Paychex (PAYX) 26 Jun 242024 Q4 Earnings call transcript

Good morning, and welcome to the Fourth Quarter 2024 Paychex Earnings Conference Call. With us today are John Gibson and Bob Schrader. [Operator Instructions] As a reminder, this conference call is being recorded, and your participation implies consent to our recording of this call.

If you do not agree with these terms, please disconnect at this time. Today's commentary will contain forward-looking statements that refer to future events and therefore involve some risks.

In addition, the company will periodically refer to non-GAAP measures such as adjusted operating income and adjusted diluted earnings per share. press the further Gibson, call and the like would Paychex to CEO. turn to over refer release information. I for now President Please to John ahead. go Please

Fourth our Thank results. of you us Fiscal for for the XXXX joining Paychex Quarter fiscal and Year review

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

financial year This XX, ending morning, our XXXX. before fourth the opened, market for the May quarter released we results and fiscal

investor presentation can on Investor You release access earnings Relations and our website. our

before archived will our the is update for for up year XX-K business Our on highlights fiscal on fiscal the be and start 'XX the and an This outlook the the SEC fiscal call our questions. XXXX. days. I'll your the it of filed teleconference end Form being results Internet with July. will open financial We'll then and and for for website over quarter with review year broadcast XX for today will approximately be fourth year. Bob available

close navigate As and to report financial ability our out pleased by technology both results, reflecting innovative delivered to I that providing HR Paychex am market solid we conditions changing fiscal year, the clients solutions continually run best deliver advisory to for their more efficiently. we value business the our continue And employees. finding as operators our business, that the to in and are ways

demonstrates our is record We worksite employee revenue high record near and a believe our outsourcing and our XX% For X% the are resonating competitive in the adjusted to have retention in HR hit growth made and retention sustained technology than earnings improve work and fiscal remains solutions. Revenue XX,XXX diluted a marketplace. our achieved proposition in that and share. advisory and continued revenue investments value in more employees we levels. results testament to new XXXX, total dedication hard per These growth levels, we of retention

losses our prepandemic levels, back year Our for in line last with with was retention levels but client stable. XXXX business and to fiscal year pre-pandemic

see and our continue HR demand We technology to for advisory solutions.

digital and year-over-year quarter. In rates were some adjustments our softer the in in the in our but issues, mentioned in technology activity onetime Sales faced which pipelines micro go-to-market impacted SMB, the sales with We Our made headwinds have which fact, In we focus same lead strong, decision-making believe segments addressed. results the increased fourth competitors our the stack have and pressures cost. have some quarter, we market our and are some delays in segment, to on of in remain increased mid-market, we norms seen expectations. volumes. these than strategy our and in historical and and close

tight with serve challenging maximize to of historically both business believe ASO labor we PEO we outsourcing to solutions, breadth marketing persistent us and continue solutions our the and complete market perform remain well, the market opportunity. Small our those ability continue strong. HR the sales operating and Our provides The and businesses face value to complex with regulations, change pressures. technology to to both and investments and a due inflationary midsized solutions, conditions advisory our segments along for environment market and as a proposition outsourcing, retirement the pivot

continued downward small growth months. watch in stabilization employment job hourly Our shown business in wages recent has and in the pressure

growth job the index May poses our biggest month this year. fact, X In increase in

checks our worksite both quarters after client quarter base client in We the better growth declines. per employee with a of also hiring saw within improvements few and in

conversations reveal our data quarter, last a they are candidates. and mentioned we with time finding As tough having clients qualified

HR Playbook. launching these the This PEO find analytics a in HR of as digital this new Employer with industry, our technology to way called to digital an innovative It by businesses an employer hiring our technology, opportunity our starting solution for leader professionals experience. our and in a our starts and hire and Choice As help we program attract, and program dedicated which to combines streamlines with hiring to the provide qualified employees. the better work boards, top find, and process directly integrations recruiting with candidate automates retain our this the provides job took with clients most seamless a

leverage Our professionals suite help data To our our PEO are wellness to develop and proactively our retention analytics to and clients attract top by engage insights XXX to work of employees, strategies implement identify employee as at-risk turnover people. and their offering Fortune with clients retain drivers determine HR well. top a talent them our of benefits to employees, the HR

We are excited and their our to biggest retaining talented of one solve clients offer employees. hiring help a comprehensive solution to problems,

more market in the planning of area We coming innovations for our year. fiscal all in segments this are

PEO to with in strong with results has finished gain Our business and performance XXXX. excellent fiscal enrollment. insurance year momentum continued year the in We retention sales,

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

was contributor the double-digit fourth business in with retirement Our another services quarter strong revenue growth.

