Welcome and thank you all for standing by. If you have any objections, you may disconnect now. Now, I will turn the meeting over to your host, Mr. Martin Mucci, President and Chief Executive Officer. Thank you and thank you for joining us for the discussion of Paychex Third Quarter Fiscal 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 28, Our Form Q will be filed with the SEC within the next few days. And you can access our earnings release and the Form Q on our Investor Relations webpage. This teleconference is being broadcast paychex the Internet and will be archived and available on our website for about 30 days. Our third second quarter results mark continued progress across our major product lines. Our cloud-based HCM, human capital management services, continued to show strong growth. With three months of improvement, we anticipate a continuation of jobs growth and the administrations agenda advocates for lower taxes and fewer regulations, which we hope will likely lead to a more robust environment for small businesses including investment in HCM solutions. We are confident that we are well-positioned to support our clients in successfully navigating through many future changes we expect on the horizon. On March 24th, House Republicans abandoned the proposed bill to repeal and replace the Affordable Care Act. Therefore, the requirements including the need for health insurance offerings for employees of applicable large employers, the annual compliance filings and the penalties remain in place for the foreseeable future. We have been successful in responding to these needs for our clients and have maintained a good client retention level for these services, and we now expect that to continue. We have recently announced the expansion of our portfolio of partners and solutions that provide investment and administrative fiduciary protection to k plan sponsors. With these services, we are making it easier for advisers and plan sponsors to offer investment options in their k plan that allow them to keep up with the demand of the ever-changing regulatory landscape. Our clients can now choose from a suite of fiduciary response solutions to help them with a complicated investment selection process by outsourcing to professional firms. During the third quarter, we experienced some mixed results for payroll sales. These results reflected progress in the small market sales and a continuation of the trends in the mid-market that we discussed in the second quarter call. Mid-market payroll merrill decreased from the high level of activity experienced a year ago, which were driven in part by the Affordable Care Act requirements. Compared to a year ago, this has impacted the number and size of clients sold during the selling season. Our complete HR outsourcing solutions have continued to demonstrate strong growth in the marketplace. And as noted previously, we are serving about 1 million worksite employees through a combination of our HR Services. For all of our products, we maintain our focus and continuous improvement in our Software-as-a-Service technology platforms, value-added service offerings and operational efficiencies. This year, enhancements to our Paychex Flex platform, including mobile offerings, HR analytics, time and attendance solutions and paperless on-boarding of new employees, has helped drive increased adoption of our mobile app and double-digit growth of our time and attendance solutions. In December, we were honored with the Brandon Hall Group bronze medal for the second year in a row. This award recognized Paychex Flex for the Best Advance in HR or workforce management technology for small and medium-sized businesses. Paychex also received other important recognition lynch the third quarter. Also, our training organization were honored to be ranked number 20 on the list of the top training organizations by Training magazine, up 11 spots over the last year. Paychex employees in the Paychex Learning and Development Center do an amazing job, providing more than 1 million hours -- training hours over the last fiscal year. Learning and development is a large part of the culture here at Paychex, and we take pride in the outstanding programs created and delivered by this team of talented individuals. We also celebrated the one year anniversary of Advance Partners acquisition in December and remain very pleased with the contributions that team has brought to our Company. Their performance has been strong, and we look forward to the growing opportunities that are in store for them. In summary, we marked another quarter of progress and growth, and I appreciate the great work and efforts of our Paychex employees and management team during a busy calendar yearend and selling season. I will now turn the call over to Efrain to review our financial results in more detail. Thanks and good morning to everyone. As Marty indicated, third options financial results for fiscal showed continued progress and growth. Here are some of the key highlights for the third quarter and nine months. These changes were primarily driven by slightly higher average interest rates earned. The expense growth in both periods was impacted by higher wages and related comp expenses due to growth in headcount in our operations area primarily. Expense growth was moderated or tempered by lower variable selling cost. Our operating margin was The improvement in the third quarter was aided by lower variable selling expense as I mentioned. We continue to maintain industry-leading margins while investing in our operations. Our effective income tax rate was The lower effective income tax rates in fiscal are due to discrete tax items. In fiscalwe implemented new accounting guidance stock to employee stock-based compensation. This has resulted in discrete tax benefits recognized upon exercise or lapse of stock-based awards. In the first