Q1 2020 Earnings Call
Good morning, and welcome to pay cheque first quarter fiscal year 2020, <unk> earnings Conference call.
After the speakers opening remarks, there will be a question and answer period.
If he would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
If he would like to withdraw your question press the pound Pete Thanks.
Thank you I when I want to turn the called alert to Martin you see President and Chief Executive Officer Paychex. Please go ahead.
Thank you Hey, good morning, and thank you for joining us for discussion of the Paychex first quarter fiscal 2020 earnings release, joining me today is separate Revera, our Chief Financial Officer. This morning before the market opened we released our financial results for the first quarter ended August 31, 2019, you can access already.
He is released on our Investor Relations Web page and our Form 10-Q will be filed with the FCC within the next few days, there's still a conference is being broadcast over the internet will be archived available for on our website for about approximately one month on today's call I'll review business highlights for the first quarter effort will review, our first quarter financial results and discuss our guy.
For fiscal 2020, and then we'll open it up for your questions. We're pleased with a solid start to the fiscal year 2020, our financial results reflect good progress in operations and sales.
Total revenue growth was 15% for the first quarter, including the incremental results from a waste of outsourcing group, which we acquired back in December 18.
Management solutions revenue grew 5% well be own insurance services revenues grew 56% and.
Not only are we off to a solid financial start, but our client retention and satisfaction continue to be at record high levels and sales continues to perform well as we start this fiscal year.
We're excited to introduced several new technology enhancements and solutions. It HR Tech, which is happening this week in Las Vegas, and there's a longstanding leader in this human capital management space, we have insight into the needs of our clients and their employees and see trends in our markets. These new solutions address key developments in payments wearable devices.
Integrations and data and analytics.
Our new wearable solutions allow paychex flex time users to track time worked with their smart watch [laughter] excuse me employees can clock in and out with a simple example, the watch it also makes time and attendance tracking easier for the increasingly remote workforces within Hansen, Geo fencing capabilities, which remind employees the punch out.
As they leave their work locations.
This is the first of many potential use cases, utilizing wearable solutions that will be might we be making available to flex users.
We're also excited to be introducing pay on demand and real time payments by the end of calendar year 2019, paychex clients can allow employees to access a portion of their earn pay before the scheduled check date with many Americans living paycheck to paycheck. This advancement in technology allows financial flexibility when needed. Following this in her.
And then in early 2020 will be offering the option to have earned funds deposit in an employee's bank account in real time real time payments as an extension of our market leading innovative technology, we will be one of the first providers to offer real time payments for employee direct deposits continuing our position as a tech leader in this space.
Base.
Well Paychex offers the full breadth of services across the H.C.M. spectrum integrated into our flex platform. We understand the clients may prefer to keep some solutions. They use in place our paychex product integrations is a private marketplace that takes the company's integration partner strategy a step further continuing to simplify the process for.
Customers looking to connect Paychex flex with some of the most popular HR accounting point of sale and productivity applications on the market today.
Clients can determine how and when an integration deploys with the ability to afford to happen real time regularly scheduled or based on an action within their flex platform are robust and continually evolving set of npis allows clients to flexible <unk> ability to choose how they received their services through one integrated provider or by using.
Various HR solutions.
Data and analytics or areas of increasing focus paychex has a rich [laughter] excuse me and reliable depository of data gathered from interactions with clients. We're pleased to introduce the paychex Flex intelligence engine. One aspect of this feature is the paychex flex assistant, which we've discussed before this is our customer service chat bought introduced last year.
Which continues to evolve and be enhanced our users inept interactions with flex assistant allows them to elect a preference for their learning lever via written how to documents tutorials style video vignettes short videos or a guidance guided interactive tour.
Coming in December the chip I will offer these options during every customer interaction, providing the ultimate and learning flexibility at anytime a light paychex agent is just a click away to provide personalized service experience based on the context collected through the bought seven by 24 by 365 Paychex is the only company to.
Offer that personalized service option in our space seven by 24 by 365 days a year.
Through machine learning, our chat, but continually expands its knowledge base and provides a more robust dataset to leverage and formulate answers to frequently asked questions. During the past quarter, we approached a quarter of a million sessions interacting with the flex assistant the bottom is able to address approximately 200, commonly asked questions and that number is growing.
In addition to these exciting introductions during HR tech during the quarter. We also provided a set of enhancements to our solutions designed to help common solve common HR and payroll challenges, including paycheck solo a bundled offerings designed to meet the specific needs of sole proprietors, which includes a payroll incorporation services and.
The solo retirement plan, a new customized double new grid entry view for payroll electronic apt form what I nine and E. Verify processes that is integrated with our paperless Onboarding HR conversations. This is a tool in our performance management module that enables collaborations between employees.
Managers, and HR staff and document management, a centralized and secure digital file repository for company forms policies references deploy documents and certifications.
We are singularly focused on continue and continued innovation to meet not only our customers, but also their employees evolving needs simplify HR complexities and offer solutions to help them thrive and grow.
Also we are offering cyber cyber attacks are growing threat to businesses of all sizes. We are now, making cyber security liability protection available to our clients through our Paychex insurance agency and Axis insurance company, a leading cyber security insurance carrier.
This solution helps businesses of business owners might mitigate and the potential impact of financial impact of data breaches hackers and ransomware and online baking fraud. It is particularly critical for businesses with fewer than 1000 employees since 60% sale within six months of a cyber attack due to a lack of resources to offer.
The breach.
Shifting to our PEO business the acquisition of Oasis was the largest acquisition in our history and doubled the number of Worksite employees, we serve in our PEO.
We are making.
Isn't steady progress on our integration plans and we're now focused on completing the integration of our sales and service teams through all of these efforts. We remain focused on what is most important serving our clients and their employees and growing our PEO.
We launched new branding for our HR outsourcing solutions, including our Paychex, PEO and and so solutions. This new product brand Paychex, one conveys the power of a comprehensive flexible total HR solution that can scale and meet the needs of any business at every stage of their development.
We're also very proud that for the ninth consecutive year now Paychex has earned the distinction of being the retirement industries leader number one in the total number of defined contribution plans.
This ranking was announced as part of the annual for one K. record keeping survey published by Plansponsor magazine.
We provide solutions to remove the complexity of saving for retirement and this is an integral part of the package for our clients to use as part of the recruitment for new talent as well as retaining Taylor recent enhancements to our mobile app, making enrollment in the retirement plan possible with only four clicks. This has already led to an increase in participant.
Enrollment, which will lead as well to an increase to improved client retention.
We also ranked number three and sellers selling power 50 best companies to sell for less than 2019. This is the seventh consecutive year Weve appeared on the list in our ranking reflects our commitment to providing our sales teams every opportunity to succeed.
We continue to return exceptional value to our shareholders and in May we announced an increase in our quarterly dividend of six cents or 11% to 62 cents per share our dividend yield remains of approximately 3% a leader in this market and during the first quarter, we repurchased 2 million shares of common stock.
