Q4 2024 Paychex Inc Earnings Call

Time simply press Star then the number one on your telephone keypad.

Speaker Change: He would like to withdraw your question. Please press star and two on your telephone keypad. As a reminder, this conference call is being recorded and your participation implies consent to our recording of this call.

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Speaker Change: 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. Please refer to their press release for further information.

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John Gibson: Our HR outsourcing, both ASO and PO, and our retirement business continue to perform well, and we believe the value proposition for those solutions remains strong. The breadth of our solutions with technology and complete outsourcing advisory solutions along with the market segments we serve. However, provides us with the ability to pivot our sales and marketing investments as market conditions change to maximize the opportunity. Small and midsize businesses continue to face a challenging operating environment due to complex regulations, a historically tight labor market, and persistent inflationary pressures. Our small business employment watch has shown stabilization and job growth and continued downward pressure in hourly wages in the recent months.

Speaker Change: I would now like to turn the call over to John Gibson, Paychex, President and CEO. Please go ahead.

[inaudible]

Thank you for joining us for our review of the Paychex fourth quarter and fiscal year 2020 for fiscal results. Joining me today is Bob Schrader, Our Chief Financial Officer. This morning before the market opened we released our financial results for the fourth quarter and fiscal year ending May 31 2024.

Speaker Change: You can access our earnings release and Investor presentation on our Investor Relations website, our Form 10-K will be filed with the SEC before the end of July. This teleconference is being broadcast over the internet and will be archived and available on our website for approximately 90 days.

Speaker Change: I'll start the call today with an update on the business highlights for the fourth quarter and fiscal year, Bob will review, our financial results for fiscal year 'twenty for an outlook for fiscal year 2025, We will then open it up for your questions.

John Gibson: In fact, our May index posted the biggest one-month increase in job growth this year. We also saw improvements in hiring within our client base, with those better checks for client and work site employee growth in the quarter after a few quarters of the clients. As we mentioned last quarter, our data and conversations with clients reveal they are having a tough time finding qualified candidates.

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Speaker Change: As we close out the fiscal year I am pleased to report that paychex delivered solid financial results, reflecting our ability to navigate changing market conditions by providing both innovative HR technology and advisory solutions that continue to deliver value for our clients and their employees.

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

Bob: And as the best operators in the business, we are continually finding ways to run our business more efficiently.

Speaker Change: Fiscal 2024, we achieved 5% growth in total revenue and 11% growth in adjusted diluted earnings per share.

Speaker Change: These results are a testament to the hard work and dedication of our more than 16000 employees and the investments we have made in our technology and advisory solutions.

[inaudible]

Speaker Change: Revenue retention remains near record levels, and the HR outsourcing worksite employee retention continued to improve and hit new record levels.

John Gibson: Our PO clients are able to attract talent by offering a Fortune 500 suite of employee wellness benefits as well. To help them retain employees, our HR professionals proactively work with our clients to leverage our HR data analytics and our retention insights to identify at-risk employees, determine the top drivers of turnover, and implement strategies to engage and develop their people. We are excited to offer a comprehensive solution to help our clients solve one of their biggest problems: hiring and retaining talented employees. We are planning more innovations in this area for all our market segments in the coming fiscal year.

Speaker Change: Good morning and welcome to the fourth quarter 2024 Paychex Earnings Conference Call. With us today are John Gibson and Bob Schrader.

Speaker Change: We believe our sustained high revenue retention demonstrate that our value proposition is resonating in a competitive marketplace.

Speaker Change: After the speaker's opening remarks, there will be a question and answer period.

Our client retention for fiscal year 2024 was in line with last year and pre pandemic levels with olive business losses back to pre pandemic levels, but stable.

Speaker Change: If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad.

Speaker Change: If you would like to withdraw your question, please press star and 2 on your telephone keypad. As a reminder, this conference call is being recorded, and your participation implies consent to our recording of this call.

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

Our activity and pipelines remained strong and in fact increased year over year in the fourth quarter, but close rates were softer than historical norms and our expectations.

Speaker Change: If you do not agree with these terms, please disconnect at this time.

Speaker Change: 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. Please refer to their press release for further information.

Speaker Change: Sales results in some market segments faced headwinds in the quarter and F&B, we made some adjustments to our go to market strategy and in our digital technology stack in the micro segment, which impacted our read and sales volume.

John Gibson: Our PO business has continued to gain momentum with excellent performance in fiscal year 2024. We have finished the year with strong results and sales, retention, and insurance enrollment. We have continued to seek a shift backward the PO offering, both inside and outside our client base. This makes shift has a long-term positive impact on lifetime value in our model, particularly as clients attach insurance benefits. Our retirement services business was another strong contributor in the fourth quarter with double-digit revenue growth. As the industry leader in 401(k) planned record keeping in the U.S., with approximately $52 billion in assets of management and over 120,000 clients, we are dedicated to helping small and mid-sized business owners offer an affordable retirement solution for their employees.

Speaker Change: I would now like to turn the call over to John Gibson, Paychex president and CEO . Please go ahead.

Speaker Change: We believe these are one time issues, which we have addressed.

John B. Gibson: Thank you for joining us for our review of the Paychex fourth quarter and fiscal year 2024 fiscal results. Joining me today is Bob Schrader, our Chief Financial Officer. This morning before the market opened, we released our financial results for the fourth quarter and fiscal year ending May 31st, 2024.

Speaker Change: In the mid market, we have seen some of the same pressures are our competitors have mentioned with delays in decision, making and increased focus on cost.

Speaker Change: Our HR outsourcing, both ASO and PEO and our retirement business continued to perform well and we believe the value proposition for those solutions remained strong the breadth of our solutions, both technology and complete outsourcing advisory solutions, along with the market segments, we serve provide.

John B. Gibson: You can access our earnings release and investor presentation on our Investors Relations website.

John B. Gibson: Our Form 10-K will be filed with the SEC before the end of July .

John B. Gibson: This teleconference is being broadcast over the internet and will be archived and available on our website for approximately 90 days.

Speaker Change: Adds us with the ability to pivot our sales and marketing investments as market conditions change to maximize the opportunity.

John B. Gibson: I'll start the call today with an update on the business highlights for the fourth quarter and fiscal year. Bob will review our financial results for fiscal year 24 and outlook for fiscal year 2025. We'll then open it up for your questions.

John Gibson: According to our own data, less than half of U.S. Employers currently offer a retirement plan. We are committed to providing affordable solutions to these companies that will help them offer their employees the opportunity for a secure retirement. Legislation like the Secure Act and Secure Act 2.0, the introduction of pooled employer plans, and state mandates are helping to address the growing retirement crisis in the U.S., but there is still more to be done. We are committed to educating business owners and industry professionals on available programs, potential tax benefits, and the cost-effective plans available to them and their employees by Paychex.

Small and midsize businesses continue to face a challenging operating environment due to complex regulations.

Speaker Change: A historically tight labor market and persistent inflationary pressures.

John B. Gibson: As we close out the fiscal year, I am pleased to report that Paychex delivered solid financial results, reflecting our ability to navigate changing market conditions by providing both innovative HR technology

Speaker Change: Our small business employment watch is showing stabilization and job growth and continued downward pressure in hourly wages in the recent months and.

Speaker Change: In fact, our May index posted the biggest one month increase in job growth this year.

John B. Gibson: and Advisory Solutions that continue to deliver value for our clients and their employees. And as the best operators in the business, we are continually finding ways to run our business more efficiently.

Speaker Change: We also saw improvements in hiring within our client base with those better checks per client and Worksite employee growth in the quarter. After a few quarters of declines.

John B. Gibson: For fiscal 2024, we achieved 5% growth in total revenue and 11% growth in adjusted diluted earnings per share.

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

John Gibson: As you know, AI has been a hot topic in our industry, and it's something we have focused on for many years. Our AI initiatives and investments have been centered around enhancing our customer service model and identifying clients that are at risk. Optimizing our pricing and discounting strategies, and driving higher sales productivity through approved marketing and targeting efforts. Additionally, we are focused on harnessing the power of our vast data to drive more value for our customers and continue to drive greater operational efficiencies across the company. We continue to gain recognition for the strength of our technology.

John B. Gibson: These results are a testament to the hard work and dedication of our more than 16,000 employees and the investments we have made in our technology and advisory solutions.

Speaker Change: As an innovative leader in our industry. We took this as an opportunity to find a way to help these businesses by launching a new program starting in our PEO called the employer of choice playbook.

John B. Gibson: Revenue retention remains near record levels, and HR outsourcing worksite employee retention continued to improve and hit new record levels.

Speaker Change: This program combines our digital HR technology and analytics with our dedicated HR professionals to work directly with our clients to find attract hire and retain qualified employees.

John B. Gibson: We believe our sustained high-revenue retention demonstrates that our value proposition is resonating in a competitive marketplace.

Speaker Change: It starts with our digital recruiting and hiring technology, which provides both seamless integrations with the top job boards.

John B. Gibson: Our client retention for fiscal year 2024 was in line with last year and pre-pandemic levels without a business losses back to pre-pandemic levels but stable. We continue to see demand for our HR technology and advisory solutions.

John Gibson: For the fifth consecutive year of Paychex Flex, the company's cloud-based SaaS solution earned an HR Tech Award for Best Small Business Focus Solution in the Core HR and Workforce category from White House Research and Advisory. For the 10th time, Paychex was named among the best employers in excellence in health and well-being, which affirms our long-standing commitment to our own employees. Paychex was also recently recognized by Forbes as one of America's best employers for diversity. These recognitions and the many product and service awards that we have received in the last year and over the decades provide testament to the strength of our business model, our culture, and our commitment to invest in our business to do the long-term value for our customers and our investors.

Speaker Change: This solution streamlines and automates the hiring process for the employer and provides a better candidate experience.

Speaker Change: Our clients are able to attract top talent by offering a fortune 500 suite of employee wellness benefits as well.

John B. Gibson: Our activity and pipelines remained strong and, in fact, increased year over year in the fourth quarter. But close rates were softer than historical norms and our expectations.

Speaker Change: To help them retain employees are HR professionals proactively work with our clients to leverage our HR data analytics and we our retention insights to identify at risk employees determined the top drivers of turnover and implement strategies to engage and develop their people.

John B. Gibson: Sales results in some market segments faced headwinds in the quarter. In S&B, we made some adjustments to our go-to-market strategy and in our digital technology stack in the micro segment, which impacted our lead and sales volumes.

Speaker Change: We are excited to offer a comprehensive solution to help our clients solve one of their biggest problems.

John B. Gibson: We believe these are one-time issues which we have addressed.

Speaker Change: Hiring and retaining talented employees.

John B. Gibson: In the mid-market, we have seen some of the same pressures our competitors have mentioned with delays in decision-making and increased focus on cost.

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

Speaker Change: Our <unk> business has continued to gain momentum with excellent performance in fiscal year 2024, we finished the year with strong results in sales retention.

John B. Gibson: Our HR outsourcing, both ASO and PO, and our retirement business continue to perform well, and we believe the value proposition for those solutions remains strong.

John Gibson: In this post-pandemic era, Paychex is uniquely positioned to help small and mid-sized businesses navigate the challenges they face in an ever-evolving world. And we believe our value proposition to these businesses remains compelling based upon the breadth and quality of the solutions we can provide. We remain committed to our purpose to help businesses succeed while making a positive impact on our clients, employees, communities, and shareholders.

John B. Gibson: The breadth of our solutions, both technology and complete outsourcing advisory solutions, along with the market segments we serve, provides us with the ability to pivot our sales and marketing investments as market conditions change to maximize the opportunity.

Speaker Change: And insurance enrollment.

Speaker Change: We have continued to see a shift back toward the PEO offering both inside and outside our client base.

Speaker Change: This mix shift has a long term positive impact on lifetime value and our model, particularly as clients attach insurance benefits.

