Welcome and thank you for standing by. At this time, all participant lines are placed on mute until the question-and-answer after this conference. [Operator Instructions] Today’s session is being recorded. If you have any objections, you may disconnect at this moment. Now, I will turn the meeting to President and Chief Executive Officer, Mr. Martin Mucci. Sir, you may begin.

Great, thank you and thank you for joining us for our discussion of the Paychex second quarter fiscal 2015 earnings release. 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, 2014. We will file our Form 10-Q which provides additional discussion and analysis of our results for the quarter within the next few days. Our earnings release and Form 10-Q will be available on our Investor Relations page at paychex.com. This teleconference is being broadcast over the Internet and will be archived and available on our website for approximately 1 month. On today’s call, I will review highlights from the second quarter and our operations, sales and product development areas, Efrain will review our second quarter financial results and discuss our full year guidance, and then we will open it up for your questions. We were pleased with the second quarter results. We continue to see growth and have good progress on our key initiatives. Payroll revenue continues to advance as a result of increases in revenue per check and client base growth. HRS revenue grew at double-digit rates in the second quarter led by our success in selling HR outsourcing solutions to our clients. Total service revenue increased 10%. From the sales perspective, we saw continued progress during the second quarter, particularly in our Paychex HR services and retirement services. We are fully staffed, rep retention and development is on track, and we have continued to be successful in adding new bank and franchise referral arrangements as well as increasing our web leads in addition to our CPA referral channel. Our partnership between our selling organizations has never been more efficient as they help our clients realize the full value…

Thanks, Marty and good morning. I’d like to remind everyone that today’s conference call – during today’s conference call, we will make some forward-looking statements that refer to future events and as such involve some risks, refer to the press release for a discussion of forward-looking statements and related risk factors. You also may recall that during the latter part of last year, we have introduced new health insurance offering within our PEO. For PEO clients and worksite employees, due to the self insurance provisions within the new offering, we began classifying certain PEO direct costs as operating expenses rather than a reduction in service revenue. This change had no impact on operating income. This new product offering had an impact on our fiscal 2015 second quarter and 6-month results as it was not initiated until the second half of fiscal 2014. As Marty indicated, our second quarter financial results for fiscal 2015 represented continued progress from the solid start we had for the year. Here are some of the key highlights. I will provide greater detail in certain areas and wrap with a review of our 2015 outlook. Total service revenue grew 10% for the second quarter to $666 million and 9% to $1.3 billion for the six months. Interest on funds held for clients increased 4% for the second quarter and 3% for the six months to $10 million and $21 million respectively. These fluctuations were driven by an increase in average investment balances. Expenses increased 10% for the second quarter and 11% for the six months primarily in compensation related costs and PEO direct costs. The increase in the portion of PEO direct costs is the result of the new health insurance offering, which accounted for approximately 4% of total expenses for both the quarter and the…

Great. Now, Derrick will open it up for any questions.

Thank you, sir. [Operator Instructions] Alright, sir. Our first question comes from the line of Mr. David Togut of Evercore ISI. Sir, your line is open.

Thank you. Good morning, Marty and Efrain.

Hi, David.

Good morning, David.

Do you have any early read on the calendar year end selling season in client retention?

Yes, client retention continues to be very strong. So, we feel very good, very consistent with that and the early look obviously you don’t know until it – obviously, we are through January, but it looks good to us and selling continues to progress well. It is early particularly in the small market side to know for sure, but we are, I think we are off to a good start through November and December from what we are seeing. We have got full rep headcount. We have got turnover pretty consistent to where we wanted to be and we are feeling at this point pretty good about it.

What is client retention running currently?

I say we are very consistent still around 82%, which is basically our all-time best.

Got it. And can you quantify for us bookings growth in the November quarter?

No, we don’t really – we don’t give that out. We certainly would wait until we get through the selling season before we talk about kind of how it was. We feel pretty good about it though. We mentioned in the first quarter that we felt good about Q1. Q2 was very consistent from a revenue part growth, annualized revenue sold.

Can you quantify growth in checks per client?

Yes, checks per client were under 1% in the quarter. I mentioned in previous calls that once we started dipping under 1%, we wouldn’t call out the exact tenths of a point. We saw some moderation in checks per client. We are looking at it. It seems to be consistent with what we are seeing in the – and what seems to be happening in the under 50 space, which is around 1%, a little bit under in terms of employment growth, but we will have to say it can vary sometimes from quarter-to-quarter. This wasn't a particularly strong quarter from a checks per payroll standpoint.

Understood. And then on pricing, can you quantify what the net price increases running after discounting?

Yes, David, I wouldn’t go any further than to say we are still in that 2% to 4% range. I feel pretty comfortable it’s holding. I don’t see any significant issues there.

Understood. Just a quick final question, ADP completes their transition of their small business client base to run they say by the end of fiscal ‘15 ending June. What impact will that have in your view in terms of direct head-to-head competition versus ADP? And if you could maybe frame that in terms of any new products you have in the small business space?

Yes. So, David as far as we can understand their strategy, they appear to be obviously moving a lot of people on to their run platform and also moving a lot of people to an online service model that has some strengths and some weaknesses associated with it. We think there are challenges in the lower end to operate with that model and we think we have differentiated service that will compete very well from a platform perspective, from technology what they offer versus what we offer in the small market. We feel pretty comfortable we can compete pretty effectively and we think we have got the better service model.

Yes. I think just to add to that they have been going through this platform change for a while and I think we have competed very well. In fact if you kind of look at the gains and net gain from our numbers, we are gaining slightly from that. And we always lose some and take some. And I think we are still doing very well, so we don’t – I don’t really anticipate much change there. As well as Efrain said I think we compete very effectively from the product standpoint, our SaaS-based products our online interface and mobility apps I think are the best out there right now and we just continue to keep adding to them.

Understood. Happy holidays.

Thanks. Same to you.

Thank you, sir. Our next question comes from the line of Mr. Jason Kupferberg of Jefferies. Sir your line is open.

Thanks. Good morning guys. Hi, I just wanted to start with a follow-up question on the checks per client, I know you said that you expect the slowdown to continue in the second half, what’s your sense of kind of where it will actually bottom-up, I know you are still trying to get to the root cause here, but do you think it could even go negative and anything you can give us in terms of sort of revenue sensitivity when this metric moves by I don’t know 50 basis points or 100 basis points?