in leader $XX plan with recordkeeping XXX(k) the in billion U.S. in XXX,XXX and assets management approximately industry the clients. over under As

own offer retirement our retirement offer employees. According U.S. of We their an less dedicated to small to a half midsized are solution helping affordable and data, than currently sellers plan. employers business for

retirement Legislation We the there companies employees solutions done. SECURE is Act SECURE are the plans affordable will for more but to and X.X, Act retirement. crisis to state the secure offer and opportunity still pooled these are be the in that help them like of to employer to mandates providing the a U.S., address introduction growing their committed helping

professionals are the programs, educating cost-effective their on benefits available available them tax committed by and business and potential and to We owners industry plans Paychex. to employees

hot for we you something on years. our in focused topic As AI a and industry know, been have has many is

risk, sales through are our marketing and and around and and higher that our Our enhancing efforts. discounting initiatives been pricing identifying targeting at AI optimizing have and improved model productivity strategies service clients investments centered customer driving

company. greater are we on efficiencies operational the our our more vast harnessing to and data power across drive of to focused drive continue value the for customers Additionally,

We continue our of to technology. recognition for the strength gain

the category HR HR the For Tech an consecutive small focused year, the core from best workforce business and Paychex Flex, Lighthouse Research Award for SaaS company's cloud-based in Advisory. solution, fifth solution earned &

one of fiscal to remain shareholders. I'll an For post-pandemic results Bob? recently help the employers committed employers long-standing also based health the a our businesses own XXth America's employees, our succeed businesses face our in era, we update challenges provide. commitment in time, communities in us we our model, for this to bring impact to Paychex customers remains the our to for our business deliver our of proposition by upon and employees. can't to midsized decades and value affirms over and it our was to and which purpose believe Paychex uniquely quality long-term financial the and the turn diversity. These Forbes year service positive the to testament and a brief the in in culture recognitions business our on have fourth that invest and excellence We awards the our to and many year. last over best among best received the we well-being, was give small Bob navigate and on to products world. as in Paychex while for they of the recognized quarter now is investors. In help strength clients, to compelling commitment value making our breadth solutions ever-evolving And positioned businesses these our

primarily an This by our lower Insurance employees across service, X% clients start by revenue our with our and penetration, I'll everyone. increased morning, revenue fourth good million. a number which impacted full-year and in and and revenue partially X% 'XX lower in HCM quarter, $X.X XXX fiscal growth and in from insurance PEO increased by of revenues. quarter fourth a to This this I'll driven to John, review Thanks, ERTC higher our results and X% reflects Solutions ERTC increased $XXX to served primarily Yes. quarter. Management billion revenue. by revenue in product of Total basis the our worksite points increase Solutions contribution average growth the approximately $XXX million. outlook. increased PEO driven summary was solutions offset the financial was

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

Interest higher average year to on primarily funds rates sales held interest related for of clients period. was increased the XX% and invested prior due to million. lower to repositioning $XX happened the balances on in and This investment portfolio that some losses realized

aspiration strong real to AI cost optimization. will fiscal strategic quarter, year, fourth $XX to as initiatives in the priorities related million expansion our the operating recognize include deliver headcount of reduction of the to total for our optimization estate, these initiatives. along charge increased X% margin technology of we during as These well management measures, expense a us with program. Including despite to million. reprioritization invest ERTC of resources, and continue $XXX During towards reallocate onetime the expenses a our allow charges, a These underutilized investments 'XX did

flat Excluding quarter for prior to expenses total the these fourth charges, were the compared year relatively as period.

earnings Adjusted grew XX% prior year to share onetime of operating $XXX share, $X.XX over Operating which per a and adjusted of fourth the of diluted excludes margin XX% quarter. bps per costs X% in adjusted operating margin quarter income with $X.XX per share to with to increased income, the an to represents XX.X%, million this and X% XXX margin expansion in increased period. Diluted the XX.X%. operating recognized increased million earnings fourth the an $XXX

and $X.X lower full-year Total Solutions growth PEO revenue clients $XXX $X.X contribution funds basis full-year grew our increased X% on increased to on billion. billion ERTC quickly XXX I billion. expenses $X.X Management basis. and Now that will XX% X% Revenue Interest summarize to Solutions and million. increased a to to for a from held reflects about X% billion. to Insurance grew X% $X.X our results. impacted service,

the I basis of to increased of billion over year XXX the the expense growth margin for to costs Excluding was income discussed earlier, operating adjusted prior an approximately year. with $X.X X% income Operating increased points that's and and a period. X% X% $X.X XX.X% billion, onetime expansion

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

million. billion end cash, total borrowings with of approximately remains cash year corporate the position $XXX at strong financial the of $X.X total restricted Our investments of and and

billion, Our year $X.X and driven operations higher cash was income primarily XX% That year. from the for from capital. in that's up fluctuations prior working net flow was by and the

to billion and buybacks, our rolling XX%. at $X.X share XX-month $X.X shareholders the return robust returned included of billion year, remains $XXX We on equity million and that during of dividends

to level environment, which fiscal macro assumes current the turn will some guidance for year I has the uncertainty. now our outlook This XXXX. of

