沛齊 (PAYX) 2016 Q2 法說會逐字稿

Welcome and thank you for standing by.

(Operator Instructions)

Today's conference is being recorded.

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

And it's my pleasure to turn the call over to Mr. Martin Mucci, President and Chief Executive Officer.

Sir, you may begin.

Thank you and thank you for joining us for our second-quarter FY16 earnings release call and webcast.

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

This morning before the market opened, we released our financial results for the second quarter ended November 30, 2015.

Our form 10-Q, which provides additional discussions and analysis for the results of the quarter, will be available in the next few days.

Our earnings release and 10-Q will be available on our Investor Relations page at www.paychex.com.

This teleconference is being broadcast over the internet and will be archived and available on our website for approximately one month.

On today's call, I will review highlights for the second quarter related to sales, operations and product development.

Efrain will be view our second-quarter financial results and discuss our full-year guidance, and then we will open it up for your questions or discussion.

We made good progress across all major product lines during the second quarter.

Compared to second quarter of last year, payroll revenue advanced 4% as a result of growth in client base and revenue per check.

HRS revenue grew at double-digit rates in the second quarter once again, lead by our success in selling HR outsourcing solutions to our clients, and total service revenue grew 7%.

We continue to experience solid results and momentum across our sales organization with double-digit growth in revenue sold compared to last year.

Our team selling approach continues to produce results by introducing the full suite of products that Paychex can offer our clients up front.

We are encouraged by this momentum as we enter our main selling season right now.

Our execution in service operations also continues to be excellent as demonstrated by client satisfaction results and retention levels that remain consistent with recent highs.

Of the employees in our service organization have done a great job as we move to a more flexible service options with Paychex Flex, including 7/24 service.

We expanded our human Capital Management product suite again with the recent launch of our integrated Paychex Flex Time and Paychex Flex Benefits Administration modules.

These are two of the newest modules for our cloud-based HCM platform.

Paychex Flex Time is a market-leading Time and Attendance cloud-based solution, provides real-time data access and is designed to be exceptionally easy and intuitive to use for our clients.

It gives employers unprecedented visibility and control over labor scheduling, tracking and reporting.

Paychex Flex Benefits Administration provides employers with a robust, customizable system built to improve employee productivity, communication and decision-making and allowing complete oversight and control of employee information effectively to manage a company's benefit plans.

We also have best-in-market mobility offerings in our opinion for both administrative users and employee self service that allow access to our HCM suite from a single mobile application.

We continue to receive positive reviews for our Flex platform that we're very proud of, as evidenced by our recognition from the Brandon Hall Group Excellence Awards for an advancement in workforce management technology for small and mid-size businesses and PC Magazine's recent review referring to Paychex Flex as excellent and calling it more robust and scalable than many of the competitors' platforms they reviewed.

Turning to the Affordable Care Act, last fiscal year we launched our Paychex Employer Shared Responsibility service to assist clients navigating the healthcare reform.

Our ESR product includes monthly monitoring with automatic alerts as well as year-end reporting, and we are pleased with the continued level of client acceptance that we have experienced.

We have increased our implementation and support spending to address the increased demand we've received for ESR.

I appreciate the great hard work and dedication of this ESR team helping our clients through this first year of complex ACA requirements.

Our Paychex insurance agency was named the Business Insurance magazine's list of best places to work in insurance for the very first time.

This is a notable recognition, and I'm very proud of the agency employees and the growth we've seen in the insurance business.

On December 2, we announced our planned acquisition of Advance Partners based just outside of Cleveland, Ohio.

We are enthusiastic about the opportunity Advance Partners presents and the experienced and successful leadership team that will be joining Paychex.

They offer customizable solutions to the temporary staffing industry, including payroll funding and outsourcing services that include payroll processing, administration and invoicing.

The staffing outsourcing business is a growing industry that serves many small and mid-size staffing firms, which is an ideal fit for us at Paychex.

Also given Paychex's extensive product suite, financial strength, and access to capital, we can help expand Advance Partners' product offering and accelerate its growth.

This acquisition will close shortly.

We remain committed to adding additional value for our shareholders with our dividend at $0.42 per share.

We maintain a strong dividend yield, one of the highest in the industry.

The Paychex stock repurchase program remains in place, and we have acquired over 1 million shares of common stock in the first six months of FY16.

And in summary, I am very pleased with a continued strong execution of our sales and service teams, our product strength and financial performance, and I appreciate the great work of our Paychex employee team.

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

Efrain?

Thanks, Marty and good morning to you all.

I'd like to remind everyone that during today's conference call, we will make some forward-looking statements that refer to future events and thus involve risk.

Refer to the usual disclosures.

As Marty indicated, second-quarter financial results for FY16 represented a continuation of the solid start we had to the year.

I will cover the highlights and provide greater detail in certain areas, then wrap with a review of our 2016 outlook.

I will have some comments on second-half guidance, so as I get midway through my comments, you will start to hear those.

Total revenue grew 7% for the second quarter, 8% for the six months to $722 million and $1.4 billion respectively.

Total service revenue also grew 7% for the second quarter and 8% for the six months to $711 million and $1.4 billion.

Interest on funds held for clients increased 8% for the second quarter and 7% for the six months to $11 million and $22 million respectively.

These changes were driven by higher average interest rates and higher average investment balances.

Expenses increased 5% for the second quarter and 6% for the six months, primarily in compensation-related costs and strong growth in the PEO.

The increase in compensation-related costs was driven by higher wages and performance-based compensation costs.

Operating income net of certain items increased 9% for the second quarter and 10% for the six months to $283 million and $568 million respectively.

We maintain strong operating margins of 40% but anticipate that our full year will remain within our guidance of approximately 38%.

The second half of the fiscal year, consistent with prior years, is expected to result in lower margins, primarily due to higher selling and operations costs which are variable, and more detail on that later.

Net income increased 9% to $189 million for the second quarter and 16% to $398 million for the six months.

Diluted earnings per share increased 11% to $0.52 per share for the second quarter and 17% to $1.10 per share for the six months.

The six-month period was positively impacted by the net tax benefit related to prior-year revenues that was recognized in the first quarter.

When we exclude this impact, net income and diluted earnings per share would have risen 10% and 12% respectively.

Let's turn to payroll revenue.

Payroll service revenue increased 4% for both the second quarter and six months to $427 million and $860 million respectively.

We benefited from increases in client base and revenue per check.

Revenue per check grew as a result of price increase, net of discounting.

Checks per client really didn't benefit payroll revenue.

HRS revenue increased 11% to $284 million for the second quarter and 13% to $564 million for the six months.

This increase reflects strong growth in both clients and work site employees of Paychex HR Services, which includes our ASO and PEO products.

