Ladies and gentlemen, thank you for standing by and welcome to the Paychex Inc. reports Third Quarter Fiscal 2019 Results Conference Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions] It is now my pleasure to turn the floor over to Martin Mucci, President and Chief Executive Officer to begin.

Great, thank you, Laurie. Thank you for joining us for the discussion of the Paychex third quarter fiscal 2019 earnings release. Joining me today is Efrain Rivera, our Chief Financial Officer. This morning before the market opened, we released our financial results for the third quarter ended February 28, 2019. You can access our earnings release on our Investor Relations webpage, and our Form 10-Q will be filed with the SEC within the next few days. This teleconference is being broadcast over the Internet and will be archived and available on our website for approximately one month. On today's call, I will review business highlights for the third quarter, Efrain will review the third quarter financial results and discuss our guidance for fiscal 2019, and then we'll open it up for your questions. Financial results for the third quarter of fiscal 2019 reflected solid progress against our objectives and growth across our major product lines. Our total revenue growth was 14% for the third quarter, management solutions revenue grew 4%, and PEO and insurance services revenues grew a strong 65%, of course reflecting the inclusion of the Oasis Outsourcing Group acquisition. On December 20, 2018 we acquired Oasis, the largest privately held PEO in the U.S., and an industry leader in providing HR outsourcing services for approximately $1.2 billion. We financed this acquisition with $800 million of new long-term debt along with cash-on-hand. Oasis is a great fit for our PEO growth strategy, adding to our scale, expanding relationships with new insurance partners, creating upsell opportunities into the existing Oasis customer base, and augmenting our talent with an addition of an experienced leadership team. Integration of Oasis is in the process with a combination of the Paychex and Oasis PEO leadership teams already complete. We're excited with the experience and talent that comprise this new team and we're confident in their ability to continue to expand our leadership position in the HR outsourcing industry. In fact, Paychex and Oasis, now combined, serve more than 1.4 million work-site employees through our various HR outsourcing services. Execution and operations has been strong as reflected in our clients satisfaction scores and client retention. We continue to be pleased with current retention results, and are on-track to the end of the fiscal year - to end the fiscal year with retention in line with our historic all-time high. Our excellence in customer service was recently recognized as we earned a Stevie Award for Customer Service Department of the year for the third straight year. One of the reasons for this recognition was our use of technology to evolve and improve the clients and their employees service experience. Our strength and focus on technology including self-service options for our clients allows us to proactively respond to the changing preferences of our clients' needs, and thank you to the thousands of Paychex service givers who remain committed to responsiveness, reliability and serving as a trusted business partner to our clients. We've made significant investments in our sales force this year, particularly in our inside sales and mid-market sales teams, and in lead or demand generation. We completed our selling season with improved performance led by our share payroll, HR solutions, PEO, and our inside payroll and insurance sales teams. Our internal sales teams continue to gain ground reflecting improved sales execution and productivity. Our Paychex IHS Markit Small Business Employment Watch has recently showed that small business jobs growth remains pretty flat in this low unemployment economy, and hiring and retaining employees is a major challenge of businesses in this current environment. These factors along with growth and wages are evidence certainly of a tight labor market. Paychex is positioned to help small and mid-sized businesses recruit, hire and retain talent with a broad portfolio of service offerings that allows clients to provide an attractive compensation and benefits package along with opportunities for growth and development of their employees. We continue to enhance Paychex Flex making significant investments designed to simplify the complexity of HR administration. The latest enhancements bring more performance management, workflow approvals, real-time analytics, and a configurable events calendar functionality to the platform. These features are all backed by self-service capabilities that empower employees and administrators to complete tasks from any location on any device. These significant technology product enhancements support our clients in recruiting, onboarding, training and developing their employees in a market where I mentioned it gets increasingly difficult to find and retain employees. In addition to our HR center offering, our broad product set allows our clients to provide competitive benefits including retirement and insurance options. Finally, our clients are supported by a team of over 500 Paychex HR specialists around the country who serve their growing HR needs as states have increasingly made it more challenging to run and grow their businesses without this expertise. We continue to enhance our technology for efficiency through the use of artificial intelligence and machine learning, the Flex Assistant, our AI chatbot conducts conversations with our clients and their employees in response to a number of service inquiries. We have seen an increasing adoption of our chatbot because of the immediate response and quick and easy-to-understand solutions to customer inquiries, as well as their employees enquiries. This allows for efficiencies for us in internal processes by reallocating resources to more complex tasks. Our Paychex Flex Assistant can cover topics across the human capital management suite, and guides users on how to self-serve if they prefer. The best AI chatbots function through natural language processing to interprete users language to understand and meet their needs. Combining NLP with machine learning enables our bot to quickly learn and adapt, and with the millions of monthly Flex users our chatbot is uniquely positioned to mature rapidly. Earlier this year we launched client self-onboarding e-commerce functionality within our SurePayroll product. We are the first of public company competitors to utilize a true e-commerce technology. Paychex AccountantHQ, our latest technology and service offering designed exclusively for accountants was recognized as a winner in the 2019 Big Innovation Awards presented by The Business Intelligence Group. AccountantHQ provides a unique combination of technology and service allowing accounts the full access to their authorized client data, extensive reporting capabilities, real-time data integration, key account contacts, and an accountant resource library all backed by our industry-leading service model. AccountantHQ's dashboard and robust reporting capabilities allow for efficiencies but also data insights to help accounts deliver greater value as a trusted business partner. We are especially proud to have been recently recognized for the eleventh time by Ethisphere Institute as one of the 2019 World Most Ethical Companies. The center recognizes our fundamental value at Paychex which is to have the very highest ethical business practices for our clients, employees, shareholders and our communities. Thank you to all of our employees for consistently living this Paychex value and earning this recognition. We were also named one of the Top 125 training organizations by Training Magazine for the eighteenth consecutive year, this year climbing up two spots to Number 12. Paychex is dedicated to world-class employee learning and development and takes great pride in our training programs. Our training and development team empowers our employees to embrace a career-long approach to learning and development. I'll conclude by emphasizing that our state-of-the-art technology, full suite of integrated HCM product offerings, and personalized service is a powerful combination that positions us for sustainable growth within our markets. Our employees make this combination successful with their hard work and commitment to our clients each and every day. I will now turn the call over to Efrain Rivera to review our financial results for the third quarter. Efrain?

