Q4 2022 Paychex Inc Earnings Call
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Good day, everyone and welcome to today's Paychex fourth quarter and fiscal yearend earnings conference call.
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It is now my pleasure to turn today's program over to Mr. Martin Musee, Chairman and Chief Executive Officer, Sir Please begin.
Thank you and thank you for joining us for our discussion of the Paychex fourth quarter and fiscal year 2022 earnings release, joining me today are at from Rivera, Our Chief Financial Officer, and John Gibson, Our President and Chief operating Officer.
This morning before the market opened we released our financial results for the fourth quarter and full year ended May 31 2022.
Can access our earnings release on the Investor Relations website, and our Form 10-K will be filed with the SEC before the end of July.
This teleconference is being broadcast over the internet will be archived and available on the website for about 90 days, we will start today's call with an update on business highlights for fourth quarter and the fiscal year Efrain will review, our financial results and outlook for fiscal 2023, and we will then open it up for your questions or comments.
We are very pleased to close out our fiscal year with yet another strong quarter. Our successful fiscal 2022 results reflect strong execution across the company. This includes our sales teams highlighting our value proposition our service teams and retaining clients are cross functional partnership to get new products in front of clients quickly and a.
Solid success in HR outsourcing and in the mid market. Our adjusted diluted earnings per share growth of 24% reflects both strong revenue growth and margin expansion to an operating margin of approximately approximately 40% for fiscal 2022, our focus on cost control lower.
Discretionary spend and operating efficiencies has allowed us to both invest in our business and expand operating margins.
Macroeconomic trends have been positive this year, but with inflation at a 40 year high there are concerns for potential of a recession in the near future. We continue to monitor key leading indicators for any signs of a change in the macroeconomic environment, but have not seen any signs of deterioration at this time typically the first signs of.
Have a macroeconomic recession would be a decline in employment levels at existing clients and uptick in non processing clients or a slowdown in sales activities. These indicators continue to trend in a positive direction.
The latest paychex IHS small business employment watch reflected a 12 months consecutive 12 consecutive months of increasing hourly earnings gains, though we did notice slowing a bit of the pace of job growth in may.
However, this is more reflective of being near full employment and the difficulty of finding employees job growth at U S. Small businesses remained strong in the face of a tight labor market and inflation pressures.
Earlier this year, John Gibson was appointed President and Chief Operating Officer, John has been leading our service operations since 2013, and we're glad to introduce you to them on this call and have them participate I will now turn it over to John who will give us an update on our sales and service performance. John Thank you Marty I'm happy to be joining all of you today.
On this call and provide an update on our performance both for the fourth quarter and full fiscal year 'twenty. Two we finished the year with over 730000 total payroll clients with growth driven by both strong sales and retention. In addition, we now service approximately 2 million worksite employees through our <unk>.
Awesome and PEO offerings with 18% growth in the fiscal year, we had a record level of new sales revenue for both the fourth quarter and full fiscal year. Our sales teams truly executed across the board from digital sales in the low end and continuing momentum in the mid market and very particularly.
Strong demand in HR outsourcing in retirement. This reflects the strength of our value prop proposition and was aided by the improved sales productivity.
Continued investments in demand generation and sales tools are.
Our service teams have worked tirelessly to both support our clients and our sales growth throughout the year.
We're very pleased with our revenue retention, which was comparable to our pre pandemic record of last year. We have continued to make strong progress in hiring and we actually accelerated some hiring into the fourth quarter to ensure we are fully staffed and ready to execute our goals in fiscal year 'twenty three.
We believe that by partnering with our clients and remaining agile and flexible in how we meet those needs. We will provide them the ability to focus on running their business and increase their success in navigating todays very complex business environment their ability to rely on paychecks to make the complex simple result in.
Their continued success and we will of course have and lead to continued elevated retention that benefits everyone. I will now turn the call back over to Marty. Thanks, Jan we continue to help our clients deal with the issues. They consider most pressing we were recently recognized for doing just that by receiving the HR Tech Award from lighthouse research and advisory for them.
SMB focused solution in the core HR workforce category for the third consecutive year, what stood out about paychex flex was our ability to rapidly respond to changing conditions delivering a product that is consistently up to date on the latest requirements. We have been able to help clients navigate challenges, including recruiting in <unk>.
<unk> talent during the great resignation, gaining access to government stimulus programs like the employee retention tax credit enhancing benefit offerings and transitioning to a digitally enabled distributed work environment, our strong and resilient product suite of HR payroll insurance retirement, and PEO havent been stroke.
<unk> designed to help businesses maximize every opportunity presented to them. We continue to see expanded utilization of our recruiting an applicant tracking solutions designed to help businesses find talent and a low unemployment environment.
Our deep integration with indeed is helping our clients gain access to a strong set of candidates over 70% of the client employees hired through our flex recruiting and Apple can tracking module were sourced from indeed, the world's largest job postings site.
Our retirement solutions are also experiencing record demand due to state mandates and the need for differentiated benefit offerings to retain top talent.
The introduction of our pooled employer plan further differentiates our solution set we now help over 104000 businesses and over $1 3 million client employees save for a dignified environment retirement.
With industry, leading mobile technology, which allows employees to enjoy enrolling their retirement and just for clicks.
HR has historically been tasked with helping businesses stay compliant and manage their talent with paychex HR, we deliver on these goals, while also helping businesses operate more efficiently.
Hey checks HR helps businesses replaced paper with modern easy to use digital processes through our cloud enabled flex mobile technology, given current challenges with hiring and the rising cost brought on by inflation, we address head on the need for businesses to operate more efficiently over one 7 million client employees were on boarded.
Through a completely digital experience during fiscal 'twenty two.
Maximum gains inefficiency or obtained when the leading technology, we bring to payroll HR and time collection and scheduling are brought together paychex pre check debuted debuted in January and the early adaptors of pre check and benefited from the proactive approach of letting their employees preview and improve their checks prior to processing.
<unk> been excited about the time savings and problem avoidance that comes with pre check.
We also continue to innovate in the PEO space Paychex PEO offers a continuum benefits that is unique to our clients from traditional health dental envision funded by the client to comprehensive employee volunteer packages, including options for employees to purchase anything from critical illness policies, the pet insurance to new and emerging <unk>.
Offerings like student loan subsidies robust benefit offerings designed for part time employees telemedicine and mental health counseling.
Our paychex PEO provides a differentiated approach the benefits designed to help our clients attract and retain top talent managing cash flow is also a top priority for businesses as they are struggling to address the impact of supply chain issues and rising inflation, we continue to find ways for customers to access government stimulus.
Including helping our clients gain access to over $8 billion and employee retention and paid leave tax credits. This builds on the momentum of our $65 billion of PPP loan program initiative in 2020, Our award winning PPP forgiveness tool has been instrumental in helping our clients transition 96.
6% of those loans to full loan forgiveness.
Checks, we know our employees are critical to who we are and what we do and I believe that our focus on employees and their well being has helped us manage through the competitive labor market. We are identified as one of the America's best employers for diversity by Forbes magazine, and we're recognized by business group on health for offering one of the nation's top health and <unk>.