Insurance services benefited from continued growth of our ESR product that assists clients with healthcare reform and an increase in health and benefits applicants together with higher average premiums and clients in our workers' comp insurance product.

Our HR Administration and Time and Attendance products contribute to the growth through robust sales of these solutions.

Retirement services revenue benefited from growth in the number of plans and an increase in asset fee revenue earned on the value participant funds.

Retirement services revenue growth was offset by pricing impacts in the respective prior-year period.

Let's look at investments and income.

Our goal, as is to protect principal and optimize liquidity.

On the short-term side, we -- primary short-term investment vehicles were bank demand deposit accounts, high-quality commercial paper and variable rate demand notes.

In our longer-term portfolio, we invest primarily in high credit quality municipal bonds, corporate bonds and US government securities.

Our long-term portfolio has an average yield of 1.7% and an average duration of approximately 3.3 years.

Our combined portfolios have earned an average return of 1.1% for both the second quarter and the six months.

On December 16, as you all are aware, the Fed raised federal funds rates by 25 basis points, the first interest rate hike in nearly a decade.

We expect the impact for the balance of the fiscal year will be modest.

Let's take a look at our financial position.

It remains strong with cash and total corporate investments of $913 million.

Funds held for clients as of November 30, 2015 were $3.7 billion compared to $4.3 billion as of May 31.

Funds held for clients vary widely on a day-to-day basis, and they average $3.7 billion for the quarter and $3.8 billion for the six months.

Our total available for sale investments including corporate investments and funds held for clients reflected net unrealized gains of $34 million as of November 30 compared with net unrealized gains of $14 million as of May.

Total stockholders equity was $1.9 billion, reflecting $304 million in dividends paid during the six months and $63 million of common shares repurchased.

Our return on equity for the past 12 months was 39%.

Cash flows from operations were $420 million for the first six months, a 4% increase from the prior year.

This change was the result of higher net income on cash flow from operations offset by fluctuations in working capital.

The fluctuations in our working capital between periods were primarily related to the timing of collections from clients and payments for compensation, PEO payroll and income taxes.

Now I'd like to turn to FY16 guidance.

Let me remind you first that our outlook is based on our current view of economic and interest rate conditions and that guidance for the full year is unchanged from the previous quarter.

I will reiterate our full-year ranges and then give some color on the back half of the year.

Payroll service revenue anticipated to remain in the range of 4% to 5%, HRS in the range of 10% to 13%, total service revenue in the range of 7% to 8%, and net income growth is anticipated to be in the range of 8% to 9%.

Please note that range excludes the benefit of the net tax benefit we recorded in the first quarter.

Our effective tax rate for the year excluding the impact of the net tax benefit discussed above will be approximately 36%.

Our interest on funds held for clients and operating margin are expected to be consistent with prior guidance.

Now, current guidance doesn't include the announcement by the Fed of a 25 basis point change in rates.

This is going to equate to approximately $1 million after tax for the remainder of this fiscal year.

On the call, I will talk a little bit about why it may be more modest than you assume, but I would just say to preface that conversation that much of that impact won't start to be felt until January, and then it will be modest.

Our guidance also does not include any expectation of future increases.

We don't look at forward rates to determine what guidance should be.

We simply make an assumption once the Fed has acted.

There obviously is a chance that the Fed will continue to raise.

We will update guidance when that happens.

Full-year guidance currently excludes the impact of the Advance Partners acquisition that Marty referenced earlier and which we expect to close shortly.

It is not expected to impact earnings in the current fiscal year, meaning it will not be dilutive in this year neither will it be accretive in the balance of the fiscal year.

I will describe separately the impact of Advance shortly.

So, while it isn't our typical practice to provide specific guidance on quarters, we do want to be as transparent as possible and provide you with some color on third and fourth quarter this year.

Payroll revenue growth for the third quarter is anticipated to be at the lower end of the guidance range.

While payroll revenue growth in the fourth quarter, we anticipate to be at the higher end of the range.

As we stated in previous calls, the fourth quarter will benefit from one additional processing day this year.

This was the case in the first quarter as you all remember.

HRS revenue growth for the third quarter is anticipated to fall below the low end of the full-year guidance range as we indicated in previous calls.

I called that out when we started the year.

This is a result of strong third quarter in the prior year resulting from very strong PEO performance, and we had benefited from pricing in our retirement services businesses, while both are doing fine, they just simply are not as strong as they were in the prior year.

For the fourth quarter, we expect HRS revenue growth will be within the full year range.

In addition, we anticipate as is typically the case a higher selling expenses in the second half of the year, but this year, given the strength of our sales performance in the first six months of the year, we believe that selling expense will be higher than we had planned.

We also anticipate higher operations expense due to stronger sales that I just mentioned and also very, very strong demand for our ACA compliant solutions, so you will feel much of that in the third quarter.

Again, current-year guidance is not changed.

So as I just mentioned, the guidance that I discussed doesn't include any impact from Advance Partners, so when we close, this is what we anticipate.

For the balance of the year, we believe that the acquisition will contribute approximately 1% to payroll revenue growth and approximately 1.5% to HRS revenue growth, that's in the balance of the year, second half.

That impact will be primarily -- will be split more towards the fourth quarter than the third quarter because we anticipate that we will only recognize two months of revenue in Q3.

So the weighting will be a little bit more towards the fourth quarter.

And we anticipate that additional expenses, operating expense from the acquisition will offset revenue in the balance of this year, won't be dilutive, won't be accretive, will essentially be neutral.

So I hope that was clear, and with that, I'm going to turn it back to Marty for questions.

Thanks, Efrain.

At this point, we will now open the call to your questions or comments.

Operator?

(Operator Instructions)

Our first question comes from Jason Kupferberg from Jefferies.

Good morning guys, happy holidays.

Thank you.

I wanted to start with a question on share buy-back.

I don't think you guys repurchased any shares in the quarter, and I believe you got about $100 million left on the authorization.

So wanted to just get a sense of whether that was because you see some additional M&A opportunities of size in the pipeline beyond Advance Partners, or did you just find the price of the stock not attractive enough or any other factors at work there?

Jason, that's a good question.

I think I'd get a bat upside the head if I said the stock price wasn't attractive, but no.

(Laughter) Very, very honest with us though, Efrain.

I am, I try to.

No, we purchase opportunistically, so that's part of what our plan is.

On the M&A front, I think there's an element of that.

Advance was a nice acquisition, but I would say as I've been saying now for a number of months and finally we have some evidence of this.

The pipeline is robust, so we see a lot of opportunities for M&A in spaces we like at prices we like.

So I think that it's a combination of both those factors.

Okay, and so just as a follow-up, I guess a two-part question.

As we go into that key year-end selling season, how do you feel you're set up with the product set, the sales force capability?

Should we expect the double-digit sales growth that you've been seeing to continue?