Yes. Okay. So checks per payroll when you start getting down below 1%, there is a lot of variability in that number and it’s affected by the mix of what’s happening with new clients compared to other clients that are trading out of the base. I think we are reaching some sort of steady-state here where that number will oscillate between flat and 1%. That seems to be consistent with what we are seeing in terms of our small business index numbers and seems to be implying and its fair – you have to be careful because this is one quarter of data. It seems to be implying that you are reaching some sort of more moderate state of employment in the small market space. We had two or three years of really strong checks per payroll and employment growth in the small business space it seems like that’s starting to moderate. The impact on revenue, so what I would like to say is if you have about a point growth in checks that’s typically going to give you anywhere from 25 basis points to 50 basis points depending on the mix in revenue, so it should be relatively modest. And we should settle in somewhere in that range.

And that would be specifically for the core payroll?

Yes. It mostly affects payroll service revenue, yes.

But the 25 to 50 bps is specific to that line, not total revenue?

Yes, that’s correct. Yes, that’s correct, sorry.

Okay, just wanted to clarify that. And then…

Go ahead, finish.

No, I had another question, but then you want to finish your answer. So just on the CPA referral channel, I know you had mentioned last quarter that you were penetrating some newer CPAs, but I wanted to see if there is any update in terms of latest data on percent of your new sales coming from the CPA network or what percent of them are exclusive to Paychex for payroll referrals and is there any uptick in competition for this channel?

Yes. I think it’s been pretty consistent competition in the channel. What we were – what we have done is kind of changed the sales force around a bit to have some CPA centric reps, so where we have a lot of concentration of CPAs. In the past we hadn’t done that. We have been pretty clean on the territory of who own the territory and kind of everything in it. So we have added more dedicated reps just to that CPA channel. I think it’s early in that process, but we continue to get a majority of our referrals, majority – a large sense of our referrals from CPAs. And that’s been fairly consistent at times. I think it’s competitive I think it’s picked up may be a little bit from a competitive standpoint meaning from one competitor there is really not many that come after that channel. It’s really two of us. And I think there has probably been a little bit more competition from incentive to the CPA I guess I would say. But we are still – I still feel good about that. And I think we will have the best sense of that after third quarter.

That’s fair. Just last question on the margins, exclude income obviously running around 39% through the first half of the year, you have got the typical I guess seasonal headwinds in the second half. I know you are still endorsing the full year range of 37% to 38%, but should we be thinking about the upper part of that range being more likely or does it feel more like kind of right down the middle sort of year?

It feels right down the middle sort of year right now, Jason.

Okay. Okay, thank you guys. Happy holidays.

Thank you.

Thank you.

Thank you, sir. Our next question comes from the line of Mr. George Mihalos of Credit Suisse. Sir, your line is open.

Great, good morning guys. Efrain, I know you don’t want to get too specific as it relates to pricing, but I think on the first quarter call, you had mentioned that pricing trends were kind of trending toward the midpoint of your 2% to 4% range. Would you care to update that at all or?

I would care to reiterate what I say.

Okay, perfect. That’s…

Yes. I think what we see George is very consistent there. So, we are holding, we really feel like we are holding the price and the price increase and nothing has really changed in Q2 from Q1.

Okay. And then I know its early days here in the selling season, but would you categorize what you are seeing so far as ahead of expectations in line with your expectations?

It’s hard to say. I think I would say certainly in line if not a little positive, a little above, but it’s early, but you never know especially in the small business market, because so much of it is done at the last minute and we get a lot of sales in at the last minute, but right now, I would say certainly at expectations or a little above.

Okay. And just last question for me, I just want to make sure I understand it, the deferment of some payroll revenue from the third quarter to the fourth quarter. Can you just remind us again what’s driving that and have we seen that before or is something going on here that’s a little different?

Well, yes, so let me explain that in two ways. So, if you look at last year’s results in payroll service revenue, we started the year relatively low 2.4 accelerated in Q2 and Q3 and then ended the year at 3. That had to do with days. This really didn’t have anything to do with days compare. It’s simply that cutoffs in a given quarter may affect where revenue falls on the edge of one quarter or another. We looked at – there is 14 revenue streams that comprised payroll service revenue as we looked at it. Our best estimate is that some revenue that we would otherwise see in Q3, because of timing it’s going to fall in Q4 of this quarter. So, it didn’t happen, it doesn’t always happen, but if you look at the payroll service revenue line over the last couple of years, we see it bouncing up and down, not because it’s that variable, but timing can affect it, days can affect it and that’s why I caution that you really need to look at the year as a whole.

Okay. Thanks guys and happy holidays.

Thank you.

Thanks.

Thank you, sir. Our next question comes from the line of Mr. Joseph Foresi of Janney Montgomery Scott. Sir, your line is open.

Hi. I guess my first question here is could you give us some sense of what the client growth was like this quarter? I know you talked about the checks per payroll, but I was wondering how is that been trending?

Yes. So, Joe what we said was we had a goal of growing clients 1% to 3%. We certainly feel pretty comfortable about where we are in that range and we got off to a good start through the first 6 months. Feel like we are on track in terms of where we expect to be in the year in that range.

Got it. And then on the year-over-year revenue growth has ticked up over the last couple of quarters, can you give us a sense of how much of that is associated with this, I guess either new business or penetrating your own businesses versus the general macro backdrop?

Well, I think it’s probably a little bit of all. When I am asked that question, I say we could statistically say its 95% execution. The reality is you need a better environment. So, the environment is better. Our execution is better. Pricing is a little bit better. And the opportunity in the under 50 space overall was better and we are executing better against it. So, I think it’s a mix of all of those issues. I would say though that our execution on the sales side has been really strong. And it’s been strong for a number of quarters now and we feel pretty comfortable about where we are positioned competitively.

Yes, I agree.

Are there any, I mean, I guess just two parts to the last question, any metrics that you can provide that you would like to share with us about the execution on the sales front. And then the second part of that question and it’s more of a competitive one, a lot of potential competitors have gone public, are you seeing them in the general arena or any change in the competitive environment?

I will take the last part and then turn over to Efrain and I think we have seen the – certainly some of the more competitors showing up in that mid-market space in particular. And but I think we are doing well against them. In fact we have – they are going to pick off some clients at some point because they are new in the market and they have got something to show. What we have done is started to win back some already which we think is a very positive thing. And overall it’s not having any sizable difference to us. So I think while they are out there, I think we have invested very well in the past particularly past three or four years and it rolled out a lot of products now that I think has positioned us very well against competitors. So I don’t – while they out there, we still have the widest breadth of services to offer and certainly the best service and service options along with the mobility. And when you think about all the interconnection, it depends on the client, but when you think about all of the service offerings that we have to connect you and a platform of 401(k) payroll HR administration, time and attendance, etcetera it makes us a much better from a competitive standpoint. Efrain you…

Actually other thing Joe is that we call it out in the press release what we don’t give the specifics when we get to year end you can calculate the number. We talk about revenue per check and revenue per check is a combination of number of things that obviously includes pricing. But I think what you are seeing there is sales to a little bit bigger client on the core payroll side and more sales of the precisely the kinds of products that Marty just mentioned to that sales force. Our cross-selling abilities have never been better and our team selling has never been better. So I think it’s all of those working in combination. And while it’s easy to look at just what’s happening in payroll service revenue and ignore what’s happening in the HRS, the reality is that there you have to look at both and our growth rate is a combination of ability to do both of those things well.

