Martin Mucci - President, Chief Executive Officer & Director Efrain Rivera - Senior Vice President, Chief Financial Officer & Treasurer

Jason Kupferberg - Jefferies Danyal Hussain - Morgan Stanley & Co. David Togut - Evercore Gary Bisbee - RBC Capital Markets Sara Gubins - Merrill Lynch Rick Eskelsen - Wells Fargo Securities Kartik Mehta - Northcoast Research Partners Jeffrey Silber - BMO Capital Markets David Grossman - Stifel Financial Corp. James Schneider - Goldman Sachs & Co. Mark Marcon - Robert W. Baird & Co. Ashwin Shirvaikar - Citigroup Global Markets, Inc. Lisa Ellis - Sanford C. Bernstein & Co.

Welcome, and thank you for standing by. At this time, all participants will be in a listen-only mode until the question-and-answer session of today's conference. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Martin Mucci, President and Chief Executive Officer. Sir, you may begin.

Thank you, and good morning, and thank you for joining us for our Fourth Quarter Earnings Release Call and Webcast. Joining me today is Efrain Rivera, our Chief Financial Officer. This morning, before the market open, we released our financial results – excuse me, for the fourth quarter and fiscal year ended May 31, 2016. You can access our earnings release on our Investor Relations webpage. And we will file our Form 10-K by the end of July. This teleconference is being broadcast over the Internet and will be archived and available on our website for approximately one month. On today's call, I will review highlights for the fourth quarter in fiscal 2016 related to sales, operations, and product development areas. Efrain will review our fourth quarter fiscal 2016 financial results and discuss our fiscal 2017 guidance. And then, we'll open it up for your questions. We are pleased with our strong finish to fiscal 2016. Our momentum continued in the fourth quarter. Efrain will talk in more detail about the financial results, but I want to touch on a couple of key points. First, total revenue was up 9% in the quarter and 8% for the fiscal year, reaching nearly $3 billion, a new record for Paychex. Payroll service revenue continued to experience steady growth of 4% for fiscal 2016, driven by growth in client base and revenue per check. And our payroll client base finished this year at approximately 605,000 clients, the highest client growth in recent years. Solid sales execution during fiscal 2016, along with high client retention in excess of 82%, positively impacted our client base. Client retention was consistent with last year's record high retention. HRS revenue benefited from strong demand for our comprehensive human resource outsourcing services, as we once again realized double-digit growth in client worksite employees that we serve. In particular, our PEO has been an area of strong growth. In addition, our full-service Affordable Care Act product contributed to the HRS revenue increase. During fiscal 2016, we made significant enhancements to our Paychex Flex platform, which is our proprietary cloud-based human capital management, or HCM solution. Paychex Flex is a robust technology and service model that supports our clients for every phase of their employees' journey from recruiting to retirement. This model allows business owners and HR professionals to tailor a solution encompassing tools, capabilities, and services that meet the unique needs of their organization and employees. Earlier this year, we completed the integration of the remaining key HCM modules with Paychex Hiring, Paychex Time, and Paychex Benefits. We believe we also have the best in market mobility offerings for both administrative users and employee self-service that allows access to our HCM suite with a single mobile application. Paychex Flex continues to receive positive reviews evidenced by multiple awards and acknowledgement received throughout this year. Earlier in the year, we earned recognition from the Brandon Hall Group Excellence Awards for advancements in workforce management technology for small and mid-sized businesses; PC Magazine's review referred to Paychex Flex as excellent, calling it more robust and scalable than some of our competitors' platforms; and most recently in the quarter, we received a 2016 TekTonic Award from HRO Today for the best-in-class mobile and cloud-based technology suite for comprehensive integrated HCM services. We are very pleased by this recognition, and it supports our belief that Paychex Flex technology, combined with a unique mix of personalized flexible service options, sets us apart and provides great value to our clients. We remain committed to our investments in product development and technology to keep us a market leader. Sales execution during 2016 was strong, with another year of double-digit growth, especially within the mid-market space. We believe the value that our Flex platform provides is a key driver to this success. During fiscal 2016, we announced the acquisition of Advance Partners, who joined the Paychex team during the third quarter. Advance Partners offers customizable solutions to the temporary staffing industry, including payroll funding and outsourcing services. Advance Partners and its leadership team has already proven to be a great addition, with their positive results and opportunity for growth in the expanding staffing market. Throughout the year, we have continued our shareholder-friendly actions. We maintain a strong dividend yield; and in July of 2015, we increased our regular quarterly dividend by 11%. The dividend increase supports our history of providing exceptional shareholder value while continuing to make strategic investments for the long-term sustained growth of Paychex. We have also continued to repurchase Paychex stock and acquired an additional 2.2 million shares of common stock for $108 million in fiscal 2016. As of May 31, 2016, our stock price was over $54 per share. And that has a total return of over 102%, or 15% on an annualized basis, over the past five-year period. The regulatory landscape for HCM continues to get more complicated, making managing HR increasingly difficult. We strive to be a valuable resource to our clients to educate them on changes and assist them with compliance. Recently, new overtime rules were approved by the Department of Labor that will expand overtime protection to millions of workers. We are well-positioned to help our clients comply with these new regulations. Our advanced suite of time and attendance products, including web and mobile tools, can assist companies with the scheduling, tracking and reporting of time, which will be critical to managing this new regulation. In summary, I'm extremely proud of the leadership team and all of our employees of Paychex, who have continued to deliver great service and product solutions, resulting in continued high client satisfaction and continued high levels of client retention. We also continue to focus on providing leading-edge user-friendly technology and unique personalized service to our clients, while delivering solid, consistent top line growth, strong operating margins and excellent returns to our shareholders. I will now turn the call over to Efrain Rivera to review our financial results in more detail. Efrain?