And then just along with that, any macro comments about new business creation and general hiring trends that you'd like to share?

Yes, this is Marty, Jason.

I think we're feeling very good.

We've got great sales momentum.

It's continued Q1 and Q2 double-digit par growth, and we would expect that to continue.

This is a really important quarter obviously for us from a sales perspective, but we're going in with great momentum.

And in particular in the mid market, very strong in the mid market.

And this is something that the product development work and the technology has been so important for Flex, and we're really seeing that pay off now.

We're really seeing very strong results on the mid market even as competition is out there pretty consistently, we've talked about that.

We're really seeing very positive results from a growth perspective and what sold, so we're going in feeling good about it.

We feel like the product work that we've done and some of it here this last quarter is when we introduced the fully integrated Time and Attendance and Benefit Administration into Flex, positions us extremely well for this selling season and frankly ongoing future quarters.

And just the new business creation and small business hiring?

Yes, I'm sorry.

In fact, our sales from new businesses is up, quite a bit stronger than last year.

So while the small business index would say it's pretty consistent from employment growth, I would say sales to new businesses are up a bit.

So we're feeling pretty good about that.

I wouldn't say it's a huge surge, but it's certainly consistent and up a few points from last year at this time, so I think that's very positive.

Okay, I appreciate the thoughts.

Have a good holiday.

Thanks.

Our next question comes from Danyal Hussain from Morgan Stanley.

Hi, good morning.

Thank you for taking my question.

Just a high-level one about Advance Partners and understanding it hasn't closed yet, but when we're looking out to FY17 and beyond, can you just give us a sense for what the margin profile looks like, whether -- if it tucks right in, whether we can expect it to be in line with the Company average?

Well, that's a good question.

But what was interesting about Advance -- now I'm going to exclude purchase accounting because that will obviously impact it, but if you look at from an EBITDA margin, what was really unusual about the business was that it was pretty comparable to where Paychex was, which is saying something.

I mean, we look at a lot of acquisitions.

We run into very few that have very solid growth, very solid margins.

They built a great business, not a flash in the pant.

They've been at it for almost 20 years with a strong track record of growth.

We feel obviously very good about the opportunity as well.

So not only is it a good margin business but as Efrain said, the leadership team there is staying with us and being part of Paychex.

And they've built it over time I think very carefully and very strategically and certainly very profitably.

So we think it's going to fit in extremely well, and we think with our access to capital and product that we will be able to accelerate in distribution.

We're going to be able to accelerate their growth even more.

Got it, thanks.

And then just a question on Flex, so I think Efrain, you mentioned in the past that Flex constitutes a majority of new sales, but you aren't mandating client migration over to Flex.

So is there a point where you eventually stop offering some of the core products and really push the Flex product more to new sales?

And then looking a couple years from now, is there a reasonable timetable for when you expect a majority of clients will have rolled over and then what impact you might see from a retention or margin?

Yes, I think at this point we aren't forcing it.

I think we're doing it the way we had hoped, which is this is attracting new clients and accelerating those sales by the way to new clients.

And it's attracting current clients to come over.

So we're presenting that if you want -- you have certain needs from the product, that if you want to migrate over, you can.

We aren't pushing that too hard yet, and we aren't necessarily putting a drop dead date on migrations.

It's always better to be on the newest platform, but frankly the existing platform is satisfying a lot of needs for existing clients, and many of them don't like to move.

So we don't have a certain date, but we're going to handle it carefully and let the clients at this point do probably most of the movement.

And we're feeling good about that.

Certainly the new sales, the majority, particularly in the mid market are all on Flex, and that's going extremely well.

The other thing I'd add, Danyal, is just to put it in context, if I exclude Sure and include it, doesn't really change what I'm about to say.

90% plus of our clients are on either Flex or on Sure's platform, which frankly is a hybrid of core Advance and their own platform.

So it's not a huge part of the base.

Obviously we are selling primarily mid market clients on the new platform.

Got it, and maybe a quick modeling question if I could.

You mentioned retirement services impacted the growth rate I guess over the trailing four quarters.

Could you just quantify that?

I didn't catch the first part, apologies.

The retirement services you I think changed pricing?

Yes, that's basically what's causing the growth rate to drop a bit in addition to PEO.

I won't quantify it any more than that.

But we periodically take pricing in different segments of the business.

HRS is a little different than payroll where payroll, it's pretty typical every year.

HRS we look at different products and try to gauge where market is and decided to take some of those actions last year and didn't repeat this year.

Perfect, thank you.

Our next question comes from S.K.Prasad Borra of Goldman Sachs.

Thanks for taking my questions.

(inaudible)

So S.K., if I heard your question, I'm sorry, I know you're traveling.

The question was set up for the selling season compared to last year how we feel about that.

Was that what you asked?

Exactly.

Yes, sorry, just couldn't make it out.

I feel very good about it.

When you're carrying the momentum, the good thing about selling season when you're adding into it is how did you start the year in particularly Q2, because that's kind of the beginning of it as you get into October and November, is very good.

So when you're seeing double-digit growth in par, we had an increase in sales reps, but it was pretty small single-digit increase that we normally have.

To see double digit in what we're selling in the par revenue that we're selling consistently in Q1 and Q2, we feel good about Q3 and about the selling season.

Now, you never know until you're through January, but we feel very good about it.

We've got full product suite, we've got full onboard of reps, sales reps, we got very consistent at driving leadership that's there, so everything is very favorable for what we feel will be a very good selling season.

Great momentum going in.

Thank you, and Efrain, on the capital allocation, we talked about the pricing and the pipeline.

So are you now inclined to do more M&A compared to say things like special?

I don't know if more M&A.

It was always difficult to talk about a pipeline that no one saw except me or Marty and I.

But I think I would say at the margin, I wouldn't say we will be on an accretive -- an acquisition tier here.

But I say at the margin, we have more things lined up closer to being executed than we have in the past, so you will see it.

Now just before that gets misinterpreted, they're primarily tuck-in.

I would say that Advance is a good example of the kinds of things we're looking at.

We aren't looking at large-scale transformative M&A, but there are better opportunities out there, and we're looking at opportunities to fill out both product set and tuck into existing businesses.

And last one, obviously a lot of debate on top accounts this year on what margin solutions carry.

So just from your viewpoint, do margins with Advance in the long-term that you have to take a hit on the near term?

Oh, yes, this is the perennial question.

I think, S.K., look.

We try to balance it.

Obviously if we can get much faster growth and sacrifice a little bit of margin, we would look at that, but life doesn't present those neat dichotomies.

A lot of what we look at are acquisitions that we think won't be dilutive to our margins when we run across businesses that we think have good growth prospects.

And I'd point to Sure Payroll as an example of that where when we initially bought it, it was dilutive to margins and now it's catching up to our margins.

