Paychex, Inc.

Good day, everyone, and welcome to today's Paycheck's first quarter fiscal 22 earnings conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and 1 on your touchtone phone. Please note this call may be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn today's call over to President and Chief Executive Officer Martin Mucey. Please go ahead.

Thank you. And thank you for joining us for our discussion of the Paychex first quarter fiscal year 2022 earnings release. Joining me today is Efren Rivera, our Chief Financial Officer. This morning before the market opened, we released our financial results for the first quarter ended August 31, 2021. You can access our earnings release on our investor relations website, and our Form 10-Q will be filed with the SEC within the next few days. This teleconference is being broadcast over the Internet and will be archived and available on our website for approximately 90 days. I will start today's call with an update on the business highlights for the first quarter, and Efren will review the financial results for the quarter and provide an update on fiscal 22 guidance. We will then open it up for questions. Fiscal 22 is off to a very strong start with Q1 results above our expectations. Total revenue increased 16% with double-digit growth in both management solutions and PEO and insurance solutions, while total expenses declined by 1%. Adjusted diluted earnings per share increased 41%. While results benefited from the compare to a pandemic-impacted first quarter last year in improvements in the economy, Our internal execution has been strong with continued momentum in sales, marketing, and client retention. During the first quarter, positive macroeconomic trends continued. This was evident in the growth in checks per payroll and net increase in worksite employees within our existing base of HR outsourcing clients, particularly with our ASO offering. Our client retention remains near record levels, reflective of both the resilience of small businesses and and the value provided by our unique blend of software solutions and HR expertise. Our sales momentum continued with strong first quarter sales performance as measured by new annualized revenue reflecting solid performance in digital sales, our mid-market sales, and our HR outsourcing divisions. Our unique value proposition of combining the most comprehensive human capital management software platform with our deep HR expertise, continues to resonate with prospective clients. We continue to invest in our sales force and support them through increased digital marketing and lead generation initiatives. We are well positioned for the upcoming selling season. We continue to leverage our investments in research and development to expand the capabilities of our industry-leading software, Paychex Flex. Our investments in self-service, artificial intelligence, and machine learning, and analytics payments, wearables, and voice recognition allow us to offer cutting-edge technology specifically designed to deliver automation and efficiency to both administrators and their employees. Our recent Pulse of HR survey identified hiring, retention, and software automation to gain efficiencies as the top industry trends facing businesses of all sizes. Our fall release introduces a series of software enhancements to further strengthen the power of Paychex Flex. We currently offer two options for clients in their search for talent, a fully integrated connection, API connection with Indeed, the world's largest job board for clients who are looking for a pool of applicants, and a comprehensive recruiting and applicant tracking offering called Flex Hiring for businesses looking for integrated technology to manage the entire recruiting process. We made enhancements to both to provide clients with tools they need to post jobs, attract candidates, and allow new hires to digitally self-onboard via our Flex mobile application. With employee retention being a significant issue in this challenging environment, we've introduced several enhancements to provide our clients with insights and offerings designed to help them and make informed decisions and retain their workforce. The introduction of retention insights, our first client-facing predictive analytic, was designed to identify employees who may be at risk of leaving, for example. Second is pay benchmarking, which allows employers to compare performance ratings and compensation details by position to ensure top performers are paid equitably. With our advanced technology, employers can easily compare individual employee compensation against national averages provided by the Bureau of Labor Statistics to confirm the impact of compensation on retention. We're excited also to announce a new offering called Paychecks Pre-Check to further automate the payroll process for employers and provide their employees an opportunity to review their gross-to-net calculation before payroll is officially processed. With Paychecks Pre-Check, employees are notified through their channel of choice, their phone, their tablet, their smartwatch, or their smart speakers that they have a pending pay period to review. The employee leverages Paychecks Flex to either confirm the amount of their check or report an issue. Issues are routed electronically to allow clients to focus on exceptions and proactively address issues prior to payday. Paychex PreCheck leverages our industry-leading flex payroll and time and attendance offerings, HR Connect offering, our digital employee case management tool, our advanced analytics module, our five-star rated mobile app, and expands our conversational UI capabilities, including our integration with Amazon Alexa, Google Assistant, and Siri shortcuts. With these additions, Paychex Flex is the first HCM application to offer integration with three of the major voice assistant platforms. Paychex PreCheck was recently recognized by HR Executive Magazine and the HR Tech Conference and Exposition with the Top HR Product of the Year Award, an award that spotlights innovation driving the HR technology market. This is a three-peat for us, marks the third consecutive year that Paychex has been recognized as a top HR product innovator by HR Tech. In addition to our innovative technology, the expertise and advice we're able to provide clients on HR matters really sets us apart. Our HR professionals have been very important in helping ASO and PEO clients to navigate through the pandemic, and in handling the current uncertainty around COVID with the recent uptick in transmission rates, return to office plans, and potential vaccine mandates. We are very proud of the work our HR professionals do, and we're honored to be recognized by winning a Gold Human Capital Management Excellence Award from the Brandon Hall Group in the category of Best Use of a Blended Learning Program for our HR Services Excellence Academy Training Program. This training program prepares our new HR professionals to provide exemplary consulting services to the company's HR outsourcing clients and was recognized for combining instructor-led training with technology-based activities. The expertise we offer our clients also expands to providing resources to assist clients with their many compliance obligations. Our COVID response continues near real-time updates. to our COVID-19 help center where businesses can access key information regarding changing regulations, including the recent Biden administration proposal on vaccine mandates. We assisted our clients in receiving over $65 billion in paycheck protection loans. That's 9% of the total PPP loans provided. And our industry-leading PPP forgiveness tools and reports have been accessed Over 500,000 times since its release, with over 90% of businesses now reporting their initial loan has been forgiven. We have also been instrumental in helping clients secure over $4 billion in stimulus funds available through the employee retention and paid leave credits. We recently launched an enhanced offering to Paycheck's Employee Retention Tax Credit Service to help businesses retroactively identify tax credit eligibility based on wages already paid and file amended returns to claim the credit. On average, paychecks clients are claiming over $150,000 in tax credits, a substantial amount for a smaller midsize business that is helping them survive and thrive in this pandemic. The pandemic has only exacerbated the retirement crisis in America. In response, a growing number of states have introduced state-mandated retirement programs, and our pooled employer plan or PEP offering, as well as traditional plans, have helped our clients handle new state mandates in ways that make financial sense for the employer and employees. For the 11th consecutive year, Paychex has earned the distinction as the largest 401k record keeper by total number of 401k plans, serving more than 96,000 plans. We have seen continued success in helping clients find retirement plans that suit their employees' needs and help them to attract and retain clients. We are very proud of our performance during the first quarter, but remain vigilant about the rest of the fiscal year given the uncertainty around the macroeconomic environment and the COVID-19 variants. Our very strong start in sales, continued client-based growth, best-in-class operating margin, and increased investment in marketing, lead generation, and product development have us well positioned for continued financial and operating success during the remainder of fiscal year 22 and beyond. I'd like to close my comments by recognizing, again, the company's 50th anniversary. From our founder's start with $3,000 and a few clients, we have transformed into a comprehensive, technology-driven human capital management software company with over 710,000 clients across the U.S. and Europe. In addition to paying one in every 12 American private sector employees, we are the country's largest 401k record keeper, a top 30 U.S. insurance agency, and among the largest providers of HR outsourcing in the U.S., supporting over 1.7 million worksite employees. While the size and the breadth of the company has changed, We remain true to our original mission of serving the unique needs of small and mid-sized businesses. That mission was all the more important during the challenges faced over the past 18 months. I'd like to thank and commend our employees for their tireless dedication to innovation and commitment to serving our clients. They have driven our growth over these 50 years, and our shareholders, we thank them for their investment with us along the way. I will now turn the call over to Efren Rivera to review our financial results for the first quarter.

