Welcome, and thank you for standing by. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I'd now like to turn today's meeting over to President and CEO, Martin Mucci. Thank you, you may begin.

Thank you, Melinda. Good morning, everyone, and thank you for joining us for our discussion of Paychex's first quarter fiscal 2013 earnings release. Joining me today is Efrain Rivera, our Chief Financial Officer. Yesterday afternoon, after the market closed, we released our financial results for the first quarter ended August 31, 2012, and filed our Form 10-Q, which provides additional discussion and analysis of the results for the quarter. These are available by accessing our Investor Relations page at www.paychex.com. This teleconference is being broadcast over the Internet and will be archived and available for our website -- on our website for approximately 1 month. Our today's call, I will review highlights for the first quarter in our operations, sales and product development areas, Efrain will review our first quarter financial results and discuss our full year guidance. Then we'll open it up to your questions. We are focused on driving growth in revenue and profits while providing industry-leading service and technology solutions to our clients and their employees. We had a good start to fiscal '13, with the first quarter results meeting our expectations. Our client base, checks per client and client retention results all improved. Year-over-year growth metrics for Q1 were moderated by the volume and frequency of payroll processing. Efrain will go into more detail on the financial results and comparisons. However, I'd like to provide you with some highlights for the quarter. Our checks per payroll has improved for 10 consecutive quarters, with the first quarter growth at 2%. As expected, this growth moderated from the 2.4% growth experienced in the prior year first quarter, but was still at a 2% rate in Q1. Payroll client retention remained strong. In fiscal 2012, we saw client retention return to near historic levels, and our first quarter has…

Let me start out by saying that you should be aware that certain written and oral statements made by management constitute forward-looking statements within the meaning of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements should be evaluated in light of certain risk factors, which could cause actual results to differ materially from anticipated results. Please review the cautionary note regarding forward-looking statements in the press release for our discussion of forward-looking statements and the related risk factors. As Marty indicated, our first quarter results for fiscal 2013 met our expectations and represented a solid start to the year. As we previously indicated, we expected growth rates to moderate due to tough comparisons to the first quarter of last year. In Q1 of fiscal 2012, we benefited from a number of factors, which included higher volume and frequency of payroll processing in the same period last year due primarily to timing. We estimate that this impacted our growth rate by approximately 1.5% in our payroll services business. We also had stronger checks per payroll. In the HRS business, we had higher asset fees from Retirement Services funds held; higher worksite employees in the PEO business; and we had the ramp up of sales of our HR Essentials product, including some timing also of payroll processing in that business. The absence or moderation of these factors impacted our first quarter comparisons this year. Now let me talk about some of the key highlights for the quarter, and I'll go into greater detail in certain of these areas. Total service revenue and total revenue grew 3% in the first quarter. Interest on funds held for clients decreased 9% to $10 million, impacted by the low interest rate environment. Expenses increased moderately for the first…

Okay, thank you, Efrain. Operator, we'd now like to open the meeting to questions.

[Operator Instructions] We have our first question from Kartik Mehta, Northcoast Research.

Marty, I wanted to ask you just about new sales and where they are in consideration to your expectations. And the second part of that, have you seen any change in channels where you're getting your new sales?

I think, Kartik, we feel good about the first quarter. We're off to a good start. We don't give a lot of detail until we get past the selling season. But I would say that we feel good about a good start, and I think we're driving more revenue per client. So not only getting good revenue from the clients coming in on payroll, but also driving more of the HRS services. So we're feeling good about that. Regarding the channels, we -- in the Investor Day, we talked about market segmentation and feel very good of the fact that we're well on our way. We've introduced all of the plans that we had put in place last year strategically for market segmentation. Market segmentation was about kind of refining our approach to all the different channels. In payroll, we went after very specific segment and split that up. That's going very well. In 401(k), it was going after larger. And the wholesale market, which we just introduced that sales force, they're now all getting licensed and is all been approved and they're out there. And we went after the franchise and banking business. And we signed one of the largest franchises in the country already to an agreement as a preferred provider of payroll. So we feel we're off to good start that'll keep us on with the guidance.

And then just a final question, Marty, Paychex has been amazingly good at controlling expenses where you don't let your expenses get out of control considering revenue growth. But do you think in this -- during this environment, is there a need to maybe invest more now so you can have greater revenue growth going forward? Or are you pretty happy with the way investments are and there's really no reason to increase those investments?

Well, yes, we feel very good about the investments we're making. As Efrain and I have talked about a number of times, the IT and the product development has been up double-digit percent for 2 or 3 years now, and we feel very good about that. That's been the right investments. And obviously, we've been bearing the fruits of that with the new technology and what you'll see next month as we roll out the new and probably, I think, the best in the industry online reporting suite. And so I think that investment has been good. And the productivity from the operations team has been important that, that continues to help us fuel the IT and development investment while still gaining great margins that we're known for. So I feel very good about the level of expense. Efrain, anything? No? Okay.

Next question from Joseph Foresi, Janney Montgomery Scott.

My first question is just taking a look at sort of your comments again, just revisiting about the new business growth, are you tracking in line with plan, ahead of plan? And then any impact at -- or any thoughts on what could take place here with the election on the demand front?