X% to of Total outlook is follows: revenue grow to current in X.X%. range as expected Our is the

range, we take this you with ERTC. provided the headwind quarter. And from approximately includes last basis of the expiration as If preliminary of midpoint this of thinking is that the points XXX reminder, consistent a

rates. X%. share is I'll Adjusted is Solutions diluted it of begins clients we get income in X% to last expected interest is in can to expected income expected million the range Solutions talk back short-term million. expected grow more earnings our Fed the X%. give year. two of and rates of range grow the grow half as of $XX And to X% Management of per interest expectation to are the funds is range Those breakdown to net be the metrics, the Other you is the to We million. to to both X%. But Insurance in $XX Q&A. to lower range into $XXX by be of million the that of range in $XXX in components. X% for Interest to some the to short-term of the impacted expected on PEO in is held the

of the be XX%. This tax to to range XX% consistent to range expectations XX%. rate expected is is XX% is also expansion, our to preliminary margin income and be of with Operating the our around in effective margin expected in

total the quarter, approximately we X%. to growth anticipate of Turning revenue

two by impacted first growth quarter The is headwinds. rate

that you're all first the ERTC is familiar The headwind with.

operating headwind day one XX% in to one our also than in second of growth. to in the the versus quarter would an more revenue We largest less points year, The Combined, processing it's revenue expect a of one these basis XX% days. prior and represent the range quarter. XXX two is of margin the items

are to which on course, on you this on We'll based subject quarter of the assumptions, Of slides call. all our change. update first current is our will for investor information. I our website refer to additional again you

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

Thank you, Bob.

questions. to open the now will We call

will we And take Bergin Instructions] TD with Cowen. our first [Operator question Bryan from

go-to-market give required strategy just you I'm clients their Maybe the we'll John, that your demand color on in of how curious kick the close you the because lower your behavior? the and if can or comments needed make? just practices go-to-market with are on rates changing changes more just and commentary. reactions sales to and something and off to spending was

Bryan, year. just say Activity demand the back, had the on Yes, for step across we our teams. solutions Yes. I'd was high solid

versus about, and That's the HR talked with the HR can from really tech. advisory pure what you we tell the areas picking the results, we're attraction outsourcing are As seeing and market. up

that. certainly And retirement that, we can are pivoting area we into also so another where see heavy is

we're we're last The year can and we're sales So for ERTC in making look, attracting and years and we ends, talking that we the are the the go-to-market looking changes at, points, last post-pandemic see call, our market. world. qualified you went as things very good the our we today's products those about the most marketing refreshing plays, a in things tight focused labor we and X as services. really, retaining And of just are really program entire on pandemic imagine, really concerned talked through employees find demand about a on are really our it clients our position

and being increase, larger to package benefits is be compete got they the second able continue able to go to access The able affordable against to inflation thing benefits like really out with be get firms. together to to put to health and to

then the on of thing and capital. And both capital cost access is capital to constrained third

payroll we think we access we're have access capital our little tuck-in to that I of continue acquisition so digital clients you a know company well. our and expand the Alterna as to fintechs, to excited [ made ] during a about, very process that

on really those trying team areas. retrain new to So we're our sales

growth of are into there's going also to our fiscal go We higher pivoting we into think 'XX. those market year be resources some segments where we as

take will we with And UBS. our question McVeigh Kevin from next

Hey, could press commentary Great. I super John, commentary. about helpful. your talk because you -- in And always super, maybe the helpful super release bit little is a find

and of tight we're environment if and hearing Just retention like Has start employment-related Maybe kind that? Or employees. is as labor the think maybe to, understanding increase margin seems we -- seeing rates right, the yet? in seem not that, terms I'm -- bit, right? any change it of there to the opposed there right, their definitely it if on about that it been the little at of overall, like are about slowing because thinking that there current on I macro some in relatively where capacity. data it just maybe are like some doesn't clients I you're to still kind are, right environment of a feels am the but want

Look, moderate growth. I the is see continue we area, and on growth what think to macro

our tell would I cool. inflation biggest wage the you, report, see increase in X had month to there. continue we We May in

in we in because, was and actually and started growth that when checks rate growing, our hiring. at economy you'd growing you models engaging that more in comments quarter, employees suggest see the worksite the we got said again, fourth the positive a saw it's As that our would trend. We

looking at clients is business on for here. our started went and data point out and to what's is going and owners. your And did challenge what retaining we So to we point, small analytics a

Second, attracting qualified.

was trying positions, doesn't thing to hiring them. that individuals. of just your qualified during when they we have pandemic they're was just And them so learned find or I just And think we surveys. And help they did anybody, to a the everyone just another engaging hire your started We anybody culture struggling what found lot open with workforce.

