Good morning. My name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to the Paychex Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Mr. Martin Mucci, President and Chief Executive Officer. Please go ahead, sir.

Thank you. And thank you for joining us for our discussion of the Paychex third quarter fiscal 2020 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 third quarter ended February 29, 2020. You can access our earnings release on our Investor Relations webpage. Our Form 10-Q will be filed with the SEC within the next few days. And this teleconference is being broadcast over the internet and will be archived and available on our website for approximately one month. I will start today’s call with an overview of how we are responding to COVID-19 and then review business highlights for the third quarter. And Efrain will review our third quarter financial results and discuss our guidance for fiscal 2020 including our current thinking and the potential impacts of COVID-19 on our business, and then we’ll open it up for your questions. First and foremost, I want to address the evolving situation we are currently facing with COVID-19. Our number one priority is the safety and wellbeing of our employees and serving our clients and their employees. Our business continuity plan was implemented, and our teams are working around the clock to ensure that we take the necessary steps to ensure our employees’ safety while continuing to support our clients through this unprecedented time. Early on, we instituted travel restrictions and began to reduce the number of employees working in our offices. At this time, all employees, unless designated as critical on-site person, that’s less than 5%, are now working from home and our service metrics and client response time has been excellent. In fact, our average answer performance yesterday was 7 seconds. Extremely proud of this team and the work they’ve done in…

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 such involve risks. Please refer to the customary disclosures in our earnings release. In addition, I’ll periodically refer to non-GAAP measures such as EBITDA, adjusted net income, adjusted diluted earnings per share. Again, refer to the press release. Before I start, I hope that, as we speak, you all are safe and in good health. That’s the most important thing at times like this. If you have loved ones who are affected by the virus and its impacts, please accept our thoughts and prayers for you and for your family. Being human at this time is the most important thing we can do. So, now let’s talk finance. Let’s 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 the review of fiscal 2020 outlook and some high level commentary on fiscal 2021. Yes, some high level commentary on fiscal 2021. Stay tuned, based on preliminary looks into next fiscal year. Total revenue, as you saw, grew 7% for the third quarter to $1.1 billion. Oasis contributed attributed about 1% to this growth. Expenses increased 5% to the third quarter to $673 million. Increases in compensation costs and PEO direct insurance costs contributed to total expense growth, partially driven by the acquisition of Oasis. Op income increased 10% to $470 million; op margin was 41.1% in third quarter compared to 40.1% for the third quarter of fiscal year ‘19. EBITDA increased 8% that’s $520 million; EBITDA margin was 45.6% compared to 45% for the same period last year. Very strong results. Other expense net for the quarter of $6 million includes interest…

Great. Thank you. Lisa, if you could now open the call to questions?

[Operator Instructions] Your first question comes from the line of Ramsey El-Assal with Barclays.

....question and for taking a stab at guidance in a really difficult environment. We appreciate that. I wonder if you could go into a little bit more detail in terms of the expense levers and the different levers you have in your business to sort of manage -- to protect the bottom-line in adverse scenarios. What do you have that you can kind of dial that you have -- that you can crank to kind of get ready to get to?

Yes. So, like most service businesses, 65% of your costs are people costs and 35% are variable. We obviously will go right after as much variable costs as we can. And then, we’ll look at where there are other opportunities. I think that’s the order in which we’ll do it.

Yes. I think with the changes, when you look back to the financial crisis of ‘08,’09, we were very quick to react there and yet keep full employment of the people that we had. Given some of the turnover that we have and so forth, I think we have a pretty flexible ability to keep a focus on the margins, as we always have as Efrain said. We’ve always led by far the industry in margins and we certainly keep a close eye on that.

Okay. And my second one is on the PEO and Insurance segment in the quarter. Can you parse out what growth would have been there without the Oasis stub? And then, just more broadly, in the insurance part of your business, can you talk about sort of risk management strategies in the context of the environment we’re in? And I’ll hop back in the queue after that.

Okay. So, I’m going to ask you to repeat the second question to clarify what you’re asking. But, because I think the way you asked it, I can answer it in a variety of different ways. But, if you look at PEO and Insurance -- I am sorry, the PEO business, we would have grown about mid single digits, I’d say in the PEO business in the third quarter. The second question, I didn’t get.

It was just basically in terms of the insurance part of the business, maybe I’ll rephrase the question, just sort of ask it as, how do you see that business sort of -- have you seen preliminary signs in that business of any type of deterioration in terms of leading indicators? And how do you go about managing risk in that side of the business throughout a downturn? Maybe I’d leave it to you to answer it as you would.

Yes. Let me just explain why I’m pausing. So, PEO and Insurance, I’ve mentioned this to many of you, is both the brokered insurance business, which is roughly, call it 18% to 20% of revenues in that category and the PEO business. So, that causes sometimes confusion when people look at it. On the brokered business, we bear no risk. So, the short answer to your question, which I don’t think is what you’re asking, is that it really doesn’t have much of an impact. The softness in the insurance I keep calling out is really the softness in the workers’ comp insurance portion of the brokered business, not in the PEO. I think, what you’re asking is, if I understand the question is, how are we monitoring the at-risk portion of the insurance in the PEO? I think that’s the issue. So, the short answer to that is that it’s predominantly in the state of Florida. That’s one. So, number two, we look at medical loss ratios. And they have been running very favorable. And the third, which requires a much more understanding of the way we operate the PEO, we don’t anticipate that we will make insurance -- make a profit on the insurance portion of the at-risk, particularly health insurance. What that means is that we are very cautious and very conservative in the amount of reserves that we provide. So, the short answer to your question is that we’ve stress tested that population, which again is primarily in the state of Florida within -- by the way, just if you want to know, the average age of that population of worksite employees is about 38. What would happen, if the medical loss ratio increased by 10%, which would be significant, we are still in good shape from a reserve standpoint. So, the short answer is, we’re constantly monitoring our medical loss ratios in that population. We adjust reserves as we think appropriate, based on the experience we’re having. And at this stage, we feel we’re in pretty good shape. If you are relying on that portion of your portfolio to generate profits, you put yourself in a more complicated situation because your reserves may be lower than you need, at this point in time. So, that’s my explanation.