Thanks. Happy holidays.

Sure same to you.

Thank you, sir. Our next question comes from the line of Mr. Kartik Mehta with Northcoast Research. Sir, your line is open.

Hey, good morning Marty and Efrain.

Good morning Kartik.

Both of you talked about selling season being good and I think you have given some thoughts behind why and I was wondering if you look at the fundamentals or at least the fundamentals you will look at to determine this will be a good selling season or not. How have those trended and what are some of those fundamentals that you would look at that kind of predict how the selling season is going to go?

Yes. I think one – at this early stage you will – obviously you look at submitted we don’t get into that amount of detail, but you look at what kind of sales have been submitted already. And as Efrain mentioned that’s not only payroll but that’s the PEO business, the 401(k) business, etcetera because you will get a sense of those a little bit earlier and even then small business payroll and things look pretty solid to us. The other thing you look at is what’s – it’s a little more subject to what’s the pulse of the sales folks and the sales leadership and it’s pretty strong right now. As Efrain mentioned we got great teams selling going on, we got retention in good place. We got full reps all out there, all positions are filled, in fact we are a little slightly over so all the positions are up and running. Leads are coming in very well. So I think all those early signs we hate to talk about it until the third quarter is kind of over and you will get a sense of it. But it’s a pretty good sense right now of what we are seeing and again you really to see January to know. But it’s a good sense. And competitively we feel very good. There is not a lot of things that are popping up competitively that are saying, hey there is someone out there with a real aggressive pricing like we have had years ago that was really taking some share at a very low price or high, high discounting or something. We are not seeing anything like that. So we feel we are competing very well and the products are going over really well. The retention also looks good at this point. So you don’t know again. But again retention we are at our best ever and that feels good.

And then Marty in the press release you talk about the minimum premium health plan that doing really well, is that strictly a reflection of the ACA what your customers are trying to do or are there other drivers helping that business grow?

I think talking about that plan specifically to the PEO and we introduced it in the last half of last year. I think what that really implies is the PEO is doing well. So, right now in the marketplace, PEOs come on very strong and we certainly have felt that kind of from the end of last year through this year, little slow at the beginning of the year starting, but we seem to picking up great momentum. I think some of the target is definitely healthcare reform. They are looking for the strength of coming into a co-employment position, but I also think we are having great sales execution in the PEO side. We also – we expanded it. So, we are selling – while you still sell the majority in PEO kind of “states,” we are selling it nationwide and we are getting very good sales execution on the PEO side, something we have been in the long time, but we think the product and the sales team are really kind of hitting at their peak right now.

And then just one last question, Efrain on the float portfolio, any thoughts about changing investment strategy or any other aspects of it considering the rate environment?

Yes, you know Kartik, that’s a good question. So, our duration now is 3.2 and our yield is about 1.6% on the long end of the portfolio. You can see if you look at that line that we are ticking up gradually. We obviously invest differently than they repeat us. We don’t push everything out longer term. Look, we have a conversation about that in the spring. We will take a look at it. I don’t anticipate any major changes. We were very, very positive about rate changes 3 to 4 weeks ago. And now, I am thinking that while we will see some rate changes they are going to be moderate. And so you are going to have to think about how you position the portfolio in that environment and we may be there for a longer period of time. So, yes, we will give some thought to that as we get into the back half of the year. I don’t anticipate a significant shift, but it looks like we have got low interest rates here for some more time given the collapse in oil prices.

And thank you very much. I hope you guys have a great holiday.

Thank you too.

Thank you, sir. Our next question comes from the line of Mr. Gary Bisbee of RBC Capital Markets. Sir, your line is open.

Hi, guys. Good morning.

Hi, Gary.

I guess on the HRS revenue growth, you have given and I guess you have updated this morning this chart of how adding in the new health plan changes the growth rates and that chart sort of implied 4% acceleration Q1 to Q2 in HRS revenue. Is that really why we see the acceleration or is the underlying momentum in the business adjusting out the impact that the revenue recognition change is having? Is it really picked up momentum?

We saw some improvement in the second quarter. So, we had versus first quarter Gary. So, we had strong performance literally against every single product line and insurance which started a little soft in the first quarter for us had a good quarter. In the second quarter, we expect that to continue. So, we anticipate that we will continue to have strong performance to the balance of the year.

Okay. And so the deceleration implied in the back half is more just how it flows through and then started to lapse some of that revenue being in last year, not anything about underlying?

No, no, sorry Gary, I probably misunderstood your question. That’s correct. So, what happens is in the back half, you anniversary the changes in the minimum premium plan. By the time you get to the third quarter, you are getting about roughly about half of the impact and by the time you are in fourth quarter, you have anniversaried it completely.

Great. And then on the PEO and more broadly HRS strength, I mean, there are several competitors that are public now that we see PEO seems to be doing terrific everywhere. Do you have any – and obviously there seems to be some benefit from health reform, but do you have any fears that sort of demand is being put forward with everyone doing well or it sets up really difficult comparisons once we get into calendar 2015 and more of the mid-market customer they have to be in compliance? And so then you have sort of done that or is this got people really more willing to consider the benefits of this model and you think that the momentum can remain for a while?

Yes, at some point the growth itself from PEO will slow down a bit. It’s early to talk about where we are in terms of ‘16, but we have had a strong year and a half with respect to PEO. We will see where we end the year. Marty was mentioning about sales season, sales season and Q3 is important for the PEOs where we end up they will give us a good indication where we are from ’16. But and I will let Marty talk specifically about employees – employer shared responsibility which is also an important component of our thought process, but it certainly gets the conversation about PEOs going in a way that probably was different than two or three years ago.

I think also I would – as Efrain said obviously when you look year-over-year and when you get into ‘16 there will be tougher comparison on the PEO side, but I think we are very - still very early stage on healthcare reform. As Efrain mentioned our healthcare reform product is just starting to pickup steam now and we really had it in place before anybody a year ago. But with all the delays and the changes in the regulations, I think it took a while to get going. But we are seeing a nice pickup now from healthcare reform whether it’s PEO or not. And I think this will just add to it. So I think it’s still pretty early and I think this will give us some growth for certainly for the rest of this year and then into next year.

Great. And then just one last one, on the strong HRS growth has – if we look today versus say two or three years ago has the mix of what’s coming up sell to existing customers who may have already been a payroll client versus new customers that just want these services and you sell them because they are interested in the HRS maybe more than being legacy payroll, has that changed at all or is it really the same mix and sales process that you have been executing for…?