I little they're more being so think a selective. And

of in that continue products, capabilities and to I'm we then started not building going PEO both to a we success forward. and or AI and direct and area program, -- employees forward But the lot any their them both those move and retention helping saw a we'll in comprehensive seeing technology So we're using as and of our that to more from a recruiting as capabilities our the are client see attract or in of seeing contact way. We we well lot clients the typically layoffs strategies, we're with directly go not that of rolled seeing that's started signs directly on out things recession period. series as where hearing a of doing our recessionary a type have we would work it on we because have an look

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

on to go do you the changes clear, the were market And you say back segment. onetime, to making should want I Or you felt are something more little some start seeing that normalized cetera, own like product? was that conversions, needed come of you Great. that when be cetera, some to how et on your bit those micro pressures, for to a we et sales you back see levels? to quickly segment? in just And

running the as make begin our prospect time experience things marketing as the digitally fiscal improve season we're much the their way after digitally payroll sales that technology first of doing for one selling into the the is we'll pretty next introduce attraction things all year. we platforms to possible. to and the everyone constantly simple from we do and of and engine Look, of knows trying new the gear through this as other season, got our Look, up Yes. through as as to to time is selling

which digital customer could in enhance in -- platform be introduced you a improve This some ways people micro to We of And this have market. disruption some made issues. that the One bug we want of think capabilities attraction on any that the in been integration And market. process. micro other bought, process digital We we changes. third-party in ways the is time technology working we've some we the the experience we that just that were thought had out some things to there. of in

And did issues. leave to -- not so conversion had have just the the you you

those in and that it we've point this again, can was back individuals. after smooth, just Now got we and go not at behind us go time. But

very we up So end we us will that year that do specific a conversion and a upgrade upgrade doing. rates fiscal that, specific giving what I believe very attraction was as 'XX. And technology that and would segment I say, better rates market better go were into

And we one will Samana our next take from with Samad Jefferies.

you And maybe the 'XX. I'm follow-ups. assumptions did guess, the I when So you influencing have year. fourth the of in for about trying understand to the outlook much first, first, preliminary some Bob, think outlook? is cost the then that when was you EPS the cost the underpinning for that quick in just more factored of just couple outlook a the actions growth I gave action how quarter,

for surprised an it to that Sure, what Yes, But I'd we expected. to Thanks about us was we've only it question. knew a year. thing -- the say the been quarter of mean, this than Samad. earlier in. absolutely that come end Yes. happened ERTC going was factored I was the end probably we

end. X been telling the it team was focused us actually to that. on going to for we've talking has all So that years, to an preparing really come John about been year for

cost capabilities, more prepare really more letting the in new focused the our on to while initiatives, to to digital be making this, business productive, been investments ways to focus for business. find continue efficient ways savings to our trying in costs not really we've find So on enhance

been XX we've working for plan a so months. on And

around I which relates of degree but did me on I as going plans, to to What Obviously, cost the some that the underway for those a call. been actions on you to it, execution margin had expansion I communicate last the that's the provide it saw wasn't time. preliminary high confidence color of enables

versus look If guess, growth. just the about the XX and WSE growth for, as it X.X% then basis client WSE XXX year, ending at at client I points. are I the year was and the I And look versus assuming like 'XX outlook? from fiscal last data X.X% growth you looks is Great. in clients growth XXX,XXX X.X% about this What

Yes.

things. of couple We round a So there. disclosed numbers

was worksite numbers. full I'm have PEO was employees So the close growth the digits. growth upper was the was the strength numbers to employees to you strong on base round and lot on digits, of PEO. double and client the single worksite closer ASO not when not sure X% there. And because our and We've of It a it had both say, I'd in kind

growth to but So in have strong across again, worksite the I'd numbers that solutions year has been in both extremely employees PEO look those at this particular, business.

rules, I'm the but to breaking one it's third kind know I the how... because going squeeze Great. of a

You assumption I'm your next year do was -- I remember follow-up question for is metrics? the on -- the sorry, what those to related

direction? factors any in what trying try let's Yes. X right? in an X building little to that or call bit range -- get to What and between, on Just X in. to What units the that? about how for seats you Yes. action X.X trying and retention more breaks blocks underpins the price the out thinking you're it, a idea guidance, versus versus changing get are to of Just the embedding how

of because less putting ways be historically that always we trying the then lose we lots to that drive base sell base look a growth the And we're from and have say when that, client base standpoint, the a our ERTC. maybe formula, say to headwind a proven growth. I'd solutions. XXX sales big I'd client midpoint We're And Yes, not kind in to penetration the want those and larger to of basis that wallet key X% as to that sell. in getting we very to lot take X trying to the And them, of do and from of of our part and can over as got has John growth. the dependent you and I'd others or solutions together X.X%, of get mentioned at We're PEO, you you rates point the ASO, plans. really productive find time, back is we've going similar. into on retirement. say share growth driven which the factor formula more ability different really more

