Operator: Welcome and thank you for standing by. At this time, all participants are in a listen-only mode. Today's conference is being recorded. If you have any objections, you may disconnect at this time.
I would like to introduce your host for the call today, Mr. Martin Mucci, President and Chief Executive Officer. Sir, you may begin.
Martin Mucci - President and CEO: Thank you, Sherry. Thank you for joining us for our discussion of Paychex's Third Quarter Fiscal 2013 Earnings Release. Joining me today is Efrain Rivera, our Chief Financial Officer. Yesterday afternoon after the market closed we released our financial results for the third quarter ending February 28th, 2013 and filed our Form 10-Q which provides additional discussion and analysis of the results for the quarter. These documents are available by accessing 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 one month. On today's call I will review the highlights for the third quarter and our operation, sales, and product development areas and Efrain will review our third quarter financial results and discuss our full-year guidance and then we'll open it up for your questions.
Our results for the third quarter of fiscal 2013 reflect continued solid progress. We are focused on driving growth in revenue and profits with industry-leading service and technology solutions given to our clients and their employees. Our client base, checks per payroll and client retention demonstrate continued positive growth. Efrain will go into more detail on the financial results and the comparisons; however, I would like to provide you a few highlights from the quarter.
Payroll revenue grew by 2% due to the increases in both checks per payroll and revenue per check. This growth rate is up from the first half of the fiscal year. HRS revenue grew double-digit for the third quarter as we continue to experience success in selling 401(k) and HR Outsourcing and other value-added solutions to our clients. Total service revenue grew 4%.
Checks per payroll has improved for 12 consecutive quarters and was stronger than anticipated. Third quarter growth was about 2.3% compared to 1.8% for the prior-year third quarter. Checks per payroll was positively impacted by a higher calendar year-end bonus payment activity. Execution and operations remained solid as evidenced by the exceptionally strong client satisfaction results. It is our exceptional client service along with our technology that sets us apart. The dedication of our employees has resulted in client retention that remains at record levels, and through the first nine months have us on track for another strong year of retention and possibly our best ever.
In addition, the operations team did a great job for our clients with year-end processing and the distribution of our W-2s and year-end reporting that ended ahead of schedule. Our third quarter is our peak selling season and we put a lot of focus throughout the year on sales execution. We added new territories, focused on market segmentation in both payroll as well as 401(k) and other areas and got involved in more franchise and banking opportunities.
We had a good momentum going into our selling season and we are pleased with our selling results. We are particularly pleased with the increase in new sales revenue generated from our Core payroll sales team and SurePayroll and the strong sales in our Retirement Services and HR Solutions including our PEO business.
In addition, we have seen Core sales force return over remain at lower more historic levels. We expect to continue to see additional penetration of our products and services within our client base with the goal of increasing our shared revenue from our clients.
From a technology perspective, progress continues on integrating our leading technology and mobility platform with our world class customer service through the Paychex's next-generation suite of products.
From a mobility platform, we have continued to add more capabilities, including flexible spending account information and including employer and employee health and benefit insurance information being just released tomorrow that keeps our product as the most thorough and client friendly mobility app for information in the marketplace.
We have been positioning Paychex to capture the opportunity from the shift to online and SaaS solutions. We have market leading SaaS solutions leveraging the latest technologies and continue to invest heavily in our SaaS and online capabilities and mobile applications. Our recent acquisitions have all been SaaS oriented business models and all of our Core clients are on SaaS platform and we are continuing to build out our platform to accommodate even more functionality for our mid-market clients. Our SurePayroll product which is also a SaaS solution continues to do well with strong sales and revenue growth.
In summary, year-to-date fiscal 2013 reflects continued progress and growth metrics and we are very appreciative of the efforts and results of our leadership team and the employees at Paychex across the country and in Germany.
I will now turn the call over to Efrain Rivera, our Chief Financial Officer, to review our financial results in more detail. Efrain?
Efrain Rivera - SVP, CFO and Treasurer: Thanks Marty. Let me start out with our standard legal disclosure. Certain written and oral statements made by us constitute forward-looking statements, and I'll just say that you refer to our press release for the discussion of forward-looking statements and related risk factors.
As Marty indicated, third quarter results for fiscal 2013 represent a good progress. Here are some of the key highlights for the quarter and nine months. I will provide greater detail in certain areas and then wrap with a review of our 2013 outlook.
Total service revenue grew 4% for both the third quarter and for the nine months. Interest on funds held for clients was flat for the third quarter and decreased 6% for the nine months to $11 million and $31 million, respectively. This result was a byproduct of the low interest rate environment, offset by an increase in average investment balances.
Expenses increased moderately; 3% for both the third quarter and for the nine months. We continue to invest at a higher rate in product development and supporting technology, but this was partially offset by increased productivity within operations, which allowed us to maintain our solid operating margins. Note that recent business acquisitions had immaterial impact on quarterly revenue growth and expense growth. Operating margin was 36.8% for the third quarter and 40.5% for the nine months. Operating income net of certain items increased 7% to $214 million for the third quarter and 6% to $662 million for the nine months. We expect operating margin for the full year to be in the range of 37% to 38%.
Net income increased 7% to $145 million for the third quarter and 5% to $446 million for the nine months. Diluted earnings per share increased 8% to $0.40 per share for the third quarter and $0.04 to a $1.22 per share for the nine months.
Let me talk a little bit more about payroll revenue. It increased 2% for the third quarter and 1% for the nine months. We benefited from increases in checks per payroll and revenue per check. As Marty already mentioned, our checks per payroll metric continue to improve and was stronger than anticipated increasing 2.3% compared to the same period last year. This result was partially due to higher calendar year-end bonus payment activity during the quarter.
Revenue per check grew modestly as a result of price increases partially offset by discounting. Payroll growth was tempered by one less payroll processing day in the quarter due to the leap year in the prior year. The impact of this one processing day on payroll revenue growth is approximately 0.5%. As we've said on past calls, payroll revenue is expected to be stronger in the fourth quarter.
HRS; HRS revenue increased 10% to $189 million for the third quarter and 10% to $553 million for the nine months. HRS revenue growth reflects favorable trends in client growth and price increase. Some highlights of contributions to HRS revenue growth include the following; Retirement Services revenue benefited from client growth, price increases and an increase in the average asset value of Retirement Services, client employees' fund. This was partially offset by the impact from a shift in the mix of assets within these funds to investments earning lower fees from external fund managers.
Paychex's HR Solutions was positively impacted by growth in both clients and client employees and price increases. The rate of growth was tempered by fewer client employees on average within our PEO compared to the quarter ago.
However, we have seen an improvement in both new sales and client retention in the PEO during our peak selling season and both PEO clients and client employees were higher at the end of the third quarter compared to a year ago.
Insurance services revenue benefited from growth in the number of applicants, though at moderating levels, while workers comp insurance delivered increases in both clients and premiums. We expect that healthcare reform will impact our insurance services revenue moderately going forward.
Our eServices revenues were positively impacted by client growth and price increases, particularly as we continue to focus on adding SaaS-based solutions. HRS service revenue quarterly growth can vary due to the volume of clients and basis points earned on Retirement Services client employees' funds. Basis points fee revenue changes are due to fluctuations in the financial market and the asset value of funds invested. PEO net service revenue, as we've mentioned previously, also exhibits greater variability between quarters due to a number of factors, including changes in workers' comp claims experience.