Efren? Thanks, Marty, and good morning to everyone. I'd like to remind you to start that today's conference call contains forward-looking statements referred to the customary disclosures. I'll move through my comments relatively quickly so we can get to your questions. I'll periodically refer to non-GAAP measures such as adjusted operating income, EBITDA, et cetera. Please refer to our press release investor presentation for more information on these measures, especially on the investor presentation, too, if you want to have a clear roadmap in terms of what's included and what's not on the adjustments we make. I'll start by providing some of the key points for the quarter and then follow it with greater detail in some areas. I'll finish with a review of our fiscal 2022 outlook, which, as you saw, was revised upwards. First quarter reflected strong internal execution, improved economic environment, and favorable compares against the prior period. Both service revenue and total revenue increased 16% to $1.1 billion as we benefited from improved employment levels, higher client counts across all of our solutions. Growth rates were bolstered by a more easy compared to the prior year first quarter that was impacted by the pandemic. But as Marty said, we also had very strong execution in the quarter within service revenue management solutions increased 17% to 805 million and PO and insurance revenue increased 14% to 263 million interest on funds held for clients decreased 3% for the quarter. As lower average interest rates and realized gains were partially offset by higher average investment balances, we'll see what happens in the balance of the year as interest rates have started to move higher. Total expenses decreased 1% to $640 million, excluding one-time costs of $31 million that occurred during the first quarter. Fiscal 2021 expenses increased to minus 4%. The growth in expenses was impacted by higher PEO direct insurance costs, increases in fringe benefits, and continued investment in product development and information technology. One thing I'd like to point out here that's important is if you go back to the first quarter of 2020, our performance was strong even when we measure against that quarter. So not only did we have strong compares against the COVID impacted quarter, but go back to 2020 and you'll see this was a strong quarter overall. I think it says fundamentally something important about how the company has transformed over the last two years. Op income for this quarter increased 56% to $443 million with an operating margin of 41%. Adjusted operating margin was also 41% during the first quarter compared with 33.8% for the prior year and expansion of more than 700 basis points. Effective income tax was 24.9 compared to 23.4. The first quarter was impacted by an increase in state tax provisions. Both periods reflect net discrete tax benefits related to stock-based compensation benefits. As you know, we exclude those for purposes of our adjusted calculations. Adjusted net income increased 42%. Adjusted diluted earnings per share increased 41%. adjusted net income increased 42 and adjusted diluted earnings per share increased 41% for the quarter to 323 million and 89 cents per share respectively. Investments and income, our primary goal as you know is to protect principle and optimize liquidity. We continue to invest in high credit quality securities. The long term portfolio has an average yield of 1.8%, an average duration of 3.4 years. Our combined portfolios have earned an average rate of return of 1.1% for the quarter, down from 1.3% in the prior year. Now let's look at our financial position. It's, in a nutshell, pretty strong. It remains strong with restricted cash and total corporate investments over 1.2 billion. Our borrowings were 805 million as of August 31. Cash flow from operations was 386 million during the first quarter. a robust increase of 79% from the same period last year. Free cash flow generated was $354 million, up 83% year-over-year. The increases were driven by higher net income and changes in working capital. We paid quarterly dividends of 66 cents per share for a total of $238 million during the first quarter. Our 12-month rolling return on equity was a stellar 42%. Let me turn to guidance for the current fiscal year ending May 31, 2022. This outlook reflects the current macro environment, which saw improvement in the quarter, especially in June and July. First quarter results exceeded expectations. Nevertheless, as all of you know, there's uncertainty about the trajectory of the remainder of the next several quarters, so we've incorporated this into our expectations for the remainder of the year. Our crystal ball is clearer the nearer we are and a little bit less clear as we go out and now are into the spring of next year. So with all that said, management solutions, we expect it to grow now approximately 8%. That's guided upward from 7%, approximately 7%. PEO and insurance solutions is expected to grow in the range of 8% to 10%. That's similar to what we said previously, interest on funds held for clients. still expected to be flat year over year. Total revenue is expected to grow approximately 8%, again, guided upward from 7%. Adjusted operating income is expected to be in the range of 38 to 39%, up from previous guidance of approximately 38%. And if there's a point I would make simply is this, that we went through a pandemic. We made a lot of adjustments in the operating margin and our returns are really, really strong. Adjusted EBITDA margin now is expected to be approximately 43%, up from previous guidance of approximately 42%. Other income and expense net is expected to be in the range of $23 to $26 million. Our previous guidance was in the range of $33 to $37 million. The change is due to certain non-operating income received during the first quarter, and specifically, before I get the question on that, let me just say that we have invested in technology fund we received a mark that that ended up in us recognizing income on that technology fund which invest in early stage technology companies our effective income tax is expected to be in the range of 24 to 25 percent and adjusted diluted earnings per share is expected to grow in the range of 12 to 14 percent we previously guided to growth of 10 to 12 percent turning to the second quarter We currently anticipate total revenue growth will be in the range of seven to eight percent and adjusted remember it's adjusted operating margin is expected to be in the range of 36 to 37 percent Before I get the call I will just say on everything there's an element of conservatism and what we say in part because the macro environment does impact We don't obviously have a crystal ball on what's going to happen in the second quarter and beyond, and we're trying to create an all-weather forecast. Now, of course, all of what I just said is subject to current assumptions, which can change given the current environment. We'll update you again on the second quarter call. I'll refer you to our investor slides on the website for more information. And now, with all of that, I'll turn it over to Marty.

