Paychex (PAYX) 2 Apr 242024 Q3 Earnings call transcript

Good day, everyone, and welcome to today's Paychex Third Quarter Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded.

And it is now my pleasure to turn today's call over to President and Chief Executive Officer, John Gibson. Please go ahead.

Thank you, Mike. joining year today XXXX for third the everyone, fiscal quarter earnings you, our on discussion Paychex Thank release.

Joining -- me Schrader, Schafer our Chief today Financial Officer. is Bob

results market released before opened, morning, third quarter. the our This financial for the we

release access Relations website. our can You on Investor earnings our

day. Internet our Our Form and days. archived available on next will for filed is approximately being SEC within with be XX-Q teleconference the broadcast website XX will the be This over the and

call the highlights we'll start update. to with quarter an then questions. business going I'm of over be financial the on today take your for for and course, update to And then, a third the happy to turn it Bob

X with of the revenue contribution We consistent year. Total would communicated year in months service, X% for fiscal current ERTC Tax prior delivered reflected results period. the the fiscal or headwind of year. a our become the that is solid current This half expectations a the growth in in third as of Credit, second third the previously the our ERTC compared quarter quarter Retention lower with Employee first and revenue

accelerated impact, revenue this total quarter. X% growth our the in Excluding to

the what -- the and growth had of headwind our quarter. in down all volumes ERTC larger solid client decision slightly several program expectations, moderation new legislative bases continued to realized employment in upon within our While combined line our wind a developments Capitol we headwind and and on based Hill, than anticipated rates, both lower recent client create and in remained revenue line, client with were our retentions factors, to the including

we pleased officially post-pandemic estimate the past billion how And we business based put XXX,XXX over an with these are that at We in MIT, very small nearly our you, $XX clients. tell And we the end Paychex. ERTC into jobs. I have of upon teams during program, am With performed the of of analysis hands I aid our will saved by years. financial several the era now

era with pandemic product reoccurring to businesses these pandemic and ago. that consistent business strategy they certainly our part we believe our succeed. normal While And when of simply today model the purpose, company are are years entered at or were help we that's a I revenue programs Paychex, X our than not better

We and this realization, penetration growth, client in value-based formula era and Focused still in the and product the strategy. the are company. acquisitions winning true the long growth increased growth price marketplace, digitally Paychex proven opportunistic post-pandemic pillars revenue our holds recurring driven still for of key are

even purpose, We exiting clients an are to reputation trusted an opportunities pandemic to adviser on employees our stronger focus and more their with with even business a greater as and small the midsized era our and impact owners.

Despite share our quarter, the in earnings growth tradition operating delivered we longstanding X% diluted of discipline. the due to and headwinds expense expanded margins in per

times uncertain ability the in growth. long-term we to to drive still in and on continued best business, As one the deliver of investments demonstrate operators our to strategic make necessary the earnings profitable

positioned Our several profitable past and operational the digitization investments enhanced along culture management future in capabilities excellence as well. sales we've of growth expense years with have and well made us for

midsized growth market affordable businesses. workers, be for labor A reduced businesses. headwinds for and to capital tight continue challenging qualified access job for market to and small pressures inflationary macroeconomic The remains and small

in growth continues show to environment. watch and but, small macro wage moderation business employment both relatively a inflation however, Our job stable

choppiness There customer continued segments in industries in hiring see third the in hiring more is now. and softening the all The to in quarter quarter. we across started second

anyone employees rates, at and us recent changes. tell still especially clients areas minimum hire wage in find qualified legislative and just higher increases they not aggressive wage to can't Our are with willing

and new remains our and solutions advisory volumes the technology of demand clients HR quarter added The for robust, were in strong. the

deliver our retention above remain which continued on as revenue value our levels. pre-pandemic seen customers results, We to for

for also high-value revenue in outsourcing And as the at line remained was employee both retention on quarter with Client levels. resources acquiring record third focus to worksite HR and pre-pandemic levels continue we retention and retaining our clients.

intact. high our revenue that market fundamentals remain sound. retention our demonstrates leadership Paychex The Our value and proposition are of sustained

the quarter success the in with results has retention which highlight to I'd year. results specifically, like sales, We the business during and fiscal continued strong gain PEO months with first of in strong momentum enrollment. to the finished our X insurance

see to inside impact insurance shift value our PEO positive shift This towards our long-term mix particularly client continued both on have back and as base. lifetime a on customer attach has the benefits. offering, the model, We clients a outside

we've are key technology and of AI know, investments our areas of something been also years. for on and focused many related many you focus that, as in industry

to quarter we proud implemented their in insights several that We needs. advanced clients. into and preferences prospects innovative to Paychex results additional are behavior, Leveraging and significantly technology has deeper growing and gain analytics their the that client models AI us our announce and innovative for successfully improved allowed

