沛齊 (PAYX) 2020 Q1 法說會逐字稿

Good morning, and welcome to Paychex First Quarter Fiscal Year End 2020 Earnings Conference Call.

(Operator Instructions) I would now like to turn the call over to Martin Mucci, President and Chief Executive Officer of Paychex.

Please go ahead.

Thank you, and good morning, and thank you for joining us for the discussion of the Paychex first quarter of fiscal 2020 earnings release.

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

This morning, before the market opened, we released our financial results for the first quarter ended August 31, 2019.

You can access our earnings release on our Investor Relations webpage, and our Form 10-Q will be filed with the SEC within the next few days.

This teleconference is being broadcast over the Internet, will be archived and available for -- on our website for approximately 1 month.

On today's call, I will review business highlights for the first quarter.

Efrain will review first quarter financial results and discuss our guidance for fiscal 2020, and then we'll open it up for your questions.

We are pleased with the solid start of fiscal year 2020.

Our financial results reflect good progress in operations and sales.

Total revenue growth was 15% for the first quarter, including the incremental results from Oasis Outsourcing Group, which we acquired back in December of '18.

Management solutions revenue grew 5% while PEO and insurance services revenues grew 56%.

And not only are we off to a solid financial start, but our client retention and satisfaction continue to be at record high levels and sales continues to perform well as we start this fiscal year.

We are excited to introduce several new technology announcements and solutions at HR Tech, which is happening this week in Las Vegas.

And as a long-standing leader in this human capital management space, we have insight into the needs of our clients and their employees and see trends in our markets.

These new solutions address key developments in payments, wearable devices, integrations and data and analytics.

Our new wearable solutions allow Paychex Flex time users to track time worked on their smartwatch.

Employees can clock in and out with a simple tap of the watch.

It also makes the time and attendance tracking easier for the increasingly remote workforces with enhanced geofencing capabilities, which remind employees to punch out as they leave their work locations.

This the first of many potential use cases utilizing wearable solutions that we will be making available to Flex users.

We're also excited to be introducing pay-on-demand and real-time payments by the end of calendar year 2019.

Paychex clients can allow employees to access a portion of their earned pay before the scheduled check date.

With many Americans living paycheck to paycheck, this advancement in technology allows financial flexibility when needed.

Following this enhancement, then in early 2020, we'll be offering the option to help earned deposited in an employees bank account and real time.

Real-time payment is an extension of our market isolating innovative technology.

We will be one of the first providers to offer real-time payments or employee direct deposits, continuing our position as a tech leader in this space.

While Paychex offers the full breadth of services across the HCM spectrum integrated into our Flex platform, we understand that clients may prefer to keep some solutions they use in place.

Our Paychex product integrations is a private marketplace that takes the company's integration partner strategy a step further, continuing to simplify the process for customers looking to connect Paychex Flex with some of the most popular HR, accounting, point-of-sale and productivity applications on the market today.

Clients can determine how and when an integration deploys with the ability for it to happen real time, regularly schedule or based on an action within their Flex platform.

Our robust and continually evolving set of APIs allows clients the flexibility to choose how they receive their services through one integrated provider or by using various HR solutions.

Data and analytics are areas of increasing focus.

Paychex has a rich and reliable repository of data gathered from interactions with clients.

We are pleased to introduce the Paychex Flex intelligence engine, one aspect of this feature is the Paychex Flex Assistant, which we've discussed before.

This is our customer service chatbot introduced last year, which continues to evolve and be enhanced.

Our users in-app interactions with Flex Assistant allows them to elect a preference for their learning via written how to documents, tutorial-style video, vignette short videos or a guided interactive tour.

Coming in December, the chatbot will offer these options during every customer interaction, providing the ultimate in learning flexibility.

At anytime, a live Paychex agent is just a click away to provide personalized service experience based on the context collected through the bot.

7/24/365, Paychex is the only company to offer the personalized service option in our space 7/24/365 days a year.

Through machine learning, our chatbot continually expands its knowledge base and provides a more robust data set to leverage and formulate answers to frequently asked questions.

During the past quarter, we approached 0.25 million sessions interacting with the Flex Assistant.

The bot is able to address approximately 200 commonly asked questions and that number is growing.

In addition to these exciting introduction during HR Tech, during the quarter, we also provided set of enhancements to our solutions designed to help common -- solve common HR and payroll challenges, including Paychex solo, bundled offering designed to meet the specific needs of sole proprietors, which includes a payroll incorporation services and a solo retirement plan.

A new customizable new grid entry view for payroll, electronic app form (inaudible) I-9 and E-Verify processes that is integrated with our paperless onboarding.

HR conversations.

This is a tool in our performance management module that enables collaboration between employees, managers and HR staff.

And document management, a centralized and secured digital file repository for company forums, policies, references and employee documents and certifications.

We are singularly focused on continued innovation to meet not only our customers, but also their employees' evolving needs, simplify HR complexities and offer solutions to help them thrive and grow.

Also we're offering cyber -- cyber attacks are a growing threat to businesses of all sizes.

We are now making cybersecurity liability protection available to our clients through our Paychex Insurance Agency and Access Insurance Company, a leading cybersecurity insurance carrier.

This solution helps businesses -- business owners by mitigate and the potential impact of financial impact of data breaches, hackers and ransomware and online banking fraud.

It is uniquely critical for business with fewer a 1,000 employees since 60% fail within 6 months of a cyber attack due to a lack of resources to offset the breach.

Shifting to our PEO business, the acquisition of Oasis were the largest acquisition in our history and doubled the number of worksite employees we serve in our PEO.

We are making steady progress on our integration plans, and we are now focused on completing the integration of our sales and service teams.

Through all of these efforts, we remain focused on what is most important, serving our clients and their employees and growing our PEO.

We launched new branding for our HR Outsourcing solutions, including our Paychex PEO and ASO solutions.

This new product brand Paychex One conveys the power of a comprehensive, flexible total HR Solutions that can scale and meet the needs of any business at every stage of their development.

We're also very proud that for the ninth consecutive year now, Paychex is earned the distinction of being the retirement industries leader, #1 in the total number of defined contribution plans.

This ranking was announced as part of the annual 401(k) record-keeping survey published by (inaudible) Magazine.

We provide solutions to remove the complexity of saving for retirement and this is an integral part of the package for our clients to use as part of the recruitment for new talent as well as retaining talent.

Recent enhancements to our mobile app, naked enrollment in the retirement plan possible with only 4 clicks.

This is already led to an increase in participant enrollment, which will lead as well to improved client retention.

We also ranked #3 on Sellers Selling Power 50 Best Companies to Sell For list in 2019.

This is the seventh conductive year we've appeared on the list, and our ranking reflects our commitment to providing our sales team every opportunity to succeed.

We continue to return exceptional value to our shareholders.

And in May, we announced an increase in our quarterly dividend of $0.06 or 11% to $0.62 per share.

Our dividend yield remains approximately 3%, a leader in this market.

And during the first quarter, we repurchased 2 million shares of common stock.