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

John B. Gibson: Small and mid-sized businesses continue to face a challenging operating environment due to complex regulations.

John Gibson: I'll now turn it over to Bob to give us a brief update on our financial results for the fourth quarter in fiscal year.

Speaker Change: As the industry leader in 401, K plan record keeping in the U S with approximately $52 billion in assets under management and over 120000 clients.

John B. Gibson: a historically tight labor market and persistent inflationary pressures.

Bob Schrader: Bob, and thanks, Johnny.

Bob Schrader: Good morning, everyone. I'll start with a summary of our fourth quarter in full-year financial results, and then I'll review our fiscal 25 outlook. Total revenue increased 5% to $1.3 billion in the fourth quarter, which reflects a lower contribution from our ERTC service, and this impacted revenue growth by approximately 300 basis points in the quarter. Management solutions revenue increased 3% to 930 million. This was driven primarily by growth in the number of clients served across our HCM solutions and increased product penetration, partially offset by lower ERTC revenue.

John B. Gibson: Our Small Business Employment Watch has shown stabilization in job growth and continued downward pressure in hourly wages in the recent months.

Speaker Change: We are dedicated to helping small and mid sized business sellers offer an affordable retirement solution for their employees.

John B. Gibson: In fact, our May index posted the biggest one-month increase in job growth this year. We also saw improvements in hiring within our client base with both better checks per client and worksite employee growth in the quarter after a few quarters of declines.

Speaker Change: According to our own data less than half of U S. Employers currently offer a retirement plan.

We are committed to providing affordable solutions to these companies that will help them offer their employees the opportunity for a secure retirement.

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

Speaker Change: Legislation like the secure act and secure act two dot O. The introduction of pooled employer plans and state mandates are helping to address.

Bob Schrader: P.O. and Insurance Solutions Revenue increased 9% to 327 million. This was primarily driven by higher average Wurtzel employees and an increase in our P.O. insurance revenues.

John B. Gibson: As an innovative leader in our industry, we took this as an opportunity to find a way to help these businesses by launching a new program starting in our P.O. called the Employer of Choice Playbook.

Speaker Change: The growing retirement crisis in the U S. But there is still more to be done.

Speaker Change: We are committed to educating business owners and industry professionals on available program potential tax benefits and the cost effective plans available to them and their employees by paychex.

Bob Schrader: Our P.O. sought continued momentum in Wurtzel employees' growth and medical plan participant volumes during the fourth quarter. Interest on funds held for clients increased 54% to 38 million. This was primarily due to higher average interest rates and invested balances. And lower realized losses on investment sales related to some repositioning of the portfolio that happened in the prior year period.

John B. Gibson: This program combines our digital HR technology and analytics with our dedicated HR professionals to work directly with our clients to find, attract, hire, and retain qualified employees.

Speaker Change: As you know AI has been a hot topic in our industry and it's something we are focused on for many years, our AI initiatives and investments have been centered around enhancing our customer service model and identifying client that are at risk.

John B. Gibson: It starts with our digital recruiting and hiring technology, which provides both seamless integrations with the top job boards.

Bob Schrader: During the fourth quarter, we did recognize a one-time charge of $39 million related to cost optimization initiatives. These initiatives include a reduction of our underutilized real estate, a reprioritization of our technology investments towards AI, and headcount optimization. These measures, along with strong expense management during the year, will allow us to reallocate resources to invest in our strategic priorities, as well as continue to deliver operating margin expansion for fiscal 25, despite the aspiration of the ERTC program. Including these charges, total expenses increased 5% to 813 million. Excluding these charges, total expenses were relatively flat for the fourth quarter as compared to the prior year period.

Speaker Change: Optimizing our pricing and discounting strategies and driving higher sales productivity through improved marketing and targeting efforts.

John B. Gibson: This solution streamlines and automates the hiring process for the employer and provides a better candidate experience.

John B. Gibson: Our PO clients are able to attract top talent by offering a Fortune 500 suite of employee wellness benefits as well.

Speaker Change: Additionally, we are focused on harnessing the power of our vast data to drive more value for our customers.

Speaker Change: And continue to drive greater operational efficiencies across the company.

John B. Gibson: To help them retain employees, our HR professionals proactively work with our clients to leverage our HR data analytics and our retention insights to identify at-risk employees, determine the top drivers of turnover, and implement strategies to engage and develop their people.

Speaker Change: We continue to gain recognition for the strength of our technology for the fifth consecutive year Paychex flex the company's cloud based SaaS solution earned an HR Tech award for best small business focused solution in the core HR and workforce category from Whitehouse Research and advisory.

John B. Gibson: We are excited to offer a comprehensive solution to help our clients solve one of their biggest problems.

John B. Gibson: Hiring and retaining talented employees.

Paychex: For the 10th time, Paychex, who was named among the best employers in excellence and health and wellbeing.

Bob Schrader: Operating income increased 6% to 482 million, with an operating margin of 37.2%. Adjusted operating income, which excludes the one-time cost, recognizing the fourth quarter to 15% to 521 million, with an adjusted operating margin of 40.2%. This represents 330 basis points of margin expansion over the prior year period. Deluting earnings per share increased 8% to $1.5 per share, and adjusted deluded earnings per share increased 15% to $1.12 in the fourth quarter.

John B. Gibson: We are planning more innovations in this area for all our market segments in the coming fiscal year.

Paychex: Which affirms our longstanding commitment to our own employees.

John B. Gibson: Our P.O. business has continued to gain momentum with excellent performance in fiscal year 2024. We finished the year with strong results in sales, retention, and insurance enrollment.

Paychex: Paychex was also recently recognized by Forbes as one of America's best employers for diversity.

Paychex: These recognitions and the many product and service awards that we've received in the last year and over the decades are a testament to the strength of our business model, our culture and our commitment to invest in our business to deliver long term value for our customers and our investors.

John B. Gibson: We have continued this shift back towards the PO offering, both inside and outside our client base.

John B. Gibson: This makeshift has a long-term positive impact on lifetime value in our model, particularly as clients attach insurance benefits.

Bob Schrader: Now I will quickly summarize our full-year results. Total revenue grew 5% to 5.3 billion and reflects a lower contribution from our ERTC service, and that impact it grows about 100 basis points on a full-year basis. Management solutions revenue increased 4% to 3.9 billion. P-owned insurance solutions increased 8% to 1.3 billion. Interest on funds health requirements increased 47% to 146 million. Total expenses grew 4% to 3.1 billion. Excluding the one-time cost I discussed earlier, expense growth was approximately 3% for the year. Operating income increased 7% to 2.2 billion, and adjusted operating income increased 9% to 2.2 billion, with a margin of 41.9%, and that's an expansion of 130 basis points over the prior year period.

Paychex: In this post pandemic era paychex is uniquely positioned to help small and midsized businesses navigate the challenges they face.

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

Paychex: Ever evolving world and we believe our value proposition to these businesses remains compelling based upon the breadth and quality of the solutions we can provide.

John B. Gibson: As the industry leader in 401k plan record keeping in the U.S. with approximately $52 billion in assets under management and over 120,000 clients,

John B. Gibson: We are dedicated to helping small and mid-sized business owners offer an affordable retirement solution for their employees.

Paychex: We remain committed to our purpose to help businesses succeed while making a positive impact on our clients employees communities and shareholders.

John B. Gibson: According to our own data, less than half of U.S. employers currently offer a retirement plan.

Speaker Change: Now I'll turn it over to Bob to give us a brief update on our financials.

John B. Gibson: We are committed to providing affordable solutions to these companies that will help them offer their employees the opportunity for a secure retirement.

<unk> for the fourth quarter and fiscal year, Bob Yeah. Thanks, John and good morning, everyone I'll start with a summary of our fourth quarter and full year financial results and then I'll review our fiscal 'twenty five outlook total revenue increased 5% to $1 3 billion in the fourth quarter, which reflects a lower contribution from our <unk> service in there.

John B. Gibson: Legislation like the SECURE Act and SECURE Act 2.0, the introduction of pooled employer plans, and state mandates are helping to address the growing retirement crisis in the U.S., but there is still more to be done.

Bob Schrader: Deluded earnings per share increased 9% to $4.67 per share, and adjusted diluted earnings per share increased 11% to $4.72 per share.

Speaker Change: This impacted revenue growth by approximately 300 basis points in the quarter.

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

Bob Schrader: Our financial position remains strong at the end of the year, with cash, restricted cash, and total corporate investments of 1.6 billion and total borrowings of approximately 817 million. Our cash flow from operations for the year was $1.9 billion, and that's up 11% from the prior year that was driven primarily by higher net income and fluctuations in working capital. We returned $1.5 billion to shareholders during the year that included $1.3 billion of dividends and $169 million of share buybacks, and our 12-month rolling return equity remains robust at 47%.

Bob: Management solutions revenue increased 3% to $930 million. This was driven primarily by growth in the number of clients served across our HCM solutions and increased product penetration, partially offset by lower <unk> revenue.

John B. Gibson: As you know, AI has been a hot topic in our industry, and it's something we have focused on for many years. Our AI initiatives and investments have been centered around enhancing our customer service model and identifying clients that are at risk.

Bob: Oh and insurance solutions revenue increased 9% to $327 million. This was primarily driven by higher average worksite employees and an increase in our PEO and insurance revenues are saw continued momentum in worksite employee growth medical plan participant volumes during the fourth quarter.

John B. Gibson: optimizing our pricing and discounting strategies and driving higher sales productivity through improved marketing and targeting efforts.

Speaker Change: Interest on funds held for clients increased 54% to $38 million and this was primarily due to higher average interest rates and invested balances and lower realized losses on investment sales related to some repositioning of the portfolio that happened in the prior year period.

John B. Gibson: Additionally, we are focused on harnessing the power of our vast data to drive more value for our customers.

Bob Schrader: I will now turn to our guidance for the Fiscal Year 2025. This outlook assumes the current macro environment, which has some level of uncertainty. Our current outlook is as follows. Total revenue is expected to grow in the range of 4 to 5.5%. If you take the midpoint of this range that is consistent with the preliminary thinking we provided last quarter, and as a reminder, this includes approximately 200 basis points of headwind from the expiration of ERTC. Adjusted diluted earnings per share is expected to grow in the range of 5 to 7%. I will now give you the breakdown of some of the components.

John B. Gibson: and continue to drive greater operational efficiencies across the company.

John B. Gibson: We continue to gain recognition for the strength of our technology. For the fifth consecutive year, PaychexFlex, the company's cloud-based SaaS solution,

During the fourth quarter, we did recognize a one time charge of $39 million related to cost optimization initiatives. These initiatives include a reduction of our underutilized real estate, a re prioritization of our technology investments towards AI and head count optimization. These measures along with strong expense management during.

John B. Gibson: earned an HR Tech Award for Best Small Business Focused Solution in the Core HR and Workforce Category from White House Research and Advisory. For the tenth time, Paychex was named among the Best Employers in Excellence in Health and Well-Being.

Speaker Change: The year will allow us to reallocate resources to invest in our strategic priorities as well as continued to deliver operating margin expansion for fiscal 'twenty five despite the expiration of the <unk> program, including these charges total expenses increased 5% to $813 million. Excluding these charges total expenses were.

John B. Gibson: which affirms our long-standing commitment to our own employees.

Bob Schrader: Management solutions is expected to grow in the range of 3 to 4%. PO and insurance solutions is expected to grow in the range of 7 to 9%. Interest on funds help for clients is expected to be in the range of 150 to 160 million. Other income net is expected to be income in the range of 35 to 40 million. Those last two metrics both are impacted by short-term interest rates. We can talk more on the Q&A, but it is our expectation that the Fed begins to lower short-term interest rates as we get into the back half of the year.

John B. Gibson: Paychex was also recently recognized by Forbes as one of America's best employers for diversity.

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

Speaker Change: <unk> flat for the fourth quarter as compared to the prior year period.