Thanks, Martin and good morning. I'd like to remind everyone that today's conference call will contain forward-looking statements that refer to future events, and as such involve risks. Please refer to our earnings release that provides a disclosure on forward-looking statements and related risk factors. In addition, I'll periodically refer to some non-GAAP measures such as adjusted operating income, adjusted net income, and adjusted diluted earnings per share. These measures include certain discrete tax items and one-time charges. Please refer to our press release and the investor presentation for a discussion of these measures and a reconciliation for the third quarter to their related GAAP measures. I will start by providing some of the key highlights for the quarter and then follow with some greater detail in certain areas. I'll touch briefly on year-to-date results and wrap with a review of our fiscal 2019 outlook and a '20 framework; so look also at the investor presentation, we've got more detail there. Total revenue and total service revenue, both grew 14% for the third quarter to $1.1 billion and $1 billion respectively, our first $1 billion quarter, and hopefully the first of many to come. The acquisition of Oasis in December 2018 accounted for approximately one half of the growth in service revenue. Expenses increased 13% for the third quarter to $641 million and the acquisition of Oasis contributed approximately 12% to this growth. Total expenses for the prior year three months ended February 28, 2018, included as you recall, a one-time bonus paid to non-management employees and a one-time charge following the termination of certain licensing agreements. Total expenses excluding Oasis and these one-time costs in their respective prior year periods increased approximately 9% compared to last year, this 9% growth was primarily driven by increased headcount to investment in the sales force technology resources and operations to support the growth in the business. In addition, an increase in PEO and insurance pass-through costs impacted the quarter. Operating income increased 16% to $429 million. Operating margin was 40.1% for the third quarter comparing to 39.4% for the same period last year. Adjusted operating income which excludes the previously mentioned one-time charge in the prior year quarter increased 7%. I just keep referring you back to both, the presentations we've posted on the investor -- the investor presentation we've posted on the website, it goes through in extensive detail, all of the call outs. Our effective income tax rate was 23.7% for the third quarter compared to 1.1% for the same period last year. The enactment of the Tax Cuts & Jobs Act or tax reform in December 2017 resulted in a significant decline in the federal corporate statutory tax rate. In the third quarter last year, we've recognized a net discrete tax benefit of $79 million from the revaluation of our net deferred tax liabilities at this lower rate or at the new lower rate. In addition, during the third quarter last year, we've recognized the fiscal year-to-date catch-up for the lower blended effective tax rate applicable for the fiscal year. These two items resulted in the low 1.1% effective rate for the prior year quarter. we anticipate that the effective tax rate before any discrete tax items will be approximately 24% for the full year fiscal 2019; again I'll refer back to the investor presentation. Net income decreased 12% to 325% for the third quarter, primarily due to significant tax impacts I just discussed, partially offset by the one-time charge following termination of certain licensing agreements, also recognized in last year's third quarter. Adjusted net income increased 3%, adjusted net income to non-GAAP measure that excludes the one-time charge related terminations of the licensing agreements, the tax benefit to revaluation of deferred tax liabilities, and excess tax benefits related to employee stock-based comp which we call out. However, this measure still incorporates the impact of the year-to-date catch-up for the lower blended federal corporate statutory rate recognized in the third quarter last year which is monitoring the growth for the current period. Diluted earnings per share decreased 11% to $0.90 for the third quarter but adjusted diluted earnings per share increased 3%. These growth trends reflect the same factors as discussed for net income, and again, I'd refer you back to the investor presentation which details it. I will now provide some additional color in selected areas. Management Solutions revenue which includes payroll service revenue together with our HCM products included to many of our product bundles increased 4% to $802 million for the third quarter. Lessor contributed less than 1% to the growth, the remaining increase was driven primarily by growth in client bases across our HCM Services, and growth in revenue per check which improved as a result the price increases net of discounts. PEO and insurance; it increased 65% to $246 million for the third quarter. Excluding Oasis PEO and insurance service revenue would have increased 17% for the third quarter, and this growth was primarily driven by the continued strong demand for our combined PEO services which along with WSE growth, the worksite employee growth in our existing client base has resulted in solid growth and client worksite employees served. Our insurance service revenue benefit from growth in the number of health and benefits applicants, the rate of growth for insurance services was moderated by softness in the workers comp market. As state insurance funds declined, we expect this trend in workers comp revenue to persist, and we expect it to persist into next year more to follow on that, it will have a modest impact. Interest on funds held for clients; it increased 27% for the third quarter, $23 million, primarily as a result of higher average interest rates earned. Average balances for interest on funds held clients were down for the third quarter, primarily driven by the impacts of lower client employee tax withholdings resulting from tax reform and client base mix, partially offset by wage inflation. Investments and income; our goal as you know is to protect principle and optimize liquidity, we continue to invest in high credit quality securities, the long-term portfolio currently has an average yield of 2.1%, and an average duration of 3.1 years, our combined portfolios have earned an average rate of return of 2% for the third quarter, up from 1.5% last year. Year-to-date results; let me briefly summarize where we've been for this nine month period. Management solutions revenue is up 4%, PEO and insurance revenue increased 40%, 23% without Oasis and 17% organic. Interest on funds held for clients increased 28% driven by interest rate increases, partially offset by the impact of a 2% decline in average invested balances. Total revenue; this includes obviously Oasis, up 10%. Operating margins were 37.8%, tempered by accelerated investments in the business and growth in PEO direct insurance costs. Net income increased 4% and adjusted net income increased 12%. Diluted earnings per share increased 3% but adjusted diluted earnings per share increased 12%. Let's go through the highlights of our financial position; it remains strong with cash, restricted cash and total corporate investments of $886 million as of February 28, 2019. We had a strong cash flow quarter, even though we utilized part of our cash to pay for the Oasis acquisition. Funds held for clients as of the February 28, 2019 were $5.4 million compared to $4.7 billion as of May 31, 2018. Funds held for clients, as you know, very widely on a day-to-day basis averaging $4.4 billion for the third quarter and $3.9 billion for the nine months. Total available for sale investments including corporate investments and funds held for clients reflected net unrealized losses of $10 million compared with $38 million as of May 31, 2018. Total stockholders' equity was $2.6 billion as of Feb 28, 2019 reflecting $604 million in dividends paid and $33 million of shares repurchased during the last -- I'm sorry, the first nine months of fiscal 2019. Our return-on-equity for the past 12 months was a formidable 42%. Cash flows from operations were $1 billion for the nine months, an increase of 3% from the same period last year. The increase was driven by higher net income and non-cash adjustments, partially offset by working capital fluctuations, working capital fluctuations related to timing around collections and related tax payments for the combined PEO business, a decrease in accrued liability balances in connection with the termination of certain licensing agreements in fiscal 2018. Now turning to 2019 guidance; I will discuss the guidance for full year fiscal 2019. I'd remind you that our outlook is based upon our current view of economic conditions continuing with no significant changes. We maintain our guidance as provided last quarter with including the overlay on Oasis which I'll talk about in a second. I will reiterate these guidance ranges and provide some color where applicable. And then, just finally to remind everyone; I'll give the guidance first excluding any anticipated impact from the Oasis acquisition then followed with the anticipated impact of Oasis on our results. And I would say this; some of you have updated your models for the inclusion of Oasis, some have not, and so we thought that it made more sense and was better to be very clear to say here is what our base guidance is, and then the overlay of Oasis; so just remember that as I walk through this. So excluding Oasis, management solutions expected to grow approximately 4% PEO and insurance anticipated to grow in the range of 18% to 20%, interest on funds held for clients anticipated to grow 20% to 25%, total revenue anticipated to grow in the range of 6% to 7%, operating income as a percent of total revenue anticipated to be approximately 37%, interest income net anticipated to be in the range of $10 million to $15 million. The effective income tax rate for fiscal 2019 expected to be approximately 24%. Net income and diluted earnings per share anticipated to grow approximately 4%. Adjusted net income and adjusted diluted earnings per share, are both expected to increase in the range of 11% to 12%. We give the guidance this way so there can be no confusion as the fact that we're tracking exactly to the plan that we set at the beginning of the year and don't blend or confuse the info on Oasis. So now let's talk about it when we include Oasis. It's anticipated as we said previously, they have an incremental impact on total revenue in the range of $155 million to $175 million in fiscal 2019. As we refine these numbers, we think that that number is going to be on the lower end of that range, in the low $160 million. Excluding one-time costs related to the acquisition, Oasis is anticipated to have minimum impact on earnings per share; now when we include one-time acquisition and integration costs, we anticipate the impact on diluted earnings per share to be approximately $0.03 per share for fiscal 2019. That's consistent with what we've said previously, a little more color on where we fall within that $155 million to $175 million, and that really has everything to do with the way we are looking at pass-through costs in that business. I'll provide you with a little additional color for the last quarter of the year. Consistent with how we guided our last quarter's call, we anticipate that management solutions revenue growth in Q4 will be below the full year rate due to the anniversary, primarily among other things of the Lessor acquisition. We still think that management solutions will fall between 3% and 4%. Last quarter we indicated that for Q3 we anticipated PEO and insurance services revenue increase in the range of 15% to 17%, and for Q4 to be in the range of 10% to 13%. Growth in Q3 came in at the high-end of the guidance range we provided last quarter, and we now expect growth for Q4 to be approximately 9%, so below that range. There is two reasons for that, there was some timing of revenue that shifted between quarters on the insurance side; and despite this, we anticipate achieving our full year guidance range. We'll talk a little bit more about what we're saying as we talk about the '20 guidance but there is also a little bit of softness on the workers comp portion of our insurance revenue that pulls that revenue down a bit. Now, let me talk about 2020 and I would just caveat everything I'm saying by saying that we haven't completed our planning process but we thought given the Oasis acquisition and the fact that you'll need to update models. We thought we'd give you some preview of what we're looking at for the year, including Oasis. We'll provide the detailed guidance during our fiscal 2019 fourth quarter call as we always do, but let me give you some high level commentary based on a preliminary look into next fiscal year. Management solutions revenue growth, we anticipate it to be comparable to the growth in 2019. PEO and insurance revenue excluding Oasis is anticipated to reflect low double-digit growth; so that means about in the range of around 10%. Including Oasis, PEO and insurance services revenue growth will be in the range of 30% to 35% with growth higher in the first half of the year until the anniversary of the Oasis acquisition. Operating margins, at this stage we think will be in the range of 37% to 38%, we'll see where we end this year but that anticipates some improvement, some leverage on the base business. We anticipate Oasis will contribute revenue in the range of $355 million to $375 million next year, and is going to be largely neutral to earnings per share. With the significance of the interest expense and amortization expense associated with the Oasis acquisition, we introduced a discussion of EBITDA margins. Please refer to the investor presentation on our IR webpage for the calculation of EBITDA for the first nine months of fiscal 2019. We anticipate EBITDA for the full year fiscal 2019 will be approximately 41%, and we expect EBITDA as a percent of total revenue for fiscal 2020 to be consistent with fiscal 2019. And if you look at the way we calculate EBITDA, it's pretty simple and should be pretty easy to follow. I reiterate, these comments are very preliminary and subject to revision as we finalize our plans for next year. I will refer you to our investor slides on our website for more information. By the way, I just wanted to clarify one thing that 37% to 38% is clear on the webpage would exclude -- that operating margin I cited would exclude Oasis. So look at the slide, I think it lays it out pretty clearly. So with that, I'll end my comments and turn it back to Martin.