It’s similar, although I think a couple of things have picked up. One, Efrain mentioned insurance and health insurances has picked up particularly recently and so that’s in there and that started to pick up again. I think 401(k) was very strong a few years ago and it’s kind of leveled out, it’s got nice growth, but the fastest growing is HR outsourcing whether it would be the PEO model or the ASO model or our kind of phone support model. All of those I think the HR support has seen the fastest growth in the last two years anyway and that’s picked up a little bit faster in the mix of things. And I think that’s just the fact that you have seen HR outsourcing and the complexity of HR come down in the client base. So where it used to be that was the 50 plus or at least 30 or 40 plus, that’s coming down more and more into where we have a lot of clients. And so I think we have gotten very good at selling the value of HR supports at various levels to smaller clients. And Efrain mentioned earlier, the team’s selling approach that we have gone to which is if a client is of a certain size, we go in with multiple sales teams together on the front end instead of coming at them after they have payroll I think has also helped to helped to get that growth going higher.

Okay, great. Thank you.

Thanks.

Thank you, sir. Our next question comes from the line of Mr. Tim McHugh of William Blair. Sir you line is open.

Yes. Thanks. I guess can you update us I guess at this point in terms of how much is the sales force or your sales resources kind of up year-over-year as we go into the selling season and is that a fair bogie for how you think about it, I know you said 1% to 3% client growth for this fiscal year, but a lot of that was dictated by last selling season, so I am trying to get a sense for how we should ballpark kind of what the potential is for this upcoming season in terms of client growth?

I think from a sales headcount perspective I would say it’s up around 4% maybe 4% plus a little bit, so a little stronger and we were kind of holding constant for a few years. Last year we were up a bit and this year we went up again across the various sales organizations around 4 plus or a little bit over 4% against.

I didn’t catch the second question back half…

And is it fair to think about the target and I guess for client growth would be around that number, I know you said 1% to 3% for this fiscal year, but I would assume most of that was driven by last year’s kind of selling season?

No, I would that just start by saying, remember that sales team is across all divisions. So it’s not so much on the payroll growth as we have probably seen more increases in the HRS teams as well and also we have moved up some of the virtual sales teams on some of the products like time and attendance and merchant services and so forth as well. So it’s a mix across that Tim. So I wouldn’t say that that necessarily have given you anything on the client growth. The client growth we still think we are in that 1% to 3%. Okay, Efrain takes over them, yes.

Okay. And then the new PEO or kind of the new health insurance product, I get a lot of the focus, I mean, there is an accounting impact of just adding that in there, but how is the client reaction I guess then as we look back at this point? It feels like it’s been adopted a little more broadly even then you would have thought? And I think the follow-up is how – what does that imply? I think you only were started doing this in a few markets initially, so do you get more aggressive what’s rolling this out?

Yes, sorry go ahead.

No, that’s it.

I think of it as really two different. I just don’t want to mix up two different things there. There is the healthcare plan, where we took on more in the PEO and that was primarily in Florida and that’s the market that we are trying it there. So, you are right there, we are doing in Florida. We are getting good feedback on that. It gives us more flexibility on the rates and in the whole process of how we sell and so forth, we have gotten good feedback on that and that’s part of our PEO growth I believe that you will see continue. On the healthcare reform specifically, we have introduced the product across the country and that’s not just PEO, that’s to all clients and its various products of helping them, but primarily helping them understand and give them reporting on the number of clients that they have as full-time equivalents whether healthcare reapplies to them. If it does apply to them, do they have all of the right things in place and how are they going to file the requirements of the health – of the Affordable Care Act. So, I would say both, they are a little bit different. I don’t know if you were combining them or not, but the PEO is going well there in Florida in particular. We reintroduced that plan. And then the healthcare reform products as we talk about there is really the reporting and the compliance and that’s across the country and that’s really this second quarter just started to really start to pickup some steam. So, we are anxious to see how Q3 goes.

Okay, right. Yes, I was talking more of the Florida product I guess what would you want to see to take that more broadly across the rest of the country?

It’s just a matter of Tim you get the right plans in place and is the risk reasonable for us to take on. This is where we are taking on more of the risk ourselves and we felt it was certainly a very big PEO market when you think of really two or three key states for PEO at least right now. That was a good one to take on. It was worth it because of the size of the market, the number of sales we have there and of course the plan we are able to get and workout through the Florida Blue. So, we continue to look at those all the time and we are looking at them around the country as to whether that’s the right move or not. It’s the combination of all those things.

Okay. And if I could slip in one more, there is just this weak news of a new legislation around that PEO sector in terms of having some certification and you are kind of clarifying some of the tax simplifications of adopting a PEO I believe. Can you give us your thoughts on, is that meaningful as you think about the growth of that business?

Yes. So, you are talking about, I think it’s called SPEA, another great government acronym. At the margin, it’s positive for PEOs. It recognizes them as an important solution within the marketplace. There was some ambiguity about how the government was going to look at PEOs. And we think that it’s just going to make the attractiveness of that offering greater in the marketplace, where we are digesting all of the provisions of the legislation, but we think at this point our compliance group, legal group think it’s going to be positive for a PEO.

Okay, great. Thank you.

Take care.

Thank you, sir. Our next question comes from the line of Mr. Smitti Srethapramote of Morgan Stanley. Sir, your line is open.

Thank you. Good morning, Marty and Efrain. So, there has been lot of tension on the growth in the FSA and HSA’s accounts in the U.S. Can you talk about what role you expect Paychex to play going forward whether it’s continuing to work with partners or becoming more directly involved and how big an opportunity could this market be?

Yes. I think FSA has come under some pressure because of some of the changes on it and so forth in legislation and the deductibility of it and everything. I think that’s going to slowdown a little bit. I think HSAs will become stronger. I think that what you will see there is it gives us more opportunity, because I need more health plans and this could be through the agency as well through our insurance agency, you will see more health plans go more toward HSAs. They are going more toward obviously the high deductibles and then giving HSA money to employees. I think it’s an opportunity for us. I don’t know how – if it’s going to be a major impact at this point, but and I think you will see us do a combination of and probably always partnering to some degree with it because of the back room requirements of it, it just makes more sense sometimes to partner than to build. But we have been in FSA for a long time. I think we will be able to handle it very well and we will be – it will continue to be part of our package.

Great. And then maybe just a follow-up on the partnerships that you have developed where the companies like [indiscernible] can you talk about how payment and payment processing is going and if there is any other type of – similar types of partnerships in the pipeline?