If we have a chance to improve the margins, then we will take a bet early on to get something that will improve growth and help us to improve, and we can improve their margins over time.

(inaudible)

Yes, I'd just say, if I heard your question correctly, that they are on an EBITDA basis pretty close to Paychex corporate margins.

Happy holidays.

Thank you.

Our next question comes from David Togut from Evercore ISI.

Good morning, this is Rayna Kumar for David Togut.

Hi.

Could you just walk us through the largest drivers to your 80 basis points operating margin expansion this quarter?

Oh, this quarter.

I would say a lot of that was -- I'd say it's primarily driven by the lower operating expense in the quarter.

So we went into the quarter with a certain expectation around what we needed in terms of operating expenses came out of it a little bit lighter than we anticipated.

That's really the primary driver.

Got it.

Could you quantify net price increases that you're realizing in both payroll and HR services this year?

I won't go any further than calling out what we typically say that on payroll, we're getting 2% to 4% price increase where you can assume that's in that range.

We don't typically call out HRS because it varies year to year, so we're getting some price increase.

It's not certainly as good as I mentioned on the call as what we got last year.

And the other thing I would say too, Rayna, is one of the things that's occurring particularly on the payroll side is with the sales force able to sell more full featured packages, especially under 50, you get some mixed benefit too.

So all of those things help our revenue per client picture.

Understood, thank you and happy holidays.

Thank you.

Our next question comes from Kartik Mehta from Northcoast Research.

Hi, Marty, Efrain.

Hi.

Efrain, you talked a little bit about Advance Partners.

Is this an acquisition or an industry that you think you have to build scale to really benefit from this, or is this -- you'd like to see what you have and then determine if you want to take the next step by further consolidating?

I think if you mean by consolidating acquiring more, I think we feel good this was a really good fit for us.

As Efrain mentioned, we have a big pipeline we look at, and if we looked at this Company, here they are outsourcing support payroll and funding support to small and mid-size staffing companies like 7500 staffing companies placing 200,000 temps a year, this is a nice business that there's a number, a few businesses that do this but nobody is much I think to this scale and have done it very thoughtfully over the years.

I think as we look at the business, we've got clients with staffing companies that I think are great opportunities for the funding side of the business for them, and I think we've got a lot of product we could offer to their clients.

I think this is a good fit.

We're going to see how this goes, but we're always looking to see if it makes sense both from our standpoint and from theirs as well, from their leadership, I think there may be some consolidation efforts that are available out there.

Marty, I know this is a fairly small acquisition compared to the overall Paychex, but did this change the risk profile?

Does the acquisition change the risk profile of the acquisition you've looked at -- compared to the acquisitions you've looked at in the past?

I don't think so.

We're always looking for -- as Efrain said, this has got a good strong margin to it that's close to ours.

It had nice solid growth.

I don't think it really changes the risk profile much.

I think one of the great things that they did frankly was had very good risk policies and procedures to be sure.

This is a bit of a trickier business to be sure you're handling the right risk and taking on the right risk, and they just have done a remarkable job.

And I think with our risk management team working with them, I think we can help that even more with more tools and more information.

So I don't think it really changes the risk profile at all.

And Efrain, on the full portfolio, one, any changes you're going to make as -- it seems as though the Fed is probably going to continue increasing rates.

And two, is 25 basis points about $2 million to net income, is that the right way to look at it on an annual basis?

Or is there something different this time around that might mute the increase you'd get in net income from rate increases?

Okay, two good questions.

So the simple answer is that it depends on the shape of the yield curve.

And if the yield curve steepens, then you have one portfolio strategy approach, and if the yield curve stays relatively flat, you have another.

So we look at that in the Spring, so that's why I can't say definitively-- hey, this is what it will look like in 2017.

In addition, I'd like to see if a Fed does do something in the spring.

It will certainly aid the portfolio.

The question is how much and how we can figure the portfolio.

On the $2 million, I don't think that's that far off, Kartik.

The only trick and the reason why I call out $1 million is that, number one, we don't really expect to see too much benefit except until some time in January.

It's not the best timing because our balances increase significantly in December and beginning of January by that time, we will be past the peak of our balance.

So we don't get quite as much by the time you're talking February before we start to see a lot of the -- some of the benefits, you don't have that many months left in the year.

So that's part of what's guiding it.

And the final thing I'd say is that if you're looking at, for example, money-market rates and what banks are doing, the effects of the interest rate increase are really slow rolling.

They will eventually get there, but it's a slow roll at this point.

Thanks Efrain, I really appreciate it.

You're welcome.

Our next question comes from Gary Bisbee from RBC Capital Markets.

Hi guys, good morning.

Hi, Gary.

Just following up on that last one, on rate, so did I hear you right, you're not including in the guidance the $1 million benefit you think you will get from a Fed hike?

And if I did hear you right, why not?

Yes, no, I guess what I was trying to say was that it doesn't alter the guidance significantly.

I am calling it out.

It's about $1 million.

It just doesn't change significantly where we are at in terms of the guidance on interest rates.

Got you, and I know you don't assume any future increases in the guidance, but if the Fed did do what the Fed folks say, which is in next calendar year at [1.375]%, I understand it depends on the shape of the yield curve.

But you do have about half of the float in overnight stuff that will be valued pretty quickly.

So we can start to see that really benefit if they do go through with that.

Look, you're right Gary.

That's absolutely right.

I'm not trying to be excessively conservative.

I obviously am somewhat gun shy to tell people we think that that's exactly what's going to happen, and I will tell you I will be the happiest person around if that's where we end up.

I am extremely hopeful, but you're right.

That's exactly what would happen that would ripple through the short-term portfolio and have a pretty significant impact on the stock.

Okay, good.

I think the way you do it makes sense, and one question on ACA driven demand.

I know in the last two years, HRS has been real strong as you've had a broad halo effect, more customers are interested in considering their options and you're a trusted source they turn to.

But should we think of the ACA compliance offering as having been a significant part of bookings and something that could drive some real acceleration in calendar 2016, or should we think -- because I know ADP has talked that way, Equifax even with their ACA compliance has seen massive bookings growth.

Or should we think within the broader HRS portfolio it's certainly a positive factor, but just one of many and more steady as she goes continued strong growth?

I think that it's steady as she goes on HRS growth.

I think it certainly is helping, and it still remains to be seen after the first filing date where clients fall out and are they going to stay with it, are more clients going to come in?

I think some will fall out that probably will say -- hey, I didn't need it.

And I think others will say -- I should have had it and we will add.

So I think we will still have good sales with ESR, the ACA product through 2016 calendar year because I think some clients will fall out and realize they should have had the product and then didn't and then didn't file because we're already getting calls like that now like -- what do I do.