Thanks, Marty, and good morning. I'd like to remind everyone that today's conference call will make some forward-looking statements for the future events, and thus, involve some risks. Refer to the customary disclosures. As Marty indicated, we had a strong finish to 2016. I'll cover some of the key highlights for the quarter and for the fiscal year and then provide greater detail in certain areas and wrap with a review of our 2017 outlook. Total service revenue grew 9% for the quarter and 8% for the fiscal year. Interest on funds held for clients increased 14% for the fourth quarter to $12 million; and 9% for the fiscal year to $46 million. Increases were primarily the result of higher average interest rates earned. Average investment balances were up 1% for the fiscal year, showing a positive impact from client growth, which is offset by lower state unemployment insurance rates. Total expenses increased by 8% in the fourth quarter and by 7% for the fiscal year. These increases were mainly in compensation-related costs, resulting from higher wages and higher performance-based comp. Strong growth in our PEO also contributed to the increases. Advance Partners contributed approximately 1% of the growth in total expenses for the fourth quarter, but less than 1% for the fiscal year. Operating margin was 36% for the fourth quarter and 38% for fiscal 2016. Operating income net of certain items increased 10% to $264 million for the fourth quarter and 9% to $1.1 billion for fiscal 2016. Our effective tax rate was 34.3% for the year compared to 36.3% for fiscal 2015. This is due to software production tax benefits, as we've discussed in prior calls. In our first quarter, we recognized a discrete item in the form of a tax benefit derived on income from prior years related to customer-facing software we produced. This discrete item was the largest – had the largest impact on the effective tax rate. While we have ongoing benefits of the impact, it's not as significant. Net income growth increased 11% to $178 million for the fourth quarter and 12% to $757 million for the fiscal year. Diluted EPS increased 11% to $0.49 per share for the fourth quarter and increased 13% to $2.09 per share for fiscal 2016. Net income diluted earnings per share would've increased 9% and 10%, respectively, without the discrete tax benefit recognized in the first quarter. Payroll service revenue increased 5% for the fourth quarter and 4% for the fiscal year. We benefited from increases in revenue per check and client base. Revenue per check was positively impacted by price increases, partially offset by discounts. Fiscal 2016 also benefited from two additional processing days during the year; one day in the first quarter, and one day in this quarter, fourth quarter. The extra days added approximately 0.5% to total payroll revenue, as did the acquisition of Advance. HRS revenue increased 14% to $311 million for the fourth quarter and 13% to $1.2 billion for the fiscal year. Paychex' HR Services continued to experience solid growth in clients and client worksite employees served. The PEO, in particular, contributed double-digit growth in client worksite employees served. Insurance services revenue growth benefited from continued growth of our ACA product and an increase in health and benefit applicants. The workers' compensation portion continued to grow with higher average premiums and growth in clients. Advance Partners contributed approximately a little bit less than 2% to growth in HRS revenue for the fourth quarter and approximately 1% to fiscal year growth. Investments and income. Our primary goal, as you know, continues to be to protect principal and to optimize liquidity. Combined portfolios, including both short-term investments and long-term investments, have earned an average rate of return of 1.1% for both the fourth quarter and fiscal year. We did see moderate benefit from the 25 basis point increase by the Federal Reserve on a short-term portion of our portfolio, but our long-term portfolio as of May 31, 2016, has an average yield-to-maturity of 1.7% and an average duration of 3.1 years, fairly unchanged from last year. Average investment balances for our client funds were flat for the quarter and up 1% for the fiscal year. While client growth positively impacted our average balances, this was offset by the impact of lower state unemployment insurance rates this year. The average invested balances for our corporate funds were down 9% for the year, largely due to the cash outflow for the business acquisition as well as share repurchases. I'll now walk you through the highlights on our financial position. It remains strong with cash and total corporate investments of $793 million as of May 31, 2016, and no debt. Our cash flows from operations hit a milestone, exceeding $1 billion for the fiscal year, 14% higher than last year. Our net income, non-cash adjustments, and favorable working capital changes all contributed to the increase. Funds held for clients as of May 31, 2016 were $4 billion compared to $4.3 billion as of May 31, 2015. Funds held for clients vary widely on a day-to-day basis and averaged $4.1 billion for the fiscal year, a year-over-year increase of approximately 1%. Our total available-for-sale investments, including corporate investments and funds held for clients, reflected net unrealized gains of $48 million as of May 31, 2016, compared to $14 million as of the end of last year. Total stockholders' equity was $1.9 billion as of May 31, reflecting $607 million in dividends paid during the fiscal year. Dividends paid represented 80% of net income. Our return on equity for the past 12 months was a sterling 40%. Now let's turn to guidance for fiscal 2017. I'd like to remind you that the guidance and our outlook is based on our current view of economic and interest rate conditions, continuing without significant changes. Payroll service revenue was projected to increase approximately 4% compared to fiscal 2016. The projected growth is based on an anticipated client base growth and increases in revenue per check. This growth is tempered by one less processing day in fiscal 2017. So, we'll have one less processing day this year, and that day will occur in the third quarter. So, I'll come back to that in a second. So, one less day, and it occurs in the third quarter. HRS revenue growth is expected to be in the range of 12% to 14%. Total service revenue is expected to increase in the range of 7% to 8%. Net income is expected to increase approximately 8%, excluding the impact of the discrete tax benefit recognized in the first quarter of fiscal 2016. And that's important to bear in mind, when the two years are compared. Our operating income net of certain items as a percent of service revenue is expected to be approximately 38%. We anticipate a modest impact on leverage growth, as we are making investment in operations to support both mid-market and compliance solution services. So, I will get the question, and I'll answer it now. So, we don't anticipate – do we anticipate leverage? Yes, we do. We think it will be modest, because, as I just called out, we're making investments in – with operations and compliance service solutions to bolster and to support that growth. With respect to the quarters, as previously mentioned, there will be one less processing day in the third quarter of fiscal 2017. Now let me get a little bit more granular, so you can fine-tune your model. Payroll revenue for the first and second quarters is expected to be at or above the full year guidance for payroll revenue. The third quarter, we expect to be below. I just mentioned we have one less day. It will be below the full year range. And then the fourth quarter, at this stage, we anticipate will be between 3% and 4%. So, just to reiterate, first and second quarters, we expect to be at or above the full year guidance for payroll revenue; third quarter, below, and fourth quarter between 3% and 4% at this point. HRS is expected to be within the full year guidance range, with the exception of the third quarter, which will fall below the full year range. The effective tax rate for fiscal 2016 is expected to be between 35.5% and 36%. Interest on funds is anticipated to be in the mid-single-digit range. We have not included any potential Fed fund rate increases in our guidance. I'd like to call out that when I reviewed consensus models, many of the numbers were close to what I'm reporting, but there was one important difference. Interest on funds held for clients was higher in the consensus models, and it looked like to the tune of about $0.01 to $0.02. We are not including any assumptions with respect to Fed rate rise increases. And as you well can appreciate, those look a lot more uncertain than they did even three weeks or four weeks ago. And then finally, with respect to EPS, we expect EPS in each of the quarters to be comparable, meaning pretty similar, with the following exceptions: First quarter, we expect will be modestly higher, and the third quarter, modestly lower; the third quarter, in particular, because of the one less day on payroll processing. So, that's the fine-tuning on the guidance. And then just want to make one final comment. It was about five years ago that Marty started to assemble the team that has led Paychex over the five-year period. And he set an ambitious goal. The goal was to hit $3 billion in revenue. That was an ambitious goal because when we finished 2011, we were growing 4%. This quarter, we're really on the cusp of that goal. It's an important milestone internally for us. Marty cited the returns for the past five years. We compared very favorably versus the S&P 500 and even against the S&P Technology Index. Those results are a testament to both employees, the executive team and to Marty's leadership. We're not the kind of people who brag or smack-talk, but we're quietly very, very pleased that we're on the cusp of that milestone, but we're also grounded enough to understand that we have to earn the trust of our clients, employees and our shareholders every day if we want to succeed. Every question you've asked in the last five years has caused us to think, to question and it's challenged us, and we've appreciated that. And yes, finally, we're not satisfied. We're hungry for more. And with that, I'll turn it over to Martin.