Yes, I think the [indiscernible] partnership is going well. We were a little slow on it of the gate. On the selling and merchant services, I think we felt that the field sales would be able to sell that well and they were first in for some new businesses and so they will be able to sell it. It turns out, we learned a lot in different trials on that that it’s a complicated pricing structure based on your type of business and so forth and very competitive. So what we found was we now have the field sales team refer back into an internal team, which we increased the size this year and they are doing very well. So we have gotten some real traction this year on the inside team that sells basically virtually. So the field sales refers it back and inside team will then talk to the client and sells their credit card the merchant processing. And that started to pickup some real steam. Now, it takes a lot of clients given the commission structures there to have substantial revenue given our revenue size. But we do think it’s got great momentum and we are continuing to see that. So it’s been a nice partnership and I think it’s starting to take off. Other partnerships like that, can’t think of too many other than Paychex accounting online. We have invested in with Kashoo in their Paychex accounting online. Again a little slow getting going. I think we are learning a lot about the marketing of the product and how to integrate it more into the marketing. Our clients still view us very much as the human resource outsource – human capital management, payroll and HR and time and attendance and getting them to view us as an accounting offering as well with the Kashoo product has been slower than we thought. So we are learning on that. But we are always open to that. And of course Brazil is a 50-50 partnership with Semco down there to help us get started. And I think just starting in January we are off to a pretty good start. I wouldn’t give a client count at this point, but it’s starting to pick up traction as well and we feel very good about that decision.

Thank you.

Okay.

Thanks.

Thank you, sir. Our next question comes from the lines of Ms. Sara Gubins of Bank of America-Merrill Lynch. Ma’am, your line is open.

Hi, thanks. Good morning. I had a question about the new platform, I had a chance to take a look at it at the recent HR tech conference and was particularly interested by the Flex enterprise platform for larger clients, I know it’s really early, but I am wondering what the feedback has been from the sales force in early demos and if you think that is now fully competitive with some of the via more recent entrance at least from – to the public market? Thanks.

Yes, I think we do – obviously we have been able to show it at some of the shows and the sales force is really picking up steam on it now. I think we sold another platform for a long time, so there was a lot of learning there and we have been enhancing it very quickly. The thing that changes so quickly today is when you release something almost every month there is a new release that’s adding something to it. And so that’s probably been the biggest challenge for the sales force is all the changes to it that we have been adding. That’s a good thing because its added enhancements, we have gotten good feedback on it. I think the clients really like the way it shows the user interface is very simple and very direct for them. We are working on integrating more and more of the other products that we have into that. So it’s – there is a full suite of products and combined with that great user interface and the mobility platform and multiple products that are going anywhere from recruiting on boarding to payroll to HR administration time and attendance, all of that’s bundled in and we are giving more service options now with between user interface to mobility and 7x24 client service. I think the differentiator will be technology to some degree, but it will also be the great service that we can provide that I don’t think anyone else is focused on. So it’s getting good traction with the sales force and we are anxious to see the January results.

Great, thanks. Following up kind of on that theme of being able to do payroll in a lot of different forms, given all of the objects that you have been making to mobile and your platforms, are you starting to see – are you continuing to see a shift towards more online entry as opposed to phone and fax? Is there anything appreciable really happening there? And if there is do you think that we might see an operating margin benefit over time from that?

I think we are seeing some shift towards that. And it’s interesting, it’s particularly we just saw like a big shift on mobility for like the holiday, for Thanksgiving. So, you are seeing it around certain times where – which is exactly what we like where the client has a choice each and every week or every other week whenever they do payroll. They can go mobility this week. They can go online next week. They always have their dedicated personalized service to fallback on whenever they need it and they can just call up and give their payroll over the phone as well. So, we are seeing some shift, but the thing that we are seeing that’s very positive to us is that clients are using the multitude of options available to them, which is what we wanted to give. We don’t want to force them to online. We don’t want to force them away from a payroll specialist who gives us the great retention numbers that we have. So, I think there certainly has been some opportunities there and you will see us with our industry leading margins, you will see us continue to find ways to keep those. You may find us reinvesting as we have the last 4 years though right back into technology, because it’s going to be this combination of service and technology that makes us successful.

Great. And then just last quick question, last quarter you talked about an uptick in sales to new startups, you mentioned here it continued to strengthen under 50 and I am wondering if that sales to startups continued this quarter?

Yes, it did. We are continuing to see a positive uptick compared to last year. And so we are still seeing that the new business startups as you know I am sure still are not back to what they were pre-recession levels, but they certainly have ticked up over 700,000. They are just not quite back up from what everything we see or back up over that 800,000 level kind of countrywide. So, we are encouraged that we are seeing more sales from new businesses and that’s always been a big part of our business. So, yes that has continued in Q2.

Great, thanks very much.

Okay.

Thank you, Sara.

Thank you, ma’am. Our next question comes from the line of Mr. Bryan Keane of Deutsche Bank. Sir, your line is open.

Hey, guys. Most of my questions have been asked and answered, but I just want to look at big picture, maybe Marty, when you look at payroll services growth and HR services growth and you look at the guidance, is that the right model to growth rates or you are leaving some growth on the table, just kind of how do you think about the big picture as we go out for the next couple of years?

Well, is it the right model? I think we will always see the HR service revenue growth growing faster. And I think that the good thing is there, Bryan is that we have got a lot of opportunity for when you think of the penetration rates that we are at. So, even as long as we have been in this business and successful at selling into that base, we still have low penetration rates in a lot of services right from 401(k) to insurances and so forth. So, I think you will always see that, that growth is higher. I think the interesting thing approaching $1 billion in revenue in HRS is really exciting to us and going well beyond that. Payroll service revenue growth is always to be somewhat tied to the economy, but we feel like we are executing well on everything that we can control. And I think you will see frankly a blending more of that. It won’t be so much about how much is payroll service revenue growth and how much is HRS growth, but how much is the combined service revenue growth. And we are trying to continue to drive that to upper – into a consistent upper single-digits kind of place to be. And given that, then keep those margins up and expanding and we have got something very unique here. So, we are excited about how we are executing and certainly about the opportunity in front of us.

What the acquisition pipeline look like? And is there any appetite to take on larger deals moving forward?

Yes, there is. We have come close on a few. I think that the tricky thing is the valuation. A lot of these things in the pipeline are priced or valued at almost what I would say is a perfect acquisition. So, it doesn’t leave you a lot of room for error in our opinion. We have been very successful at the product tuck-ins and the acquisitions like SurePayroll that we have done. And so we are very careful about what we acquired, but the pipeline is pretty good. It’s just the valuations got to be right or we are just – we are not going to do it. But we have got the cash and the flexibility. And I think we got a nice track record of executing. So we are pretty aggressive about looking at everything that’s out there right now.

And would everything be in kind of the HR area or is there certain other maybe verticals that you guys will look at?