Thank you, Efren. Ashley, we will now open the call for questions, please.

Certainly. And at this time, if you would like to ask a question, please press star 1 on your touch-tone phone. You may withdraw your question at any time by pressing the pound key. Once again, that's star 1. And we'll take our first question from David Togut with Evercore ISI. Please go ahead.

Thank you. Good morning. And very nice results. Thank you. Duly noted on the conservatism for the rest of the year, but the first quarter revenue and earnings outperformance actually exceeds the increase in the annual guidance by about 18 million in revenue and adjusted EPS by 3 cents. So can you flesh out your thinking on the remaining three quarters of the year, perhaps talking about your outlook for employment, bookings, and any other factors beside conservatism, that might be keeping the next three quarters, let's say, below where they might have been given the first quarter outperformance?

Yeah, let me handle that, David. I think there's two pieces to the way we look at the year, what we see in the first half and what we see in the back half. So I would say with respect to the EPS, we factored into our assumptions additional hiring as the year progresses, which will add a bit to expenses. So I think that's the first part of the equation. The second part is that we do not at this point in our guidance contemplate that the unemployment picture is going to change significantly. So to the extent that it does, that it is significantly or it's improved from where we are, that would be upside to our case. We simply are at a point where we had in the first quarter a nice rebound in terms of the number of employees on the payroll. That obviously helps from a revenue standpoint. What happens going forward, we simply have to try to estimate what we think what we think is a reasonable as I said all weather scenario those are really kind of the two things that are driving it and I would say this on the back half of the year because I'll get questions on that the back half of the year we'll see where we come out of q2 and then and then get a better better feel for it understand we were very strong in the first quarter there is conservatism and what we what we've guided to and we could and do better, but as everyone on the call knows, there is uncertainty about a number of things in the macro environment that we want to make sure that investors have completely taken into account and to assure investors that we've taken that completely into account. So all of that mouthful was in the forecast.

Thanks for that. Just as a quick follow-up, Efren, you called out strength in mid-market bookings in the quarter. Is that an industry phenomenon where mid-market generally was stronger than expected in Q2, or is that a function of market share gains?

Well, I think, Marty, I think it's really been, you know, we were going fairly slower than we expected in the second half of last year, and we really had a nice pickup in the first quarter. I think it's really, I don't think it's necessarily the environment. I think this was really much more success in sales. We had done a number of things in training. Of course, the product ads that we have been doing from a technology standpoint were to the software. So I think it was really more performance. We're really pleased with the pickup in mid-market, and we think we're really well prepared for selling season as well.

Understood. Thank you very much.

Okay. Thanks.

We'll take our next question from Ramsey Ellis-Solo with Barclays. Please go ahead. Your line is open.

Hi, gentlemen. Thanks for taking my question this morning. I wanted to ask about sort of what you see as the biggest drivers of this, this nice margin beat in the quarter. I know you mentioned you made some pandemic related expense adjustments. I'm just trying to understand the degree to which, you know, which, which of those adjustments you made will prove to be the most sort of impactful and lasting.

Yeah. So, so Ramsey, let me, I made a comment, which during my, my, my prepared comments, about compared to 2020, and I think that's important. You can go back. These are matters of public disclosure. If you look at what happened with expenses, our expenses are pretty flat against 2020. There's two things, one of which is likely non-recurring, but one of which is very recurring and is part of our strategy. So I keep harping on the idea that we've been on this journey of transformation as a technology-enabled services provider. And look, I can say whatever I want to, and Marty can say whatever he wants to, but if it's not evident in the P&L, that speaks for itself. If you look at our expenses, they're essentially flat with 2020 quarter one. Now why is that? Obviously they should be somewhat up, so there's an element of this that really has to do with delayed or deferred hiring. The labor market is tight. It's not necessarily easy to get all of the people that you want in place. We are adequately hired, but we're a little bit behind where we would have expected to be hired at this point. Part of the question that David asked earlier is why wouldn't you see even more flow through? The short answer is that we expect to hire as we go through the year, perhaps not at the rate that we would have previously but but certainly at at a rate that is higher than the first quarter but leave that to a side the reality is that when we took a when we took a restructuring charge in the first quarter it yielded benefits I'm sorry the first quarter of last year it yielded benefits this quarter when we when we looked at our headcount and looked at those metrics of efficiency we are more efficient as a company today than we were in 2020, and that is what's driving a lot of what you're seeing. More investment in technology, less investment in other areas of the business that are not needed, frankly, at this point, is driving the efficiency that you're seeing and the results that we deliver.

I see. Okay. One follow-up from me. In the slide presentation, I think under management solutions you mentioned that some pricing realization. And I just am curious, have you seen any changes on the sort of positive or negative side, you know, to the pricing environment as we emerge from the pandemic? I guess that's a backdoor way of asking about the competitive environment and whether there's, you know, whether there's more opportunity or less opportunity, the same amount of opportunities before to modify prices.

I think we still have very good pricing power. Based on that, I think we've seen the revenue per client go up, and we've sold them more products as well. So we've really seen that, I think from a competitive standpoint, when you just get right to that point, I don't think we've seen a lot of changes. What we have seen, though, is that the work we were able to do for clients during COVID, the support we were able to provide them, excuse me, and the products that we were able to provide them to help them get loans, now to help them in a really great automated fashion get an employee retention tax credit, for example. This makes a huge difference from a competitive standpoint of a retention, and even from a prospect perspective as to whether they're aware. From a prospect perspective, it's, hey, were you even aware that you could get this retention tax credit, and do you know how much this can bring you to help you with hiring new employees or retaining your current employees? For our current clients, the level of support we were able to show them and demonstrate to them during a very difficult time really has made the difference. So I think the competitive environment is – just as strong, but I think we've been able to have an opportunity and then have shown what we can do, and that's given us an even stronger position than we would have had beforehand.

Interesting. All right. Thanks so much.

Thanks, Ramzi.