Thank you, Efrain. And operator, now we'll open the call to questions please.

[Operator Instructions] Our first question comes from the line of Ramsey El-Assal of Barclays.

This is Damien on for Ramsey, so thanks for taking the questions. I just -- I'm hoping you guys can talk a little bit about your long-term growth expectations for the PEO and insurance revenue. Obviously, you've provided that preliminary framework for 2020 which I really appreciate at the low double-digits but I think -- we're thinking about that more like a mid-teens type of a rate. Can you may be dissect what's going on in there and why the deceleration year-over-year?

The answer to that is, I gave you PEO and insurance; so our PEO business -- our base PEO business is growing in the teens, insurance pulls that growth rate down a little bit. I would just say that insurance revenue can vary from year to year, it could very well be by the back half of next year, growth in insurance revenue picks up again. So it oscillates. Our PEO growth, we expect it to be in the teens; so that's one thing. And then the second thing is, we'll have to see when we anniversary Oasis what our growth rate coming out of that will be because the numbers are larger. So I think that's the answer to the question.

And on operating margin then for 2020, it's nice to see some of the leverage in the model there. Maybe if you could talk about some places that you guys are looking to invest next year or maybe even in Q4 here and then into next year. Like, what are the places that you guys are going to invest in and how that kind of plays into your operating margin expectations? Thanks.

I would say that as we get into next year, we identified areas where we would invest this year as part of tax reform, and so there will be a continuation of those three broad buckets of investment; not at the same level that we invested this year certainly on a net basis, meaning we're getting some benefits from it so you don't -- you won't see the same level of net spend that you saw this year. But we will continue to invest in marketing and sales, I think a little bit less in sales. And on the marketing side, continue to invest in operational efficiencies and then continue to work on IP and products. Martin?

Yes. One of the other things as Efrain mentioned, those are the same things, you'll see a continuation of that and a little bit lower but the product acceleration would be the other one that -- to the ones that Efrain mentioned. So lead generation, demand generation has been our big focus for us, a lot more leads coming in over the web, and I really think we're hitting our stride through some of the programs we've put in place at the beginning of this fiscal year to drive more demand and nurture those leads because so many more are coming in that way, and then handling them is well through internal sales, so we really continue to invest there. Product acceleration, these were things that we were going to do; we accelerated particularly into this quarter a lot of product around HR, what we call our HR center and enhancing that with data analytics, learning management system to provide training for our employees and their clients, and performance management among other things. So product acceleration, lead generation and operating efficiencies, as well using some of the work we've done in our chatbots and chat and other self-service capabilities that our clients were looking for.

Your next question comes from the line of Jason Kupferberg of Bank of America/Merrill Lynch.

This is actually Amit Singh for Jason. You guys just went through your key selling season; so what were the key takeaways from there? Anything that stood out as being different this year versus the past couple of years in terms of competition, pricing, etcetera?

I think the competitive environment is about the same, we didn't see a big change there. We feel year-to-date we're really seeing the best-selling seasons selling, frankly, in [PAR] [ph] growth that we've had in a few years; so that was -- that continued. I think it was moderated a little bit in January -- in the December-January kind of timeframe with -- between the government shutdown, the market kind of dropping and then rebounding, and etcetera. So we saw a little moderation there but really when you look at the selling season overall, for [PAR] [ph] growth, it's been -- we don't really give the number but it's the best we've seen in 3 years and certainly year-to-date it's the same thing. So we're feeling great momentum, particularly on the HR Solutions and PEO side of the business, insurances -- health insurance, and our inside sales piece as well.

And then just expanding on that competitive dynamics into your PEO market and especially as we look at your fiscal '20 guidance versus '19. There has been some strong growth for a while there, but is it now getting noticeably more crowded?

Actually, I think we're building even more strength with adding Oasis and now serving through the various -- not just PEO but our other HR outsourcing solutions of 1.4 million worksite employees, we've build a real strength and we expect to capitalize on that with carrier relations, the insurance carrier relations expanding into other states and selling our products into the Oasis base as well. So as Efrain said, I think if you look at the whole PEO and insurance segment, it's moderated a bit but a lot of that coming from the insurance side of it, and particularly, workers comp which -- I think you know cycles, were kind of in a down rate environment which has actually picked up pretty quickly, and so once those state funds lower their insurance rates and the impact on the overall workers comp rates have come down, that's really accelerated in the last couple of months and that's going to put some moderation on the PEO and insurance line. But the PEO itself, we expect still to be very strong and particularly with the recent acquisition with Oasis, of course, and HROI as well, we feel very good about the leadership teams there and the integration that's already underway.

Your next question comes from the line of James Schneider of Goldman Sachs.

Good morning, thanks for taking my question. I was wondering if you can maybe go a little further on the selling season commentary you had a minute ago. Marty, just given what you've seen from Oasis thus far, what's been the reaction from clients with respect to the addition of that to your product portfolio? And I guess, more broadly speaking, heading into fiscal '20, do you feel kind of incrementally better or worse about the growth and that kind of the core payroll franchise revenue growth heading into next year?