Speaker Change: Operating income increased 6% to $482 million with an operating margin of 37, 2% adjusted operating income, which excludes the one time costs recognized in the fourth quarter grew 15% to $521 million with an adjusted operating margin of 42% and this represents 300.

John B. Gibson: In this post-pandemic era, Paychex is uniquely positioned to help small and mid-sized businesses navigate the challenges they face.

Bob Schrader: Operating income margin is expected to be in the range of 42 to 43%. This is also consistent with our preliminary expectations around margin expansion, and our effective tax rate is expected to be in the range of 24 to 25%. Turning to the quarter, we anticipate total revenue growth of approximately 2%. The first quarter growth rate is impacted by two headwinds. The ERTC headwind that you're all familiar with. The second one is one less processing day in the quarter versus the prior year, and it's one of our largest revenue days. Combined, these two items represent a headwind of more than 400 basis points to revenue growth.

John B. Gibson: and a ever-evolving world and we believe our value proposition to these businesses remains compelling based upon the breadth and quality of the solutions we can provide.

Speaker Change: 30 basis points of margin expansion over the prior year period.

Speaker Change: <unk> earnings per share increased 8% to $1 five per share and adjusted diluted earnings per share increased 15% to $1 12 in the fourth quarter.

John B. Gibson: We remain committed to our purpose to help businesses succeed while making a positive impact on our clients,

Speaker Change: Now I will quickly summarize our full year results total revenue grew 5% to $5 3 billion and reflects a lower contribution from our <unk> service and that impacted growth about 100 basis points on a full year basis management solutions revenue increased 4% to $3 9 billion.

John B. Gibson: employees, communities, and shareholders.

Speaker Change: I'll now turn it over to Bob to give us a brief update on our financials.

Robert L. Schrader: Results for the fourth quarter and fiscal year. Bob? Yeah, thanks, John , and good morning, everyone. I'll start with a summary of our fourth quarter and full year financial results, and then I'll review our fiscal 25 outlook.

Bob Schrader: We would also expect an operating margin in the range of 40 to 41% in the quarter. Of course, all of this is based on our current assumptions, which are subject to change.

Speaker Change: And insurance solutions increased 8% to $1 3 billion.

Speaker Change: Interest on funds held for clients increased 47% to $146 million.

Robert L. Schrader: Total revenue increased 5% to $1.3 billion in the fourth quarter, which reflects a lower contribution from our ERTC service, and this impacted revenue growth by approximately 300 basis points in the quarter.

Speaker Change: Total expenses grew 4% to $3 1 billion, excluding the onetime costs I discussed earlier expense growth was approximately 3% for the year operating income increased 7% to $2 2 billion and adjusted operating income increased 9% to $2 2 billion with a margin of 41, 9% and that's an expansion of 100.

Bob Schrader: We'll update you again on the first quarter call.

John Gibson: I will refer you to our investor slides on our website for additional information, and with that, I'll now turn the call back over to Jim.

Robert L. Schrader: Management solutions revenue increased 3% to $930 million. This was driven primarily by growth in the number of clients served across our HCM solutions and increased product penetration partially offset by lower ERTC revenue.

John Gibson: Thank you, Bob.

Operator: We will now open the call to question. Thank you. Ladies and gentlemen, at this time, the floor is open for your questions. To ask a question, please press star one on your telephone keypad. To get out of the queue, press star and two.

Speaker Change: <unk> 30 basis points over the prior year period.

Robert L. Schrader: PEO and insurance solutions revenue increased 9% to 327 million. This was primarily driven by higher average worksite employees and an increase in our PEO insurance revenues. Our PEO saw continued momentum in worksite employee growth and medical plan participant volumes during the fourth quarter.

Speaker Change: Diluted earnings per share increased 9% to $4 67 per share and adjusted diluted earnings per share increased 11% to $4 72 per share.

Operator: In the interest of time, we do ask that you limit yourself to one question so that everyone has a chance to ask their questions.

Speaker Change: Our financial position remains strong at the end of the year with cash restricted cash and total corporate investments of $1 6 billion and total borrowings of approximately $817 million or cash flow from operations for the year was $1 9 billion and that's up 11% from the prior year that was driven primarily by higher net income and.

Brian Virgin: And we will take our first question from Brian Virgin with TD Cohen. Hi, guys. Good morning. Thank you.

Robert L. Schrader: Interest on funds held for clients increased 54% to 38 million. This was primarily due to higher average interest rates and invested balances and lower realized losses on investment sales related to some repositioning of the portfolio that happened in the prior year period.

John Gibson: Maybe we'll just pick off with the demand and go to market commentary that you had there, John. Can you just get more color on your comments on the lower closed rates and then go to market changes you need to make? I'm curious if that was required because of something in your strategy and sales practices or reactions to just have clients are spending and they're changing behavior. Yeah, Brian. Just step back. We had solid demand on our solutions for the year. You know, activity was high across the teams. As we talked about, you can tell from the results that the HR outsourcing and HR advisory areas are really picking up attraction with the market.

Speaker Change: <unk> and working capital, we returned $1 $5 billion to shareholders. During the year that included $1 $3 billion of dividends and $169 million of share buybacks and our 12 month Rolling return on equity remains robust at 47%.

Robert L. Schrader: During the fourth quarter, we did recognize a one-time charge of $39 million related to cost optimization initiatives. These initiatives include a reduction of our underutilized real estate, a reprioritization of our technology investments towards AI, and headcount optimization.

Speaker Change: I will now turn to our guidance for the fiscal year 2025. This outlook assumes the current macro environment, which has some level of uncertainty our current outlook is as follows.

Robert L. Schrader: These measures, along with strong expense management during the year, will allow us to reallocate resources to invest in our strategic priorities as well as continue to deliver operating margin expansion for Fiscal 25 despite the expiration of the ERDC program.

John Gibson: That's what that's what we're seeing versus the pure tech. And so we certainly are pivoting heavy into that. Retirement also is another area where we can see that. So look, we see good demand for our products and services. The changes we're making are really; we talked about it on the last call. We're really, really looking at, as you can imagine. We just went through the last three years of a pandemic year.

Speaker Change: Total revenue is expected to grow in the range of four to five 5%. If you take the midpoint of this range that is consistent with the preliminary thinking we provided last quarter and as a reminder, this includes approximately 200 basis points of headwind from the expiration of Tc.

Robert L. Schrader: Including these charges, total expenses increased 5% to $813 million. Excluding these charges, total expenses were relatively flat for the fourth quarter as compared to the prior year period.

Speaker Change: <unk> diluted earnings per share is expected to grow in the range of 5% to 7%.

Robert L. Schrader: Operating income increased 6% to $482 million, with an operating margin of 37.2%. Adjusted operating income, which excludes the one-time costs recognized in the fourth quarter, grew 15%.

John Gibson: As the ERTC program ends, we're really refreshing our entire go-to-market talking points, our sales plays, our marketing position, and really focused on the things that we find clients are most concerned about in today's post-pandemic world. And, you know, those things are attracting and retaining qualified employees in a very tight labor market. The second thing is being able to get access to affordable benefits, with health inflation likely to continue to increase. And they've really got to be able to put together a benefits package to be able to go out and compete against larger firms. And then the third thing is access to capital on both constrained capital and cost to capital.

Speaker Change: I will now give you the breakdown of some of the components management solutions is expected to grow in the range of 3% to 4%.

Speaker Change: And insurance solutions is expected to grow in the range of 7% to 9%.

Robert L. Schrader: to $521 million with an adjusted operating margin of 40.2%. And this represents 330 basis points of margin expansion over the prior year period.

Speaker Change: Interest on funds held for clients is expected to be in the range of $150 million to $160 million.

Speaker Change: Other income net is expected to be income in the range of 35 to 40 million those last two metrics both.

Robert L. Schrader: Diluting earnings per share increased 8% to $1.05 per share, and adjusted diluted earnings per share increased 15% to $1.12 in the fourth quarter.

Speaker Change: We are impacted by short term interest rates, we can talk more in the Q&A, but it is our expectation that the fed begins to lower short term interest rates as we get into the back half of the year.

Robert L. Schrader: Now I will quickly summarize our full year results. Total revenue grew 5% to $5.3 billion. It reflects a lower contribution from our ERTC service, and that impacted growth about 100 basis points on a full year basis.

Speaker Change: Operating income margin is expected to be in the range of 42% to 43%. This is also consistent with our preliminary expectations around margin expansion and our effective tax rate is expected to be in the range of 24% to 25%.

John Gibson: I think, you know, we made a little tuck-in acquisition of a company out there that we're very excited about. And we continue to expand our digital access to fintech so that our clients have access to capital during the payroll process as well. So we're really trying to retrain our sales team on those new areas. We also are pivoting some of our resources into those market segments where we think there's going to be higher growth as we go into fiscal year. Thank you.

Robert L. Schrader: Management Solutions revenue increased 4% to $3.9 billion. P.O. and Insurance Solutions increased 8% to $1.3 billion. Interest on funds held for clients increased 47% to $146 million.

Speaker Change: Turning to the quarter, we anticipate total revenue growth of approximately 2%. The first quarter growth rate is impacted by two headwinds. The first is the <unk> headwind that you're all familiar with the second one is one less processing day in the quarter versus the prior year and it's one of our largest revenue earning days combined these two items represent a headwind of more than <unk>.

Robert L. Schrader: Total expenses grew 4% to $3.1 billion, excluding the one-time cost I discussed earlier. Expense growth was approximately 3% for the year.

Robert L. Schrader: Operating income increased 7% to $2.2 billion, and adjusted operating income increased 9% to $2.2 billion, with a margin of 41.9%, and that's an expansion of 130 basis points over the prior year period.

Speaker Change: 400 basis points to revenue growth. We would also expect an operating margin in the range of 40% to 41% in the quarter of course all of this is based on our current assumptions, which are subject to change we will update you again on the first quarter call I will refer you to our investor slides on our website for additional information and with that I'll now turn the <unk>.

Kevin Mcveigh: And we will take our next question from Kevin McVeigh with UBS. Great thanks so much, and always super, super helpful commentary.

Robert L. Schrader: Diluted earnings per share increased 9% to $4.67 per share, and adjusted diluted earnings per share increased 11% to $4.72 per share.

John Gibson: John, could you maybe talk a little bit about, you know, because I find your commentary in the press release is super helpful. It seems like the environmental role, if we're going to write, is still relatively tight labor as opposed to maybe some increasing capacity. Or we write on that and maybe think about the kind of the current environment in terms of clients and where their kind of retention rates are of their employees. Has there been any change at the margin on that? I just want to start there because it feels like, you know, some of the macro data, employment related, is selling a little bit, but it definitely, if I'm understanding right, doesn't seem like you're seeing that yet or am I not thinking about that right?

Robert L. Schrader: Our financial position remains strong at the end of the year with cash, restricted cash and total corporate investments of $1.6 billion.

Speaker Change: Back over to John.

John Gibson: Thank you Bob we will now open the call to questions.

Robert L. Schrader: in total borrowings of approximately $817 million.

John Gibson: Thank you ladies and gentlemen at this time the floor is open for your questions did you ask a question. Please press star one of your telephone keypad to get out of the queue Press star and chip and the interest of time, we do ask that you limit yourself to one question. So that everyone has a chance to ask their questions.

Robert L. Schrader: Our cash flow from operations for the year was $1.9 billion, and that's up 11% from the prior year. That was driven primarily by higher net income and fluctuations in working capital.

Robert L. Schrader: We returned $1.5 billion to shareholders during the year, that included $1.3 billion of dividends and $169 million of share buybacks, and our 12-month rolling return equity remains robust at 47%.

Speaker Change: And we will take our first question from Brian Virginia with TD Cohen.