All being programs with the best employers excellence in the health and Wellbeing Award as fiscal 'twenty two came to a close I'm very proud of the excellent results. We had for the year and excited about our continued growth I want to thank our 16000 employees, who are key to our success and have done a tremendous job in this ever changing.
[laughter] environment.
I will now turn the call over to Katherine Rivera to review, our financial results for the fourth quarter and fiscal year as well as our guidance for fiscal 2023, Efrain. Thanks, Marty and good morning to all of you it's great to join you.
At the end of one of the most successful years in the company's history. Despite the success what you have from US and we'll always have is.
As a team that's grounded and we will continue to work to deliver shareholder returns.
That that leave the market.
I would like to remind everyone that today's conference call will contain forward invest forward looking investment statements refer to the customary disclosures I'll periodically refer to some non-GAAP measures.
Please refer to the press release and Investor presentation for more information they are pretty modest.
Adjustments.
I'll start by providing a summary of our fourth quarter financial results quickly get on full year results and then provide some guidance for fiscal 'twenty three.
For the fourth quarter of fiscal 'twenty two as you saw both service revenue and total <unk> total revenue increased 11% to $1 1 billion.
Management solutions had another strong quarter increasing to 12%.
$845 million driven by higher revenue per client and growth in our payroll client base.
Higher revenue per client reflects product attachment across our HCM suite higher employment levels within our base pricing revenue from ancillary services, including arent Your Tc service.
<unk> revenue reached approximately 1% of total service revenue.
For the year, while we do not anticipate this revenue stream to continue at that level.
There still remains a significant opportunity both inside and outside of our base.
PEO and insurance solutions revenue increased 10% to $284 million, driven primarily by higher average worksite employees and health insurance revenue.
Interest on funds held for clients increased just 2% for the quarter to $15 million due primarily to growth in average investment balances note that while recent rate hikes did not have a significant significant.
Significant impact on the fiscal quarter, they will provide a tailwind for next year.
Total expenses increased 11% to $750 million the growth in expenses resulted primarily from higher compensation costs due to increased head count to support our growing client base wage rates and performance based compensation. In addition, we continued to invest in our products technology marketing and I just want to call out the margin.
In the quarter, we made very deliberate choices in the fourth quarter to invest back in our client base.
And in our among our employees that's why all of the flow through did not go down to the bottom line and that was a deliberate choice that we think leads to the future sustainability of the business. When we think we're positioned very well as a result of those choices.
Operating income increased 11% to 394 million with an operating margin of 34, 4% adjusted operating margin was flat for the reasons I just said.
We anticipated some hiring in marketing spend and pull that into Q4.
Net income increased 13% for the quarter to 296 million and diluted earnings per share increased 12% to 82.
<unk> per share despite all of that investment adjusted net income and adjusted diluted earnings per share both increased 13% for the quarter to $295 million 81 per share respectively. As I said the adjustments were relatively modest.
Full year fiscal 'twenty, two let me touch on that quickly you saw a total service revenue.
Total revenues, both increased 14% to $4 6 billion expenses, including one time costs incurred during the prior year.
Increased 8% operating income and adjusted operating income increased 26% and 23% respectively to $1 8 billion. Adjusted operating margin was 39, 9% an expansion of 310 basis points over the prior year and I just call that out you will search high low defined somewhat the companies that are at that level, we do.
Deliver that we've delivered that while investing in the company because we think that we're not playing a game for the next quarter or the next year, we're playing a game for the long haul. That's what you do when you have that kind of company diluted earnings per share increased 27% to 384 per share adjusted diluted earnings per share increased 20.
Four to $3 77 per share.
I'm really proud of our financial position, we delivered all of that and our financial.
Our position remains rock solid with cash restricted cash and total corporate investments of $1 3 billion total borrowings were 806 million as of May 31 cash flow from operations was $1 $5 billion during the fiscal year, we translate earnings into cash that's what we do free cash.
Flow generated for the year was $1 3 billion up 20% year over year, So earnings and cash flow were really strong this year, given the strong performance and our commitment to returning capital to shareholders in.
In May we increased our quarterly dividend, 20% to 79 per share and as many of you know we have one of the leading dividend then certainly in our sector and industry endured.
And during fiscal 'twenty, two we paid out a total of 1 billion in dividends and we also repurchased one 2 million shares of paychex common stock for $145 million or 12 month Rolling return on equity was a superb 45% now.
Let's talk about 23.
I'm going to turn to the upcoming fiscal year.
And our.
Our current guidance our guidance is as follows management solutions revenue expected to grow in the range of 5% to 7%.
PEO and insurance solutions is expected to grow in the range of 8% to 10% interest on funds held for clients affected to be in the range of $85 million to $95 million and let me just called out that this reflects increases in line with what we understand the fed.
<unk> is saying through the end of this calendar year, what does that mean, specifically it means that we think that interest rates by the end of calendar year calendar year.
2022 will be approximately three and a quarter.
Give or take and we are assuming that in our.
Our plans at this stage.
Total revenue is expected to grow in the range of 7% to 8% adjusted operating income margin is expected to be in the range of 40% to 41% not only did we deliver a 300 basis point increase we are committing to additional leverages. We go into next year, Despite having made a lot of inverse.
<unk> in the business as we've gone along adjusted EBITDA margin is expected to be another stellar 44%. Other expense net is expected to be in the range of $5 million to $10 million. Just so you. All remember that is a combination of both interest expense.
Yes.
The income on the portfolio Thats why it's five to 10, we expect that we will see.
Income from the portfolio offset some of the interest expense.
Our effective income tax expected to be in the range of 24% to 25% and adjusted diluted earnings per share at this point, we expect to grow in the range of 9% to 10%.
This outlook assumes the current macro environment, which as all of you know has some uncertainty we like you week to week struggled to understand.
Sometimes what what are the signals that are coming out of the of the federal government I want to reiterate something that Marty said the.
<unk> in our business are strong as we exit the year. So that's not not not a concern certainly in the first half of the year in as much as we see it right now second half we will see so whereas inflation going to be don't know that what is the fed exactly going to do we think we have.
Some indicators, we will see what they are.
What they end up doing we obviously.
Given all of those comments have better visibility into the first half of fiscal 'twenty three.
In the second half.
So here's what we think about the first half than the first half of the year at this stage, we expect total revenue growth to be in the range of 8% to 9% with an operating margin of approximately 39%. That's what we think will happen in the first half and then for the first quarter getting a little closer we currently are anticipating.
Total total revenue growth will be in the range of 9% to 10% with adjusted operating margin in the range of 39% to 40% of course all of this is subject to current assumptions.
Which are subject to change.
And we'll update you again on the first quarter call.
Let me refer you to the Investor slides on our website for additional information and with that I will turn the call back to Marty. Thank you Efrain operator, we'll now open it up for questions or comments.
Yes, Sir at this time, if you would like to ask a question. Please press the star and one Keith on your Touchtone phone.
You may remove yourself from the queue at any time by pressing the pound key.
Once again that is star one to ask a question.
And our first question will come from David <unk> with Evercore ISI.
Thank you good morning appreciate all the helpful Callouts.
Our friend on fourth quarter margin impacts.