And it's a little bit late to gather that information.

So I think it's a little bit early, but it's very positive.

We've seen great acceptance of the product, and frankly as we mentioned in the prepared comments, we've had to ramp up some costs in the quarter just to handle all of the inflow of data and everything that clients are giving us.

So I think it will still be a positive rate through the calendar year.

Great, and just one quick one.

As you add on these incremental components to the Flex offering, should we think of it as a material revenue opportunity to have existing customers turn those on, or is there more of a sales effort that will take some time to drive that incremental revenue as you add these important components?

Thank you.

Sure, I think it will take a little bit of time.

I think we make sure that we're bringing the clients along carefully.

I mean, we're paying close attention now to the operations team and the client retention team is talking to those clients realizes, the net benefit, then we make the sale of the additional products and turn on those additional modules.

The biggest benefit is when you're selling the entire product combined to the new clients, but we are certainly going back and marketing to the base that you now have available more modules that you can turn on.

So I think there's certainly an opportunity there, but we aren't going to rush it and blitz the base.

We're letting the clients get comfortable with Flex and then show them that there's additional modules which will help not only sales, but retention more importantly as well.

Great, thank you.

Happy holidays.

You too.

Our next question comes from Jim Macdonald from First Analysis.

Yes, good morning, guys.

A couple follow-ups.

Advance Partners, you talked about a 1.5% increase in the HRS side from that eventually.

What categories is that in, and are those categories new to you like financing?

That's primarily the financing part of the business, so it will be HRS other.

We will have to figure out longer term where it goes.

The other part, just to anticipate a question someone will ask, the other part is payroll services, the business is split pretty evenly between the two.

Marty mentioned that MMS is growing strongly now.

Besides the obvious competitors, is that coming from any other sources and expansion of the market, or just where you think that's coming from?

I think there's some expansion in the fact that as we talked about, the need for the total product set has come down.

So there's more clients in that 50 plus, maybe 50-150 employees that are needing more product and more services.

And they may have been on an in-house solution that was much more simple and they needed more.

They need time and attendance, they needed HR administration, they needed benefits administration.

So I do think the market is expanding a bit in the fact of who needs the complete suite of services which has been positive.

But I also think obviously we're taking share from some competitors as well.

Even though there's more competitors out there and talking about things, I think you've seen a little bit more share we're taking as we have a complete product set, HCM suite of cloud-based SaaS services.

Great, happy holidays guys.

Our next question comes from Tim McHugh from William Blair Company.

Yes, thanks guys.

Just want to clarify a couple things.

The comments on Advance, that revenue contribution, 1 point to payroll, 1-1/2 points to HRS, that's for the six months left in the fiscal year?

Is that the right way to think about it?

That's correct, Tim.

But you will only have it for five, so if we're thinking about the quarterly run rate, it's quarterly contribution I guess full quarter is higher than that, so?

It would be.

Assuming we close this month, which we in all likelihood will do, we expect to close shortly.

Yes, you'd have two months in Q3 and then three months in Q4.

Did you quantify the size of the purchase price?

I guess we will see it.

No, you will see it.

And the comment on retirement about pricing, I guess I wasn't clear exactly, is the comment just you're taking less price than you did a year ago so the growth rate is lower?

Yes, that's it.

It wasn't a one-time bump last year that was one-time revenue source I guess?

We review pricing along all of our businesses and periodically in HRS in particular, don't necessarily in a given year increase price but may increase it.

Did you see some client pushback -- why you didn't take price again this year?

No.

We just try to figure out what -- we do a lot of work on pricing to figure out what makes sense so we don't end up having an attrition or retention problem.

Okay, thanks.

Thank you.

Our next question comes from Rick Eskelsen from Wells Fargo.

Hi good morning, thank you for -- hi, how are you?

Thank you for taking my question and happy holidays.

Yes, same.

The first one, just on the minimum premium plan and the PEO, you've had it in place now for over a year.

Just wondering if you could talk about the success that you've seen there, if you have any plans to extend it there further and any impact on the risk in the PEO book?

I think that we've done a good job on the risk as we handle that very carefully.

And I think the sales and the risk management team there worked very well together, which is what we expect, and they've done a good job.

It's been very successful, I think it's fairly limited to the area, but it's done well.

And I think we're always looking for a way to expand it if the opportunity opens itself, so we're very open to doing that.

Thanks, and just following up, wondering if you could just talk a little bit about the margins again.

Can you just remind us what your investment plans are for areas like IT?

I think you'd talked about in the past now it's growing in line with revenue, is that the right -- ?

It's still growing a little faster than revenue, and it probably will continue to grow a little faster than revenue.

It just was growing at significantly higher than revenue growth, so I think it's moderated a bit.

But I think if you're in the technology enabled services business, tech spending is going to out pace revenue growth at least over the intermediate term.

And it will do that for us, and that's just the price of being in the business.

And we have to look at other ways to leverage the business to ensure that we deliver the bottom line.

Okay, then just the last question.

Just philosophically with the Advance Partners acquisition, just wondering how much of it was interest in adding more capabilities than the staffing market and more in line with the stuff that you already do and how much of it was getting some of the funding stuff so it's expanding your services.

And in future acquisitions, how much do either of those two, bulking up the existing versus expanding into new play into it?

Thanks.

I think it's a little of both.

We're looking to drive top-line growth and continue to leverage, and being a very profitable Company, it makes the M&A very tight, the selection very tight and get it at a very valuable good value.

So I think it's a little bit of both.

I think we can expand -- what we saw was a great opportunity just as you said to take what their products are and expand it to a number of clients that we have at our staffing firm, small to mid size staffing firms, and we think that's an immediate benefit.

And then also adding more not only product to what they're offering, but the access to capital.

This business needs capital -- access to capital to be able to continue to grow the funding business, and we certainly have that not only in cash, but in access to more capital besides.

So we think between the two of them, we can accelerate their growth and therefore our growth and do it at a very profitable way to do it.

So this was the perfect fit for us, and it's very much focused on the small to mid size staffing firm which there's thousands 10,000 of them, and I think they had a very decent market share but still a lot of room to grow.

And we think that temporary staffing business frankly is going to continue to grow.

We're seeing part-time employment has grown almost 3 percentage points in the last two years.

So we think with overtime rules, ACA, and a number of other requirements, the staffing business and temporary employee business will continue to grow, and we want to be part of it.

The gig economy is here to stay.

Thank you very much.

Okay.

Our next question comes from Jeff Silber from BMO Capital Markets.

Thank you so much.

Last week, when Congress signed the year-end budget bill, there were a number of so-called tax extenders that were extended over longer time periods than they usually are.

I know one of your competitors went out trumpeting one of them specifically, the WOTC, the Work Opportunity Tax Credit.

Is that something that you think will be an advantage to you?