Yes. I think, the only thing I’d add to that is -- any initial view on the PEO side is actually very active on the HR and insurance side. So, -- and we’ve done I think a very good job, on the diligence, the underwriting, and that’s going to certainly continue. And so, we haven’t seen any uptick in claims. And Efrain said how well we manage that and are very tight on that to begin with. But, we’ve actually seen a lot of interest on the HR side obviously with the complexity of the regulations that are coming out, both the PEO and ASO part of our business. Our HR outsourcing, we’re the only one with 600-plus HR specialists around the country that are handling these clients. And it is -- the interest has grown very quickly. So, initial pieces, there’s going to be a lot of need for the HR support, not only at the beginning of this, in case I have to shut down temporarily, et cetera, but how do I handle the support payments, how do I handle small business loans, how do I with payroll taxes, all of those things.

Your next question comes from the line of Kevin McVeigh with Credit Suisse.

Great. Thank you so much. And thanks for taking a shot at 2021, obviously in a fluid environment. Hey, Efrain or Marty, just a couple of thoughts on kind of the semantics?. How -- because obviously it feels like it just -- the shock is much more abrupt. Is there any way to think about as somebody gets furloughed versus laid off, how that impacts kind of the business model that? That was my first one. And then just what type of unemployment rate are you assuming in that 2021, if there’s any thoughts around that?

Yes. Let me start on the first one. I think it is really important. Right now, we’re able -- with our new flex technology, we’re able to actually survey clients who are in our app. And we’ve had tremendous response just in the last four days asking them what’s the impact to them. And we’re seeing that the vast majority of small businesses and midsized businesses is the fact that, hey, I -- about -- over 50% have had minimal impact at this point, and then another 40% have basically furloughed. So, our hope and our word tracks from our payroll specialists on the service side, our sales people are, hey, if you can stay in business and keep somehow either furlough or keep paying your employees if you can, there’s going to be support -- certainly, it looks like there’s going to be help coming, whether it’d be the small business loan project. That’s why we push also to offer our assistance. We have all the information. We know the direct deposit accounts in the bank. We could quickly continue to help our clients pay their employees, six weeks, eight weeks, whatever the government wants to do, and then, just take that money from a government loan fund versus the client. And I think that’s the quickest way to keep these businesses in business. So, it is really important. And I’m seeing right now, at least leading indicator is that small businesses are trying to hold it together, maybe layoff or furlough a few people, but maintain their business model, so, that kind of depending on how long this is going to go. And if it doesn’t go too long, they’ll be able to bounce back. Remember, just two weeks ago, we had full employment, and it was -- the biggest challenge for small businesses was finding people to fulfill the demand. I don’t think that the demand in many places will actually change. And I think it’ll bounce -- I think it’ll bounce back fairly quickly. People are going to want to get out, they’re going to want to get back to restaurants and use services, may do it a little bit differently in how they stand close to people. But I think they still want to get out and use services. And so, these small businesses are trying to hold on to their employees, and that’s going to make a big difference in how many clients are lost and how many checks we’re cutting.

Hey. The second question, Kevin. So, let me just say broadly, many of our clients -- if you look at our -- on the payroll side -- I’m sorry, Management Solutions side and you ask yourself, when you look at our revenue, how much of it is based on PEPM model, what the percentage of revenue is PEPM versus subscription. In our case, and there’s certain -- there’s a general rule of thumb is about a third is PEPM and two thirds is subscription. We assume that in the next several months, the drop in pays per control will become -- will be severe, will be pretty significant, I should say. I don’t know severe -- I know you’re asking the question that everyone is, unemployment probably go to 20% to 25%. I don’t have a good crystal ball as -- and no one else does. But I can tell you that the way we’ve modeled it, we see some significant contraction coming in the upcoming months. We’ll see how long it lasts. We’ve done the modeling and think we’ve got at least a reasonable handle on it. So, I would say significant over the next several months.

Your next question comes from the line of Bryan Keane with Deutsche Bank.

Hi, guys. I just want to ask about a bridge maybe going from the 6 or so percent organic growth level that we’re at today, down to the slightly negative growth in the fourth quarter, and then for next year. Just thinking about what’s in those assumptions, including bankruptcies and other things that drives it to those levels?

Yes. Our assumption is that there will be client losses in the base that there will be -- that will be lowered pays per control. And we’ve modeled it based on what we’ve seen in prior recessions. And then, we got to figure out, my bad LIE analogy is just simply to figure out what’s the duration of the traffic jam until that resolves. Then, the question is what’s sharp rebound -- how sharp the rebound is? And we think it ends up coming back towards the end of the year. Bryan, I can’t give you a bridge that says, it’s 6% this, 3% that because frankly, the modeling is early on that. All I can say is that we’ve looked at the client base, stressed it, assumed certain impacts, particularly for some of our payroll client base. Compare that against what we saw in previous recessions and come up with our best estimate. But we do anticipate that there obviously is going to be an impact to the client base and there’s going to be an impact on pays per control. And I would just caveat it with one thing which Marty said earlier. To the extent that the downturn is severe but more a short duration, then our assumptions start to change. And to the extent that the downturn is both severe, short term and the government stimulus, which they’re working through now, helps to keep some of those businesses in place. It also helps, our projections. Don’t have any way yet of being able to figure all of that out. We’ll see in the upcoming days what it looks like. That could have, and I emphasize could have some impact, but it’s too early to tell.

And then, of course, Efrain you mentioned the interest rate changes is in that as well. That’s a more of a known item.

Yes. I was going to ask that as my follow-up is how did you account for the stimulus? You’re doing a lot for SMBs to try to prop them up and keep them alive. So, is that modeled in as well or do you just model in as if there would be no stimulus?

I think, it was pretty high level. Bryan, we modeled some -- I think, we’re trying to be a little more conservative on who would go out of business and on the checks because of that. But it was pretty -- it’s pretty high level. And you didn’t know where the stimulus is going to be and how long it’s going to take. I think, the thing it’s so important that we try to get across, I think the government’s taken some great steps very quickly. This one could go faster, if you do use someone like the payroll processors, I think could be very quick, or if you have to go through a loan program, it could take weeks. Those weeks are very important to how this happens, I think to keep people employed and being paid in businesses in session. So, I’m very hopeful that they will do something faster and because of the way they’ve done it already and if that keeps these businesses running.

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

Thank you. I appreciate the preliminary 2021 outlook. Could you dimension for us your revenue exposure to some of the most affected industries, like restaurants, just broadly foodservice, so we can think through 2021, in terms of the framework that you gave?