Could you frame in your fiscal 'twenty, three revenue margin revenue and margin guidance, specifically three things.
What impact are you assuming from inflation on wage and other expenses.
Second if you could quantify your fiscal 'twenty three price increase.
And third.
If you could bracket for us your expectations on our client revenue retention, we're coming down from the pandemic driven Pete how should we think about year over year change in client revenue retention FY 'twenty three verses FY 'twenty two.
Okay, Hey, Hey, David Thanks for the questions by the way that Triple header there could take is about 30 minutes.
<unk> it.
So I'm going to let Marty talk to two two the inflation question because I think that's a good one.
And kind of how we think about it in the year, it's baked into the numbers obviously.
We won't quantify a specific number but we'll tell you about what we're thinking about with respect to inflation and how its affecting us how it will we expect that will impact us, yes, I'll touch on it David.
Ron can jump in any place I think you know from an inflation most of US most of our expenses. Obviously, a wage were not really impacted obviously by a lot of material impacts which is very good for us where wage that we've captured in these numbers. We think are going to hit the wage increases are a little higher is ever mentioned, we took some steps in the fourth quarter that was some.
Were onetime other wages that we built in a little bit higher from a competitive market standpoint. The one time things were some year end bonuses and so forth that we did given our very successful year for employees. So we think we've captured it very well wages are a little bit higher than than we would normally go that's expectation that happens in there.
This first quarter basically that the wages hit and we think we've captured them well other than that really not an overall large impact we've controlled expenses very tightly.
Coming out of the pandemic things that we learned and experienced there with working from home having sales remote much less <unk> cost we've been able to continue that trend yet still invest in the business. So I think the guidance you have there.
<unk> very strong from a standpoint that we've got those inflationary numbers in there yeah. So.
I think the the thing I wanted to call out that Marty mentioned is that we in the fourth quarter took a lot of actions that that we think position us very well for <unk>.
For 'twenty three so I think we've captured as much as we know right now there's always some some room to make further adjustments, but the adjustments from an inflationary standpoint are really around wages for us. So I think we've captured that on the price increase we have always said that we're in the 2% to 4% range I would say this is a year.
That certainly was at the high end of that range.
And it varies depending on the product I think the key thing there is to get the right.
<unk> of value and price and it's not just about raising prices. It's also about delivering better value.
I think we are good there and then on the on the client retention.
We had a really good year.
<unk>.
John mentioned earlier that.
Our pandemic hi.
Was.
<unk>.
Was a record and it was approximately 88%.
When we close the books. This year, we were at approximately 88%. So we had a really good year from a revenue retention standpoint, there's lots of elements to that but I think we've made a lot of strides from where we were probably 345 years ago. So that's those are the answers to your question David.
And then.
What are you assuming for FY 'twenty three client retention can you sustain the 88 or are you assuming some step down.
I think it's comparable I got to say that it wouldn't it wouldn't be surprise it wouldn't be surprising to see a little bit of slippage from that number simply because I think we are transitioning into a more normalized environment, where youre going to see lots of competition, our assumption in our plan as that discount.
<unk> will go up a bit because of the level of competition. So everyone's come out of the pandemic swinging I think some people are are in better shape others are wildly are we.
We think we're in pretty good shape, and we were in a position to defend pretty well. The other thing I would say on that that's really helped us in the year as we had a really strong year in the mid market and I'll, let Marty talk to kind of what what happened there because thats really helped us to on the revenue retention side.
A good point to make that will make probably a couple of times on this call. The mid market really picked up and as we said probably a year ago. There was kind of a pent up demand that we saw a year ago, where people had not made some decisions that opened back up and we've been winning a lot mid markets. The strongest year, we paid in mid market, probably in our history and I think.
It's a great combination of sales execution the products and the full suite of products that we're offering that is really tailored to exactly what clients are looking for now. So we've had a lot of success there with certainly helps on the revenue retention from a go forward standpoint, not only are we selling better in that mid market, but we're retaining and a very strong way.
As well.
Understood. Thank you very much.
Hey, David.
Thank you.
Our next question will come from Kevin Mcveigh with credit Suisse.
Great. Thanks, so much and congratulations hey, I don't know if this is for Marty or a friend, but clearly the retention feels like it's structurally at a higher level like it may ebb and flow within a higher level of range. So maybe just help us understand <unk> <unk> kind of.
What drove that was that kind of just the service post COVID-19 or a more robust product offering is there any way to kind of think about what drove the structural and again, realizing it probably comes off but it feels like youre in a structurally higher level clearly than where you were in condo seven.
Yes, I'll start I definitely think Kevin.
There is consistency there so I think structurally you're right, we've seen really better from a controllable perspective, we've definitely seen a trend of continued strength. There I think part of it is really the product side that certainly I'll take it from the product side and then have John talk about the <unk>.
Rest of it the products have just been very responsive and the continued the continued used by the clients and their employees have made the retention sticking and we've talked about that for many years, but I don't think thats ever been stronger and it really accelerated during the pandemic as people were much more distributed and our workforce.
Remote workforces.
Really got to use and had to use the technology more of the mobile app for.
For example, an online use as well, but the mobile app really good clients and their employees to use it more that leads to better retention because clients and employees don't want to give it up.
Because they are things like pre check they're seeing their check before it's cut.
They are seeing what their time is that they've turned in everything looks good they know what theyre going to get paid.
They are able to change the retirement of our Cedar retirement funds.
On the mobile App and change everything they're able to onboard in a paperless fashion and so they are making their own direct deposit changes their bank changes and other things. So all of that as we talked about over the last few years I think has led to that structural improvement, which is pay the employees of my clients want to stay with paychex because they're invested.
It is not just the clients payroll or HR person, so I'll ask John to add to that as well, but I think thats a big piece of it yes, no money and Kevin I would say this is this is probably a multiyear story you go back before Covid things.
Things, we've been doing in our service model to differentiate our service focus things, we're doing relative to competitive retention triggers using AI and analytics to anticipate where we may have issues. All of those things have really led to us be getting a better handle on our controllable losses and if you look you go back to 18 or <unk>.
Full year 19, you can really begin to see that dramatic piece I would tell you, particularly to marty's point.
Not only.
What we've done from a service perspective with relationship management in the upper market things, we're doing there and our HR outsourcing pieces, but we know that product attachment, particularly in retirement, particularly in HR, particularly attachment and utilization of our flex product and technology to add tools lead to stickiness and we've been.
Very aggressive in introducing our clients to that capability and so that's also creating a degree of stickiness I mean, just I look at this all the time and in fact, our price value losses were actually less this past fiscal year than they were at a record year and if I go back to 18 and 19.
About half of what we would typically have seen historically so there is a structural.
Component to this that we're going to continue to execute theres more we can be doing there and I feel good about what we can do on the controllable side. The uncontrollable is always a thing we're monitoring and watching.
Got it and then just one quick follow up and I'll ask him if he could tell us in terms of the fourth quarter investment. It sounds like it was a little more variable is there any way to kind of frame what that was and I'd imagine it was more kind of variable as opposed to fixed cost that would kind of repeat in 2023.
Is that fair.