We'll take our next question from Brian Bergen with Cohen. Please go ahead. Your line is open.

Hi, Brian.

Hi. Good morning. Thank you. Good morning. Can you comment on how demand trended within the quarter? So results and commentary is certainly positive here, but taking into account the conservative view, I'm curious if you actually did see any deterioration as you exited August or even in September relative to maybe June and July due to the variant.

Yeah, Brian, not really. From a sales side, we have not. You know, we think we're well prepared at kind of our selling season that picks up here over the next month or so and toward the end of the year. But we think we're very well prepared. We haven't really seen anything. It's been pretty consistent through the quarter. We really, again, I'll mention mid-market was strong. Digital, you know, any digital sales were strong. And we also, you know, have seen very good results on our HR outsourcing, both PEO and ASO. So it's not like it started strong in the beginning of the summer and went down. It actually has been pretty consistent. And we actually think, you know, there's some opportunity from a sales perspective this month and over the next few months across the board, including retirement. And retirement has been very strong as well.

And, Brian, I think you're – I don't want to anticipate what the basic question was, but – I would say if we looked at the macro indicators that we were seeing, June and July were really strong. These aren't micro. I want to make that clear. June and July were strong, and August was softer. So, you know, we'll see when we come out of September. But at this stage, to Marty's point, it's not impacting the businesses.

Okay, okay, understood. And then on the management solutions growth, can you give us a sense of the mix of the drivers at 17% in that outperformance? How should we think about check volume recovery versus new units and brothel versus pricing? Any of these stand out more than others?

Yeah, good question and fair point. So the first thing I'd say is to sort of take a step back because management solutions is not entirely a payroll game. it's really kind of, in important respects, got three pieces. So the HCM part, retirement services, and HR outsourcing. So those are the three big buckets, if you will, in management solutions. I would say I couldn't see anything on the PEO that was a major revenue line that wasn't up double digits. So on the HCM side, we benefited from Upper single-digit pays-per-control. So that was helpful. Now, that's not surprising. We had a pretty big decline in the first quarter. But in addition to that, there was pricing and also client-based growth. So all of those were driving that result. On the HR outsourcing side, we simply had a great year last year, had more worksite employees serve, and that drove that result. And then on retirement services, Marty talked about that. Retirement services is gaining steam across the country, and we are certainly benefiting from it with mandates in multiple states now. Our pet product, we are, and I don't feel it, we believe it and see it, that we're well positioned. So when you look at all of those three, it took all of those three to drive that result. It wasn't It wasn't solely an HCM story. And I think it plays to the fact that we sell in an integrated way and we've benefited from that in terms of the point that Marty made earlier, which is we're getting better revenue per client.

Okay. Very good. Thank you.

Okay.

And we'll take our next question from Kevin McVeigh with Credit Suisse. Please go ahead. Your line is open.

Great. Thanks so much. Hi, Kevin. Hey, Efren. Hey, Marty. Hey, Efren, you made a comment on the call that the company's fundamentally transformed, and I firmly believe that's the case. I wonder if you could help us frame where you think you're going to see that. I mean, it sounds like the retention continues to bump at record highs. Is there a new range for that? I mean, clearly, you know, just, I'm just going to ask one question, but just maybe weave in the client growth, right? I mean, you picked up 75,000 clients. That's 11% growth. I don't think you've ever done that. So, I mean, it seems like the business is poised for structurally higher growth. I don't want to get too far ahead of myself here, but can you help us understand where that sits, particularly given, you know, the leverage on the margin side as well?

Yeah, so Kevin, I'd say the 75 is probably over a period of years. We disclosed that we were up above 710 and we had been in the high 600s the year before, but to your point, directionally, our client growth has been strong over the past several years in part impacted by this move to digital that Marty talked about. So that's one part. The second part is that the move to digital brings with it the ability to operate at higher levels of efficiency, which is what you're seeing in the P&L. So that's a big emphasis within the company, and I would say Shout out to all of my colleagues in operations who have done a phenomenal job and to the IT and product group who also make that happen. It can't happen any other way. So I'd say that's the second point. And then the third point, Kevin, to your point, last year we ended it, as I mentioned to folks on the call, we were in the high 80s in terms of revenue retention. There is a natural change. There is a natural ceiling on the amount of revenue growth, I'm sorry, revenue retention we can have because of some of the markets that we operate in, meaning the smaller clients tend to attrit more rapidly than larger clients, but all of that moved up. Previous to the pandemic, final point, we were in the 83 to 84 range. I would say that's the new Mendoza line for retention. And last year we beat that. We hope to beat that and build off of that. And all of my colleagues in operations share that goal.

I think also, Kevin, when you talk about transformation, having the chance to think about our 50 years in business and how it's changed so dramatically, the software enhancements that we're making today, you know, consistently in front of our clients. It is providing them so much information and the artificial intelligence and the data analytics that we're providing and just talked about, you know, today, you know, with Paychex PreCheck. really allowing employees to be alerted that here is their pay for this pay period. They can answer that. They hear about that on their mobile phone. They can hear about it from their smart speaker. And we're tied in now. We're the only company tied into all three of the major voice-assisted platforms. So it's saying your pay stub is ready. You'd like to check it. And you can respond that you have checked it. Think of the efficiency that it brings to the employer and the administrator of the employer, the client, and the employee as well now is this is really helping continue our retention at the levels that Efren's talking about. Even though there's business failures in small business that keeps us at some point, you know, at some level, this is really taking it to the highest level. And that on top of the COVID work that we did and the ability to update them and really provide support and dollars through the, like, employee retention tax credits, is making a big difference. And it's really a very different company. It is a software-driven company that is using artificial intelligence and data analytics to give a tremendous amount of efficiency to our clients.

Makes sense. Congratulations again. Thank you. Thanks, Kevin.

And we'll take our next question from Jason Kupferberg with Bank of America. Please go ahead.