Are there any other items that are in there that might be something to help us as a business going forward?

Thank you.

I think generally all of those.

They tend to encourage, most of them, investment, new business start ups and existing businesses to invest more in their business and to give tax benefit for that.

I think that's all positive and makes the economy stronger.

I think the fact that if those expired, it would have dampened the investment particularly in small to mid size businesses.

So I think they are all positive.

I don't think there was any one that would stand out to us to be that big of a benefit, but they certainly are all positive for the overall business environment.

That's helpful, and Efrain, I'm apologizing in advance.

I have another interest rate question for you.

Oh, go ahead.

You mentioned I think you were going to relook at the strategy in the spring.

Is that because you're just doing planning for next year, or are you anticipating interest rate increases coming in the spring?

I think it's both, Jeff.

So how you configure the portfolio, not to go into a long digression here and won't bore you, but what ADP does is different than what we do.

They borrow short-term, they invest long term, we don't do that to a significant extent.

We just haven't seen the value add in recent years to do that.

But the shape of the yield curve really has a big impact on whether you do that or you don't do that, and so we're a little bit in wait and see.

We think our internal betting is that the Fed will probably raise again in the spring and then it will start to become a little bit more clear to us what the shape of the yield curve is going to be so we can plan into 2017.

So it's a little bit of both.

Great, thanks so much.

Okay.

Our next question comes from Ashwin Shirvaikar from Citi.

Thank you guys.

Good morning.

Good morning.

So I just wanted to start off with a clarification question with the guidance being what it is.

It does include a few months of Advance.

It does include the modest impact of higher interest rates.

What you're really saying is that neither of those factors taken together is enough to change your guidance profile, but they're still included in there?

That's correct.

That's the point.

So we could characterize it in a number of different ways, but the guidance ranges that we give even with all of those changes at this point, we don't anticipate significant change from what we said at the beginning of the year.

Got it, and then conceptually as your sales force sells a wider range of products, so you include Advance in there for example, and it's more complex offering, that makes sense in terms of revenue per client.

But as you try to manage that, what specifically is the forward risk profile associated with payroll funding, which frankly is not an end market that I fully understand yet.

And does that mean a need for more sales force training, more expense in that area?

Yes, I think that one -- I think that it will be sold by a specific sales force.

It may be referred and it very much will be referred by the broader sales force, but that sale is very specific to --and something that Advance has done a very good job on is having highly trained sales reps who bring a proper risk client, risk profile client to them, then it goes through underwriting as well.

So that's why I think they've done a very good job on risk.

So we won't have to train our entire sales force.

We will look for them, we will train them on the opportunity in the product, but just to get the referral to a specific sales force that we will evaluate the risk profile of the opportunity and then bring it to underwriting.

The other thing, Ashwin, that we liked about the business was that as I've said, approximately half of what they sell are services we are very, very familiar with.

So they are selling payroll and outsourcing services, but in a particular vertical which happens to be these staffing firms.

So the profile really is not significantly different other than the funding piece of it that we think they do exceptionally well.

Got it, and I apologize if this was asked, but I had to hop off for just a brief bit.

The pushout of certain elements of ACA and Cadillac tax specifically, is that -- how are you thinking about that full-year specific client base?

Does it have an impact?

I don't think that one has an impact.

Very much on our small to mid size businesses, I don't think you usually -- they won't normally run into that issue, so I don't think it will.

I do think that it's going to be a very interesting still year, calendar year ahead of us in 2016 for the Affordable Care Act products.

Right now, as I said I did mention this earlier that the demand has been very strong, and in fact, we've added some expense to support all of that inflow of data from clients.

And I think that the sales will -- some clients may say -- hey, after the filing date, I don't need this product.

Others will realize they did need it and there will be another surge in sales I think in 2016, so I think the sales will still continue to be pretty strong in calendar year 2016.

Got it.

My last question really is, and this is potentially a few months too early, but do you worry about the interest rate sensitivity?

Obviously higher interest rate is good for you, but interest rate sensitivity of your client base?

I mean, do they care as if looking at one of your Sure payroll surveys which applies to a piece of your client base that 45% of clients don't care, but that means that 55% do care.

Any thoughts there?

Yes, I think first of all, we're new businesses, small businesses and those who are starting up typically don't go through a bank for their credit anyway.

So I don't think they will be too impacted by a number of increases that until it gets much higher.

So I don't think we're going to see a big impact on small business to start.

They usually use other funding sources and so forth, so I don't think a big impact there.

I think mid size businesses that are more capital intensive that need to borrow we will see some impact as the rates start to go up.

But in the near future, it's hard to anticipate that they are going to go up enough to drive that much impact of them.

Efrain?

I'd agree.

Okay, got it, happy holidays guys.

Thank you.

Our next question comes from Bryan Keane from Deutsche Bank.

Hi guys.

Just a couple follow-up questions.

Have you guys thought about using your balance sheet more to do small business lending?

We've thought about it.

It's a pretty crowded space out there with a number of companies out there doing it, and we have, we continue to look at that as an opportunity.

We have some partnership with Biz2Credit and do some referrals with them, but we've continued to look at the business as well, but it's a pretty crowded space these days.

Yes, you guys just have pretty good access to financials, so you would have a pretty good idea of good and bad loan potential.

So I thought it would be an interesting option.

Yes.

I just want to ask about retention going into the big selling season.

How do you guys feel about retention going forward coming into the selling season here?

Pretty good so far at this point.

We're feeling good when we talked earlier about a price increase, we held our price, we've held the increase well.

And our retention has been near its historic best.

And so it's early because you really get that best sense at the end of December and into January, but at this point we feel good about it.

Our retention's continuing to hold.

Okay, and then can you quantify -- you talked about sales growth being double digits and ahead of plan.

Can you quantify how much ahead of plan that is?

No, but it's strong.

I would just say this, Brian.

So I called out higher sales expense, which I typically don't do because we've got a range, and frankly the Street can figure out what that range is.

But I would say through the first six months, when we were preparing for the call, we had a discussion about whether to call it out because some quarters you have better sales growth than others.

But given the strength of what we've seen in the back six months and in our planning process, we thought we had to add to selling expense because they're off to a very strong start.

So it's strong by our standards.

Okay, and then the common question we're going to get on that is how does that translate that strong sales to double digits into revenue growth?

Maybe you could just remind us Efrain the best way?

Yes, typically, you're not seeing that sales growth probably for another four to six months going forward, so there's a bit of a lag.

Some of it you will see as soon as two to three months and some of it a little bit longer cycle because you have to set clients up, so you'd start to see that translating into 2017 sales.

Okay, great, that's all I had.

Happy holidays.

Thanks, you too.

Our next question comes from Sara Gubins of Bank of America.

Hi, thank you.