In summary, we continue to focus on the growth of our business, providing great value and convenience to our clients.

Our state-of-the-art technology allows our service to our clients and their employees the way they want, when they want, where they want.

We are focused on providing technology enabled service to improve business efficiency and meet our clients needs.

Our full suite of HCM product offerings and world-class service is a powerful combination that positions us for sustainable growth.

The continued efforts of our employees and their commitment to our clients is making a difference.

I'll now turn the call over to Efrain Rivera and Efrain is going to be our financial results for the first quarter.

Efrain?

Thanks, Marty, good morning.

I'd like to remind everyone that today's conference call will contain forward-looking statements that refer to future events, and as such, involve risks.

Please refer to the customary disclosures.

In addition, I will periodically refer to non-GAAP measures such EBITDA, adjusted net income and adjusted diluted operatings-- diluted earnings per share.

Please refer to our press release and investor presentation for a discussion of these measures and a reconciliation for the first quarter to their related GAAP measures.

I'll start by providing some of the key highlights for the quarter and then follow-up with some greater detail in certain areas.

I'll wrap with a review of of our fiscal 2020 outlook.

As you saw, total revenue and total service revenue both grew 15% for the first quarter.

Our growth, excluding Oasis, was between 5% and 6%.

Expenses increased 18% for the first quarter to $643 million.

Increase in compensation-related cost PEO direct insurance cost and amortization of intangible assets contributed to total expense growth for the first quarter primarily driven by the acquisition of Oasis.

Operating income increased 9% to $349 million.

Operating margin was 35.2% for the first quarter.

EBITDA increased 13%, and EBITDA margin was approximately 41% for the first quarter.

Margins were moderated by business mix due to growth in the PEO business and accelerated investments in sales, technology and operations.

Other expense, net for the first quarter of $5 million, includes interest expense of $8 million related to our long-term borrowings.

As a reminder, we used $800 million of private placement bonds to fund a portion of the Oasis purchase price.

The effective income tax rate was 23.3% for the first quarter compared to 24.5% for the same period last year.

Net income increased 8% to $264 million, and adjusted net income increased 6% to $258 million for the first quarter.

Diluted EPS increased 9% to $0.73 for the first quarter, and adjusted diluted EPS increased 6% to $0.71.

We received approximately $0.02 of benefit from stock benefit -- stock-based compensation payments during the first quarter, which we exclude in our adjusted diluted EPS.

I'll now provide some additional color in selected areas.

Management solutions revenue increased 5% to $724 million for the first quarter.

The increase was primarily driven by increases in our client bases across many of our services and growth in revenue per client, which improved as a result of price increases, net of discounts.

Retirement services revenue also benefited from an increase in asset fee revenue earned on the asset value participant from funds.

We had a strong quarter in management solutions if you recall the data I gave you for Q1.

PEO and insurance services revenue increased 56% to $247 million for the first quarter.

In addition to the acquisition of Oasis, the increase was driven by growth in clients and client worksite employees across our combined existing PEO business.

Insurance service revenue was moderated by softness in the -- in workers' comp premiums.

This was partially offset by an increase in the number of health and benefit clients and applicants.

Interest on funds held for clients increased 20% for the first quarter to $21 million primarily as a result of higher average interest rates earned.

Average balances for interest on funds held for clients increased 1% for the first quarter compared to the same period last year.

Investments and income.

We continue to invest primarily but in high-credit quality securities.

Our long-term portfolio has an average yield of 2.1% currently and an average duration of 3.1 years.

Our combined portfolios have earned an average rate of return of 2% for the first quarter, up from 1.8% from last year.

Now let me walk you through the highlights of our financial position.

It remains strong, with cash, restricted cash and total corporate investments of approximately $700 million as of August 31, 2019.

Funds held for clients were $3.8 billion, consistent the balance as of the end of last fiscal year May 31.

I'll remind you that funds and client vary widely on a day-to-day basis and averaged $3.7 billion for the first quarter.

Total available-for-sale investments, including corporate investments and funds held for clients, reflected net unrealized gains of $53 million as of August 31 compared with $20 million as of May 31, 2019.

Stockholders equity was $2.5 billion as of August 31, reflecting $222 million in dividends paid and $172 million worth of shares repurchased during the quarter.

Our return on equity for the past 12 months was a robust 42%.

Cash flows from operations were $295 million for the first quarter, an increase of 8% from the same period last year.

The increase was driven by higher net income and noncash adjustments, offset by changes in operating assets and liabilities.

The increase in noncash adjustments was primarily due to higher amortization expense, largely driven by intangible assets acquired through the acquisition of Oasis.

Now let me talk about balance -- guidance for the balance of the year.

I'll remind you that our outlook is based upon current view of economic conditions and trends and business trends continuing with no significant changes, though we have reflected the impact of the 2 interest rate cuts that have already occurred this fiscal year.

So we are not, at this point, including additional guidance on further rate cuts we're uncertain about what will happen in the balance of the year.

I'll provide our current outlook and then add color in a couple areas.

We provided updates to the guidance as you saw.

On the strength of a strong quarter in Q1, we now think management solutions revenue is anticipated to grow 5%, above the range of previous guidance of approximately 4%.

We thought that first quarter would be a sequentially little weaker.

We actually got out of the gate a little bit stronger.

PEO and insurances revenue is now anticipated to grow approximately 30%, at the lower end of the previously provided range of 30% to 35%.

More to come on that, but we started a little slower than we had originally contemplated.

Other expense net, which was previously referred to as net interest expense, is anticipated to be in the range of $18 million to $20 million, a modest change from previously reported guidance of $15 million to $18 million (inaudible) due to interest rate changes.

And if you remember what that is, it's a combination of interest income and interest expense.

So the decrease in interest rate changes affects what we will earn on the corporate portfolio.

Net income and diluted earnings per share, both now anticipated growth 9%, above the range of our prior guidance of approximately 8%.

And adjusted net income and adjusted diluted earnings per share are both expected to increase approximately 9%, above the range of our previous guidance of growth in the range of 8% to 9%.

Other guidance remains unchanged.

Interest on funds held for clients anticipated to grow in the range of 4% to 8%.

That's what we said at the beginning of the year and that's what we're sticking with.

We assume that there was a good probability that there would be a second rate cut, it happened and that was contemplated in the guidance.

Total revenue is anticipated to grow in the same range of 10% to 11%.

Operating income as a percent of total revenue is anticipated to be approximately 36%, although inching ever so slightly up.

EBITDA margin for the full year fiscal 2020 is expected to be approximately 41%.

And the effective income tax rate for fiscal 2020 is expected to be in the range of 24% to 24.5%., although we anticipate that now will be toward the high end.

As I indicated, PEO and insurance revenues are now anticipated to grow approximately 30%.

We anticipate that growth for the second quarter will be in the range of 56% to 60%, and growth in the second half of the fiscal year will be within the range previously provided of 11% to 14%, but at the lower end of that range.

PEO and insurance revenues growth was partially impacted by a change in classification of an immaterial Oasis revenue stream out of PEO and insurance services into management solutions after we last provided guidance.