Thank you, Efrain. I can't wait to close the call right there, but we'll open it up for questions and comments. Tessa?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] One moment please for incoming questions. The first question comes from Jason Kupferberg. Your line is now open.

Hey. Good morning, guys. How are you?

Hi, Jason.

Wanted to start with a question on core payroll and I appreciate all the quarterly color for the fiscal 2017. That's helpful. I'm assuming that the first half of the year being above the full year guidance is largely because of Advance and then obviously you've got the headwind in Q3 from one less day, and then you mentioned Q4 being 3% to 4%, which I think would not be burdened by processing days or by Advance. So it seems like kind of a cleaner number. I'm just trying to think sort of medium-term-ish harkening back to the Analyst Day last year and with that, would that imply or would it be fair to infer that then that 3% to 4% run rate is something that's realistic to sustain assuming no other acquisitions or typical fluctuations in processing days?

Jason, so I think that is a fair number. The only caveat I would add to that is that what that number that we're giving on payroll suggests is. We're just not getting an uplift from checks per payroll, which if you went back two years ago, we were getting 2%-plus on checks per payroll, combination of – small commendation of mix, but just very, very, very modest assumptions on checks per payroll just don't contribute to payroll revenue growth. So I think it's somewhere in that range.

Okay. And still 2% to 4% on pricing for payroll this year?

Yes, yes, yes.

Okay. Understood. And then just switching over to leverage, I mean that color on the reinvestments this year is helpful. Is there anything we should be thinking about also, though, in terms of mix shift? I mean I'm thinking about areas like PEO which are obviously growing very well for you but presumably carries lower margin percentage. So when we think about the ability for the business over multiple years to drive meaningful operating margin expansion, is that an inhibitor? Is it big enough?

Really not. You know what, I'd just say if you look at our results this year, our leverage down to the EBIT line was about 100 basis points. So we had a pretty good year in terms of leverage. Now what you're seeing there is the fact that – two things that are implicit there. Number one, we had a really good year in mid-market sales. In some areas, our win rates were really, really, really strong. And as we look into the year we did two things this year. In 2016, we added to the mid-market sales force, which we don't typically do mid-year but we did. And as we added to the mid-year sales force, we were also transforming the service model. So we've made a lot of changes on the service model to improve service to mid-market clients and just in anticipation of that growth, we decided that it was important to have a year where we'll put more money into bolstering our service there. So that's what's happened. I think it's really kind of more of a one-year to two-year thing than a long-term issue in terms of affecting leverage. And finally to your point, PEO is just not big enough to really move the needle yet. It could if it really grew significantly beyond where it is now, but not affecting it now.

And just last one for me, can I get your perspective on where we are in the ACA cycle? What's assumed in the fiscal 2017 HRS guidance for ACA versus what the contribution looked like in fiscal 2016? Because obviously the overall guide for HRS is calling for steady growth.

Yeah, I think, well obviously today's a big filing day, and it's been certainly a complicated process. And probably the most complicated is just helping clients through the process, what was needed and especially those clients that came in kind of later in taking the product. But, an outstanding job by the employee teams that have been working on it and we feel pretty good about the filing that we're doing. And a lot of work, by the way, with the IRS too, our compliance team's working with the IRS for this first year of real, true filing. I think you'll see some of that sales, obviously there was a lot of upfront sales, and I think you'll see some of that slowdown some. However, when you think about how many new clients come in to us every year, we think we'll have a great attachment rate of that product that really is necessary. And one of the costs, as Efrain said, with the investment in the mid-market, one of those costs is continuing to invest in the ACA support because as we've learned, as we've gone through, this requires even more support of the clients and the filing requirements, and a little more technology to kind of help the clients through the process. So I feel good about it, it's been a tough number of months to get through this, but we're excited on the filing date and the additional investments we're going to make.

Hey, so, and Jason, on the other question. This year, ACA compliance services were, contributed less than 1% of the growth in revenue. Next year really is pretty negligible in terms of growth. If there's some, I should say it's not zero, but most of the clients, the bulk of the clients that needed the service signed up, and a number of them will probably understand that they needed it and we'll have some additional clients. But we've absorbed that headwind, if you will, that modest headwind into our guidance and feel pretty comfortable about where revenues is going to land next year.

Okay. Thanks for the comments.

Okay.

Thank you. The next question comes from Danyal Hussain. Your line is now open.

Hi, Marty and Efrain. Thanks for taking the question. Just, this is a follow-up on leverage. I guess it sounds like a lot of the investment is one-time or sort of catch-up in nature, or maybe anticipatory in nature. But is the go-forward operating leverage in that model? Is it more service-oriented, and so is it lower going forward?

No, I don't think so. I think two things. One is you only go through a Flex transition a few times in a technology cycle, so frankly, it's a byproduct of the success we are having selling Flex. So it's not a change to the model, it's really, frankly, the success we're having in the mid-market, requiring – in our world, bolstering our service a bit. So that technology and that service is scalable as you grow clients initially the way we are now, we just have to scale up the service component of it. So it's more short-term in nature.

Got it. And to that point, actually, on Flex, so if you think about R&D spend, given the changes you've gone through and the products that recently – are we at the point now where maybe you can start to see more leverage on that cost? Or is there maybe not as much opportunity given how much you have to update with ACA?