We have and a of rate that's level a realization maybe the implied those This little little and is in model years. the when of same will about lot those lot a this the little pricing we're momentum in close growth strong, in has expectations. a you a within ex client the runway our the ERTC existing expectations. we've contributor a next is businesses, year, being price couple maybe to bit tell things of of I that not model it that of there's bit gets would high, base. Pricing, in strong guidance. bit that kind talked at year less pricing you bit But growth year, our our still a together, our headwind or still in to you still maybe a be last but than put

comes question Jason America. Bank next of Kupferberg our And from with

might likely periodically SMBs taking a year? talk end of in but guys but year, signs be given would softness like X% more in range Paychex the of this the price This some is that just I bit you of lower it, little wanted to an there just for Lad pricing. X% average of are to I on more Jason. historically, Caroline about on know get kind mentioned

would our this tell formula that well had we've I that is growth you intact. historically

the would talk engaging lot programs ERTC, the are to that us certainly which you headwinds for was to that look I when particularly, we you things lot And that that ERTC, have the have of X clients look success. gave many onetime our at had so exactly what numbers because you years to critical look a think even said I I difficult there's value -- about our over -- at of you ex Bob is their we provide. What a these PPP, clients with, say. were opportunities last

good pricing We a in move value get price that demonstrate in, value record realization. continue our we as up we have track and chain, them can have demonstrated clients base value we and the to bring opportunities

historical in So we I have the and we to the those the future. we sustainable that continue to market, pricing into see think capabilities are believe continue

Andrew question take Nicholas William with will we And Blair. our from next

PEO I to worksite growth that you cited. double on back wanted employee the

I think double to digits. you said close

this the where mentioned how to of do in that you've things that these like think break a strong of wins and are the Is it that new insurance coming some going HR to things more more simply, of that some done just to down get are way the all it I both Just You Is kind receptive it outsourcing? maybe from? What driving? kind competitive differentiation? past more quarter and you things -- quarters, well. that done really it Is any being number. of something of you've ask the are to market number? you are there with really your plans? Is number

in what's market. wanted So a to on for better get sense I the going

the put a if struggling, is is it's more did we in a to inside the of remember we strong expectations our the reach growing, worksite the number. not see expected the it rate base. client very growth lot the to of at And but we our they thing there in Andrew, economy Yes, part they were program in hires heard I of PEO. clients terms place a were openings, what because growing had this to lot we from the was That's they find why PEO them. struggling employee reason in hiring worksite mean

are numbers very and they're these impressive, So volume-driven.

that the participation a enrollment did strong medical our rates of competitive a I the very And as our do things offering. We insurance we're attachment think upon well. based we had employees, program. on the have increased to providing exceeding then the We actually expectation. offerings the lot breadth of

a I So really go And pretty Paychex increasing solutions. you maybe trying up things the that's at inflationary way outsourcing there. from old again, HR little I to look And the all when remind there's the of cutting of HR was much can we play, up play I have less pure that I in way across think you're a for tech to think which and everyone and end and with play. to there a is demand differentiating is going the to more one moves look more costs, advisory in all do outsourcing board trying outsourcing full when at it, choppiness you're the

Everyone HR can an need person? an add should one being think and And Or conscious is our So I demand to cost, any Outsourcing we're my I of where got now and cost and your inflationary I the going strongly goes department? another growing to against that HR a do key outsourcing up person I do when value proposition to that. the are to cut to interest very offering tools. we've you I go and there's positioned in outsource to add competitive the set very think CFO, against. need people want I think now that? Do to we've even

terms a lot of of competitors the Great. moving spectrum. That's are the certainly where towards in

appreciate the I So color.

than late Better never.

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

quick questions guidance. two quarter I just first on had the

X% headwinds in I understood if processing I to well. understand that, on but were compared less quarter. the in a we growth, quarter X% day material fourth that's the the correctly, one slowdown revenue saw one as First the ERTC fourth

in gap suggest on at of margins the that would XX a margins, what's causing quarter. midpoint decline on margins the in the first trying to the slowdown? And just to XX that bridge So then modest

year? through takes the wanted weighing as we so in And just and the better the quarter go to improvement understand the first and then I puts margins on

say we -- full the and basis half I'm Ashish, actually really talked I larger number, being quarter, in Q&A bit would and to XXX -- and and onion that Obviously, point peel first headwind long QX. the first question questions, the through that's think ERTC it some the a we in understand Yes, subsides that headwind I to you year go on year. the this and the basis. a I'd get surprised as X% the about on a it. have the need people at Obviously, back you little look into took need

a north to balance the quarter. points. it's of out an a processing quarter. in impact have not week the through losing year stronger of full the basis have of of the year. days, So QX. And on given much the then, It's impact bigger days an They they listen, year. actually in typically, going headwind on XXX It's our can We're in one