I think starting with the PEO, I think we've gotten good positive feedback from clients. I think Oasis already had a strong feeling from their clients, and the leadership; Mark Perlberg, who has been running Oasis and is leading our PEO as we combine it. We're selling -- we're really designing a great balance of selling into new clients and selling into the base as well. Of course, we have a Top 20 insurance agency that now -- Oasis can use the strength of that, so where insurance is not a good fit on the PEO model, you can now add Oasis clients as -- in new sales like we've done, can now go to the insurance agency to be able to get insurance; so we're adding some strength there, of course, they had different carriers relationship levels than we did and so we're expanding into a new states. So I think the reaction has been good the opportunity is great, and I think the integration is going very well from that standpoint. On the core payroll side, I think that competition has continued to be about the same, it's competitive; the pricing though hasn't changed a lot, I think we still have some pricing power there. We'd always like to see that growth a little stronger but it's also the way we're leading our sales now, we're leading much more with HR overall; so we're selling more bundles, we're selling more into the PEO and HR outsourcing, and you're not getting quite as much of the demand for payroll-only, and that's exactly how we expected it. So I think you're seeing price and level of competition the same there, it's okay, it's not as strong as we'd like but I think it's moving exactly the way we thought toward more HR. Now in the SurePayroll side, for example, I mentioned that we just introduced an e-commerce option; we're seeing that that is helping not only accept more leads but gain more clients that way. It's early in the process but what you're finding is, if a client comes in and can complete the entire transaction on their own or get help from our internal sales teams if they needed, and kind of complete the whole thing on an e-commerce platform that's pretty strong as far as capturing the client when they're looking instead of getting a lead and then trying to reach the client who may have decided to go somewhere else because they couldn't talk to someone or complete the transaction. So, I'm thinking we're seeing some positive growth there and we're -- and they're doing, and we're seeing some strong growth on the low end because of that.

And then maybe relative to the margin outlook you're providing for fiscal '20; it looks like on an apples-to-apples basis, you're calling for margin expansion of a little bit over 50 bips [ph] if I'm not mistaken. So I guess, could you maybe just kind of clarify relative to the reinvestments you've been making, do you feel like you have all the investment you need on the product side at this point to the extent you're going to get incremental leverage off of that investment from [indiscernible]? And then maybe Efrain, you can just clarify what the expected operating margin directly [ph] from Oasis will be for fiscal '20 roughly speaking?

Jim, let me -- those are all interrelated; so you carefully parse what we said, as usual. We said that this year's guidance excluding Oasis, operating margins would be approximately $37, and then the preliminary framework we're saying is between $37 and $38, that would imply exactly what you said. I would caveat one thing Jim, that -- obviously, we could end up a little bit stronger than $37 in which case the leverage will be a little bit less but the premise to your question is valid. So what's happening is that when we invested in year one, you don't see the benefits or the results of that investment in the -- in year one. You get into year two, you're continuing to invest and you start to now get benefits from investments made in year one, that's why I carefully said the net spend that we have relative to the investments we made after tax reform goes down; so you're seeing that in the margin. And the second thing before I turn it over to Marty to talk a little bit more about that is to say that 'when we think about what that spending has done and will do for us, it becomes a down payment for a roadmap to the future where we're additional opportunities for leverage exists.' Marty mentioned the investments we've made in things like chatbots using AI, NLP, machine learning; and not to be overlooked or things like the e-commerce developments we've put into SurePayroll. And again, we are the first publicly traded company that has created that platform. So all of those now have become things that we can leverage in the business to drive further efficiencies and in some cases, also in additional sales. So, we're getting benefits, it's opening up other pathways that we hadn't considered and that will be a benefit to us in the future.

Yes, So, I think everyone's pretty much covered. The investments we made kind of from the tax reform that we talked about starting really last year was that that would do that from a product standpoint. We accelerated the product. In fact, a lot of that rolled out in the first two quarters and then in this quarter from an HR center perspective, we're very happy with that, that we were able to accelerate that. And then on the efficiencies, a lot of it has also been done to create those operating efficiencies. And the chatbot, for example, someone who wants to chat or have a quick answer to a question, 40%, 45% now, I think this last month, are already being answered only by the chatbots. So it doesn't have to go to a live person to handle through chat or live talk. And that is creating some nice efficiencies. And we're able to increase the productivity of our payroll specialist and across the board actually. So we're actually the chat bot staff in the work that's automated response is going much faster. And I said, given the millions of clients and employees, client employees that have using this, the machine learning is really creating things very quickly. Last month we had -- a month and a half ago, we had about 45 questions answered by the chatbot, different questions that it would accept. Now it's over 100 already because of the machine learning piece of that.

And if I can build on that, it's part of it it's a productivity play, but another part is serving the client better. And so at the end of the day, when you combine that technology with our world-class service capability, you've got a pretty powerful service differentiator. So we're pretty excited about where we are.

Great. And can you just quickly clarify the drag from [indiscernible]?

Yes. Hey, Jim. So, if you look at the page where I put the -- what we put on the IER presentation there, you can do the calculations to get there. You'll see what the impact is. I would say this, the drag year-over-year from an EBITDA perspective is modest and I would say also from an operating margin perspective back then when you go through the calculations, you can call me later on that to make sure you got it. It's not dramatic.

Your next question comes from the line of James Berkley of Wolfe Research.

Thanks, guys. I guess just to start, if you could just help us understand the $20 million range, just what's keeping you from having a little more visibility, I guess, into the contribution from Oasis in the fourth quarter and then some thoughts on costs and revenue synergies over time. Any signs you may be able to accelerate the upselling part of your payroll days, just given the acquisition of Oasis and how much it will reinvest in port, not in the sales force.

So, if you look at it, you have line of sight to what it was in Q3. I've given you a number that's pretty clear. I think it can get to where we think we're going to land. So, I'm reticent to keep changing guidance because we're falling within the range. And I think at this point I called out what I thought the contribution for the first or for the back half of the year is going to be, if you look in the presentation we've detailed what Oasis was for the quarter, about 70 million detailed what it is for Q4. I think we've given a pretty clear roadmap in terms of what we think it will be for the balance of the year.

Okay, understood. I just didn't want to change it there. Just commenting on the cost and revenue synergies over time if you don't mind.

I think from a cost standpoint, I think a lot of it actually we've already started. There were some synergies of duplication of people. Some of that's already been done and I think we're pretty much far down the road on that one. We also are looking at, obviously, from a cost standpoint, what can we do with the carriers to get better costs and plans in place. And we'll be working those through. It's a little bit early on that one, but we're working through that right now. Organization is in place and the product strategy is working through right now. I don't see a lot of needs of technology investment that needs to be done there right now. So, that should be pretty solid. Sales team is pretty clear on who's got what already that's in place. And I think the cost synergies will again be people, but pretty much done insurance carriers and rates there to lower our cost efficiency and frankly handling -- and I guess I'd say on the revenue side selling more obviously and being able to capture some retirement products in there and more insurance to the degree. We couldn't underwrite them. We drive them to our insurance agency like we do for our PEO. That's something that Oasis did not have before either and now we'll be able to use. So, we haven't laid out all the quantification. I think in the guidance you see kind of overall where we think it's going to be and frankly, the short-term impact is pretty moderate to the EPS, so we feel pretty good about the margins and everything there.

Okay, thanks. And then just more generally real quick, I mean, I know, your focus is obviously shifting towards PEO and it's become increasingly important given the ACA and the 50 employee insurance mandate, et cetera. Just could you give any numbers or just an idea just in how much white space you see out there and what percent of the adjustable market's unpenetrated right now and just kind of talk to your longer-term strategy in the space going forward, whether it's around M&A or organic growth, et cetera?