Yeah, I think we're at – well, there's always continued investment, but I think we are at a pretty good place for the level of IT spend in R&D, and so I think, you'll gain something there, but we won't be going up much in that spend, I don't think, but you won't see it necessarily go down a lot, either. So it will be a pretty good steady place there. I think what Efrain has talked about the most is we're gearing up for some of the service. As you add it all, if we added all these products, we're changing some of our service models and we're putting more technology in self-service for the client, so there's some things that they can do, there's more things they can do if they want to, or they can still come into the payroll specialist or other teams. And, so I think IT is at a pretty good spend rate, and they'll continue to go up, but not as much as they have in the past, because we got to a pretty good place with the level of investment.

Perfect, thank you.

Okay.

Thank you. The next question comes from David Togut from Evercore ISI. Your line is now open.

Thanks. Good morning. Given your commentary about the mid-market sales force, can you quantify your anticipated growth in the sales force for fiscal 2017 as a whole? And if you could call out any variations versus overall growth by segment, that would be helpful.

Yeah, so I'll talk to that and then let Marty give some more comment on it. So David, this year, we had pretty strong growth, actually even a little bit higher than we had planned on the payroll services side, which would include mid-market. And as I mentioned, we had pretty healthy growth in mid-market sales adds. So overall, we're still going to be in the 2% to 3% growth range this year, but that's because in payroll services last year, we were between 5% and 6%. So some of those adds were done in anticipation of this year. And we add selectively to certain sales forces. You've heard in previous calls, for example, that when a year or so ago, a year-and-a-half, we added mid-year to PEO and that paid some dividends. So each year, we're taking a look at where we think there's opportunities and adding selectively to the sales force.

Yeah, I think it's consistent growth, as Efrain said. And because we added – and we were very happy with the fact that we added kind of mid-year particularly in that mid-market area earlier than normal. So instead of making sure we were staffed up to begin this fiscal year, we actually added probably three months earlier than normal into the mid-market because of the demand, which was a really good thing. But you'll see overall I think the growth will be in that normal kind of 3% range. And we add a little bit to all of them, but mostly, as Efrain said, it's in the payroll space, and particularly in the mid-market.

Thank you. And then for 2017, what's your anticipated client portfolio growth, total balances?

Okay. So that could mean two things, David. Do you mean client count, or client balance growth?

About client balance growth.

I would say it's probably in the 2% to 3% range. Unless – so assuming rates were lower this year, and it's a little bit tough to anticipate, but I'm just assuming it will be wage growth and not – there won't be a change in any of the other balance figures.

Got it. And then in the fourth quarter, total client count growth was 2.5%. If we strip out Advance Partners, is 1.3% a fair assessment of organic client count growth?

All right – Advance had no impact on the client count growth.

Got it. And then...

Yeah, the payroll client. That's the payroll client base, and for the year, what we were saying was it was over 2%.

Yeah.

2% for the year.

Got it. Just a quick final question. What dividend growth rate would you anticipate in July when the board announces a new rate for the year ahead?

That's a good question. So we'll let them talk about that, but I'd just give two pieces of guidance. We've said we like to keep it in that low-80%s range as a percentage of net income, and we'd like it to track income, yeah. So it will be somewhere in that range.

Thank you very much. Appreciate it.

All right, David.

Thank you. The next question comes from Gary Bisbee. Your line is now open from RBC Capital Markets.

Hey, guys. Good morning.

Hey, Gary.

Hi, good morning.

So help me understand one thing. As I look at the guidance and then I think about how you've talked about the business in the last year, so you've got the best client growth since 2007, you're at record retention again this year, you've had a real ramp in bookings the last two years, float's no longer a big drag, you've got seven months of the acquisition in the upcoming year versus five months in the year you just finished. I really struggle to understand why revenue wouldn't accelerate at least modestly, and the guidance implies none. So is there something else going on like less pricing? It just feels like something doesn't add up here with the simple math. And I did hear you clearly that the checks per client is not as big a driver as it's been in the past, but it just feels like there should be some acceleration, given how strong you've been performing.

Well I'd say the first thing I'd mentioned is part of the answer to that, Gary. So checks per client, when they go flat to modestly negative because the client mix, you end up having an impact on payroll service growth, number one. Number two, it is, it's not seven months, it's actually about six months’ worth of revenue that we'll get from Advance. So although that's a pretty minor number, it's not quite as much as you're suggesting. And I think there's more, I think what we'd recognize as we've gone through the year is that the higher the client growth, and we've set pretty ambitious goals again next year, it'll be between 2% and 3%, initially that comes at some impact in terms of what you're expecting on overall pricing. So we recoup that over time, but as you grow, and this has been the history of the company prior to the recession, you pay a little bit of a price on checks and also on overall rate based on what's happening with client growth. So it's all of that. And then the third thing that I would say, which you're not factoring in, is we had a nice bump, uplift from the ACA compliance product. And while I had mentioned I think earlier in response to Jason's question that we absorbed it in the guidance, of course, we're not having that uplift in growth this year that we had last year. So if you stripped all of that out, you'd see underlying acceleration. We're obviously not going to detail all of that out to get to the guidance. So those are the factors that affect the overall rate.

Okay. Thanks.

I'm sorry, one other thing by the way. Sorry about that, Gary. We have one less day in the year. So that's the other part of payroll service growth. So all of those things imply if you made [indiscernible] I won't put you through the pain of doing, you'd see that we're actually accelerating a bit.

Okay. That's helpful. And then a question on Flex. Just how does the product roadmap look from here? You've talked in prior quarters about some of the major components that were added this last fiscal year. Are there more big pieces to the puzzle that need to be integrated or added? And then also, as part of that, where are you now in terms of migration of customers?

Yes. On the Flex product, I think, Gary, we've got most of everything, the main pieces in there, particularly the paperless on-boarding and recruiting and the benefits administration now that came in from BeneTrac that we integrated in. So we feel pretty good. I think there's always other components that we're looking at competitively to see if we need to add, but for the most part, kind of the vast majority of everything is in now, and integrated on a kind of single employee record, which is working well for the sales and so forth. The vast majority of our clients have, are on the Flex platform. And so while we continue to work on some of the mid-market, the vast majority of the clients are already on Flex and there isn't a migration that's needed from that standpoint. So I think we're in good shape with people on Flex. And they are gaining, anyone on Flex is gaining all the mobility additions. So a lot of work now is going to making mobility and the online visibility into a simpler, easier to use, more HTML5 kind of language. Also the options for, we haven't talked about it, but the options for Spanish, we've really put most everything in Spanish now and we're seeing a nice uptick in sales to Hispanic businesses, which has been a focus for us the last few years from both the sales and service perspective. So I think what you'll see now is not as much product functionality that's missing as it is the look, the feel, and the mobility piece of it. And by the way, everything's being developed now here mobile-first. So basically you make it simple so that almost everything can be done on the phone, and then it grows more complex online.