Yes, I think on new business growth, I think, it's -- we've about met expectations. So I think we still see kind of a gradually improving economy, no great shakes, but it has met our expectations and we're pleased with that. And I think, where we feel really good is that the revenue we're driving per client has certainly met our expectations or even a little bit better. So we're feeling good about that first quarter start.

And then on the elections, any change you think of the demand environment post or pre?

Oh, I'm sorry. Yes, I don't -- I think it has probably slowed some new business development, I think new growth. But that's just speculation. I think that whenever there's an election coming up and certainly the fiscal clip on taxes and health care reform changes, it is all kind of holding businesses back a little bit from investing if they're on the edge of whether to start their business or not. So and I think there's pluses and minuses to either way the election goes. With more regulation, our services are more in demand. But with more regulation and taxes, I think, fewer new businesses start up. So we'll make the best of it either way, and we feel good about the year at this point.

Okay. And then on the margin outlook, obviously, you've given guidance there. Is it fair to say that margins are being held back a little bit here by some of the investment you're doing on the technology side? And can you give us some time frame for when you would expect them to sort of start to expand again?

Yes. So I guess, Joe, what I'd say is, first, the rate of spend on IT investment is what we planned. It's moderated a little bit from prior years. So it's not holding back margins. That's not the only area where we obviously spend money. So we'll see some expansion. We just didn't want to call it any higher than we did in the guidance as we go through the year. So I don't think we're being constrained in terms of margin expansion by the level of spend we're doing.

Okay. And just one last one for me. Just on the demand environment itself, are you seeing any shifts in market share win rates and any which way?

No, not really. We're seeing the competitive environment's about the same and including the pricing and so forth, think it's always been pretty healthy, and we haven't really seen any change plus or minus for that.

Next question from Glenn Greene, Oppenheimer. Glenn Greene - Oppenheimer & Co. Inc., Research Division: I guess, the first question, just going -- looking at the payroll services growth, and it sounded like there was 150-basis-point drag from the year-over-year comparison.

Yes. Glenn Greene - Oppenheimer & Co. Inc., Research Division: It might be helpful. So just to understand that, first of all and then there's a follow-up. But does that suggest that there were more processing days in the year-ago quarter?

Yes, in my comments, what I said was that we have 3 principal frequencies of payroll processing: weekly, semimonthly/biweekly and monthly. It looks like on the semiweekly -- semimonthly/biweekly, we had -- we caught a little bit more activity in the prior-year quarter. That's basically what ended up. It will even out. Glenn Greene - Oppenheimer & Co. Inc., Research Division: Okay. So no changes to your confidence to deliver on the 3% to 4% for the year?

Oh, no, no. I just want to reiterate something, Glenn, if Marty and I have not said it enough. Any plan, of course, involves risks. And there's a chance that you won't hit it. However, Q1 came in as we expected it to come in. So we planned -- we knew this. We knew it, frankly, 6 months ago. So there was no surprise to us. Glenn Greene - Oppenheimer & Co. Inc., Research Division: Okay. And then just a clarification on the relative -- the pricing commentary, the revenue per check and the pricing increase and then there was increase in discounts. So I guess what I'm getting at is the net pricing, net of the discounts, how is that tracking relative to recent quarters, even relative to a year ago?

It's tracking pretty comparable to what our expectations were.

Yes. Yes, very close to what we've seen in the past. So that's why we don't really see where the -- the competition, that kind of thing, the pricing impact has not changed much at all. And still it's pretty much the same. It was as expected. Glenn Greene - Oppenheimer & Co. Inc., Research Division: Okay. Then just as a final one. Any change from a macro perspective in new business formation?

It's interesting. If you look at the BLS data that was available in August for the full year 2011, you had 758,000 businesses formed versus 742,000 the year before. I mean, business formation is just dragging ahead slowly. It's getting a little bit better. It's certain we still are not in an optimal environment, that 758,000 still compares to 844,000 before the Great Recession started or the year had started. So it's gradually getting better, but it's almost imperceptibly better.

I think the good news is that as you may have seen today, consumer confidence is up. It seems strongest it's been since February, early in the year. And the housing starts are up a little bit. So at a macro level, those things, hopefully, will drive more to investment business. But again, as asked earlier, I think the elections could be holding it back a little bit, too.

Next question from Gary Bisbee, Barclays Capital.

I guess, I wondered, this is going on 2 years now that you've been getting really good productivity from the operations staff. And I think a big part of it that you've talked about is the payroll service folks are handling a lot more customers with the current technology than the prior technology. Can you give us a sense, what inning we're in there? Is there still more room for further improvement? Or are you going to need to find productivity elsewhere as we move forward over the next year or 2?

Yes, Gary, I think that it's certainly -- I think it's moderating some. Certainly, you get a big bang out of the technology when it first comes out. We've continued to improve that, and we find other ways to gain the productivity. The field operations team are just great at continuing to drive that productivity and, by the way, keep the client satisfaction rates at the highest satisfaction scores we've ever had. So we watch both of those very closely. We're certainly asking a lot from our operations team, but they just come through over and over again. I think it's moderated some. But we're always feeling that there's ways to leverage and find new ways to productivity. So I guess, I'd say, we're probably in the middle inning or later innings where it's moderating. But then, you know what, you find a new game so.