So make sure when you look at the presentation we've posted that you got the right beginning number.

It's not a big difference, but make sure you're working off that numbers as you look at updating your models.

Management solutions.

In addition, we've experienced lower workers' compensation insurance rates that moderated our insurance services grew.

It was a little softer than we had anticipated in Q1.

We anticipate the trend eases as we go through the year, but started a little bit slowly there.

And we are also anticipating modestly lower at-risk insurance attachment in our PEO business based on current trends.

And that number for us, if it's not at-risk insurance, we don't recognize it as revenue.

So our business can do very well without having significant at-risk insurance attachment.

We are looking at the trends, thinking it will be a little bit lower than we had originally projected.

Now in contrast, management solutions guidance was increased [to] approximately 5% growth from our previous guidance of approximately 4% growth due to favorable trends we've seen during the first quarter.

In addition, management solutions has increased partially due to the change of classification of the immaterial Oasis revenue stream and had a negligible effect in first quarter and will have a negligible effect for the remainder of the year.

For the second quarter, we expect growth at approximately 5% and then between 4% and 5% in the back half of the fiscal year.

Operating margins, which, for the full year, are anticipated to be approximately 36%, vary quarterly, as you probably captured in your models.

For Q2, we expect margins to be in the range of 33% to 34%, and for the second half of the year, we expect to see them at approximately 38%.

So in the second half, we're anticipating, at this point, approximately 38% margins.

I got asked a lot after the guidance that we expect to see higher margins in the back half of the year, and the answer is yes.

Now I refer you to our investor slides on our website for more information.

And with all of that, I will turn it back to Marty.

Thank you, Efrain.

Maria, we'll now open up the call to questions, please.

(Operator Instructions) Our first question comes from the line of Ramsey El-Assal of Barclays.

I wanted to ask you kind of a general question about your pricing strategy.

Marty, you walked through a lot of really interesting kind of product innovation that's happening.

When you are able to raise prices, is it always in conjunction with a new enhancement or in addition to value?

Are you still able to just raise prices on a renewal just you to the underlying kind of stickiness and competitive (inaudible) product?

I'm just trying to understand whether pricing is kind of tied to innovation or is this something you kind of leverage or to the underlying kind of competitive know you have?

Yes.

I think it's still both.

I think we're seeing, not only for the innovation and bundling more things together, but also the normal price increase that we've given guidance on pretty consistently.

It's held up pretty well.

So we are at kind of normal annual price increases, and we've seen that do pretty well.

I think that's part of what you're seeing management solutions is holding is better than we originally projected is because of that.

So we have the pricing power both ways, I feel, at this point.

Okay.

And then on the PEO and insurance segment in the quarter, the deceleration there, there a few percent take their that you mentioned -- both of you mentioned.

The softness -- if the implied sort of dissolution in the quarter in PEO and insurance just really solely or more due to the softness on the insurance side, can you just sort of speak to the underlying growth rate of appeal sort of ex Oasis in the quarter and kind of disaggregate the insurance from the PEO performance for us?

Yes.

Thanks, Ramsey.

So I would say, just to be clear, the PEO business has been growing solid double digits.

So it can do very well.

In the quarter, the -- we knew that workers' comp was coming up against a tough compare because much of the softness in workers' comp occurred in the back half of last fiscal and so it was a little bit more pronounced that we anticipated.

That's part one.

And then part 2 is, in the PEO, the attachment of at-risk insurance impacts the revenue, it has no impact -- has very little impact, I should say, on margin.

So we saw little bit less at-risk insurance attachment in the quarter.

I would just mention that, that varies widely from quarter-to-quarter.

So you can find a big client that has a lot of work -- I'm sorry, that has a lot of health care attachment, revenues go up and it really doesn't change in your margin, but it doesn't do much for the bottom line.

So we saw a little bit of softness on both of those.

Our next question comes from the line of Kevin McVeigh of Crédit Suisse.

Nice job on the management solutions.

Can you give us a sense of how much of that was better retention as opposed to just any thoughts around kind of drove that upside?

Yes.

I think I'll let Efrain speak on that too.

The client retention continues to be at our highest level.

So we're feeling very good where we ended last year with a record high, and we continued right through the first quarter.

So feel very good about the client retention piece of it.

And then there were a few other changes that Efrain would want to speak to.

Yes.

So Kevin, the -- we saw, as Marty mentioned, strong retention in the quarter.

We had strong rate meaning combination of discounts and price increases sticking.

Those were good.

We had increases in the client base.

We had a lot of good things happen in the quarter that make us incrementally more bullish.

I'd say 2 other things that are important relative to the results in the quarter.

The first is that, we saw very good performance coming out of our mid-market segment on the sales side.

(inaudible) also helped it was really not a significant contributor, but it made us incrementally more bullish going into the back half of the year.

And the other thing I would say is that we saw strong performance coming out of our PEO business from a sales standpoint that also -- even though the revenue was a little softer, we feel pretty good about where we're at.

By the way, just a final point on that, worksite employees -- before I get the question, worksite employees -- worksite employee growth was strong in the quarter.

Great.

And just because -- obviously, you're seeing overall payroll slow, it looks like you're business fundamentally is accelerated.

Marty, is that kind of the benefit from the investments in the last couple of years or as you're kind of repositioning the company?

Or just any thoughts on that?

Well, yes.

I think we definitely have been repositioning the company from a couple of standpoints.

One his, from a tech perspective, the company is much more -- Paychex is much more our technology company now providing service as well than it has been in the past.

And all the investments are really paying off like the things that I listed out.

This is a -- and it's impacting not only the clients and their retention and their value and satisfaction, but also the employees of the clients.

So our business and the products that we're introducing very much focus on the employees, and it's kind of perfect timing for a market that's difficult to hire and retain employees for small and midsized businesses.

So the fact that we have a 401(k), for example, that you can sign up for -- participants can sign up for in 4 clicks in a mobile app, it's a 5-star rated app, it makes it easy to sign up.

That participation is up double digits because.

That drives better retention of 401(k).

That also drives a retention of the employees and it's better for the clients.

The other positioning of the company is certainly more to HR.

The sales process today is very much about an HR overall need than it is for payroll by itself.

And we've been positioning the company that way whether it's through PEO or frankly, through the power of kind of over 3,000 salespeople.

We use the power of those 3,000 salespeople to not necessarily the old way, sell payroll then call them back for other services, but basically, look at their needs upfront and sell the value of HR and the full product suite that Paychex can offer up front.

So definitely the company has been -- we've been repositioning the technology side of it and the HR side of it.

And that has made a big difference as payroll has become more or less a more of a commodity type of thing and the need of the client has been much more about HR retirement, the HR generalist.

We have 600 HR generalist now of the year serving the worksite employees that we serve in PEO our ASO.

It's a huge need now given the changes in regulations and complexity.

Your next question comes from the line of David Togut of Evercore ISI.

This is Rayna Kumar on for David Tougut.

You called out another strong sales bookings quarter.

Could you maybe discuss in which products and segments of the market you saw the best growth?