In summary, we continue to focus on the growth of our business, providing great value in convenience to our clients. Our state of the our technology allows our service to our clients and their employees the way they want when they want where they want we're focused on providing technology enabled service to improve business efficiency and meet our clients.
Needs, our full suite of HCM product offerings and World Class service is a powerful combination that positions us for sustainable growth. The continued efforts of our employees and their commitment to our clients is making a difference I'll now turn the call over to Efron Rivera never is going to review our financial results for the first quarter effort. Thanks Bart.
Good morning, I'd like to.
Today's conference call contain forward looking statements that refer to future events and as such involve risks.
Please refer to the customary disclosures.
Additional periodically refer to non-GAAP measures such as EBITDA adjusted net income in adjusted diluted Operatings our.
Diluted earnings per share sorry.
Please refer to our press release and Investor presentation for discussion of these measures and a reconciliation for the force first quarter to the related GAAP measures.
I'll start by providing some of the key highlights for the quarter and then follow up with some greater detail in certain areas wrapped with a review of our fiscal 2020 outlook.
As you saw total revenue total service revenue both grew 15% for the first quarter our growth excluding oasis was between five and 6%.
Expenses increased 18% for the first quarter to 643 million dollar.
$643 million increases in compensation related costs PEO direct insurance costs.
And amortization of intangible assets contributed to total expense growth for the first quarter, primarily driven by the acquisition of away says.
Operating income increased 9% to 349 million operating margin was 35.2% for the first quarter EBITDA increased 13%.
And EBITDA margin was approximately 41% for the first quarter.
This is where moderated by business mix due to growth in the PEO business and accelerate investments in sales technology and operations.
Other expense.
Net for the first quarter of 5 million includes interest expense of 8 million related to where long term borrowings as a reminder, we used $800 million of product placement bonds to fund a portion of the Oasis purchase price.
The effective income tax rate was 23.3% for the first quarter compared to 24.5% for the same period last year.
Net income increased 8% to $264 million adjusted net income increased 6% to $258 million for the first quarter.
Diluted EPS increased 9% to 73 cents for the first quarter and adjusted diluted EPS increased 6% to 71 cents.
We received approximately two cents a benefit from stock benefit stock based compensation payments during first quarter, which we exclude in our adjusted diluted EPS I'll now provide some additional color in selected areas management solutions revenue increased 5% to 724 million for the first quarter.
The increase was primarily driven by increases in our client bases across many of our services and growth in revenue per client, which improved as a result price increases net of discounts retirement services revenue also benefited from an increase in asset fee revenue earned on the asset value purchase them funds and we had a strong quarter and management.
Solutions, if you recall the guide I gave you for for Q1.
Beyond insurance services Rep revenue increased 56% to 47 million for the first quarter. In addition to the acquisition of a waste is the increase was driven by growth in clients and client worksite employees across our combined existing PEO business insurance services revenue was moderated by softness in the workers comp.
Workers' comp premiums this was partially offset by an increase in the number of health and benefit clients and applicants.
Interest on funds held for clients increased 20% for the first quarter to 21 million, primarily as result of higher average interest rates earned.
Average balances for interest on funds held for clients increased 1% for the first quarter compared to the same period last year investments and income.
We continue to invest primarily in hike are primarily but in.
Credit quality securities or long term portfolio than average yield a 2.1% currently in an average duration of 3.1 years.
Our combined portfolios have earned an average rate of return of 2% for the first quarter up from 1.8% from last year.
I'll now walk through the highlights of our financial position that remains strong with cash restricted cash and total corporate investments of approximately 700 million as of August 31, 2019 funds held for clients were 3.8 billion consistent.
The balance as of the end of last fiscal year May 31.
I remind you that funds hope for clients very widely on a day to day basis and averaged 3.7 billion for the first quarter.
Total available for sale investments, including corporate investments and funds held for clients reflected net unrealized gains of 53 million as of August 31, compared with 20 million as of May 31 2019.
Stockholders' equity was 2.5 billion as of August 31, reflecting $222 million in dividends paid $172 million worth of shares repurchased during the quarter or return on equity for the past 12 months was a robust 42%.
Cash flows from operations were 295 million first quarter, an increase of 8% from the same period last year. The increase was driven by higher net income and noncash adjustments.
Offset by changes in operating assets and liabilities the increase in noncash adjustments was primarily due to higher amortization expense largely driven by intangible assets acquired through the acquisition Oasis.
Now, let me talk about balance guidance for the balance of the year.
I remind you that our outlook is based upon current view of economic conditions and trends and business trends.
Continuing with no significant changes, though we have reflected the impact of the two interest rate cuts that have already occurred this fiscal year.
We are not at this point, including additional guidance on further rate cuts were uncertain about.
Happened in the balance of the year.
I will provide our current outlook and then add color and a couplers, we provided updates to the guidance as you saw.
On the strength of a strong quarter in Q1, we now think management solutions revenue revenue is anticipated to grow 5% above the range of previous guidance of approximately 4%.
We talked at first quarter would be a sequentially a little weaker we actually got out of the gate a little bit stronger.
And insurance is revenue is now expected to grow approximately 30% at the lower end of the previously provided range of 30 35 cents more to come on that but we started a little slower than than.
We had originally contemplated other expense net which was previously referred to.
Net interest expense is anticipated to be in the range of $18 million 20 million a modest change from previously reported guidance of 15 to 18 million here due to interest rate changes and if you remember what that is a combination of interest income and interest expense. So.
The decrease in interest rate changes affects what we will earn on the corporate portfolio.
Net income and diluted earnings per share both now anticipated growing 9% above the range of our pride prior guidance of approximately 8% and adjusted net income in adjusted diluted earnings per share are both expected to increase approximately 9% above the range of our previous guidance of growth in the range of 8% to 9% other guidance remains on.
Change interest on funds held for clients anticipated to grow in the range of 40%. That's what we said at the beginning the year and that's what we're sticking with we assume that there was a good probability that there'd be a second rate cut it happened that was contemplated in the guidance total revenue anticipated to grow in the same range of 10% to 11% operating.
Come as a percent of total revenue anticipated to be approximately 36%.
Inching ever so slightly up.
EBITDA margin for the full year fiscal 2020 is expected to be approximately 41% and.
The effective income tax rate for fiscal 2020 is expected to be in the range of 24% to 24.5%. Although we anticipate that now will be toward the high end.
As I indicated PEO and insurance revenues are known to spin grew approximately 30%, we anticipate that growth for the second quarter, but we'll be in the range of 56% to 60% and growth in the second half of the fiscal year will be within the range previously provided of 11% to 14%, but at the lower end.
Of that range.
Few on insurance revenues growth was partially impacted by changing classification of an immaterial.
This revenue stream out of PEO and insurance services into management solutions. After we provided guidance. So make sure. When you look at the the presentation, we posted that you've got the right beginning number it's not a big difference, but but make sure you're working on that that number as you look at updating your models.
Management solutions.
In addition, we've experienced sorry.
Lower workers compensation insurance rates that moderated our insurance services growth. It was a little softer than we had anticipated in Q1, we anticipate the trend ease as we go through the year, but started a little bit slowly there and.
