and offer us an awful lot of opportunity.

So we spent an awful lot of time as an executive team, David, just looking and saying there's a lot of room here, there's a lot of opportunity here for product penetration and we try to find ways to continue to grow that.

401(k) was a great example.

We went after larger market conversions early for 401(k) for many years actually, we just took brand-new plans.

And so there's just a lot of opportunity in all of it.

I think gives us a lot of runway for years ahead.

Yes.

And the fact that we don't specifically call it out, Marty is saying, doesn't mean that we don't understand what the opportunity is.

It's just that the opportunity is really large.

And every quarter we go we discover that there's other opportunities that we should be directing our attention to and I think the 401(k) upmarket is a great example of an opportunity that, an organic opportunity in the last year to 18 months, that doesn't depend at all on our client base.

Those are not current Paychex clients for payroll.

They simply are new clients that we are adding because we have acquired a core competency that was adjacent to our initial core competency, which was doing payroll and 401(k) plans.

So when we look at the opportunities in each of those segments, be it ASO/PEO, be it 401(k) or insurance, we just see a lot of runway before we ever would get to a point where we saw we were saturating the client base.

And I think the other thing, David, I would add is that we've said this several times, that we really have a big advantage because of our client base and the fact that we see the market gradually moving towards a suite of services sale.

And it's the best suite of services with the best integrated data that, over time, integrated access to the data that's going to win, especially in small and medium-sized businesses.

Right, so with that said, it probably takes two things, right?

One is having a product set that is truly integrated and meets those criteria and then secondly, a sales force that can sell a bundle, which I think is a slightly different sale.

So can you help us, perhaps, you can leave the technology peace out, I know you've talked a lot about that in the past, but on the go-to-market sales side, what have you done to tweak that sales organization to sell that bundle since it is really a different approach?

I think, one, it still, to start with, most of the time it's still going after the base and coming in behind it.

And what we've done there is get much more specific on what each group is selling.

So, again, the 401(k) market was, we had a lot of folks in 401(k) sales very good at selling brand-new plans.

The first time I ever had a 401(k) etc., and then we went more to kind of smaller but still conversions.

Now we go to larger market conversions.

It requires a different tenure, I guess I'd say a talent in the sales organization to sell a large market plan.

And we also will sell much more into financial advisors, so we will go to a financial advisor who we would normally sell a plan to the client and then say you need a financial advisor and here's one you can talk to.

Now we're building more relationships with the financial advisors.

And there is an opportunity there to pick up even more business from the advisor not just per client but maybe by advisor.

So it's to us for the most part it's changing some strategies to get much more specific on what you're trying to sell to then look for a different skill set also to some degree and experience.

And we've been very successful in that, I think is the biggest part.

Then you'll see probably more of a shift of as we look at a client that comes in that might have more employees, that you go at that client with a full bundle.

We're doing a little bit more of that now as opposed to just our traditional model of sell payroll and then sell everything else after on a kind of a 30-day, 60-day, 90-day type of thing.

So I think we're trialing a lot of different ways to sell it to increase that opportunity.

Do you have any data points on the bundled sale?

No.

I'd say it's still fairly early on that to say it.

But I think the data point is when you're seeing the growth in HRS continue at double digits and 12% and numbers like that it's showing continued great momentum because the client base isn't growing as quickly, obviously, over the last few years because of the economy, yet that HRS continues to drive into that product base.

That's the best data point I'd give you is that we're still seeing really solid growth there and bringing the guidance up a little bit because of the execution.

Okay, thanks for that.

And then just secondly, just going back to the rates, Efrain, when you look at the forward yield curves, any sense of when the rate comparison actually should go positive?

Should we see that?

I assume, obviously taking out the total return with the balance growth, but just the yield itself, should we see that turn positive then next year?

Yes, you should see it turn positive next year.

I can't give you numbers yet, we'll have to analyze what roles off the portfolio.

But, yes, we should go positive next year.

Great.

Very good, thank you.

Tim McHugh, William Blair.

First just on the PEO business, how is the competition as you're growing that?

Is it significant or do you feel like you've pulled ahead and that's part of the growth you've seen?

Just a little more color on what you're seeing there given the growth you reported.

I think that the competitive environment is probably as strong as it's ever been because there's been some consolidations over the last few years and, therefore, I think the competition is pretty strong.

I do think that we've executed much better, as I said earlier, I think we've got a better focus, I think we've got a great product.

We improved the technology and the product there was probably 18 months ago or so and got a stronger products set.

So between the products set, the leadership and the execution, and the market, the whole healthcare reform environment, I think all of those have led to us doing better in the market overall.