Great. Thank you.

Okay.

Thank you. The next question comes from Sara Gubins with Bank of America. Your line is now open.

Hi. Thanks. Good morning.

Good morning, Sara.

Within payroll service for the client count growth, I'm wondering if you're able to assess how much of the growth is coming from new business formation in the last year versus taking share of existing businesses.

Yeah. I don't have a precise number on that Sara, but I can say that in the fourth quarter, sales to newly-formed businesses were up about 10% from the quarter before. We had a pretty nice bump. So I think we're getting some uplift from being, I think one, probably more competitive there and second from a little bit better business environment.

Okay. And then in terms of the client mix shift, given the fast growth in PEO, the ACA tailwind, and Paychex Flex. Are you seeing the client mix shifting more towards companies with over 50 employees?

No, no. Actually, I think I mentioned in a previous call, and we'll put out the exact number to the right decimal in the 10-K, but our average client size is – was 17. We may have ended the year at 16.92 or 16.95. No significant change. I think we continue to have strong mid-market sales. I would expect that number may go up. But this year was a little bit anomalous in that it skewed a little bit lower. But tiny, but it moves the needle.

Okay. And then just last question on M&A. You've talked in the past about being interested in doing some larger M&A. What does the landscape look like? Is that something that's on the horizon in fiscal 2017?

Yes, we're still pretty active and we've got probably one of the better pipelines we've had. Still looking, the decision is the value and the fit, and we're very selective about what we've acquired. We've done more acquisitions in the last five years than I think probably any time in history, and we felt very good about each one of those, whether from SurePayroll to now Advance Partners. So I think we're still very active in it. It's hard to say whether things will come to fruition or not, but we feel good about the pipeline that's out there and the activity that we're involved in right now.

Thank you.

Thank you. The next question comes from Rick Eskelsen from Wells Fargo. Your line is now open.

Hi. Good morning. Thank you for taking my question. I guess just following up earlier on the Flex question. Can you talk a little bit about how the client uptake has been on the newer modules that you've rolled out?

Yes, it's – I think it's been good. Particularly the time and attendance piece of it as we've integrated it in, and the mobility functionality that's with it where you can punch in, punch out and so forth, I think, has been probably the most popular, and I think that's because you see the overtime rules that have been approved now, and that will be enacted soon. I think a lot of a number of clients are now looking at time and attendance as something they really have to have and they're looking at great options like ours. I think the electronic basically paperless on-boarding and recruiting of new employees has been good. It's relatively new, and getting the sales teams to make sure it's in that first proposal has probably been more of a challenge, so we'll get it all in there. But I think that one has got a tremendous opportunity in front of it, I think we're starting to really capture that now, a few months into – after the release of it.

Thanks. And then just with your success in the mid-market and the team selling that you've talked about a lot recently. Is there like an average number of modules that clients are taking currently, and how might that compare to the last couple of years? Are you seeing that number going up?

It definitely is going up because we can see it from a revenue per unit standpoint. We've seen a nice uptick over the years of revenue per unit. So more clients are taking the products upfront, particularly with the integrated selling approach, and that's kind of in all sizes of clients. Mid-market right down to I'd say, 10 to 15 employees even. There's much more of an acceptance of taking more modules, and there's much more of a need for it, and so the value has been much greater. I don't know if I'd really, if there's really an average number, but it definitely has increased the revenue per unit, and we're good at both, I think we're much better now at the integrated selling of selling net value upfront that we've talked about. And then as we go on, if the clients don't have it, we have a great team that comes kind of – back around to the clients and said, hey, now that you have, let's say payroll and time and attendance, let's talk about benefit administration and, so that can help you in Affordable Care Act and everything else that we offer. So definitely the attachment has been a big part of our – a big assistance to our growth rate.

Last question, just following up on Sara's question on M&A. What areas are you looking at most? Is it things to add in payroll and HRS? Are you looking at some of the adjacent and other business areas you've talked about in the past? Thanks.

Yeah, I'd say we're always looking at payroll. There's opportunities out there for that, and we're looking also at product additions, tuck-in for product, but we've got most of that now, but we're always looking for that. And then of course all the areas that we're in, whether it be 401(k), PEO business, we're always looking at those opportunities as well. And then always looking at outside the country as well, what other opportunities are there for us. It's just a matter of, as I said, we've never been probably more active or a longer pipeline, but the valuations are still relatively high, and we're very selective as to what we go forward with. But I would say all of the above we're interested in. As long as they're a good fit and are good for both obviously for the company and for our shareholders, we look to go forward with it.

Thank you very much.

Okay.

Thank you. The next question comes from Kartik Mehta from Northcoast Research. Your line is now open.

Thank you. Hey. Good morning, Marty and Efrain.

Good morning, Kartik.

Efrain, any thoughts on how you might manage the flowed portfolio considering we're in a little bit of a different environment than we were a few months ago? Have you changed your thoughts on that at all?

It's interesting you say that, Kartik. So as I was driving in this morning, I was trying to figure out what happens if we're in an environment where the Fed doesn't raise during the year and at this stage haven't decided to make any changes, but it's certainly is something that we'd have to look at the duration of the portfolio if the yield curve looks the way it is now over time. And no decisions on that, but that's something we'll have some discussions on as we go through the quarter. It's just, as you can imagine, it's pretty dizzying trying to figure out what the right scenario is when I would say three months ago, we were thinking there might be as many as three raises in the next – in the fiscal year, and now it looks increasingly like if you get one, that will be a lot. Maybe zero. So, yeah, we're thinking about how to create the right portfolio structure without increasing risk.

And, Marty, you talked a little bit about Flex, and obviously Flex is a much better product for your clients and you talked a little bit about maybe trying to sell more value-added services. It seems like that's just starting. Could you see Flex because of your ability to sell other value-added products or what you've at least seen so far, help kind of accelerate the revenue growth rate for the payroll business?