We are also anticipating modestly lower at risk insurance attachment in ARPU business based on current trends and that number for us if it's not at risk insurance, we don't recognize it as revenues. So our business can do very well with that without having significant at risk insurance.
Testament, we looking at the trends think it'll be a little bit lower than we had originally projected.
Now in contrast management solutions guidance was increased to approximately 5% growth from our previous guidance of approximately 4% growth DUV due to favorable trends we've seen during the first quarter. In addition management solutions as increase partially due to the change of classic classification of the immaterial voices revenue stream and head of now.
But would affect.
In the first quarter, we'll have a negligible effect for the remainder of the year for the second quarter, we expect growth at approximately 5%.
And then between four and 5% in the back half of the fiscal year.
Operating margins, which for the full year are anticipated to be approximately 36% vary quarterly as you've probably captured in your model.
For Q2, we expect margins to be in the range of 33% to 34% and for the second half of the year, we expect to see them.
Approximately 30% so in the second half.
Bidding at this point approximately 30% margins I got asked a lot. After the guidance did we expect to see higher margins in the back half of the year in the answer is yes.
I refer you to our investor slides on our website for more improvement information and with all of that I will turn it back to Marty.
Thank you referenced.
We'll now open the call to questions. Please.
Ladies and gentlemen.
On the floor is now open for questions to ask a question. Please press star one on your telephone keypad to get out of the Q passed it sounds fine.
Our first question comes from the line and Ramsey El Assal of Barclays.
Hi, guys. Thanks for taking my question I wanted to ask you a kind of a general question about your pricing strategy. Marty you walk through a lot of really interesting kind of product innovation that is happening. When you are able to raise prices. It always in conjunction with a new enhancement or in addition to value are you still able to just raise prices on a renewal just do.
To the underlying kind of sticking ascend and competitive mode into product I'm, just trying to understand whether pricing is kind of tied to innovation are really it's just something you can leverage due to the underlying kind of competitive you have.
Yes, I think it's still both I think we're seeing not only for the innovation and bundling more things together, but also the normal price increase that we've given guidance on pretty consistently is is held up pretty well. So you know we had our kind of normal annual price increase and we've seen that hold up pretty well and I think.
As part of what where you're seeing management solutions is holding is better than we originally projected is because of that so I see we have the pricing power both ways I feel at this point.
Okay and then on.
On the PEO insurance segment in the quarter.
The deceleration there and there are few puts and takes there that you mentioned both of you mentioned.
The softness if the implied sort of deceleration in the quarter and PEO insurance is just really solely or more due to the softness on the insurance side can you sort of speak to the the underlying growth rate if people sort of ekso emphasis in the quarter end.
Kind of disaggregate the insurance from the peak performance for us.
Yes, Thanks, Ramsey, so I would say just to be here the.
The PEO business has been growing solid double digits. So.
It grew very well in the in the quarter the we knew that.
That workers comp was coming up against a tough compare because much of the softness in workers' comp occurred in the back half of last fiscal and so it was a little bit more.
More pronounced that we anticipated that that's part one and then part two is in the PEO the attachment of at risk insurance impacts. The revenue has no impact it's very little impact I should say on margin. So we saw a little bit less.
At risk insurance attachment in the quarter I would just.
I would just.
Mentioned that that varies widely from quarter to quarter. So you can.
You can kind of big client that has a lot of work I'm sorry that has a lot of health care attachment revenues go up it really does the changes your margin, but it doesn't do much for the bottom line. So we saw.
A little bit of softness on both of those.
That said Thats great color. Thanks, so much.
Okay.
Our next question comes from line of Kevin Mcveigh of Credit Suisse.
Great. Thank you Hey.
Just a hey, Marty.
Hey, nice job on the management solutions.
Can you give us a sense of how much of that was better retention as opposed to just.
Just any thoughts around kind of which are that upside.
Yes, I think I'll, let efron speak to some of it to the client retention has continued to be at our highest level. So we're feeling very good you. We ended last year with that with a record high and we continued read through the first quarter. So.
Feel very good about the client retention piece of it and then there were few other changes that upfront and speak to yes. So.
Kevin the we saw.
As Marty mentioned strong.
Strong retention in the quarter, we had strong rate meeting.
A combination of discounts and and price increases sticking those were good.
We had increases in the client base, we had a lot of good things happen in the quarter that does that make us.
Incrementally more bullish I'd say two other things that are important relative to the results in the quarter.
The first is that we saw.
Very good performance coming out of our mid market segment on the sale side.
Also helped that was really.
Not a significant contributor but it made us incrementally more bullish going into the back half of the year and the other thing I would say is that.
We saw strong performance coming at a bar or.
Business.
From a sales standpoint that also.
Even though the revenue was a little softer.
We feel pretty good about where we're at by the way just a final point on that Worksite employees before I get the question work Worksite employees.
Worksite employee growth was was strong in the quarter.
Great and then.
Thanks, obviously you've seen over.
Overall payroll slow seems like your business fundamentally is accelerating.
Marty said kind of the benefit from the investments the last couple of years or even though you're kinda.
Repositioning the company or just any thoughts on that.
Well, yes, I think we definitely have been repositioning the company from a couple of standpoints. One is from a tech perspective. The company is much more matrix is much more of a tech technology company now providing service is well than it has been in the past and all the investments are really paying off like the things that I listed out this is.
And it's up and that's impacting not only the clients and their retention.
And their value and satisfaction, but also the employees of the clients. So our business and the products that we're introducing very much focus on the employees and it's kind of perfect timing for a market thats difficult to hire and retain employees for small and midsize businesses. So the fact that you have a four one k. for example that you can sign.
For participants can sign up for in Fourq clicks on a mobile app. That's a five star rated app. It makes it easy to sign up that participation is up double digits that drives better retention of four one k. that also drives retention of the employees and that's better for the clients. The other positioning of the company has certainly more to HR the sales process.
Today is very much about an age our overall need than it is for payroll by itself and weve been positioning the company that way, whether it's through PEO or frankly through the power of kind of over 3000 salespeople. We use the power of those 3000 salespeople to not necessarily the old way sell payroll then call them back for others.
Services, but basically look at their needs upfront and sell the value of HR in the full product suite that paychex can offer upfront. So definitely the company has been weak Ben repositioning that technology side of it and DHR side of it and that has made a big differences payroll has become more.
A more or less more of a commodity type of thing and the need of decline has been much more about HR retirement.
The DHR generalist, we have 600, HR generalists now out there serving.
The worksite employees that we serve either PEO and asked so it's it's a huge need now given the changes in regulations and complexity.
Thanks, so much.
Our next question.
Our next question comes from the line as David Togut of Evercore ISI.
Good morning. This is Rayna Kumar for David Togut.
Right now.
Hi.
You called out another strong sales bookings quarter can you maybe discuss in which products in segments in the market you saw the best growth.
Well, we don't break it down too much that we get past selling season in the next quarter. So when we have a better sense of the year, but definitely excuse me as Efrain mentioned the Midmarket sales in particular, we saw very strong growth and this has been more of a challenge. The last couple of years for us once we got the investments and.