So I think the whole PEO market is positive to begin with.

But I also think between product, technology and execution on sales and operations we've done a lot better.

Is the bulk of the sales in your view the reason people are buying into PEO?

Is it because of the healthcare and the uncertainty and I guess the cost of healthcare or is it kind of the holistic outsourced solution?

I guess where I think of those is the two main reasons people might buy some of those.

Where does it sit right now?

I think it's a little bit of both.

I think, obviously, we sell it as, there's a total outsource solution that we're giving you support from an HR perspective.

And I think that the insurance side adds a strong additive to that.

You start with the HR but I think that the fact that right now, in particular, with so much concern and confusion over healthcare, I think that's kind of throwing people on the value set overboard to make the decision to go with it.

So I think it's a combination.

But I think certainly the healthcare confusion is helping a lot, drive you to the PEO versus an ASO.

The topic of exchanges got brought up on ancillary basis a little bit on the call.

What's your outlook there?

I believe you've launched your own kind of exchange solution for small businesses.

What type of interest from clients?

And is that an opportunity to grow the insurance brokerage business more quickly or is that a threat as you look forward?

I think on one side it's going to be, it's a little bit of both.

On one side it's the threat as we talked about on the small business side.

I think if the exchanges, you assume over the next year they'll get in better shape and they'll offer competitive rates, I think that they will draw some small businesses to them.

But I think on our side the partnership we did was actually more towards around a benefit card that we offer that allows you to combine flexible spending accounts and health savings accounts and reimbursement accounts altogether because that's a big confusion point for our clients and their employees and tying that then to a private exchange partner of ours.

Right now there's some confusion out there now because -- but with some changes in the flexible spending account rules as to whether you can do tax deferred or, yes I guess I'd say tax deductible, really, kind of payments into these plans.

So those rules are kind of changing right now and we're trying to work through that.

But generally I'd say the exchanges are going to be a little bit of a negative for us.

But, overall, because of the way we'll partner I think it'll be positive, or a nonevent in the long run.

Okay.

Thanks.

Mark Marcon, RW Baird.

Nice quarter and happy holidays.

Wondering with regards to the strength that you're seeing on the core could you talk a little bit about where you're seeing that specifically in terms of really small and, I'm talking about sub-sevens versus your traditional core versus MMS?

Mark, there really isn't a significant change from prior quarters.

We've seen strength basically across all of the segments that we compete in in payroll.

Any regional differences?

I would say a little bit where I think South East and West, I think where the housing that's helping a little bit, give some little strength there as the housing's coming back a bit there.

The new home construction and so forth, but that's helping on the new business side, but other than that not a big difference.

Okay.

As it relates to the integrated and bundled solutions, can you talk about the new clients that you're getting?

Like is there a greater percentage that are utilizing or buying up front a bundled solution or is it pretty much the same?

I'd say it's pretty much the same at this point.

I think with the economy the way it is even though our selling is moving more toward that you're still seeing people be a little bit cautious and maybe buy-in over time additional products.

It's still we're seeing generally you buy something, you build some confidence with them and then you can sell onto the value of the next product and so forth.

Now some clients you can go in right up front and say look I can sell an ASO offering because you're a client that has a lot of turnover, you're a restaurant or a service organization that has a lot of turnover, you'll have a lot of issues with whether employees are exempt or not exempt.

It depends on the client but generally I don't think it's changed too much yet overall.

Great.

With regards to the pickup, how much of that would you attribute to the improved product relative to improvements in sales both in terms of leadership and training?

I think it's a little bit of both.

I think certainly we've had great execution and leadership.

I think there's a lot of new leadership in the team.

I think they're doing very well and they're continuing to drive I think a real accountability and commitment.

We've also had that but I think it drives it even more.

And they're giving them a lot of support in the field.

But I also think certainly the product, having service satisfaction numbers at an all-time high and continue to be there, our operation teams that really gives them a value to sell and then you get more referrals that way.

And certainly the technology, the mobility platform, we're just seeing an increasingly number of clients that are using the mobility platform.

Their employees and the clients, whether they're getting information, getting their pay stubs.

And all of that starts to give you not only better value for referral to sell but also it improves the retention as well.

You said that the client satisfaction is an all-time high and you also mentioned that earlier that retention is near record levels.

Did you give us a specific number in terms of the retention?

I think we said on the retention it our highest level it was over 81%, it was over 81% which would be our highest.

I think that's the last bundle we gave out.

Okay, great.

And then are you also benefiting from a reduced number of companies going out of business?

Absolutely.

But that's flattening out now.

That was a big improvement over the last couple of years.

And now that's not as much the issue anymore.