that to is So growth. headwind a certainly

exclude to giving in half to I business -- two a going in a of when think and again, you're lift growth in that you if the ex the what very very you're that. to fairly rates similar rate to look of the the the here, half to But half. is growth I'll going you rate a half headwinds, interest we've first got ERTC those relative in a remind growth the of the the we significant rate significant rates going see round in we add the service math, the because back if and to that you growth very obviously, to And year. It's half take interest QX back rate I'm everyone, to similar to year. headwinds, were had QX year. the those delivered in getting in do ERTC is back of you get similar in ex acceleration in you at you're numbers still And revenue delivered back the we

to looks a there's number of very know the margin, number but in weak, growth lot the you're it the of when then on the year. And factor on I of in highly -- to still headwind back have And So with little you print components, you a where seeing similar what had versus half going ERTC the or mean that's quarter. I bit to do do year-over-year. margin, quarter that's is we It face the margin. ERTC it was the a on headwind to close the XXX% was see profitable. pretty of that wasn't XXX% but margin those

comes Peter Christiansen question from with next our Citi. And

delay I trended Or on Is of a go commentary John, there. little Just it could landscape, costs switching that your into costs? have what your you're hoping kind seeing that of on was perhaps just a have function tech competitive how switching middle bit high is you decision you. market thoughts issues?

on you that more. it expand would bit to dynamic be a hear great Just just

Yes. Yes.

we're volumes into and So let what to little this me a maybe relative dive seeing. get deeper

So system, remind in for want. to generate I'd groups. because proposals our client an system, volumes information got up the a there's to have -- And engaged were we relative to we're across AI-based an us proposal major we everybody and it's actually been

they there's and pipeline, I in and engaging are we've Paychex. interested place drove we our proposal I in is got be may clients counted not think live a a is This information as by it. the this really, that So

saw were what quarter was a actually we said, in PEO sales for strong stable, including retirement, in in the the as up fourth mid-market we there in in to decision-making ASO, fourth the volumes in full the and cycle. longer we acceleration PEO quarter both delay And and So quarter up volumes in mid-market the strong, more year. saw retirement,

get on. provider say, provider have did let's at are year today, with into "Can or People going a roadmap of market. going price-sensitive a what Again, current they're and than their happy out as going out this there. sense better more no, shopping current technology closing active is they're Maybe just My somewhere the back, saying, the not I else"? more deal we fiscal of from having pipeline not perspective. is go So lot a deals time we right, and there's in year. the it last They're

they're so Paychex engage wanting And to more. even

the in deals discounting. mid-market for deals was solid, did What actually more the of we mid-market very require get solid the to from see volumes year So very a perspective.

have a don't those get? little have is of that bit. we when both to it the what And give the a things amount up then get the discounts it. there's at second, percentage do we we to have were how of of of one we Believe to any do look or deals lot our -- give percentage to is deals discount not, So discount what of get. to of And the

say The headwind is market, the deal the even slight slower back down. the in also higher mid-market in which great the was this and other And decision our the phenomenon thing higher was end that given decision-making market, in even results. the actually of was another less the to peel PEO, average making. even I occurred more end And would of size

think spread three have seem significant. to so checks worksite may about employees you And can if average extra again, up your across deal you to not that much, be or XX, our like three or volume. size less goes that Those from XX but

in So was activity, the good mid-market volume, little there's good saw we decision-making. slower a proposals, what good

good the market lower lowering of I that say, have We would the more in segmentation a of active the a what pipeline. end. the Peter? give than the market, you end Does that buying to some there's of upper And market the from upper more end color,

overall That's on back discounts, But on would it that's I all promotions color. Absolutely, that, does. that, the say you fantastic discounts, guess, an rising? level,

No, It's stable. really it's stable.

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

also, management guidance? of growth Given if assuming on models full-year how for through you our QX are us the M&A I the QX tack in you And in slower through help terms much solutions? contribution just the think could QX, in cadence can

Yes.

There none. round first, question I it second acquisition to even the benefit, X.X. did year. a small mean, to may answer a is that probably weeks your but with be of start last really do we doesn't and me Let few

a model. as year. ramps want I into necessarily obviously, guidance will giving headwind to go the is, So down the quarterly ERTC get quarter-to-quarter don't no around through there's we I Ramsey, assumption really M&A here. But say you what in the

so that see the management growth ramp going quarter-to-quarter down. that is the we revenue model, revenue in based solutions And both during to year on accelerate the total

back say rates back our half, a back the in versus I is now, thinking half, at kind different half, bit take growth but are of maybe When maybe front not stronger, materially I'd half back just right the first half. a similar step little look the half and ex ERTC, front

we did that this year. saw You

We have executing plans in on. place that we're

is the call. you you to last provide get over to but get quarter, But year. through another to exactly we through and some really, we QX close ERTC ramp the QX. quarter-to-quarter for minuses quarter. for QX. need in where giving of be I'll with the a expect necessarily difference given trying help into as each setting update precedent the when provide driven the primarily to you We'll that of color guys And to next trying years end of gating get get few being the where be the pluses by when just to ERTC, not have the we we're the I'm we down move on