Vice analytics responsible has will Analytics enhance performance Vance value. newly executing created the company be and Last automation company's drive refining customer business use strategy, Data the both AI. for announced joined and as business this advanced of AI-driven and improved Senior intelligence, and data including to of month, President we that In the he role, Beaumont our

data of We are Beaumont to vast the board to help value excited have on us capture assets. full our

our -- our of and, be what do on Paychex do values. thank recognized for both than in focus importantly, it. we opinion, to we company's their hard my and continues work XX,XXX the employees to want more how more thanks I to

as by consecutive as be the Paychex of in recently Companies Ethisphere Most Magazine the for of Innovative list. We recognized are Fortune Companies time one XXth to world's also Most recent year. Ethical the the proud by annual their second for was one recognized

product strength model, in business service have the and testament our culture that the to for and our the and awards business decades the year received our and value to a our to and over and customers of invest commitment we is long-term past investors. employees deliver many recognitions These in the

we the have markets to history digitally customers, I'm pandemic our exit We determined in better more very in we be HR driven positioned in other, our -- focused employees our for to each era. the and capture for even industry, proud -- communities the period of our this our for the throughout and opportunities delivered how Paychex's and for shareholders leader the serve. are digital

to financial results brief update a to our the quarter. it on turn over give now Bob you for I'll

and that that John, to and, start good to contain by will forward-looking some Thanks, statements reminding morning, involve therefore, everyone risks. commentary events future certain refer everyone. like I'd today's

In share. addition, those per I disclosures for I'd release periodically press diluted will metrics. around earnings you some to refer our our to measures, like refer non-GAAP adjusted customary

I'll then phone, preliminary on start fiscal financial some promised an results And our 'XX third I update year-to-date and thoughts fiscal you as with a summary quarter of will to outlook. provide our the on 'XX. share around of and many

solutions increased growth was $X in of about by And our the Management billion, ERTC and we for quarter. revenue year the clients This a HCM number suite across to contribution increased our decline the was ERTC and the that offset Solutions disclosed the as press by reflects increased as impacted the basis -- in of points. to served product XXX $X.X in impacted release, that penetration, revenue. to X% our was which from revenue X% driven Total billion. growth by lower quarter prior compared primarily

Solutions Insurance million, driven PEO revenues. and our increased that Insurance and average to and X% employees revenue $XXX worksite by PEO in increase an was higher

worksite volumes continued during saw in medical third employee PEO the and participant momentum growth Our quarter. plan

increased Interest funds $XX to higher held to average rates. on due for clients million, primarily XX% interest

growth to and expenses the X% related employees average quarter. higher to was costs Expense Total $XXX well Insurance insurance as higher compensation to higher during as costs revenues worksite attributable the million. direct the PEO increased

about of is despite And XX.X%. like with the were margin basis is as still We expansion much That -- represents like that prior for of Operating points pretty income is expansion to operating called interest highlight think margin an expansion over quarter. all we pretty million would increased know, that I period. the really able $XXX I that strong X% XX year in deliver It's to the quarter margin rates. out. the to just much ERTC many ERTC headwind margin of you margin.

share per adjusted per increased $X.XX. earnings and share Both X% earnings diluted diluted to

clients increased I'll $XXX Solutions interest to grew revenue results to increased Total $X.X million. increased And $XXX billion. Management billion. our year-to-date to to for held period. Solutions quickly on funds $X for summarize million. revenue PEO and Insurance the X% X% XX% X%

our XX.X%, and to Total and X the a were margins operating months period. prior for months expenses X $X.X grew for first first year year expansion the of point X% the billion, over basis the XX that's

earnings share diluted year-over-year Diluted $X.XX, earnings and per $X.XX per share X% respectively. to both adjusted and increased

of give overview a you I'll quick now position. financial our

we maintain of financial strong position many and high-quality flows cash a earnings As you know, with generation.

billion. of the approximately cash, total investments the was borrowings $XXX cash And end Our balance corporate our quarter. restricted as and were $X.X total million for of

capital. net That the operations by XX% $X.X was the income same Cash up months flow for compared to from fluctuations billion, primarily year. in that's last and X higher working was first period driven

on And total million $X.X $XXX the our That in of XX%. a X and dividends repurchases. share months year. includes rolling And first return returned we the robust $XXX of through shareholders of at to billion XX-month remains equity million

updated fiscal obviously to level which current assumes current environment, our for I'll This uncertainty. turn the some of now macro outlook guidance the had year.

this service We pause our prepared performance to decision our legislation. I from quarter, on to to color reflects more measures on this a remarks just little impact based and based provide wind on on want our down have ERTC of certain the bit there ERTC. guidance recently revised proposed also my

you program of legislation guys think there year. there out retro ERTC that the XX end of are this would many January I to is that aware bipartisan

I level but the passed create think around hasn't the it's does a uncertainty yet passed ERTC. of Senate, House. It that