Hi. Good morning. This is on for Jason. So thank you for taking our questions. I wanted to ask maybe just staying on a similar topic in terms of just your structure what you're seeing in the market right now you've been talking you know we've talked a little bit about new business creation being pretty healthy recently has that continued in recent months and then is there any type of quantification you can provide just for example in terms of your the percent of your wins coming from newly formed businesses or your win rates as you compete for these new businesses

Yeah, I would say new business formations are down a little bit from last year now, but they're up from 20. They're still up very strong from pre-pandemic levels, up 20% to 30% over pre-pandemic levels. Now, there was a big jump last first quarter and, frankly, the first half of our fiscal year as we think about it. In new business formations, they were up 40%, 50%. Now they're up really 20% to 30% over the previous pandemic years. And we do very well with brand-new businesses. We certainly do well, as I mentioned, it picked up some real positive performance on the mid-market. But we're also doing very well with brand-new clients that are starting up. Obviously, we still have great relationships with CPAs as well as banks in getting referrals. We're also able to do a lot of these sales digitally as well. You know, we've really improved the ability for our clients to go online, look at our product, demo the product even on their mobile phone or online. as well as then go right through to actually starting to set up and onboard themselves all digitally without talking to anyone. We certainly have a lot of pride in our field sales force and our voice or telephonic sales force, but the digital sales is becoming a bigger part of brand-new businesses, obviously, and we're very proud of that.

Thank you. And then just if I could ask about the margin increase in the guidance. Is that being driven by the top-line growth and some efficiencies of scale just from that top-line growth flowing through, or are there also been any changes to your underlying investment or expense plans for the year? Thank you.

Yeah, let me just answer that. I think there always is some element of both, but I think it's driven more so by – by improvements on top line revenue. And I would say that because we have been able to do the things that we have done or the actions we've taken on the expense side, now when a dollar flows through, you get even more benefit than you would have otherwise. Although, as everyone knows, we have industry leading margins to begin with.

Thank you.

All right, thanks.

We'll take our next question from Andrew Nicholas with William Blair. Please go ahead. Your line is open.

Great. Thank you. Good morning. Can you touch on the PEO performance versus insurance performance in the quarter? And I know you're maintaining your guide on that revenue line and the aggregate, but is there any change to your expectations at that underlying level in terms of growth through the remainder of the year?

I would say both are actually growing quite well. HR outsourcing in total is growing well. I think we've positioned ourselves very well on the PEO side as well as ASO. I would say the PEO side has picked back up more recently. I think we talked about it last year, maybe the last couple quarters, that insurance wasn't as in demand at that time because of getting through the pandemic. That is starting to come back now more because of a sense of retention of your employees and hiring your employees more. You know, as you know, it's a very competitive market out there. And so now the insurance plans, your health insurance, et cetera, your dental, your voluntary insurances, they're becoming very much a competitive offering to attract employees in a tough market and retain those that you have. So the interest in insurance has picked back up. So both our ASO and PEO, frankly, are double-digit growers and have done very well in the first quarter.

Andrew, when you do the arithmetic, so probably part of your question also is why not increase the guide? The short answer is that PEO continues to do pretty well, and the reason why you're at 8 to 10 versus double-digit and above is that insurance is simply growing slower, still where we expected it to be, but we anticipate it growing slower than PEO for the year. Now, we had a good first quarter. That could prove to be incorrect. And then the other point that I would make is that, and everyone's going to struggle with this, which is how to call Q4. Everyone had a very strong Q4. The compares against Q4 are the ones that are a little bit tough at this point to gauge completely both on the top and the bottom line. We have a We have a view of it, but we'll need to refine that as we go through the year.

No, that's really helpful. Thank you. And then maybe a longer-term strategic question. You talk a lot about success with digital sales. Is that something that you can apply your learnings and capabilities from to the PEO market, or is that too involved of a sale, or is there some middle ground that you're approaching or hoping to target longer-term that could make that a more efficient process, just wondering how how that could be part of the strategy and maybe to put some takes to consider on the PEO front. Thank you.

No, sure. We're actually already involved in it. It's basically, you know, what you're doing is also automating and digitizing a lot of the underwriting process and the information that you have to get. You know, onboarding of clients, including in the PEO, we're looking more and more to go to employees to help them self-onboard. It makes it easier on the client, on the prospect itself. as they're onboarding, and so sending a link to employees to say, hey, give me your information, load your own information in and get started, that will transform, I think, over to the PEO side and certainly automation and the underwriting side, which will make the whole process faster. So, oh, yeah, the digital, you know, there's going to be no limit to the selling from a digital standpoint. People are going to want to continue to find ways to have everything automated for them to be able to go in online, set themselves up, look at the product, and buy. You may still have some, certainly, sales rep involvement on the complication of insurance plans and so forth, but we're always looking to make that easier, and anything that a client can do for themselves or allow their employees to do for themselves is exactly where we're going strategically, and we've already made a number of steps that way.

Great, thanks again.

And we'll take our next question from Karthik Mehta with North Coast Research. Please go ahead, your line is open.

Hey, good morning, Marty and Efren. Marty, I wanted to ask you a little bit about sales distribution. I know this might be a little dated, but at one point accountants accounted for a third, I think direct sales accounted for a third, and then kind of others. And you've talked a lot about digital sales improving and being a bigger part. I'm wondering, has the sales distribution or how Paychex acquires clients changed at all as a result of all the changes?

Yeah, Carter, it definitely has. You know, accountants and banks are still important to us. Accountants in particular, great relationship with them for many, many years. And the assistance that we give them and support we give them for their clients as well. But that has definitely come down as a percentage and digital has gone up as a percentage. I would say it's been a pretty steady change and I expect it will probably even accelerate. You know, so much more of our lead generation comes now from the marketing investments that we make, and marketing has become a very important part of the sales function and how sales gets their leads, and then, frankly, how clients view us and then come in online and just decide to buy. As I mentioned, many clients now, certainly under 10 employees at least, can come in to our website because they've seen us advertise somewhere or online through SEM and SEO, and and know that we're an expert in this field, come in, demo the product, compare the product, and even buy the product, and start to set themselves up. So, yeah, it's becoming a bigger, certainly a bigger part of it. And, of course, that leads to efficiencies that, you know, Efren's been talking about.

And then, Efren, just on the float, you know, we've seen, obviously, rates move up a little bit over the last couple weeks. And I imagine you'll benefit from any kind of wage inflation on the float portfolio. Any changes to how you might manage that over the next six to 12 months? And are you anticipating wage inflation to help the float portfolio?

Yeah, no, we do. And I think that clearly in the first quarter to help offset some of the drag. The short answer is, you know, it's interesting. The market kind of moves in some ways based on on concerns about inflation and stagflation. But in our case, that expectation is largely a positive when you look at it from a float and from a pricing perspective. So those aren't necessarily negatives to us. I would say we're in a heightened state of scrutiny on how to position the portfolio based on what we're seeing in credit markets and on the investment side.