Yes. Let me start and then Efrain can jump. I think, definitely -- I’d say restaurants in general in those groups are probably around 5% or 6% of our base. And so, it’s not as big as some might expect. So, I think, that’s going to be helpful. And, those are the industries that you’re seeing obviously the most impact in someplace like New York state and other states that shut down the restaurants completely. It also depends, as Efrain has said a couple of times, how long does that happen as we try to start to open those back up in a few weeks with even the partial, with a 50% rule or something else, how long do you -- how long do you keep them in business? But, I think it’s around that number roughly on a client base.

Yes. You know David, so there’s been a fair amount of talk about how this endogenous shock is affecting industries. Marty’s right that if you look at essentially hospitality and foodservices, that’s about 6% of our client base. So, obviously, that’s impacted pretty significantly, both on the payroll side and on the PEO side, but it’s 6%. If you look at everything else, for example, oil and gas is 1% and everything else is distributed in a distribution that looks pretty similar to what the broad economy looks like. So, we don’t have significant exposures to one industry or the other on our payroll client base.

Yes. One of the real positives, as Efrain mentioned about our model and our financial strength is we don’t have any direct -- any large percentage in one industry, ZIP code or region. And so that allows us a lot more diversity across the base, the type of businesses and so forth.

Understood. Just a quick final question. You noted that the business really started to experience impacts in the second half of this month versus the first half. Can you share your -- what you saw in the second half in terms of quantifying the impact on KPIs?

Yes. So, what we saw was -- I was looking at, we were looking at, people running payroll and we weren’t seeing the impacts. And it looked like clients to us were either staying at current -- with their processing routine or in some cases, they were accelerating their processing because they were in the process of either downsizing or in some cases closing. But, that didn’t give us enough data. So, we went back into the other data that we had on time and attendance systems. We triangulated time and attendance systems, we triangulated marketing leads, sales activity, and we saw a significant drop starting as the rollout of state closures or state lockdowns accelerated. So that’s where we saw the impact. Now, the good thing about that is that that we can see what the impact is and we can see the change in the demand environment. The question is, how quickly we come up out of that. Obviously, New York is not going to come out of that quickly. Question is what other -- what happens with other states that have gone into that place?

Yes. One of the interesting things is while we’ve seen leads drop off on the front end, but then there’s been other pieces that have picked up. So, they’re definitely down, but they’re not like shutdown. They’re down double digits, but not as much as you might have even thought. So, people still looking for and maybe because of this looking for payroll support, HR support, insurance, those kinds of things. So, they’re also finding that frankly, this is the time that they better go with an outsourcer and that they would want to go with somebody who’s national and has the support and service teams that we have that are desegregated across the entire country and that can provide great answer performance and support even with 15,000 people working from home. So, I think there’s some benefits to the strength of who we are in our experience level at this point in time.

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

Good morning. Thanks for taking my question. And I appreciate you trying to provide as much guidance as we can here. Just maybe following up on some of the comments that you just mentioned about this down double digit on the lead, but things aren’t completely frozen. As we think about the developing competitive environment as we go through the trough and come out of this, how are you guys thinking about positioning that? Obviously you made a lot of investments on the Oasis side to get that fully staffed up from the sales side, but when we think about things like waiving fees right now to offset pressure the clients may be receiving or the fact that you may have some pricing competition from the very crowded market. How are you guys thinking about that over the next 12 months?

Yes. I think, it’s a lot more about are you positioned to help the clients through this difficult time. That’s what they’re looking for. Some clients are going to be looking for, hey, can you do something to help me in the short term on price? But, our price is frankly as a cost to small business or midsized business is not that big compared to the other things that they’re concerned about. What we are finding is our strength in telesales for example is making a big difference. So, we’ve been selling telephonically for some time, generating leads that are then picked up and handled telephonically with the conversation, the demo and the sale all being done over the phone and even to some degree, when you look at your payroll online, all by the client and self service mode. We’ve retrained and added training to the field sales force on handling those calls remotely. So, being able to talk to clients that don’t to meet in person, but to do that over the phone to be able to demo the product, and sell and complete the sale. And of course, with some of the features that we have with document management we’ve had for some time, everything can be done electronically, electronic signatures, moving the documents back and forth, and of course, electronically on-boarding someone to start them up. Frankly, it is matter of a few hours. So, I think what we’re focusing on is, all right, all of our marketing and so forth is how we can help you through this. Here’s the service model we can give you. Here’s the product and feature set that can help you when you think of how strong our mobile app is. We’re seeing increases in mobile app utilization. Because now clients are -- many clients, employees are remote and they’re able to use the mobile app. The investments that we made are really paying off from that standpoint of mobile app, learning management on site, they can give trainings to their employees online. Of course, direct deposit pay on demand can help them with their only part time or they’re in short shifts when they need cash. So, we’re positioning this as more of the value that we’re providing. And then, if there’s something that comes up specifically, we’ll talk to the client, but it’s not been as much about price as it is, hey, are you the full service provider that can help me through this period of time versus someone else that I have that’s not as experienced and not as strong financially.

And then, just maybe a quick sort of two-parter. I know Efrain you mentioned 42-page report you have, sort of running through how to think about this. If we go back to the prior downturn, I believe retention rates dropped towards the mid-to-high-70s. How are we thinking about that relative to the great financial crisis? But also somebody asked previously about the exposure to industries and how you’re thinking about it versus prior downturns. But, if cross section it and say, a restaurant in the Permian Basin that’s more than just being exposed to oil and gas, how are you guys thinking about this?

So, good question, Steven. And I would say, we’ll go into more detailed analysis of that type as we’re going through the plan process. We’re right in the middle of it right now. So, we’ll do more work in that way. And by the way, the analysis we have looks at exactly those kinds of things. But, coming back to your question, when we in previous downturns -- and now I’m going to go back ‘08 or ‘09, we started from a retention place that was lower than or -- yes, it was lower than where it is now. If we would have continued on the same track we were on through the third quarter, we would have had record retention. I mean, we were aiming towards really, really significantly -- significant improvement in retention through the third quarter. And if you would have said to me when I started nine years ago that we would hit that number, I would’ve been surprised, because we were typically in the high 70s. So, we start from a good place. So that’s the first part. But you have to stress it based on the change that you saw in different environments. And we’ve taken our best estimate at what that will be. So that’s where we’re at right now. Looking at it versus the modeling of -- or the actual experience of previous recessions, I think, we’ve got a good handle on dimensioning the range, and then we can overlay what will happen by industry. But, to Marty’s point, I think there is a -- there was a -- there is an assumption that we’re very exposed to restaurants. So, we certainly have a certain amount of those in the base. But, it’s not all of the clients that we service by a long shot. Now, I will say that that’s for payroll. It’s a little bit different for PEO.

