On Thursday, Paychex, Inc. (NASDAQ:PAYX) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.
Jason Kupferberg – Jefferies: I just wanted to start with a question on the expenses side of things. You’ve been very consistent telling us that the expenses are going to elevate in the second half, the products, the technology, et cetera. I wanted to get a sense of whether or not you see that elevated level of investment bleeding into fiscal ’13 or do you feel like you’re going to capture most of the incremental spend that you need to make in fiscal ’12?
Efrain Rivera – SVP, CFO and Treasurer: Jason, we haven’t obviously completed our plans for 2013, but I think that what we recognize is that we need to continue to invest in technology. I think we’ve done a good job over the past certainly three to four years of offsetting that with other efficiency increases, so our intention going into the plan period is that we’ll continue to spend at a reasonably high level and look for offsets in other parts of the P&L.
Jason Kupferberg – Jefferies: Just switch over to the sales front for a second, I think you said mid single-digit new sales growth here for the February quarter, is that right?
Efrain Rivera – SVP, CFO and Treasurer: Yes, right.
Jason Kupferberg – Jefferies: When is the last time it was that high in any quarter, I mean, let alone key selling season quarter?
Efrain Rivera – SVP, CFO and Treasurer: It’s been a couple of years since we’ve…
Jason Kupferberg – Jefferies: Do you feel like that’s sustainable? I mean, is this a little bit of an inflection point or should we not make too much of it, because it is the key selling season and things can bounce around?
Martin Mucci – President and CEO: Well, I think anytime you see it for the first time, you want to be a little bit careful. But we are certainly pleased with it, because it has turned in this important selling season. I think the sales folks did a great job. But I guess, I’d say we are kind of being conservative and waiting and seeing how the next two quarters come out, but we certainly were feeling good about the increase since it’s the first time in a couple of years.
Jason Kupferberg – Jefferies: Just last one from me. I was hoping we could maybe a little bit more of a detailed update on the CPA referral channel. How many CPAs are part of it these days? Is that network growing? Any latest data on the percent of your new sales that come from the CPA network, as well as anything you can tell us about what percent of those CPAs are exclusive to Paychex for payroll referrals and what the competitive environment looks like in terms of going after the CPAs?
Martin Mucci – President and CEO: I think, Jason, we don’t give that much out, but I will give you the sense that we feel we’ve – this has always been a strong channel for us. We’ve seen this one come back stronger, so where you see business starts – when you look at the sales increase and you see new business starts still early flat year-over-year, sales from new business starts. So we know that’s still a challenging environment. So we stepped up the communications with the CPAs which are a very important channel to us and the value that we add. I would say that the number of CPAs that are referring are probably up a little bit, but I would say generally what we are seeing is more referrals from the CPAs that we’ve been in contact with and have relationships with.
Jason Kupferberg – Jefferies: Understood. And great idea on the analyst meeting this summer. I look forward to it. Thanks.
Price Increase Insight
David Togut – Evercore Partners: Can you quantify your preliminary views of your fiscal ’13 price increase?
Efrain Rivera – SVP, CFO and Treasurer: We are still in the planning process. It will be in the low single-digits.
David Togut – Evercore Partners: Could you also update us on initiatives implemented by your new head of sales, Mark Bottini, since he took over in October of last year?
Martin Mucci – President and CEO: Sure. I think Mark has been spending a lot of time in the field and he has been out talking all of the sales reps in the different divisions of the leadership. He has spent a lot of time making sure that the changes we made last year at the beginning of the fiscal year, including the new compensation plan for the core payroll sales reps, have been working well. He has been making sure that we are executing on the training initiatives, as well as all of the support tools that we have given the sales force. We gave them higher-speed tablets over a year ago and have put sales force and so forth on those. He has also brought back the marketing and support teams in sales, the additional things that are needed. So, we are doing some new things on sales demos and some other support tools. I think he is extremely active, fitting in extremely well and really getting a great handle on it. I think the biggest thing is just making sure that the focus is on execution, not only in units but on revenue per client and that we are continuing to grow on all markets that we can.
David Togut – Evercore Partners: Do you think that you are seeing a significant increase in revenue per client? I mean outside of existing price increases.
Martin Mucci – President and CEO: No. I wouldn’t say that. I think what we are doing is focusing on maintaining that. You always have the competition out there. We thought we did well in the third quarter against our competition, frankly all competitors and you are always balancing pricing and discounting and he’s keeping a focus on. The focus is on executing both unit sales and that you keep the revenue per client that we are expecting.
David Togut – Evercore Partners: Just finally, can you quantify sales force turnover in the third quarter?
Martin Mucci – President and CEO: We don’t give the numbers specifically, but I would tell you that it’s in the low 30%, 30% to 33% and that’s back to historic levels. So, we are pleased that – but as I said earlier that all of the actions that we’ve been thinking place and then Mark coming in and the leadership team that is out there is really driving this retention back to the historical levels. We’d like to see it get even better, but it certainly is back down significantly from last year.
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