Perfect. Thank you very much.

You're welcome. Thank you, Kurt.

We'll take our next question from Jeff Silber with BMO Capital Market. Please go ahead. Your line is open.

Thanks so much. How are you doing? Earlier you talked about some of the labor tightness impacting your own ability to hire a bit. I know we talked a little bit last quarter about potentially that easing up a little bit in September when folks go back to school, childcare is easier, and maybe when the unemployment subsidies kind of, you know, peter out. Did you see any impact or have you seen any impact in recent weeks of things getting a bit easier?

You know, from a macro standpoint, I would say it's not showing up yet. I think what it's demonstrated to us, and I started to see this through some of the data analytics work that our teams are doing here from our small business index, is that it's not just the unemployment, because you could see some of the states had cut the extra unemployment benefit out, and it really was not making a big difference in the who was going back to work. So I think what you're finding is it's going to take a little bit longer in the market. It's definitely still a tough hiring market. And I think that the cash balances, everyone, you know, you can see this data. Cash balances are high. Checking accounts are high because people haven't either spent or they also have gotten other stimulus money, you know, whether it's childcare or childcare. tax, or I'm sorry, child benefits that they're getting right now. People are in a pretty good stage, and I think they're still trying to test it out. Plus, I think there's just still healthcare worries about their businesses that they're going back to. Do they have to wear masks? Is there a mandate or not? And I think it's going to take a couple more months to shake out. Certainly the hiring has gotten better. Our hiring growth is, you know, the hiring growth in our small business index has gotten much stronger the last couple of months, especially in leisure and hospitality sectors and in other services sectors. But there's still a challenge out there in the hiring. So we expect it to pick up, but it's going to be a little bit longer than just, it's not just the unemployment benefits that made the difference.

Okay.

We'll take our next question from Samad Samana with Jeffrey. Please go ahead.

Hey, good morning, Marty and Efren. Congrats on the good results. I wanted to maybe ask a question on your own hiring. I know you guys talked about being a little bit behind, but can you tell us maybe which part of the organization? Is it broadly or is it inside the quota-carrying sales rep side or is it on the R&D side, just how should we think about where you're playing catch-up on the hiring?

Yeah, I think it's more on the service side and frontline service. You know, there's some in sales, but it's kind of spread, and it's not an overall large number in any sales division, so we feel good about that. We also – and it's probably the hardest on the frontline service providers – John Gibson, who runs all his services, has done a great job with our HR team to find very creative ways, though the hiring has really picked back up. You know, we've shifted to some different ways to encourage new employees to come in, different work schedules, different abilities, certainly work from home, and a number of other benefits that they can get in the tools and support that they have. So it's picking back up now, particularly just in the last 30 days. But As Efren said, it's a tough market out there to hire, particularly frontline service people. But as we said, we still are seeing very strong client retention. We're getting the job done, and we're certainly driving more calls to the website, which our chatbot, our automated response to service questions and other questions are being answered 60% of the time by the automated response. You can always reach clients. someone live at Paychex, you know, 24 hours by seven days a week, 365 days a year. But we are certainly looking for efficiencies, and we're hiring very creatively, and it's starting to pick back up again.

Helpful. And then, you know, Efren, I know we've talked kind of a lot about the expense controls and how that's benefited the margins structurally, but Gross margins have also continued to melt up nicely, even with, you know, call it headwinds to some of that high margin pep and revenue. Just how should I think about maybe the tech stack on Flex and how that's driving gains on the gross margin side and maybe how much more room is there on the software stack to drive gross margin gains?

Yeah, great question, Samant. So let me answer it in two ways. The first, I'd say, is when you look at our gross margins and compare, ignore for a second our operating margins, but if you look at our gross margins and compare against industry, we still are right at the top, and that's against the people who are, air quotes, pure software players. So look at the data. That's what I would say. We're proud of that. We understand that. We managed to do that. To your point, When I look at the data, and I mentioned, I think in response to an earlier question, it might have been Ramsey's question, about the strength of management solutions, what was really notable about that was that it was widespread across the three major buckets of management solutions, retirement, HR, and HCM. And what we're seeing is that our sales team has done a really good job of selling the entire, we call value proposition, of the company through what we call the power of 3,000. And the idea is that when we get in front of a client, we want to sell them the entirety of that value proposition. Now, just one small digression on that point. You can only do that if you've got an integrated system, not just HCM. but integrated ancillary. So when you sell that proposition and now you've upgraded to a module, there's essentially very, very low variable costs associated with that. And that's really what's helping to drive what we see. We have been selling a bit higher in terms of client size, but more importantly, we have been selling more modules especially on high-value ancillaries like HR. So you're right. All of that is driving the improved margin performance that you're seeing.

Great. Very helpful. Thanks, Efren.

And we'll take our next question from Brian Keene with Deutsche Bank. Please go ahead.

Hi guys, good morning. Just wanted to ask on Manage Solutions from maybe a slightly different angle. If you look at the revenue growth, I think it was up 500 basis points per street estimate, and it was better than your expectations. So I'm just trying to figure out what exactly was the surprising strength in the quarter for you guys, and just trying to figure out why that wouldn't repeat itself maybe in the next few quarters.

Well, I'd say this, Brian. The first thing is that pays per control were solid. They were up, as I said, upper single digits. You won't see that. We don't think you'll see that in future quarters. So that's going to present a little bit of a compare issue. We did have better pricing in the quarter than we had yesterday. versus the pandemic-impacted quarter last year. So what happened is we did take steps in that first quarter of last year to hold off on price increases until we had had a chance to let our customers take a breather. That was unique to the quarter, and as we anniversary that helped. And then the third thing is that clients – Our client count was up significantly versus where we started the year last year. All of those things made Q1, the confluence of those things were really important. And then finally, HR really took off in the first quarter of last year. We saw the strength. through the remainder of the year, but when you got to first quarter, now you saw the full annualized impact of that strength in HR. Hey, Brian, there's an element of conservatism in our numbers. We'll see where we end up, but we're not gonna have the same revenue growth in the second quarter. In addition to everything else, we know that Q1 Q1 had certain factors in it that don't repeat in other quarters, but there are some underlying factors that we've talked about through the balance of this call that we'll repeat as we go through and we're a little bit conservative on the rest of the year.

Got it. No, that's helpful for the going forward. But how about the quarter itself when you guided originally? I don't think you expected it to be that strong. And some of those factors you just outlined you would have known about that would have been on a comparative basis. So just trying to figure out the surprise in the quarter. What could possibly surprise that much?