ERTC it forecast it subsequent and in sell level to the to decision We January or removed revenue continue based -- XX, on QX. of on to that a in month to subject essentially February. made uncertainty the from recognizing we've stop the We of

the that of also part you to give what year. see I'm that -- and the as the updated relates about impacts that's the it you guidance to for so the impact And quarter to guidance

to expected is is of Management to the PEO X.X% clients grow end be Insurance expect in lower and range. we expected $XXX guided Solutions in although X%. to funds is for of X% to previously had now lower to of to the range X%, still the it to of the on the now X% expected be We to grow that million. that range in range X% Interest end million will still the more range. $XXX held towards of

is revenue of to in the to range X% expected X%. now grow Total

Our was this and range is income from to prior to guidance Other to million million of to net is be million, expected guidance $XX X% of $XX $XX previous in the $XX raised the income X%. million.

Our still the guidance at XX% being unchanged, of expected tax and per the are XX%. to margin grow earnings anticipate operating we of margins rate range effective diluted And in share operating although XX% adjusted range, is to the high which for XX%. was end to guidance still do

little just the Now a bit on color let of provide quarter. fourth me

be to We are growth currently revenue approximately QX. X% anticipating in total

Management to headwind the in ERTC also third to to in was similar would fourth be be in around the the expect XX% And expect it growth operating to we margins quarter. quarter. quarter Solutions what the We the

annual guidance We process we We to are that end of currently in our fiscal call. provide expectations next like year. QX our we do on will at when for working the of formal budget normally and the the middle the get obviously

However, 'XX. share will and we're thoughts, expecting word what preliminary around for some the will I emphasize I fiscal preliminary

be number will despite range. to what rate. and then the revenue what for this growth On as is was ERTC told going gave X% consistent I it And that range this in you. is the is for delivering to that a know headwind And that approximately assumed approximately a 'XX. expansion a headwind, growth would the going total forward. you, include X%. a all does year, FY with I revenue amount X reminder, dollar from preliminary basis, margin are in we 'XX. headwind I ERTC, headwind And know expect the growth just in X% fiscal X% fourth be as to quarter committed we I be operating be. I intents And and mean, to of would this that purposes,

process, annual provide working going still year. to current still on the as change, based website you update working through this when get more assumptions, our we Obviously, are to the for through. the but our quarter. slides I are through you we color details. end the to information. the of is fourth We'll we'll again budget investor which additional may we Those our on refer will get We

I'll to that, back over turn it with And John.

now you, Thank Okay. questions. open Mike, Bob. up we'll it for

Instructions] [Operator have question first do And from Baird. with Marcon our we Mark

going It's So ERTC, retroactively to about to end that of basically it clarify, January to February, sold in just end. the just talked bipartisan you're going in because X. one Bob. you thing you legislation, it's but When and basically

you So recognizing then revenue. the stopped

actually you number the from just reported? -- February from revenue included ERTC you X January that any in is -- you quarter through that third Did sold

and Mark, January is of in quarter, the that beyond Everything XX. we Yes. the January, sold nothing month filed included but in

to it made there's that the just was February. So uncertainty. would still decision in because revenue not and faucet recognize the month ERTC, the we to much February I continue of we on steady sell around in say so running

our in of level because we would telling the not if February. the that uncertainty, sold that that of clients would of their we're month we bill for does obviously, service And refund that -- monies pass, we

of yes, of from forward it's and is that to program has were recognizing on to then we're month that And I -- in the stuff in, there's just So little in that It's we we that that an probably came a it. ERTC. revenue it, a much kind focused say, we faucet queue as was accounting the -- think move ahead. on drip Obviously, February, right the slowed over. would it's on processing. still that already but standpoint bit probably yes And March, had in we go not pretty decision stop

the to ERTC Solutions I headwind, the revenue. acceleration were Management the mean, were -- just And total seems was providing, for obviously, related see did it ex like actually guide of some within ERTC you you on I third quarter things that because tougher.

any of there way to just just terms were that the thoughts there? So wondering, in any that So I was obviously, is quantify in? because, February impact recognizing you not revenue anticipating in coming

I Mark, Yes. the provided I mean, we guidance level, for high mean, quarter.

guys provided QX that what actually was -- we The for we maybe had we in the I you guidance think XXX quarter. know what points about came the that basis than in range said. lower

probably to say more we took And ERTC. on would I that related a or little was of that decision bit X/X the

probably in in number the February. close could a get math and back you impact that that's So to on to to the do

Great. you're very that Okay. the then margin with that's benefit ERTC. And expansion, when regards obviously, from especially not encouraging, to getting

-- initiatives? to the And Is do to be how drivers key What's going that? what strong expansion? progress? the What continue on side? think AI -- think you're sales to the extent are to driving you the in terms able it that do it margin Is of efficiency you