Okay, great. And I know you told us that you were going to stop providing all the HRS metrics, but it's always difficult when you first do. Can you give us any incremental color on any of those? And I guess what I'm most interested in is how bad is -- maybe that's the wrong word to use, but how bad is PEO? How difficult is that? How much of a drag is that relative to the other parts of the HRS revenue line?

Yes, good question. So Gary what -- and at Jim McDonald's [ph] hearing, I did promise that I'd call out the changes. So our growth rates, some up a little bit, some down slightly. But if you look at fourth quarter growth rates in those clients, they basically are very, very similar to what you saw in the first quarter. So in other words, the growth rates coming out of first quarter were comparable to what we saw in fourth quarter. So you're comparing, in some ways, to more robust growth in that quarter. But -- in the first quarter of last year, but they were comparable to where we ended the year. The PEO, PEO has been a disappointment for us. And we are down in that business year-over-year. I called that out. And the positive on that, when I say we're down, and it's a disappointment relative to where we were a year ago, but I think we've taken a number of actions to stabilize that business. And we think it'll be a good story this year for us.

And I think we've seen some of that moderated by the ASO. So we've got that balance. The good thing about us, we have the PEO being sold by the same folks who sold the ASO, and so we've moderated some of that. But as Efrain said, we feel we've got a much better year ahead of us than certainly what we saw behind us.

And would it be safe to say that with the insurance pass through there that the impact on profits of maybe more customers moving to ASO and essentials and away from PEO isn't nearly as big as what we're seeing on the top line?

Yes, that's correct. That's correct. It's a -- that's a fair assessment.

Next question from Glenn Fodor, Morgan Stanley.

It's Matt Lipton in for Glenn this morning. Marty, you had commented -- congratulations on hitting kind of record highs on client retention side.

Yes.

Just curious how that plays out though in the kind of growth in the client base overall? I know it was kind of flat for the full year '12. As we look at the first quarter, was it flat up, down? Is the retention driving allowing you to increase the client base? Or are you still kind of muddling along at a flattish pace here?

Yes, we don't -- we only give client base once a year. But I would say, if you looked at fourth quarter, as Efrain said, on some of the other indicators, it's -- there's not much difference there. I think it met our expectations. And I don't think there was any surprises.

All right. And then on the sales force, you commented that some of the segmentation plans are now being enacted. Are you guys going to have all of that finished before the selling season starts in December, January?

Yes. Matt, it's already pretty much all in place. The last piece really was this wholesale sales force for 401(k), and that's because we had to get approval, regulatory approval, for that and are getting everyone licensed. And already have a number of sales, I think, that are getting in the hopper for that. So yes, all the segmentation work that we said we were going to do and a few -- and the expansion territories are well underway.

Next question, Jim Kissane, Credit Suisse. James F. Kissane - Crédit Suisse AG, Research Division: Not to harp on the timing issues, but just want to make sure there's no shift in client behavior, maybe extending the payroll cycles at all going forward.

No, not at all. I mean, we went back, Jim, and looked at 7 years' worth of data to make sure we have the number right. And we saw this 6 years ago, precisely the same thing. And it's just a function of calendar timing. James F. Kissane - Crédit Suisse AG, Research Division: Got you. That's helpful. And then just on pricing, is the net pricing sticking above your 2% target?

Well, we didn't say 2%, although some clever people would figure that out. So I won't comment specifically on that. But yes, we're in that range. James F. Kissane - Crédit Suisse AG, Research Division: Okay. And just, Marty, any update on the performance of SurePayroll?

Yes, continue to do very well and certainly meeting our expectations and a little beyond. And we still feel that the clients going there are very different from those going to Paychex. So we're pleased with the results of the SurePayroll, the sales team and the operations team. They both are hitting our expectations on sales, as well as their performance on client satisfaction and retention.

Next question, Sara Gubins, Bank of America Merrill Lynch.

Another question about the timing issue. Did it -- does it have any impact on the second quarter or any other quarters this year?

That timing issue, no, not really.

Okay. So it was a one-quarter thing.

In other words, Sara, just want to clarify, what I mean is you're going to have clean -- relatively clean compares there quarter-over-quarter. It really was a first year issue. First quarter issue, sorry, not first year.

First quarter, right. Okay. Second question, you've talked about expecting deceleration in checks per payroll, and that's been a pretty common theme. But if I've got the numbers right, the comparison actually looks a bit easier during the rest of the year than it was in the first quarter. So could you talk about the assumptions that are going into thinking that you'll see that decelerate?

Yes. Well, I think we start with the idea that, historically, we've never seen a period where we had this level of checks per client increase for, now, 10 straight quarters. So we're being guided a bit by history. But I will concede that if you look at the history, we've been under a little bit in terms of what the trend's been. We've got the trend right. But it's moderated more slowly than we've expected. And I'll leave it at that.

Okay. And then just last question. Any update on thoughts around M&A, what the landscape is looking like, and how that may be influencing your views on share repurchase potential?

Yes, as far as M&A goes, we're very actively looking, always looking to kind of expand the product set here and to be able to generate more revenue per client. We have been pretty active in that. However, it's always a timing of finding the right valuation and the right fit for us. But we're very active and confident that there'll be some things out there that'll help us along. It doesn't -- our focus is on the organic growth, but we're always looking at opportunities from the M&A standpoint.