quarter of fiscallooking back to last year, we recognized a net tax benefit on income from prior years -- prior tax years related to customer facing software we produced. This drove the lower tax rate for the nine-month options. Note that these two non-GAAP measures exclude the discrete items previously mentioned. Please refer to the press release for a discussion of the non-GAAP measures and a reconciliation to the related measures under GAAP build out clearly in a table in the press release again. We benefitted from increases in client base and revenue per check. Revenue per check grew as a result of price increases net of discounting. The impact of Advance Partners on the year-to-date payroll service revenue growth was partially offset by the impact of one less processing day compared to the prior year period. And when you net both of them, we get increase of about 0. The increase reflects continued growth in our client base across all major HCM services including our comprehensive HR outsourcing services, retirement, attendance, and HR administration. Retirement services also reflected an increase in asset fee revenue earned on the asset value participant fund. For the nine months, the impact of Advance Partners was approximately 1. On the short-term side, primary short-term vehicles are bank demand positive accounts and variable rate demand notes. In our longer term portfolio, we invest primarily in high credit quality municipal bonds, corporate bonds and U. Our long-term portfolio has an average yield of 1. Our combined portfolios have earned an average rate of return of 1. In Decemberthe Fed funds rate was increased by 25 basis points and Fed again increased the interest rate by another 25 basis points in early March. The impact from growth in the client base was offset by timing of certain remittances to taxing authorities. The fluctuation is related to changes in market rates of interest on intermediate bonds. The decrease was the result of fluctuations in working capital offset by higher net income and non-cash adjustments. We remind you that our outlook is based upon our current view of economic and interest rate conditions continue with no significant changes. Our guidance for the full year is as follows. Full year increase on funds held for clients is anticipated to increase in the upper single-digit. The impact of the recent increases in short-term rates will be modest for the balance of the year, but will become more accretive in fiscal Operating margins are anticipated to be consistent with guidance previously provided. This is consistent with the guidance that we have previously given in June. Thank you very much. We will now begin the question-and-answer session. Sir, your line is now open. Thanks for taking the questions. Just on the mixed results in sales. Can you talk about how it came against your expectations? And then in that context, you called out, Efrain, the lower variable sales expenses. So again, is this a function of just a tough comp from last year on sales or is it lower sales versus your expectations, not [indiscernible] leverage in that line? I think what we saw, as I mentioned, was small market was fine and mid-market was a little slower than we anticipated. And I would say, certainly lynch -- decreased from last year, but we knew that there was a real bump stock second and third quarters for Affordable Care Act sales, our ESR -- our employee, our services product there, and to help with ACA. And I think that drove a lot of payroll sales and other products as well. And that seemed to have some impact this year a little bit in slowing it down. So, I think down from last year because of the kind of the frenzy of ACA buying and so a little bit slower in the mid-market than we thought. And what we saw in the -- starting in the second quarter with the comments that Marty gave, was we started to see more hesitancy; and then as we went into third quarter, it was clear that demand environment was different than what we were in, last year. And as a consequence of that, mid-market sales, the comments that Marty made about mid-market sales were what we saw. On the smaller end of the market, the market looked pretty robust; we did very well but it was a bit -- that scenario was a little bit different than what we had anticipated going into the year. But, has there been any change over the last week since the vote? What we were talking about there is that last year, not only did they drive Affordable Care Act product sales, but I think it drove decision-making in payroll -- in payroll products time and attendance kind of everything, it was at the same time, everything is well integrated from one service provider. And so, we saw that bump last year. So, not only did we have the Affordable Care Act product sales up last year as people needed to have the product in place, but they were making other buying decisions that I think actually got pulled forward to some degree. And I think you have the election on top of it and the new administration and it seems like in general, businesses is in the -- particularly in the mid-market size are being a little hesitant to what exactly do they have to do. And so, I think there is just a lot of kind of state of flux right now with many businesses. Our next question is coming from the line of Gary Bisbee from RBC Capital Markets. Your line is merrill open, sir. And I guess on -- did you see in the year-end season, any change paychex the lynch of your PEO customers to take your insurance offerings? And so, is there any revenue trajectory we should think for the new calendar year? Any impact of that like lower pass-throughs or anything? And then, you guys cited at the beginning some of the optimistic data, like your small business survey. How are you thinking about that? At this point, Gary, as you said, the optimism has been very high off the charts, and