Yes, I think it's going to be both. I mean primarily organic growth, but we'll continue to look for opportunities like Oasis and other PEOs. And really, it looks like more of an HR outsourcing opportunity because what's changed is a few years ago, the average client size, the needed HR needed retirement, those things, was I would say 25, 30 employees plus. That has come down pretty dramatically. You know, as you've seen the states increase their regulations, that may have come down a bit, but the states have really increased the enforcement and the regulations that they have on things like immigration and whether your workers are legit or not, the retirement plans, the need for retirement plans, all of that has been pushed up and a lot of requirements and the enforcement has picked up where they're looking for revenue from fees and enforcement. So the need for HR has really grown. So I think there's a lot of white space there. There's a lot of opportunity and it's growing as well. And so you have to be someone who, through your technology and your service, can give that kind of a complete set. So not only are you helping in a tough and a low unemployment market, the first thing you hear constantly in our surveys is I need help recruiting and retaining employees because it's so tough out there to get them. So, you have to offer benefits of a large company, whether you're a smaller or mid, you have to offer benefits, you have to offer mobility options so people can do things. 70% of our clients employees expect that they should be able to do everything on their phone. They don't want to talk to anyone in HR. They don't want to go online. They want every -- or certainly not on paper. They want to do everything mobile. And that's all the products that we've been introducing and linking together for a total HR experience. So that helps you bring in employees and it helps you retain and develop your employees so that they stay. And that's exactly what we're responding to. Like retirement, signing up retirement used to be a heavy paper-intensive process for your employees. You want a retirement plan, you push it out there, it's all paper. It's tough to do. You now can have an employee set up their retirement in four clicks on a mobile app, on our mobile app. So, you're making the small and midsize business more competitive and helping them continue to retain those employees as well.

The other thing, James, I'd say is maybe PAYX publishes some data on this, but if you look at the 20 and above space and the amount of worksite employees, which is probably the best way to dimension the opportunity, you're in the multiple tens of millions of worksite employees. If you take the top four PEOs, you barely get to 2 million worksite employees. Now, there are more worksite employees serviced by smaller PEOs. But when you compare that to the amount of worksite employees that exist in 20 and above, which is where now and may in the future be 10 and above, where the sweet spot PEO goes, you have a significant amount of white space and the penetration rates in the low-single is in the mid to low-single digits.

Your next question comes from the line of Jeff Silber of BMO Capital Markets.

Thanks so much. I just wanted to continue the discussion on the PEO space. Are you going to market differently with your Oasis product versus your legacy Paychex product?

I would say in the short-term probably a little bit differently just because of the brand and so forth and we're working through that now. But the package is what you would say is Oasis has gone more into obviously brand-new clients that have not been on a PEO or any other service with our base, we're working through the client base as well. So we have a team that sells into the client base who has that need and can graduate, I guess I'd say to a PEO. And Oasis and some of the other rest of the team is selling brand new clients to the PEO or HR concept. So a little bit different there. We'll be fixing the brand as we work through what's the best way to approach that, but generally, they're both selling. This is an HR support package that is there. Whether you take the insurance through us or whether we underwrite it through the agency, you have full retirement and payroll and HR administration packages. And so, I would say at a high level, it certainly is being marketed the same way because that's the need of the client that we see out there.

Okay. I know during the last recession this was a relatively small piece of the business. I'm not even sure if Oasis was even around then, but can you give us your expectations of what you think might happen in this business if God forbid we go into any type of downturn in the U.S?

Well, I think, from an HR standpoint, sometimes in a recession you need HR support more than ever. Certainly, on the small business side that's only payroll for example, you have small businesses, more of them go out of business and fewer of them start up. So you always have some hits there. But I think by expanding and really becoming much more of an HR company and having retirement offerings, insurance offerings, and a much more complete package, that makes us much more resistant to a downturn in the economy. And that's the way we looked at it for the last few years is we've positioned the company to be much more of an HR outsourcing company than just payroll. That's because that is actually more in need in those difficult times. Now you need much more HR decisions to say, "Hey, what do I do with pay increases? What do I do with insurance offerings? How do I cut costs but keep my people? That's when you need the personalized HR support that we get with over 500 HR generalist. At the same time, the technology, frankly, will make you more efficient as our clients are. Our clients are becoming much more efficient because of our mobile app that they use now that they don't -- if a client employee now needs to change their address and the system [inaudible 00:52:42] the old days, they go to their HR person or their business owner, they'd have to call us. They would talk to us, they would change it. They don't do any of that now. Now they say to the employee, "You can change it yourself. You can go in on your mobile app and do everything basically." So all those things, the technology changes, the HR focus, the total package that makes us really more resistant and stronger in a recession type era.

So, just to build on what Marty said, if you look at it from a product standpoint, obviously that sticky from a client-side standpoint, you have more resilience because clients typically are larger in a PEO. So, in our payroll, if your payroll only attend to be smaller PEO clients are in a higher size package, which gives them a little bit more ability to withstand a downturn in the economy.

Your next question comes from the line of Lisa Ellis of MoffettNathanson.

Good morning, guys. My first question is related to the ecommerce capability describing for SurePayroll. Can you just talk a little bit more broadly? Is there a big like digital marketing push accompanying this? So, the concept being to get the small business owner over the weekend or whatever sort of Google searching and end up finding Paychex and SurePayroll and being able to onboard entirely independently. Is that sort of -- can you just give a little bit more color around like where this is headed?

Yes, it is. It's actually a continuation of -- what we saw was with lead generation, we're doing much stronger job with getting the leads and getting -- typically it's more of a form fill out and then we get back to them where the client context is somehow through the lead and says, "Get back to me." Well, what's the hardest thing to do is get back to a client today, get anyone to answer the phone. So, what we found with ecommerce is not only is it responsive to a client the way they want to set themselves up when they want to do it, weekend nights or whatever, but also that you captured that lead because now you don't have to get back to them. The client will start themselves, they'll compare, they'll see the price, they'll see the product they decided to buy, they're in the mix. And even if they get halfway into it and need to help, that's fine. We have someone ready at all times to be able to just go to someone, either through chat or direct line and talk to them to help them through the process. But you've captured them now as opposed to trying to reach back to them. And that's what I've been, one of the strongest findings through the ecommerce is lead generation is great, but closing that lead at the time that the prospect wants to close it is huge. So that's been the biggest benefit of this thing.

And I'd say that it's not in the future where we launched in Q2 and it's up and running.

Okay. And then on a related note around the investments around technology you've been talking about, do you have initiatives underway that are leveraging your underlying database of employment related data? Meaning you can feed back things like benchmarks or give guidance and advice.

Yes, that's already been released. And given the size of our client base and employees of our clients, that can give great data. So we get data, for example, on turnover and there's -- obviously it's had a gross basis kind of pulled together, but it can do it by size as well, size of clients or size of your business and so forth. So yes, we're giving data analytics, something that's been very important to our clients to get data analytics. And most small to mid-size businesses could never get at that data or ever pay for that data in the market that we can give them very quickly using our very large client base.

Okay, great. And then just last one, Marty, can you just summarize, give really good color around the macroeconomic indicators you see in your business that give you a sense for the overall health of the economy? Can you just run through those meaning employment growth, wage growth and new business formation, etcetera?