John Yes. Mark, the trends as best the as being here. we and operators the pride industry -- in see. DNA ourselves you and know, we the of the this of see is type know we that levers Again, to we pull have in

the the business. but asking the deeper X of the had the past benefit investments in those, over make a certainly as of typical one. is ERTC done is lot with The right fact years, investments we've to question done the I say, opportunity we've lot things, what of the would So you're a we've matter

capabilities and pilot around that capabilities. started adoption over to year. in our this digital fiscal operations of we course built our and We've that global And test really We roll really focus really footprint. out digitalization and investment the that

series we of lot well drive launched onboarding demonstrated the our we platforms, And side particularly during that our that model. as can a us products of client service scale operational both stronger selling at the and a on efficiency sales across enhancements in of retention season, each and to as the digital

their on to our And digital office, and expansion. and drive channel digital continue our and continue down that seen prospects to believe we pilots. out can partners, clients continue in so look to for drive what going that starting tests back going now scale. opportunities by at to drive we're in And push margin that's to to transformation we we've double employees. And and That's these really that we're roll adoption and

our next Kevin from with McVeigh have UBS. And we question

On the what into guess, perspective Any you, from environment helpful. factoring broadly? macro employment of that, guidance pretty Bob, 'XX of more execution, I be just an you're for sense preliminary, guess, type the I would

Kevin, fairly rates assumptions. we would is But and that this going finalizing a I I of at in would through say macro this some that this mean, cutting there's Yes. going assume environment. later expectation all factored at we're steady do time, We stable, Obviously, still year. have Fed of start point to in time. in point our an the

would say, some steady fairly environment, I there'll rate be is the we assumption But that with state a overall, year. macro move cuts into expectation fiscal as the

Yes.

side. I just Kevin, think, on on that the macro would I add

the adjusted X% at you're our perspective. that upon client We third we the Xs, are is some hiring and of high looked hiring quarter somewhat from a when base because even X.X%, growing that's of a back adjusting an if more there at view economy based what disconnect go you at view and to look as the you even seeing we're our have seeing dynamics in

And a the small continues in businesses of state would hiring say challenge. I be to

see a open continue positions frankly, us not It's clients demand it's quite telling to they're qualified What and, having think filling labor with candidates. issue. issue. I is trouble a we

engaged, HR our the know, X.X of under we you that by one are as our HR million client our that team. think worksite employees professionals have of things about management I

trends that in from as weren't we we our anticipated a the models we So we disconnected X% were base. happening in the seeing some saw of economy, would the hiring why have saw GDP that

clients, they just we're I We had [ through hiring in hearing can't what people. been and They that have active those of to find they They the firm course want structured with ] think dialogues positions. And pandemic qualified hire. is open the anyone. had is,

And so that rate. the not willing at they're to labor do current

job releases, see, saw we our that environment and December, in index, would moderation moderation growth, macro under to And inflation. February I actually, moderation. show pre-pandemic the still January at in still months and actually were February. saw showing say that but you that the index first and in growth if continued you over our January continued wage We look our those February, January were first we at So months the hiring, levels. X this continued X look XXX,

what but tuned. release stay the so don't economy. that tell you see strong. a recession. one, see the And moderating -- economy. a of don't other was is Tomorrow, We would see is I signs We we'll We demand what March stable all we see a

pipeline strong. was Our

would vacancies, they're being that hiring across. mass and see What recessionary, The other layoffs not workforce. you businesses cautious that trouble in their openings, typically into not who things seeing seeing would is be seeing we're bringing We're we're layoffs. more

Or of that? that sense. of on follow the what's out Is kind just to then, driving in call tight that terms what's is side PEO? Lot just that of kind the re-enrollment driving the up of anything -- John, Insurance on And been of to labor point.

team I to credit really PEO I think give on want to enrollment, there. the the

you recall, weren't as ago, things. ago, seeing Attachment rates for a year wasn't year We were high. challenging was us. a as this over a area a as little high. I think, Participation

in as team enrollment at and insurance of our employees product, think PEO. how and top has We insurance some all changes well processes really the the good in And our approach And I the clients both product employees look our our we we there. we engage in bottom. done made product that have job offerings the both a around offerings we as aspects offerings, to

attachment seen And we're rates, historical are now what our norm. slightly to we've to at back back above and rates participation is to our

a think execution an So of I that was macro bit item. than little more issue any

Tien-Tsin Huang have JPMorgan. we question next And with our from

know retention I PEO if to we were well low that PEO. then initial your and and wanted something was can ask next that you tracking. momentum year know maybe commentary that strong, I the maybe you end. on around attach around the thinking as on quite curious and elaborate going into was I I'm moved into sales just because

Yes.