Turning to our investment portfolio, we've seen a fairly conservative investment policy as you all know. Our goal is to protect principal and optimize liquidity. Our priority has been and will continue to be as, we've continually said, to ensure that we can meet all of our cash commitments to clients. On the short-term side, the primary investment vehicle is high-quality variable-rate demand notes and FDIC insured deposit accounts. In our longer term portfolio we continue to invest primarily in high credit quality municipal bonds.
The interest rate environment remains constrained. Our combined portfolios have earned an average rate of return of about 1% for the third quarter compared to 1.1% for the same period last year and 1.1% for the ninth months compared to 1.2% for the same period last year.
Interest on funds held for clients was flat for the third quarter and decreased 6% for the nine months to $11 million and $31 million, respectively. The decrease was driven by the decline in the average rate of return, which was offset by increases in average balances of 6% and 4% for the quarter and nine months, respectively. The average rate of return was also impacted by our allocation of investments to a greater percentage in tax exempt securities within our short-term portfolio. As our interest on funds held for clients and corporate investment income are reported before taxes, the return appears lower on average with a greater mix of tax exempt investments.
The increase in average investment balances was primarily driven by the expiration of the payroll tax cut holiday, which resulted in higher Social Security withholding, favorable trends in checks per payroll and wage inflation.
Our investment income decreased 11% to $1 million for the third quarter and increased 13% to $5 million for the nine month. The decrease for the quarter was due to lower average interest rates earned and lower average investment balances as a result of the accelerated dividend payment to shareholders in December 2012. The increase for the nine months was mainly due to higher average investment balances resulting from investing the cash generated from operations.
I will now walk through highlights of our financial position. It remains strong with cash and total corporate investments of $798 million as of February 28 and we continue to have no debt. Funds held for clients in the February 28 were $5.6 billion compared to $4.5 million as of May 31, 2012. Funds held for clients vary widely on a day-to-day basis and averaged $3.6 billion for the nine months, a year-over-year increase of 4%.
Our total available for sale investments including corporate investments and funds held for clients reflected net unrealized gains of $52 million as of February 28, compared with the net unrealized gains of $60 million as of May 31, 2012.
Total stockholders' equity was $1.6 billion as of at the end of the quarter, reflecting $477 million in dividends paid during the first nine months. Our return on equity for the past 12 months was 35%. Cash flows from operations were $606 million for the first nine months, an 8% increase compared to the prior year. The increase was driven by higher net income and timing related to changes in our operating assets and liabilities.
Now turning to guidance, we reaffirmed our guidance for fiscal 2013. I'd like to remind you that our outlook is based on current view of economic and interest rate conditions continuing with no significant changes. Payroll revenue growth 2% to 3% based on anticipated client base growth and modest increases in revenue per check. We anticipate stronger revenue growth in our fourth quarter consistent with our guidance provided in June 2012.
Our HRS revenue growth is expected to be in line with our historical experience, and total service revenue is anticipated to be at the low-end of the range of 5% to 6%. We anticipate minimal impact from prior acquisitions and our operating margin for the year is anticipated to be approximately 37% to 38%. This is slightly lower than the margin experience in the first nine months of fiscal 2013 as our margins are historically lower in the second half of the fiscal year due to more spending. We do anticipate a continued increase in the percentage of tax and significant investments in our short-term portfolio, and investment income net of – net growth in a range of 0 to 5% reflects the impact of anticipated lower investment rates and average cash balances.
And now I’ll turn it back over to Marty.
Martin Mucci - President and CEO: Thank you, Efrain. We will now open the meeting to questions. Operator?
Operator: David Togut, Evercore Partners.
David Togut - Evercore Partners: Marty you referred to strong bookings trends year-over-year in the third quarter, can you quantify what the year-over-year bookings growth was in Q3, both for the payroll services business and the HR services business?
Martin Mucci - President and CEO: David we don't get that specific but I will tell you that it certainly the best new revenue we've seen in a number of years, new sales revenue on the Core payroll side in particular and where we put a lot of efforts. So while we don't give the actual detailed number, we certainly were pleased with the new – level of new business revenue that came in and in comparison to the last three or four years it certainly was very positive.
David Togut - Evercore Partners: I believe for Q2 you indicated bookings were sort of flattish or down a little year-over-year, did you actually see bookings growth year-over-year in Q3?
Martin Mucci - President and CEO: We certainly have seen growth and I'd say they were fairly – we did see some improvement in Q2, but we certainly saw positive growth in the third quarter during our peak selling season and we were pleased with it.
David Togut - Evercore Partners: And then Efrain OpEx was down year-over-year. It looks like you did have a restatement in the year-over-year operating expenses but is declining operating expenses sustainable with revenue growing at about 4% cliff?
Efrain Rivera - SVP, CFO and Treasurer: I noticed in some of the notes people were asking the same question, David. So, here is our view, we think that the investments in technology should lead to increases in productivity and Marty made a decision four, five years ago to start the to start the acceleration of IT expense and what you're seeing there is a result of a strategy, not a result of something opportunistic that we did in the quarter. So I can't guarantee. It will be flat. Marty and I won’t do that, but what we can guarantee is that we're committed to leveraging expenses, and that's what you saw in the quarter.
Martin Mucci - President and CEO: Yeah, that's exactly right.
David Togut - Evercore Partners: And just finally can you bracket for us what the net price increases year-to-date in payroll services, once you offset the discounting against the gross price increase?
Efrain Rivera - SVP, CFO and Treasurer: Yeah, and what I've said David consistently is we were at the lower end of what we talked about at our Investor Day in the summer and that range was 2% to 4%. We're at the lower end of that range.
David Togut - Evercore Partners: And just finally, what would be your expected price increase for payroll services in fiscal 2014?
Efrain Rivera - SVP, CFO and Treasurer: We're going to be in that range and we'll talk to you more about it on the next call.
Operator: Jason Kupferberg, Jefferies.
Jason Kupferberg - Jefferies: So just wanted to build a little bit on the last question here. So with pricing kind of running at the lower end of the range as you guys said and when you roll that into revenue growth, you're running I guess 1% to 2% so far this fiscal year. I understand Q4 will accelerate to maybe 3% or so. You guys had talked about kind of a mid-single digit guidance for the three-year period, 2013 to 2015, last summer. Is that something you still are very comfortable you can attain and how much improvements you need in terms of new business creation to actually get there?
Efrain Rivera - SVP, CFO and Treasurer: Yes, I think Jason, to your point we talked about that as a target. I don't think we committed the same, we do that every year. What we need is unique growth and we need good price attainment and you can never say you are comfortable about something but we certainly think that within this period that’s something that we are targeting.
Martin Mucci - President and CEO: And I guess to your point. I mean that’s kind of a CAGR target over that period is that right?
Efrain Rivera - SVP, CFO and Treasurer: No I don't view it and I think it's going to be a little bit different given kind of where we're starting it to. I think that’s what we think is possible in this environment and again, as I said we need some unit growth, we need price to get there. So, that’s what we are executing against.
Jason Kupferberg - Jefferies: So, it sounds more like mid-single-digit is kind of aspirational at some point during that period but not in aggregate over that period is that fair?