Yes. I think what we've seen, and the small business index is really focused on 50 employees and below, what we've seen is obviously job growth has kind of flattened out here the last few months. And most of that is because there aren't the people out there to hire. So we're still seeing job growth, but the change in job growth is really flattened out to last year down a little bit flat. And we're seeing it kind of across all sectors. You are seeing wage growth probably in the 2.5% to 2.7% range, which has been good. It's coming up. And of course, those earning the least are getting the biggest increases. So they're seeing and those earning minimum wage, etc. because of the minimum wage increases across the country are seeing 3.5% 4% wage increase, sometimes a little bit more where salaried or the higher wage earners are seeing 2% or below 2% is what we're seeing. And that's kind of averaging out. Across all sectors in jobs, manufacturing kind of has been up and down, but it's down a bit now. Construction is still probably one of the better ones. Other services overall is the strongest, which is discretionary services. There are more part-time jobs. So again, you're seeing a little bit more growth there and a little bit more wage increases there because of a minimum wage changes. Overall, it feels steady, not necessarily heading it, it doesn't feel like it's heading into a recession, it's just job growth has kind of flattened out because it's tough to find people. What we are seeing also is hearing from our clients anecdotally that there is more of those on the fringe that maybe high school graduates instead of college that they're bringing in and training more. So again, for our products it's helpful because they're looking for more training, bring people on that may not have hired before but trying to train them because it's so difficult to find people. And we actually have heard on the negative side probably some businesses saying, "Hey, I'm not taking some work because I can't find enough people to do it more in the trades and that kind of thing." And regionally it's in the south, it's still the strongest, energy has picked back up. So it's been used in tax and Dallas look better. And of course, the Florida, Georgia, generally that area is better for construction both residential and commercial.

Your next question comes from the line of Tim McHugh of William Blair & Company.

Thanks. I just wanted to follow-up on the worker's comp part of the insurance. How big is that versus kind of health insurance in terms of importance for your insurance business? And can you elaborate a little bit more on the issue? Is it just a down pricing market or is there more happening there I guess?

So, two parts, Tim. And I want to make sure that it's clear. When we say PEO and insurance and we call out softness and worker's comp, we're calling out specifically the worker's comp revenue in our insurance agency. We're not specifically referring to PEO worker's comp, which is separate conversation. That really is around that. That's a separate discussion. So, roughly, half of our insurance business is worker's comp premiums. And if you look at where we are this year and look at PEO and insurance is about 30% of that number, a little bit less than that it will go to 20% in terms of composition of that revenue. When you look at the insurance and desegregate that part about half worker's comp, half health and benefits, health and benefits is doing fine, you know upper single digit growing reasonably. And workers' comp is where we've seen softness really starting a couple of quarter or so ago and accelerating. And the worker's comp market goes through cycles. So if we had had this discussion a couple of years ago, we would've said, "Hey, worker's comp is doing great. Premium are up and we're getting our share but the market is soft." And when it turns, who knows? But it goes through cycles. We're going through a bit of a softening cycle now.

Okay. Fair enough. And can I follow-up on the comments on the selling season? I guess it sounded like obviously it's good overall results, but it sounded much more about telling the broader bundle services than it didn't necessarily client growth. And in particular, I guess for the legacy payroll businesses. Is that accurate, I guess? And can you elaborate on what you're seeing in terms of the ability to grow the client base further for that core kind of payroll [indiscernible] services.

Hey, Tim Martin can provide color commentary on the selling season. I would just caution to infer that we weren't saying something about unit growth is not a correct assumption. And obviously we don't give the client base per se, but I would say generally we came into the year expecting that the client base would grow and we haven't been disappointed. So, that's what I'd say about unit growth. And Martin can talk a little bit about selling season.

Yes, I think maybe what -- three off a little bit there. I mean, we had the solid sales growth across the board. In the first half of the year in the third quarter, there was some moderation on the payroll side, but we still had -- probably, when you look overall, we had our best part of growth in three years I'd say and certainly year to date and in that selling season overall. I think on the small business payroll side, I think it was impacted by some things that happened there, but I think we still had good sales, particularly on the inside sales piece and we would expect the see the HR piece stronger because that's what we're pushing the most even and the payroll side, even small business payroll sales folks are leading with the complete package now. We just found that what the clients were looking for. So I think it was a decent selling season and has continued where we've been through the year as good solid growth year-over-year in park.

Okay. Just ones up there, when you say inside sales team, is that mostly SurePayroll and the some worksite [ph] employee or what's the market that's served by that part of the sales force?

Yes, I'm sorry. Inside sales is not just SurePayroll, it's a pretty good size of sales team, which we've been increasing and they handle frankly, all products as well, but the way they saw everything inside. And they take a lot of the leads, particularly in the small end, they take a lot of the leads that come over the web, but will sell all products over the phone.

Your next question comes from the line of Tien-tsin Huang of JP Morgan. Tien-tsin Huang: On the worksite employee front, is it fair to think that units are growing faster than the 17% given lower pass-through's and we see declines in some of the other pressures? It seems like WSE is growing at a good pace.

WSEs are growing -- I would say in the range, Tien-tsin. If we were in the quarter it's comparable, I would say. It's a little bit actually below, but in that range. Tien-tsin Huang: Not strong nonetheless then, okay. Then secondly, just to ensure payroll, do you feel like you've narrowed the gap versus some of the call it the Silicon Valley guys on the distribution front, forget about the product and they talk a lot about product, which is of the distribution side. Do you feel like you've managed to get there?

I think the gap was wider and how much better we were then them, but I think we compete very effectively with the kind of the west coast that are out there. I think pricing wise we've come up with some new ways to price as well and to capture that client through things like ecommerce that we've been talking about. So yes, I think we're very competitive with them and frankly, I've seen excellent productivity in sales out of those teams, they've done very well. And the ecommerce, I think as Efrain mentioned as well is really taking off.

Tie-tsin, meshing up your question with Tim's, increasingly to understand the business, you have to go at it in a multichannel approach. You have to figure out what the right blend of feed on the street is internal telesales and then web-based ecommerce sales. And I would say the third piece of that troika was with the ecommerce-based sales. SurePayroll was given that capability and it looks like that opportunity may be additive to the other channels, not necessarily substitute for the other channels. So, we're looking at the results. We got real time data showing us and increasingly in the future to be successful selling not just payroll but HR too. You've got to have a capability in all three of those channels, both over the web direct without a salesperson, field-based sales for the right kind of clients and internal telesales. And our competitors are also playing with that mix to try to figure out what makes sense. I think you need to have all three pieces. Then we have the pieces in place. Now we're in the process of fine-tuning each of those three pieces.

Your next question comes from the line of Mark Marcon of Baird.

What's the things that you're doing? I've got a ton of questions, but I'll limit it to a couple. With regards to just what you're doing on the ecom sales, what percentage of the SurePayroll sales are now coming through that channel?

Well, it's pretty small. We started in the last quarter, it was in second quarter and so it's still pretty small, but I think it's going to be growing pretty substantially. And as Efrain, I think Efrain made a very good point there that it we think in addition. So, it's capturing that lead that's coming in and somebody's ready to buy right at that time and doesn't want to call back. And so, I think we're expecting that this will be in addition to kind of the other channels that we've had.

And so, I imagine you're going to end up expanding it across the board in terms of offering this...

That would be very likely. Yes.

And then with regards to micro segmenting the payroll and HCM market, can you describe the different dynamics when you're taking a look at the growth that you're seeing right now? We've traditionally talked about different sub segments whether it's truly small sub six employees versus six to 20 versus slightly higher and then getting into MMS, where are you seeing the strongest growth?

So, I would say in part because of these technology advances, Mark, we're seeing strong growth in the micro segment. I think we're seeing a reasonable growth in the, I'm going to call it the 5 to 50 a segment, and then mid-market modest. I would say at this point largely due to the fact that the level of competition there is very high. I would add one thing though, if I now say, let's talk about client segment instead of by product and peril, but by client size, now what we see is that 20 and above is increasingly fragmenting into a MMS market and a PEO market. And then on the PEO side, we're doing very, very well. So, if you think about PEO as comprehensive outsourcing, you were just with an SP [ph], it's all your note. If you look at what's happening in that market it's pretty clear that there's a trend in the market towards comprehensive outsourcing and what we're seeing '20 and above is exactly the same thing. So in our system we either are going to go with that client with potentially an MMS rep or in our mid-market rep or through PEO, and in some cases we've incentivize them to cross-pollinate and we're seeing a lot of success on the PEO side. So I think that's a bit of an overview, I think PEO increasingly needs to be overlaid with -- when you talk about mid-market because it's a solution that mid-market clients are interested in.