our survey, or our index for the last three months has shown increasingly small business hiring is up. So, I think there is a lot of confusion stock. And then just one last one, if I could. On the margins, can you size the impact of the benefit of lower sales commissions or the lower variable selling expense? Our next paychex is coming from the line of James Berkley from Barclays. So, just sort of level setting what we anticipate. That increasingly seems to be the trajectory the Fed is on. And then just last…. And then, I was just going to say lastly, if you could just speak to the sustainability -- what drove that double-digit growth you saw in time and attendance, and then just the sustainability of that going forward, given some of the uncertainty around those rules? On the time and attendance, I think one, the overtime rules came out in the fall, the proposed overtime rules and are going to take effect December 1. And so, I think that drove a lot of clients to discuss with sales reps about solutions. I think one, driven by the overtime rules that were supposed to go into effect. That seems to have a very strong stick. And again, as I said, we have multiple options of both Flex time and attendance and Flex time and attendance essentials as well as a number of different clocks that are now that are now available. Our next question is coming from the line of Jeff Silber from BMO Capital Markets. Your line is now open. I just wanted to circle back on the discussion earlier about your small business index. How long it takes for you to see that and if you see that more on the payroll side or the HRS side? I mean, the correlation obviously is usually pretty good. This is a sample; this index is done onof our clients and under 50 employees. So again, this is focused on the under 50 side of the market. We kind of peaked the last year around the April timeframe stock year ago, April into May, and then that dropped off in the fall and then has come back and kind of recovered that. And just to build on what Marty said. So, we have yet to see in our client base, a significant uptick in client employees. On the tax rate for the fourth quarter, are there any discrete items that we should be aware of? Our next question is coming from the line of David Ridley-Lane of Bank of America Merrill Lynch. The impact on the days to the payroll segment, the one fewer processing day, was about basis points. Curious if you have sort of similar metric for the HR Services segment? Yes, really pretty negligible, David. It probably does have a little bit of an impact but not enough to call it out. And then, looking a little bit more closely at the HR Services, how much of lynch growth that you saw in retirement was related to those fee increases and perhaps market action versus signing up net new clients? We had both in the quarter, but because market was up in the third quarter, we had a good bump. And then from a revenue perspective, was third quarter the toughest Affordable Options Act related comparison? And would fourth quarter be pretty much like-for-like or ACA-related revenue is still ramping up in the fourth quarter of last year? No, just the opposite. ACA is going to start to now slow down after Q3. And now we anniversary the uplift in ACA, and it starts -- the compares start to show slowing on the revenue, which is why I called out HRS being in the range that I mentioned. And then, did Affordable Care Act revenue grow or would you expect it to grow in the fourth quarter? Our next question is coming from the line of Mr. James Schneider from Goldman Sachs. Thanks for taking my question. I was wandering could you maybe just talk a little bit about, given everything you said about the sales momentum or kind of a little bit about softness in sales right now? And then what you expect for PEO and other trends. How would you roll that up in terms of kind of puts and takes as we think about modeling fiscal and the impact of these impacts relative to the long-term growth target of the company laid out previously? HRS will be impacted going into next year by the Affordable Care Act anniversarying that growth. And then, maybe if you could kind of lynch some color relative to ACA comments you made before. I think it would be much stronger. Obviously, I think we feel -- actually, the way things have turned out when you think about it from a Paychex impact, the Affordable Care Act kind of being delayed now and looks like it may take some time to get to change, and tax reform kind of being moved up first now to be worked on is very good for us. One, it gives us stability options retention of the revenue for ACA; and two, I think it will drive some more sales in ACA as well for even clients who were still kind of new clients of that size but also clients who were holding on or decided they want to stock for somebody else now that kind of the thing has settled down. I think the initial sales are kind of over like the clients or the majority of our clients who needed it, have it. Rick Eskelsen from Wells Fargo. Just sort of building on your last comment there, Marty, specifically about the ACA module. I mean, I guess, you can define it more broadly, but how do you guys view that as competitively positioned? Do you think that, that module in and of itself is something where you have a differentiated solution that can drive takeaways or is really the value that you have it and you can provide it as part of your full sort of bundle and full stack solution? I think it certainly is very competitive. We were kind of the first out to the market with it. I think a lot of competitors have caught up to a certain degree, but I think we have a very good monitoring tool and have made -- from the first year, a year ago, have made a lot of improvements merrill the way we handled the filings themselves and the amount of work that the clients had to do. We