Speaker Change: Hi, guys. Good morning. Thank you, maybe I'll just kick off with the demand and the go to market commentary that you had there John can you just give more color on your comments on the lower close rates in the go to market changes you need to make I'm curious if that was required because of something in your strategy and sales practices or reactions to just how clients are spending it and they're changing behave.

Robert L. Schrader: I will now turn to our guidance for the fiscal year 2025. This outlook assumes the current macro environment, which has some level of uncertainty. Our current outlook is as follows.

John Gibson: Look, I think on the macro area, what we continue to see is growth and moderate growth. We continue to see, you know, wage inflation; cool. You know, I would tell you in May, in our report, we had the biggest one-month increase there. As we said in our comments, we actually saw growth in checks and workside employees in the fourth quarter. And that was a positive trend. We started engaging, because again, when you've got the economy growing at the rate, it's growing. Our models would suggest that you'd see more hiring. So, to your point, what's going on here?

Robert L. Schrader: Total revenue is expected to grow in the range of 4% to 5.5%.

Speaker Change: Yeah.

Speaker Change: Yeah, Brian just as you step back I'd say, we had solid demand on our solutions for the year.

Robert L. Schrader: If you take the midpoint of this range, that is consistent with the preliminary thinking we provided last quarter. And as a reminder, this includes approximately 200 basis points of headwind from the expiration of ERTC.

Speaker Change: Activity was high across the teams as we talked about and you can tell from the results.

Speaker Change: Our outsourcing and HR advisory areas are really picking up.

Robert L. Schrader: Adjusted diluted earnings per share is expected to grow in the range of five to seven percent.

Speaker Change: Attraction with the market that's what that's what we're seeing versus the pure tech and so we certainly are pivoting heavy into that retirement also.

Robert L. Schrader: I'll now give you the breakdown of some of the components. Management solutions is expected to grow in the range of 3 to 4 percent.

John Gibson: And what we did is we went out and started looking at our analytics and data into the point retaining clients is a challenge for small business owners. Second, attracting qualified. And so we started engaging them. We did a lot of surveys. And what we found was they have open positions. They're just struggling to find them with qualified individuals. And I think another thing they learned during the pandemic, when everyone was just trying to hire just anybody, is that hiring just anybody doesn't help your culture or your workforce. And so I think they're being a little more selective.

Robert L. Schrader: P.O. and insurance solutions is expected to grow in the range of 7 to 9 percent.

Speaker Change: Is another another area, where we can see that so look we see good demand for our products and services.

Robert L. Schrader: Interest on funds held for clients is expected to be in the range of $150 to $160 million.

Speaker Change: The changes, we're making are really we talked about on the last call. We're really really looking at as you can imagine we just went through the last three years of a pandemic year.

Robert L. Schrader: Other income net is expected to be income in the range of $35 to $40 million. Those last two metrics both are impacted by short-term interest rates. We can talk more in the Q&A, but it is our expectation that the Fed begins to lower short-term interest rates as we get into the back half of the year.

Speaker Change: As the ERP program, and we're really reset refreshing our entire go to market talking points our sales plays.

Speaker Change: Getting position and really focused on the things that we find clients are most concerned about in today's post pandemic world and you know that.

Robert L. Schrader: Operating income margin is expected to be in the range of 42 to 43 percent. This is also consistent with our preliminary expectations around margin expansion, and our effective tax rate is expected to be in the range of 24 to 25 percent.

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

Speaker Change: Those things are attracting and retaining qualified.

Speaker Change: Employees in a very tight labor market.

Speaker Change: Thing is being able to get access to affordable benefits with health inflation likely to continue to increase and they've got really got to be able to put together a benefits package to be able to go out and compete against larger firms and then the third thing is access to access to capital on both constrained capital and cost of capital I think you know we made a.

Robert L. Schrader: Turning to the quarter, we anticipate total revenue growth of approximately 2%.

Robert L. Schrader: The first quarter growth rate is impacted by two headwinds. The first is the ERTC headwind that you are all familiar with. The second one is one less processing day in the quarter versus the prior year. And it's one of our largest revenue days.

Speaker Change: Little tuck in acquisition of a company alter that that we're very excited about and we continue to expand.

Robert L. Schrader: Combined, these two items represent a headwind of more than 400 basis points to revenue growth. We would also expect an operating margin in the range of 40 to 41 percent in the quarter.

Speaker Change: Our digital access to Fintech, so that our clients have access to capital during that payroll process as well. So we're really trying to retrain our sales team on those new areas. We also we're pivoting pivoting some of our resources into those market segments, where we think theres going to be higher growth as we go into fiscal year 'twenty five.

Speaker Change: Of course, all of this is based on our current assumptions, which are subject to change. We'll update you again on the first quarter call. I will refer you to our investor slides on our website for additional information. And with that, I'll now turn the call back over to John .

John Gibson: Thank you.

James Fossette: And we will take our next question from James Fossette with Morgan Stanley. Great. Thank you very much.

John B. Gibson: Thank you, Bob. We will now open the call to questions.

John Gibson: I want to go back a little bit on the changes you were making in the micro-segment. And just to be clear, was that something that you felt like you needed to do for your own product, or were you seeing some market pressures, etc. on that segment? And when you say one time, you know, how quickly should we start to see some of those sales conversions, etc. come back to a more normalized level?

Speaker Change: Thank you.

Speaker Change: And we will take our next question from Kevin Mcveigh with UBS.

Speaker Change: Thank you. Ladies and gentlemen, at this time, the floor is open for your questions.

Speaker Change: Great. Thanks, so much.

Speaker Change: To ask a question, please press star 1 of your telephone keypad. To get out of the queue, press star and 2. In the interest of time, we do ask that you limit yourself to one question, so that everyone has a chance to ask their questions. And we will take our first question from Bryan Bergin with T.D. Cohen.

Speaker Change: Super Super helpful commentary.

Speaker Change: John could you maybe talk a little bit about you know because I found your commentary in the press release is super helpful.

It seems like the environment overall, if we're hearing.

Kevin Mcveigh: It is still relatively tight labor as opposed to maybe some increase in capacity.

John Gibson: Yeah, well, okay, let's make this pretty simple. As we got through the selling season, as everyone knows, after our selling season is the time to begin to introduce new technology platforms and other things into our sales and marketing engine as we gear up for the next fiscal year. Well, one of the things we're constantly trying to do is improve the prospect experience digitally from the time of attraction all the way through to running their first payroll and doing as much of that digitally as possible. One of the things that we've been working on were some ways in which we want to improve that customer experience in ways that we thought we could enhance digital attraction in the micro market.

Bryan C. Bergin: Hi guys, good morning, thank you.

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

Kevin Mcveigh: Maybe.

Speaker Change: Right on that and maybe think about the kind of the current environment in terms of clients and worried there kind of.

Speaker Change: Retention rates all of their employees has there been any change at the margin on that it just I just wanted to start there because it feels like you know some of the macro data employment related so I'm, a little bit but it definitely.

John B. Gibson: Yeah, Bryan, just to step back, I'd say we had solid demand on our solutions for the year. Activity was high across the teams, as we talked about, and you can tell from the results.

Speaker Change: Understanding where it didn't seem like youre seeing that yet or am I not thinking about that right.

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

Speaker Change: The HR outsourcing and HR advisory areas are really picking up.

John Gibson: So this is the thing of this is in the digital micro market. We make some technology platform changes. We introduce some other third party capabilities there, and to just be blunt, we had some integration issues. In any time, you have people bug out of the process, and so you just did not have the lead, but conversion issues. Now we can go back and go after those individuals, but again, it was just not smooth, and we've got that behind us at this point in time.

Speaker Change: attraction with the market that's what that's what we're seeing versus the pure tech

Speaker Change: Inflation cool.

Speaker Change: I would tell you in may in our in our report we had the biggest one month increase there as we said in our comments, we actually saw growth.

Speaker Change: And so we certainly are pivoting heavy into that retirement also.

Speaker Change: is another area where we can see that. So, look, we see good demand for our products and services.

Speaker Change: In checks and Worksite employees in the fourth quarter.

Speaker Change: The changes we're making are really, we talked about it on the last call, we're really re-looking at, as you can imagine, we just went through the last three years of a pandemic year, as the ERTC program ends, we're really refreshing our entire go-to-market talking points, our sales plays, our marketing position, and really focused on the things that we find

Speaker Change: And that was.

Speaker Change: That was a positive a positive trend.

Speaker Change: We started engaging because again when you get the economy growing at the rate it's growing our models would suggest that you'd see more hiring so to your point, what's going on here and what we did is we went out and started looking at our analytics and data into the point retaining clients is a challenge for small business owners.

John Gibson: So that was what I would say, a very specific market segment and a very specific technology upgrade that we were doing, and I do believe that that upgrade will end up giving us better conversion rates and better attraction rates as we go into fiscal year 25. Thank you.

Speaker Change: clients are most concerned about in today's post-pandemic world and you know that those things are attracting and retaining qualified

Speaker Change: Second attracting qualified.

Speaker Change: And so we started engaging them, we did a lot of surveys and and what we found was they have open positions. They are just struggling to find them with qualified individuals and I think another thing they learned during the pandemic. When everyone was just trying to hire just anybody that hiring just anybody.

Speaker Change: employees in a very tight labor market.

Samad Samana: And we will take our next question from Salmon at Semana with Jeffries. Hi, good morning. Thanks for taking my question. So maybe first just on some of the assumptions underpinning the outlook for the year. I guess first when you think about the cost action that you did in the fourth quarter, Bob, was that factored in when you gave the preliminary outlook for 25. I'm just trying to understand how much the cost actions influencing the EPS growth outlook and then on a couple more quick follow-ups. Yeah, sure, Samad. Thanks for the question. Yeah, I mean, it absolutely was factored in.

Speaker Change: The second thing is being able to get access to affordable benefits, with health inflation likely to continue to increase. And they've really got to be able to put together a benefits package to be able to go out and compete against larger firms.

Speaker Change: And then the third thing is access to capital, both constrained capital and cost of capital. I think you know we made a little tuck-in acquisition of a company out there that we're very excited about and we continue to expand.

Speaker Change: Doesn't help your culture or your workforce and so I think they're being a little more selective so we've rolled out a series of products will have more.

Speaker Change: The way we started it in the PEO because that's an area, where we have a lot of direct contact with the client and their employees and started doing a lot of comprehensive work, both on retention and helping them directly attract using both our technology.

Speaker Change: are digital access to fintech.

Speaker Change: So that our clients have access to capital during the payroll process as well. So we're really trying to retrain our sales team on those new areas. We also are pivoting some of our resources into those market segments where we think there's going to be higher growth as we go into fiscal year 25.

Bob Schrader: I'd say the only thing that surprised us about the end of ERTC was that it happened probably a quarter earlier than what we expected, but we knew that it was going to come to an end this year. So we've been really focused all year on preparing for that. John's actually been talking to the team a lot for two years, telling us that it was going to come to an end. So we've been focused on our cost savings initiatives, really trying to find ways to continue to enhance our digital capabilities, find ways to be more productive, more efficient while making investments in the business to prepare for this, really focus on not letting new costs in the business.

Speaker Change: Capabilities as well as our AI capabilities and indirectly building recruiting strategies and we saw success in that in that program and we're going to look to continue to move that forward as we go forward, but I'm not we're not seeing any signs of a recession or hearing from our clients are seeing layoffs are seeing those type of things that we would see.

Speaker Change: Thank you. And we will take our next question from Kevin McVeigh with UBS.

Speaker Change: Great, thanks so much and always super, super helpful commentary.

Speaker Change: We see it in a recessionary period.

Speaker Change: each on

Speaker Change: Could you maybe talk a little bit about...

Speaker Change: Thank you and we will take our next question from James Faucette with Morgan Stanley.

Kevin Damien McVeigh: You know, because I find your commentary in the press release is super helpful.

Speaker Change: It seems like the environment overall, if we're hearing it right, is still relatively tight labor as opposed to maybe...