Well, we certainly hope so. I mean, what we've seen is more revenue per client and we've seen that consistently, and that's because the Flex platform allows that integration of various product bundles of different functionality within a single employee record and that it also allows you to have access to the mobile app, which has been very popular. So I think the opportunity is there. I mean, when we look out, obviously, as far as we can go as the guidance that we look at pretty closely that Efrain has detailed, and so we certainly hope the opportunity is there. We're keeping it and we're, I think, very, very competitive with it, and that certainly is our hope.

I mean, the other thing, Kartik, I'd like to add that is important and I think I've mentioned this after the third quarter doing a number – in a number of comments, it's important to remember that when we sell Flex, a portion of that revenue is payroll, and a lot of it's reported in HRS. So I cautioned that while we're not walking away from looking at payroll revenue as an important part of the revenue growth of the company, increasingly, when we sell Flex, a portion of that is reported in HRS. So all of the discussions we've talked about, modules like time and attendance, HR administration, expense management, applicant tracking and recruiting, employee shared responsibility or ACA, those are all recorded in HRS. So you need to look at both pieces to really kind of get a complete assessment of how we're doing.

Yeah, we think of it more kind of in total service revenue because it does, obviously, it bleeds over into both of them.

That's fair. And just for a last question, now that you've owned Advance Partners for a few months, and that was a business that you were excited about in the beginning, I'm just wondering, is that something that still is what you expected? And is that a business that you could potentially acquire other businesses to get additional scale?

Yes, I think so. In fact, we feel they've been performing extremely well and the whole leadership team has come with the company, so we're excited about that. And so they performed well. We have already been looking for opportunities to increase the scale there and have a few kind of in the pipeline that we're looking at. And, yeah, we think, we're very pleased with the first six months of how that's been going and the results that they have, and, of course, the tie-in into our clients that have a number of opportunities for them and some opportunities from their clients for us. So we're very pleased with the acquisition and the team there and how we're off to a good start.

Thank you very much. Appreciate it.

All right, Kartik.

Thank you. The next question comes from Jeff Silber from BMO Capital. Your line is now open.

Thanks so much. I know you're mostly a U.S.-centric focused company, but I'm just curious in terms of the impact of Brexit, if at all. Would this maybe preclude you from potentially expanding in that region, if you think it will have any impact on your U.S. business at all? Thanks.

Yeah, this is Marty. I don't think so. We don't see much there. We're mostly, outside the US we're mostly in Germany, and then we have the Brazil startup there. So we don't see it. Obviously, from an acquisitions standpoint, there are opportunities there that we would be probably a little more cautious about given kind of the uncertainty over a longer period of time. But right in the short term, certainly, it has very little, if any, impact on us, at least from the UK perspective.

Okay. And then just a couple of numbers-related questions. You mentioned the investments in growth this year. On the expense side, would that be on an operating expense line item, SG&A or a combination?

It's mostly operating expenses, Jeff.

Okay. And then, sorry, just one more.

That's okay.

I'm sorry, on the fourth quarter, you had negative investment income. Can you just walk us through what happened?

I was waiting for that. You get the gold star for that question, Jeff. So the answer is we had some small investments that we wrote down the value, didn't write them off, but wrote down the value when we looked at it in the portfolio. Very small things. But the way we record that is in that line, so that's why it went negative a little bit.

Do you know what the EPS impact of that was or...

Very modest. Maybe half a cent, if that much.

Okay. Great. All right. Appreciate the color. Thanks so much.

Okay. Yes.

Thank you. The next question comes from David Grossman, Stifel Financial. Your line is now open.

Hi. Thank you. Good morning.

Hi, David.

I was hoping, maybe, Marty, if you can stretch your comments about the middle market. It seems you're doing well. And as you probably know, there are several others claiming prosperity in that segment as well. How much of that may be ACA-driven or other fundamental factors in the marketplace? And obviously you've done a lot to invest in that segment over the last several years, and just curious if there are other factors at work there that may be driving the market clients to go to an outsourced solution?

Yeah, I think definitely a number of them. One, I think the need, the complications of compliance with all of the regulations have increased. So you have ACA, but you have the recently done overtime regulations. You have paid leave now for families you have got to keep track of. You have a lot more immigration and keeping track of who your employees are and all of that that you have to be backed up with. And the enforcement of the rules we see are stronger. So more businesses are being impacted by audits, by investigations, by are you following the rules correctly. And because states and the Feds are also looking for more revenue sources, so states can go after things. So I think that whole regulation side has become increasingly more complex at a lower level. So we're seeing people, we're seeing clients buy time and attendance that normally were probably 40 employees and higher 30, PEO tended to be higher, now it's coming down lower, they're looking for help with insurance and benefit plans because they have to be more competitive. The other second thing would be the market is more competitive now for employees as you get closer to lower unemployment and full employment. And so people need more help with having more competitive benefits, more competitive recruiting tools, being able to recruit online, paperless, attract new employees. And I think, there was another one there I was thinking about. And I think, the acceptance of cloud-based technology and having and getting away from desktop and on-premise solutions has rapidly increased the last three years to four years, but we're still seeing that increase where years ago, people wanted to do more things themselves, worry about the security. Now, they want to trust their security of information with a third-party outsourcer, kind of totally reversed from five years or six years ago. Now they trust that Paychex is large enough and a big enough IT security team that they're going to do their best to protect their information where I used to have to do it inside. So I think there's just a big push of regulations, compliance, and the need, therefore, pushing down to a lower level. And so we're seeing that that mid-market that I would say used to be 50 to 500 or 1000 has really pushed down to maybe 15 or 20. To 500 is a real sweet spot right now that has a lot of focus.

So, with the product set that you have now, obviously they're at one point historically, that was a limiting factor for you and the mid-market itself. Any appetite to go after a bigger client or a bigger client service segment of the market? Or do you feel you'd rather just sit below the radar screen where others may define the mid-market?

Yeah, it never feels like we're below radar, but I think there's – that the real sweet spot of what has taken off and made many companies at least appear to do well, and I know how we're doing well, is really even that 15 or 20 to 500. I mean, we were still selling anywhere from one employee to 1000, but I would say the hottest area right now is 20 to 250 or 20 to 500. Those are the clients that really have been pushed with much more regulation and need for the products, and are now much more open to outsourcing. So I think we feel good about the opportunity that's ahead of us, that that's going to drive our growth, and it also allows us to really focus on those markets. That's a pretty huge market, 1 to 1000. And we feel pretty good that, hey, we're very focused on that, and that's who we provide the best service and the best products to.

Got it. And then maybe just one quick numbers question, and Efrain, I'm sorry if I missed this, but when you take both the Advance piece and the loss of the processing day, what is the net impact on next year's revenue?