saw a very large improvement in not only what the client experienced, but what operational efficiency of handling the filings and in filing the forms, getting them to the client employees and so forth. Then just the second one for me, you talked about the small business options and hope of improved hiring. I do think to some degree there is. The big change we have seen over the last few years is that need for HCM for HR support to come down in size. I do think there is more positive environment where they look to buy solutions that are going to help them hire. We certainly get a lot more interest and really our go-to-market approach is much more now, A, what is your HR solution that you need, do you need help with recruiting, time and attendance, on-boarding your new employees, background checks and the whole hiring phase of it. We have a lot of interest in that. So, I do think that they are feeling a little bit more positive about the hiring going forward. Compliance always does play a very important role though. And while it may seem like federal regulations are going -- are decreasing or going to be decreasing, we are seeing a big ramp-up of state regulation, which are going to make it even more difficult for clients to comply, if they are multi-state employers. Just the last one from me; first, a clarification. For the check for payroll, I believe you said it was negative last quarter and I think that in your comment, it was the same again this quarter. Can you give paychex update there? Mark Marcon from Baird. And then with regards to that HR bundle as well as time and attendance, how much of the sales are basically going to the installed base or the efforts going to the installed base relative to trying to gather new clients? A lot of effort on -- the go-to-market strategy is merrill to offer those products right up front. The old model for us was payroll, and then go back and sell. And then, if I could just go back to the mid-market comments, how they relate to some of those preliminary comments with regards to how to think about next year and to setting up the right expectations? And then finally, just on the PEO side. So, the question on the mid-market would basically be, was it a particular end of the mid-market? I think it was kind of across-the-board, but I would say in the higher end. When you got up into the higher sizes, there seems to be a little more hesitation and less sales going on right there from compared to what we had expected and when you compare it to last year. They accelerated their buy. So, I think there is -- does seem to be just kind of a very interesting kind of sluggishness about making a final decision in it. And sorry, and then a question…. Yes, and just related to that, just when we think about core payroll and HRS, you talked about some initial thoughts for next year. I just want to make sure I interpreted it correctly. In terms of for next year, Efrain, you mentioned kind of on the payroll thing where we currently are. Do you mean where we are here in the second half of this fiscal year or where we are for the full year? So, I think you can figure out what the underlying run rate is, excluding Advance. That would be my initial thinking about where we go out next year, subject to a lot of further conversation. And then, you had a question on the PEO, Mark? What were you thinking preliminarily? That now anniversaries and starts to look a little bit more like a run rate business, depending on how much we sell or lose in a given year. And then PEO is a wildcard. So, we saw less -- I forgot the last question. We saw less healthcare attachment but very lumpy, hard to predict, where. So, we saw some very large client attach healthcare and then we saw lots of smaller ones not attach healthcare. It will, but it does affect the revenue. So, but I do think those are trends we are seeing in the business at the moment. And our last question is coming from the line of the Ms. Lisa Ellis of Bernstein. Sort of how do you balance those? Yes, I think it kind of -- the investment is spread by size and so forth. And so everything is going to be very easy from a mobile app. Seeing a large use of the FI employees has turned out to be a good retention tool for us as well because they get used to what they like to get the pace up there, et cetera and the employers less likely to change. Thank you for the time to participate in this third quarter press release conference call and for your interest in Paychex. Have a great day. 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PAYX Q3 Results Earnings Conference Call March 29, Martin Mucci Thank you and thank you for joining us for the discussion of Paychex Third Quarter Fiscal Earnings Release. Error in this transcript? Contact us to add your company to our coverage or use transcripts in your business. Learn more about Seeking Alpha transcripts here. Follow SA Transcripts and get email alerts. All PAYX Transcripts Other Companies in this sector.
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3 thoughts on “Paychex merrill lynch stock options”
For conservatives, tradition stands above freedom, above creativity, above the new, above what is needed in the present, even above being loving and compassionate.
Early last June in the stinking hot city, the summer monsoon had not yet arrived to wash the dust from the innumerable construction sites, which only added to the dust that blows in from the deserts of Rajasthan.
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For conservatives, tradition stands above freedom, above creativity, above the new, above what is needed in the present, even above being loving and compassionate.
Early last June in the stinking hot city, the summer monsoon had not yet arrived to wash the dust from the innumerable construction sites, which only added to the dust that blows in from the deserts of Rajasthan.