Totally makes sense. I have been covering the PEOs since the late 90s, so it's interesting to see the acceleration and the increased interest. When we factor in Oasis, just on the operating margin because our call backs a little bit later and so I hope you indulge me on this. But we're scratching it out and it looks to us like maybe the implication would be like around 30 -- so we were saying 37x to 38x; Oasis maybe 37-ish, and maybe that comes out to more like 35/7, is that with Oasis, is that in the ballpark?

You have a very sharp pencil. Overall, you can look at it. I won't call it out specifically but if you do the math, you're not incredibly far off. But I would caution one thing, it's Gregg and I; I would say increasingly, we think about the business also from an EBITDA margin perspective. So we've given you all the pieces there to calculate, we've also called out what we expect the margin to be next year, and there is not a lot of strange adjustments, it's pretty -- it will be very clear on the face of the cash flow statement, and net income to get to a margin number but that's what I'd say about that. And then this is from a longer range -- and from a really longer term perspective, there is two different dynamics that are occurring. One is you're early on in terms of the implementation of some of these efficiency measures as it relates to chatbot, and everything that that can end up doing from an efficiency in a service model perspective which would obviously increase margins. On the flipside we've got adding PEO which -- it's growing faster so from a mix perspective that's going to drive the margins down. How do we think about the balance of those two from a longer term investor expectation perspective?

So Mark, I guess I would say two things on that. One is assuming current mix when we get through the full year of Oasis, we would expect to come into 2021 and proving Mark margins off the '20 base; so that would be your expectation. Caveating it as I've been saying for 18 months, that if PEO growth accelerates even faster than we anticipate, which is still good -- teams growth, then that could impact that perspective. The other thing that could impact it is, I called out what management solutions; management solutions growth in that area because it carries a higher margin, it would be an offset but I think those are all the factors that as you plug in a model you'd have to evaluate.

And then Marty, one last one; the client scores with regards to the clients that are being serviced through the chatbots; how is that trending relative to more traditional?

Yes, very, very good. We look at it from a number of ways, we don't always get them to do enough client sat but you get to that early, getting at -- we're watches very closely is; we just had a meeting on this earlier this week. How much or how many of the questions are answered in the first question that they ask, how many are going to a service provider because they're not getting the answer; and that's being refined all the time. What we're seeing is that increase from 40% are being answered by the chatbot itself, now up to 45% in just a month. And I think if we look out three months or six months from now, I think that would be -- we're hoping that that is quite a bit higher. And that will be -- that's an indication to us that they're getting their answer you know. Now we also have other feedback channels and so far we're getting good feedback that the answer is being there. And again, you start with 30 questions, then it goes to 50; now we're over 100 because of the machine learning part of that of refining the question and understanding the natural language of what's the client asking for? What are they really asking for? And are we responding with the right answer. So it's pretty early but if there is early stage they have 45% answered by the chatbot itself is very strong we think. So we're getting good positive feedback on that.

Your next question comes from the line of James Faucette of Morgan Stanley.

I wanted to ask a couple of follow-up questions. First, on Oasis, you made it pretty clear that you're tracking pretty close to what you thought; what should we look at as the potential, most likely sources of variants either positively or negative things that you should -- that you're tracking that we should be aware of that could cause some variance there. And then just a follow-up question quickly on the chatbot comments from the last question; it sounds like you're improving the response rate pretty nicely, what's your sense and what are your systems; people telling you as kind of an ultimate feeling for the chatbots at least within a reasonable time frame. Thanks.

I'll start with that, when I think it's around -- it's still really pretty, early, you know get a lot of great data on this. But I think if we could get 70 in a long-term; if you could get 70% answered by the bot by itself, I think that's pretty strong based on today's standards; so having only been in it pretty early heading towards 50, we feel really good about it. And you do get an awful lot of data, you know big given our use of it, we're able to change it pretty quickly and enhance it based on the number of people that are using it. So I think it's heading towards you -- I think it would be good to add toward a 60% to 70% response because there's always nuances that people may want to talk to a live person but that is changing pretty rapidly. This is really in response to the way that client doesn't as you probably know, most younger clients, in particular, don't want to talk to somebody they just soon chat or and have -- and if it's a chatbot that gets the answer, and by the way this is going to expand pretty dramatically to taking you --- not only answering your question but saying do you want me to take you there? So, where do I find my checked stuff; it's here today, now it says it's here; go here, now next it that will be let me take you there by hitting this.

And if the question is how do I do something? It will evolve to video -- short streaming video that will show you in 30 seconds or less this is how you do it or you can contact somebody. So that will all continue to evolve the way the client needs it, first question.

On Oasis, I think that we have a pretty good handle now on both revenue and expenses in the business, there are targets that we have said internally in terms of cost savings that we're measuring against the business, they are comprehensive in at least the framework that we gave you. So we'll be looking at that and obviously, success winning clients is an important part of the equation as we head into next year.

Your next question comes from the line of Matt O'Neil [ph] of Autonomous Research.

Real quick housekeeping question on the preliminary outlook for fiscal 2020. What are your interest rate assumptions on the funds?

Interest rate assumptions in 20; interest rate assumptions -- we didn't include them in part because we needed to see where the Fed is at this point but we would assume that there really are not going to be rate increases there, so you'd see some modest increase on our client -- our interest on funds health for clients at this point that's what we think is more likely scenario, hopefully, we don't end up in a scenario where it goes the other way but we tend to doubt that that's what's going to happen.

I know you've been asked a bit about some of the sort of Silicon Valley start-up competitive dynamic already, and in previous calls you've been asked more pointedly about square, and I think just going there and well-known name, it comes up a lot in discussions; is that something that you're seeing more or hearing about more, is it still kind of a different market with respect to your kind of customer base and your targets and their true kind of micro merchant addressable market?

Well, I think Matt, some of the market is the same but we have not seen or heard much from that. They have like they announced, getting into the payroll was more a payroll mobile app but it was only for employers, for example, and I think it's still that way. There is not an employee mobile approximately, and that was -- and frankly, something like that. So it got a lot of press, I think that's as far as they went or at least the last that we've seen. And the employee piece is really the biggest piece of the mobile app and we feel like we have a very competitive mobile app with a 5-star kind of rating at this point, so we're feeling very good that that's very competitive and we have not seen any takeaways or any real feedback of people leaving to go to square. I think it rounds out their product set from the credit card processing standpoint but we have not seen it as someone who's going to go there necessarily for payroll in a mobile payroll approximately, that's only for the employer.

So, probably hunting more within their own existing merchant client base as opposed to the greenfield opportunities out there more broadly where you're a lot more established?

Yes, I think so. And that plus, I think anyone who would look at that, even though you may have your processing through them, I think if anybody was really looking for an app that provided a full feature employer and employee access and gave the full features of retirement and payroll and HR administration along the app, I don't think there be any comparison.

Your next question comes from the line of Ashwin [ph] of Citibank.

I wanted to kind of get into your statement on introducing the discussion on EBITDA margins, as well as saying that you're now thinking of the business more on the EBITDA basis; is that a comment on future capital allocation, user cash, and should we sort of maybe combining that with the comment on low PEO penetration implies more Oasis type deals; how should I think of that?