James Faucette: Great. Thank you very much I want to go back a little bit on the changes you're making in the micro segment.

Bob Schrader: And so we've been working on a plan for 12 months. What you saw is it relates to the cost actions that's been underway for some time. Obviously, I wasn't going to communicate it, but I had a higher degree of confidence on the execution of those plans, which enabled me to provide the preliminary color around margin expansion that I did on the last call.

Speaker Change: some increase in capacity, maybe...

Speaker Change: And just to be clear was that something that you felt like you needed to do for your own products, where you're seeing some market pressures et cetera on on that segment and.

Speaker Change: Are we right on that? And maybe think about kind of the current environment in terms of clients and where they're kind of

Speaker Change: retention rates are of their employees. Has there been any change at the margin on that? I just want to start there because it feels like, you know, some of the macro data, employment related is slowing a little bit, but it definitely, if I'm understanding right, doesn't seem like you're seeing that yet, or am I not thinking about that right?

Speaker Change: And when you say one time, how quickly should we start to see some of those sales conversions et cetera come back to more normalized levels.

Bob Schrader: Great. And then, as I just look at the data from this year, it looks like client growth was about 60 basis points. If I look at the 745 K clients versus the 740 ending last year, and WSE growth 2.3 versus 2.2 is about 4.5 percent growth. What are you assuming for client growth and WSE growth in the fiscal 25 outlook? Yeah, so a couple of things. We disclose round numbers there. So the client-based growth was closer to 1 percent when you have the full numbers and not the round numbers, some odd. And I'm not sure on the worksite employee because our worksite employee growth was upper single digits.

Speaker Change: Yes.

Speaker Change: This is pretty simple as we got through the selling season as everyone knows after our selling season is the time to begin to introduce new technology platforms and other things into our sales and marketing engine as we gear up for the next fiscal year.

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

Speaker Change: We continue to see wage inflation cool.

Speaker Change: You know, I would tell you, in May, in our report, we had the biggest one-month increase

One of the things that we're constantly trying to do is improve the prospect experience digitally from the time of attraction all the way through to running their first payroll and doing as much of that digitally as possible.

Speaker Change: There, as we said in our comments...

Speaker Change: We actually saw growth in checks and worksite employees in the fourth quarter, and that was a positive trend. We started engaging, because again, when you've got the economy growing at the rate it's growing,

Speaker Change: One of the things that we've been working on we're some ways in which we want to improve that customer experience in ways that we thought we could enhance digital attraction of in the micro market. So think of this as the digital micro market. We made some technology platform changes we introduced some other third party capabilities, there and to just be blunt.

Bob Schrader: It was strong both in ASO, in PO, and it was close to double digits. I'd say on the PO, we've got a lot of strength there. So I'd have to look at those numbers again, but the worksite employee growth across both solutions has been extremely strong this year, and in particular in that PO.

Speaker Change: Our models would suggest that you'd see more hiring, so to your point, what's going on here? And what we did is we went out and started looking at our analytics and data, and to the point, retaining clients is a challenge for small business owners.

Speaker Change: Had some integration issues and anytime you have a disruption in that process. The people bug out of the process and so you just did not have that.

Speaker Change: Second, attract and qualify. And so we started engaging them, we did a lot of surveys, and what we found was they have open positions, they're just struggling to find them.

Speaker Change: You have to leave a conversion.

Speaker Change: Issues now we can go back and go after those individuals but again it would just not smooth and we've got that behind us at this point in time. So that was what I would say a very specific market segment in a very specific technology upgrade that we were doing.

Bob Schrader: I know it's breaking the rules, but I'm going to squeeze it third one, because it's kind of how you do this last time, but I remember you're on my grandma naughty, but I'm sorry. Would you follow up question on what the assumption is for next year related to those metrics? Yeah, yeah, what are you embedding in the guidance, right? Just trying to get an idea of how you're thinking about the building blocks between what's called seats or units versus price action. Versus retention, changing in a direction, just trying to try and get a little bit more on how that four to five or the four to five and a half range breaks out and what the factors and what's underpaces.

Speaker Change: And I think another thing they learned during the pandemic, when everyone was just trying to hire just anybody,

Speaker Change: that hiring just anybody doesn't help your culture or your workforce. And so I think they're being a little more selective. So we rolled out a series of products. We'll have more on the way. We started it in the P.O. because that's an area where we have a lot of direct contact with the client and their employees.

Speaker Change: I do believe that that upgrade will end up giving us.

Speaker Change: Better conversion rates and better attraction rates as we go into fiscal year 'twenty five.

Speaker Change: Thank you.

Speaker Change: We'll take our next question from Samad Samana with Jefferies.

Speaker Change: and started doing a lot of comprehensive work both on retention and helping them directly attract using both our technology capabilities as well as our AI capabilities and then directly building recruiting strategies. And we saw success in that program and we're going to look to continue to move that forward as we go forward. But we're not seeing any signs of a recession or hearing from our clients or seeing layoffs or seeing those type of things that we would typically see in a recessionary period.

Samad Samana: Hi, Good morning, Thanks for taking my question. So maybe first just on some of the assumptions underpinning the outlook for the year I guess first when you think about the cost actions that you did in the fourth quarter, Bob was that factored in when you gave the preliminary outlook for our 25 I'm just trying to understand how.

Bob Schrader: Yeah, I'd say you know our growth formula, which is proven in the five or the four to five and a half percent. You take the midpoint of that; you got a factor in the 200 basis point. I'd win from ERTC. I'd say very similar. You know, we're always putting together plans where we're trying to find ways to be more productive from a sales standpoint, trying to, you know, sell more and less and drive client-based growth. I'd say we're not as maybe dependent on that as others because we have lots of different solutions that we can sell, and, you know, we want to get client-based growth, and then, you know, the big part of the formula is really going back into that base and getting a larger share of wall over time.

Samad Samana: The cost actions influencing the EPS growth outlook and then a couple more quick follow ups yeah.

Bob: Yeah sure. So thanks for the question Yeah, I mean, absolutely was factored in I'd say.

John Gibson: The only thing that surprised us about the end of <unk> was that it happened probably a quarter earlier than what we expected, but we've been we knew that it was going to come to an end. This year. So we've been really focused all year on preparing for that John has actually been talking to the team about it for two years, telling you said it was going to come to.

Speaker Change: Thank you. And we will take our next question from James Faucette with Morgan Stanley .

James Eugene Faucette: Great, thank you very much. I want to go back a little bit on the changes you were making in the micro segment.

Bob Schrader: We've driven a lot of growth historically, and our ability to do that, when you look at the kind of the penetration rates in those key solutions, and John really mentioned them: ASL, PEO, Retirement. We have a lot of momentum in those businesses, and there's still a lot of runway within the existing client base. You know, pricing, you know, we've talked a little bit this year about maybe pricing being a little bit of a headwind or a little bit less than our expectations. I will tell you the price realization in our model is still strong. You know, maybe our expectations this year were a bit high, but, you know, pricing in our model is still strong and that would be a contributor to growth next year, maybe not at the same level it has the last couple of years.

Speaker Change: And just to be clear, was that something that you felt like you needed to do for your own product or were you seeing some market pressures?

Speaker Change: And so we've been focused on are our cost savings initiatives really trying to find ways to continue to.

Speaker Change: etc on on that segment and and when you say one time you know how quickly should we start to see some of those sales conversions etc come back to more normalized levels

Speaker Change: Enhance our digital capabilities find ways to be more productive more efficient, while making investments in the business to prepare for this.

Speaker Change: Really focused on not letting new costs in the business and so we've been working on a plan for 12 months.

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

Speaker Change: The what you saw as it relates to the cost actions that's been underway for some time, obviously I wasn't going to communicate it but I had a high degree of confidence on the execution of those plans, which.

Speaker Change: Enables me to provide the preliminary color around margin expansion.

Speaker Change: That I did on the last call.

Speaker Change: Okay.

Bob Schrader: But when you kind of put those things together, that gets you close to that, you know, growth rate XCRTC that's implied in the polymer in the guide.

Speaker Change: Great and then as I just look at the data from this year it looks like.

Speaker Change: Growth was about 60 basis points, if I look at the 745 K clients versus the 740, ending last year and Ws eager out to quite the reverse too much is about four 5% growth what are you assuming for for I guess.

Speaker Change: One of the things that we've been working on were some ways in which we want to improve that customer experience in ways that we thought we could enhance digital attraction in the micro-market. So think of this in the digital micro-market.

Bob Schrader: Great. Thanks again for taking my questions. Appreciate it. Thank you.

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

Speaker Change: We made some technology platform changes, we introduced some other third-party capabilities there, and to just be blunt, we had some integration issues. And any time you have a disruption in that process, the people bug out of the process. And so you just did not have the lead, but conversion issues. Now we can go back and go after those individuals, but again, it was just not smooth, and we've got that behind us at this point in time. So that was what I would say a very specific market segment and a very specific technology upgrade that we were doing. And I do believe that that upgrade will end up giving us better conversion rates and better retraction rates as we go into fiscal year 25.

It grows then ws your growth in the.

Caroline Ladow: Hi, this is Caroline Ladow on for Jason. I just wanted to add a little bit more on pricing. I know you guys just kind of mentioned it, but Berkeley T-Tex would periodically talk about taking like two to four percent of pricing in average year. But given that there are some signs of softness and SMBs might the lower end of the range more likely to share. I would tell you this: that our growth formula that we've historically have is well intact. I think that particularly when you even looked at these numbers XCRTCs, there's so many headwinds of things are difficult to look at over the last three years because you have the PPP, you have the RTC.

Speaker Change: In the fiscal 'twenty five outlook, yeah, So a couple of things.

Speaker Change: Disclose round numbers there so.

Speaker Change: The client base growth was closer to 1% when you're going to have the full numbers and not the round numbers came out and I'm not sure on the Worksite employee because our worksite employee growth was upper single digits. It was strong both in ASO.

Speaker Change: In N P O and it was close to double digits I'd say on the we've had a lot of strength. There is I'd have to look at those numbers again, but the worksite employee growth across both solutions has been extremely strong this year and in particular in that PEO business.

Speaker Change: Thank you and we will take our next question from Samad Samana with Jeffreys.

Speaker Change: Great.

John Gibson: Get a lot of one time programs that we were engaging our clients with, which was critical for their success and that certainly gave us a lot of the opportunity to talk to our clients about the value we provide. What Bob said is exactly what we would say: we continue to have good value pricing opportunities in our base. And we have a demonstrated track record that, as we bring clients in, we can move them up the value chain, demonstrate value, and get price realization. So I think that the historical pricing capabilities that we have in the market, we continue to see and we continue to be those that are sustainable.

Speaker Change: Breaking the rules, but I'm going to squeeze a third one because it was kind of how did you do.

Speaker Change: Yeah.

Speaker Change: I remember right.

Speaker Change: Hi, good morning. Thanks for taking my questions. So maybe first just...

Speaker Change: Alright.

Speaker Change: Uh huh.

Speaker Change: I'm sorry, what was your follow up question on what the assumption is for next year related to those metrics.

Speaker Change: on some of the assumptions underpinning the outlook for the year. I guess first, when you think about the cost action that you did in the fourth quarter, Bob, was that factored in when you gave the preliminary outlook for 25? I'm just trying to understand how much the cost action is influencing.

Speaker Change: Yeah, Yeah. What are you what are you embedding in the guidance right I'm just trying to get an idea of how you're thinking about the building blocks in between.

Speaker Change: Between what.

Speaker Change: Hum seats or units versus price action versus retention changing in a direction just trying to triangulate a little bit more on how that Florida, you know five or that four to five and a half range breaks out and what the factors and western what underpins Tonight I'd say it.

Speaker Change: The EPS wrote that look, and then I have a couple more quick follow-ups.