Martin Mucci - President and CEO: Yes, it will be tough to do that in aggregate over that period.
Jason Kupferberg - Jefferies: What percent of new businesses created that you guys have won fiscal year-to-date or choosing the SurePayroll product versus the full service offering and has there been any material change in that mix over the past couple of years?
Efrain Rivera - SVP, CFO and Treasurer: No. There hasn't been a significant change in that mix. And what I'd say is that we have consciously been devising strategy working on our strategies from a sales standpoint, so that those lines get a little bit blurred. And SurePayroll is growing rapidly and as Marty said we also had growth in revenue in our Core payroll business. So, this was a quarter where we saw growth in both segments of the business.
Martin Mucci - President and CEO: Yeah, remember that Jason, we still see that as they're getting their share of new business growth and are still wanting to do it themselves or be online only, and we're getting our share of new business growth that is coming to those who want to totally outsourced. So it's not like we're seeing a shift between the two. There is opportunity for both and I think we don't really see it as kind of a total pie for us that is now shifting to them or anything. Sure payroll is obviously doing well. There's smaller numbers to grow on, but they're seeing nice growth in their sales and revenue and we're seeing nice growth in our revenue as well in the sales.
Jason Kupferberg - Jefferies: In other words not cannibalizing the Core at this point?
Martin Mucci - President and CEO: Not really, we're not, no.
Efrain Rivera - SVP, CFO and Treasurer: One thing I should clarify. We just finished a marketing study on payroll services, pretty extensive study. There is no evidence whatsoever that an outsourcer goes back to a DIY solution. It just doesn't exist. So the issue is really kind of captured at the front-end, not erosion of existing clients. So people select a solution and then tend to stay with it.
Jason Kupferberg - Jefferies: And just lastly on that point, can you just remind us what the average annual differences in annual revenue between a short payroll customer and a client on the traditional full-service platform.
Efrain Rivera - SVP, CFO and Treasurer: Yeah, so short payroll is going to be around 1,800 and traditional Core – I'm sorry, 800 and a traditional payroll – I should say, traditional is a wrong word – our fully outsourced solutions is going to start around 1,800.
Operator: Paul Thomas, Goldman Sachs.
Paul Thomas - Goldman Sachs: Just continuing on the new sales for the quarter, anyway to size or think about the incremental benefit from new market segmentation or the focus on franchise and banking channels?
Martin Mucci - President and CEO: Yes, I think this was – this growth was more execution than those two channels. I think what we've done is we've put a lot of effort to that and we are starting to see that pay off and getting some new bank agreements – referral agreements and picking up on some key franchises, but I think that’s going to build overtime. This has been in the selling season here that we are most pleased about I think it's been execution. One, the turnover is back to low 30% range which we've been historically, the leadership teams in place, lot of good things going on that Mark Bottini and the team have done. So, I think this is mostly being about execution. So, we've upside on the other things that we are doing.
Efrain Rivera - SVP, CFO and Treasurer: We are also seeing Paul some incremental productivity from new sales people that we added. So, that will start to become more annualized next year, but we are seeing some good results there.
Paul Thomas - Goldman Sachs: And what’s the sense at this point of the affordable care, had any net positive or net negative impact on sales for the upcoming year. And was there any sense of increased caution on hiring or more demand for services to sort through the new rules.
Martin Mucci - President and CEO: I think it's been light right now, but I think it's going to pick up this year. We've done a lot of work, we are getting information out to, not only the current client base but social media and what we can provide for our clients being a company that not only obviously long standing in payroll but had health insurance and has being doing this now for four or five years. We can really provide I think some unique benefit to them and we are getting that message out and it's starting to I think get through the clients that they have got to do it. But I think there wasn't a lot of that in that first and this third quarter in peak selling season, I think you will see more of that this year. And because that’s when it's really starting to hit them is right now that they're going to have to do something. So we're expecting certainly some support from that that clients will just find this just too confusing and will look for outsourcer help.
Operator: Kartik Mehta, Northcoast Research.
Kartik Mehta - Northcoast Research: Marty, I just wanted to understand, it seems like you're having success with new sales. It seems like some of the results you are seeing now are better than they have been in the last three, four years. Are you equating this to, is this the economy getting better or it's just that Paychex is just doing things a little bit differently and as a result you're seeing better results?
Martin Mucci - President and CEO: It's a great question. I think the economy is kind of slowly picking up. If you look at the checks per client continuing to be up, I think that's positive. The NFIB indexes and things like that, the external measures are showing that it's slightly positive. I don't think there's – we haven’t seen a big surge in certainly new business startups and growth that we still think there will be. I think this has been a little bit more about execution, about getting turnover back down to historic levels, about training, about leadership, and so I think the market side of it will still be upside to us as that comes back. It's slowly coming back, like you are seeing housing come back a little bit, prices going up, some construction being done in new homes, that will drive more new businesses, but that's still a slow tick. I think what we've seen is better execution and leadership.
Kartik Mehta - Northcoast Research: There is a lot of discussion about using mobile technology and having applications, mobile applications for customers. Is it an opportunity to monetize on that or is it right now you just need to have those so that you can be competitive in the market?
Martin Mucci - President and CEO: I think to start you have to have them to compete in the market. They're kind of table stakes. And so, we got into that. A few years ago as Efrain mentioned the investment and now that’s really paying off. I think we have the best mobile app out there we are introducing tomorrow updating the iPhone app for health and benefit insurance information for employees and employers, really giving them a lot of information I think I think it's a place where they can go for information and make it easy for them. It's not so much about doing their payroll as it is about gaining the information that they need when they needed. And so I think you need that to compete. I'm not sure that a client just goes to adjust for that, and as we are seeing it's more of a hybrid type of thing. It's going to a full service outsource, who knows what they are doing and we will take care of things from like the affordable acre act, but if I need information on my phone, on my tablet I can get that as well. I can do it the way I want to do it, when I want to do it.
Kartik Mehta - Northcoast Research: And just one last question Efrain, you are updating $100 million on the balance sheet, no debt. How do you use that cash, are there acquisition opportunities potentially that you see for the business that can help accelerate the growth rate or is it about thinking about returning that capital back to shareholders?
Efrain Rivera - SVP, CFO and Treasurer: So, we have the authorization, we said we buy opportunistically, the last quarter hasn't presented the opportunistic opportunities to do so, but we will look to do that going forward. There is a lot of attractive opportunities out there. And we are very committed to not overpaying for opportunities simply for the sake of growth, we just are not going to do that. And so we evaluate almost every important opportunity that come on the market or competitive or most of them and pass where we don't think the numbers are right. We think one of those will land where we want to at some point and we will make the acquisition. In the meantime what we've been doing is buying smaller businesses that we think have both organic growth capability and can be easily integrated into our platform, so we did an acquisition in the expense management area and also in talent management. We think that that in the short term is a good way to do it, but if a good opportunity comes up, we want to have the power and drive to be able to do that. So we're at 800, as I mentioned, and if we don't see opportunities for some period of time, then we will look at ways to returning that to shareholders as we've mentioned in previous calls.
Operator: Jim Macdonald, First Analysis.