Hi, Sara.

Question first on ACA.

Prior to the adoption of the compliance product trend during the second quarter, and I guess what I'm wondering is you talked about being at about 50% adoption last quarter and that had been up from 25% to 33% in the prior quarter.

So I'm wondering what the penetration is looking like?

I think that it's a little bit higher than that, Sarah, but not dramatically higher.

We never thought that we would get 100% adoption in the base because there are other solutions out there.

So I think we're trending above certainly above 50%, but it's not 100% and we don't anticipate that it will be.

Okay, and then quick question on Advance Partners.

How cyclical has their business been in the past given the end market?

Yes, not very.

I mean obviously, I guess there's counter currency I haven't looked at where they were in 2008 or 2009, but they've had pretty steady track record of growth.

You can argue that when things take a downturn, you actually have slightly increased demand for temporary versus full-time employees.

But their growth pattern's been pretty steady.

That was one of the things that we looked at.

Okay, maybe they're taking good share.

It could, yes, it could.

Okay, and then you talked about sales expense being higher.

Did you change the plans for sales headcount growth, you talked about 3% the fiscal year versus for the 5% last year?

Yes, no we didn't.

Whatever we said at the beginning of the year is still holding.

We're above in sales heads, particularly on the payroll side, so that's true.

When we call out higher sales expense, it's not headcount.

It's because our sales are variable.

And so if we anticipate that sales is going to have a good selling season, which is what we believe will happen and we rarely talk about it that way, we're a little bit more cautious than we just bump expenses.

And so right now, the Street models that I've seen in third quarter are not taking into account that selling expense.

Okay, great.

Thanks a lot.

Our next question comes from Mark Marcon of Baird.

Good morning, Marty and Efrain.

Happy holidays.

Thanks, you too.

Just as a follow-up on that the sales expenses up and up because of headcount but because of better performance, it takes about four to six months.

If it's up double digits, then what incremental bump does that do to revenue relative to a steady state?

Yes, I guess Mark, I will go through the arithmetic, but I think the thing always to remember is that our revenue retention averages about 86%.

So you get a little bit of effect this year, and then you get the rest of it next year.

In order for you -- when people ask me this question -- in order for you to start accelerating up to double digit, you'd have to have a multi-year period of very strong sales performance.

Now we hope we're somewhat on that trend, but you need more than one to make it occur.

That's part A.

Part B of the explanation, which is going to lead me to part C, part B is simply to say that sales is one component of the equation.

Obviously retention is the other component of the equation, and how the pieces of that fit together when we put together a plan tells me where sales growth is going to go.

You have seen that in the last three years certainly even excluding the impacts of the minimum premium plan.

We've seen revenue bump up because sales, the leading indicator, has been growing.

So C is simply that I will have to get to 2017 when I give you guidance, but I think we feel good.

If we see this sales growth continuing through the year, that's going to be a positive for next year.

All other things being equal, we should end up seeing total services revenue accelerate slightly at least?

I would say if we continue with the strong performance, yes.

Great, and then how much -- can you just remind us what the ACA ERS is adding in terms of revenue?

We don't disclose it.

What's tricky about that is if I were to give you a number, I'd have to say also then that ESR cuts both ways in that it represents an opportunity for additional sales.

But it's also other sales we might not get because people are focused on selling it and there's tremendous amount of demand.

So it's buried in the HRS number, and that's about as far as we will go.

Okay, is all of Advance on HRS?

No that's -- Mark, so I called out very carefully the balance of the year, and I think Tim asked earlier.

So I called out a 1% increase for the balance of the year on payroll service revenue and 1.5% on HRS for the balance of the year.

Balance of the year as Tim mentioned earlier is about five months or so that we expect.

So no, actually the Business is evenly split between payroll services, what we would consider payroll services revenue, and funding, which we're going to lump into HRS for now until we figure out where a better category is for it.

Great, and Advance is growing double digits?

Yes they are, and strong profitable.

And so the pipeline that you mentioned, how rare is it to see something that's reasonably priced, growing at a decent rate and as profitable as you are?

Well, when we disclosed the cash flow, you guys can determine how reasonable price is, but we thought it was a reasonable price for the prospects of the Business.

It is fairly rare, I would say that.

Yes, any thoughts with regards to sales headcount going into next year, how you're thinking about trending that?

Yes, I would think it would be consistent depending on which area and so forth.

We're getting into studying that now, and actually after selling season, but I think we would continue to probably increase a little bit more.

You may see a little bit more virtual because that's where we've seen some more of the growth in last few years, but there's still field resources would continue to go up as well.

Okay, and then one last question, just on the international front, whether you think about Germany or Brazil, any updates there?

Germany has continued to do well.

The client base is really getting up there.

Performance is -- so sales performance is good and retention is very good, so I think we're doing well there.

And Brazil has just been slower than we expected.

A number of things have changed, the economy is not as strong, there's political stuff going on and the legislation that we expected that would be more of a disruptor, which was requiring more electronic filing for small businesses, has been delayed now for a couple of years.

We expect it to still get done, but it's taking longer.

So that disruption to drive more payroll from accountants into a third party has been slower, much slower to happen than we expected.

The other thing, Mark, to build on what Marty said, we remain interested in building out the international portion of the Business, and M&A is also focused on looking at those opportunities too.

Great, thank you, happy holidays.

You too, Mark.

Our next question comes from Lisa Ellis from Bernstein.

Hi, good morning guys.

A question, you've talked for a couple quarters now about the transition to this bundled selling approach out in the field.

Can you give an idea within HRS, parse a little bit the relative growth rates of the ancillary services and how they've been impacted by that bundled selling approach versus the ASO/PEO piece of HRS?

We don't really break it down to that level, but it definitely has helped our attachment rate at the beginning of the sale.

Our old approach was we will sell payroll.

This particularly the small businesses, we will sell you payroll and then come back with different sales forces.

And this team selling now with the 20 employee or so size has really gone much better.

It's still early in the process, but we're seeing nice results where the clients -- not only is it we're selling more of a complete bundle, but also the clients have a -- they're happier because they weren't looking for just payroll.

They were looking for more, and we're being able to satisfy them the right way I think up front.

But we don't really break it down much more than that.

Okay, second one is Flex related.

You mentioned that that is appealing to more of a mid market client.

Can you give an idea of what size of client you're seeing a new uptick in, in terms of demand?

And I guess any other changes or differences you're noticing about Flex?

First of all, as Efrain said, the majority of the clients are on Flex.

What I should say is the mid market, that 50 plus, it's more interested in the full bundle, the suite of -- complete suite of products.

So Flex can be payroll only, it can be a complete bundle of services.

And we're seeing bigger uptake in the bundle for those probably even 20 and above because that need has come down.

So I think it's just -- Time and Attendance for example.