Robert L. Schrader: Yeah, sure Samad. Thanks for the question. Yeah, I mean it absolutely was factored in I'd say

Speaker Change: The only thing that surprised us about the end of ERTC was that it happened probably a quarter earlier than what we expected, but we knew that it was going to come to an end this year, so we've been really focused all year on preparing for that. John's actually been talking to the team about it for two years, telling us that it was going to come to an end. So we've been focused on our cost savings initiatives, really trying to find ways to continue to...

Speaker Change: Our growth Formula, which is which is proven in the five or the four to five 5%. If you take the mid point of that you got to factor in the 200 basis point headwind from the RTC I'd say very similar you know, we're always putting together plans, where we're trying to find ways to be more productive from a sales standpoint, and trying to sell more in it.

John Gibson: Thank you so much.

Andrew Nicholas: Thank you.

John Gibson: And we will take our next question from Andrew Nicholas with William Blair. Thank you for taking my questions, and good morning. I wanted to double back on the PEO works that employee growth. I think you said close to double digits. You mentioned both this quarter and in past quarter some of the things that you've done and some of the things that are going really well. Maybe to ask it more simply. How do you get to that number? What are the number of things that you think are driving? Is it competitive differentiation? Is it the market being more receptive to more Ether outsourcing?

Lesson and drive client base growth.

Speaker Change: enhance our digital capabilities, find ways to be more productive, more efficient while making investments in the business to prepare for this.

Speaker Change: They were not is maybe dependent on that as others. Because we have lots of different solutions that we can sell in and we want to get client base growth and then the big part of the Formula is really going back into that base and getting a larger share of wallet over time, we've driven a lot of growth historically and our ability to do that when you look at that.

Speaker Change: I'm really focused on not letting new costs in the business and so we've been working on a plan for for 12 months.

Speaker Change: What you saw as it relates to the cost actions that's been underway for some time, obviously I wasn't going to...

Speaker Change: communicated, but had a higher degree of confidence on the execution of those plans, which, you know, enabled me to provide the preliminary color around margin expansion. She has about four and a half percent growth. What are you assuming for, for, I guess,

Speaker Change: The penetration rates in those key solutions and John Rielly mentioned, an ASO PEO retirement, we have a lot of momentum in those businesses and theres still a lot of runway within the existing client base pricing.

John Gibson: Is it something that you've done with your insurance plans? Is there any way to kind of break down kind of where all these new wins are coming from? Just a really strong number. So I wanted to get a better sense for what's going on in the market.

John Gibson: Yeah, Andrew. It is a very strong number, and the thing to remember is we did not reach our expectations in terms of worksite growth inside the client base. I mean, if the economy is growing at the rate it's growing, we expected to see a lot more worksite employee hires in the PEO. This is part of the reason why we put this hiring program in place in the PEO because what we heard from our clients there was they were strong. They had a lot of openings, but they were struggling to find them. So these numbers are very impressive, and they're volume driven.

Speaker Change: Client growth and WSU growth.

Speaker Change: We've talked a little bit this year about maybe pricing being a little bit of a headwind or a little bit.

Speaker Change: in the Fiscal 25 Outlook.

Speaker Change: Yeah, so a couple things, you know, we disclosed round numbers there, so, you know, the client-based growth was closer to 1% when you kind of have the full numbers and not the round numbers, Samad. And I'm not sure on the worksite employee, because our worksite employee growth was upper single digits. It was strong both in ASO and PO, and it was close to double digits, I'd say, on the PO. We've had a lot of strength there. So I'd have to look at those numbers again, but the worksite employee growth across both solutions.

Less than our expectations I will tell you that price realization in our in our model is still strong.

John Rielly: Our expectations this year were a bit high but pricing in our model is still strong and that would be a contributor to growth next year, maybe not at the same level. It has the last couple of years, but when you kind of put those things together that gets you close to that.

Speaker Change: Growth rate <unk>, that's implied in the preliminary in the guidance.

John Gibson: I think we do have a very competitive offering. We did a lot of things on our insurance program. We had strong medical attachment exceeding our expectation, and then the enrollment based upon the breadth of the offerings that were providing the employees, the participation rates actually increased as well. So really pretty much across the board when I look at it, I think there's increasing demand for HR advisory and HR outsourcing solutions. Again, I'm reminded that one of the things that I think is going to end up differentiating paychecks is we can go all the way from a pure tech play, which maybe there's a little more happiness in, all the way up to a full outsourcing play.

Speaker Change: Great. Thanks, again for taking my questions I appreciate it.

Speaker Change: Yes.

Speaker Change: Thank you and our next question comes from Jason Kupferberg with Bank of America.

Speaker Change: has been extremely strong this year, in particular in that PEO business.

Speaker Change: Great, I know it's breaking the rules, but I'm going to squeeze a third one in because it was kind of house-y. You did this last time, Matt, I remember. You're on my naughty list. Sorry, I'm a habitual lines checker. I'm sorry, was your follow-up question on what the assumption is for next year related to those metrics?

Speaker Change: Okay.

Speaker Change: Hi. This is Caroline later on for Jason I, just wanted to dig in a little bit more on pricing I know you guys just kind of mentioned it but frankly paychex what Perry.

Speaker Change: Periodically talk about taking like 2% to 4%.

Speaker Change: So in an average year, but given that there are some signs of softness softness in F N b.

Speaker Change: Yeah, yeah, what are you what are you embedding in the guidance right just trying to get an idea of how you're thinking about the building blocks between between

Speaker Change: Mike the lower end of the range might look like this year.

Speaker Change: I would say I would tell you. This that are that are our growth formula that we've historically had is well intact I think that particularly when you even look I got to get these numbers ex the RTC theres. So many headwinds.

Speaker Change: Price action versus retention changing in any direction just trying to try and get a little bit more on how that four to you know five or that four to five and a half range breaks out and what the factors and

John Gibson: When you have inflationary and you're trying to do more with glass and you're trying to look at cutting costs, the old play of outsourcing moves in there. So now do I need to add another person to my HR department? Do I even need to add an HR person, or can I outsource that? I think there's a growing demand and interest, and I think in an inflationary and where people are being very cost conscious, outsourcing is one of the key tools. Everyone goes to an ACFO, knows you go to outsourcing when you want to cut your costs, and we've got the offering to do that.

Speaker Change: What underpins it? I'd say, you know our growth formula, which is proven, and the 4 to 5.5%, you take the midpoint of that, you've got to factor in the 200 basis point headwind from ERTC. I'd say very similar, we're always putting together plans, we're trying to find ways to be more productive.

Speaker Change: Things that are difficult to to look at over the last three years, because you have the PPP <unk> get a lot of onetime programs that we were engaging our clients with which was critical for their success and that certainly gave us a lot of opportunities to talk to our clients about the value. We provide what Bob said is exactly what we would say we.

Speaker Change: Continue to have good value pricing.

Speaker Change: from a sales standpoint, trying to sell more and lose less and drive client-based growth.

John Gibson: And I think we've positioned our value proposition very strongly against the competitive set that we're going up against.

Speaker Change: Opportunities in our base and we have a demonstrated track record that as we bring clients. Then we can move them up the value chain demonstrate value and get price realization. So.

Speaker Change: I'd say we're not as, maybe, dependent on that as others, because we have lots of different solutions that we can sell, and, you know, we want to get client-based growth, and then, you know, the big part of the formula is really going back into that base and getting a larger share of wallet over time. We've driven a lot of growth.

John Gibson: Great. Thank you. That's certainly where a lot of the competitors are moving towards in terms of the spectrum. So I appreciate the color.

Speaker Change: I think the historical.

John Gibson: Better wait than never. Thank you.

Pricing.

Speaker Change #100: The capabilities that we have in the market. We continue to see and we continue to believe those are sustainable into the future.

Ashish Sabadra: And we will take our next question from Ashish Sabadra with RBC Capital Markets. Thanks for taking my question. I just had two quick questions on the first quarter guidance. First one on that, if I understood correctly, two percent revenue growth, that's a material flow down compared to five percent. He saw in the fourth quarter and understand one less processing day, but the ERTC headwinds were in the fourth quarter as well. So just trying to bridge that gap on what's causing that slow down. And then on the margins, the margins at the midpoint of what even to 42 would suggest a modest decline in margins in the first quarter.

Speaker Change: historically and our ability to do that when you look at the kind of the penetration rates in those key solutions and John really mentioned them ASO, PEO, retirement, we have a lot of momentum in those businesses and there's still a lot of runway within the existing client base. You know pricing, you know we've talked a little bit this year about maybe pricing being a little bit of a headwind or a little bit less than our expectations. I will tell you the price realization in our model is still strong.

Speaker Change #101: Okay that helps a lot. Thank you so much.

Speaker Change #102: Thank you and we will take our next question from Andrew Nicholas with William Blair.

Speaker Change #103: Hi, Thank you for taking my questions and good morning.

Andrew Nicholas: I wanted to to double back on the PEO Worksite employee growth.

Andrew Nicholas: You said it I think you said close to double digits.

Andrew Nicholas: You mentioned, both this quarter and in past quarters. Some of the things that you've done in some of the things that are going really well I just maybe to ask it more simply how do you. How do you get to that number what are the number of things that you think are driving as a competitive differentiation is it the market being more receptive.

Speaker Change: You know, maybe our expectations this year were a bit high, but, you know, pricing in our model is still strong, and that would be a contributor to growth next year, maybe not at the same level it has the last couple years. But when you kind of put those things together, that gets you close to that, you know, growth rate, XERTC, that's implied in the guide.

Bob Schrader: And so just wanted to better understand the puts and takes weighing on margins on the first quarter and then the improvement as we go through the years.

Andrew Nicholas: <unk> two more HR outsourcing is it something that you've done with your insurance plans is there any way to kind of break down kind of aware all of these new wins are coming from just a really strong number so I wanted to get a better sense for what's going on in the market.

Bob Schrader: Yeah, she's actually surprised it took this long into the Q&A to get the question on Q1. Obviously, the 2% number I think people would look at that and you really need to have some questions; you need to peel back the onion a little bit and understand it. I'd say that we, you know, I talked about the ERTC, had wind being a 200 basis headwind on a full year basis. Obviously, that's larger in the first half and in the first quarter, and that subsides as we go through the year. So it's north of 300 basis points.

Speaker Change: Great. Thanks again for taking my questions. I appreciate it.

Speaker Change: Thank you. And our next question comes from Jason Kupferberg with Bank of America.

Andrew Nicholas: Yeah, Hi, Andrew.

Andrew Nicholas: It is a very strong number.

Speaker Change: Hi, this is Caroline Ladawn for Jason. I just wanted to get in a little bit more on pricing. I know you guys just kind of mentioned it, but Berkeley Paychex would periodically talk about taking like

Speaker Change #105: The thing to remember is we.

Speaker Change #106: We did not reach our expectations in terms of Worksite growth inside the client base.

Speaker Change #107: I mean, if the economy growing at the rate, it's growing we expected to see a lot more worksite employee hires in the Pea or is part of reason why we put this hiring program in place and the PEO because what we heard from our clients. There was they were strong they had a lot of openings, but they were struggling to find them. So these numbers are very impressive and there are volume driven.

Caroline Ladawn: 2-4% of price in an average year, but given that there are some signs of softness in SMBs, might the lower end of the range be more likely this year?

Bob Schrader: It's a stronger headwind in Q4 and then listen processing days, you know typically they balance out through the year and a given year they can have an impact on the quarter. It's not going to have much of an impact on the full year. We were actually losing, you know, one of our bigger days of the week in the quarter. So that certainly is a headwind to growth. I think if you've taken those 2 headwinds and, again, I'm giving you round numbers here, you're going to, and you do the math, you're going to get to a growth rate in Q1 that is very similar to the growth rate XERTC that we delivered in the back half of the year.

Speaker Change: I would tell you this, that our growth formula...