Well I guess I guess, so Kevin let me, let me answer it in a slightly different way and hopefully that's responsive to what you're saying. So there were a mixture of one time things that we did that were variable.
There were things that we did structurally to increase wages in certain areas and then there were things that we put in place for.
As long term incentives so.
I would say one of them was was.
One of those with respect to employees was more one time.
And the other two were structural and will be there longer term there were some other items that were not wage related that were also.
That were also variable that we did in the fourth quarter.
It was a mix of both.
I wouldn't characterize it one way or the other in terms of percentages, but.
But there were there were.
Three buckets, there that that ended up being part of the space and I think as Efrain said all of that obviously is in the guidance of increasing the margins. So even though some are more structural and ongoing wage expense or bonus expense. That's all in the increasing operating margin over 40% next year in the guidance.
It's important.
Super Thank you all right. Thanks, Kevin.
Thank you.
Our next question will come from Bryan Bergin with Cowen.
Hi, guys. Good morning, Thank you.
Commentary on <unk> is broadly positive here, but I'm, hoping you can dig in more specifically on some of those key lending client indicators and what those have been selling in recent weeks.
Give us a sense on what youre, specifically measuring there.
So Brian what we did was we.
We kind of dusted off forward indicators that we're looking at during Covid. So we we go down to.
Daily <unk> by employee daily punches.
Talking about daily hours clock by employees at our clients. So obviously, we have access to that information. We're looking at that on a daily weekly monthly basis to understand what are what are the trends. We look at sales and we look at losses, that's pretty pretty obvious and then we look at other micro indicators in terms of.
Engagement with our with our systems and platforms we have.
Put all of that together and look at those indicators tell us are we seeing any sharp changes on top of all of that Marty mentioned, we have not.
The IHS.
Employment index.
That we're looking at 350000 clients, what's happening with with that base.
And when you put that all in the blender at the moment.
But look significantly different than.
And then the trends we've been seeing in the first half of the year. So.
Look you guys are looking at a ton of different.
Pieces of information all I can say is with respect to our corner of the HCM world in our corner of this part of the economy.
Things are looking about the way they looked and at this point neither inflation, nor the sharp beginning to be sharp rises in interest rates seem to be slowing things down.
Having said that I will temper as you all know with a note of caution things could change but at this point, we're not seeing the thing Thats consistent Brian is the is the demand that small and mid sized business is still seeing a great demand for products and services and it's finding people so job growth.
If anything if it's if it slowed in the index. This is under 50 employees as Efrain said is the growth is still there, but it has slowed a little bit it's more because youre not being able to find the employees everybody knows that youre hearing, particularly frontline leisure and hospitality and other service functions trying to find people that demand is still there. So there's a there's a.
Hunger for the need and.
Youll hear it over and over the reason that ASO and PEO performed so well in sales and.
And client retention is because there is such a need for HR support and recruiting and hiring and engaging in training I mean, there is just a huge need for not only our technology in the HCM space, but our over 650, HR specialists, who are there to help them with those things.
Okay, and then as we think about fiscal 'twenty, three and nine the forecast you Bill can you unpack.
Within management solutions, specifically are you still anticipating Asl retirement of some of these other areas to grow double digits versus kind of the the payroll and HCM can you just help us with the underlying business areas in that segment and how you are thinking about growth in 2003.
Yes, that's about right I think that that.
We see strong demand in those areas continuing through 'twenty three.
Obviously on the HCM side, which we haven't said, specifically, but which is implicit youre not going to see the macro uplift in terms of the number of employees on the payroll.
<unk>.
Part of the recovery from the pandemic, that's normalized partly based on some of the things that Marty has said, but demand for all of the other.
Management solution services is still very very robust I would say.
And we're very bullish on on all of those other businesses.
Yes. The other thing that we haven't mentioned yet is that the work that we did I mentioned employee retention tax credits in the paycheck protection loans the employee retention tax credit service you know that we really.
The team's really got down to a very tight process and we were very successful in getting $8 $8 billion between those credits and other credits to our clients that has helped actually spur additional sales where they said hey, now that you have given me all this value I think the average.
Employee retention tax credit was around $180000 per pretty small business at times.
That generated the need to say Hey, let me try your HR service, let me do some other things and we see that continue that will be continue to have success with the RTC in this year, we're already off to a good start this year. So a lot of clients still finding.
A huge benefit from getting that a government subsidy.
Alright, Thank you Youre welcome.
Thank you.
Our next question will come from Ramsey El <unk> with Barclays.
Okay. Thanks for taking my question this morning.
I was wondering if you could give us an update on the sort of mix of your sales channels I know that digital is clearly a highlight of the model I'm just curious in terms of how the various contributions from your different sales channels has have trended over time.
Dan do you want to yes, yes, yes, yes as you can imagine we've continued to use and seen digital sales continue to increase particularly in the pandemic what I would tell you both in terms of our payroll dot com and paychex Dot com, we've seen good attach rate there and good and good and good traction.
There, but I would also say really across all of our sales channels. We've seen very strong demand characteristics and we're finding clients doing more hybrid shopping so starting off maybe on paychecks Dot com and then ending up in a discussion about how we can help them with the RTC and then other products and services. So I think our sales team has done a very.
Good job of pivoting when the pandemic hit adjusting to the new reality of how people are buying.
We continue to see and find ways that we can adopt that to drive not only more sales, but also sales productivity. That's the other thing that we've seen really really increase through this.
Okay, and then also if you wouldn't mind, commenting on the competitive environment kind of coming out of the pandemic I'm curious if you perceive any changes whether youre running into fewer competitors out there in the marketplace or more or how would you characterize how the competitive landscape has evolved yes.
Marty I'll start I think I think we're seeing it fairly consistent although I would say that things like the.
The ability to offer the Pep plan and retirement, we were the first out of the gate with the Pep plan we've had.
Great success with the pools employer plan for retirement.
Other competitors have not offered that yet not all competitors. So we have really jumped the market on that one and did very well I think again, if you go back to us going to the client and prospect and saying Hey, we have employment retention tax credits that we think you are you are you can receive and let me go through that with you that we have.
Jumping over a lot of competition with that.
I am surprised that the lack frankly of participation in that market, we've done very well with that which has helped our sales brand and bring value to prospects and current clients. So I think generally the competitive environment is the same but I actually but I also think that some of our product improvements and introductions have really positioned us a little.
Stronger I think particularly in the mid market mid market that we haven't been as strong I think if you went back four or five years ago is we wanted to be the introduction of the products over the last three years really positioned us to have a really strong.
Sales response, this last year and it's continuing into the first quarter. So we're feeling very good about the mid market in particular.
Got it alright, thank you very much okay. Thanks Ramsey.
Thank you.
Our next question will come from Jason Kupferberg with Bank of America.
Good morning, guys. Just wanted to start on HR management I know you mentioned increased attach rates there and I'm wondering if you can provide any quantification, perhaps on that front for certain products that are driving that dynamic.
Yes.
Jason Hi.
We'll update the number of clients in the 10-K, so you'll see that we're approaching.
We're between $40 50000 clients Youll see a pretty strong double digit growth in the number of clients. There too will give you an exact number that you can look at when we filed the 10-K.