Well, we don't bring it down too much that we get past selling season in the next quarter or so we have a better sense of the year.

But definitely, as Efrain mentioned, the mid-market sales in particular we so very strong growth.

And this has been more of a challenge over the last couple of years for us once we got investments in technology and product out there.

We also have very solid leadership team in that mid-market, and we've performed extremely well and that fourth quarter.

So I would say, certainly, the PEO, the retirement business, et cetera, but when you look, the mid-market stands out, certainly, from the start of the year.

And actually, as we ended last year as well, but this first quarter was really strong in the mid-market.

And that's a real positive was because we had -- certainly, over the last couple of years, hadn't been quite as strong as we thought we needed to be, and we're very pleased with where we started out.

Great.

That's very helpful.

And then you called out a number of real-time payment products.

Can you maybe discuss the time line for rollout and the revenue model associated with these products?

Well, sure.

The end of this calendar year, we'll have the kind of pay-on-demand.

So to make sure I'm clear on this, so the pay-on-demand obviously offers employees of clients the ability to take some wages out earlier than waiting for their 2-week period, et cetera.

Real-time payments, we see coming in early 2020.

We think we'll be one of the first, if not the first, to offer real-time payments.

This is really more of accelerate -- we offer same-day HCH today if you have a late-last minute change in your payroll, if you need to make some changes, if you need to do something at the last minute and be sure the funds are there.

And there is some charges for that and we expect it will be some charges for real-time payments, which takes back to the next level of making it immediately available.

Real-time ACH has -- or ACH same-day has some limitations from a timing perspective depending on banks so forth.

And real-time payments will really kind of wipeout most of those limitations, and you'll be able to get funds in your employees accounts basically in real time.

Our next question comes from Jim Schneider of Goldman Sachs.

I wanted to maybe follow-up on the improvement you called out both in management solutions and also the mid-market.

Is that more of a function of the enhancements you've made with Paychex Flex?

Any color you can put around that?

And also maybe just talk about how much of that's being improved by the sales force enhancements and channel strategy?

Any think in terms of color you could provide around that will be great.

Yes.

Sure.

I think it's a little bit of both.

I think certainly the product is -- the enhancements to Flex have been significant, not only from the payroll side, but the integration side and all -- some of the products and features that we discussed today.

Even like the payroll grid, offering many more options and making it just easier for them to go from a payroll standpoint.

But the integration of the HR and I think the sales team and sales -- so their effectiveness and the sales approach is being much more about HR first instead of leading with payroll coming in and offering the full suite of products that we offer.

And then also, as I mentioned today in the comments, offering others to have -- we have a full set of APIs to other providers of on-demand services and HR products and accounting products and that is getting broader, and I think we see that as well.

We certainly offer a one solution set.

That's the great thing about Paychex.

We can have them all fully integrated into Flex if you want it.

But if you're on an HR on an accounting system that you want to make sure you keep an interface into Flex, you can do that as well.

So I think it's that approach.

I also think the employee approach, Jim, that we -- I mentioned earlier, really doing things with the mobile app is making self-service mode available to their employees, not only their checks, their W-2s, signing up -- signing off on time, in attendance, changing schedules, setting up your 401(k), all of that is adding a lot of value to the mid-market in particular, and we're seeing that payoff for us.

So we're very pleased with the first quarter start.

Great.

And then maybe as a follow-up.

On the PEO, the reduced guidance, you called out several of these -- (inaudible) factors on the insurance side.

But I want to make sure that I'm clear.

In terms of what you're seeing in the core PEO business, is there any slowdown there, either in terms of market demand or from a competitive positioning standpoint?

And maybe just talk about how the Oasis expected growth is going relative to what you thought it was going to be?

Yes.

So Jim, 2 parts of that.

So the short answer is no.

But let me explain why because it's important to understand (inaudible).

So when some question started to rise, I got -- started to get calls relative to what are you seeing with respect to worksite employee growth within existing clients.

I did a deeper dive to understand what was going on, and we are seeing solid worksite employee growth within existing clients.

So that was an issue that came up and was commented on.

So we're not seeing any of that.

That's one.

Second, if I look at worksite employee growth, worksite employee growth, again, has been solid in the quarter.

So we're not seeing anything there.

On the Oasis side, in order for us to get fully optimized for Oasis, we are in the process of ramping sales efforts there, and I think that process is ongoing.

So it's -- there -- I agree that somewhat idiosyncratic, the reasons for the slight modification in the guidance, but it has no -- it really is not indicative of any changes, both in demand patterns and in -- or the underlying market.

If I called out the growth rate on sales and PEO, I will just say this, it's multiples of revenue growth.

So that's one reason why we feel pretty comfortable about where we're at.

And the trends in the Oasis you're seeing?

Yes.

I was just talking primarily on the sales side.

The integration is going well, and we're in the process of pulling it into the Paychex family book.

Yes.

We're at this point of finalizing all combination of the sales teams and service teams.

But we feel like the integration is going well, and we're feeling very good about it.

We're also -- of course, with Paychex or some of that integration, we have the insurance agency, the 21st largest in the country.

So when underwriting, if it doesn't fit the PEO, we have that option to take them through the insurance agency.

That some of the changes that Efrain mentioned as well, we're getting more through that insurance agency and that's going well as well.

So you don't have to turn down a client, something that many times Oasis had to turn down in the past possibly over underwriting.

We can now move them to the agency and offer them insurance through the agency itself.

So we feel good about the start here and integration is certainly on track.

Our next question comes from James Berkley of Wolfe Research.

Not to beat a dead horse on the PEO side, but I guess just trying to be like more direct.

You guys are still trending -- a couple of quarters ago, you said bookings in PEO space were low double digits?

Are you guys still in that range?

And all the worksite apply, I think, it was double digits last quarter.

Can you confirm if it's still double digits this quarter?

I think I said that, James.

It was strong.

Okay.

And then I guess, Efrain, just -- we talked a few days ago, I guess, about that new HRA rule.

It could be helpful just for investors to hear your thoughts on the impact there it's coming into play in January 2020?

Yes.

So this is a new legislation that makes it easier for employers to use HRAs an alternative for funding health care plans.

And the questions that have come up from investors are around the impact on the PEO side of the ledger, will this impact any of those.

And we've looked at it.

Of course, until it's in place and people are actually having the opportunity to take advantage of HRAs in a different way, it's -- you can't say 100%, but we feel pretty comfortable that, that should not have a significant impact on PEO growth.

Yes.

We've had -- we've offered HRA's for some time.

I don't think -- even with a legislation that gives some support in credits, I think -- it doesn't seem like employees are going to run from traditional insurance plans to do the funding.

We've offered those, as I said, for some time and seen -- not have seen a great uptake.

I think there's some businesses that do that, but I don't think there will be any major shift that we would expect that's going to happen from traditional insurance plans over to the HRAs.

Our next question comes from the line of Lisa Ellis of MoffettNathanson.

I guess I'll ask the inevitable macroeconomic question.

Marty, can you give some color on what you're seeing on sort of the second-order dynamics around the macro environment.