I would say pretty much anything that we are into right now would be in our space, so anything from payroll to PEO and product tuck-ins but certainly larger deals as well. And like I said we have come pretty close. But the valuations are pretty steep and so again if we don’t feel like we can make that difference we are going to be pretty disciplined in our pricing.

Okay. That’s all I had. Happy holidays. Thanks Martin.

Thank you. Same to you.

Thank you, sir. Our next question comes from the line of Mr. Jim MacDonald of First Analysis. Sir, your line is open.

Yes. Good morning guys, just a couple of quick follow-ups. On the HRS growth as I remember right, the 401(k) restatements has – had some impacts in the quarter, could you talk about that and was it confine to this quarter?

Jim, it’s part of your decision on pricing. HRS was strong for in virtually every single line. You make a decision as to whether you want to take that pricing or not, but in the 401(k) business in particular, we had higher assets are moved to bigger plans and that certainly played some part in it and will continue to play a part for the remainder of the year, but that’s not the sole thing driving growth in that business.

Right, I was just trying to figure out that was a little more than normal this quarter?

It was a little bit more than normal this quarter, but again 401(k) part of the way that we make money in that business is a number of different streams and all them were up.

Great. And another follow-up, so just on the new Flex product, could you talk a little bit more about what your primary or where you think it will sell the best which size range of customer?

Yes. I think we are seeing mostly anywhere from 20 and up, 15 to 20 and up is probably going to be seeing that the most this is where they – the good news is I think that’s probably been lower than we had expected for a full suite of the products. Now Flex can encompass as little as payroll and as large as the entire suite. And so I think that – but overall when you see multiple products being purchased as a bundle it’s in that 20 plus which is I think a little stronger than we expected. And I think that that’s because again that the market is changing and things are coming down. The need for HR administration, time and attendance particularly as the technologies made it better we just introduced Paychex Time which I mentioned. And you know here is a mobile punch that now allows you to go in and punch and actually keep the punch, keep your time open on your mobile phone for 70 – up to 72 hours, so you don’t have to login again, get into your mobile app as an employee and then punch in. You can actually leave it open for multiple time periods. As that stuff gets easier and easier we are findings smaller businesses are finding big benefits. We are able to sell them on the big benefit. So we are excited about Flex and the fact that they kind of bundles all this together along with the service options. It’s appealing to 20 and above, but certainly has some – it certainly fits even below that?

Great. Happy holidays guys.

Thank you.

Same to you.

Thank you, sir. Our next question comes from the line of Mr. David Grossman of Stifel Financial. Sir, your line is open.

Thank you. Good morning.

David, good morning.

Just a couple of very quick follow-ups, I was just wondering. I assume you track some of tracking of revenue per clients and I am wondering if you could help us understand how that has been trending given all the changes in the underlying services and some of the enhancements to the products that you are making to kind of accommodate a bundled type of sale?

Yes. It’s been trending positively David. I think that what Marty was saying earlier about team selling and cross-selling, I think we have just gotten much better at understanding what a client’s needs are based on size, putting the right set of solutions in front of them and because we have breadth of service – I am sorry breadth of product offering that’s pretty unrivaled, we can typically get a client the solution they need from the first instance, which is a little different than what we are doing probably 4, 5 years ago where we would wait for payroll and then do the sale sequentially. So, look I wait till the end of the year to quantify it, but we are pretty pleased in terms of the revenue uplift that we have been getting per client. So, what that implies is that, that the game no longer has just simply got units and then add ancillaries, which is what we talked about 5, 6 years ago? It’s really get the revenue on initial sale for the right kind of client and we are executing pretty well against that strategy.

Is there anyway you can disaggregate how much of that phenomenon is contributing to your growth rate? And I guess on the same line, can you help us understand the margin profile of those clients versus what they look like historically [indiscernible] payroll and other services on top of it?

Yes. So, margin profile is not significantly different than what we have seen historically. If you go back 4, 5 years, our operating income net of flow was about 400 basis points lower than it is right now. So, we obviously have been able to execute that strategy and grow margins at the same time. That’s one. To disaggregate it, I need to give you year end client data and then you need to compute what average revenue per client is. So, you can get a sense of that if you do that analysis from last year. I won’t – we will probably update that at the end of the year, but we are getting the pretty nice revenue uplift. And the issue is that we think that, that we can continue to execute that strategy into the future.

And maybe just a related question as it relates to the margin, as you think about these acquisitions that are out there and I know valuation separate issue, but as you think about that as well as some of the enhancements you are making to the platform and some of these newer segments that you are going after, is the company perhaps thinking more holistically about kind of the margin in terms of that balance between growth and margin or has there really been no change internally about that?

Well, yes, sure I mean, I think we are always looking at – we are trying to get that upper – consistent upper single-digit growth in the top line and continue to be very shareholder friendly on the bottom. And so I have the high margins, but it is a balance. If we see a good opportunity to drive growth that might hurt the margin a little bit, then we would – we are not going to hesitate to do that. It’s always going be a balance. So, we want to drive both, but if in the short-term, it hurts you a little bit, I think we are willing to be able to do that. So, we are investing I think we have been very successful at over the last particularly 4 years is driving margin improvement and also investing it very heavily in technology and I see it along the same lines. We drove cost out of operations who got very productive, tried new things and still got us a great client retention and satisfaction and we funneled out those dollars into technology, where we were behind 4, 5 years ago and put us in a great spot from a technology position now and a competitive situation. So, we see the same thing with an acquisition. Hey, if we are going to take it or it takes on some additional expense, where also we are going to be able to cut to be able to offset it.

Right. And just one last thing then going to the international expansion, this has been a long road for you guys starting in Germany years ago and you now have this joint venture in Brazil. I mean are you getting any more encouraged or less encouraged about the ability for the model to be expanded outside the U.S. and could you share any insights into kind of where it heads out in terms of kind of taking this into other geographies?

Yes, I think we’d like to as a team we talked about the strategy a few years ago and decided hey, look let’s try to pinpoint 3 or 4 countries perhaps, let’s get our thing, let’s get it growing. I think there wasn’t a focus on it for quite a while. It was kind of a nice idea, but it was not always a focus. We have started focusing on it. We have really doubled the size of Germany through acquisition and through additional sales people. So, we are pretty encouraged there and think that there is still opportunity there, but it has moved slower than we expected, but frankly the culture is slower to still outsource than we had expected. But so we feel pretty good about the fact that I think acquisitions are opening up as well as the opportunities for sales there. In Brazil having only been there less than a year really I think we have learned a lot. It’s also a little bit slow to come out from the CPA or the client doing it. So we have worked a very good process and with becoming the CPA’s back room. I think that's brought down the revenue per client less than we expected, but it’s helped to accelerate the growth in blocks. So you go to a CPA and you take their business, you build credibility with the CPA then we will move into the direct sales to the client because we will have market share and credibility and that’s actually picking up some nice traction. And Semco has helped I think knowing Brazil and partnering that was a different approach than Germany, where we kind of it took us a long time because we did it ourselves. And then we are still looking at one or two countries where we can get in either through acquisition or startup primarily probably through acquisition. And we think we are trying to build it to where it’s meaningful to our revenue which is difficult given where we are growing, but I still think it’s a nice opportunity.