In the past, you'd be pretty good size necessarily in employee before you'd be interested in Time and Attendance.

Now with overtime rules, Affordable Care Act, and also by the way the technology of Time and Attendance, there's just a much greater need for it.

Clients want it.

It's easier, you can do it on your mobile app, now client employees can punch in and out on their phone.

So I think the need has driven down in size, and the technology and our breadth of products and mobility has made it a lot easier for clients to incorporate it into their businesses.

So I think the impact is that the majority of clients are on Flex, and the 20 plus, 30 plus employee clients are taking much more of a full suite or some portion of that suite of products.

Okay, terrific, thank you.

Thank you.

Our next question comes from David Grossman of Stifel Financial.

Hi, thank you.

I had to drop for a minute, so if things have been answered, we can take these off line.

But just had a couple of very quick follow-ups.

So the first is I think your commentary implied that your checks per client were relatively flat, and can you remind us, is that a function of where we are in the cycle or is there something else driving that metric?

Yes, so David, if you will look at our average client size, we're balancing around 17 or so.

And it's really nothing more than the fact that under 50, we were having a lot of more growth than we were in previous years and you have a tendency there -- that has a tendency to depress the number of checks per client.

If I same-store it, you're at somewhere between zero to 1%, so because checks per client are not really a significant contributor, we really just don't call it out.

So that's basically the dynamic of what's occurring.

As you grow that, you tend to see that impact.

Right, I guess I was just trying to reconcile that with your commentary about some of the growth momentum in your new bookings being driven by MMS.

Good point and I think that's a fair point.

It's early in the cycle, so if in the end we were to start skewing higher, then you would see that pop-up.

But it's going to take a little bit of time before you start to see that.

And then the second question I had was on HRS.

I think I understand the impact of the retirement services pricing action.

However, what if anything may be going on in the underlying PEO business?

Just curious what the trends are in that business relative to where they've been because they've been relatively strong.

Yes, they're still very, very strong.

So just to remind you what's included in HRS, so you've got insurance services, you've got HR outsourcing, you have retirement services and you have actually online services.

And I will just remind everyone that when we had the Investor Day, I said we really need to think about how we represent payroll services going forward because it really doesn't capture the activity that's going on in that segment of revenue.

Having said all of that, PEO still is relatively small as a percentage of revenue for the Company as a whole and even within HRS.

It's still certainly well south of 50%, but it's growing very rapidly.

Faster, much faster than HRS is growing as a whole.

I think it's still a very strong market for the product particularly with the Affordable Care Act and the need for HR, more HR, because of the regulations.

So yes, it continues to be very strong demand.

So no, the take away is no change in the trajectory of that business despite the growth rate of the category?

We feel pretty optimistic about that.

Just one final question.

I guess there have been several questions about the bookings momentum that you're reporting.

Can you help us, you called out MMS as being a component of that momentum, but is there anything else in there in terms of mix whether it be a fully outsourced solution versus not?

You said it revenue per client going up with more modules being purchased, but just curious if there's any new trend emerging that may be driving that metric up?

Well, I think obviously, employee shareholder responsibility helps too, so that's part of the equation there.

But if I look at all of the different sales forces and the products that they sell, the combined effect is really strong.

We don't have sales forces that -- we don't have any that are performing under where we expect, so we've got a lot of cylinders hitting all at once.

I think the mid market is the strongest if you looked at that, that's the biggest and the PEO and HR outsourcing have been particularly strong as Efrain mentioned.

So I think overall though as we've seen nice growth in all of the sales forces, nice par growth, but the leaders have been at this stage, the mid market.

And remember they have a much fuller product suite now, and two components just were just added, fully integrated.

And so they're selling a higher revenue per client, and their success is up.

Great, well congratulations and have a great holiday.

Thanks David, you too.

Thank you.

Our next question comes from Tien-tsin Huang of JPMorgan.

Hi, thanks.

Just wanted to ask On Demand as we cross into the new calendar year, any change in your thinking around level of demand in general for PEO?

No, it continued to be strong, and selling season will tell the tale here.

But it continues to be very strong and frankly has picked up in some parts of the country where we've added more reps where we were not selling as much PEO.

So no, I think the demand there is still good and looks sustainable.

Okay, good.

Just one more on the HRS side, I know we always were rounding and what not, but I think you mentioned it would fall below the 10% to 13% range.

Are we talking about a rounding to 9% issue, or is it going to be different than that?

Thank you for asking the question.

Everyone is figuring it out, so we anticipate somewhere in that 9% range.

Okay.

Short question.

Just want to make sure.

Have a safe and happy year.

Thanks.

Our last question comes from Glenn Greene of Oppenheimer.

Thank you and thanks for fitting me in.

Just two questions and clarifications.

The first one is on the bookings momentum commentary.

If I recall the last couple quarters have been strong as well.

So is it, did we accelerate in terms of booking momentum, is this more a sustainable trends we've seen over the last few quarters?

Just how you would characterize it?

I think that it's up a little stronger particularly in the mid market, but it's sustained double digit for at least the last few quarters.

So I'd say it's up a little bit, but certainly and that's a good thing.

It's not like it popped up one quarter and then it slowed down.

We've seen nice momentum going into the selling season here.

Okay, and then just to clarify Efrain on Advance Partners, you in your prepared comments you said it was excluded from the guidance and then I think in your response to a question said included in guidance.

And maybe just a nuance, but maybe the answer is just that it doesn't move the needle enough.

But just want to check my math that it's like 60 basis points to growth and 120 basis points to the back half?

Yes, Glenn.

So what I was trying to do was carefully parse two things.

First tell you what growth looked like before I added in Advance Partners, so I talked about that.

And then after I did that, I said -- okay, after you've gotten that right, because you have to get your models right, then what will Advance include when it is closed.

So that's when I said in the balance of the year, whatever your models say based on what I guided you to, you're going to get about 1% in the balance of the year for payroll service revenue growth and 1.5% for HRS growth in the balance of the year.

And was clarified that that's probably going to be about five months or so.

So I just was trying to say the overlay of Advance looks like that.

When you put all that together with guidance we've given for the year, we're still overall within the range of guidance that we provided for the year.

Okay, and just the quick math on a full year run rate, something like $35 million of revenue, is that reasonable?

I see where your math works, and I can't disagree with it.

Okay, great.

Thanks a lot.

Okay, I think that's all the questions.

At this point we will close the call.

If you're interested replaying the webcast of this conference call, it will be archived until approximately January 22.

Thank you for taking the time to participate in our second-quarter press release conference call and for your interest in Paychex.

We very much appreciate that and we wish you all a very happy holiday season.

Thank you.

Take care.

Thank you.

That concludes today's conference.

Thank you all for your participation.

You may disconnect at this time.