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

on that. a Bob, just follow-up And

works? one in quarter, the the in the you'll so that a quarter, catch-up quarter? like processing -- see the boost On there's the automatically adding does processing the Is less how day to second second ends day that that it up just

Unfortunately, no. it Bryan. I mean sometimes does,

in it Sometimes out quarter. the balances

but balances way impact calendar lose on but basis we actually is it it This Sometimes minimal, year, to the just actually out in day, full-year falls, the the day, we -- a the year. the impacts this growth quarter. the

the I don't, is full-year So impact in I quarter, but could get the minimal. next back but wish it I

on trying think it are itself, pretty that operating margin. first day there I that? in cost lower the, the it actions processing, starts the just pickup is processing Or mean that in in margin ramps then operating that to then quarter And the back? Or the significantly. less Okay. the Is component about well, of and comes part just doing

headwind half, stronger of than the because recognize processing they're that's in typically QX, margin. revenue Yes, look also There's first which you and then when have margin, headwind, our there's going you in the year, as some we so of Again, high at the the stuff in that's back around some of the day. to ERTC year-end And processing general, through less margins, the that's impact. gets very just smaller way half move right? the an high the is

if back and quarter, see the typically bit So to a look you by you're historically, QX and going back higher. half go the are little margins our at

differences. big So those are the

And David our from with comes next question Evercore Togut ISI.

deeper little quantify a that AI you and how use if curious Gen XXXX implementing into benefits you or benefits I'm AI? in of called the go you could Could Gen cost the from in business out are. and prospecting, revenue the what implement financial You

the of looking decreasing way I actually costs, performance increasing outside really historically I at just look is our improved Yes. can't at operating how it cost we've quantify it. without our our

of The the as client, experience technology realization their of in the where whether very well price they been, that's rep so that roll know we've used and as it we're become can our the increase in the sophisticated benefit probably discount at imagine, and how has over much at now as predictable that analysis value lifetime to prospecting, see time, frankly, of you to service to whether we're the So level having the downs gotten benefit is of retention discounts as prospects we look of in the down, what clients what we their and it's biggest and we has at looking been it from used rolling to been, doing And clients. the prospect the in more terms delivered at they're perspective. a quite look being seeing it, get how value sales sensitivity product can, realize do and can this what of area, we we're utilization most appreciation a as price those area around lot that them can are we back. We've how us productivity. I providing. is drive pricing where realization real area, in proposing of both client understanding in a price we from factors in price understanding service a

but to went I AI turn they happy I I if be I would their -- board, not tell nothing team, commitments. was off out, the about certainly So that call could specific my that you keeping going across really to can

another say question example the to Yes, a of and along kind tag it earlier asked about PEO was performance. I'd that

business. AI able think the in those about is in that identify ASO and for to prospects low be efficient strong these upgrade productive go that to that leveraged in way one a business good talked the that we we we with That our data and is with mean you and to I to going the example into a to Another strategies our year. the really of model. in But knew growth were our example really things really I technologies improve we've is benefit and that PEO one on of And the great in them this beginning where of able business. We had to and were reaccelerate year be that year. costs. this base, in a really last do customer and back that customer the guys was models model to back year we did leverage many PEO acquisition having to performance real clients PEO it's the PEO go

AI relative all I again, data done was application difficult generating perspective, back we [indiscernible] have would to we go of the basically, that client that couple be giving done the able the the a to points of data really a was calculation would have that needed that had missing complete the to manual and through without processing. model have I complete a AI Now we And us and have was to guess, ERTC been parameters. very ERTC from toll models the and an that we

was as of not know that Bob automated at our CPA -- profitable labor-intensive because really, of touch of it partners So AI and away it's type a think at We even want and built model entire to some it built And that they process. and because to wanting all. very really data from off that looked moved we an were did as highly said, if to offer a we I ERTC providers actually effort. very lot complicated,

up the following your to reduce lot Gen service, labor a on you chat automated to and servicing Just use intensity points AI are more the able of create around client?