You want go -- ahead. me to

-- ahead. Yes go

-- So no, I'll no. no, just with start the

say script. out of more range was that the the end with driver in big towards guiding called lower I'd employment maybe of headwinds the the So John the

was continue see employment, that in We board. and to really moderation across the

For employee to in strong retention. the both outrun really execution, part, most worksite attachment and record of that Really sales mentioned getting medical retention. able been insurance in with it. growth has continued levels strong we We volumes the see see PEO to we worksite employee then our back it to where And business.

the of So little macro bit a headwind. it's really

And thing category. typically call I strong print Insurance PEO, as guys category and of think dilutive But growth the and out at that Insurance, you I'll the that to PEO is is know, the is the overall X%. on other

of number, gave you. that that the standalone that is north So growth we would obviously, PEO I say

performance strong really in the So PEO business.

Insurance we expect grow ready give the that And rate but you. at on Solutions revenue splits I'm I to the building PEO, next overall carrying Management and next a and the gave that see we're year. PEO between not into total and certainly faster to year momentum, would than we growth

Got it.

Okay. Very clear.

out just it's control. of side that's employment So your Perfect. the really

factors. follow-up, quick my pricing among just on the front So the X

discounting that price the more typical informs I'm seeing? would more or that's look-ahead if into You And Is the mentioned you're time pricing 'XX the your May spring last. that frame. action your curious on preliminary pricing? in or you if Any that color And outlook. it baked take

broad is question. That a

the into pricing to traditional say. we the command We're our provide. you Tien-Tsin. something, here's what missed able back, So value go market for I value-based if still would come I and But

I in retention. think the that see you can

tell looking of I probably revenue ERTC the on what this that to And was would when use in the seeing seen I a will was we're at When pricing again, per word product to the now, our data would ex the XX have don't months which so I ERTC. and I is, I'll be look you client think be actual glad from again, actually at that groups you're pricing we're lot what is historically. have par we bundles when getting sell various being across we that

I over would traditional And the we're at X years, going going to been slightly have the back mean go into what's like everything seems high remind else of last be to that said the assumption to as to guided you I end our post-pandemic and the range. higher. era that we that -- have is our we think

look I pre-pandemic retention, better. kind retention when back at again, So of to levels, slightly but

in about think can pricing. we and go see terms I good that's we of still where feel pricing, where you'll

it's environment, competitive been competitive a the think I always environment.

largest go one which business, and I look -- set broad insurance is businesses expected. see quarters, up the what I XXX(k) third our of on our I our hold were volume the just the across think that business and me when quarter, I'm across the I again, business, our I our of data. when when business, business, interesting were PEO to SurePayroll our dynamics HCM our going looking at there mid-market looked business, HCM And business, small X volume to I at

pebbles, business, You those almost of which the of if I have size and impacts decision. our boulders have slightly, interesting, been realized down is think to And the in was you rocks that is, price, move. have I average less was think in just client all sense they're what Less boulders, what -- our employees, you checks. right? harder less right? But

You've upper extended heard et about in are of the competitors talk the time decision market some cetera. end that frames, other targeted more

And was we we in of say, the drove economy and, of more a high a from retention little of bit clients So got the perspective, we competitive their both and it while is I expected, more then than pebbles with rate. we in more from being the a a got expected, more little kind a and environment perspective rocks would purchase which in volume negotiative terms little sense you a approach, inflation. demanding which what

And Bergin our with Cowen. TD we from have next question Bryan

the to so wanted dig on to relative client I you size, as quarter your Can bookings color how talk bookings. well. XQ ASO added bit third far? more expectations? trending us versus you give How in if across just about And some came just is in PEO a can,

Yes. probably across solutions solid demand with of reiterate had I've said. already kind We just board. Bryan, I our our would what expectations. really for were the Volumes in line

typical. said of sectors, across is each size I What would anticipated that before that average say of those the we the than smaller deal one I landed was than what we

amounts and small I'm -- of differences. small, So talking

business going or revenue or scale, an change it a employees on a from the per in average employees all our employees X X or impact X as deal, But X small of you or expect. can have know, worksite you

sales give headcount sales year? the on start has on to you relative the can guess, of just front then the how a investment, And trended Understood. I and us sense Okay. sales

how you headcount plan you as And for adding are go more more on and investments versus productivity? drive absolute forward thinking about to sales tech trying lean 'XX, to

the Yes. through our reported. we at this, sales went year. season, were our selling headcount expectations That's the has we When what Bryan, headcount. at I we would been say into

Paychex's that's look when amount impressive. we've our across been we the gotten across bedrock drove interesting what of in other to platforms third the And each -- some historically was approaching your channels think business, I digitally quarter, was have point, the of business I holistically that of we business. where of the

we're more will drive strategies to we're go-to-market more what different at and is seeing will I continue that think, with of be think And And so doing something. digital, we we're lot a in looking sales what have right think doing can even more that And productivity we're productive. territory we're now our what trying proper so sure the reps I management, make we reps. to do is

we're basis. and on of working process. -- budget covering I lot we're prepared of every a you going is through tell cranny the not can per make we're driving So rep still we're nook a that that our I'm sure productivity planning to final What market. And