Yes. Steven, I guess I’d just say, it is so determined on what Efrain said about the length of how long this goes and then is the stimulus package going to help them through the first couple of months. And then, does it go another two months, three months or so forth. With the financial crisis, it went a longer, certainly I think seven quarters or so. And so, if there is something that can hold them on and they can still get business, even if it’s takeout and they can furlough a few people but give support on their payroll, it could make a huge difference. So, we’ve done some initial modeling. But, we really need to see kind of how the next couple of weeks even play out.

The next question comes from the line of Kartik Mehta with Northcoast Research.

Hey Efrain and Marty. Hey Efrain. Thanks for at least trying to put together some kind of FY21 guidance. And I’m wondering if you could just give some -- the assumptions you’re making on pays per control or retention, some of the metrics that you usually talk about, to get an idea of what the backdrop is for your FY21 guidance?

Yes. Kartik, I can’t get too specific about that at this point. But, I would say that with -- generally, I’ll give you a kind of a framework that we’re modeling drops and pays per control consistent with some of the effects that we saw in the previous two contractions. So, we’re using that as a guide for what, at least the next three, four or so months look like. And as I said, I think we’re going to have severe impacts, absent whatever the buffer that the stimulus provides through the -- certainly through the summer into the early fall. So, that’s one. And then, in terms of clients, we’ve used that data as a reference point for how we’re trying to think about or create a framework for next year. I think, many of you have that data, understand what I’m referring to when I say that. So, we’ve incorporated that. And obviously we need to have a framework as we go into next year. So, that’s -- I would say, at a general level, that’s what we’re using.

And then, Efrain, at the beginning, you and Marty talked about the balance sheet. I think, the one benefit you have is you have an excellent balance sheet. And I’m wondering your thoughts on share repurchase. Would you -- do you feel comfortable enough that you would want to go back when it’s appropriate in the market to buy back shares, or are you at this point or want to wait and see how things progress for the next couple of quarters before you would want to go in the market and buy back shares?

Yes. Kartik, so, one of the things that’s challenging in an environment like this is, in the absence of any other concerns, you would think that now is the time to start getting very constructive on share repurchase. Because we obviously think that the business will bounce back. And we’re highly confident that that’s going to occur. So, that’s the one side of the thought process. And I would say, by the way, this also -- my thought -- the thought’s I’m expressing also apply to the portfolio. But, you have to -- and I’ve been through this before, where we had an endogenous shock in my prior life. You have to worry about making sure that there are absolutely no questions about your liquidity, and I mean absolutely. People depend on the dividend in this company. We protect that and don’t want anyone to think that there is an issue there. And so, shorter term, until you have a very clear perspective on where you are, you protect liquidity in the short term, you ensure that capital markets are functioning the way they should, and then you make decisions. So, there are those considerations that we play through. And I would say right now, we are ensuring that there are no issues on that, not that would be given our cash flow generation. But it also, Kartik, extends to things like extending the duration of the portfolio in order to get more yield. Right now, we are not assuming that we’re going to do that because at this stage of the equation, we put a premium on liquidity, not that we have any issues with that. I just would -- just reiterate, we have undrawn revolver. We have almost $1 billion worth of cash. And so, there’s no issues there. But, you got to balance all of those pieces in terms of before you start thinking about getting constructed on share repurchase. There may be a time, we’ll talk with the Board at the appropriate time and have that conversation probably. It’s not now.

And then, just one last question, Marty. Marty, when you looked at the previous recessions, was there -- when we came out of it, did you see more small businesses wanting to go with an outsource provider, either because of what happened or they’re looking to save money? So, in another words, as we come out of this, could you see maybe an acceleration in sales because you have businesses that are not using outsourced services wanting to use the service?

I don’t think we saw -- I don’t remember seeing that much of it, Kartik, at that point. But, there’s a couple of things that are very different in this shock that I think can help. One is, the government stimulus packages and the regulation changes are very complex. And I think, more businesses will say, if I’m going to take advantage of that, I’m going to start my business or reignite my business and take advantage of some of the things that are out there. I cannot follow that. I need outside support. And so, I think that’s going to help more businesses say, if I haven’t outsourced before or if I’ve outsourced to a small provider that can’t provide that kind of guidance like we can, hey, I’m going to go with -- I’m going to go with somebody. Second, it’s so different from a technology perspective, as everyone knows. Back then it was not all of the mobile apps. Imagine where we were 10 years ago, there was no mobile apps, really there was no remote working, very little remote working. All of the things that businesses now -- and by the way, their employees are getting used to and those that you might employ or retain are getting used to, what can you do with the mobile app? Can you provide online training? Can you provide pay-on-demand? Can you provide your 401(k) balances and loans online? Can you do all these things online, connect with your employees? It’s such a different environment. And I think this is going to change the workforce permanently to say, wow, I’ve seen these things that I can do remotely and through self service. I want part of that. I don’t want to necessarily do old school, somebody writing me a check or handing me a check even. I think all of these things are going to get people used to a whole new world, which are going to drive more people to the technology investments that we’ve made. So, I think there’s two very-positive impacts here as we come out of this that could say, more new business start-ups and existing businesses that reignite are going to be looking for someone like us.

Your next question comes from the line of Bryan Bergin with Cowen.

Hi, guys. Thanks for the early guide for us here. And Efrain, I appreciate the LIE analogy. Thank you for that one.

All I ask all of you is to remember when I was wrong that I at least tried. I led with my chin.

Here you go. I wanted to ask, just from a business mix standpoint, can you just give us some color on where you are expecting the most and the least pressure? As we think about PEO and Management Solutions, and then the various offerings within Management Solutions that are most and least insulated here?