Technology and product out there we also a very solid leadership team in.
In that mid market and were performed extremely well in that first quarter. So I would say that certainly the PEO the retirement business et cetera, but when you look at the Midmarket stands out for certainly from the start of the year and actually as we ended last year as well, but this first quarter was really strong in the mid market and that's a real positive to us because we.
We had certainly over the last couple of years hadn't been quite as strong as as we thought we needed to be and we're very pleased with where we started out.
Great Thats very helpful. I know you called out a number of real time payment products, Keith maybe discuss the.
Time timeline from rollout in and the revenue model associated with these products.
Well sure. The the end of this calendar year, we'll have the kind of pan demand so to make sure that were clear on that so the pay end demand obviously offers.
Employees of clients the ability to take some wages out earlier than waiting for their two week period or et cetera, real time payments, we see coming in early 2020, we think will be one of the first about the first to offer real time payments. This is really more of a accelerate we offer same day CH today if you.
Have a late last minute changing your payroll if you need to make some changes if you need to do something at the last minute and be sure. The funds are there.
And there is some charges for that and we expect there'll be some charges for real time payments, which takes that to the next level of making it immediately available real time LCH has or CH.
Same day has some limitations from a timing perspective, depending on banks and so forth and real time payments will really kind of wipe out most of those limitations and you'll be able to get funds in your employees accounts basically in real time.
Great. Thank you.
Okay.
Our next question comes from Jim Schneider of Goldman Sachs.
Good morning, Thanks for taking my question I Wonder if any follow up on the improvement do you called out both in management solutions and also the mid market.
Is that more function of the enhancements you've made with paychex flex any color you could put around that and also maybe just talk about how much that's being improved I'd the sales.
One of the Salesforce.
Enhancements and and channel strategy anything in terms of color you could provide around that will be great.
Yeah sure I think it's a bit it's a little bit of both I think certainly the product.
The enhancements to flex have been pretty significant.
Not only from the payroll side, but the integration side at all some of the products and features that we discussed today, even like the payroll grid offering many more options.
And making it just easier for them to use from a payroll standpoint, but the integration of the HR and I think the sales team and sales so their effectiveness and the sales approach being much more about HR first.
Instead of leading with payroll is coming in and offering the full suite of products that we offer and then also as I as I mentioned today in the comments.
Offering others to have we have a us full set of eyes to other providers of.
No.
On demand services and.
Each our products and accounting products and that is getting broader and I think we see that as well, we certainly offer a one solution set thats. The great thing about paychex, we can have it all fully integrated into flex if you want it but if you're right in HR or an accounting system.
You want to make sure you keep an interface into flex you can do that as well. So I think it's that approach I also think the employee approach Jim that we may I mentioned earlier really doing things with the mobile app that is making self service more available to their employees not only their check stub Theyre W.
Twos, signing up in signing off on time and attendance changing schedules.
Setting up your four one k. all of that is adding a lot of value to the mid market in particular, and we're seeing that pay off for us. So we're very pleased with the first quarter start.
Great and then maybe as a follow up on the PEO. The the reduced guidance you called out several of these idiosyncratic factors on the insurance side, but I want to makes today and I'm clear in terms of what you're seeing in the core appeal business is there any slowdown there either in terms of market demand or.
From a competitive positioning standpoint, and maybe just talk about how the leases expected growth is going to relative to what you thought was going to be.
Yes, so Jim so to two parts of that so so the short answer is no.
But let me explain why because.
It's important to understand.
When some questions started to rise it got started to get calls relative to what are you seeing with respect to worksite employee growth within existing clients I.
I did a deeper dive to understand what was going on and and we are seeing.
Solid worksite employee growth within existing clients. So that was an issue that came up and was commented on so we're not seeing any of that Thats. One second if I look at Worksite employee growth Worksite employee growth.
Again has been solid in the quarter so.
We're not seeing anything there on the go away says side.
In order for us to get fully optimized on the sale side for Oasis work in the process of ramping.
Ramping our sales.
Our sales efforts, there and I think that that process is ongoing so it's it's.
There.
I agree that it's somewhat idiosyncratic the the the reasons for the slight modification in the guidance, but it has no.
It really is not indicative of any changes both in demand patterns and then.
And in or the underlying market, if I called out the growth rate on sales NPO I will just say this its multiples of multiples of revenue growth. So that's one reason why we feel pretty comfortable about where were.
Yes.
And the trend in no way since you're saying.
Yes.
I was just talking primarily on the on the on the sale side. The integration is going well and we're in the process of pulling it into yes.
To the paychex.
Family, but yes, we're at the point of just finalizing that the up all the combination of the sales teams and the service teams, but we feel like the integration has gone well and.
We're feeling very good about it. We're also of course, you know with paychex some of that integration, we have the insurance agency, the 21st largest than the country. So when underwriting if it doesn't fit the PEO, we have that option to take them through the insurance agency that some of the changes that effort mentioned as well, we're getting more through that insurance agency and Thats.
And well as well so you don't that turned down a client sub that many times Oasis had to turn down in the past, possibly over underwriting we can now move them to the agency and offer them insurance through the agency itself. So we.
We feel good about the start here in the integration is certainly on track.
Good to hear thank you very much.
Our next question comes from James Berkley of Wolfe Research.
Thanks for the time appreciate it not to beat a dead horse on the PEO side, but I guess, just trying to be like more direct I guess.
Are you guys still trending a couple of quarters Guy you said bookings and PEO space for like low double digits.
You guys still in that range than on the Worksite employee growth and thinking was double digits like last quarter can you confirm it still double digits this quarter.
I think I said that June yes.
Strong.
Yes.
Okay.
And then I guess effort and just we talked a few days ago, I guess, just about that new HR a rule.
It could be helpful. Just for investors to hear your thoughts on the impact there it's coming into play in January 2020.
Yeah. So so this is this new legislation that makes it easier for employers to.
To use HR raises.
And alternative for funding of healthcare plans and the questions that have come up from investors are around the impact on the PEO side of the.
Ledger will this impact.
Your growth and.
We've looked at it course until it's in place and people are actually having the opportunity to take advantage of HR is in a different way.
You can say, 100%, but we feel pretty comfortable but.
That that should not have a significant impact on PEO growth. Yes. We've had we've offered HR raised through for some time I don't think.
Even with the legislation that gives some support in credits I think it doesnt seem like employers are going to run from traditional insurance plans.
To do the funding it weve offer those as I said for sometime and seen not have seen a great uptake.
I think theres some businesses that do that but I don't think there'll be any major shifts.
We would expect that thats going to happen from traditional insurance plans over to the HRS.
Okay. Thank you very much I appreciate that.
Okay.
Our next question comes from line of Lisa Ellis Moffitt.
Since then.
Hi, Good morning, guys I guess I'll ask the inevitable macroeconomic question Marty can you give some color on what you're seeing on sort of the second order dynamics around the macro environment I know you've been very unique look into things like obviously employment growth, but also like small business survival rates the attach rates.