Speaker Change: that we've historically had is well intact. I think that, particularly when you even look, I look at these numbers, XERTC, there's so many headwinds, things that are difficult to look at over the last three years because you have the PPP, you have ERTC, you had a lot of one-time programs that we were engaging our clients with, which was critical.

Speaker Change #107: I think we do have a very competitive.

Speaker Change #108: Offering we did a lot of things on our insurance program, we had strong medical attachment exceeding our expectation and then the enrolment based upon the breadth of the offerings that we're providing the employees the participation rates actually increased as well so.

Speaker Change: for their success and that certainly gave us a lot of opportunities to talk to our clients about the value we provide.

Speaker Change #108: Really pretty much across the board when I look at it I think there is increasing demand for HR advisory and HR outsourcing solutions and again I remind a rig that's one of the things that I think is going to end up differentiating paychex is we can go all the way from a pure tech play, which means there's a little more choppiness than all the way up to a full outsourcing play.

Speaker Change: What Bob said is exactly what we would say. We continue to have good value pricing.

Bob Schrader: It's very similar to that, and you know, and obviously you've got to exclude interest rates because we're still getting a fairly significant lift in interest rates in the back half of the year. But if you look at service revenue. And you add in those headwinds, you're going to see a growth rate in Q1 that's very similar to what we delivered in the back half of the year. And our mind everyone, we've had a significant acceleration in the growth rate of the business in the back half XERTC relative to the first half. So I know the print number or the, you know, the number on the face of it looks weak.

Speaker Change: We have a demonstrated track record that as we bring clients in, we can move them up the value chain, demonstrate value, and get price realization. So I think the historical...

Speaker Change #109: When you have inflationary youre trying to do more with glass when you're trying to look at cutting cost the old play of outsourcing moves in there. So now do I need to add another person to my HR Department do I, even need to add an HR person or cannot outsource that I think there's a growing demand and interest and I think in an inflationary and where people are.

Speaker Change: Pricing capabilities that we have in the market, we continue to see and we continue to believe those are sustainable into the future.

Speaker Change: Okay, that helps a lot. Thank you so much.

Speaker Change: Thank you and we will take our next question from Andrew Nicholas with William Blair

Speaker Change #110: Being very cost conscious outsourcing is one of the key tools, everyone goes to an <unk> CFO no as you go to outsourcing when you want to cut your costs and we've got we've got the offering to do that and I think we've positioned our value proposition very strongly against the competitive set that we're going up against.

Bob Schrader: But when you factor in those components, you're still seeing growth that's very similar to what we had in the back half of the year. And then on the margin, you know there's a lot of that is going to have to do with the ERTC headwind year-over-year. I mean ERTC is was highly profitable, it wasn't 100% margin but it was pretty close to 100% margin and that's where you see a little bit of headwind on the margin quarter versus quarter.

Andrew Owen Nicholas: Hi, thank you for taking my questions and good morning. I wanted to to double back on the PEO Worksite Employee Growth

Andrew Owen Nicholas: that you cited. I think you said close to double digits. You mentioned both this quarter and in past quarters some of the things that you've done and some of the things that are going really well. I just...

Speaker Change #111: Great. Thank you hit certain where a lot of the competitors are moving towards in terms of the spectrum. So I appreciate the color.

Andrew Owen Nicholas: maybe to ask it more simply.

Andrew Owen Nicholas: How do you get to that number? What are the number of things that you think are driving? Is it competitive differentiation? Is it the market being more receptive to...

Speaker Change #112: Better late than ever.

Bob Schrader: That that's very helpful. Thanks.

Speaker Change #113: Thank you and we will take our next question from Ashish <unk> with RBC capital markets.

Peter Christensen: Thank you. And our next question comes from Peter Christensen with City. Thank you. Good morning. John, I was just hoping we could do a little bit into your middle market commentary on decision delay that you're seeing there. Is that a function of tech issues, or is it high switching costs? Just your thoughts on perhaps house switching costs of kind of trended competitive landscape. It would be great to hear you expand on that dynamic just a bit more. Thank you. Yeah, yeah.

Speaker Change: More HR outsourcing? Is it something that you've done with your insurance plans? Is there any way to kind of break down kind of where all these new wins are coming from? Just a really strong number, so I wanted to get a better sense for what's going on in the market.

Ashish <unk>: Oh, Thanks for taking my question I just had two quick questions on your first quarter guidance, a first one on if I can.

Speaker Change #115: Just trying to kind of keep 2% revenue growth back to Makena and slow down and come back at 5% you saw in the fourth quarter.

Speaker Change: Yeah Andrew, it is a very strong number and the thing to remember is we did not reach our expectations in terms of worksite growth inside the client base.

Speaker Change #116: And one less processing day, DC headwind to it in the fourth quarter as well.

Speaker Change #117: To bridge that gap on what's causing that slowdown and then on the margins the margins at the midpoint of 41 to 42 would suggest a modest decline in margins in the fourth quarter and so just wanted to better understand the puts and takes England launches on the first quarter and then improve.

Speaker Change: I mean, at the rate it's growing, we expected to see a lot more worksite employee hires in the P.O. That's part of the reason why we put this hiring program in place in the P.O., because what we heard from our clients there was they had a lot of openings, but they were struggling to find them. So these numbers are very impressive, and they're volume-driven.

John Gibson: So let me maybe dive get a little deeper into this relative to volumes and what we're seeing. So volumes were up for us relative to proposals across the major groups, and I would remind everybody to generate a proposal in our system, and it's an AI-based system. We're actually, then we've got to have an engaged client because there's information we want. So this is not I drove by a place and think they may be interested in paychecks. This is we counted as in our pipeline. Really, there's a live proposal that we got information in the clients and engaging us.

Speaker Change #117: Improvement as we go through the year.

Speaker Change #118: Yeah she's.

Speaker Change #119: Actually surprised it took this long into the Q&A to keep the question on Q1, obviously, the 2% number I think people would look at that and you really need and they have some questions you need to peel back the onion, a little bit and it and understand it I would say that we I talked about the <unk> headwind being a 200 base head point.

Speaker Change: I think we do have a very competitive...

Speaker Change: offering, we did a lot of things on our insurance program, we had strong medical attachment exceeding our expectation, and then the enrollment.

Speaker Change: Based upon the breadth of the offerings that we're providing to employees, the participation rate's actually increased as well. So, really, pretty much across the board, when I look at it, I think there's increasing demand for HR advisory and HR outsourcing solutions. And again, I remind everybody, that's one of the things...

Speaker Change #119: 200 basis point headwind on a full year basis, obviously, that's larger in the first half and in the first quarter and that subside as we go through the year. So it's north of 300 basis points.

John Gibson: So, as we said in retirement, we saw volumes up in retirement, actually acceleration in the fourth quarter. AFL and PO strong and stable. PO very strong, including mid market volumes were up both in the quarter and for the full and for the full year.

Speaker Change: that I think is going to end up differentiating Paychex. If we can go all the way from a pure tech play, which maybe there's a little more choppiness in.

Speaker Change #120: It's a stronger headwind.

Speaker Change #121: In Q4, and then listen processing days.

Typically they balance out through through the year in a given year. They can have an impact on the quarter, it's not going to have much of an impact on the full year.

Speaker Change: All the way up to a full outsourcing play, and when you have inflationary and you're trying to do more with less, and you're trying to look at cutting costs, the old play of outsourcing moves in there. So now, do I need to add another person to my HR department? Do I even need to add an HR person?

John Gibson: And what we saw there in the fourth quarter in the mid market was more a delay in decision making, so longer sales cycle. So we have more active deals in the pipeline today, right? Then we did last year at this time going into the fiscal year. They're not closing out and saying no; they're just more there. My sense of it is there is a lot of shopping going on. Again, let's go back. Price sensitive market people are going out and say, "Can I get a better deal somewhere else?" Maybe they're not as happy with the current provider or whether the current provider is heading from a technology roadmap perspective, and so they're wanting to wanting to engage Paychex even more.

Speaker Change #122: We're actually losing one of our bigger days of the week in the quarter. So that certainly is a headwind to growth I think if you if you take those two headwinds.

Speaker Change: or can I outsource that? I think there's a growing demand and interest and I think in an inflationary and where people are being very cost conscious.

Speaker Change #122: And again I'm, giving you round numbers here, you're going to and you do the math, you're going to get to a growth rate in Q1 that is very similar.

Speaker Change: Outsourcing is one of the key tools everyone goes to and any CFO knows you go to outsourcing when you want to cut your costs and and we've got we've got the offering to do that and I think we've positioned our value proposition very strongly against the competitive set that we're going up against.

Speaker Change #122: Two the growth rate ex E car T C that we delivered in the back half of the year, it's very similar to that and obviously you got exclude interest rates because we are still getting a fairly significant lift in interest rates in the back half of the year, but if you look at service revenue and you add in those headwinds youre going to see a growth rate in Q1 that is very similar to what.

Speaker Change: Great. Thank you. That's certainly where a lot of the competitors are moving towards in terms of the spectrum, so I appreciate the call.

John Gibson: So the mid market actually for the year was a very solid, very solid from a volume, volumes perspective. What we did see in mid market to get deals, more of the deals required discounting. So one of the things we look at is what percentage of our deals do we have to give any discount to get? There's a lot of deals that we don't have to give discounts to get. And then second, what is the percentage of the amount of the discount when we do have to get it? And both of those were up a little bit.

Speaker Change: Better late than never.

Speaker Change #122: We delivered.

Speaker Change #122: In the back half of the year and I'll remind everyone. We've had a significant acceleration in the growth rate of the business in the back half <unk> relative to the first half. So I know the print number or the number on the face of it looks weak, but when you are.

Speaker Change: Thank you. And we will take our next question from Ashish Sabadra with RBC Capital Markets.

Ashish Sabadra: Thanks for taking my question. I just had two quick questions on the first quarter guidance.

Ashish Sabadra: First one on that.

Speaker Change #122: Factor in those components are still seeing growth that's very similar to what we had in the back half of the year and then on the on the margin.

Ashish Sabadra: If I understood correctly, 2% revenue growth, that's a material slowdown compared to 5% we saw in the fourth quarter.

John Gibson: The other thing I would say in the mid market to peel back even more is our average deal size was down. And this phenomenon actually occurred also in the PO, which was another site that had been given a great result.

Ashish Sabadra: I understand the one less processing day, but the ERTC headwinds were in the fourth quarter as well. So just trying to bridge that gap on what's causing that slowdown. And then on the margins...

Speaker Change #123: There's a lot of that is going to do have to do with that <unk> headwind year over year, I mean, <unk> was highly profitable it wasn't 100% margin, but it was pretty close to a 100% margin and that's where you see a little bit of a headwind on the margin quarter versus quarter.

John Gibson: And that was in the higher end of the market; the higher the market, even less decision making and slower decision making. And so again, if you think about if your average deal size goes from 75 to 72, that may not seem like much, but you spread that across our volume. Those three extra or three of us were site employees or checks can add up to the significance. So what we saw in the mid market was good volume; there's good activity, good proposals, a little slower decision making. We have a good active pipeline.

Ashish Sabadra: The margins at the midpoint of 41 to 42 would suggest a modest decline in margins in the first quarter. And so just wanted to better understand the puts and takes weighing on margins in the first quarter and then the improvement as we go through the year. Thanks.

That's very helpful color. Thanks, a lot.

Speaker Change #123: Yep.

Speaker Change #123: Okay.

Speaker Change #124: Thank you and our next question comes from Peter Christiansen with Citi.

Speaker Change: Yeah, I'm actually surprised it took this long into the Q&A. To get the question on Q1, obviously the 2% number, I think people would look at that, and you really need, and to have some questions, you need to peel back the onion a little bit and understand it. I'd say...

Speaker Change #125: Thank you good morning.

Peter Christiansen: John I was just hoping you could use a little bit into your middle market commentary on decision delays that you're seeing there is that.