So, the loss of the processing day, didn't call that out specifically, David, but it's, I'd say, probably about 25 basis points. Advance is about probably another 25 basis points.

So, it nets to zero?

Yeah.

All right, guys. Thanks very much.

Okay.

Thank you. The next question comes from James Schneider, Goldman Sachs. Your line is now open.

Hey, Jim.

Good morning. Thanks for taking my question. I was wondering if you could maybe talk about the – on the HR Services growth forecast, whether – anything specific in terms of product-specific drivers you can call out contributing to the growth? And you've talked about time maintenance and HR administration as being drivers in the past. Anything notable to call out, as far as the FY 2017 guidance is concerned?

I think, PEO, we haven't talked as much about that, but I think, PEO is still very strong. And that – part of that is supported by – or helped by the need for insurance support and benefit plans and so forth. So, we still see that growing very well. Worksite employees are double-digit growth again. And so, I think, the PEO and ASO, both models are continuing to grow well. 401(k) has been very steady. And we've – I think, we've talked about the fact that we went after larger – what we call large-market or higher-asset clients. And we feel that, that's got a great opportunity as well. A lot of things kick around about 401(k)s and so forth, but we're still doing very well, really introducing some more 401(k) record-keeping plans than anybody else. And we've got a solid sales and service team that really do very well there. So, the sales have been consistent, the client growth very consistent in 401(k). And the retention this year, probably the best it's been in our history. So, I think, all those components, we don't talk to as much, but they've been steady and real good components of the growth.

Thanks. And maybe – could you just maybe comment at a broad level about the level of discounting you're seeing in the market right now, and maybe whether there's more pressure or less pressure than there was, say, a year ago, and if so, in what segment?

Yeah. I think, it's a little bit more pressure, probably. I think with more competitors and so forth, it's not a big change in the competitive environment, believe it or not. For the number that are out there, we all seem to be doing well. But, I think, there's a little more pressure on price. And on the low end, there's a little more pressure, because, I think, as new businesses – as Efrain said, the new businesses have kind of come back, and so when you have new businesses that start up, there's always a little pressure to – for them to first kind of outsource and go to someone to do their payroll, and maybe their payroll and time and attendance. There's a little more price pressure to get them in started, but remember, that we then roll-off a lot of times the discount for a period of time. So, I think, a little bit more pressure there, but nothing that would be major at this point.

Got it. Thanks. And then maybe quick clarification. The 8% net income guidance for fiscal 2017, does that include or exclude the tax benefit you saw in fiscal 2016?

That's excluding that benefit break. So, yeah, I called that out, so it's important to remember.

Got it. Thank you very much.

Welcome.

Thank you. The next question comes from Mark Marcon, R.W. Baird. Your line is now open.

Hi. Good morning, Marty and Efrain.

Hi, Mark.

Hey, Marty. First of all, nobody else said it, but great job over the last five years for you and the team.

Oh, thank you, Mark. Appreciate that. Efrain went off script there, so, I appreciate it. It's a great team, very proud of the team.

So, a few questions. First of all, with regards to the mid-market, has there been any discernible change in the pace in terms of bookings growth, the pipeline, post this kind of – on the mid-market, a little bit of the ACA surge in that over-50 employee segment?

I – there certainly has been sales growth. That's, as Efrain and I said, that's where we added nice percent of the sales force mid-year, which is rare for us. We felt the opportunity was so good with the Flex product and all the additional modules that we added. So, sales, for me have been definitely stronger. I think, the other thing you may have mentioned...

I'm just saying like post the calendar year transition and that surge of activity, the clients that may have come on just because it's like, okay, we're scrambling to get ready for this. Now that, that scramble is over, are you seeing any sort of change in the pace?

No, not really. No. Okay, no, not – we really haven't. I mean, those – and that's why we felt good about having those additional sales reps in place there, because we're still seeing a strong demand. And I think it's all the things that I mentioned earlier that – why we're seeing that. So, no, we feel very good. And the other thing is mid-market, as I might – I think, I mentioned earlier. It's funny, it used to be that kind of 50-line for us, but I think you're seeing a lot of what you could call mid-market demand anyway is kind of gotten down to an even lower size. And so – and that momentum has picked up, and that gives you a lot of opportunity to sell more products if they need more.

Great. And then can you talk a little bit about the – what the right level of leverage expectations beyond this year would likely be, like how do we think about that relative to the normal historical pattern?

Yeah, so, Mark, I...

And ex float.

Yeah, ex float. So, we, this year, ex float, we were at about 50 basis points of leverage, which is what we typically do in a given year. We'll be less than that next year for the reasons that I called out.

Yeah.

But I still think that going forward, we're going to try to be in that 50-plus basis point leverage range. And if we can't hit that in a given year, then we're going to have a specific reason why we can't. In this case, we had a lot of discussions internally about do we add the resources that – both in compliance services, as I mentioned earlier, and in mid-market. And it was pretty clear that given the amount of growth we had to do that. But I don't think that's going to happen every single year, but it was important this year. But I don't think it changes long term, the trajectory of building plans that include 50 basis point plus, because that's the way we go into our planning cycles. And we think it's doable. It's hard, it takes a lot of work, but we think it's doable.

Great. Can you talk about the opportunity to go in and sell some of the newer modules, the newer solutions to some of the older, existing clients in the mid-market? What's – how much runway do you have there in terms of upselling some of those existing clients?

Yeah, I think, still quite a bit of room. When you think about the penetration, these products really haven't been – many of our products, even HR administration online, and time and attendance online are older. Time and attendance product really haven't been around that long. It's been more of the last three years to four years, maybe five years tops, then we track a little bit longer in benefits admin. So, there's room there. And I think, as they see the benefit of Flex and the mobility that comes with it, the mobile options, and the whole different look and feel to it, I think, that helps sell them, along with if there's many more product modules available to you, and the fact that it's really with one single employee record. I think that is pulling a lot of clients in, where five years ago, we would've said, a, you have Payroll, and you have other modules, but they're not fully integrated. Now, there's much more of a pull from the clients [indiscernible]. So, I think, we've got some nice opportunity still in the mid-market. Selling new, we're selling much more integrated upfront and better attachment rates, but there's still a lot of room, which we – and we do that. We attack, we go back into the base to sell them the value-added features that they need.

Are you doing that with the regular sales force, or is there a kind of a gatherer group that kind of goes into existing clients?