So in post-pandemic what making era. we And think and sizes getting part after need our segment of many focused opportunity is on product do I into type the the of strategy as this sure more specific going how segments. about go new each actually to market go-to-market have we we're salespeople

Samad from And Samana we question our have next Jefferies. with

effect, So towards going or a change the increases push And question just this maybe, you I first, there earlier curious year? the a was well. through then let's timing if year either we'd call it, heard in the as have price year. about is end maybe customers when into pricing follow-up of of this increases for I

take our typically I we the always fiscal mean, the when the typically I'll fiscal question. every the to year, your year annual first No next Beginning is amount. change towards but have price think Yes. it's timing, range, exact not in the increases. the in time Yes. I that it's year. ended

there. really no the So timing change to

it said slightly by you are size, segmenting it Okay. seeing then being as mid-market? I maybe just trends guess, customers I by you just Great. deal And But within you you know stratified smallest average if like the about size, any about comparing customer what think versus your more smaller.

you're seeing of deal seeing times. by closing the PEO, And deal in terms if question different that we're that's size of customer anything Management or between or behavior then Solutions same type and

No.

in part others I much I change size. deal really -- would when look of say have our markets what So hear overall. by this I don't What I'm that and is, said, play at I reading and see

got a PEO And and mid-market team, X,XXX number going outside in team. after And employees, deals, a they're got mix. average XXX. getting over They're the size. market So XXX a we've the they're this clients out base. we'll we've many We'll an to get of as get deal

And on holds the get of mix, drill, that's average, mix that you kind get and You historically. just a to in the of you -- kind right? marketplace

you the on enterprise of more little the traditional look the when to add on. end came in it, HCM. Does that and the deals size get. you can in worksite side, when came together, that of because well, then and I think volume checks up less the PEO, than employees less slightly was planned comment made all less the market, deals end, that we ASO sense? make have that see mix, came in, I average you there is in you you What or larger the have And in across either a larger in, those Bob boulders as But that that the we in, less,

it to one get trend is going anything Management be guess, But is -- guided you've know for, limit. X not those lines? are that break I'm in any for by but that know I reason, line does. line heading year, going wouldn't normally the PEO, trend you trend next guiding next there of And just that quarter materially that squeeze -- Solutions and next for segment ex I'm would is implied I what's for the Bob, the off year? there assume that, more. ERTC to into guide you're the I to there

we're I say going yet, get into mean, Samad. budget on process. want annual the as significantly, don't I I through categories still Yes. our I wouldn't mean, X providing specifics to

year what similar Management where expect But we've growth And Solutions and be headwind lines we this year. I trend But the is year. to would seen the where Insurance is PEO ERTC. big similar the we're certainly category next with would to say exiting to

Bank Jason next with question America. Kupferberg our have of We from

This for is on Caroline. Jason. I am

terms can M&A general of deployment the update an of relative give you the pipeline? health an in XXXX, attractiveness on and capital buybacks update And on of could versus M&A? XQ you into then also, your So also heading give

getting to would in that industries that would into the financially meet Look, interest, objectives be that to we say Yes. continue areas and to sense. open I I make line I say feel I've more several that active. and are multiples acquisitions that we we've be laid that that seen are and reasonable out that trying the have that like strategic

timing is of that, key thing is right of the the the And time just when that.

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change You mentioned to executive really, do there. offset We dilution that repurchases, philosophy our no share comp. in from

You so or a so we reauthorization, a to had authorization can new old month we do saw expired. continue ago, The share do did that. recently,

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very all used So with our and are what capital past. strategy around allocation the is in philosophy to consistent you

next our have we Stanley. with And Morgan James question Faucette from

your And feel about couple I current interpreting increases potential back make rates, et what just but macro little I to you it about rewind making. outlook a I better you're some out-of-business cetera. wanted like about you talked on there? is I'm that's If that sure back wondering, go just for concerns it, correctly. points just December, and comments I'm want seems had evolved your quick bit to in you in how a

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businesses. not But what of typically end. many to would over that's are XX% elevated seen how context I what the and was low seeing again, when recessionary before. out-of-business in of last look out said years, say back particularly you We're what of the is gone. Right started where XX% at period it But atypical them are not of be in X would were years, now, X years, in within goes a gone. accelerated because there I new that businesses Within X signs

economic driven it's sense. Businesses you hardship broad-based. would out don't being I going of not that what would business not expect or seem by, be So -- business, out that say, go that's to of to makes if

the And scarcity make does specifically that. and -- talked pretty comments in for think labor kind sense. And labor the being years. about appreciate few it then of more we've I of employers discerning interesting. terms quality I your incremental Yes, last you is consistently now of

something be is or if geographic Any And the it regions this too? important, grappling we're going about to is think specific resolution asking that's whether just be there industries areas the what path I'm because or or that trying I'm question to with. to perpetually

help interest. to the given in Well, to retain we our employees. and what is clients It's It's on their what quality in keep trying interest more way our certainly focus can look, do we get attract paid. ourselves we

you we the Insights them I got their that part that's they risk. -- We've know, ago them job the for postings of may as X insights have years fully up partnership retention AI-based partnership. and integrated, listings that launched in actually the Retention as Indeed where we're product with gives think, elevating to this