The value added services like benefits et cetera can you give us a little little color there. Thank you.
Yes, I think we reported our small business index yesterday and it actually we had an uptick from September to August one month doesn't make.
A year or trend, but.
Job growth actually ticked up a bit and these were businesses under 50 employees and we saw some growth not only in that or improvement in the job growth, it's still down about 1% less job growth from last year, but this was the first time, we've seen an uptick in a couple of years, where moved up month to month. We also saw wages in hours.
Worked up so wages looking pushed up from about 2.6% wage increase the 2.8 and hours worked went up so I think small businesses are still feeling overall, a little shaky on the academy and what's going to happen, but generally they're getting good product demand for their services and there is still there big.
As challenges hiring enough people.
To fulfill the demand. So we also did a business sentiment.
Reports and everything was positive everything had gone up from the previous report probably six to nine months ago that felt that it would be easier for them to a little bit easier for them to hire a little easier for them to get capital.
So I think while the economy itself makes them a little cautious I think that they're feeling like right now they're getting good product demand and their biggest challenges hiring. So you saw the hours go up because they are working who they have more to fulfill the demand and the wages are going up is there trying to raise wages to get to up to pick up the employees, so overall pretty pretty.
Positive actually with our latest report that just came out yesterday. The other thing Lisa Marty mentioned this yesterday.
Smbs are typically a little less impacted by.
By slowdowns in global trade so.
Thats segment of the economy, obviously larger.
Multinationals and enterprise level companies are part are starting to feel the pinch you're not feeling as much of that lower down the.
Lower down the employee count so.
It's not impossible to have results like this.
In one segment of the economy, where where you see more more concern and pessimism in another part of the economy. Yeah. We've we've talked about tariffs and trade issues and we found in serving clients that.
Three quarters of that small businesses are not impacted generally they are regional businesses. There the lawyers office the doctor's office the restaurants.
Et cetera, the contractors they are not impacted the 25% per quarter that are have a little bit tougher time changing their supply chain and so forth. They don't have the leverage of larger companies, but three quarters of them really don't feel like they would be impacted.
By trade issues or tariff issues.
Alright, and then maybe as my follow up can you.
And since probably for Efron give your perspective or your best perspective on how you anticipate the PEO business performing if and when we see a macro slowdown I mean, I know there was an argument that should actually tick up because the cost an economic value proposition is so strong for small businesses, but then.
On the other hand, it's also got a parks component to it just what's your your view on that thank you.
Yes, so so I think the first thing to understand.
The question is what what's the average size at least in our base for.
For Peos and typically a PEO in our in our world is in the 25 to 30 employee range. So you are comfortably out of the out of the 20 and under.
Zone, where you would tend to see more of an impact from a macro slowdown and what I mean by that specifically is $20 above you start to see a lot less impact from business failures in the event, but downturn you see that.
Increasing as you go down the employee count so now you're in an area of the.
The economy were or.
The.
Employer.
Employers were you tend to see less of an impact from macroeconomic slowdown and then the question is in that kind of environment do you have a greater demand for HR services or do you have a lower demand for HR services and when you think about it the balance really kind of lies on a greater demand.
And for managing your workforce in the event of a downturn. So I wouldn't go so far as to say it would it would not be impacted I think there'll be some impact, but it will certainly be.
Less impacted than a typical small business would be and less impact that we are than than we used to be if you went back to the last recession and we were primarily apparel company I think we feel that you know really half of our revenue coming from non payroll services and moving to more than half from non payroll that also changes.
Kind of the impact to us as a company in a recessionary one final point in that Marty raises which is important when we went into the recession last time, which was in the always timeframe. We were heavily dependent heavily dependent on float income almost 30% somewhere between two.
25, and 30% of our net income was generated by float were completely different company now and I've heard people make the argument and.
Hey, look I like a good argument like anyone else's, but I do think that data suggests that we are different.
Terrific. Thanks, guys.
Okay all right.
Our next question comes from Bryan Keane of Deutsche Bank.
Hi, guys was just looking.
To get a couple of clarifications.
What was the revenue growth contribution of Oasis in the quarter trying to get to an organic growth number and the PEO insurance.
In the first quarter.
So Brian .
Called it out as a as.
A little less than 10 organic growth was between five and six.
Inside of PEO and insurance.
No no total total revenue it we didnt split it out like that I'd just caution.
The.
If you want to know with the growth rate for PEO was in the quarter PEO not PEO and insurance it was solid double digit.
Yeah, I just trying to get there was about a there was about a 15 million gap I think in street numbers NPR insurance versus the actuals it sounds like yes.
Yes, so part of that Brian I called out part of it is that at the end of the fourth quarter. We made a small classification change in staffing revenue, which some people picked up in some people did not.
I would just caution that you could come back to me offline and I'll walk you through the numbers, but but the starting point was a little bit different we made that change not everyone pick that up so I think thats part of it I think that's generating part of the of the change there and so part of that moved into management that probably account.
For a good chunk of the of the difference.
Okay helpful. And then just on that guidance in Pune insurance to be towards the lower end of 11 import 11% to 14%.
That that the the workers comp will drag a little longer than you expected just trying to make sure I understand the change.
Yes workers' comp started a bit more slowly than we had anticipated in Q1, and I called out at risk healthcare insurance attachment rates.
Based on what we saw in the first quarter were walking through all of that would now three pieces of the PEO.
And we think that that that number is going to be a little bit lower but I would just caution one thing about that really doesn't have that much of an impact on margins.
And then the second thing is I could come back next quarter, and say hey, the attachment rate actually ended up being a little bit higher it's a little bit tough to to nail it with precision, but we'll keep updating it.
Okay Super got it thanks, guys.
Yes.
Our next question comes from line of Andrew Nicholas of William Blair.
Hi, guys. Good morning, Thanks for taking my questions.
Just to stick with Oasis briefly I think based on my math waste as Ted maybe 85 million or so in the quarter.
Which I think was maybe five or 6 million below last quarter. Just wondering if there's anything to highlight on the step down if theres any seasonal factors to consider and if that was in line with your expectations.
As of last earnings call.
Yes, I don't I don't too.
On the spot, Matt I would say that our.
Our.
Always pretty much in line with our expectations. So I'd I'd have to go through that with you to make sure that using right set of numbers.
Okay fair enough.
Then with respect to the PEO market Im just curious you've seen any changes in the competitive landscape recently I think more specifically im curious about when youre going head to head with another PEO, which which I recognize isn't as frequent but when you are what are the chairman and factors for winning or losing business and and Relatedly.
Important this pricing in those conversations and if you've seen any changes in the pricing dynamics as well. Thank you.
Yes, really really haven't seen any changes in the competitive market for PEO and in fact I think.
You know with a waste as and giving us some new markets. We're in some new markets. It really comes down a lot of times from a competitive standpoint, so you're not seeing some eight you really nothing more competitors I think it's the same competitors and we're at a little bit larger obviously now at this point being the second largest and I think it's really the insurance play.