Jason Kupferberg, Jefferies. Jason Kupferberg - Jefferies & Company, Inc., Research Division: I just wanted to ask a follow-up question from one earlier. So just to clarify, for the current year, the core payroll services growth at 3% to 4%, are we basically saying that that's almost all pricing with very little volume growth? Is that essentially the way to think about it?

Not really. We assume some volume growth, Jason, but it builds through the year. And volume growth, you don't get it all in the year. We do expect some volume growth, especially build revenue to grow through the year, and we have some pricing in there, too. There are elements like product mix that play into it that are also a factor. But no, we expect some revenue to build through the year. Jason Kupferberg - Jefferies & Company, Inc., Research Division: And then do you need to see the core payroll revenue growth accelerate beyond this year to get any meaningful operating leverage in the business? Because, I mean, I know at the analyst meeting over the summer, you had talked about beyond fiscal '13 seeing some operating margin leverage in the business.

Look, it helps. The more revenue you've got, the better you can leverage. But I think we've shown even on quarters like this one, where we're operating -- I'm sorry, revenue growth was pretty moderate, that we can get leverage. So I think if -- the thing about Paychex, unlike my previous experience, is that if we put our mind to get leverage, we get leverage. And generally, our mind is on getting leverage, yes. Jason Kupferberg - Jefferies & Company, Inc., Research Division: Okay. And then just lastly on pricing. I know at the analyst meeting you had talked about longer-term target of 2% to 4% a year, net of discounts. So can you just talk about your confidence in being able to maintain that range beyond the current year? Just as people start to think about the degree of competition in the market and maybe some of the deflationary impact of the mix shift towards more of the SaaS-based solutions and maybe just as part of that, can you give us a sense of what the difference in average annual revenue is between a SurePayroll customer and a client on the traditional Paychex platform?

Jason, I think you get the award for the best comp down question. Well, I'll take part of it and then Marty will do it. So I think we have good confidence on our ability to get that pay increase. One thing I'll mention to you, one way in which we know that is that we do -- before we start the plan process, we do sensitivity analysis around our customer base and can predict with fair degree of accuracy what our retention rates will be at different price levels because we know these customers, we know their behaviors. So when we go out and say 2% to 4%, we feel pretty comfortable that it'll be 2% to 4%, unless, obviously, as you're hinting, there's some sort of tectonic shift in the market, which we continue to say we're not seeing. And then I'll let Marty talk about the do-it-yourself payroll market versus outsourcing, what's happening there.

Yes, I think the point is that, as Efrain said, we haven't seen any shift in the market to -- there's always been that group that wants to do it themselves and use a SurePayroll model, where they do it themselves and have service to back them up, and then those who want to outsource and have all of it come to someone like us. And I think our pricing and our continual growth in the client satisfaction as well as the technology support for the clients on the tablets and smartphones and now online reporting center, I think, all add that you can still get the price. So we've seen it consistently to be able to get the price that we've modeled out, and we don't see that changing. We always watch it close. I mean, that can change. But at this point, we still feel good about being able to have the pricing power to get that.

Next question, Jim Macdonald, First Analysis.

Maybe you can give some more color on MMS and SurePayroll. Are they -- kind of growth rates still in high single, double-digit-type growth rates? Or can -- any more color on their growth rates?

Well, I think we don't usually break those out. We're seeing -- we've been very positive on, from an MMS, the major market perspective, the addition of the other product set, the single sign-on, adding time and attendance and HR online and our BeneTrac offering. And so we've seen the revenue overall grow on a client basis, and the penetration of those services continue to do extremely well. So we feel good about the product offering, the integration. And that again, more of those clients will be given even more technology in the future, and they're all in our roadmap for Paychex Next Generation. So we feel good about the major market. On the SurePayroll side, as I said earlier, we feel very good about where they are. They met or exceeded expectations for the quarter on their sales as well as the retentions. So really feel that kind of all those markets are doing what we expected.

Okay. And just a technical question as a follow-up. The -- can you talk a little bit about the VRDN rates you're seeing now and how that compares last?

Yes, yes. So that was part of what I mentioned before. So last year compared to this year, last year we were predominantly doing FDIC-insured deposits. And not to get too much into the weeds, suffice it to say that the way that works is that you get a credit that you can use, and you get a rate that you're paid on a pretax basis and then a credit that you end up being able to use. You -- so you have impacts both on interest on funds held for clients. And so -- and you have below-the-line impacts on expense. When you net the 2, you end up at -- we were ending up somewhere around 8 to 10 basis points between the 2. VRDNs are a little bit better. It seems kind of funny to talk about this, but VRDNs now, at least to get typically higher than that, sometimes into the teens or 20 basis points, which is what the environment looks like. So we're doing a mix of both this year. So you may see a little bit lower interest on funds held for clients. But from a bottom line prospective, the impact is negligible.

Next question, Bryan Keane, Deutsche Bank.

Just a couple clarifications. The volume and frequency issue that impacted growth about, I think it was 1.5 points. Normally, when you see that, it's just a days thing or calendar thing. And then the second -- in this case, you would think the second quarter would then have a positive impact, but it doesn't seem to be the case. So I just want to make sure I understand that.