Jim Macdonald - First Analysis: Just going back to the (new Core) payroll sales for one last time. It looked like you said that the revenue from those sales was strong. How about the client numbers from those sales or maybe you could talk about those two?
Martin Mucci - President and CEO: Yeah, we don't talk as much about units, except kind of once a year and talk about the client base and we didn't really want to get into that kind of detail. I think I will say more has been driven by revenue per unit. We've seen a nice revenue per unit, which is a nice execution thing on the sales side where they're selling more product and higher-end, more complete bundles, and we think that's a maturity of the sales force and the lower turnover. And there's been some unit activity, but we'll get into that more at the end of the year, so we talk about it once.
Efrain Rivera - SVP, CFO and Treasurer: Yeah and, Jim, when we disclose our anticipation is that we're going to see units up for the year.
Jim Macdonald - First Analysis: And last quarter you mentioned, obviously, for Sandy – tropical storm Sandy impact last quarter, and you said there was going to be maybe some impact this quarter, could you just talk about that if there was an impact?
Efrain Rivera - SVP, CFO and Treasurer: It was pretty modest if saw any at all. I'd say that given where you saw the sequence of improvement on checks per payroll you can see that the impact of Sandy was probably a bit higher than we had anticipated. So, we had a nice rebound. I should say just for to provide a more complete explanation of that number on checks per payroll. We think that if you take out the impact of more bonus checks at the end of the year, you are probably around that 2% growth rate which we've been seeing for a number of quarters and although we have said in the past that we expect that to moderate and we continue to do it, it simply hasn't moderated to the degree we expected.
Martin Mucci - President and CEO: So, if you kind of adjusted Q2 or Sandy into just for the checks per payroll up and then in the third quarter kind of brought the bonuses down as Efrain said, I think you'd see continued pretty strong growth consistent now for 12 quarter in checks per payroll.
Jim Macdonald - First Analysis: And just following up on that as there, any major economic difference between bonus checks and regular checks?
Martin Mucci - President and CEO: No.
Efrain Rivera - SVP, CFO and Treasurer: No, there is no – I mean from our standpoint it's revenue of course it only occurs once a year at bonus time.
Martin Mucci - President and CEO: But no, I don't think it was that big of a pickup in revenue.
Jim Macdonald - First Analysis: Okay, just a final one from me. You were talking about your progress in the SaaS area, any more specifics you could talk about areas where you are really making progress?
Martin Mucci - President and CEO: Yes, I think one, we don't talk about a lot but our clients are on a SaaS platform. Now we moved our clients couple of years ago over to – for Core payroll, this is over to Core payroll and so – and then of course our mid-market product is hosted and more of that platform Paychex – what we call Paychex Next Generation platform, that the Core clients run, more of that functionality is rolling out basically every few months as we continue to build and more of that functionality for the midmarket clients will come out this year; in fact, a significant amount. So we feel like we're very well positioned from a SaaS perspective, and even though a lot of our clients are still coming into us from a service model, full outsource service model, they can reach the SaaS platform to do their online reporting or even do their payroll if they want to do it this week or next week in addition to having their dedicated payroll specialists. In addition to that the point is when we're doing acquisitions, all the acquisitions that we've done for product tuck-ins and so forth have all been SaaS-based models, so that they can integrate into the platform, particularly for the midmarket space, which will become all focused on integration on an integrated SaaS product that has not only the feature functionality but the integration and single sign-on of which we have and we will be adding to that functionality this calendar year.
Operator: Sara Gubins, Bank of America Merrill Lynch.
Sara Gubins - Bank of America-Merrill Lynch: I wanted to make sure that I understand when I look at your payroll service revenue year-to-date its 1.4%, but checks per payroll is up 1.8%, but you have been getting some pricing, so I'm just hoping to understand the difference between those two?
Efrain Rivera - SVP, CFO and Treasurer: I think Sara the third piece of the leg, and I'm not going to reconcile it to the (tenth) because I can't do it on the call, is that you have timing changes in between there. So in the first quarter we talked about the frequency of payroll processing as impacting that quarter's growth and then in this quarter we have the extra processing day that impacted that growth. The other thing I would say is that checks per payroll don't. So if we are up 1.8% for example or 2% that doesn't equate to 1.8% or 2% of revenue. It equates to a fraction of that.
Sara Gubins - Bank of America-Merrill Lynch: And then separately on the investment balances, can you give an update of the weighted average duration. I think it was about 3 years last time…
Efrain Rivera - SVP, CFO and Treasurer: Yes, I think we are in that 3% to 3.1% time I guess duration.
Sara Gubins - Bank of America-Merrill Lynch: And do you expect that to continue to lengthen or is this about the right range?
Efrain Rivera - SVP, CFO and Treasurer: That’s a tough question and the reason is that, what we are doing is two things. We are looking at – we are trying to optimize for the right credit quality and the right value along the yield curve. And so I think we are not going to see it significantly increased from that, it could lengthen a little bit, that maybe, but then it will roll down as investments roll off. So, I'd say plus or minus 0.2% that’s probably where we want to be.
Sara Gubins - Bank of America-Merrill Lynch: For SurePayroll when you are winning, who is it that you are winning against, is it another SaaS provider, is it – just wondering kind of what the source of the win is?
Martin Mucci - President and CEO: On SurePayroll lot of it would be search, this is new businesses searching on the web per provider. I'd say the closest alternative to them that they look at would be Intuit payroll, probably the biggest one they went from. But a lot they are coming in, we don't always know because they're coming in through a search engine and coming directly to us. It's not as much like a Paychex where there might be a head-to-head sales person in there knowing they're competing with somebody, this is all search engine. We're not calling out to the client, they're searching for SurePayroll and coming in. But we're very pleased with the work that they're doing to gather the clients in to get the interest on the web and then close those sales.
Operator: Bryan Keane, Deutsche Bank.
Ashit Shah - Deutsche Bank: This is (Ashit Shah) calling in behalf of Bryan Keane. Just on the fourth quarter you mentioned that the fourth quarter is going to be strong, but if my math is correct the fourth quarter revenues would have to be up at least – the services revenues would have to be up at least 7% to get to the low end of the guidance and I was just wondering if you could provide some color on what would drive that acceleration and revenue growth?
Efrain Rivera - SVP, CFO and Treasurer: First, I think what we've said previously, we just have easier compares compared to prior quarters. We have the elimination of a number of unusual things that happen in both first and third quarter – actually first, second and third quarter and then you start to see more of the underlying revenue growth generated by the sales that we've had. The other thing is that although our payroll revenue tends to be fairly steady quarter-over-quarter HRS bounces around a bit for some of the reasons that I mentioned earlier on the call and it can be stronger in one quarter than another. We expect that it will be a bit stronger than it was in this quarter.
Ashit Shah - Deutsche Bank: One quick question. You mentioned the insurance growth was moderating slightly and. So just wanted to get some color there, is the moderation just related to a tougher comps or is there anything else going on?
Efrain Rivera - SVP, CFO and Treasurer: No, I think the moderation there is really related to the fact that within some adjustments in terms of premiums paid under the affordable care act on some segments of the business coupled with the fact that we made a decision probably 18 months or so ago that our focus was going to be more on the higher end of the market rather than the lower end of the market. We think that transition has gone well, but it's going to impact growth in the short-term.