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you We're going highs. a very obviously, The this And to labor remain do change to to simple difficult Baby more And there's below seeing solve for force. we're opportunities. the what prime rate the given Participation there's were we workers problem fill all it's people a the prime have trying to happening because age is enough levels, record lot of rates that is that be to the change. the in fact at and Boomers do retirements in of generational see really pre-pandemic not clients. we things our problem see to age need in actually

any that's with in I the someone that disparage want just terms And you then when the just generations any of generationally, you're But and to is There's experienced, at look gap replacing ongoing going fact years way. and an in productivity going you public experience. this of don't to a that's to digital I newly of experience have that's be someone be think retraining really issue to lot with AI have addressed. jobs. with policy

but workers. on I I bandwagon got got mean, allow more here, R&D to sitting do think thing to done. more replace needs the to exist need -- be we that the to going going out the productivity to get we this That's there. political Not not we productivity tax credit in and workers to to to are done with to work marketplace. businesses that's enhancements, invest less in get and drive going them enable

So I problem. think this is a systemic

for and offer to really products we a us for it's a opportunity think medium-sized owner. because great services business and I the that goes it small

data kind of personal it, view So show look to my it on and that's up at. we that the continues in

have our question we from And El-Assal Ramsey next Barclays. with

us inorganic much guidance, if be you comes whether M&A How it help what the that might as your And in contribute quarter? through preliminary to well. contribution an did when F there's could think 'XX

the we Obviously, It that did only It's we've a year of end this mean, acquisition QX. didn't any something. M&A, The M&A small that new we I it doesn't Ramsey, to even done contributes do small at was the M&A. number. Yes. X%. Alterna round

all. not So contributor it's a big at really

we're although anything going don't we the a not closed. a always deal to forecast into in looking In is put we're for -- typically opportunities, guide, active until

not not year. the does level any next does guide M&A that assume preliminary So assume of -- any

is Act kind it tailwind follow-up Or quick Act an of some to seeing on it, got Got potential there? early what you're us too for offset to One tell? SECURE X.X. headwind? me. the seeing a ERTC that the Does it. on Maybe of that give help SECURE are might emerge you what update have X.X, as

Yes.

I know. hype of around profitability filing, both and And something there -- And we're which nature to think, doing is say thing you very of was as our lot to it. filings, do, basically, of difficult the would doing revenue is terms Ramsey, We I helping core replacing a the ERTC of tax business. it in ERTC. and a were that that's

So there of on lot helping a by that. was was that others going education

SECURE -- secured had continues is to in see the year-to-date. I had a and retirement solid business a mean, And solid that a strong Act be driver. growth What it's our great I I it's thing. quarter think

got a them talk process. it still on business think go you've to in the Those of made I mandatory. owners educate sales kind area. and it. that to It's come had have We've still states and

get with on thing of is a the that SECURE been that XX pushing loophole is and of particularly nuances now, there employees. and into pretty micro on, it. in that House Senate And for businesses some will adoption other I I under the of there's The which we've won't bit that bipartisan X.X, a right disadvantages Act kind help our in we there. accelerate really keep do support close little to pushing there. pull But It's segment, would us. because loophole, the still think that to both try

with And question RBC Capital Sabadra Markets. our Ashish from next we have

some et you guess, on in This AI cetera? terms question models that -- and productivity, customer is you're your internally sales tools the greater feedback, some had parts I initiatives. of can of AI provide on Maybe your a your just seeing Ashish. the I what liking of maybe David teams, they're or for Paige of benefits what

Yes.

at have sales better better tell lot So we efficiency, investments would do lifetime giving we're point much not and terms targeting, focused we that away, to in that we initiatives want. type discounting, of better get our of marketing both too David, but in getting we enough we're do how time, productivity, better a how at how AI right been the we you identify of value are service and that customer pricing this and so how internally, we how clients and risk, do really drive what drive I

a they're has really them million job potentially the they give that larger they customers popular our Insights which our our product Retention basically they're out customers Visier getting in offer product, will And rolling doing. of will what making competitive the side, allow a in client stages of we're data just -- to data time been the in just on Really, early are, terms that's points what XXX very the stages. if in insights real to compensation understand And how do. could with

the able going because to insights data to apart because CPA truly and our think set, have. set them What set advisers HR information provide we us of of a degree or insights is from coupled give our going we're vast I is of any believe just when to going that a to players data regional we're local with able be to that the smaller I vast be