Yes, well, it was just basically a quarter-over-quarter issue. So impacts where you saw it, if you remember last year's results, that's where you would have seen it. In the first quarter, our organic growth was 4.2% in payroll services. And in the second quarter, it was 2.8%. So you actually see it in 3 quarters. Not to muddy the waters any more, but you see it in Q4 of '11 some impact on Q2, and then sequentially, you saw some in, I'm sorry, Q1 and then Q2. So we went from 4.2% down to 2.8%. I got some questions on the call. Part of that was some processing revenue that changed, but this had an impact on that also.

Okay. And does this volume and frequency issue have any impact to the HRS revenue?

A little bit, not -- we called out a little bit of an impact, but it's not significant, not as significant for core payroll.

Okay. So then in HRS, coming in at 7%, I know the guide I think is for 9% to 11%. So where will we see the pickup in HRS because it sounds like you guys are comfortable you get back in that range?

Yes, first thing is basis points fees were just exceptionally strong in Q1. So we think that the compares get easier and we'll get reasonable growth. The second part was we normalize that -- the HR Essentials product launch effect that we had in Q1, and then we expect the PEO to -- the PEO effect to lessen as the year goes on.

Next question, Rod Bourgeois, Bernstein. Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division: So is there any evidence of late that deals with clients that Paychex would have traditionally won are actually now being won by lower-priced online players like SurePayroll or other players in that online, low-price market?

No, Rod, not seeing that at all. Again, it's in -- all the research that we've done and the feedback from the sales team and who they're seeing and who they're competing against and what deals we're getting out, there's no evidence that we've seen that kind of drop at all. And we're not seeing it -- having the SurePayroll side of it, we're not seeing it there. That's still clients going in who want to control, want to do it themselves, going on the web, search, find them and buy over the phone from them. So we haven't seen a shift there. Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division: Well, let me ask you this on the SurePayroll side. I mean, are you getting more referrals into Paychex from SurePayroll or more referrals into SurePayroll from the Paychex side?

I would say both are pretty minimal. We're able to shift back and forth if there's not a good fit there. But that's one of the things I would say that we've seen for the last 1.5 years now with SurePayroll, that there has not been much referral back and forth. It's available there if the sales teams, both of them find that there's a client without a good fit and that they're a better fit for the other company. But we haven't seen -- we've seen very little activity on that at all. Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division: All right, great. And then at the risk of beating a dead horse on this timing of revenue growth topic, should we be assuming that we won't see a lumpy positive timing event over the next couple of quarters because that's already transpired? Or is there actually going to be a lumpy positive side to the negative timing that hit you in the August quarter?

No, no, we saw the lumpiness last year. And what you should be expecting to see is a build through the year. Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division: Okay, I got it. And then hey, just on this topic. And I know that the practice is to not to give quarterly guidance, but in cases where there's a known timing issue that's meaningful, 1.5 points in this business is pretty meaningful, do you consider going forward of giving more specificity in the guidance for the next quarter when that's expected as an issue?

Thanks for the advice. We stay away from quarterly guidance, and I think we did as reasonable a job as we could to tell people where we ended up. And I think if you look at consensus, say, revenue being off $6 million without having the guide directly to what the number was, I think it was reasonable especially also, people, I think, understood what the earnings compare was. So I hear you. I hear you. We'll consider it.

Next question, Jeff Silber, BMO Capital Markets.

I just wanted to shift back to your investment policy. You talked about the mix of taxable to tax-exempt securities. Can you tell us roughly percentage-wise where that is now, where you expect to go and how you think that'll impact both your interest rate and your portfolio tax rates?

Yes, let me -- so the portfolio remains 50-50 at the moment, 50% being invested in short-term vehicles, 50% in longer term. We anticipate remaining long term in tax-free municipals. That's not going to change. But I would say on the short term, opportunistically, we'll look at VRDNs if we think they offer a superior return to FDIC-insured deposits, which is the next best option in terms of available investments. So I can't give you precise percentage. We'll do it opportunistically when we think that the VRDN market looks a little bit better.

Well, would it make sense at least to maybe, for modeling purposes, maybe to model the interest rate down a little bit and the tax rate down a little bit as well?

I think a touch. I think a touch. But I don't think it'll be significant.

Okay, great. And then just one more modeling question. You talk about the investments in IT and product development. Which specific expense line item is that in?

That would be in our G&A line.

Next question, Vishnu Lekraj, Morningstar.

Just want to touch here on the payroll service growth, maybe beyond here, the next couple quarters. Let's assume that the small business environment gets back to normal. How should we view growth out of that division in terms of a gross dollar, not necessarily percentage, because that's going to change over time, but a gross dollar versus the historical norm?

I guess I can't quantify it on a gross dollar. I would say that we get up to more normalized new business environment, we should be above certainly mid-single digits. Yes.

Got you. Okay. Can you give a little color as to what the competitive environment's looking out like today not just with the SaaS or DIY products, but all around from -- specifically your payroll services basically, are you seeing more competition today versus a year ago or vice versa?