Yes. So, one thing I think we should mention, I think it’s been -- it’s part of the, I guess, the backdrop. I mean, just take off from what Marty said, build on what he said. We’re a very different business than we were in ‘08 or ‘09. At the end of this year, about half of our revenue or less than half of our revenue will be payroll. If you split our business, about 80% of our client base is under 20. But that -- our revenue is split pretty evenly below 20 and above 20, 50-50. So, that’s a very different animal than we were in the ‘08, ‘09 timeframe. And while we do apply that thought process to how we’re looking at the future, there are some differences. I think, we could see -- we could very well see, to Marty’s point, increased demand for anything HR services related. And by the way, if I slice now the Rubik’s cube -- you can slice a Rubik’s cube. But if I slice our revenue, about 50% of our revenue is derived from HR-related products. So, you could very well see an increase in demand, to Marty’s point, given the complexity of what Congress is about to unleash. And let me tell you something. Emails fly every single night here about what’s in the bill, what’s out, what the implications are? There’s lots of good things in that bill for businesses, but it requires interpretation. So, I would say, from an HR standpoint, you could see increased demand, which Marty has been talking about. And then, on where we see more stress is on the smaller businesses, who -- if they don’t get a lifeline over the next six to eight weeks, are going to be severely impacted and stressed. So, I would say, in broad strokes, higher demand for HR and related services. That could include PEO, by the way, because we’d include that in, and more impact on smaller client simply because of the depth and the severity of this correction.

Okay. And then just payroll tax holiday implications. We’ve got the question. So, curious here, how we think about the impact from a potential payroll tax holiday that might be in this final stimulus bill?

Yes. I don’t think -- from a standpoint of interest on client funds that we withdraw and then pay those, pretty small. Of course, we won’t earn much on it anyway, because there is no interest. So, I don’t think it will be a very big impact at all.

Yes. So, I thought you were talking about what the business impact, whether we think that alone would drive some significant improvement. I think you’re going to have to go deeper than that to really make an impact for most clients. But Marty’s right. If that’s a question related to interest on funds held for clients, I think the Fed’s kind of helped us there, if we are backhanded way. So it’s not going to impact very much.

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

I just wanted to talk a little bit about kind of the administrative challenges tied to effecting fiscal stimulus. I’m just curious, given how close you are to that market, what thoughts you might have on the most effective way for the federal government to handle that initiative. What would seemingly be a very difficult task, given just the sheer number of small businesses in the U.S.? And obviously, it’s important how fast it’s handled. So, I’m just interested in your thoughts on the challenges of effecting that change?

Yes. I think, if you look back at like 2008-2009 and of course, not even close to the amount of stimulus that is being done now, things took -- I think the average time it took to get a check or money to small businesses was like 50 days we went back and looked at it. So, it was roughly a couple of months. That needs to be so much faster now, because of, in particular the shutdowns that have occurred in many states of small businesses. They need to pay their rent. They need to pay employer -- employees to keep them with them, which because you’re going to come back I think to a pretty good employment. Two weeks ago I said it’s amazing. Their biggest issue was how do I find employees to fill my jobs? And now, I want to keep them. So I think, speed is such an essence and -- of such an essence. And I do think that we could -- payroll processors could be such a help because we could immediately continue to pay that payroll that we paid last week or the week before and then just look for those funds from a government program, the SBA, whoever. I mean, however, they do it is fine with me as long as they give that backstop and it does look like they’re going to do that to give that payroll. But if it’s a long SBA loan process that takes paperwork that -- et cetera, et cetera, that’s not going to help us many -- many, you’ve seen have already laid off employees across the country, whether they’d be hotels or whatever. And I think they got to move really quick. Administratively, one of the great things with our size and our experience is that we have over 200 compliance specialists. Our compliance people have been on the phone with the federal government, Congress, the Treasury, the IRS, the SBA, you name it, and are working with them, not only to answer their questions about what could be done but also trying to help say this could be the fastest way to do something and so forth. And so, we’re very supportive of the work that the government is doing, and we’re very much in touch with them. And we think we could turn it around pretty quickly. We have a lot of resources, 1,500 people in IT and we’ve been talking daily. And they understand that depending on what comes out, we’re going to -- everything gets turned to that. Our first thing is to comply with these regulations and be sure our employees and our clients and their employees are taking care of.

And then, as my follow-up, obviously there’s a lot of moving pieces right now. But, I just wanted to get your sense for the impact of social distancing and working from home may have on your sales force’s ability to sell new business, particularly within PEO where you have enough white space that may be a material slowdown in new business starts is less of a headwind. I’m just curious if you’d expect sales cycle to lengthen, to slow considerably. Just on account of less face to face interaction, all else equal?

Yes. It’s kind of a mixed -- it’s a mixed situation. While we said leads were down a little bit, there is still pretty strong lead flow coming in for payroll and HR. And because we’ve had so many years of virtual selling, we have a lot of experience in selling, which I mentioned earlier, we have now taken that training that have been used for virtual sales, which by the way is virtual sales is lower cost and pretty productive from a web lead perspective. And so, we’re now training the field sales force. Hey, here’s a way if you have to do it remotely and someone doesn’t want to meet, here’s how we demo the product, we can use the same tools for the field sales force where they would have demoed something in person. Here’s how you can do some things online. And here -- and the good news is everything can be done electronically. So, you don’t have to be in front of a client to have them sign something necessarily. A lot of the document management can all be done electronically and kind of a DocuSign kind of features. And then, all of that’s sent to remote on boarding specialist who can set up the client in a very short period of time. So, it certainly is going to -- it has some impact in clients not wanting to focus on it right now or meet in person. But, I do think that we have a vast amount of experience in a very effective virtual sales team that that will continue to grow frankly. And the field sales force is finding ways to get in touch with their clients, get in front of their clients through email, through chat, through calls, and they’re very receptive to that and appreciative that we’re here. It’s amazing that many clients or prospects think that because you’re home, they’re not going to be able to reach you. That is not the case at all. We’ve never lost any contact with anybody. And as I said, our IT team has done a tremendous job in moving 15,000 people remote and then being able to handle it.

Your next question comes from the line of Jeff Silber with BMO Capital Markets.

Thanks so much. And Efrain, really appreciated your remarks at the beginning, especially the segue from being human to talking about finance. Just one quick question. You talked about how I guess your business or your customer facing business is different now. I’m just wondering, internally, when we compare your business to the prior shocks or the prior recession, is there anything different, or is that more of a variable cost structure than you had before? Any color would be great.

Yes. And I’ll let Marty talk about what substantively is different in terms of how we operate. But. I think, look, if you’re in a service business, I said 65% people and 35% variable, which is -- the comparison 65% people and 35% other, not all of that is variable. I would say that we’ve moved the cost structure in such a way that more of that cost structure supports the other parts of the business. I would say that structure, you guys who are -- you guys, but you who are analyzing it, now that that’s the way most the split of cost that most businesses have is distributed differently. And so, the implication of that is that we don’t have as many costs tied up in one part of the business that we had during the last downturn and we’ve got a little bit more diversification across the cost base, so that we support more business that is not purely payroll. Nothing wrong with supporting payroll. But as I said before, half of our business now is HR related. So, I’ll let Marty....