Few weeks and John mentioned I think that we've had.
Over 2 million Worksite employees in the HR space between our products and HR outsourcing and.
Also great attachment things like time and attendance so.
We've been even something that we don't talk about as much time and attendance. We've introduced the new latest technology Iris scan clocks. These our clients, whether you're wearing a mask or not you don't theyre non touch their kiosk that you just use your iris your eyes the scan.
Between that and the mobile punch in and punch out we've seen very good attachment and time and attendance when you have time and attendance and flex.
Now can use pre check so pre check is now is sending a note as I said to employees and saying Okay. You were.
<unk> got your recording this many hours of working.
This is your your check do you see any issues with it if you don't see issues, let us know that new confirmed it if you have issues like your employer no. We're seeing about 5% of the time that.
They're finding some issue that the employer their employer didn't catch something right and thats resolving the issue before the payrolls cut that has huge benefits. So youre seeing more attachment and use again by employees of clients and so the.
Of time and attendance and pre check in retirement all of those things are making better retention and we're seeing attachment go up.
Okay. Thanks for that.
Wanted to ask a follow up just on float income it looks like that is forecasted to be up about $30 million year over year, and assuming you get 100% flow through on that it looks like that would drive about 60 bps of margin expansion. If our math is right and that would basically get you to that midpoint or roughly the midpoint of your margin guide for fiscal.
'twenty three.
Which would kind of suggest flattish margins in the core business. So I wanted to check on all of that if you agree with that general.
Assessment.
Also I guess just wondering if you can remind us a bit on duration of the portfolio just given the magnitude and trajectory of rate hikes.
Perhaps somewhat have thought even a bigger increase in float income for this upcoming year.
Yes interesting math, I think I wouldn't probably dispute the math, Jason I would say that.
Only comment I would make with respect to.
Looking at the business that way is that when you put a plan together what youre, what youre doing is making choices around a lot of different investments even in a plan, where we where we choose to.
Increased margins.
50 basis points, there our investment choices being made in the in that process. So while I think your math is probably not far off that doesn't indicate that there is leverage underlying leverage in the business that we chose to deploy that in different parts of the business could have had greater flow through some of it was.
Some of the choices that we've made with respect to.
Wages and other items that we discussed previously.
The second thing I'd say on everything we do especially in the area of.
<unk>.
How we look at the portfolio. There is an element of conservatism in the way we think about it. This is an unusual year in the sense that the fed has said certain things change it but <unk> been saying certain things in.
We have to incorporate.
The outlook.
You have given.
To the extent that that changes then we'd come back and have different discussions which could in some ways impact.
Other parts of the P&L, but we'll have to work through that one when we get there.
We have ways to get more leverage if we choose to choose to to use it.
And then the final point is that right now the durations a little bit over three and our our.
Palio is position about half and half short term and long term, we have a lot of levers to pull there if we if we want to.
If we want to adjust duration on the on the portfolio.
No longer even shorter if we wanted to so so I wouldn't I wouldn't quibble with your math I just would quibble with your conclusion, a little bit about the underlying leverage in the business.
Good color I appreciate that thanks, Kathryn sure.
Okay.
Thank you.
Our next question will come from Bryan Keane with Deutsche Bank.
Hi, guys good morning.
And how would you compare the preliminary guidance for fiscal year 'twenty. Three I think you gave last quarter high single digit revenue growth to 50 basis points of margin expansion with the detailed guidance just wanted to.
Figure out if there were some adjustments you made either due to macro or some other factors.
Yes, I'd say I'd say Brian .
You kind of.
I was looking at it.
I think we said approximately seven or so so.
So this is a little bit stronger.
The thing that I called out.
<unk> was we knew <unk> was not going to recur I called that out as 1% of this year's revenue. So that was a little bit of a hurdle that we were going to have to overcome I think we've overcome that too to a significant degree although it won't be as high as it was last year.
The other the other factor really was around.
What happens with with.
With employment levels that really is the tough part Marty pulp it out there's demand there for people, but there are unfortunately, not as many people to fill those jobs. So what we're seeing by the way in the market.
Is.
More creative use of things like part time employees to fill jobs that otherwise would have been filled by full time, that's not a bad thing for us from a wage perspective, but it's a little bit different than the way maybe you would have thought about it three or three years ago and then the.
Final point is that.
Look the fed.
And you are looking at that as just like we are.
Theres a lot of variability there, let's just put it that way and so.
We haven't assumed anything beyond about 3.25% increase.
The back half of the year is going to be very interesting from our perspective, just in terms of what happens with with whether theres a soft landing.
<unk>.
So we tried to create a plan that gets us through what we understand the current environment to be.
And then.
So this this set of.
This guidance that you see here is a little bit stronger on the interest side than it was than we were and we said this in March April , but because the feds changed.
Some of it's thinking Hey, I.
Having said all of that that word salad basically said a lot of stuff could change. So we'll update you, but I would say in terms of the macro it's probably as changeable as any of the.
11, or 12 plans I've been involved with here.
Got it got it and then just at a high level is.
There's a lot of worry about about a movement towards an economic slowdown or recession, how does the model hold up just on a high level in a recessionary environment or what are some of the variables that could impact the model. If we do see a recession in the U S and globally I think we called out in the comments I think.
And Marty.
We would see it obviously as you'd see less clients processing, that's the first part.
Even before you saw slowdown in demand.
But there is a interesting offset Brian that we saw during the pandemic is that it actually sometimes retention picks up and those kinds of environment. So what's the net net of that I don't have a crystal ball on that I think it would help to offset some of the softness on the on.
On the on.
On the revenue side.
And it depends also what's happening with interest rates if interest rates remain at current levels or because of a slowdown the fed decides what we're going to just ratchet them down that would have an immediate impact from a revenue standpoint.
I think if it's gradual we'll manage through it and I think we certainly will manage through it on we have a good shot at managing through on the bottom line I think that we're well prepared to handle that if it's abrupt it's really tough to manage through those kinds of situations.
Situations.
Got it very helpful. Thanks, guys alright, thanks, Brian .
Thank you.
Our next question will come from Andrew Nicholas with William Blair.
Okay.
Thanks for taking my questions.
I wanted to follow up on that on that last comment you made up for me maybe spend a bit more time, if you could on the flexibility of the expense base in a more challenging economic environment, where some of the areas, where you have a bit more leeway to manage that bottomline relative to.
An environment that <unk> been in here over the past year or two where margins are at at very strong levels.
I would say three things. So the first thing is in an environment. Like this you have to have the appropriate level.
Hum.
[noise] areas in the P&L to go if you see a slowdown and we assume that.
We will manage through.
The current environment as it is and if it gets a little bit worse, we can handle that.
So.
We've taken appropriate precautions as what I would say on that that's the first thing. The second thing is that we have a unique model, where we do this quite a bit we don't talk about it but we do it through.
To the extent that the client base doesn't flex up and the way we do it we simply don't do the hiring that we expect to do so if we don't do the hiring and you get the benefit of the 60% to 65% on the 60% to 65% of the wages that are that are in the.