I know you have a very unique look into things like obviously employment grew, but also like small business survival rates, the attach rates, the value-added services like benefits, et cetera.

Can you give us a little color there?

Yes.

I think we reported our small business index yesterday and actually, we had an uptick from September to August.

1 month doesn't make a year or trend.

But job growth actually ticked up a bit.

These were businesses under 50 employees.

And we saw some growth, not only -- improvement in the job growth, it's still down about 1% less job growth from last year, but this was the first time we've seen an uptick in a couple of years where it moved up month to month.

We also saw wages in hours worked up.

So wages looking -- pushed up from about 2.6% wage increase to 2.8% and hours worked went up.

So I think small businesses are still feeling, overall, a little shaky on the economy and what's going to happen.

But generally, they're getting good product demand for their services.

And they're -- still their biggest challenge is hiring enough people to fulfill the demand.

So we also data business sentiment report and everything was positive, everything had gone up from the previous report probably 6 to 9 months ago that felt that it would be easier for them to -- a little bit easier for them to hire, a little easier for them to get capital.

So I think while the economy itself makes them a little cautious, I think that they're feeling like right now they're getting good product demand and their biggest challenge is hiring.

So you saw the hours go up because they're working who they have more to fulfill the demand and the wages are going up as they're trying to raise wages to get to a -- to pick up the employee.

So overall, pretty positive actually with our latest report that just came out yesterday.

The other thing, Lisa, and as Marty mentioned it yesterday, is SMBs are typically a little less impacted by slowdowns in global trade.

So in that segment of the economy, obviously, larger multinationals and enterprise-level companies are starting to feel the pinch.

You're not feeling as much of that lower down the employee count.

So it's not impossible to have results like this in one segment of the economy where you see more concern and pessimism in other part of the economies.

Yes.

We've talked about tariffs and trade issues.

And we found in surveying clients that about 3/4 of that small businesses are not impacted.

Generally, they're regional businesses, they're the lawyer's office, the doctor's office, the restaurants, et cetera, the contractors.

They're not impacted.

The 25% -- the 1/4 that are and a little bit of a time changing their supply chain and so they don't have the leverage of larger companies.

But 1/4 of them really don't feel like they would be impacted by trade issues or tariff issues.

All right.

And maybe as my follow-up, and this one's probably for Efrain, give your perspective or your best perspective on how you anticipate the PEO business performing if and when we see a macro slowdown?

I mean I know that there is an argument that PEO should actually pick up because the cost in economic value proposition is so strong for small businesses, but then on the other hand, it's also got a perks component to it.

Just what's your view on that?

Yes.

So I think the first thing to understand that question is what's the average size, at least, in our base for PEOs, and typically, a PEO in our world is in the 25 to 30 employee range.

So you're comfortably out of the 20-and-under zone where you would tend to see more of an impact from a macro slowdown.

And what I mean by that specifically is, 20 and above, you start to see a lot less impact from business failures in the event of a downturn.

You see that increasing as you go down the employee count.

So now you're in an area of the economy where the employer -- employers where you tend to see less of an impact from macroeconomic slowdown.

And then the question is, in that kind of environment, do you have a greater demand for HR Services or do you have a low demand for HR Services?

And when you think about it, the balance really kind of lies on a greater demand for managing your workforce in the event of a downturn.

So I wouldn't go so far as to say it would not be impacted.

I think there be some impact, but it'll certainly be less impacted than a typical small business would be.

And less impacted we are than we used to be.

If you went back in the last recession, and we were primarily a payroll company, I think we feel that really half of our revenue coming from nonpayroll services and moving to more than half coming from nonpayroll, that also changes kind of the impact to us as a company in a recessionary period.

And one final point which Marty raises, which is important.

When we went into the recession last time, which was is the '08 timeframe, we were heavily dependent on float income.

Almost 30% -- somewhere between 25% and 30% of our net income was by float.

We're in a completely different company no.

And I've heard people make the argument and hey, look, I like a good argument like anyone else does, but I do think the data suggests that we are different.

Our next question comes from Bryan Kane of Deutsche Bank.

Just looking to get a couple of clarifications.

What was the revenue growth contribution of Oasis in the quarter, trying to get into an organic growth number in the PEO insurance in the first quarter?

So Bryan, I called it out as a little less than 10, our organic growth was between 5 and 6.

Inside of PEO and insurance?

No, total revenue.

We didn't split it out like that.

I just cautioned that if you want to know growth rate for PEO was in the quarter, PEO not PEO and insurance, it was solid double-digit.

Yes.

I'm just trying to get -- there was about $15 million GAAP, I think, in street numbers in PEO and insurance versus the actuals.

It sounds like...

Yes.

Yes.

Yes.

So part of that, Bryan -- I called out, part of it is that at the end of fourth quarter, we made a small classification change in staffing revenue, which some people picked up and some people did not.

I would just caution you, you can come back to me off-line and I'll walk you through the numbers, but the starting point was a little bit different.

We made that change, not everyone picked it up.

So I think it's part of it.

I think that's generating part of the change there.

And so part of that moved into management (inaudible).

That probably accounts for a good chunk of the difference.

Okay.

Helpful.

And then just on the guidance in PEO and insurance to be towards the lower end of 11% to 14%.

Is that the workers' comp will drag a little longer than you expected?

Just trying to make sure that I understand the change.

Yes.

A workers' comp started a bit more slowly than we had anticipated and Q1, and I called out at-risk health care and insurance attachment rates based on what we saw in the first quarter.

We're working through all of that with now 3 pieces of the PEO, and we think that, that number is going to be a little bit lower.

But I would just caution one thing about that, that really doesn't have that much of an impact on margins.

And then the second thing is, I could come back next quarter and say, hey, the attachment rate actually ended up being a little bit higher.

It's a little bit tough to nail it with precision, but we'll keep updating it.

Our next question comes from the line of Andrew Nicholas of William Blair.

Just to stick with Oasis briefly.

I think, based on my math, Oasis did maybe $85 million or so in the quarter, which I think was maybe $5 million or $6 million below last quarter.

Just wondering if there's anything to highlight on the step down, if there's any seasonal factors to consider?

And if that was in line with your expectations as of last earnings call?

Yes.

I don't do on the spot math.

I would say that our -- Oasis was pretty much in line with our expectations.

So I'd have to go through that with you to make sure that you're using the right set of numbers.

Okay.

Fair enough.

And then with respect to the PEO market, just curious if you've seen any changes in the competitive landscape recently?

I think more specifically, I'm curious about when you're going head-to-head with another PEO, which I recognized isn't as frequent, but when you are, what are the determining factors in winning or losing business?

And relatively, how important is pricing in those conversations and if you've seen any changes in the pricing dynamics as well?

Yes.

Really haven't seen any changes in the competitive market for PEO.

And in fact, I think with Oasis in giving us some new markets, we're in some new markets, it really comes down a lot of times from a competitive standpoint.

So you're not seeing so many -- you're really not single competitors, think of the same competitors.

And we're a little bit larger, obviously, now at this point, being the second largest.