Plans, which we feel very good about having the insurance plans and of course the service that you provide with the with the HR specialist and I think we've been able to demonstrate that we've been in this business for a long time, both PEO and a esso and by the way we can offer either one of them. That's part of the new branding of Paychex one is the brand.
Of our HR outsourcing. So you can go PEO you can go asked so with US we've been in this business for 20 years, we have 600 HR specialists out there.
And we have great insurance plans and we continue to.
To expect to have those and that's really what it comes down to is what's the service model, what's the insurance plans that you offer.
What's your history in the ability to offer that service competitive nature hasn't changed much I think we're very well positioned to to win in this market. One other one other point to your earlier question that you could call me back off line.
I would caution with saying that that revenues sequential.
Certain quarters Theres gate theirs.
Cyclicity quarters, and typically in the back half of the year you have higher revenue first half of the year. So.
So it's not it's not compare to look at it quarter over quarter, because it bounces around.
Now that that's helpful. That's.
What I assume that's why I asked I appreciate it thanks guys.
Okay.
Our next question for line at 10 cents.
JP Morgan.
Hi, Thanks, Good morning, just.
Couple questions on the chart on the management solution side that was clearly better you laid out a lot of reasons, but versus your 3% to 4% what was the.
What was the difference there another reclass, maybe contribute a little bit but can you come on payroll HCM pricing maybe rank in Florida.
Yes, we still would have had 5% in the absence of the Reclass. So just want to make sure that thats clear and the other thing I want to make clear is that I did call down in Q1.
Due to composition of days issue in the quarter that did hit us. So we had just stronger.
Performance through a combination of both.
As we discussed earlier.
Pricing client growth.
Stronger.
Midmarket performance on the sale side the combination of all of those just ended up being stronger than we had.
Than we had.
Dissipated, which which was a good turn for us.
That's great and then on the just on the quarterly TS front I think last quarter, you mentioned that the first half net income would run low single digit growth. This came in ahead can you maybe help us recast.
Second quarter versus second half, we don't mind.
Yeah.
Well.
I guess, what I'd say to engine is I gave fairly good guidance on what we expected revenue was going to be in the quarter and what we put margins were going to be so I would I would say.
Implicit in what we're saying was that.
I give you a decent number for Q2 that we expect to two to three in Q4, we called out operating margins being at approximately 38% for the back half of the year. So.
It's going to be better.
And at this point, there's an element of conservatism to what we're guiding we're still in an uncertain interest rate environment. So.
We want to preserve a little bit of flexibility to fed decides that wants to continue to cut without.
Altering the guidance. So so back half from an EPS standpoint is going to be stronger than the first half even though we got off to a pretty good start in the in the first half.
Yes sure Okay.
Yes for sure I know that tax and interest played some.
Some smaller roles to there is the last one I think you mentioned their efforts a 38% second half margins.
Is there any change or and thats using that as a baseline for fiscal 21.
Yes, Theres, a big danger to engine, let me explain why please so so when we when we did when we adopted revenue recognition what it had the effective moving a revenue stream into Q3.
That had previously been spread across a number of quarters. When you do that what ends up happening is that you said publicly so wrong word you create a situation where Q3 is always going to be your highest margin quarter. The reason is very simple you simply have more revenue with no no greater associated costs.
All of that drops to the bottom line and you are typically seeing although I called out 30 for the quarter, it's not going to be uniforms or 38% for the back half, it's not going to be 38 in Q3 in Q4, Q Q3 will be higher than Q4, and so that's the danger. If you just if you just.
Take that as the run rate for for margins going forward, you're kind of taking into account. The Q4 is our Q3 is going to be a higher margin quarter now going forward, having said all of that.
We do think that.
Things being equal.
We think that expenses will trend down in the back half of the year and.
We'll have some opportunities to improve margins from where we are as we go into 2021 hard to believe yes.
But hopefully that's helpful. It is not just looking for clues you guys are obviously going to get a little bit of benefit from some of your investments. Thank you guys. Appreciate it.
Yes.
Sure.
Our next question comes your line is Stephen walled of Morgan Stanley .
Hey, good morning, maybe just following up on the on the margin question. If if there were.
Yes couple things are one thing you could call out.
Hold you back whether its perpetual reinvestment or.
Just.
And then expected mix shifts like what would keep you from something like notable margin improvement starting in 2021, and how should we think about that conceptually as he talked about like moving towards less of the payroll model more of a tech modeling how should we think about the margin conceptually in that in that.
Lane.
Yes, I guess I'd like to defer the a better or more complete answer to the second half of the year because trends will be become more more evident, but if I were to point to one thing we've had relatively high spending and what's been.
Kind of unusual about our performance is that we haven't taken any charges. We have made changes on the fly we've delivered double digit EPS growth and we've done that all within the context of the the kind of programs that we run so.
We understand that as we exit the year some of that spending will decrease we know that we're working on that actively and the question is how much will have better sense of that as we go through the second half of the year the investments that paid off I think that the results were seeing.
Reflect that and I think that all of the technology.
Advances in improvements that Marty was mentioning are really the fruit.
Of that accelerated investment, but you don't continue to invest at that accelerated pace you pull some of it back down. So we anticipate as we go into 21 that that's what you would see.
Got it and then maybe just one quick follow up I think earlier in your comments you talked about this shift away from being sort of thought of as a traditional just payroll driven model towards the tech offerings and all the.
Products you guys have been rolling out and all that makes sense I guess, just as we think about it from a macro perspective and.
We will be sort of seen and year to date atps broader macro data.
Are you guys prepared or of the mine that we shouldn't think of.
Paychexs being heavily leveraged to ship sampling it.
Okay.
Yes.
Well I think certainly not as levered, it's going to have some impact.
But I think as Aaron mentioned earlier on a question probably more specifically on the PEO payroll was especially small business payroll was very much side, obviously to new business startups and losses in businesses going out of business because of a tough economy, when you're 50% or more and more of an H R.
Time, and attendance retirement et cetera services, non payroll and not so focused on just the smallest.
Clients, it's going to have a different impact because in a in a recessionary period or a down turn of employment.
Youre going to have a bigger need for HR or how do I retain who I have how do I may be layoff people hideaway make changes in cost structures. These are off from our clients perspective, there is a huge need for HR support.
And other products and technology like self service. When you think about 10 years ago, we didnt have a mobile app that had.
Much of it on a self service from an employee basis and.
We can save we're now saving clients, a lot of money and better per and giving them better productivity by saying Hey, if you want to change if your employees want to change their address or changed their deductions et cetera. They can do it all on their phone by themselves now they don't need to call and go through you call us et cetera, So the dynamics of the company and.
Clients and what they need to us for his changed pretty dramatically and I think that certainly that was our position positioning that we started moving toward many years ago to say Hey, you can't just be a small business payroll company you got to be an HR and a complete outsourcer to small and midsize businesses and that certainly is going to have much.
Less of an impact if there is a recessionary time.
One of the other thing I would add to Marty. This is just sort of concretely in terms of what we've seen over the last three year certainly since the end of fiscal 16, if you look at our financials at the end of fiscal 16 about 60% of our revenue came from payroll 40% of it was what we would have called HRS.