That are in the plan and then the third thing is we have flexibility in terms of.
Adjustments on the portfolio to two to address duration depending.
Depending on what we're seeing in terms of the macro environment I think with those tools, if you will and the toolkit and there are others by the way.
We should be able to manage through at least.
Any of the environments that are right in front of US now they are certainly environments.
Could prove a lot more challenging.
Point to point this out one thing is the history is no guide.
But in terms of precedent I remember being here in April of 'twenty, one everyone was gone and the stock went down to $48.
Everyone thought that we were not going to be able to manage through them.
I would say history has shown that to be incorrect.
Yes, and I think the other thing.
During some of those times that could during depending on the recession there'll be a need for even more need for some many clients for HR support how do I manage my costs down hideaway.
And I think we showed during the pandemic that we could respond to that very well. So we're we're really quite broad and the way that if it if it's the academy is going fast and you need to hire and you need growth and you need to help with your HR. We're there to help you with the technology and the people to support you if things turn and into <unk>.
<unk> and you've got to manage people out or costs down.
We have the products the technology and the people to help you do that as well and I think we showed that as Efrain said and the pandemic when people thought jeez I don't know whether <unk> be able to keep their margins, we did extremely well and so we've been able we've learned a lot from that and frankly, probably got a few more levers out of the pandemic that we could use during a recessionary peer.
<unk>, which is one obviously not hiring as Efrain mentioned.
But also drive some other costs out through the fact that we have very remote hybrid workforces now that gives you more flexibility even than before and where you hire too.
Great No. That's all very helpful. Thank you and then.
For the fourth quarter, just a quick question there that I wanted to know can you talk a little bit more on and kind of the performance of the PEO business, specifically relative to the insurance within.
Within that segment. Thank you.
So you mean in insurance in the PEO or insurance is part of.
Part of the PEO.
Revenue stream.
Yes, the latter thank you okay.
Sure.
Yes.
Thank you.
Yes, I think.
So just so I understand the question you were talking about the attachment of insurance within the PEO and how the insurance.
It is performing.
Yeah, I guess I'm just.
Within that segment, if you could just kind of breakdown.
PEO business relative to the insurance business on Standalone basis.
Yes that would be helpful. Yes.
Yes, so I would say this I think in the last call we talked about at the <unk> business continues to perform very well double digit growth insurance slightly below that growth rate again, but that's really the tale of two cities.
I would say again back to what we said strong demand for clients to increased benefits to attract and keep employees. They had particularly in the small segment, where they're trying to compete against larger employers they have to be able to put together a portfolio of benefits that are going to attract and keep the keep their employees. So.
Health and benefits, we continue to see good growth there and good demand there.
DNC again, it's been a soft market for a long time, so that's a little bit more of a rate issue.
Still see good attachment there historical attachment that we've always seen in our base. So still strong performance at the PEO insurance right behind it predominantly led by the demand for health and benefits and the other thing I mentioned in my comments was the broad in the PEO, we worked really hard.
Johns team to broaden the PEO offerings. So it's not just about health and dental envision now its really as John said there is broader.
Offering that the PEO can bring to small businesses in particular.
To say Hey, you can offer other things in insurance and you can offer more mental health support that is very hot right now and you can offer other plans that you would not be able to do by yourself. So that has really supported the PEO growth with the creativity that the team has shown in the offerings that we can give them that.
What I thought maybe the other part of the question was the attachment that we saw in the PEO.
And the attachment and generally we're seeing from our clients as Marty said 401, K health and benefits gravitating towards these technology tools that they wanted to be able to provide their employees.
Those things have really been across the board very very well received and so in our comments. We stated it's one of the things that we've seen now is the opportunity for us to even add to that attachment. So when you think about now we're going to add a whole other set of voluntary benefits that we're going to go back and be able to offer to all of our PEO.
And all of our insurance clients over the course of the open enrollment period, which will start in October and those all will generate revenue. So again offering more benefits to the clients and their employees is another way that not only does that help the retention, but it also helps the revenue as well we're seeing good demand.
In the marketplace there yeah sorry.
Andrew.
As John said the revenue growth on the insurance side, obviously is lower than then.
Based on the fact that workers.
Workers comp continues to be a very very exciting market over a number of years.
Now that's helpful. You did a much better job answering it Tonight I did asking it so I appreciate it.
Thanks.
Thank you.
Our next question comes from Kartik Mehta with Northcoast research.
Good morning.
Good morning, maybe I know you've talked a little bit of a recession in Africa.
Good answer on how you might manage a business, but I'm wondering already based on some of the slowdown that you've seen.
Did you manage paychex a different I mean would you think that you could continue hiring or investing with this time be different than in the past based on.
What you've learned.
Well Kartik right now as I mentioned, we're not really seeing that slowdown so.
Yes, I mean, we really got behind at the beginning of last year in hiring because it was difficult on the service side in particular, and we actually made great headway in the last half of the year Jan and the HR team to get ahead of that and we're actually overstaffed right now a little bit going into the fiscal year. So we're very pleased with that so we're making.
Still strong hiring decisions.
The investments that we made in in compensation and benefits are attracting now we're getting back on track and attracting more not only service, but sales individuals and our retention is looking better so yeah.
I don't think.
What we learned as I mentioned out of the pandemic, though was that we could manage and a lot of different ways and more remote than a hybrid work handling sales differently. There is more flexibility in where those sales forces are and how they are selling more digital sales are coming in through the marketplace and we're well prepared for that.
So yes, I think you are always learning and we certainly learned during the pandemic and we were.
Very successful, it's all about having the right people in place and making those right decisions and I think we've made some good ones. Obviously, we're very pleased with our record breaking year that we had and we're certainly well set up for fiscal 'twenty three to have another one so.
And then just.
One of the areas I think <unk> had success in is it.
Programs like California kind of retirement mandates that payback for Smbs I'm wondering.
How successful that plan has been and maybe you can talk about if you continue to expect.
Growth in that business.
Yes, I'll take that Kartik, it's Marty I think that was very successful we were a little early on some of the advertising last summer because the mandate.
Businesses don't always respond to mandates.
That are going to have a penalty effective really this month and so we were a little bit early on that but what we found was the advertising that we did had really generated a lot of understanding that paychex is a retirement provider to small business and even fighting against three California had a very basic REIT.
<unk> IRA plan for free we've done very well so retirement, we've had the fastest growth in retirement and retirement sales in California, obviously in our history and so we see the approach that we made there maybe we've learned a little on timing of marketing and advertising, but the approach that we made there is.
Very successful and we think that will certainly carry to other states and maybe even a federal mandate. If it comes out on retirement as well in the secure act and so forth.
Thank you thanks, Marty I appreciate it alright got it.
Thank you.
Our next question will come from Peter Christiansen with Citi.
Good morning, gentlemen, thanks for the question real nice trends here.
I was just wondering I know you.
You called it out a little bit before activity in the staffing industry, you're staffing clients.
And I know, sometimes that's been a leading indicator, but at both ends of the cycle.
Just wondering if you could dig into we can dig into a little bit of a color are you seeing there.
And maybe some implications that youre thinking about around that.
Yes.
Yes.