And I think it's really the insurance plans, which we feel really good about having the insurance plans.

And of course, the service that you provide with the HR specialist.

And I think we've been able to demonstrate that we've been in this business for a long time, both PEO and ASO.

And by the way we can offer either one of them.

That's part of the new branding of Paychex One is the brand of our HR Outsourcing.

So you can go PEO, you can go ASO with us.

We've been in this business for 20 years.

We have 600 HR specialists out there, and we have great insurance plans and we continue to have -- expect to have those.

And that's really when it comes down to is, what's the service model, what's the insurance plan that you offered, what's your history and the ability to offer that service.

The competitive nature hasn't changed much, I think we're very well positioned to win in this market.

Hey, one other point to your earlier question and you can call me back off-line.

I would caution with saying that, that revenue was sequential in PEO.

Certain quarters, there's cyclicity in quarters.

And typically in the back half of the year, you have higher revenue than the first half of the year.

So it's not (inaudible) compared to look at it quarter by quarter because it bounces around.

Our next question comes from the line of Tien-Tsin Huang of JPMorgan.

Just a couple of questions on the HR.

On the management solutions side, that was clearly better, you laid out a lot of reason.

But versus your 3% 4%, what was the difference there?

I know the reclass maybe contributed a little bit.

But can you comment on payroll HCM pricing, maybe link it for us?

Yes.

We still would have had 5% in the absence of a reclass, so I just want to make sure that that's clear.

And the other thing I want to make clear is that I did call down in Q1 due to a composition of days issue in the quarter.

That did hit as.

So we had just stronger performance through a combination of both, as we discussed earlier, pricing client growth, stronger mid-market performance on the sales side.

The combination of all of those just ended up being stronger than we had anticipated, which was a good turn for us.

It is.

It's great.

And just on the quarterly EPS.

Efrain, I think last quarter, you mentioned that the first half net income would run low single-digit growth.

This came in ahead.

Can you maybe help us recast second quarter versus second half, if you don't mind?

Yes.

Well, I guess what I'd say, Tien-Tsin, is I gave fairly good guidance on what we expected revenue was going to be in the quarter and what we thought margins were going to be.

So I would say implicit in what we were saying was that -- I give you a decent number for Q2, that we expect Q2, Q3 and Q4, we called out operating margins being at approximately 38% for the back half of the year.

So it's going to be better.

And at this point, there's an element of conservatism to what we're guiding.

We're still in an uncertain interest rate environment.

So we want to preserve a little bit of flexibility if the Fed decides to continue to cut without altering the guidance.

So back half from an EPS standpoint is going to be stronger than the first half, even though we got off to a pretty good start in the first half of the year.

(inaudible).

Yes.

No.

For sure.

I know the tax and interest paid them I played some smaller roles too there.

So last one, I think you mentioned Efrain, 38% second half margin, is there any danger in us using that as a baseline for fiscal '21?

Yes.

There's a big danger, Tien-Tsin.

Let me explain why.

So when we did -- when we adopted revenue recognition, what it had the effect of with moving a revenue stream into Q3 that had previously been spread across a number of quarters.

When you do that, what ends up happening is that you cyclically -- cyclically, wrong word, you create a situation where Q3 is always going to be your highest margin quarter.

And the reason is very simple.

You simply have more revenue with no greater associated cost.

All of that drops to the bottom line and you typically seeing -- although, I called out 38% for the quarter, it's not going to be uniform -- 38% for the back half, it's not going to be 38% in Q3 and Q4.

Q3 will be higher than Q4 and so that's the danger.

If you just take that as the run rate for margins going forward, you're kind of not taking into account that Q4 -- I'm sorry, Q3 is going to be a higher-margin quarter now going forward.

Having said all of that, we do think that -- all things being equal, we think that expenses will trend down in the back half of the year, and we'll have some opportunity to improve margin from where we are as we go into 2021.

Hard to believe, but hopefully that's helpful.

It is.

No just looking for (inaudible).

You guys, obviously, going to get a little bit of benefit from some of your investments.

Our next question comes from the line of Steven Wald of Morgan Stanley.

Just maybe just following up on the margin question.

If there were a couple of things are wanting you can call out to hold you back whether is perpetual reinvestment or just faster-than-expected mix shift, what would keep you from something like notable margin improvements starting in 2021?

And how we should think about that conceptually?

As you talked about like moving towards less of a payroll model, more of a model tech model, how should be think about the margin conceptually in that lane?

Yes.

I guess I'd like to defer the -- a better or more complete answer to the second half of the year because trends will become more evident.

But if I were to point to one thing, we've had relatively high spending.

And what's been kind of unusual about our performance is that we haven't taken any charges.

We have made changes on the fly.

We've delivered double-digit EPS growth, and we've done that all within the context of the kind of programs that we run.

So we understand that as we exit the year, some of that spending will decrease.

We know that.

We're working on that actively.

And the question is, how much?

We'll have better sense of that as we go through the second half of the year.

The investments have paid off.

I think the result we're seeing reflect that.

And I think that all of the technology advances and improvements that Marty was mentioning are really the fruit of that accelerated investment.

But you don't continue to invest at that accelerated pace, you pull some of it back down.

So we anticipate as we go into '21 that that's what you would see.

Got it.

And then maybe just one quick follow-up.

I think earlier in your comments, you talked about the shift from being thought of our traditional payroll-driven model toward the tech offering and all of the product that you guys have been calling out and does that make sense.

I guess just as we think about from a macro perspective and what we've sort of seen in your data, ATPs, broader macro data, are you guys prepared of the mind that we shouldn't think of Paychex as being heavily levered to shift in employment?

Well, I think certainly not as levered.

It's going to have some impact, but I think as Efrain mentioned earlier on a question, probably more specifically on the PEO, payroll was -- especially if it's small business, payroll was very much tied, obviously, to new business startups and losses in businesses going out of business because of a tough economy.

When you're 50% or more -- more of an HR time and attendance retirement, et cetera, services, non-payroll and not so focused on just the smallest clients, it's going to have a different impact.

Because in a recessionary period or a downturn of employment, you're going to have a bigger need for HR.

How do I retain who I have?

How do I maybe layoff people?

How do I make changes in cost, structures?

These are all from our clients perspective.

There's a huge need for HR support and other products and technology like self-service.

When you think about 10 years ago, we didn't have a mobile app that had much of it on a self-service from an employee basis.

And we can save -- we're now saving clients a lot of money and better -- giving them better productivity by saying, hey, if you want to change -- if your employees want to change their address or change their deductions, et cetera, they can do it all on their phone by themselves now.

They don't need to call -- go through you and call us, et cetera.

For the dynamics of the company on the clients and what they need is for is changed pretty dramatically.

And I think that -- certainly, that was our position -- positioning that we started moving toward many years ago to say, hey, you can't just be a small business payroll company, you've got to be an HR and a complete outsourcer to small and midsized businesses, and that certainly is going to have much less of an impact if there's a recessionary time.

One of the other thing I would add to Marty, this sort of concretely in terms of what we've seen over the last 3 years, certainly, since the end of fiscal '16.