Ashit Shah - Deutsche Bank: And one final question on the competitive environment, just how was the competitive environment during the key selling season from your large competitors as well as the regional players, if you could just provide any color on the pricing environment, the competition.
Martin Mucci - President and CEO: I think the good news is we haven't seen much change in the competitive environment from a pricing standpoint or really the activity. I think we've been very competitive with our large national competitor from a pricing standpoint and promotions. And we saw that did not change very much during the peak selling season. So, we feel good about that. From a regional to smaller players, I think that we've actually continued to do very well, not just in third quarter but through the year, because the technology strength is not there as much. So, they don't have as many products or technology and that may be starting to catch up. So, we are winning a little bit more from regional competitors and I’d winning about the same or maybe slightly better from the national competitor.
Ashit Shah - Deutsche Bank: Actually one more real quick question, this is about the client growth coming from the selling season you said that you expected to up for the year, just wondering if you can provide some color on, when you look at the client growth and talk about outsourcing versus SaaS clients and how should we think about those for the year based on the selling season?
Martin Mucci - President and CEO: Well, we don't really give that much color on how we're doing exactly from which products and so forth, but I would say as Efrain said, by the end of the year we give client growth once a year. We see positive growth and we're pleased with that. It continues to grow even given still kind of a (shaggy) kind of economic environment where there are not as many new businesses starting but we'll see positive client growth by the end of the year in total.
Efrain Rivera - SVP, CFO and Treasurer: I'd say one other thing because I think there is a perception that there are sharp divisions on both of those. In our model of servicing clients we can service clients across the broad spectrum of service needs and that distinction is starting to become a little less important than it was three or four years ago.
Operator: Joseph Foresi, Janney Montgomery Scott
Joseph Foresi - Janney Montgomery Scott: I wanted to ask just on client growth can you give us the assumptions that you're using for why that it comes positive through the back half of the year and is it fair to say I mean just backing it mathematically that client growth has been sort of flat to down over the last couple of quarters?
Martin Mucci - President and CEO: We're not going to go into the each of the quarterly growth numbers that's why we do it on a year-to-year basis and let me just say one-time again to you why we don't do that because it is the case in many years that we've been up in the first half and then down in the back half. So, really we'd focus on it on an annual basis and I think it's fair to say that the back half will be stronger than the first half.
Joseph Foresi - Janney Montgomery Scott: In the assumption for the back half being stronger than the first half, maybe you could just walk us through sort of why you've – is it macro related, is it the productivity in the sales force, is it…?
Efrain Rivera - SVP, CFO and Treasurer: I think as Marti said, it's really more execution driven and many of the initiatives that the sales force that markets equipped in place in sales force really were geared around the selling season and reach their peak there and we're seeing that result.
Joseph Foresi - Janney Montgomery Scott: Do you feel like that productivity is sustainable over the long term, have we kind of stepped up to higher level than on the productivity side?
Martin Mucci - President and CEO: Well, I certainly don't see any reason why it shouldn't. We're continuing to add product that is giving, putting more in their bag as they sell I think with the turnover back down to the historic levels, you just add as you add more experience month by month to the team, they are selling in more productive. So, I think the average tenure of our sales force as that continues to increase now will continue to help us out there. I don't think the economy has given us a lot of wind behind us, but I think the execution certainly is in the leadership team and the sales force itself. So we expect it to continue to go up not by huge jumps but continue to progressively improve.
Joseph Foresi - Janney Montgomery Scott: Would you characterize that as a split between market share gains versus economic improvement, I mean I'm just trying to get a full sense of I think if you got the questions…?
Martin Mucci - President and CEO: So, Joe if you look at what's happening in the new business guard area, so we got big announcement in June of last year and you compare the same period through June of last year to the prior period, you had 2% growth in terms of starts. So, it's pretty modest. If there is some uptick going on, so there is an element of that I think a lot of this is really about better execution in the job that Mark's done.
Efrain Rivera - SVP, CFO and Treasurer: Which would be a little bit stronger winning rate I think, yeah.
Joseph Foresi - Janney Montgomery Scott: Then the last one. How are you measuring productivity? I mean, if maybe you could just walk us through sort of what you've put in place. I know there's been some sales force adjustments and adjustments to comps and you obviously added a new head there, but how are you measuring that productivity and what is sort of, I guess, reenergize the sales force going out there and making these gains and…
Martin Mucci - President and CEO: The biggest focus this year on account plan and on the direction and training and so forth and the efforts we put forth was on revenue per client. Really wanted to be sure that we were selling the whole product set, we were getting the most revenue per client, sell the value of the products that we offer and less about just price and I think that's really started to payoff. So we certainly measure it on both a revenue – it's primarily based on when you look at our sales rep, they're comped on revenue, the revenue that they are bringing in and that's not evolved discounts and so forth. So, it's the revenue they're bringing in and obviously we also are looking for the unit productivity that they're bringing in. But the biggest focus this year has been on revenue and then you always find there's some sort of balance as we look at comp plans for the next year that we'll try to make.
Operator: Ashwin Shirvaikar, Citi.
Ashwin Shirvaikar - Citi: So, my first question is about net pricing. You guys have said in the past, I guess closer to 2%. I wanted to see if you can maybe disaggregate the impact of maybe competition versus the impact of bundling as you are successfully moving clients to bigger bundles, how do those factor sort of come in into the picture, because 2%, or close to that is sort of a historical low, isn't it?
Efrain Rivera - SVP, CFO and Treasurer: Well, so actually let me take a stab at this and then Marty can talk about it. Not really, because if you go back probably I want to say five year ago, we put a price increase and then didn't get it. So, we've had years where we put in a price increase didn't realize any of it zero. So, I would certainly say that 2% at the low-end and again just may clear we didn't say precisely 2%, but at the low-end of the range. So, what we did this year was we consciously priced at a level that we go up with yield net price at the lower end of the range and we wanted to see also impact on – what impact that would have also on units. We wanted we took the pricing environment was such that taking a higher price increased was not advisable. So, as the years gone may be we take it slightly tack next year, but it's not reflective of our perception that we couldn't take a prior a larger increase. It would part of the strategy to see what the impact of pricing at different levels within that range would produce.
Martin Mucci - President and CEO: Just looking at the – we're not going to obviously get into to detail on pricing from a competitive standpoint on a call like this. I think that is at the lower end, obviously that is at the lower-end, but as Efrain said. If you go back since the recession, it's been a lot more difficult on the net side, but we're still able to get a priced increase and hold much of it. And then also we've got a little more sophisticated. I think in a way we price different clients for different packages and so forth. So it's probably, that’s probably the most detail I can give you.
Ashwin Shirvaikar - Citi: Just one of the areas where you guys have obviously done a much better job than certainly we expected has been on the margin front and as I look at the elements of cost facilities expense and compensation and so on so forth. Should I sort of look at that facilities expense year-over-year being sort of negative 1% growth, that obviously I think has to do with some of the real estate action you took opportunistically in Rochester area maybe. At what point does that sort of taper off in terms of benefit and how long can you keep compensation sort of flattish, clearly there is productivity here, but I just want to get an idea?