Yeah, it's a mix. We have both kind of a virtual sales that go back into the base as well. But those existing reps who have the relationships and so forth will also – and with the clients, will go back and sell it. So, both can sell.

Great. And then just one numbers question. What's the net income base – the precise net income base that we should be using for the fiscal year that this was completed as a basis of comparison for the 8% net income growth for this coming year?

Good question, Mark. Let me post it, so I don't get the wrong number. I'll post it shortly. Okay?

Okay. Great. Thank you.

In other words, just so everyone knows, look for it in the – either in the slides we'd put up, or if we've already posted them, which the team probably did, we'll just amend it to include that number. Okay?

Excellent. Thank you.

And something off here, and that will be wrong, so...

Thank you. The next question comes from Ashwin Shirvaikar, Citi. Your line is now open.

Thank you. Hi, Martin. Hi, Efrain.

Hi, Ashwin.

Hi, Ashwin.

So, I think, Mark just asked a question and you just answered this, the 8% net income guide. Then you said it excludes the $0.05 tax benefit.

That's correct, yup.

You're basically saying go off the adjusted lower EPS base, correct?

That's correct, yup.

Okay. And is there a specific factor that takes the tax rate down modestly this year?

This year?

It seems like your guidance was maybe 50 basis points lower.

Oh, I'm sorry. Yeah, yeah, it's a combination of two things. One is some work on state taxes that we have done; and also, the software tax credit change has a continuing impact going forward. So, it's the combination of both of those. And superior work for our tax group. But beyond that – but that's it.

Okay. I have a sort of a broader GDP sensitivity question.

Yeah.

So, when you look at the mix of business that you have now, which has a higher contribution – higher percent contribution from HRS, which to me, it basically says, a bigger share of wallet, and anytime you have a bigger share of wallet, it probably means a more stable client. You've got the bigger mid-market business, again, similar conclusion. You've got investment contribution that's almost a third of what it was going to the last downturn. So, how do you think of the potential impact of the downturn in economic expectations, should it happen?

So if it should happen – I mean, I think, obviously, the biggest impact – if I get your question right, Ashwin, I think the biggest impact there would be new client growth. Because last – anytime a recessionary-type thing happens, it has impact on the payroll service revenue growth, because the clients either more go lost, because they can't sustain the business, and fewer start up. So, the client growth puts obviously a damper on that. I don't think we've definitely laid it out what exactly that would be. It doesn't always have an impact on the number of products they buy, because they typically buy those that bundle, let's say, because they need it for those that are staying in business. The biggest impact will be losses, client retention. And new business start-ups would be the biggest impact, I would say.

Okay. Got it. And we get a lot of questions on operating leverage. So, Efrain, you tried to clarify in your prepared remarks, but I still have a question. And that's it basically...

I expect no less, Ashwin.

Specific to technology spend, last year, I think, was the first time in many years that you've said basically that it's – the rate of growth is settling down, similar comment this year. Is this just the kind of market and client expectation that you have to keep that tech spend up, where you don't really get leverage from it, but it's clearly not hurting on operating margins, so you kind of – when you say steady the percent of revenue? Is it...

Yes, I think, that's basically what I was trying to say earlier on that piece of it was it's not – for a while, that was – well, it was hurting margins a bit, but we were offsetting a lot of it with operational efficiencies. In driving those efficiency, those dollars kind of backed to IT for technology investment, and kind of resetting the level of technology spend versus the operational spend. And so now, we kind of feel like the technology spend got to a point where it's pretty normalized, it's in a good place, we don't see that going up dramatically. I don't necessarily see it going down, because there's always technology in our – and we want to stay on the leading edge, from a competitive standpoint. But – and then, there's not as much operational leverage, but we continue to, as Efrain said, we're going – we continue to try to look. It's kind of in our DNA here that we always are looking here. Revenue growth is x. We're always trying to look for 50 basis points or so to see if we can continue to leverage the business. And obviously, the better that growth rate is, the better opportunity we have to leverage, and that's a constant focus. Anything you want to add?

No. That makes sense.

Okay.

Understood. That makes sense. So, that answers all my questions. Happy Fourth of July coming up here.

Yes, thanks. Hey, Ashwin. Before you go, so – and then to Mark's question, apologize, I didn't have the schedule right in front of me. So, net income excluding the tax event this year, the correct base is $738,600,000, in case I wasn't clear. Then we'll just post it to the website, too, and the schedules that we release shortly, if we haven't done it already.

Okay. Great. Thank you for that. Thanks.

Thank you. The last question comes from Lisa Ellis, Bernstein. Your line is now open.

Hi, guys. Just one quick one for me. Can you just talk about – with Advance, now that you're five months or six months into the acquisition, the role they're going to be playing in your portfolio, like are they a customer acquisition engine for you, where you'll be able to sell in your existing payroll and other services? Or how should we be thinking about that, both for Advance and then, I guess, future acquisitions like that?

Yes, for them, as Efrain mentioned, they're really not in our client count, so – in our payroll client count that we always give for the over 600,000 clients. And – so, it's not so much about client acquisition, other than for themselves. So, we're looking for them to grow their revenue base through new clients, obviously, and selling more product to them. To us, it was broadening, really, the markets that we serve. So, here's a company that is profitable, is – had nice revenue growth, good leadership team, saw a lot of potential, and the staffing business that they support, those staffing companies, we saw is a growing market, and because there's continued more temporary help and staffing help that's going to be needed, I think particularly with overtime rules and so forth. So, we saw them as a component of the portfolio to grow revenue. There'll be some overlap between us, and the fact that we have a number of staffing companies that are payroll clients or other products, and so we'll look to refer. We're already doing that, looking to see if those staffing companies who were clients of us for payroll could be helped by payroll funding and other support from Advance. But I think, that's how we look at it, it's another opportunity to broaden our revenue growth, because we see staffing companies as a real growth opportunity.

Terrific. Thank you. Thanks a lot.

Okay.

Thank you. Is that it, Tessa?

Yes. We show no further questions at this time.

All right. At this point, we will close the meeting. If you're interested in replaying the webcast for the conference call, this will be archived until August 1. Thank you for your interest in Paychex, and thank you for your participation in our fourth quarter and fiscal 2016 earnings release call and webcast. We're very proud of our Paychex employees and the great fiscal year 2016 we had. And we're looking forward to another great year as we begin fiscal 2017. We look forward to talking to you again next quarter. Thank you.

Thank you. That concludes today's conference. Thank you for your participation. You may now disconnect.