I'd say about the same. I think we've had a pretty stable competitive environment. I think there's always discounting going on. There's always pretty aggressive competition. But it hasn't -- I wouldn't say it's gotten any more difficult over the last 2 years or any more difficult or any less. It's about the same.

Next question, Michael Baker, Raymond James. Michael J. Baker - Raymond James & Associates, Inc., Research Division: The health insurers are starting to talk about potential impacts for 2014 as it relates to the exchanges, pointing out that they anticipate employers with 10 employees or less to kind of push workers onto the exchange. And I know there's been some softness in the PEO. I'm wondering, how much of that is attributed to you guys proactively adjusting your sales effort there? And what type of impacts do you guys expect? And I know that there are some offsets that you have as well.

Yes, I think from -- first, from a PEO standpoint, that really hasn't been an impact on the PEO. The impact there was some higher -- an increase and higher insurance premiums than we had expected, and -- last year really and the year before. And that caused some issues with us retaining clients and selling. And we may -- moderated some of that with the ASO, but that was the issue. There wasn't anything proactive that we tried to do from the health reform standpoint. From the health reform standpoint, we feel pretty good that we're -- we play kind of that expert role that as this agency's gotten more and more traction, our insurance agency has gotten more and more traction, it's now the 28th largest in the country, that we're always going to be that expert. So whether clients -- it's really the fact the clients are going to be more probably confused and in need of help than ever to know whether to go to an exchange, whether to go off health insurance or whether to find other methods to -- or the best methods and most efficient methods as a small business. I think we're going to be well positioned to do that. Already with the tie with payroll, we're able to help them with immediate access to reports that we provide them that help if they qualify for the small business tax credit. If they're going to -- if you need to put the information on the W-2 like the greater than 250 employees, we can put that very easily. So I think there's been a nice -- there's a nice tie with health reform no matter which way it goes. Margins, commissions from the insurance carrier is certainly going to get squeezed a little bit, but I think we'll be very active in being the expert for the small business. Michael J. Baker - Raymond James & Associates, Inc., Research Division: And then I was looking for an update on workers' comp, how claims are shaping up relative to reserves. I would assume there was no major negative development there. But just in general, some commentary around workers' comp dynamics might be helpful.

Yes, no significant issues. We -- I think on the workers' comp side related to the PEO, what -- the claims experience there was what we expected. And then on the sales side, this continues to be a good story for us.

Yes, I think we do a very good job on the book and there's been no surprises. It's been right with our expectations.

Next question, David Grossman, Stifel, Nicolaus. David Grossman - Stifel, Nicolaus & Co., Inc., Research Division: Just kind of, I guess, a bigger picture question. I mean, you've got several initiatives under way to accelerate growth. It's new client growth, expanding the addressable market within flex SurePayroll and increasing revenue per client. And you've done a good job of writing some anecdotes on your progress there. However, can you provide any more specific metrics that help us benchmark your progress against these initiatives? And perhaps even more specifically, can you help us understand whether the aggregate of these efforts can actually impact the growth rates if the economy continues to stagnate or new business creation continues to be relatively moderate?

Yes, I guess I'd start by saying to have a guidance at 3% to 4% in this kind of economy, that this continues to kind of slowly improve, we're pretty happy with the fact that we're 3% to 4% there and we're 5% to 6% overall. Mid-single growth in this kind of economy we feel good about and the fact that also we're leveraging that and continuing to maintain a very high profitability and a good dividend. So I would say all these things kind of contribute to that. I would say also that like when you look at 401(k), no matter what's changed in that environment, and we've continued to add services that keep us #1. And I think so one of the things quantitatively is we're still #1. We have over 59,000 plans at the end of last year. We continue to provide more new plans than anyone else. I think that's because we're constantly innovating. And on the SurePayroll side, I think, as you mentioned it, we see good growth there as -- exactly as we expected and that being -- expanding into that market that does not really cannibalize, as we see at Paychex, is very good to help drive that growth, too, and drive client base and be able to sell the other products into it. So I guess we don't try to give too much specificity in each one until we're kind of done with the year. But I think the fact that we're reaffirming guidance, that we have mid-single-digit revenue growth expectations in this kind of economic environment, is all those things playing together. David Grossman - Stifel, Nicolaus & Co., Inc., Research Division: So maybe asked another way, Marty, then, if we go into the next year without any real noticeable macro improvement, would you expect that mid-single-digit growth rate to improve based on your progress against all these different initiatives?

I think, David, it'd be comparable. I think to be able to continue to push mid-single-digit growth on the revenue side in this -- in kind of a slow economy is something that we'll still be able to do and continue to try to drive it incrementally better. But I think that's where it'll be. Long term, as the economy comes back, we ourselves, as we've said at the Investor Day, in the high single-digit growth revenue and still trying to drive a great profitability as well. David Grossman - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then, Marty, you mentioned this major bank that you signed as a channel. Can you help us better understand what that opportunity is and how that can play out?