If you look at where we are off this forecast obviously depends on what model, you're using but payroll balance in the mid fortys with everything else being 55 that trend that trend is something that's deliberate not something that we.
Is happening to us as Marty said that is the positioning that.
In the management team have adopted and the numbers bear it out and I do think that.
We have evolved very clearly to a tech enabled services company that is much more HR focus than it was three years ago.
Alright. Thanks.
Okay.
Our next question comes from the line of Bryan Bergin of Cowen.
Hi, Good morning. Thank you I wanted to follow up on a real time and on demand pay the offering rollouts that you have can you comment on can you maybe partnering with those curious if the strictly for account deposit or a card offering as well as John mentioned, the mechanics that offering and how it rolls into your model. Thank you.
Yes, Brian I think we'll announce that probably a little bit later as we get into the.
Last quarter calendar quarter of this year or the for the pay on demand.
And.
Because I guess I just want to be sure. We're all together on that before I announce it publicly who the partner is there certainly is a partner there that we're doing it with and then add real time payments. It's the same thing one of the major banks and I would wait until we get closer into the first part of the year.
Just to make sure that everything is.
From a competitive standpoint, I don't want to give out too much too early but we have partners in both fairly solid relationships Everything's. We feel is in place I just would like to announce was more as we roll it out what will be in the next really now we're in October of next couple of months and then one will be early 2020 for real time payments.
Okay, that's fair.
And then just a follow up on the insurance services business the pressure from the workers comp rate there.
Just the outlook on one out of beta this don't just the moderation as you go through the second half comps.
Yes, yes, so so it's a little bit later in the quarter than than than we had planned and so.
As a little bit more cautious as we went through the year our expectation is that in the back after the year. It starts to abate and then bye bye.
20 121.
Saying that but.
Fiscal 21.
Should we.
We should be passed.
And then attachment rate is pretty solid it's it's a continuation of the rates that this is in cycles in and out and we're just in that cycle, where there is lower workers' comp rates and sales are okay. In fact, the attachment is up from last year and clients, but but the rates are just lower and that right in the revenue down and you got to kind of wait.
The cycle back around.
Okay. Thank you very much.
Okay Brian .
Our next question comes from the line Simonton Mama.
Great.
Hi, good morning, and thanks for taking my question.
Just wanted to ask question, Mike and when you Paychex. So then you paycheck sell offering and I'm curious how we should think about in terms of the size of the opportunity and what maybe they've got a market model as at March is it similar allowed to direct sales organization or is it going to be similar to maybe some of your competitors that more of an inbound.
Model.
Work that they're small customers Im just curious.
Yes, I think it's going to be a little bit of both they certainly can be referred.
And sold by the field sales force, we're also going.
After it through the web and for leads and then the direct sales telephonics Salesforce will be out selling it we think it's a big market from a sole proprietors standpoint. When you. We found is there there is that need for the retirement product and of course, the incorporation services and that if you find that sole proprietor that.
Payroll and we can incorporate payroll a simple retirement product and incorporation. We think we've got an ice market. There, it's pretty new it's it seems to be off to a good start.
But I think were we want to see it for a couple of quarters, but it's got a nice opportunity from that micro the sole proprietor really marketplace.
As an offering but it can be sold from a web lead from telephonic sales or from the field as well as as well. So we think we've got to covered across the field sales forces and we think we got a nice tight clean product that will have some opportunity there for us.
Great and then maybe a question similarly on the other end of the spectrum the company's invested significantly in its technology and a lot of the commentary today has been focused on that I'm curious.
Hi, guys think about potentially starting to move upstream or targeting larger customers app based on the technology investments that you've made and maybe what the companies you on that is.
Yes, I think our view is really that still that under 1000, I mean, we'll have some clients over a thousand employees, but we focus very theres a big market.
When you think about this mid market. This 20 or 30 employees to a thousand is a it very big market that we think we're very well positioned for for certainly we have been from a service perspective personal service perspective, but also from now from the technology perspective in the breadth of services in the need for those HRS.
Services have come down in size so much over the last three to four years and I think we've been very well positioned for that so really not looking to get into that thousand plus generally.
And lessors a specific need that we can fill there, but we think that the best value best margin and best approach for us as the stay very focused on a kind of a one to 1000 and specifically.
How we handle under 20 and how we handle 20 32000 is whats really taking off from a technology.
Okay.
And breadth of offerings that we provide that's where the best margin is that's what I think we're very well positioned from our experience and product set to be successful it.
Great. Thanks for taking my question look forward to visit and it's not HR Tech today Okay.
Okay. Thanks, Theyre looking forward to it.
Our next question comes from the line of Mark My come from Baird.
Good morning from the Marty.
I was wondering with regards to.
Just how much of that and contributing to expenses.
For this for this quarter and how should we think about that.
During the rationalized is.
Yes.
Your own.
Going into next Genmark coming a lot of that as we call out in the in the press release is.
Is.
Driven by Oasis in particular.
The amortization expense and.
Operating expenses associated with Oasis, our Theres Theres, a lot of combination going on there but.
But.
Combination of expenses.
The expense growth ex oasis would be somewhere in the 4% to 5% range.
Thats very helpful.
And then with regards to.
You know what you're seeing from a competitive perspective, and then viewing that.
Vis-a-vis all of the technology improvements.
Together.
What are you seeing in the five to 20 employees.
Good how should we think about that and I'm, particularly interested in terms of the new initiatives that you have in terms of.
Online.
Sales online implementation that was something that you talked about during the last quarter.
Some of the early results there.
Yes, they look pretty solid Merck, particularly I'd say five to 10.
We focused very much on virtual sales are telephonics sales and in driving those leads we were doing the one to four leads internally with telephonic sales because of the speed from lead to close and we had a lot of success as we built the teams out for that last year, we moved the five to nine leads.
But the majority of those inside the web leads to the inside sales teams for the same reason we're off to a good start.
Both on lead demand generation the way, we nurture those leads and get them to inside sales and that are handling those leads that also frees up the field.
Sales forces to get more of the larger larger customers in that lets say under 20.
That will freeze that small business rep team up to do that so we're seeing a good start to the year on that competitively not seeing any big changes there. We're seeing kind of the same players I know there is one that is talking about that they've been going down market.
I haven't really we haven't really seen an impact of that.
Much at all I think again the investments that we made in the technology.
Right.
Reputation we have for service to that under 20.
It was really bodes bodes very well for us. So I think it's we haven't seen a big change in the competitive environment and actually we're off to a pretty good start we feel.
Great and then with regards to.
Interest rates obviously.
Thats done some things but.
Where rates are actually going is different than.
What they were.
Basically targeting.
We take a look at like your incremental effective yield in terms, what you're placing now relative to what the effective is on the on the overall portfolio.
How does that compare.
Right now.
I think you're probably mark somewhere in the.
Oh Boy you asked the great question, which requires layers of layers of explanation. So I will try to summarize it.
Unlike other people.