If you look at the financials at the end of fiscal '16, about 60% of our revenue came from payroll, 40% of it was but we would've called HRS.

If you look at where we are of the forecast, obviously depends on what model you using, but payroll [balance] in the mid-40s with everything else being 55%.

That trend is something that's deliberate, not something that is happening to us.

As Marty said, that is the positioning that he and the management team have adopted, and the numbers bear it out.

And I do think that we have evolved very clearly to a tech-enabled services company that is much more HR focused than it was 3 years ago.

Our next question comes from the line of Bryan Bergin of Cowen.

I wanted to follow-up on real-time and on-demand pay, the offerings roll out that you have.

Can you comment on you maybe partnering with those?

I'm curious if it's strictly for account deposit or is there a call offering as well.

I just want to understand the mechanics of that offering and how it rolls into your model?

Yes.

Bryan, I think we'll announce that probably a little bit later as we get into the last quarter -- calendar quarter of this year or the -- for the pay-on-demand.

And because -- I guess, I just want to be sure we are altogether on it before I announce it publicly who the partner is.

There certainly is a partner there that we're doing it with.

And then on real-time payment, it's the same thing.

One of the major banks, and I would wait until we get closer into the first part of the year just to make sure that everything is -- from a competitive standpoint, I want don't want to give out too much too early.

But we have partners in both, very solid relationships, everything is, we feel, is in place.

I just would like to announce something as we roll it out.

One will be in the next October and then a couple of months and then One will be early 2020 real-time payments.

Okay.

That's fair.

And then just a follow-up on the insurance services business.

Is the pressure from the worker's comp rate there, just the outlook as that abates, just a moderation as you go through the second half comps?

Yes.

So it's a little bit lighter in the quarter than we had planned, and so I was a little bit more cautious as we went through the year.

Our expectation is that in the back half of the year, it starts to abate a bit.

And then by (inaudible) '21 -- fiscal '21, (inaudible) I don't know why I keep saying that, but fiscal '21, it should be [passed].

The attachment rate is pretty solid, it's a continuation of the rates that this is -- that it cycles in and out and we're just in that cycle where there's lower workers' comp rates.

And sales are okay, in fact, the attachment of the from last year on clients, but the rates are just lower and that's driving that revenue down, and you got to kind wait for it to cycle back around.

Our next question comes from the line of Samad Samana of Jefferies.

I just wanted to ask a question about the new Paychex, so the new Paychex solo offering.

And I'm curious how we should think about it in terms the size of the opportunity and what may be to go-to-market model is?

Is it more a direct sales organization?

Or is it going to be a similar to maybe some of your competitors to have more when inbound type of model for their smallest customers?

I'm just curious.

Yes.

I think it going to be a little bit of both.

They certainly cat be referred and sold by the field sales force.

We're also going after it to the web's and the leads and then the direct sales telephonic sales force will be out selling it.

We think it's a big market from a sole proprietor standpoint when you -- we found that, that there is a need for that retirement product and of course, the incorporation services.

And then if you find that sole proprietor that needs payroll and we can incorporate payroll, a simple retirement product and incorporation.

We think we've got a nice market there.

It's pretty new.

It seems to be off to a good start, but I think we're -- we want to see it for a couple of quarters.

But it's got a nice opportunity from that micro -- the sole proprietor provider really marketplace is an offering.

But it can be sold from a web lead, from telephonic sales or from the field as well.

So we think we've got it covered across field sales forces and we think we've got a nice tight clean product that will have some opportunity there for us.

Great.

And then maybe a question similarly on the other end of spectrum.

The company has invested significantly in it's technology and a lot of the commentary today has been focused on that.

I'm curious how you guys think about potentially starting to move upstream or targeting larger customers after -- based on the technology investments that you've made and maybe what the company's view on that is?

Yes.

I think our view is really that -- still that under 1,000.

I mean, we'll some clients over 1,000 employees.

We focus -- there's a big market -- when you think about those mid-market, there's 20 or 30 employees to 1,000 is a very big market that we think we're very well positioned for, where certainly, we have been from a service perspective, personal service perspective, but also from now from a technology perspective and the breadth of services.

And the need for those HR Services have come down in size so much over the last 3 to 4 years, and I think we've been very well positioned for that.

So really not looking to get into that 1,000 plus generally, unless there's a specific need that we can filter.

But we think that the best value, best margin and best approach for us is to stay very focused on the kind of 1 to 1,000 and specifically, how we handle under 20 and how we handle 20, 30 to 1,000 is what's really taking off from a technology, API and breadth of offerings that they provide.

That's where the best margin is, that's what I think we're very well positioned from our experience and product set to be successful on.

Our next question comes from the line of Mark Marcon of Baird.

Just wondering, with regards to Oasis, just how much of that end up contributing to the expenses for this quarter?

And how should we think about that fathering in and being rationalized as this year and forwards really into next year?

Yes.

Mark, a lot of what we called out in the press release is driven by Oasis, in particular the amortization expense and operating expense associated with Oasis.

There's a lot of combination going on there, but a combination of the expenses.

The expense growth ex Oasis would be somewhere in the 4% to 5% range.

That's very helpful.

And then with regards to either what you're seeing from a competitive perspective given -- and then viewing that vis-à-vis all of the technology improvements that you've put together, What are you seeing in the 5 to 20 employee market?

How should we think about that?

And I'm particularly interested in terms of the new initiatives that you have in terms of being online sales, online implementation.

That was something you talked about during the last quarter.

What are some of the early results there?

Yes.

They were pretty solid, Mark.

Particularly, I'd say, 5 to 10, we've focused very much on virtual sales or telephonic sales and -- in driving those leads.

We were doing the 1 to 4 leads internally with telephonic sales because of the speed from lead to close.

And we had a lot of success as we built the teams up for that last year.

We moved the 5 to 9 leads with the majority of those inside the web leads to the inside sales team for the same reason.

We're off to a good start, both on lead demand generation, the way we nurture those leads and get them to inside sales and then our handling those leads.

That also frees up the field sales forces to get more of the larger customers in that, let's say, under 20.

That will free that small business rep team to do that.

So we're seeing a good start of the year on that.

Competitively, not seeing any big changes there.

We're seeing kind of the same players.

I know there is one that's talking about that they've been going on market.

I haven't really -- we haven't really seen an impact of that, in fact, much at all.

I think again, the investment that we made in the technology, the reputation we have for service to that under 20 is really -- bodes very well for us.

So I think it's -- we haven't seen a big change in the competitive environment, and we're actually get off to a pretty good start we feel.

And then with regards to interest rates.

Obviously, the Fed's done some things, but rates are actually going as different what they're basically targeting.

We take a look at like your incremental effective yield in terms of what you're placing now relative to what the effective yield on the overall portfolio, how does that compare (inaudible) right now?

I think you're probably, Mark, somewhere in the -- boy, you asked a great question, which requires layers of explanation, so I will try to summarize it.

Unlike other people, 45% to 50% of our portfolio is invested in short-term.

So you get an intermediate decline on the short-term-part of the portfolio by whatever the Fed does.