Yes. I think just from an internal flexibility, we’re on a unified -- what we call unified communication system that we’ve installed over the last number of years. And so, we can easily move calls all across the country, even to which we have never tested before, having all of these people work from home, which is an incredible technology difference than it was in the last shock. And you have a lot of flexibility to have teams in different areas and move teams around and so forth. So, there is a lot of flexibility here as to how you control costs, how you look at your employee base and give them support tools. And we’ve always been good obviously controlling our cost and I think having a great focus on margin and we’ll continue to do that. And there is probably as much or more flexibility now than there ever was.

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

Hi. Good morning and thanks for taking all of our questions. I really appreciate it. I know it’s running kind of long. Efrain, maybe just one quick question for you on -- I know you guys mentioned a couple of different anecdotal comments about what you’ve seen in maybe the second half of March. But, if I could maybe triangulate a little more precisely on new booked business, what have you seen happen in terms of new bookings over the last couple of weeks? And then, what new bookings type of assumptions are you making for fiscal ‘21? Thanks again for taking my questions. And hopefully everybody’s families are safe and healthy.

Yes. Hey, Samad. So, we wouldn’t give you -- we wouldn’t give precise info on bookings. And then, we wouldn’t typically give precise bookings on what we anticipate. But, I think, we all know that given lead flow, bookings are down. And given what we expect in the remainder of the quarter, we also expect them to be down. Do we expect it to be -- fall off a cliff? Absolutely not, for many of the reasons that Marty said. If the stimulus gives a jolt, it may actually be helpful. There are things in that package that may cause the businesses that are there to book other services, even if they’re not booking based payroll. But, this is a challenging environment for sure.

Maybe if I could ask just one from a competitive standpoint. It sounds like price was able to stick during the F3Q. I’m curious if you’ve seen a change in competitive behavior, either pricing more aggressively to capture as much business as possible before the gears start to slow down or maybe just how are your competitors reacting from a pricing perspective in the current environment?

Yes. Not seeing -- there is some three months here and there, first three months of this service or that service, but not seeing too much, too aggressive yet. Does it get more aggressive? It may. On the other hand, I think when you look at it, again, as I mentioned earlier, I think businesses are worried about a lot more than -- when you think about our average business that might pay a couple of thousand dollars a year, 2,400 a year, 2,500 a year, they’re looking for whether they save $200 or $500 is not that critical to them right now. It’s, hey, can you give me the service, and can you give me the service that I need, the service -- excuse me, and the products that I need to survive in this environment? So, I’m sure we’ll see a little bit more discounting here and there. But frankly, it’s a little bit misguided in the back of what clients are looking for, in my opinion.

Yes. To Marty’s point, we -- it’s easy to overlook it. But, when you have response time measured in seconds, I’d ask you to ask all of our competitors what their response time are. Service may not seem like it’s all that important in other environments. I can tell you, based on the interactions we’re having, we could post all of the comments that we’ve gotten from clients about how responsive we’ve been on the website. It’s going to become very, very critical. One of the things that we’re very proud of, Marty said it earlier, is that we moved everyone to work from home and our service times have been tremendous and our response times to clients have been tremendous. And they are asking a lot of questions. And if the -- if you can’t get to them and you can’t service them, they’re probably going to have some second thoughts about whether they continue with you.

Your next question comes from the line of Pete Christiansen with Citi.

Good morning, gentlemen. Thank you for the update and certainly for your poignant sentiments earlier. Good news, I think, we’re hearing that in the bailout so far, the stimulus is providing $10 million -- up to $10 million for individual businesses and provided no layup. So, perhaps there is some upside to the outlook here. So, fingers crossed. And I appreciate your thoughts that the devil will be in the details. But, I was just hoping, if we can go back to the Rubik’s cube very quickly and if we can quantify your exposure between hourly workers versus salaried workers and perhaps what you’ve seen earlier. And then, as a follow-up, looking back to the last downturn, it looks like the dividend rate was held steady for quite a bit at risk of pulling the cart in front of the horse here. How should we think about that? Would we expect to see something similar, at least over the near term? Thank you.

Yes. Pete, I don’t have much for you on hourly versus salary. I have to get that breakdown and figure that out, so -- and don’t have a precise answer on that. With respect to the dividend, look, our earnings amply support the dividend we have. Whether we should increase it, will depend in part on the discussion that we have with the Board and where we are when we present the plan. We try to peg it around 80% or so. Obviously, in some situations that might be a little bit higher. So, we’ll have to go through that conversation with the Board in terms of what level they want to set it out.

The next question comes from the line of Lisa Ellis with MoffettNathanson.

Hi. Good morning, guys, and thanks for squeezing me in.

Hi, Lisa. Sure.

Couple of questions on workers’ compensation, actually. I know we are, I guess, presumably going from an abrupt period where workers’ comp claims and premiums were very low to probably the inverse of that. Can you just remind us -- I know the premium going up will actually be a tailwind to your insurance business, but in general, how does that kind of dramatic shift impact you? Thanks.

Yes. It would be a tailwind to the insurance business. It would also have a modest impact on our PEO business from a revenue standpoint. So, both of those would be positive. On the other hand, where we are -- where we have some at-risk exposure in -- on the workers’ comp side in the PEO, we’d have to monitor that. So, I think it’s on balance more to the positive side of the ledger. And then, you’ve just got to manage reserves appropriately.

Yes. And then on that point of the follow-up, because I know we get questions about this. Can you just remind us? I was looking in the K, it looks like your reserve level and workers’ comp is something like $170 million or so in total across like short-term and long term?

Yes.

And then, how is that capped or reinsured again? Could you just remind us, like how much actual risk exposure do you really have? Is that the way to think about it, it’s kind of that number or how does that work exactly?

Yes. I’d have to look back. I think, we say in the K what we have in terms of exposure. I think, it’s around $1 million, I want to say, per case. $1 million workers’ comp case is a very, very unusual case in my experience. It’s capped there. But beyond that, by the way, that’s only part of the equation. What you have to look at is the development of claims, which we look at on a quarterly basis and add to reserves, as they’re needed. So, our typical workers’ comp adjustments are modest. And generally, we end up in a positive reserve situation. So, we should be able to manage well. There’ll be no change in terms of the way we manage. We don’t anticipate a significant impact at this point.