Efrain Rivera - SVP, CFO and Treasurer: So I started the call by saying that the, leverage on operating expense is, a result of a strategy that says and that Marty put in place four or five years ago, that says we will redirect expenses into IT and find savings in operations, in order to fund that, it is a bit inartfully described in our document set facility, but that basically encompasses all of the operating expenses with the exception of wages within a branch location. So what we have done and what we have been doing over a period of years now you are starting to see it a little bit more clearly, if that where possible we continue to leverage that expense as our technology gets better and better and what we're deliberately trying to do is to balance that service component with technology and manage the P&L in that process, that's what you're seeing. It is not opportunistic. We can't guarantee again as I said before that we will be able to do that every quarter, but that is the direction that the entire organization is moving towards.
Martin Mucci - President and CEO: It's exactly what Efrain said it's part of our D&A there to continue to try to leverage our costs and especially as we drove more into the technology, we have to leverage our costs and it's not just facilities. So I don't want to mislead you. It's operating costs, it's the entire operation and how do we drive more productivity whether it be facilities which is really a fairly small part of the overall costs of the labor etcetera how do we drive that through better technology that we give people to work with. Just really try to drive that productivity in number of ways.
Efrain Rivera - SVP, CFO and Treasurer: Our operations people do a phenomenal job over there just it's really, really great work.
Ashwin Shirvaikar - Citi: I guess would you then take a short at what peak margins can look like for you guys based on all these actions?
Efrain Rivera - SVP, CFO and Treasurer: So, Ashwin we reached 41% that was probably our high point when we had $135 million worth of float income five years ago. Certainly if float income approves our margins will get up in the 40% range. Absent that, all I can say is I won't commit to a specific number, but just say that every year we're committed to leveraging in some form or another in ways that make sense for the business.
Operator: David Grossman, Stifel Nicolaus.
David Grossman - Stifel Nicolaus: I was wondering perhaps if we could go back to this just the equation of revenue growth. Historically, it's been units or clients and pricing to get – and retention to get some kind of growth rate and now the pricing equation has become a little bit more complex because there are three dimensions to that. It sounds like pricing, obviously, checks and then the bundling of incremental services to drive revenue per client. So, with those changes in mind, can you perhaps give us some high-level thoughts of how to think about that going forward?
Efrain Rivera - SVP, CFO and Treasurer: Yeah, let me take a stab and then Marty can add. We need to drive unit growth, so I don't want any of the conversation that we met to indicate that's not important, it is. But obviously in an environment where in 2009 there were 728,000 business starts, down from 851,000, the peak of mid-decade and right now we've only recovered to 784,000. We have to figure out how to get the growth. So we've recognized that unit growth is going to be a bit more challenged. So, what we have focused on is a combination of both driving units and also driving revenue growth as you mentioned through bundling and also small things that we don't spend a lot of time talking about, but other value-added services particularly for Core clients like Clocks, like other related services. So, I would say, David, the way to think about it is a combination of more revenue per client and/or so unit growth plus right now it looks like we've got a little bit more sustained power on checks per payroll than probably report 12 to 18 months ago. Now, when we still think it will moderate, but it's simply than better than we anticipated.
Martin Mucci - President and CEO: It's hasn't – Efrain said, it hasn't changed all that much from the old days of looking at client growth price and ancillary growth. I think the ancillary growth is not just HRS products, so the point Efrain making is even to the Core clients, there is Time Clocks now that we sell there is background checks, there's a number of other products. But you can kind of lump them all into that probably that ancillary growth if you wanted to. If the client growth is the most difficult one right now, but driving up price and meaning price in the standpoint it's not just the price increase, but more price for what you get. I guess what you get out of the price increase is certainly one goal and the ancillary growth is the other, when we don't have as much client growth as we'd like from the old days 3% or so. So, it's still pretty much the same pieces. It's just driving. Right now the focus is on driving as much revenue you can per client that we sell. Obviously, selling more clients, but always driving as much revenue per client as we can sell with ancillaries and additional products and services we have. And then retaining those clients, which we're doing a really good job. We haven't talked that much about, but I think we are really on a path for an historic best in client retention, which certainly helps too. Because the longer you have decline typically the more revenue you're getting out of them as discounts roll off and you sell them more products and services.
David Grossman - Stifel Nicolaus: So, as we look at that payroll line then and we think about unit growth and whatever the running for client (indiscernible) and customer does pricing, the straight pricing metric, is it realistic to kind of think of the bundle of pricing and incremental services and some number that we could think of a target in terms of how the business is going to grow, when you factor and whatever those 2% unit growth and then the rest comes from this bundle, pricing, check and other products?
Efrain Rivera - SVP, CFO and Treasurer: Look, I think we'll give more color on that when we get to Q4 what you are saying, I think that price component is probably going to be a bundle of all of those of that additional revenue that we sell to clients in addition to the unit growth we assume. But we're increasingly will be more of a bundle of those services plus the price increase. We create a revenue per unit list.
David Grossman - Stifel Nicolaus: And just back to your comments. I think you mentioned that you are experimenting a little bit with pricing this year and I understand the reluctance to give too much detail on what you did and what you are going to be doing going forward, but anything you can share with us on, what you learned from that endeavor over the course of the year?
Efrain Rivera - SVP, CFO and Treasurer: Yeah, what I'd say is that we have pretty sophisticated models around the pricing less since to be in demand and we understand the pricing less since to be in demand done this year and we did last year. So, we've just gone increasingly sophisticated with the algorithms we use and understand what the pricing in the base, how the pricing in the base works. But one other thing I don’t want to leave a misimpression on that. We are on pace to have greater than 81% client retention, so it's not just plugging something into a model which is part of the work we do and I think we do a very good job of it, it's also that we have tremendous service at the front line that’s driving that kind of retention because if you don’t have that part of the model solved, you can price anyway you want, you won't retain the clients. It's really important to realize that we don’t trumpet this nearly enough. But we have thousands of payroll specialists who are out there on the front lines meeting client needs everyway in a very, very high way and the stories that we get sometimes are just amazing and that’s part of the – secret of our success.
Martin Mucci - President and CEO: I think the bottom line on that when you think about what we are saying we've seen good new business revenue sales, we've seen some best client retention, we're headed I think to historic best as Efrain said. I think that says that the sophistication of the pricing model is working pretty well. We feel good about it.
Operator: Timothy Mchugh, William Blair & Company.
Timothy Mchugh - William Blair & Company: First just want to ask about the PEO area you talked about better client growth this year than certainly you saw last year. can you give us any sort of sense for exactly how much of an improvement, I mean is it back in line with historical levels or the rest of the HRS business and I guess trying to get a sense of how much of an impact that could have on the HRS growth going forward for the next year or so?
Martin Mucci - President and CEO: Yeah, it's still a fairly small component of the overall HRS revenue. But what we're pleased about, as you know we – as we knew we had some bumpy times there with health insurance premiums in the business a few years ago now. And this time around during an important selling season and benefit enrollment time we think that a lot of nice work has been done there over the last year, really year and a half to make us much more competitive. And it proved itself not only in new sales of that we're up, in the PEO significantly, but retention. Retention in the last two years have been a struggle because of the premiums. I think we've gotten that all calm down and did really well much better in retention than we expected. So, I'd say, Tim, it's still a small part of HRS, but we're seeing it start to come back and I do think that the Affordable Care Act and all of that around health insurance will help drive those sales as well. So this is kind of just to us is the start of positive momentum in the PEO, but it's finally kind of turned around and we feel it's sustaining and actually we will increase now with the Affordable Care Act.