45% to 50% of our our portfolio is invested short term. So you get an immediate in immediate.
Decline on the short term part of the portfolio.
By whatever the fed does so.
If you're in the 1.5% range, that's what you're getting on the short term.
Folio and then if you drop you lose the 25 bips.
But if you have a decline of 25, Bips then you're going to lose immediately 25, bips immediately, but 30 days or so so in the short term portion of the portfolio. That's what happens on the long term, it's a little bit trickier because.
There you are really kind of turning that portfolio over about 20% of that portfolio turns over and I think that that we called out in the script, it's a little bit above our effective yield notes a little bit above 2%.
Current investment rates will depend on that frankly on the shape of the yield curve, which in some ways is anyone's guess, but I would say now you're you're 25 to 50 Bips below where we were when you. When you started the year now.
No.
I just read an article yesterday I'm sure you read the same articles I do about about.
With the fed is anticipating doing we're not doing so.
Question ticking up to the pack, but that's.
Indicator of where we are and then the final thing which is the third part as we do have we do have opportunities, if we see where the yield curve.
The shape of the yield curve to extend duration right. Now we said duration was about 3.1, we have flexibility to go longer if we want to so so.
All of those are the puts and takes.
I was I was specifically thinking about that 20% that's rolling over that would be incrementally invest relative.
Yes, that's what I said, yes, so you're probably in the 25 to 50 Bips lower.
Relative to the effective yield that we're currently getting.
Yeah, right I'm, sorry, yes, yes, okay, great and then with regards to.
Some of these do.
Initiatives that you're rolling out that I'll be demo ing today nature intact.
What's sort of contribution do you think theyre going to end up being as you start.
Making the plans for 21 and.
How does that impact the sizes salesforce.
Yes, I think from I'm glad you're out there on the group is excited the demo everything it HR Tech I think.
I think it's always with us with a number of clients. We have it's a small impact to start.
As we ramp up penetration rates in attachment rates, but I think.
It does bode well for 21 to get these things in now and and see how we're growing from a sales force perspective, I think there could be continued growth there, but I think we're also looking for continued productivity with the Salesforce, we have a very talented sales leadership team and salesforce that.
As always looking to sell more products in the way we're approaching as I mentioned earlier is the power of those 3000, plus reps selling kind of all of our products not just the yield traditional way, where we would sell payroll first and come back and we're finding much more success, whether it's the small market or the midmarket kind of coming in looking.
For the value that client is looking for overall the needs that they haven't selling that completely. So we may have some continued increase in reps as we see opportunity and there will be also some increase of inside and outside probably from a telephonic sales and field sales perspective.
Great.
Okay Mark to occur.
Our next question comes from line has Jason Kupferberg.
Of America Merrill Lynch.
Hey, guys just wanted to follow up on the commentary around the the Midmarket sales you certainly sounded bullish there sounds like you think that trend to sustain evolves. So I just wanted to get your perspective from kind of.
Share gain standpoint, if you think that this is.
Something it's going to be continuing for a while it feels like historically market is maybe where youd highlight some.
More competitive intensity.
And now it sounds like you're clearly, making strides to overcome that.
Yes, I think a couple of things one I think from a share perspective that the market has continued to grow. So the good news is there as well I think we certainly are doing well from a competitive close rate when we're in there as the market itself is growing so the need for HR is continued to come down inside.
Okay. So clients that were looking for different solutions at 100 200 to 300 employees are now looking for those at 50 employees or 40 or 30 employees, so meaning full time and attendance you just see the overtime rule just came out in changed and put more focus on overtime clients will be looking for more time and attendance.
Solutions and when you can now at the technology of Wearables and Geo fencing to say, hey, if theyre working remotely they're working from home or another location you can track all that and they can do it on their on their risk on the watch.
All those things make you very viable to even a smaller client than used to think they could afford that kind of thing and a smaller client needs. It. So the market itself is growing from an HR and to add at full service perspective, and then I think the competitive environment really hasn't changed much I don't there hasn't been new competitors.
Different competitors have their strengths and weaknesses.
And I think right now between the technology and the service model we have I.
I think it's a very strong very strong and will we do feel very good about the first quarter and I think we feel like the momentum is there for certainly the rest of the year Nbn.
Okay.
Effort I think it may have been two quarters ago. You had suggested oasis could do 335 to 375 million in revenue in fiscal 2000, if I've got that right is that still the right range and any thoughts on where within that range might be most likely now that you're about a third of the way through the year.
Yes, I don't recall that specific one, but but I think we're in in that range.
Jason The one thing I would I would caution is that's total theres a few.
A few revenue streams in there that are reported.
Not just on PEO side.
Part of the classification change we made at the end of the year was one of those revenue streams and we had been reporting part of the.
So revenue that that Oasis.
Provided it's not a huge amount, but but it's part of that part of that total.
Okay, and then just real quick last one buybacks uptick pretty materially this quarter, just an update on what's left on the authorization, there and any implications or we should interpret that in the context of what might be in your M&A pipeline.
Wow, that's a good one.
Could that was good I would track either.
So yes, no look shares shares at crept up but that was a good what I would say that's a question of a day.
Making shares had crept up a bit and and.
Just because it was clever.
The shares crept up a bit and we're committed to keeping our share count flat. So so we thought it made sense to be a little bit more aggressive. It really has no implication whatsoever on M&A, we've got still lot of dry powder and we've got a lot opportunities that we're looking at.
And then finally I think we're we've got about.
$250 million, so left on the authorization, but look.
To the extent that we needed to get more course have that conversation with the board.
Yeah got it thank you guys.
Okay and welcome.
Our last question comes from the line of Kevin Mcveigh of Credit Suisse.
Great. Thanks for letting me back and hey, not to belabor the attrition, but Marty you go to kind of more the tech enabled ATM.
You know in kind of the incremental disruption from switching full suite versus payroll does that reset the opportunity on the attrition side longer term and is there any way to think about.
What a longer term target would be with the kind of new revenue contributions.
Yes. Good question I think I think it does to some degree other the of the you still got to think about the mix of the clients. So.
With our mix still.
Definitely toward the low end.
And with the growth of that under 20 market that won't change it too dramatically, but it certainly gives us a much better retention tool. When you think about also the mobile app and the tied to employees to services that we're selling more and more to the direct employees and how they're using that mobile app.
Really gives us kind of all fresh start on retention, but to the degree that.
You know a large majority of our clients are still under 20, and you know that base is still susceptible to start ups and turnover and that kind of thing. So can we get retention better overall.
I certainly we're always looking to break records on it I don't think it will be huge though given the the makeup of the client base, Kevin one one build on what Marty. So so so while we report client retention.
Your question really goes to revenue retention, then revenue retention has been running in the mid Eightys and so I think that as more of these products that you do have an opportunity even if a client retention is not materially different.
A bit better revenue retention and so certainly we would we would hope to see more of that.
And that probably gets.
Wider tenda that revenue retention versus client is at a fair way to think about effort versus history.
That's correct yes.
Thank you.
Okay.
And that was our final question, operator, I think thats it right.
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