We're not gaining as much on that.

So, relative to a year ago that's probably about the same?

Yes.

Well, even a little less.

Improvement from those going out of business is certainly less, less improvement I guess I'd say than last year.

Okay.

And then with regards to wrap up on one thing I wasn't certain on, just sequentially going from Q1 to Q2 you had the exact same number of processing days in Q1 as Q2?

Yes.

Okay.

Great.

And then finally, as we think about the tech spend, what are the areas that you think you need to improve further?

How should we think about that and kind of the roadmap going forward?

Where do you think the biggest opportunities are?

I think it's always integration of all your products making it easier to integrate.

We've introduced in the midmarket space and kind of the integrated solution, people, for example a place where it's just easier from any, whether you're in time and attendance, HR administration, or payroll, that you can easily pull an icon down for people and make all your changes very quickly kind of in a pop up screen and then it'll fill in all three of those services.

It's always going to be about making whatever the client needs easier and more integrated across the multitude of products that we have.

So integration of products, ease-of-use, user interface and mobility will be our continued focus.

And then, of course, as we acquire or do things like Kashoo, it will be how do we integrate those more and more into our product set.

So anything we buy and expand how do we integrate those more into our product set as well?

We'd like any client to take a full product suite, obviously, and make it very easy for them to move between products and look at the experience as one total product.

What percentage of the clients are on the platforms that would enable that easy integration?

The vast majority.

Yes.

And then last question with regards to the new sales on the core, of the 50% of the clients that aren't brand-new businesses are obviously doing something from a payroll perspective.

Has there been it any shift in terms of who you are taking clients from?

It would seem that just as the technology investment goes up, it makes it more and more difficult for some of the locals to keep up.

Yes.

We've seen that pretty consistently that more local players, and I think we've done about the same as we always have with the other national competitor, maybe a little better lately but that's pretty close.

They take some from us and we take some from them.

But the regional players it's more difficult for them to have the product suite, the breadth of products as well as the technology in the mobility platform, which is becoming so much more popular now.

Great.

Thank you very much.

Tien-Tsin Huang, JPMorgan.

Good results here.

Just a few quick questions, I hope.

The acquisition side, I heard the dollar questions, but how is the performance of some of these acquisitions going?

Like myStaffingPro, are they performing above, below plan, any kind of anecdotes there?

I would say they're performing at or above where we expected.

It's still fairly early but we're not only from their organic standpoint themselves but also tying them into us, we're feeling pretty good.

We're pretty careful.

We look at a lot and acquire a few and then we are very tight on the integration and the work and the execution work.

We follow it very closely.

So all of them are doing as well or better than the business cases that we've put forward.

So separate question just around data following up with the last question.

Have you seen any change in the way your clients are inputting their payroll data into the systems?

Any shift there or interesting trends to call out?

I would just say that I think probably more online, but the interesting thing with us is we offer that dedicated payroll specialist to you.

And this week we really encourage the fact that this week we may call you, the payroll specialist who is dedicated and knows your business will call you and get your information and work with you, the next week you may want to do your own payroll online and then you may want to call them with a question, the next week you could do it on your mobile phone.

So we are seeing more interest in online but still with that dedicated specialist.

So they can do it but they have help whenever they need it if they want to do it.

But we really have worked to give them their freedom to do what they want when they want kind of where they want.

And so we offer them that dedicated person and yet they have all the opportunity.

So we've seen online usage in input increase a little bit.

Okay.

Good to know.

Last one on just on back to float.

I caught the conservatism comments but as we step into the next quarter, the following quarter, float balances I guess should come in a little bit given some of the tax changes?

Just trying to make sure, next quarter, any reason why it should step down sequentially?

No, it shouldn't.

I caution, Tien-Tsin, part of the mental calculation that I'm doing when I get asked that question is how much of the 15% to 20% of the portfolio is rolling off in a given quarter?

So that affects with my answer is going to be with respect to where we see interest rates.

We've invested a lot of the funds that we expected to roll off at this point.

We have a tranche coming in spring.

And then the question is whether it really makes a dime's worth of difference for the projection for the remainder of the year.

Got it.

So the rolloff is the key, the float balance change shouldn't be that volatile?

No, that's right.

That's helpful still.

Thanks for the update, guys.

Appreciate it.

There are no other questions, sir.

Okay, at this point we'll close the meeting.

If you're interested in replaying the webcast it will be available until approximately January 20.

I thank you for taking the time to participate in our second quarter press conference call and for your interest in Paychex.

And we wish you all a very happy holiday season.

Thank you.

This concludes today's conference.

You may disconnect at this time.

Thank you.