Timothy Mchugh - William Blair & Company: Efrain, can you help us think through, you talked about the impact of moving more into some municipal tax-exempt type of securities on the interest income, but the tax rate really at least year-to-date hasn't moved all that much. Can that start to have an impact where we can see the tax rates start to move down over the next couple of quarters or year or two?
Efrain Rivera - SVP, CFO and Treasurer: No. I don't think it's going to make a dramatic impact and then part of that really, Tim, is just the mix effect. I'm not expecting to see a material increase in the amount of float income over the next year or so. And so as our what -- where we are driving higher tax rates is from the mix of our operating income. So, the proportion of flow to operating is going to be a current levels or below and so that tends to drive the tax rate up a little bit over time not down. If I had a different interest rate environment I'd give you different answer, I don't unfortunately don't.
Operator: (George McCallis, Credit Suisse).
George McCallis - Credit Suisse: Couple of things. One, just looking at the commentary from the sale season and your success it seems like bundling solutions together. Should we be interpreting that you guys feel somewhat better about pricing as you are going to be heading into fiscal year '14?
Efrain Rivera - SVP, CFO and Treasurer: Yeah, I'd say so. I mean we're very cautious about it, and I think the models would show it's not an economy that you are going to go necessarily to the high-end of a range, but I think we feel pretty good about where we are going. We don't want again – I don't want to go too much further on that, but I think we feel pretty good about continuing to give a price increase and hold it.
George McCallis - Credit Suisse: Then just two other very, very quick questions. Can you just kind of ballpark for us or give us a sense of the growth rate for SurePayroll on a year-over-year basis? Then also you mentioned continuing your investment in IT new solutions. Can you also give us a sense of the percentage increase in investment spend?
Efrain Rivera - SVP, CFO and Treasurer: In sequential order, double-digit, double-digit that's (as far as we could) go.
Operator: Tien-tsin Huang, JPMC.
Tien-tsin Huang - JPMorgan: Follow-up to George's question around the investment spend, double-digit, that's good to hear. Your expense growth obviously staying very good at 2% to 3%. How much more room is there to benefit incrementally from productivity and operations? I get that is not opportunistic for sure, but I'm just curious how much more can you do to cover the big spending in product development?
Efrain Rivera - SVP, CFO and Treasurer: Look, I can't give a precise range. When we do our Q4 talk about guidance we'll get a sense of that. The best I can say is that we will just continue to incrementally improve. There are always ways to find better productivity. That's something that is drummed into the DNA of the entire organization. We understand that and we're currently in the planning season, so I can say that mantra continues to be repeated. So, we still think we've got some opportunity. Can't commit to specifics about how much we'll do, but it's our intent is to continue to do it going forward.
Martin Mucci - President and CEO: The focus is always continue to leverage the expenses but to not sacrifice the initiatives we're doing for growth. So, the technology spend, the spend to drive more sales, more referrals and things like that, we're still investing in those things and it's a balance of, hey, we got to come out of this with technology spend for our future growth, sales spend for our future growth, but still leveraging the expenses; that's exactly how we work through it.
Tien-tsin Huang - JPMorgan: Fair enough. Just couple more quickly. I know it's getting close to lunch. The revenue per client maybe I'm thinking here could be a more important metric. So, directionally, I mean there is a lot of moving pieces, right, to get the short payroll mix and you have got higher tax rates of ancillary. What's the directional trend and is there a lot more room to drive up Core payroll revenue per client with all the ancillaries that you've added through the years?
Efrain Rivera - SVP, CFO and Treasurer: We have some opportunity to do that. I think one of the important things to remember here is that, there are a lot of people in the market who appreciate good customer service and are willing to pay for it and we think we deliver world-class service and we think our clients appreciate that and are willing to pay for it. We also think there are other tuck-in products that over time aren't currently in the portfolio that we will add. And finally the other thing I'd add is that there is a underestimation of the complexity of the ACA requirements that it's going to cause people, even people who are probably in a SaaS-based environment to think maybe outsourcing is the better option for $1,000 more, because of the penalties for non-compliance. So, we think all three of those are factors that probably could tend to push that higher. What the specific number is, we can't commit for or say what that is at this point, but we think that it pushes towards a higher number.
Martin Mucci - President and CEO: I think we are in a very good place of balancing that world-class service with the technology now. Few years ago, four years ago we were I think a little behind the curve on the technology, but the investments have paid off and now with the roll out of product that we're doing all the time and the improvement in the SaaS model and the SaaS investments are really paying off and that it's a very valuable balance of technology and a very competitive service and technology model together.
Tien-tsin Huang - JPMorgan: No that makes sense and it jives with your higher (CSAT) and your retention metrics as well. I'll let you go. Just one more question I think I ask every quarter and I apologize, but just on the acquisition pipeline, just I heard a little about talent management, things like that, but just any color on just the pipeline itself, is it more in the SaaS or the tangential markets or maybe the regional payrolls, is that something you are considering, I'm curious?
Martin Mucci - President and CEO: Well, it's definitely SaaS, I think, because we're looking to bring more in. I think it's not only the product tuck-ins, but it's also new product and expanding I think our product set a little bit. Not really want to go too far into that at this point until we do something, but – and its investments also looking out in geography as well. We're really trying to increase the speed at which Germany grows and I think we've put on renewed focus on that as well. So it's product tuck-ins, its additional products, it's payroll certainly as well, and it's geography. We'll be able to tell you more about those as it happens. As Efrain mentioned earlier, we're very careful not to just put it on the top line and then impact the bottom line. So, it takes us, I think, a little bit longer to balance and find the right opportunities. We don't just spend it just to stick it up there on top and not have an impact on the bottom. We look at very good value based acquisitions.
Operator: Gary Bisbee, Barclays Capital.
Gary Bisbee - Barclays Capital: I'll just ask you two quick ones. I think you said that you thought the health insurance business could be impacted somewhat by the Affordable Care Act next year. Could you give any more color on how much that will be and what impact?
Efrain Rivera - SVP, CFO and Treasurer: Not precisely. We'll talk a little bit about – we've been growing upper teens, 20%. We expect that to slow down a little bit and the impact there really is in the 10 and below the market where we think those people eventually were going to migrate into exchanges. There is also a little bit of pressure that's occurring with respect to brokerage fees that we expect to continue and so the combination of those will cause growth rates in the short term to moderate. We still think there is an important opportunity longer term and we've transitioned – pivoted the sales force to look at more about market opportunities where we think there is still a lot of opportunity.
Gary Bisbee - Barclays Capital: You still think you would grow the business but just at slower rate or is it possible…?
Efrain Rivera - SVP, CFO and Treasurer: Yeah, that's true.
Martin Mucci - President and CEO: Well, definitely, yeah. There is lot of opportunity here I think, and Efrain mentioned it earlier even in the payroll side there is opportunity, because I think it would drive more to outsource. But on the health insurance side I think we're doing some things product wise that I think are going to – are really positioning us well to capture that from a client perspective on payroll side and the health insurance side. So, in the short-term side we have a little bit of pressure from commissions from the carriers. In the longer term, I think, more clients are going to come to someone looking for an expert to help them and the combination of health insurance being done by us, by Paychex and the payroll will make it much easier for clients than those who do it separately.