That's a really interesting question and some of you are staffing analysts so.
For a little bit to you, but here's here's what we do just to level set with everyone.
What we do and we've had a very very successful year. This year is provide funding for typically small and medium sized some larger staffing firms. So we haven't a window into what is happening with staffing trends in the business.
Right now the.
The staffing.
Staffing businesses are doing very very well, so theres a lot of demand for services and you can argue well.
Why is that it seems that in portions of the economy certain portions of the economy in skilled labor.
Seeing a lot of demand.
<unk>.
Many of you probably know this but.
Skilled occupations like nursing and other technical discipline, there's a lot of temp labor that is used in that part of the business, but what's been surprising I would say over the last three to six months has been the rebound in.
What.
It's called light industrial so thats.
That's more typically blue color work, it's the demand is robust.
And.
It's.
It's projected to continue to do that through the through the end of the year.
It could be argued that perhaps people are starting to position themselves for a more flexibility on the workforce, but we don't have any indications of that what we know is that the number in absolute terms of temp workers is up and we're benefiting from that demand.
That's helpful upfront.
And then again back on things like the PDP plan.
Were you just had phenomenal growth there and I realize like products attached products like that certainly help things that retention.
And value based pricing for sure but is there any way you could frame what what type of contribution like a product like that is has had to overall growth I guess in the last year.
Yes, so I called it out because I think it's fair to say it's not.
<unk>.
I'm going to characterize it two ways. The first way I would say, it's been a little bit above 1% of revenue for the year. So it.
It obviously was a.
Great great product.
And.
But I would highlight something that Marty said, the great thing about a product like that.
Is the profound impact that has on clients and we had a review of it. If you saw the stores stores that are really really.
Important.
They're important not just because you feel good about them. That's good it's good to feel good but the reality is that it had a lot of impact on the clients that got it and the testimonials are amazing, but I think the second part of it is.
Marty mentioned that.
There's still opportunity in the base. So we expect that this year, we're going to continue to get a benefit not not at the same level of benefit we got last year, but we will continue to get everyone. Just to clarify I think youre talking <unk>. He might've said Pat did you say Pat Peter.
Okay.
Everybody I apologize yes.
Pep is a little bit different.
The final point I would say on that simply is that.
Whether it's <unk> or <unk>. There is there is a set or a suite of services that we provide to clients that really are.
Very important in terms of cementing their relationship with paychex. So this year's the RTC last year was it was it was.
It was.
Yep.
We're constantly on the lookout for opportunities to to cement that relationship with clients. So.
That's what I would say sorry.
You were talking about <unk> apologize.
I would also probably add to that Peter those things are cousins.
And somewhat of an innovation machine that we're driving with our nearly 700 HR professionals, who are out there talking to our clients on a daily basis, and I say that because for whatever reason other companies are deciding not to be as supportive in these tax credit areas and in <unk>.
Tap plan, which is really resonating with small business owners because of some of the complexities that reduces from traditional 401k plan and so again I look at this very closely those are two products that when I look at the clients that are attaching those we see a measurable improvement in our <unk>.
Overall retention and more ability to price price as you said the price value package that we can get from those clients as much good as well and they are appreciative because theres not a lot of other places. They can go to get that assistance. So it's a combination of us leveraging our technology and then also having the individuals in the field to help really advise and support.
Short them.
Building, a package and getting that done it's really resonating and again.
Theyre just real appreciative Marty.
<unk> mentioned the stories.
I had people calling me in thanking me for saving their business with the RTC and we hear that here the stories about how well the Pep plan is helping our clients, yes, just sorry about that.
<unk>.
And.
Interpreted to be <unk>.
Other thing I would say that the quantification of that is that it's part of the growth in management solutions. If you take what happened to our retirement business pre and post <unk>, we took that business from kind of mid single digits upper single digits approaching 10% growth on a revenue basis, and it's been really driven on the <unk>.
<unk>.
The ability to offer a.
A pep solution, so sorry about the digression into ERP suite.
No no no that's.
That's great color and John I really like the innovation machine cousins.
I might still at.
Last one for me you mentioned it earlier before maybe John did.
Price to value losses have been really not minimal, but you are seeing ramping up discounting promotional activity from from from some peers in the market.
Just overall your sense for across the market for pricing elasticity and whether that's different pre pandemic versus today.
I think it feels.
We feel pretty good obviously about prices I think <unk> mentioned earlier on the price increase it's toward the higher end, but it depends on the product in the bundle and so forth, but I think we feel very good about the fact that other than how strong the recession impacts that but right now we feel very good that the things that John is talking about.
And that we've been saying those products are driving much more retention.
And less focused on price the price value.
Losses have come down as John mentioned, and it's been very much because of the value that we're adding I think with the other products the value that we added by giving by bringing in an employee retention tax credit to them or helping them forget their PPP loan forgiven very quickly and easily and all those things have really impacted the price elastic.
And the fact that hey, this is driving value for me and therefore, it's well worth it and.
We really I think we really as a company sees the opportunity during the pandemic to show much more value than we probably had in the past.
We took that opportunity that we were given that we could be there for them through a difficult pandemic time to help them retain people hire people handle their teams remotely with paperless digital solutions all of that really benefited us and is continuing as we kind of come out of that period as well.
Okay, great. Thank you gentlemen, I appreciate the color.
Alright.
Thank you.
Our next question will come from James Faucette with Morgan Stanley .
Hey, guys, it's Jonathan on for James.
How does your strategy around M&A changed in a recessionary environment, particularly if we were to get a material drop private valuations that you see attractive opportunities.
Well, we'd love that.
Louise on the Hunt and.
I think the valuations have not caught up on that private side.
At all that we've seen we're still see some nice opportunities in various markets that we've talked about in the past, but the valuations don't seem to quite happy.
It happened yet so we're expecting typically it does kind of follow behind the public side of it we'll see what happens but.
With the cash that effort and talked about we're well positioned to take advantage of opportunities that come up whether it's <unk> or whether it's a recession or just kind of a repricing on some of the valuations that I think will happen.
Because you can see it already in the private markets, where theres a lot of cost cutting in and a lot of.
Much more conservative approaches to things to get themselves positioned better to make sure. They don't lose so much on the valuation.
We are watching very closely we're continuing to talk to those companies that we've talked to in the past and we'll keep an eye on valuations, but I think it gives us even a better opportunity.
Got it appreciate that perspective.
You called out further investment product development and <unk>.
Where are you focused on improving from a product portfolio or tech perspective.
Yes, I think it just continues to be from a digital standpoint, particularly I think on the sales side.
It's obvious that the buying process is much more about being able to do it themselves I think John mentioned earlier that it is still a combination of.
Doing the research some going through and buying themselves and we have that availability, whether it's flex or sure and then there is also those that go so far and then need a sales rep or want a sales rep involved whether it's digital format, whether it's on the web or whether it's in person or bringing in a sales engineer on the web or in person.
For a demo a demo.
So I think those investments.
Those investments will continue product investments also roadmaps are planned out for the next two.
Two years till.
To lay out much more flexibility in the way we pay.
Certainly.
Todd.
<unk> access and Pan demand, we offer that today through partnership.