I think to some degree as Efrain mentioned and he mentioned in his comments, that does make some sense to the fact that amortizations and so forth, we want to make sure that it's very clear where the margins really are because of the PEO business, and sometimes the impact on operating margins versus the margins from an acquisition type standpoint; so I think you're certainly right on that and Efrain I think mentioned that. But on a go-forward basis, we're certainly looking very much at organic growth and combining the strength, here we bought the largest private PEO in the business and we feel like that integration is going very well, and so will we continue -- part of Oasis's plans were to continue roll-ups of other PEOs to add more strength to their offerings and we'll look at continuing to do that, will it be the size of Oasis, not really because there is no one out there of that size but I think that their strategy of rolling up and was part of ours as well will probably continue.

And just switching gears a bit; as your existing client employees sort of go through the current tax filing process and tax season; are you beginning to maybe see a change in withholding? Is it potentially maybe surprised with their returns and so on or is it too early to tell? Any comment on future withholding patterns?

I think we haven't really seen it yet. I think it might be a little bit too early until the filing date of April even though people file early. I think they are -- you do get anecdotal evidence that certainly people are looking at it, and asking a lot of questions of their tax preparers like how do I avoid this next time, and so probably we would expect to see withholdings go up a little bit, and therefore, probably the cash balances up a little bit but it would -- it's a little bit early to see that just yet.

And last question. It's been asked a couple of different ways, the digital option that you spoke about -- and you mentioned that you might be seeing demand for this in other parts of your tech stack; can you talk about how you're thinking of the level of future tech investment, as well as whether this makes you rethink your -- sort of your conditional sales force process?

Well, I think you're talking more of the e-commerce but I mean, overall we're always looking -- as Efrain said, like even the sales -- while the sales process has definitely been changing, and I feel like we've been changing and to some degree a few years ago catching up, now I feel like we're in pretty good shape with the lead and demand-gen investment that we used from some of the tax reform money in the last year to 18 months. We really have found how to capture much more data on clients even searching for Paychex, how to get more of those leads, and also how to deal with leads that are not -- that need to be nurtured as we would say; so that aren't ready to buy yet but you don't just lose those, you put them in a process where they're nurtured, and I'm sure you're aware of this -- with papers -- white papers on HR and you build the credibility of Paychex, so when they are ready to buy they're right there. So the increase in the way we've handled this from a digital process and a much more defined data analytics is much stronger than ever, we've been very good on the data analytics for using our client data that say when someone might have an issue or might be ready to leave us or something like that but this lead generation has gotten a lot tighter. And then, the next-generation, the further generation of that is this e-commerce platform, it's sure right now which -- we also found that the leads maybe great, we may be able to get a hold of a lot more prospects but it's hard -- but we may get a lot more prospects but it's really hard to reach them. And so e-commerce allows them to come in, decide, and select and start going down the process, and that is a much more powerful tool probably than we even expected as far as capturing new leads. So we're constantly looking at this, the data collection and data analytics is becoming such a bigger part of the service model and the sales model, and I feel like we've got the right people on it and the right tools in place.

And there was a part of that question on the absolute level of tax spent?

I think we're at a pretty good percentage of revenue and we kind of stick to that. I think we had obviously an enhancement to that last year but we feel like we can get back to a pretty levelized [ph] -- level of tax spending and we're doing pretty good with that. We've also find ways to be more productive in the tech side as well, and what our spend is by how we're doing some of that.

Your final question comes from the line of David Grossman of Stifel.

First, can we -- if you look at organic PEO growth and fiscal '19; can you help to segregate the -- kind of WSE growth versus insurance and any other pricing dynamics that maybe impacting growth?

When you say impacting growth, what do you mean David? I'm not sure.

Well, I'm just trying to just segregate I think [indiscernible].

So we've seen teens growth in revenue, I called out on the script where we are in terms of PEO and insurance growth. When you look at the PEO again growing in the teens, worksite employees growing in the teens; some quarters we've been a little bit above, some quarters a little bit below but you're getting the contributions coming from the fact that you're getting good worksite employee growth, not necessarily because of pricing or add-ons from past-throughs; so I'd say that. When you do segregate a little bit of the change in the growth rate that I called out, it really is a function of the fact that the insurance portion of PEO and insurance is growing more slowly than the PEO. And then we've got this drag that really is more of a second half of the year event that will persist into next year, and it could change -- markets change. But if you look at the underlying PEO, we expect it to grow in the teens and we would expect our worksite employee growth to grow comparable, that's excluding Oasis. Including Oasis the growth rate comes down a little bit just simply because it's a larger business, you -- the law of large numbers starts to take place, and we expect to get a combination of both, worksite employee growth and new client growth to drive that, the growth that's embedded in the outlook that we gave.

And just following up in terms of the composition of the PEO; I mean obviously two significant acquisitions in the last 1.5 year or 2 years, can you give us just the sense of what that PEO looks like today excluding the ASO? For example, I know you report a combined WSE number, can you give us a sense for what the PEO is excluding the ASO? What your mix is between white, blue and grey [ph], and which are at-risk -- kind of percentage of insurance business?

So, the first thing is look, our client base is blue-grey or grey-blue, less white and more grey-blue; and obviously, we want the composition of that base to moderate more grey overtime than simply blue. So we'll look at that, that has a lot of implications as you know because you know the industry very well in terms of rates of healthcare attachment and workers comp rates but we feel we're in a good place there. If you look at where we are from a worksite employee perspective, having disclosed it but if you look at number 1 and you know what that number is, and you know where number 3 is, we're number 2 right in the middle of the two; so that will give you a sense of where we are from a worksite employee standpoint. And so we think in that space that Oasis has and I'll come back to something Marty said earlier, in that space that the combination of the Paychex PEO and also HROA [ph] and Oasis occupied, there is a lot of opportunity there, and right now our at-risk insurance and others non-guaranteed cost insurance is primarily limited to the Florida market. And everything else that -- so the only thing that we are reporting as pass-through revenues is the minimum premium revenues largely, the minimum premium revenues that we're collecting in Florida which is a percentage, it's not half of the percent of what we sell on health insurance, it's pretty -- it's a pretty carefully controlled amount of risk that we're taking. So if you look at everyone else in the industry, we occupy a middle ground between the position that the largest competitor takes which is all currently guaranteed costs, and others that are all at-risk; we carefully control the amount of that risk insurance that we have.

And then just finally, in the spirit of abusing that time limit here; workers comp comment, you know, I -- because of the blue-grey composition; why isn't that the workers comp dynamic in the insurance side of your business isn't impacting the PEO business as well? I would think more favorably [indiscernible] what's going on.

In the PEO because you've got a bundle, you can offset the pieces of the of bundle that you're selling, so in a steady state you would have some impact but the reality is you're balancing that between the amount of healthcare insurance you're selling and the amount of workers comp that's attaching, and also the amount of admin fees you're charging. Our PEO is a little bit different probably than anyone else in the industry; when we underwrite a PEO customer, we do -- we make a determination; do we want you in our risk pool because if we don't want you in our risk pool, we're going to send you to our insurance agency and you're going to get priced that way. So we've got a little bit more control on the PEO side and through the extent that we don't like to risk, we basically offset -- we offload the risk to specialized carriers that don't mind dealing with that level of risk. So the net of what I just said is; it really doesn't have much of an impact on the on the PEO side.

Thank you. I will now return the call to Martin Mucci for any additional or closing remarks.

Great. Thank you. At this point we will close the call. If you're interested in replaying the webcast of this conference call, it will be archived for about 30 days. Thank you for taking the time to participate in our third quarter press release conference call, and for your interest in Paychex. Thank you very much.

Thank you for participating in today's conference call. You may now disconnect your lines, and have a wonderful day.