Okay, very good. Thanks for that and have a very nice holiday.

Thanks David.

Thank you, sir. Our next question comes from the line to Mr. Jeff Silber of BMO Capital Markets. Sir, your line is open.

Hi Jeff.

Thanks so much. And I know it’s late actually wanted to ask one question. Efrain I think you had mentioned earlier the potential impact of oil prices on your stocks regarding interest rates, are there any – is there any other impact potentially on the rest of the business from the decline in oil prices?

No, I highlighted that because obviously it’s had an impact on the Fed’s thinking around interest rates. I was just reading an article before the call around what they expect to see in terms of consumer uplift. It’s hard to peg any of that to have a direct impact on our business. So no, it shouldn’t have an impact.

We are hoping that it brings up at least in the short-term some consumer confidence which may gives them some discretionary income to spend and it might bring small businesses up, but it’s going to help small businesses a bit as it works through depending on the business. And so hopefully it has some positive impact, but we haven’t seen too much yet.

And do you have any specific geographic exposure to the states in the U.S. that have a lot of energy production?

We are seeing that overall from our small business index. We are seeing that the Central part of the U.S. is where we are seeing the best small business job growth because you are seeing increased jobs in the drilling and fracking and so forth and that’s the Central. It’s anywhere from Texas to North Dakota. So it’s interesting that they are having kind of the best job growth right now where the costs have come down some. But I wouldn’t say it’s had any dramatic effect, but I think that it’s been a positive but mostly in the Central U.S.

Yes, I was actually looking at it from the opposite perspective with the decline in oil prices if you have seen a slowdown in job growth there?

Not that we seen, no. Not – we have not seen that.

Alright. Thanks so much. Happy holidays.

Thank you, sir. Our next question comes from the line of S.K. Prasad Borra of Goldman Sachs. Sir, your line is open.

My questions, firstly – Hi, how should we think about revenue per check and probably just following on one of the earlier questions when you think about it, it is dependent on pricing, but also the kind of product portfolio you have, what is the price differential between the most basic versions of products which you are selling compared to a full blown out version. And what kind of penetration levels do you have like if let’s say put 100 figure to the most basic product to say 20% or 30% penetration of the full portfolio, so if you could probably give any numbers around that, that would be helpful?

Yes. Well, S.K. I think the best way, let me start with the end and then come back to revenue per check. So obviously, we think that revenue per check has been going up and will continue to grow. If you look at each of the product lines we have and I say this frequently, Marty does too that we have about 10% on average of the base penetrated right now, that’s what’s generating the HRS revenue. So I will let you figure out your model what that equates to, but certainly we think 10% is pretty underpenetrated for the base. And there is probably multiples of that kind of opportunity that exists within the base ignoring whether you get growth in the base, which we think will get over time. With respect to each of the products, it really – it really – it depends on the product. When you attach an HR outsourcing solution to a payroll client, you are getting multiple Xs of that payroll clients’ revenue and that ranges anywhere from 1x to 2x on a 401(k) plan as I said to multiple Xs of that payroll revenue in an HR outsourcing solution. So, it really will vary depending on where the opportunity is and the rate of penetration by products, but we think we still have a long way to go in terms of getting to a point where we have saturated the base with the suite of products that we have.

Okay. And just one other question, for the last few years, you have been exactly investing in products and a point which Marty was mentioning about continuous investments in technology and this year you have invested quite a lot around sales and marketing. So, when do you expect a more normalized investment here? Is it going to be FY ‘16, FY ‘17 yes, any views on that?

I think you will always see some growth from a sales and marketing perspective. I think just to keep up with the competitive environment I think it’s fairly normalized. It wasn’t a huge increase in sales and marketing, but I think when things have kind of at a normal pace, we are typically trying to grow the sales force by 3% or so. From a technology standpoint, the increase – the level of increase has slowed and I think it will be what you can always spend millions more on technology. I think we have got a great product portfolio and roadmap that we invest in and then tried to slowdown the increase of spending, but the level of spending will probably stay relatively the same. So, I think we are in kind of a normalized – we are kind of heading into a normalized period right now.

Thank you. That’s pretty much from my end.

Take care, S.K.

Thank you, sir. Our next question comes from the line of Mr. Mark Marcon of R.W. Baird. Sir, your line is open.

Happy holidays Marty and Efrain.

Thanks Mark.

Couple of quick questions. Just on the PEO side when you are getting new clients, are you typically seeing brand new clients to the overall solution or what – or how many of the new clients that you are getting are competitive takeaways. How would you describe that?

I think I would say it’s kind of 50:50. I think we are selling into the base as well as brand new clients on the PEO concept. So, I would say probably it varies month to month, but probably around 50:50 is fair. I think we are putting a little bit more emphasis on brand new clients, because I think there is a real opportunity out there. I think our sales force is executing well and really can sell the benefits of the PEO to a brand new client and it’s part of as Efrain has mentioned a number of times this kind of team selling. So, you don’t necessarily have to go in and just sell them payroll. Are old model is selling them a complete suite if they need it and value it. And so you will see us focus probably some reps just on PEO selling outside the base.

Great. And I mean obviously there is a couple of states that are well-penetrated in terms of the outside of those core two, three states that are really well-penetrated. Are you seeing an increasing level of acceptance of the PEO concept?

Yes. And I think this legislation that Efrain mentioned earlier may accelerate that a little bit too, but I think so yes, we are typically Florida, Texas, let’s say Georgia, I think even New York now is starting to pick up and some other states that we really haven’t seen that much growth before. So, I think there is more acceptance and I think the legislation will make that even better.

Great. And then on the competitive takeaways on the PEO side, what’s the primary reason why somebody would come to you from a competitive perspective?

I think the insurance plans that we have I think as well as the service and then the technology of the product that you have. And I think when you look at a few of us that are in the PEO business, I mean, there is only a few that really have that wide breadth of that. Also there is you have really got to count on somebody large and I think sometimes people go into these, there is a lot of small PEOs, I think clients go in there thinking they are going to get something that in the end, they can’t provide from service and technology perspective. And just safety I guess I would say of the insurance plan. So I mean it’s a combination of product offering, technology service and strength of the company behind it.

Great. And so when we – with the supplemental schedule that you provided when we take a look at the fourth quarter number for HRS is – do we have a full comp in, in terms of the insurance so that the fourth quarter is kind of indicative of the longer term growth rate to expect out of HRS?