And then, just a quick follow-up, one on the attrition. I think you’ve said in the past that about 9 points of your attrition each year come from businesses going out of business, just in like a normal period. Is that about the right number? And then, can you just dimension, like how much worse that got back in ‘09 or after 9/11?

Yes. So, what you’re doing is taking about half of the 18% that we would average. I think, it closes somewhere between 8%, 9%. You can -- we’ll see a spike. I can’t call it yet, Lisa. But, if we go back, back to ‘08, ‘09, it spiked up to about 23%, 24%. But our base was about 20%, 21%. Most of that 3% to 4% was coming from…

Yes, out of business. Yes. No, it’s exactly what Efrain said. Most of that came from out of business. But please remember, that one went longer. So, this one is just kind of hard to measure because we think we’re going to have -- depending on the stimulus that could hold the front here for a couple of months, if it really could help them quickly and then how long does it go before they open back up or give up and go out of business. It’s going to be very interesting. It doesn’t feel like it’s going to be as bad as ‘08, ‘09 because that went on for seven quarters and businesses couldn’t survive. These -- hopefully, they could furlough, they could come back, I don’t -- I really -- it’s obviously hard to predict a few weeks into this, but I don’t think it’s going to be -- we wouldn’t expect that would be that bad. It might be more -- it’s going to be more of a shock in the first -- probably maybe first quarter of next year, but then bounce back pretty quickly, we would think at this point.

The next question comes from the line of Mark Marcon with Baird.

Hi, Marty and Efrain. Thanks for squeezing me in and best wishes to you and your families. With regards to the stimulus, what elements that you’ve heard discussed around the stimulus are you most excited about that could potentially have a positive impact?

Well, definitely, the small loan program, the small business loan program. Anything that as I’ve mentioned that would keep paying employees of small businesses and keep them in place is really important depending on how long this goes. If it’s shorter than -- if it’s shorter rather than longer, that could make a big difference as to whether our business goes out of business or not and they keep their employees employed. I think also, the unemployment benefits is also another way that a small business might say, hey, I’m going to furlough you, I might pay you. There has been different rules discussed about paying half. There is certain rules that are out there about sharing a job where you could furlough, you could pay someone, you could keep two people instead of laying off. You got two people, instead of laying off one and keeping one, you could have them job share and then make it up with unemployment. That could have some impact depending on where they -- how they handle those regulations. I think, anything around supporting small business and employees with their wages is the most important thing. Hey, the direct checks can hurt. But, I’m not sure what that’s going to do as much as from a business standpoint is keeping businesses going. That’s kind of how I think of it anyway at this stage, based on what we’ve seen.

What’s your level of confidence that that’s -- that those elements that you cited are going to go through, based on all the interactions that you’ve had?

Pretty strong, pretty strong. I think, there has been a very little disagreement on the small business loan program. There has been -- we still don’t know how they’re going to procedurally enact it. That is important, but that’s not clear yet. But, I do think, based on all the discussion, they’re are going to try to do it as quickly as possible with as little red tape as possible, and that will be very important, but feel pretty good that those things are going to get enacted. They haven’t been argued much at all. It’s been more of the large business stimulus giving money to the airlines, et cetera that seems to have the bigger arguments.

What sort of a marketing program could you put in place in order to take advantage of that because that -- obviously your capabilities to deal with something like that would be far greater than any independent companies.

Yes. Very much so, already positioned the marketing to even over a week ago about how we can help you. And we’ve had webinars that have been kind of blown the doors off from the number of people and CPAs that join those webinars because they want to know about it. So, I think we’re well positioned from a marketing and training perspective for our clients and prospects to take advantage of those.

Great. If I could shift gears just for the follow-up component. Can you just talk about the percentage of business that you have in New York, in California and the states that have gone through the shutdowns? And what you ended up seeing in those states during the [Technical Difficulty] days?

Yes. If there is a -- there is a number of businesses, not all of them are the small businesses. But, I think -- I do think it’s -- might be up around the 40-year -- well, I think New York and California alone, I don’t have that data for all of the states that are shut down, which includes New Jersey, Illinois and California, New York. Of course, we kind of follow the population. So, it’s probably around 50% or so that are in those. But again, they’re not all small businesses that are necessarily impacted by the shutdowns and partial shutdowns that you’re seeing.

Okay. And what were you seeing in the states that are shut down in terms of like the very recent trends?

Very early, but mostly, we’re seeing more of the -- I’d say -- I’m furloughing -- I’m staying open, I’m doing like restaurants and stuff. Again restaurants being 5% or 6%, but that’s where you’re seeing the most impact. They’re saying hey, I’m going to try to furlough people. I’m going to try to keep my employees, maybe only keep three of them out of six or 10 out of 20, but I’m staying open so far. And again, those people in flex in that survey that I mentioned early on, we’ve gotten the huge response on that. And it’s still been 50% are minimal impact at this point, and another 40% are saying, I’ve done some layoffs or furloughs, but I’m continuing to run. That’s all been very good news. What we don’t have a great handle on yet is any losses, because you’re going to see those more probably next week or end of this week, if they’re completely going out of business. But more of the feeling is, I’m going to try to hang on here, see with the stimulus is, try to furlough my employees, so I keep them and continue to do what I can with minimal staff.

Great. And then, one last one. [Technical Difficulty]

Mark, you’re breaking up there. Could you try that again?

Yes. Just the portfolio composition with regards to the flow balance, what are you seeing there? [Technical Difficulty]

Do you mean securities in the oil industry, Mark, or…

Securities in the oil industry, your muni portfolio.

Yes. They are solid. We haven’t had any issues, haven’t had seen any impairments of any securities. Obviously, we invest in very highly liquid and highly safe securities. So, we had a few in the oil industry, but we haven’t had any impairments. But, it’s very small part of the portfolio.

Your next question comes from the line of Tien-tsin Huang with JP Morgan.

Hi. Thanks so much for the hard work here. Just on the margins, just wanted to clarify. It looks like you’re guiding to I think 35% versus the 36% this year. Is that just a function of the decremental margin of -- sorry, I forgot it.

Yes. Hey, Tien-tsin. So, yes, just want to say preliminarily, we see it around 35%. Yes. What’s happening Tien-tsin is right now, my assumption is the portfolio is down around $20 million, or maybe a tad higher. That portfolio drops straight to the bottom line without a lot of expense offsets that we assume that we’re going to take actions to obviously offset expenses in other areas. But, it’s hard to -- it’s hard in the short term at this point off of 6 weeks of data to say here’s how we go after replacing some of that margin. I would say, we’re pretty good at it. If you remember, ‘08, ‘09, we took a tremendous hit on the drop in the portfolio, nowhere near as severe here and found a way over time to make it up. But yes, that’s one component of what creates the drop in margin.