Gary Bisbee - Barclays Capital: Then the second question, the float being flattish with the growth offsetting the lower yields, is that a reasonable proxy or do you think it likely could start falling again as we move forward? I think the expectation is…
Martin Mucci - President and CEO: Yes, we had some gains in the quarter and we kept the guidance for the year, so I think we're at 8% to 6%; that's down 6% to 8%. I guess I should put it that way. That's still good guidance and then we'll talk more about where we think we'll end up next year. But we certainly don’t face the headwinds that others do in this, unless rates continue to drop from where we are and get worse.
Operator: Mark Marcon, RW Baird.
Mark Marcon - Robert W. Baird: With regards to the profile of the clients, you (were talking about this) with regards to health insurance, but I'm wondering if you can talk a little bit about it with regards to on the Core. What are the differences in terms of the profile of the new clients that you're signing now relative to maybe a few years ago, what percentage are new businesses and how should we think about that going forward, particularly with the complexity of the Affordable Care Act impacting companies that are a little bit larger to a greater extent than the really small ones?
Martin Mucci - President and CEO: I think, Mark, generally we're not seeing any significant differences in the new clients we're selling versus the clients that we have in the base. They're still very much in our sweet spot. I think on health insurance in particular, we have focused that we think there's a better opportunity for us to expand and do more selling in the 50 and above. Obviously our midmarket payroll business is up there and I think there is a lot of opportunity. What we found was we were selling a lot to the under 50 in the health insurance and that even better retention and bigger opportunity might be in that over 50, so we focused some of the health insurance folks on that and have been going through a little bit of a transition on that. But as far as really payroll and Core payroll in particular, we're not seeing much difference in new clients versus existing base.
Mark Marcon - Robert W. Baird: What percentage of the health insurance clients are typically in that smaller range out of the existing base?
Efrain Rivera - SVP, CFO and Treasurer: I don’t think we'd get to that level of granularity. I think what we've said is that currently our health care clients as a percentage of the base were under 5%. It's fairly small.
Martin Mucci - President and CEO: One thing I don’t want to mislead anybody to think that we are not going after that small market for health insurance as well, we are. It's just obviously if you look at under let's say 20 employees probably 50% provide health care somewhere in 40% to 50% provide health care so that's an opportunity there. If you look at over 50% it's more like 90%. So all we are saying is we are kind of adding our focus, we didn’t take away from the low end though at the same time.
Mark Marcon - Robert W. Baird: You mentioned that the bonus is up little but this quarter, is there any quantification around that or.
Efrain Rivera - SVP, CFO and Treasurer: What we saw Mark was that bonus dollars compared to as well as we can quantify were up about 20% this year a little bit over 20% over last year. So there was clearly a lot of bonus activities and as Marty said before we said a more normalized rate of growth in checks per client would have been about 2%. So we saw roughly three-tenths of 1% or so in terms of check. So that’s an estimate. So I don’t want to think that’s anything more than that in our part. Because it's tough to say what's check and what's a bonus check but based on our analysis it looks like a lot of people made some yearend bonus payments that didn’t occur in prior years for obvious reasons.
Mark Marcon - Robert W. Baird: Obviously a positive sign with regards to the economy in terms of.
Efrain Rivera - SVP, CFO and Treasurer: Yes.
Mark Marcon - Robert W. Baird: In terms of the float yield, do you think we are at this point?
Efrain Rivera - SVP, CFO and Treasurer: What, I'm sorry?
Mark Marcon - Robert W. Baird: In terms of the effective yield on the float, do you think we're pretty close to basing in terms of -- we've reached…
Efrain Rivera - SVP, CFO and Treasurer: Mark, I didn't understand what you mean about basing, I get it now. We're pretty close, we're getting close.
Mark Marcon - Robert W. Baird: And we should start seeing continued improvements in terms of the overall float balances?
Efrain Rivera - SVP, CFO and Treasurer: Float balances or float income?
Mark Marcon - Robert W. Baird: Float balances?
Efrain Rivera - SVP, CFO and Treasurer: Yeah, float balances should over time go up, yeah, absolutely. I know where you're going. Look, I hope that that increases. I think we'll still see down next year just because of the roll off in some older investments, but we're getting close to the end of this cycle.
Operator: Paul Hunter, BMO.
Paul Hunter - BMO: Just on the bonuses, I think you mentioned those are been up for obvious reasons, but to me that means people is trying to front-run the payroll tax increase. I'm wondering if you were thinking about it at the same way.
Efrain Rivera - SVP, CFO and Treasurer: No, I think what they're trying to front-run was a perception that dividends were going to go up in all likelihood in capital gains. It seems like six years ago, but there was a lot of nervousness in December about cap gains and dividend rates going up and so I think people got nervous about that and rates in general going up.
Martin Mucci - President and CEO: I think we did see some – I think the overall bonus activity was more about an improved economy and so more checks and so forth. I think to your point only we saw more bonuses paid in December than January this year. So it moved up a little bit, but I am not sure the overall amount was trying to – I think the overall amount is up though, which was a positive on the economy. But we did see a shift some to December versus January; obviously, all still in the third quarter.
Efrain Rivera - SVP, CFO and Treasurer: Yeah, I guess, on the timing, the front-running comment was what I was referring to.
Paul Hunter - BMO: I don't know if you can kind of remind us just on HR Services the mix of those kind of main four business lines there and then maybe some comments on the mobile adoption or mobile usage and then I'll just end it there.
Efrain Rivera - SVP, CFO and Treasurer: So we do not disclose the exact percentages for each, but within the three lines of businesses that we have in HRS, the biggest is HR outsourcing, which is our ASO, PEO solutions and what we call HR Essentials, that's first; second is our 401(k) record keeping and related business; and the third is insurance. And then I'll let Marty talk some more.
Martin Mucci - President and CEO: By the way, feeling good about all and particularly 401(k) and we didn't talk much about on the call, but we shifted and expanded frankly our sales force in 401(k) towards the larger market, larger 401(k)s and that's been off to a great start. I think Efrain and I have mentioned it on our previous calls but just started that this fiscal year. So, we see expansion on larger 401(k)s as well. And on the mobility question, yeah, we're seeing a nice fast pickup in use of the mobility platform, and as we add more feature and functionality to it and more clients, we're pushing that more, so clients are aware of it that its available and out there, and the feature functionality to the application just continues to expand. So, we're seeing a nice pickup in that. And, again, it's not really replacing. For us it's this hybrid of balancing the service model that we have of the dedicated specialist who is all knowledgeable and can take care of everything for you with your ability to go in and do your payroll if you want online or just get information off your phone or tablet.
Operator: We show no further questions.
Martin Mucci - President and CEO: Great. Well, thank you. Thanks everyone for hanging in and we appreciate the interest in Paychex's and we're very excited about our future. At this point, we'll close the meeting. If you are interested in replaying the webcast of this conference call, it will be archived till the end of April, April 29. Thank you for your time and your participation in our third quarter press release call. Have a good weekend.
Operator: Thank you for participating in today's conference. You may now disconnect.