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Keane our have with Bryan question next from Bank. we Deutsche And

guided like of just of correctly. I'm your expectations, the of on your stop the that the a revenue expectations on to decision miss, heard I Then other just versus was that X/X kind to if trying fill had the versus third in revenues. X/X I couple in of The ERTC sounded the gap, recognizing and clarifications. miss quarter it

of that's I X that forecast. were. employment. it's of checks QX the continued there's updated are trends that all employment we change drivers a even what QX. assumptions the to seeing. we've our in some about. so talked X Bryan, came there's client, our for X roughly started relative softer base drivers We are big that But would talked lower in say per than assumptions bit forecast in but -- -- little in the about. in That our saw Yes, Certainly, right. we've definitely small, drivers They're there moderation lower We revised

smaller And But discounting price softer little what a getting revenue realization rate. were. sizes little a the per than We was bit still to would what in client strong say really growth saw I higher overall a good then client. bit our maybe John it we're assumptions assumed. forecast I bit and relative mean, mentioned on we little

the there that ERTC then And mentioned. bigger the was piece I

X would those characterize X/X look at piece is how you when they're I things, it. a roughly So

from fourth of the for into And basis quarter growth the helpful. -- what points the of X%, That's guided when revenue No. the I third jump to extra strength XXX I when quarter? the X% accounts go then

Yes.

being there's Bryan. impact. things One, bit mentioned a out I little similar so a to So few in -- there, than QX. that was I'd call the to headwind say has an It's it ERTC less a little bit the QX, of

of in price less headwind carries that have a penetration QX. strong client ERTC product QX. You from We're still base, into getting realization,

the then a in say from medical stronger on side, position a we would selling of enrollment. And I PEO season worksite standpoint in out came employee

get were the that where to going relative we we're so to in benefit QX full in QX. of And quarter

are positive a QX. then getting little lift would QX both got we a momentum, And say, heading in on businesses. of bit interest we I in So in into funds

stronger bit little seen versus there You've a QX. growth

the repositioning is some we of compare that did portfolio. the of Some

better to realized QX the some had position in we took think going we that I forward. losses portfolio

well. bit little a tailwind in a that get you from so of And growth as

that's And to a QX little bit what accounts you for I'd put when say relative together, growth QX. in stronger those

our from Wolfe Scott have Research. we Wurtzel last And with question

margin go think, to the I outperformance, revenue Wanted me. side. back to going for the mean, despite I ERTC the one Just away. expense notable and was

know actions efficiencies revenue wound the some few investments that quarter the you But to expense during on down? talked And there years. ERTC about over any you the sort were off specific of the And side last I wanted as the of the I just clarify. took of

the headwind I so We come call new obviously, than out Yes. I and I wouldn't business the really anything not other out, we're making wouldn't expense say good to that there's anything in, expenses call say to letting saw specific look always mean, specific at Scott. sure focusing. to we're trying costs into management. and

-- there you being the quarter. that margin when driven some saw expansion And even interest But in during rates. you exclude by expansion margin the of that we that, saw quarter is good

job to we don't go." shortchange into the managing that signs. every And "Hey, to I our does say, in Yes. terms each of built have DNA we're we company the time it tremendous want seeing employee It's in and when expenses.

do to PEO what pointed it. pass-through. and again, direct out, know of People they do, Because, Insurance as Bob some and revenue revenue that is

some think commend you lose I margins, DNA part in our the as how just when we've think, revenue, of and, you'll of at have that just as to best a good ERTC, job want operators. So the historically being done done look and I you our

bit, thing every And every little so little it's matters.

to systems employees for the we've our the there's adopting their made that rate no so they're insights investment the that is gaining enabling our And and engage one I the would thing. say clients big that tremendous. we're and and in opportunity digitalization, in which opportunity

the last move we've several into ERTC and years we've made footprint. our investments I over well And And robotics over the when those pandemic we the invested capabilities both serve think years building us as during global we out forward. last going X of had AI era are all to our

this exit entering say, pandemic company. the I So better positioned from new a we of the of fundamentally and I Paychex just a perspective, as just era look think at we're it era

trusted think with a and our We're We're than pricing small quite that market to honestly. I we're cheaper there. our and adviser positioned, delivering think better enabled customers. profitable, rewarding a there's in a to They're more and lot businesses. alternatives we're focused all more of value with retention also more been. ever of more And agile out aspects business we've digitally more I in where

in team ourselves delivering off position things shareholders. Is to could hats that tide get leverage the it, that we're turned, pull this had all done Mike? to sure our that we when we've the So for we for the to make

today. for And Q&A that conclude session our does

everyone, the we'll point, Well, this close call. Okay. listen, at

XX the in webcast If it call, the you're a of be will archived conference approximately for interested of replay days.

I you great you all And have to hope a interest for Paychex, in your you. thank of Thank want day. and

This you your does participation. conclude for today's program. Thank

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