prospect even XXXX, all call to say, now interactions with of digitize would years as Yes. clients. our XXX And began more of I from our In interactions. our have captured we to servicing come we to entire

of electronic transcribed. now And years communications calls, were XXX e-mails They we the then where of Now that chat asking data and clients those the the and analyze we they data a us. with. another and between asking we used that model is are to recorded. in that ask calls us our what sitting being clients are that why to took in means, They have us, avoid too. start are meeting were they can use questions we between do all to how

we AI data way, that's service do by the process of by our So the that scale and That and -- millions in data companies in years. service through our prospecting the the area. includes sales SMB year and X digitizing rated the engage that you math there, we that in of that set leveraging

take will next Research. our Kartik from question Mehta we Northcoast And with

net step back those factors, at and the FY used a model If you historical, of client the price getting always growth, we a flat. likely we more strong for or I say I'm and growth still the better price [indiscernible] pace pace took little are is for sales. 'XX would ancillary to on the about looked control price. And a think you're at where at control bit point And then company, assuming for

at than look you are of you have model, different would that -- historical? if things So kind how say growth

getting been components higher that's bit is to it pricing I last of in and of guide down I'd in kind similar back I'd levels. the has say years. the little break that were gets the mean, expectation if about we've at of normal more ERTC, towards look historical, to say our ex Kartik. a couple you back they're talked

an that's down right And over have now where We base couple assuming little refer John mentioned QX. Hopefully, at really see bit We this of had models, plan, and the to some a when lot not and in size, of in actually The that turnaround you last kind in the larger continues. we we're flattish. really And look outsourcing checks of there. per of growth. typically saw thing growth the years. been up client, of quarters challenging that we then a a change We couple client year. our that HR in it. maybe

employment not those right expecting positive where it given the maybe now, macro say relative have that or relates historically. it's dialed we're it's of little a plan things. macro have bit there We But cautious back negative, to growth and we're to little assumed I'd and little probably what's bit a type uncertainty of a the assumed been impact, big -- in a in there. as

So and historically. year what's next where I with think strong is the growth our been plan assumed it's line formula in in is

what think I historically from a a growth. Remember, look from that's lot price. we we very What the say base Kartik, Yes, And got realized you been been about do that during an you at area pretty when realize that's client formula. would I growth pandemic. accelerated talk broad you product strong. penetration, And

So the I pre-pandemic, post-pandemic, entering stronger company. We're post-pandemic era more and if And a say to position as we're exiting changed. and what pandemic profitable. the look a in

agile. more I think we're

stronger value We have and set a proposition solutions. of

ERTC from got a and hands I $XX adviser of PPP. with think billion our mean over over we -- trusted ourselves had in we've I clients' established money as clients. our we

of lot a up built that so goodwill. And

So the base. we our we the And do the look accelerate. base. what at when in outsourcing of I seeing both sell the inside seeing We're of penetration those insurance base both PEO we're the can HR remember, seeing outside XXX(k) an what PEO, et from the inside inside We're cetera. basic we're seeing and

that is product sometimes out, something also as and gets been company the a that's our for formula XX penetration for, has years. left you know, part is of growth So and key

And John, just a last question.

on Just acquisitions.

to continue maybe the the to capital. that? with to wondering, companies? the want clients on other ability of earlier the thought as you acquisitions, provide call, would to is at mentioned You be types strategy I'm building access in you'd look that acquire Or

go both continue general. getting back, where our market we've that those part historically And find formula would has more to do then that historically talk be as say been going was well. I one market. space I in that lot think would of let very M&A back see active as of about and Well, I be we you looking to adjacencies we're me looked M&A been that rational directly tell I to continually there inflation, in that our at growth in would have another at the the at. I valuation,

is companies in write business Specifically most in with for fintechs in question. you're other our check client asking as the expanding run area biggest the -- the the digitally more so comes to every their they're small and that payroll. going to the owners We're partnerships month interested remember,

source And or that alternatives that or repair loan float so need to a provide their in that's truck they them to a if some can that business. if a something of we get like

we can we're them capital actually what is do trying there So build at that the their give to access partnerships payroll. point to more of so funding

And the last question from Scott Wolfe Research. with Wurtzel

Just cost well? you And the appreciated. quickly expecting headcount investments optimization provide shifting as go 'XX fiscal charges the wanted to of and charges to optimization, the you are incremental a maybe actions then any the if these to related out technology back wondering real between split can in be would also, and estate

So then I'd and to million, all It's there is that think roughly when XX% be the headcount-related, that's we $XX split But of Scott, probably that of the say, answer that. XX-K breakdown of have a and real is the rough disclosures to roughly couple second our see assets. I assets more probably is between from balance us. the question behind you costs. in estate around There'll technology some those the half weeks no,

up. wraps it That

call like would turn That to to our over closing John Yes. period. the I concludes for now question-and-answer Gibson remarks. back

we interest you thank you're Okay. in for hope Thank to a your July. has fourth And you, of and a everybody each days. great archived close XX the great to call, replay I Take be every I for it care. want Again, of of this a Paychex. if continue webcast, will the approximately interested one in Madison. as day and point, At

XXXX fourth quarter Call. today's Earnings concludes That Paychex's Conference you. Thank

may at now wonderful day. and time lines You a disconnect this your have