Okay. That makes sense. So, you’re being conservative here. If things get a little bit worse, there is room to do more, but you just see it -- calling it as you see it and then you can move on? Got it. And then, just really quickly, I know a lot of people ask good questions on the outsourcing, what happens on the recovery. How about on PEO? I’m curious if we could see a shift there, if people want to manage their medical side a little bit better, but also I guess, the risk that carriers might up prices in anticipation of higher cost also and that might price out others. I’m trying to better understand how you think about PEO here, given that you’ve put some more capital into that business in the last three years?

Yes. Contingent -- I mean, that’s a great question. So, here’s how at least some preliminary thinking on that. If you have a lot of costs rippling through your healthcare plans, you may not feel them at first, but eventually you’re going to feel them. And then, your clients are going to be impacted to one extent or another. Through the course of this year and as we have managed the integration of Oasis, what we’ve seen is there is tremendous opportunity to operate a PEO, ASO hybrid model, where were you have an ASO with the provision of benefits from our insurance agency and in some ways -- and sometimes it’s better for you to go through our insurance agency on the PEO, instead of being on some sort of PEO master plan. So, I think you’re going to have to figure out some -- be flexible and agile in terms of what you provide on the benefit side and what solutions you provide, either one-off through an insurance agency, a master plan or some other arrangement. So, I think, what we’ve seen is that ASO and PEO kind of converging, and in some cases full PEO is the better model for some clients, in some cases ASO is the better model for other clients. So, you could see shifts between those categories, depending on what happens in each of those markets as we go through the year.

Yes. I think that’s exactly right. Tien-tsin, you brought up the right thing. We don’t know what’s going to happen to insurance. Right? It depends on how many claims are filed and whether you have a lot of claims, there’s a lot of costs that are going to be covered, like the testing and so forth. So, it’s kind of early to tell, but it will be that balance. But as Efrain said, I think then that can shift toward ASO model. But, I think the PEO model will still be pretty strong. I think, this is bringing awareness of insurance plans and employees. There’s going to be this fight for employees again, in finding them for your businesses. And I think insurance could be an even stronger selling point now as an employer who is trying to hire people. So, that may bring even more cloud to the PEO. It’s going to be an interesting balance as we come out of this. We’re well positioned obviously with both ASO and PEO to do that.

Yes. You got them both. Yes, I trust you guys would be right on that. Thank you all for the candor. It’s very comforting. Thanks.

Thank you.

Your next question comes from the line of Jason Kupferberg with Bank of America.

Hey, guys. Glad you’re healthy. I was just curious as it relates to revenue sensitivity, the changes in certain key metrics, like ADP has talked in the past though 1% change in client retention has about 6 times the revenue impact as a 1% change in bookings, just as an example. I mean, should we assume kind of similar types of relationships hold for Paychex, or any specifics you feel comfortable sharing, just so we can think about the way forward?

Yes. Hey. I would just say broadly a drop of -- a change in our loss rate of about 1% yields about $25 million of impact -- is it $25 million? $2.5 million, I’m sorry. $2.5 million. Checks or pays per control are really the most important. So, it sounds like they’re somewhat similar to what we are. But, we’ll see as we work through our plan.

Okay. And then, I just wanted to go back Efrain to I think answer to an earlier question. It sounded like you guys are assuming a similar amount of [Technical Difficulty] client retention as you saw the past couple of recessions. So, is the reason you’re not assuming anything deeper than that just because of the change in mix since those last recessions, like the HR and the PEO mix, or are there other factors?

Yes, Jason. That’s the impact. I mentioned earlier just providing some color, if you look at our business, 50% of our revenues are with clients that are 20 -- and under 50% are clients 20 and over. That’s a different mix than we had during the last recession. Of course, there are scenarios where it could get a lot worse than that, depending on how long the downturn lasts. But, at this point, that’s our best guess on the modeling.

Yes. Again, on the timing, and obviously not knowing that timing, but you could have this larger drop in checks in the first half of the year -- fiscal year, and then come back. And that’s kind of how we’re thinking that over that period of time -- I think over the fiscal year, it might balance out like past recessions have been. So, it might be a little stronger in the early part, but I think if the bounce back -- everybody has a different view, but if it’s a bounce back in the second half, it could be a pretty strong bounce back in checks.

Right. So, maybe a deeper trough, but I hear what you’re saying. And then just last one real quickly. [Technical Difficulty] or refunding certain fees to help customers stay afloat or defer price increases or anything along those lines?

Well, we’re looking at it. Again, we haven’t had that much of a push from that’s what they’re concerned about and we want to -- we’re focusing really on what they need at this point to survive and get through all of the stimulus packages and the downturn and so forth and shutdowns. So, that hasn’t been that critical from a client perspective. Obviously, we’re looking at the price increase. And I think it’s going to be prudent to push that out a little bit, and we’ll continue to watch that as we go month-to-month.

Your final question comes from the line of David Grossman with Stifel.

Great. Thank you. I know it’s pretty late here. Just one really quick question.

It’s early for you, David.

That’s one way to look at it, I guess. But, yes, just quickly on your commentary about your mix of PEPM versus subscription. I think you said one-third PEPM and two-third subscription. Can you just help us understand how you get at that?

How you get at that?

Yes. How you get those percentages? Like, because it seems like a large percentage of mix is really driven by the number of employees. So, just want to better understand that…

Yes. I think, it has to do with the composition of our client base, David. And when you’re smaller, you tend to have more on the subscription side of the equation. For example, we don’t separately disclose SurePayroll, but SurePayroll is purely subscription. So, PEPM has no impact on it. And then, it’s an estimate on other clients, how much of what they’re getting is based on PEPM revenue. And that’s what it ends up being. When you’re smaller, your proportion tends to be more subscription, larger tends to be more on the PEPM side.

So, what - just as an example, what are the services you’re including in that subscription bucket?

It’s just primarily payroll. But, that’s a big chunk of the Management Solutions revenue.

And there are no further questions.

All right. Thank you. At this point, we will close the call. We do wish the best to all of -- yourselves and your families, and good health to all of you. Thank you for participating in this call. It will be archived for approximately 30 days. And again, we appreciate your participation and interest in Paychex. And stay safe, everyone. Thank you.

This concludes today's conference. You may now disconnect.