Yes, that was -- and if it wasn't clear, it was a franchise. We're pushing both the franchise now and the banking. We've always gotten referrals from banks, but I think we really work together now with SurePayroll to provide both a white-label opportunity to the bank or in total outsource and we'll be able to go in there together and we come in much stronger, I think, that way. On the franchise side, what I was mentioning was that we had signed an agreement with Subway and -- in just the recent month or 2. And we have a good relationship with them to be the preferred provider of their payroll and they're, of course, the largest franchisee in the U.S. And so we feel good very good about that, winning that from a competitor. So I think the opportunity there is, you're the preferred provider, and it gives us great leads. Still early to tell, but we certainly feel good about that. And that's opened up a few other franchises that we're actively pursuing as well. David Grossman - Stifel, Nicolaus & Co., Inc., Research Division: Okay, got it. And then finally, Efrain, I just wanted to make sure I understood your comment about the tax rate. Did you say you'd be in the 37% range or 36%? Or was that a function of where you fall out on the tax free, is it, over the course of the year?

No, I think we said our tax rate would be around 36%. Actually, in the guidance, we said it would be comparable to first quarter. We're around 36%.

Next question, Tim McHugh, William Blair.

This is Stephen Sheldon in for Tim McHugh today. Just overall, I think you talked about growing your sales force 3% to 4% this year. I was just wondering if you guys can give an update on where you guys stand right now on that initiative.

Yes, we're in good shape. We've -- we went out. We're hiring. We're pretty well filled in all spots. We've expanded some of the territories, as we said we would. So we found additional territories based on our modeling. And that's one of the first years. In a few years, we've been able to -- we've done that, which is expand out into additional fringe territories, I guess I'd say, off of some of the areas we're already in. And we've achieved the increase in the sales number. And sales met our expectations in the first quarter and I think are doing a good job of setting us up for the guidance with driving more revenue per client.

Okay. And then kind of a follow-up questions, the segmentation. Specifically for the financial advisors segment, how -- can you maybe provide a little color there and how large that sales force may be?

Yes, the sales force is -- I wouldn't give necessarily a number because -- from a competitive standpoint, but it's a new team that is dedicated right to those financial advisors. Now in the past, as we're the largest 401(k) record keeper provider and have been, we're very good at going directly to clients and working with financial advisors. We've got a lot of relationships. But what we didn't have was necessarily a pure focus on going directly to the financial advisor, building the relationship with the large financial advisors and giving them a direct service, a dedicated service kind of process. And that's what we changed. So we have a sales force that is smaller, dedicated to building the relationships. Then they'll bring in and sell to the financial advisor to help them build their book of business and have a direct service line for them. So it's not just directly to clients, it's now directly to the financial advisors as well. And we think that'll help accelerate the growth of the business, which, by the way, is still growing to our expectations.

Next question, Paul Thomas, Goldman Sachs.

Just a follow-up on new business formation from the comments earlier. Is your sense that new business formation is a little more positive? Or do you see it as weaker because of the election and maybe we might see some acceleration post-election?

I think based on Efrain, the numbers Efrain gave, it always lags a few quarters. I think it's still relatively flat. So I don't think we – we haven't -- certainly, haven't seen it gotten worse. But I think it's gradually improved. I guess the only point of color to it is a couple things. One, I think the election does slow that down a bit because those on the fringe of starting investing are not investing, are kind of waiting to see how things fall out. I also think it's still tough to get cash. Where they can get it from a home equity or friends or banks, it's still a little bit tough to get cash. And -- but the positive news is that consumer confidence is up this morning to the highest it's been in probably 7 or -- 6 or 7 months. And also, the housing starts. And when those things start to come back, that should drive some demand, which I think starts the businesses that support housing, et cetera. So I think some positive numbers today, but I don't think we've seen a major change yet or anything.

Next question, Mark Marcon, RW Baird. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: So just curious, can you talk a little bit about MMS and what you're seeing there? You did say that things are going well. But I was wondering if you could give a little bit more detail just in terms of is the growth profile about the same as it used to be in terms of where the growth is coming from? How much of an expectation are you building in, in terms of continued growth particularly with the product improvements coming along? How should we think about that? And then I have a bigger picture.

Mark, couple things on that. We certainly expect MMS to have growth rates that are in excess of our core business. So we certainly, when you consider all the services that are part of a typical MMS bundle, see that. What you see -- MMS is a little bit more complex sales than core because as an MMS client comes onto payroll, there are other services that typically are associated with that sale, online services that also help fuel that growth. So we've been seeing very, very good results on the online portion of the services that MMS customers get, and we've seen kind of steady growth in MMS sales themselves. So we expect it to grow faster than the rate of core. It is not as fast as it was probably 4 or 5 years ago but still pretty reasonable growth.

Yes, and I guess I'd just add, Mark, that the good thing we're seeing is much more package of all of our products and the full suite of products going to those clients. And we got a great sales force there that knows how to sell the combined product portfolio. And they're going to continue to see the technology integration of Paychex Next Generation. So we're very well primed for the future with that as well. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: Great. And are you seeing the same sort of wins in terms of both smaller clients graduating up to MMS as well as competitive wins? Or how should we think about that part of the equation?

Yes, I think it's always been more, there's some movement up, but there's not a lot of movement up from one product to the other. Now that'll be easier in the future as we're all on one product suite. But we don't see a lot of movement there. It's more competitive wins. And I don't think, as I said earlier, that competition has changed much from a competitiveness, from a pricing or who is in there fighting with us. It's pretty much the same kind of pricing or same kind of competitive atmosphere. So not any big changes there. They're primed and ready to go and have met our expectations, and we'll keep pushing to see more growth there. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: Great. And then can you -- free cash flow was very strong this quarter. It's been very good over the last 12 months. Cash balance continues to build. How are you thinking about that at this point?