So if you're in the 1.5% range, that's what you're getting on the short-term portfolio.

And then if you drop, you lose the 25 bps that -- if you have a decline of 25 bps, then you're going to lose immediately 25 bps, I mean, immediately, but 30 days or so.

So on the short-term portion of the portfolio that's what happens.

On the long-term, it's a little bit trickier because their you're really kind of turning that portfolio over, about 20% of that portfolio turns over.

And I think that we called out in the script, it's a little bit above effective yield now, a little bit above 2%.

Current investment rates will depend on the -- frankly, on the shape of the yield curve, which in some ways, is anyone's guess.

But I would say, now you're 25 to 50 bps lower when you started the year.

Now I just read an article yesterday, I'm sure you read the same articles I do, about kind of what the Fed is anticipating doing or not doing, so I caution taking that to the bank.

But that's an indicator of where we are.

And then the final thing, which is the third part, is we do have opportunities if we see where the yield curve -- the shape of the yield curve to extend duration.

Right now, we said duration was about 3.1, we have flexibility to go longer if we want to.

So all of those are the puts and takes.

I was specifically thinking about that 20% that's rolling over that would be incrementally invested relative to the...

Yes.

That's what I said, so you're probably in the 25 to 50 bps lower.

Relative to the effective yield that we're currently getting?

Yes.

Right.

I'm sorry, yes.

Okay.

Great.

And then with regards to some of these new initiatives that you're rolling out that I'll be demoing today at HR Tech.

What sort of contribution do you think they're going to end up having as you start making the plans for '21?

And how does that impact the size of the sales force?

Yes.

I think from a -- I'm glad you're out there.

The group is excited to demo everything at HR Tech.

I think it's always with us -- with the number of clients we have, it's a small impact to start as we ramp up penetration rates and attachment rates.

But I think it does bode well for '21 to get things in now and see how we're growing.

From a sales force perspective, I think there could be continued growth there, but I think we're also looking for continued productivity with the sales force.

We have a very talented sales leadership team and sales force that is always looking to sell more products.

And the way we are approaching, as I mentioned earlier, is the power of those 3000-plus reps selling kind of all of our products, not just the old traditional way where we would sell payroll first and come back.

And we're finding much more success, whether it's the small market of the mid-market, kind of again looking for the value that client is looking for overall, the need that they have in selling that completely.

So we may have some continued increases in reps as we see opportunity.

And there will be also some increase (inaudible) outside, probably from a telephonic sales and field sales perspective.

Our next question comes from the line of Jason Kupferberg of Bank of America Merrill Lynch.

Just wanted to follow-up on the commentary around the mid-market sales.

You certainly sounded bullish there.

Sounds like you think that trend is sustainable.

So I just wanted to get your perspective, from kind of a share gain standpoint, if you think that this is something that's going to be continuing for a while.

Because it feels like historically, this market is maybe valuable to highlight some more competitive intensity and now it sounds like you're clearly making some strides to overcome that.

Yes.

I think a couple of things.

One, I think from a share perspective, the market is continuing to grow.

So the good news is there is, while I think we certainly are doing well from a competitive close rate when we're in there, the market itself is growing.

So the need for HR has continued to come down inside.

So that clients that we are looking for different solutions at 100, 200 [or] 300 employees are now looking at those 50 employees or 40 or 30 employees, so meaning full time and attendance.

You just see the overtime rule just came out and changed and put more folks on overtime.

Clients will be looking for more time and attendance solutions.

And when you can now add the technology of wearables and geofencing to say, here, if they're working remotely, they're working from home or other location, the can track all that and they can do it on their watch, all those things make you very viable to even a smaller client then goes to think they can afford that kind of thing.

And a smaller client needs it.

So the market itself is growing from and HR and a full-service perspective.

And then I think the competitive environment really hasn't changed much.

I don't -- there hasn't been new competitors.

Different competitors have their strengths and weaknesses.

And I think right now, between the technology and the service model we have, I think it's very strong.

And we do feel very good about the first quarter and I think what we feel like the momentum is that are really for rest of the year and beyond.

And Efrain, I think it may have been 2 quarters ago, you had suggested Oasis could do $335 million to $375 million revenue in fiscal '20, if I've got that right?

Is that still the right range?

And then any thoughts on where within that range might be most likely now that you're about 1/3 of the way through the year?

Yes.

I don't recall that specific one, but I think we're in that range, Jason.

The one thing I would caution is that's total -- there's a few revenue streams in there that are reported not just on the PEO side.

But part of the classification change we made at the end of the year was one of those revenue streams, and we had been reporting part of the ASO revenue that Oasis provided.

It's not a huge amount, but it's part of that total.

Okay.

And then just one last one than the quick one.

Buyback pretty materially this quarter, just wondering what's left on the authorization there?

And any implications always the interpret that in the context of what might be out in your M&A pipeline?

About that's a good one, Jason.

That was good.

I was tracking it.

Yes.

No, look shares of cracked up to him that was a good one I would say.

Ask the question of the day.

Make sure that it cracked up a bit and just because it was clever, I'm sure it cracked up a bit and we're committed to keeping our shift on flat.

So we thought it made sense to be a little bit more aggressive.

Actually has an implication whatsoever on M&A.

We've got still a lot of powder and we've got a lot of opportunities that we're looking at and then finally, I think we're -- we've got about $250 million or so left on the authorization.

But to the extent that we needed to get more, we can of course of that conversation with the Board.

Our last question comes from the line of Kevin McVeigh of Crédit Suisse.

Great.

Back to that we can come up Marty, you kind of more tax-enabled HCM kind of the incremental disruption from switching full suite versus payroll.

Does that reset the opportunity on the attrition side longer-term?

And is there any way to think about what a longer-term target would be with the kind of new revenue contributions?

Yes.

Good question.

I think it does, to some degree, although you still got to think about the mix of the client.

So with our mix still definitely toward the low end and of in the growth of that under 20 market, that won't change her to dramatically.

But it's a very gives us a much better retention tool when you think about also the mobile app and they're tied to employees.

The service or that were selling more and more to the direct employees and how they are using that mobile app really gives us kind of fall fresh start on retention.

Back to the degree that a large majority of our clients are still under 20 and that basis still susceptible to startups and turnover in that kind of thing.

So can we get retention better overall?

I certainly -- we're always looking to break records on it, I don't think it will be huge though given the makeup of the client base.

And Kevin, 1 something on Marty said.

So the report client retention, your question really goes to revenue retention and revenue retention has been running in the mid-80s and so I think that adds more of these products of something, you have an opportunity even if a client retention is not materially different to have a bit better revenue retention.

And so subtly, we would hope to see more of that.

That probably gets larger revenue retention versus light?

Is that a fair way to think about,, versus history?

That's correct, yes.

And that was our final question.

We think that said, right?

At this point we close the call, if you're interested in replaying the webcast at this conference call will be archived for approximately 30 days.

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

Have a great day.

Thank you.

Ladies and gentlemen, this does conclude today's conference call.

You may now disconnect.