Yeah, the short answer, as you're pressing me down, is that it was better in almost all of those categories. So that's the short of it.

Got it, got it. And the only other question I have is just looking at some of your metrics compared to some of the global employment metrics and factors you see is your metrics seem to be stronger than kind of what we're seeing in the overall. I'm just trying to figure out if there's any thoughts or reasons why your data might be a little bit showing more strength than what we're seeing on a more macro basis.

Frankie, which ones, like employment growth type of thing?

Yeah, yeah, in particular employment.

Well, I do think that the growth in small business and small to midsize, remember our small business index, that piece of it is focused on clients under 50 employees, and I think there's been a nice increase. recovery in leisure and hospitality in particular, you're getting some back, even though many restaurants and hospitality service places are still struggling to find enough people, the growth and the recovery over the summer has been very strong. And so people have been getting back to work, and the demand has been there, certainly. So I think we might be seeing a little bit – and they fell harder, remember, as well. So they fell a lot harder than larger businesses were. And our study is focused more on 50 and below. They took a really hard hit, many of them closed when you compare to last year, and now they're recovering faster because they had a bigger hit last year, you know, I would say in general.

No, that's helpful. It makes sense. Congrats on the success. Thank you.

And we'll take our next question from Eugene Simuni with Moffitt. Please go ahead. Your line is open.

Hi, Eugene.

Thank you. Hi. Hi, guys. Thank you very much. The first one to come back quickly to retention levels. There's been, I think, a pretty broad based expectation that retention levels might start to come down across the industry, really, as the economy opens up, as activity picks up. Sounds like in the first quarter, you guys still achieving very high levels of retention. Are you seeing any indication of a high churn as activity picks up and as you're looking out into the rest of the year, are you still expecting some deterioration and retention as that may be part of the conservatism?

Yeah, I mean, I think we, you know, it may happen. We were surprised, you know, we've been very happy with the retention, obviously hitting record levels last year. And I do think what we're continuing to find from clients is, you know, we have really gained a lot, as I said earlier, from the COVID work that we did, the ability to help them turn in their paperwork for their loans in the last 18 months. Then we have 90% of our clients have been able to have their loans forgiven. A lot of that is we made it easy for them. We hear this time and time again that You know, they were at a very dire point of going out of business, yet we helped them get the loans. We partnered with three fintech companies to provide them another source for loans. We helped them with the forgiveness, and now we're coming back to them saying, hey, you can have an employee retention tax credit, and you can get the cash right away. It's not like waiting, and here's how you do it, and we can do it all for you in a very automated fashion, and you can have, you know, on average $150,000 in worth of cash in your pocket that you don't have to repay to the government. It's a huge stimulus to them. So it really has helped our retention. It gave us an opportunity to kind of show the full power of paychecks. And then on top of that, as Efren said, I think more and more of those clients then saw the HR support as well, not just on the payroll side, but also in the HR support. And now they still need us to really help them through vaccine mandates. What do I do with work-from-home policies? How do I bring people back to work? How do I handle hybrid? How do I coach employees? You know, all of the technology that we're showing them has really come to use for them, even some of the things that are so out there from a digital standpoint that their employees can do from their mobile phone. It really has given us a chance to show them, hey, here's all the things you can do to retain, hire, and grow your business and give you some cash in your pocket, and that has really helped retention a great deal.

Yeah, Eugene, I mean, to your point, too, we had a great year in retention. We don't anticipate that we will be at that level. You see the impact of that retention over the course of the year, so that has some impact on where we get to. Where will we end up? We'll have a better sense of that when we get through Q2. We're not anticipating, nor are we planning on the idea that we're going to be at the same level of retention that we were last year. We'd love to do it, but probably not a realistic planning assumption.

Got it. Got it. Okay. Thanks. And then secondly, wanted to quickly ask about the ASO PEO potential upsell opportunity. You mentioned it in the past couple of quarters that with the record strength and ASO There might be some opportunity to convert some of the SO clients to PO clients now that folks are more interested or open to switching insurance providers. Are you pursuing that initiative? Is it yielding results? And is there more opportunity there to convert to greater PO growth?

Sure. There's one we've had a lot of success in, as we said, in double-digit growth in both ASO and PEO, and we've been able to go into the client base and get them to an HR outsourcing product first. But as I mentioned, as you just noted, yeah, the insurance is coming back. We had a good quarter on insurance, and you're seeing that in the PEO side in that It really is an environment where the number one issue, number one or two issue with clients is, you know, how do I hire and retain people, and then how do I get more efficient? The hire and retain has become not just about comp, meaning pay, but it has become about benefits as well. And so it's been very important from that standpoint. So we are having some success, certainly, in continuing to upgrade our current clients and sell brand-new clients as well on both PEO and ASO solutions.

Got it. Thank you very much.

All right.

And we'll take our next question from Mark Marcon with Bayard. Please go ahead.

Good morning, Marty and Efren. Hey, Mark. Congrats on the quarter. Thank you. Just going to, you know, one of the conservatism questions. In some states, such as Florida, where they did see a spike in Delta, Did you see any sort of negative impact with regards to, you know, the weekly revenue trends when the spike occurred?

I would say, actually, you know, the best job growth has been in the South. So even while they picked up, you know, some more, they obviously have more cases, you know, you're seeing the best job growth from a macro standpoint and from some of our sales in Florida, in Georgia, in Texas overall. You know where there is, but that is also a function of great demand right that's going there and there's more people there. Go ahead migrating there is everyone knows and so you're seeing more businesses open up there you're seeing more people available to fill jobs that's helping more demand that's increasing checks. you know, per payroll, that kind of thing. So I would say, no, I'm sure that has had some impact, but overall states like Florida have actually been quite positive.

Yeah, Mark, it's just been dwarfed by the recovery. Probably if we were in a steady state, you'd see more of that. But in the data, as Marty said, the recovery in hospitality and leisure has been a big plus in Florida.

Okay. And so even during the weeks when things started, heating up for them from a caseload perspective. It didn't have a dent. No, we didn't see it. Okay, great. And then with regards to, you know, your recent products and technology launches, I mean, this has probably been one of the most active periods for you as it relates to it. I'm wondering, you know, when we go through the list, whether it's paychecks, pre-check, the retention insights, pay benchmarking, account dashboard, so on and so forth. Which ones are you the most excited about? Which ones are seeing the highest attach rates? And which ones are yielding the most incremental revenues?