Well, what -- as that builds, I would just characterize it as our conversations about its return to shareholders intensifies. Yes.

Lots of options, I'm sure, that we always talk about. Obviously, a board decision in the end, but we always have those conversations, so. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: And as you said before, we don't necessarily need to grow earnings in order to get to a 75% payout ratio. We can do it sooner than that, right? In order to boost the dividend?

Yes. No, that's correct.

Next question, Rayna Kumar, Evercore Partners.

I'm calling in for David Togut. Could you please comment on your head-to-head win rates in small business payroll services against your principal competitors and particularly if you've seen any impact from ADP's new RUN product?

No. RUN's been out for some time and as well as Paychex Next Generation, our side of it. I think we haven't seen much change in the competitive environment. I think our -- the fact that we -- our service is so strong, our results. And the fact that we've rolled out a lot of technology and I think have been seen more as a technology leader in the past will help us, and has helped us, in what we're demonstrating to clients. But I have not seen and really don't give out the closing rates on the sales and never have. But we see the environment very similar to what it has been.

Our last question, from Ashwin Shirvaikar, Citi.

So a couple of questions. One, I guess you have, obviously, numerous initiatives, including the ongoing effort to use better segmentation. My question is which channels have you seen better client growth in? And which are not doing as well, both among the traditional channels and the newer initiatives?

Well, I don't -- I think what we've seen, as we've said, pretty much on our expectations for the first quarter, I think some of the segmentation is fairly new. We certainly feel good about the run rate for the 401(k) in particular. I think that organically, what we've already had is continuing to do well at good growth rates. And then the new -- I think this is not going to do anything but continue to propel us to be even stronger in 401(k). The HR outsourcing has done well with, we've kind of taken a hit from the PEO in the past, but I think we're well positioned in this selling season for that, along with the ASO and the HR Essentials product, which is the telephonic support. And on the payroll side, I mean, I really -- it felt that we've met expectations as to where we feel. And given this economy, I think we're well positioned. I think the segmentation has made it much cleaner for our sales teams, who are world-class, to say "This is who I sell to this is who the other team sells to." And there's been a lot of good work there and feedback. And so I think that started off well. In addition, too, I think it's -- we've been driving more market growth thinking. So those payroll sales teams refer more clients -- refer our other sales team into those clients. And so things like workers' comp and health insurance are picking up as well from those referrals.

And are there areas where you think -- that need more sort of management attention where you haven't been doing as well in terms of channels?

I don't think so. I think we're -- I mean, we feel pretty good across-the-board, and I think we've got a great leadership team in sales that are very focused on revenue growth. I think that would be the other big thing this year, is we focused a lot of their incentive and is to driving revenue per client and selling additional services. And that, we feel, has started off very well in the first quarter.

Okay. I'm just trying to understand, obviously, in your -- in the traditional part of your business, cross-selling and up-selling is a terribly important part of what you do. What about for SurePayroll? Is there sort of a path up in terms of SurePayroll? Do they -- have you seen clients on SurePayroll as they grow bigger, maybe graduate to the traditional set, give you a better revenue opportunity? Is that an option for them?

We don't see that change that much. The clients don't -- usually, if they go to SurePayroll, it's a different type of client that wants to do it themselves so they stay on the product. But what they do -- what SurePayroll was doing and is working with us know to enhance that even more is selling additional services. So let's take workers' comp, for example, they had -- when you had SurePayroll, small company selling a lot of new payroll clients, they had a small team selling workers' comp. We've added them and directly linked them into our workers' comp team, which has been industry-leading in driving workers' comp penetration, I think, into our base. Now there's -- we're selling more workers' comp to their SurePayroll -- to the SurePayroll clients and health insurance and 401(k), et cetera. So we're -- they've had fewer resources to be able to do the additional products but had it set up and started. We've been able to enhance that, and we'll see higher revenue per client at SurePayroll but not necessarily by going to a different payroll product.

Got it. Last question, if I can. Just a clarification. And you've been asked a few questions about the elections and the impact. Are you actually making in your guidance any specific assumption on post-election trends for employment or pickup of business creation? Or are you not doing that?

No, no. We think that -- I'm not sure it'll have a biggest -- I think the biggest impact, we hope, will be that there's a drive for new business formation. But we haven't made any adjustments for either candidate or how the election comes out, no. Wendy, that was our last question?

Thank you. That was our last question.

Okay. At this point, I'll close the call. And if you're interested in replaying the webcast of this conference call, it'll be archived until October 25. Our annual meeting of stockholders will be held October 23 at 10:00 a.m. in Rochester. That meeting will also be broadcast over the Internet. I thank you for your taking the time to participate in our first quarter press release conference call and for your interest in Paychex. We feel good about the quarter and reaffirming guidance. We feel good in this economy, and we're continuing to push and are very proud of all the work on behalf of our 12,000 employees across the country. So thank you for participating and have a great day.

Thank you. This does conclude the conference. You may disconnect at this time.