As well, but.
Think that will continue to expand earned wage access is something that we see continuing to expand in and and just the overall product availability and the ability also to choose who you want to be connected with so we're very busy from an API standpoint, expanding our set of Apis to if you want to keep.
Certain portions of the business.
But really gain the power of flex HR.
That opportunity so a lot of investment levels have continued and <unk>.
Actually we're very proud of the fact that we can produce the margins that we show in an effort has talked about and guided to.
While we are still significantly investing in our digital product set.
Thanks for the color guys.
Okay.
Yes.
Our next question comes from Mark Marcon with Baird.
Hey, good morning, Marty and John .
Wondering right.
This question has been asked a little bit, but I wanted to ask in a different way if you hadn't.
You didn't see all of the macro headlines that are out there and you're obviously, you're all experience you are all aware of.
The impact of higher rates.
Ultimately in from a macro perspective.
If we didn't see higher rates and if you didn't see all the macro headlines.
How would the guidance have been different.
Well youre more.
Hi.
I would say this.
Mark.
If I if I just you kind of disaggregate that question and say I'm looking at the indicators are we're looking at the indicators.
B, it's a team of people that are looking at.
And we say these are the indicators, we're presented with before we put together a plan.
Yeah.
It's just hard to say that the plan would be that much different than the plan that we saw.
Lower interest rates, you might push a little bit more on the operating side, but it wouldn't be significantly different I'd just remind people share this with the leadership team.
Pre pandemic, leading into the pandemic, we were at about a 5% CAGR growth rate a little bit we were trending up but if you take the end of the pandemic. Our CAGR was about 5% on the top line and 10 on the bottom line, we've come out of the pandemic.
Going faster than that because going into the pandemic before all of these things occurred all of the pandemic related.
Impacts occurred we have made a lot of investment in Automd.
Automating.
Digitalized digitizing you name it we did it all and we're still doing that and so the business was on an uptrend in so I would have expected. If we were looking at this year that a lot of those actions that are part of the DNA of the way Marty and the team is opera.
The company would continue.
You deliver something like upper single digit growth pretty close to double digit.
Bottomline, which by the way.
There's a long track record of doing in the company. So I guess Thats my answer to that.
And I would just add mark when you look at it. So if you assume interest rates go up and obviously there is a tailwind as efrain mentioned from the interest rate on the other hand that could slow the housing market. Some and there is a lot of small business around housing. So that's offsetting it. So there is there is offsets.
That we had to take into account is that we're taking into account as well and I think overall as Efrain said we've.
We've really come up through the pandemic and out of the pandemic with a higher growth rate that's been consistent whether the interest rates before the interest rates were changing we will take the tailwind, but we also know that there is some risk that comes with that for small business development and growth.
Yes.
That's great Marty.
My sense is that you probably took into account.
The macro headlines.
Probably we're a little bit more conservative than you would have been had you not seen all those macro headlines is that a correct assumption.
Hey, Mark let me answer it this way so just to be more specific.
The challenge that we have and I think we've been very transparent with the street is that we tell you what we tell you exactly what we know when we say.
When it isn't right we call it out and I'm not saying other competitors don't of course they do.
The issue is is we have a fair amount of.
Consistency and predictability in the business not just because thats the way the businesses, but that's the way we run the business.
So the specific answer to your question is we can see the first half of the year, we feel pretty good about about where the first half of the year is here's where it gets cloud or it's the second half of the year, where it's a little bit cloudier than there is macro factors that will impact that to marty's point, we had to take into it.
Into effect. The fact that we're not going to have the same kind of second half of the year, the macros and lining up exactly the way. It was this year. So we looked at the first half we feel pretty good about that the second half as we go through the year well, we'll update it I think we've got a pretty good view of what it looks like based.
On everything we know now but.
I don't need to remind you that even the fed is struggling to understand.
The.
Macro indicators, they're looking at.
Yes.
Understood and then with regards to bookings can you breakdown. The bookings that you ended up seeing with regards to the <unk> fourth quarter and how the pipeline's looking and specifically how would you characterize.
Micro versus SBS versus mid market and then to what extent are you seeing growth in terms of.
New logos versus Upsells.
Yes, I think.
Across the board pretty strong mid market in particular, though we've called out a couple of times has really been strong I think we've done very well.
In last fiscal year, and starting off this first quarter as well as continued I think the execution on the sales side the product and everything is really driven.
Very strong results in the mid market and we feel we're doing very well.
Against the competition that I think might be struggling a little bit.
With the things that we're putting out on the small market.
It continues to be.
Okay. I think they are the ones that are probably struggling a little bit more and then on the micro continues to be very strong.
Sure in particular continue to have very solid growth and we had growth on the flex side, so really across the board.
I think in good shape and in heading into the quarter frankly in good shape sales, so fully staffed a little bit of growth from the rep side, but across the board I mean sales had their best year ever and and that was pretty much across the board, whether youre talking about the payroll side.
Retirement, HR ASO PEO really.
Most every area so great.
Great and what percentage of the bookings are up sells versus new logos.
I would say, particularly on the payroll side, it's still about the same I would say roughly half is new business and we really haven't seen new businesses have slowed somewhat but we still had a very good track record on winning new business, it's still about 50% of the sales coming in on the payroll side.
Terrific. Thank you.
As you remember.
Thank you.
Our last question will come from Scott <unk> with Wolfe Research.
Hey, good morning, guys. Thanks for taking my questions just wanted to ask on margins and we've got the guide for the full year was pretty encouraging but I just wanted to look at the first half it looks like youre guiding for adjusted operating margins to be down a little bit relative to the first half last year. So just wondering what the puts and takes around that was it is it mostly due to sort of the wage inflation and increased head count.
That you've sort of taken or are there any other impacts there.
Yeah, what what Youre seeing.
When you when you dig underneath that is that in the first half of the year.
Margins were stronger in part because our employment levels were lower so I kept saying last year that we were adequately staffed now fully staffed.
We are fully staffed in the first half of the year. In addition of a wage actions that we took so that has an impact of driving margin in the first half down and then <unk>.
The benefit in the back half.
Got it got it. Thank you and then just sorry, if I may have missed this I don't know it was discussed but is there any way you can maybe unpack on the.
Client fund interest income guidance, just what's the puts and takes between sort of.
Balanced growth and what you're expecting on yield.
Yes, we're expecting modest bounce growth, we've had pretty strong balanced growth. This.
This year.
So.
But really the growth is really being driven by our anticipation with the fed's going to do between now.
End of year. So it's really more interest rate driven but we are expecting our client balance growth too based on wage inflation.
Got it thanks guys.
Youre welcome.
Thank you. This does conclude the question and answer session of today's call I would like to turn it back over to our speakers.
Alright. Thank you at this point, we will close the call if you're interested in replaying. The webcast of this conference call. It's archived for approximately 90 days and thank you for taking the time to participate in our very strong fourth quarter earnings release conference call and your interest in Paychex I Hope you all enjoy a safe and happy summer talk to you soon thank you.
Okay.
Thank you ladies and gentlemen, this does conclude today's conference call and we appreciate your participation you may disconnect at any time.
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