Yeah, I think paychecks pre-check will. It's just a staggered approach as it's going out now, but I think something like that will have big efficiency gains for clients, which will help a lot on retention. We're not charging additional costs for that, revenue for that. That's part of the service that a client opts in for, but when you hear that clients are trying to be more efficient, it's things like that that are really going to help on the retention and I think the revenue per client. So what the kind of price and the ability we get from that. So we're very excited about, about that one. Also that it is tied to the technology. It's tied to smart speakers. We're the only company tied to all three major voice assistant platforms. It's just a whole new way for clients to be able to handle things with their employees to say, Hey, your paycheck is ready. Would you like to check it? Your pay stub or from an employer standpoint that you get a, you get a, Alexa that's telling you, hey, you have three things to do today as an employer. I mean, these kind of things are really tying much better retention than anything. And the retention insights, for example, really just uses the artificial intelligence to a great deal. You can check not only pay, but you can look at, we look at like 15, 20 different indicators that are in the payroll, in the system, in the software that will say, here's your performance rating of this person, their pay is below the national average based on BLS, and their pay is below the rest of the team that have this job category of your own company, hey, watch out on the dashboard. This person may be likely to leave you. You know, when clients start seeing that, it's not as much about the revenue directly from that software. It's from the retention of saying, I can't live without this, just like the mobile app has been like that for us. They have a five-star mobile app that employees don't want to leave because it's easy to use and they can do so many things themselves. is great from a retention standpoint. So we're really excited about the level of speed that we're putting out software enhancements and the strength of being much more of a technology company and software company and that that's leading to retention.

Great. I mean, given the recent introduction, could it possibly offset some of the headwinds you noted in terms of the fall when you're thinking about retention?

Yeah, it could. It certainly is going to help keep it Up there, I think, you know, as Efren mentioned earlier, Morgan, you know so well, there is a natural level of just turnover of businesses from the smaller to midsize. So it's not going to, you know, get up there. But we're very proud of hitting a record level retention last year, and, you know, we expected that to come down some this year. But as Efren said, we have a Mendoza line that we're kind of saying, hey, this is where we ought to be able to hold it.

Great. And then one last one, just on the mid-market, it sounds like you're doing – you know, much better there. Who are you sensing that you're doing better against? Would it be the big competitor that we all know about? Is it regionals? Is it some of the more recently public companies? Where are you seeing some of the greatest takeaways?

Yeah, we're seeing it kind of across the board, so I think we're doing very well competitively. And we've also still in-house as well doing well against. But it is the major competitor and some of the other that you know so well, I think we're doing very well against them. With the technology enhancements, the software enhancements that we've just mentioned, and the ability to be able to show all of that. You know, I think sometimes people still think of us as a more of a service company, great service company, but not the technology. When we're able to show the technology enhancements that we've introduced in the last few years, we, you know, come up against other competitors and we perform extremely well. And as Efren mentioned, you know, we're fully integrated, so we can provide everything on one solution, Flex, right from retirement to insurance to, to HR and payroll. So it's not necessarily where you might go to a competitor that says, hey, I'm going to pass you to somebody else to do the retirement or pass you to somebody else to do this. Not to mention over 650 HR specialists who really have been there in the last couple of years. Nobody else has a team like that, in my opinion.

Perfect. Congratulations again.

Thanks, Mark.

We'll take our final question from James Fawcett with Morgan Family. Please go ahead.

Hey, thank you very much, Marty. I'm doing well. Thanks. And thanks for all the time. And most of my questions have been answered. The one thing I wanted to ask, though, is when we look at kind of the hiring environment and you've emphasized like your own efforts there as well as the struggles of your customers, are there things that paychecks can be doing incrementally to help with the hiring beyond, you know, clearly there are a lot of tools that you're already and you've highlighted, but are there things that you can be or should be doing to help your customers even more in the area? And just would love to get your thoughts on that as a strategic opportunity. Thanks.

Oh, absolutely. I mean, I think many of the things that we've talked about is, have really helped clients. You can go right from a financial perspective, which is the employee retention tax credits, giving them dollars in their pocket to pay more for existing employees or to attract employees. So we go right at them to help them with their own financial situation. Then when you look at it from the product standpoint, you have all of these things, benefit plans, retirement plans, you know, HR guidance and support. Many companies, you know, 25, 30 employees still don't really have the great HR support knowledge that they need to be able to, how do I attract? And one that I haven't even mentioned today, which is really important is we've had this partnership with Indeed. Uh, we have a very fully integrated partnership with Indeed, which is the largest, the world's largest job posting system. And, and, uh, You know, we actually can, a client can go out and post on Indeed. They actually get a credit because they're with Paychex with Indeed for the first couple of postings. They can go out on that job board, post that. If someone applies for that job, they give their demographic information, obviously, in the application. If that's accepted, that comes over with no need to then put that into our system again. It transfers over through API. So we also think we've helped them by getting them in front of the biggest job posting system and making it easy for them to post the job through Flex, place it on Indeed, somebody applies, it comes back from Indeed, self-populates really if their person is hired into the payroll system and the HR system, and everything's set. So we've made it easy as much as we can for clients to hire and then retain by giving them the benefits and so forth to keep that employee. So we're very proud of the Indeed partnership and what that does. Not only gives them a little financial incentive and some discounts on their postings, but it really makes it easy for them to post. And these are companies... even five employees to 50 that still struggle sometimes with where to post for a job.

That's great. That's great, Collin. Thank you very much.

Ashley, if there's no more questions, Efren does have a statement that he wants to make before we close out. Are there no more questions?

There are no further questions at this time.

Okay. Hey, thanks. Final point to the shareholders on the call. I just wanted to mention that we recently filed supplemental proxy materials relating to our proposal on say on pay. Glass Lewis has recommended a four vote on the proposal and we would appreciate your support. Should you be interested in engaging with us on the issue, please feel free to reach out. prior to the shareholder meeting or after, happy to chat with you about it. So with that, I will turn it back to Marty.

Great. At this point, we will close the call. If you're interested in replaying the webcast of this conference call, it will be archived for approximately 90 days. Thank you for your taking the time to participate in our first quarter press release conference call and for your interest in paychecks. Have a great rest of the week.

Thank you, and this does conclude today's program. Thank you for your participation. You may disconnect at any time.