Okay. You are good you had me until that last statement. So I can’t give you next year’s guidance, but Q4 certainly is indicative of a full compare. I would hesitate, Mark to say that simply because we are having – we have been having a very strong year in PEO. When we do our plan we will figure that out. I don’t anticipate it will be quite that strong.

Okay. So but we do have the full compare in terms of the insurance plans, but the factor to think about is that even though Q4 has that full compare, we are then going up against a really strong year and so therefore there should be some, but – so let’s say that we end up being 100-200 basis points lower than that fourth quarter number, does that seem like a pretty good long sustainable?

Mark so my answer, you deplorably is that we target around double digit for HRS and year-to-year that can vary a little bit, but that’s kind of what we are trying to get to.

Got it. And then you said something interesting on the core payroll side which is that you are already starting to see some clients come back to you from some of the newer solutions, can you give a little more color around that?

Yes. I think what we have seen, it’s a small sample set, but we have seen is the service model being probably the biggest impact. I think what selling some of the new companies that have come out is user interface and technology might look good to them. The service model has not been as complete or as strong as I think as they expect. And some clients see service as possibly a commodity as there going in and it doesn’t turn out to be that way. When you think of the breadth and experience that Paychex has versus some of the startups and the rate that they are trying to grow you are going to have service issues. And I think that’s been the primary thing that’s driven back to us.

Great. And then on the new clients that you are getting, are they typically on the smaller end of your range or the higher end of your – and I am talking about on that under 20 core side?

It will be over the 20, it will be more in that mid-market space, anywhere 20 to 200 really.

Alright. I wasn’t referring to the ones that are coming back, I just meant in terms of the overall client growth that you mentioned the 1% to 3%...?

Yes. Some markets skewing smaller.

Yes. What I meant was, is it relative to where it’s been historically, is it skewing even smaller?

I can’t really answer that specific question, but it is in general smaller.

Okay. Great. Happy holidays again.

Thanks a lot.

Thanks Mark.

Thank you, sir. Our next question comes from the line the Ms. Lisa Ellis of Sanford Bernstein. Ma’am your line is open.

Terrific, good morning guys. Thanks for taking my call here at the end. If I unpacked the accounting impact, it looks like your underlying apples-to-apples margins are trending up, is that accurate. And can you give some color around that?

They trended up from Q1 Lisa. And but – and I think I was asked earlier kind of where are we in the guidance range, we still think we are in solidly in the middle. We will see. We will update it as we go through quarter to quarter.

Terrific. And then just a follow-up and on the competitive environment in the small business space, you gave a little bit of color earlier around Kashoo and Paychex online – sorry Paychex accounting online as well as your sort of net win backs that you are seeing from some of the new entrants, can you specifically give some color around into it. They have been pretty aggressive in a lot of their earnings calls talking about their traction in payroll, I would be curious to see your view on that?

Yes. We have not really seen losses to Intuit. In fact, we have seen as we dug deeper into some of the gains, we have been gaining some from Intuit on a net basis. So, we haven’t seen a big impact there. I do think they go after a little bit different market while people always think that they maybe taking share from us, we don’t see that. We do see they compete more with our SurePayroll, brand and company and SurePayroll is still doing pretty well. So, they still have double-digit client growth and so forth. So, I think they are still doing well and we haven’t seen a big impact from Intuit. So, they maybe getting it more from those who are manual and kind of moving to a software, which is what we see happening with SurePayroll.

Terrific. Thanks, guys. Happy holidays.

Okay, thank you.

Thank you, ma’am. Our next question comes from the line of Mr. [indiscernible] of JPMorgan. Sir, your line is open.

Hey, good morning guys. Just I will be quick, I know it’s a long call. So, just clarifying on the PEO front, I am curious have you changed your sales philosophy at all with respect to pushing or promoting PEO, it sounds like you had I don’t think, I believe you sell both PEO ASO together. Has that changed?

No, not really. We sell them – we do sell them together. I think I did mention though that we do think that there is a growing opportunity for the PEO. And so we are going to look at we are adding some reps that are just PEO centric. So, just kind of dedicated to the PEO, but we are still the vast majority or still selling both products, because we still think we have seen good opportunity in both of them.

Okay, thanks for that clarification. So just the new folks if you are bringing in are dedicated PEO, got it. And then just from the same kind of the clarification, forgive me if I missed this, just on the HRS guidance in the slides where you show the third quarter, fourth quarter guidance, it looks like it changed a little bit. So, what is that, just the math kind of thing?

Yes. You know what, [indiscernible], so what ended up happening when we issued the guidance for the beginning of the year, the attach rates on healthcare influence the ranges that’s really basically what’s going on. So, we looked at where we expect to be in the third and fourth quarter and just wanted to tighten the range so that the midpoint obviously is where we think we are going to end up, but that could vary, because attach rates on healthcare can change quarter-to-quarter. It’s really we are being punctilious.

Nice. I like that. Alright, well that’s all I needed. Have a safe year end guys. Thank you.

Thank you.

Thank you, sir. And for our last question, the line comes from the line of Mr. Matt O’Neill of Autonomous Research. Sir, your line is open. Matt O’Neill-Autonomous Research: Yes, hi. Thanks for squeezing me at the end. I was just curious going back to the 1% to 2% client growth, how you guys are thinking about that? It sounds like you kind of answered it already and that the SurePayroll is still growing double-digit just as far as the mix as it starts?

We don’t really break it down. I think we are seeing growth from both of us. They are a little bit faster. I remember they are much smaller base from where they are coming from. So, we are seeing growth across – kind of across the board really. Matt O’Neill-Autonomous Research: Got it, okay. And just one last follow-up if you don’t mind, I was just thinking through the kind of profile of the clients that rollout of the Paychex business versus the new sort of class of clients that come in every year. Is that profiling aggregate or different? Is there anything to think about the client that’s leaving the business versus the new client that’s coming in? It sounds like maybe a little bit on the average number of employees coming down a little bit, but aside from that, are there any bigger differences to think about conceptually?

No, not really. I mean, we track to the last penny revenue we lose the size of client, what products they have and it really hasn’t changed much. Matt O’Neill-Autonomous Research: Okay, thanks very much. Have good holiday.

Thank you.

And as of this time, sir, there are no further questions.

Okay, thank you. We will close the call if you are interested in replaying the webcast, it will be archived until around January 19. I thank you for taking the time to participate in our second quarter press release conference call. We are excited about year end, a great time for opportunity to show our clients what we bring them from a service perspective is they closed it year many of them and certainly a big time for us in the selling season. And we are excited about all the work that our Paychex employees are doing. With that, we wish you all a very happy holiday season and thank you for joining us.

Take care.