John Gibson: And what I would say there's a segmentation from the upper end of that market to the lower end of the market, more buying in the lower end of the market than the upper end. Does that give you some more color, Peter? Absolutely, it does; it's fantastic color. But back on the discounts, I guess on an overall level, promotions, discounts, all that, would you say that that's rising? No, it's stable; it's really stable.

Peter Christiansen: Function of tech issues or is it high switching costs just your thoughts on.

Speaker Change: I talked about the ERTC headwind being a 200-basis point headwind on a full-year basis. Obviously, that's larger in the first half and in the first quarter, and that subsides as we go through the year. So, it's north of 300-basis points.

Switching costs have kind of trended.

Peter Christiansen:

Competitive landscape and what have you just it would be great to hear you expand on that dynamic just a bit more thank you.

Speaker Change #127: Yeah, Yeah. So let me, let me maybe get a little deeper into this relative to volumes and what we're seeing.

Speaker Change: It's a stronger headwind in Q4. And then, listen, processing days.

Speaker Change: You know, typically, they balance out through the year, in a given year, they can have an impact on the quarter. It's not going to have much of an impact.

Speaker Change #127: So volumes were up for us relative to proposals.

John Gibson: Alright, that's super helpful. Thank you, John. Appreciate it.

Speaker Change #128: Across the across the major groups and I would remind everybody too.

Speaker Change: On the full year, we're actually losing, you know, one of our bigger days of the week in the quarter. So that certainly is a headwind to growth. I think if you take those two headwinds...

Ramsey El: Thank you, and our next question comes from Ramsey, Ella Sol, with Barclays. Hi, thanks for taking my question. Given the slow growth in Q1, can you help us think through the Q2 through Q4 cadence in terms of our models for management solutions, and also if I could just tack on how much M&A contribution are you assuming in the full year guidance? Thank you. Yeah, let me start with your second question first, and the answer that is none. I mean, we did do a really small acquisition last year; there may be a few weeks of benefit, but it probably doesn't even round a point one.

Speaker Change #128: To generate a proposal in our system and it's an AI based system. We're actually then we got to have an engaged client because theres information. We want. So this is not I drove by a place and think they may be interested in paychex. This is week counted as in our pipeline really theres a light proposal that we got information and the clients.

Speaker Change: And again, I'm giving you round numbers here, you're going to, and you do the math, you're going to get to a growth rate.

Speaker Change: in Q1 that is very similar.

Speaker Change #128: Engaging us so as we said in retirement, we saw volumes up in retirement actually acceleration in the fourth quarter, ASO and PEO strong and stable very strong including mid market volumes were up both in the quarter and for the full and for the full year and what we saw there in the fourth.

Speaker Change: to the growth rate XERTC that we delivered in the back half of the year. It's very similar to that, and obviously you've got to exclude interest rates because we were still getting a fairly significant lift in interest rates in the back half of the year. But if you look at service revenue,

Speaker Change: And you add in those headwinds, you're going to see a growth rate in Q1 that's very similar to what we delivered in the back half of the year. And I'll remind everyone, we've had a significant acceleration in the growth rate of the business.

Bob Schrader: So there's really no assumption around M&A in the mile. Ramsey, I don't necessarily want to get into the, you know, to give in the quarterly guidance here, but what I will say is, obviously the ERTC had when ramps down quarter to quarter as we go through the year, and so the revenue growth that we see in the model, both, you know, total revenue management solution is going to accelerate during the year quarter and quarter based on that, on that ramp down. When I just kind of take a step back and look at, you know, maybe first half, back half, XERTC, I'd say, you know, right now our thinking is the growth rates are similar front half, back half, maybe a little bit stronger, but not materially different in the back half versus the front half. You saw we did that this year; you know, we have plans in place that we're executing on.

Speaker Change #129: <unk> in the mid market was more.

Speaker Change #130: A delay in decision, making so longer sales cycle. So we have more active deals in the pipeline today right than we did last year at this time going into the fiscal year, they're not closing out and saying no theyre just more there my sense of it is there is a there's a lot of shopping going on again, let's go back price.

Speaker Change: in the back half, XERTC relative to the first half. So I know the print number or the number on the face of it looks weak, but when you factor in those components, you're still seeing growth that's very similar to what we had in the back half of the year.

Speaker Change #131: Sensitive market people are going out and say can I get a better deal somewhere else, maybe they're not as happy with.

Speaker Change: And then on the margin...

Speaker Change: You know, a lot of that is going to have to do with the ERTC headwind year over year. I mean, ERTC was highly profitable. It wasn't 100% margin, but it was pretty close to 100% margin. And that's where you see a little bit of headwind on the margin quarter versus quarter.

Speaker Change #132: Their current provider or what are their current provider is heading from a technology roadmap perspective, and so they're wanting to wanting to engage paychex, even more so the mid market actually for the year was a very solid very solid from a volume volumes perspective, what we did see mid market to get deals more of the deals required disk.

Speaker Change: That's very helpful, Kalai. Thanks, Paul. Yeah.

Speaker Change #133: So one of the things we look at is what percentage of our deals do we have to give you any discount to get believe it or not there's a lot of deals that we don't have to give discounts to get.

Bob Schrader: But really the difference in the gaining is primarily being driven by the ramp down of the ERTC, you know, quarter to quarter as we move through the year. Hey, we'll get through Q1. You know, I'm trying to provide you guys some color on Q1 and just given, you know, the pluses and minuses over the last few years with ERTC. We're trying to help you get close to where you need to be for the next quarter, but not necessarily get into a, you know, setting a precedent of giving, you know, exactly where we expect to be for each quarter.

Speaker Change: Thank you. And our next question comes from Peter Christiansen with Citi.

Speaker Change #133: And then second what is the percentage of the amount of the discount when we do have to get it and both of those were up a little bit. The other thing I would say in the mid market to Peel. It back even more is our average deal size was down and this phenomenon actually occurred also when the T O which was another slight headwind even given the great results in.

Peter Corwin Christiansen: Thank you. Good morning. John , I was just hoping we could get a little bit into your middle market commentary on decision delay that you're seeing there.

Peter Corwin Christiansen: A function of tech issues or is it high switching costs? Just your thoughts on...

Peter Corwin Christiansen: Perhaps how switching costs have kind of trended, competitive landscape, what have you. It would be great to hear you expand on that dynamic just a bit more. Thank you.

Speaker Change #134: That was in the higher end of the market I don't think the market even in the last decision, making and slower decision, making and so again, if you think about your average to average deal size goes from $75 to 72 that.

John B. Gibson: Yeah, yeah, so let me maybe dive, get a little deeper into this relative to volumes and what we're seeing.

Bob Schrader: I'll provide another update when we get to the end of Q1 and we have that call. Fair enough, thanks so much. Yep. Thank you.

Speaker Change #135: That may not seem like much but you spread that across our volume those three extra three of us worksite employees.

John B. Gibson: So volumes were up for us relative to proposals.

John B. Gibson: across the major groups.

Speaker Change #135: Our checks came out.

Speaker Change #136: Got to be significant so what we saw in the mid market was good volume there is good activity good proposals.

John B. Gibson: And I would remind everybody, you know, to generate a proposal in our system.

Brian Keene: And we will take our next question from Brian Keene with Deutsche Bank. Hi, good morning, guys. And Bob, just to follow up on the one last processing day in the quarter, does that just automatically, like there's a catch up in the second quarter? So you'll see the boost; the processing day ends up adding to the second quarter, is that how it works? Unfortunately, I mean, sometimes it does, Brian. You know, sometimes it balances out in the quarter; sometimes it balances out in the year. This day, we actually, you know, this year, just the way the calendar falls, we actually lose the day, but the impact that growth on a full year base is minimal, but it impacts the quarter.

John B. Gibson: and it's an AI-based system. We're actually then, we gotta have an engaged client because there's information we want. So this is not, I drove by a place and think they may be interested in Paychex.

Speaker Change #137: A little slower decision, making we have a good active pipeline and what I would say, there's a segmentation from the upper end of that market. So the lowering of the market more buying in the lower end of the market and the upper end does that give you some more color Peter.

John B. Gibson: This is, we count it as, in our pipeline, really there's a live proposal that we've got information in the clients'

Speaker Change #138: Absolutely. It does that's fantastic color, but back on the discount I guess on an overall level promotions discounts all of that would you say that that's rising.

John B. Gibson: So, as we said, in retirement, we saw volumes up in retirement, actually acceleration in the fourth quarter.

John B. Gibson: ASL and PO strong and stable, PO very strong, including mid-market volumes were up both in the quarter.

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

John B. Gibson: And what we saw there in the fourth quarter, in the mid-market, was more a delay in decision-making. So longer,

Speaker Change #138: Alright, that's super helpful. Thank you John I appreciate it.

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

Speaker Change #138: Yeah.

Speaker Change #139: Thank you and our next question comes from Ramsey El <unk> with Barclays.

Bob Schrader: So I wish I could get it back in the next quarter, but I don't, but I don't, but I don't, but I don't, but I don't, but I don't, but I don't, but I don't. and then just on the operating margin component in itself, it starts lower in the first quarter and then it ramps pretty significantly. Is there cost actions that are doing that, or is that part of the processing, the less processing day that comes back, or just trying to think about the pick-up in operating margin? Yeah, there's the less processing day, the ERTC had won, right?

John B. Gibson: Sales cycle. So we have...

John B. Gibson: More active deals in the pipeline today, right, than we did last year at this time going into the fiscal year.

Speaker Change #140: Hi, Thanks for taking my question.

Speaker Change #141: Given the slower growth in Q1 can you help us think through the Q2 through Q4 cadence.

John B. Gibson: They're not closing out and saying no, they're just more there. My sense of it is, there's a lot of shopping going on. Again, let's go back, price-sensitive market. People are going out and say, can I get a better deal somewhere else? Maybe they're not as happy with...

In terms of our models for management solutions and also if I could just tack on how much M&A contribution are you assuming in the full year guidance. Thank you.

John B. Gibson: The current provider, or where the current provider is heading from a technology roadmap perspective, and so they're wanting to engage Paychex even more. So the mid-market actually for the year was very solid, very solid from a volumes perspective.

Bob Schrader: That again, that had when get smaller as you move through the year, that's high margin, so that's going to have an impact. And then just in general, when you look at our margins, they're typically stronger in the back half and the first half, and that's because of the way we recognize revenue around some of the year-end processing stuff in Q3, which is also very high margin. So historically, if you go back and look at our margins by quarter, you're going to see that the Q3 in the back half are typically a little bit higher, so that those are the big differences.

Speaker Change #142: Let me start with your second question first and the answer to that is not I mean, we did do a really small acquisition last year. There may be a few weeks of benefit but it probably doesn't even round to 0.1, so theres really no assumption around M&A.

John B. Gibson: What we did see in mid-market to get deals.

Speaker Change #142: In the model.

John B. Gibson: More of the deals require discounting, so one of the things we look at is what percentage of our deals do we have to give any discount to get? Believe it or not, there's a lot of deals that we don't have to give discounts to get. And then second, what is the percentage of the amount of the discount when we do have to get it? And both of those were up a little bit. The other thing I would say in the mid-market to peel it back even more is our average deal size was down. And this phenomenon actually occurred also in the P.O., which was another site that hadn't even given them great results. And that was... ... ... ... ... ... ...

Speaker Change #143: I don't I don't necessarily want to get into the to giving you quarterly guidance here, but what I will say is.

Speaker Change #144: Obviously the RTC.

Speaker Change #144: Headwind ramps down quarter to quarter and as we go through the year and so the the revenue growth that we see in the model, but total revenue management solution is going to accelerate during the year quarter to quarter based on that on that ramp down when I, just kind of take a step back.

Bob Schrader: Got it. Thanks for the color. Yep.

David Togut: Thank you. And our next question comes from David Toget with Ever Quar-I-S-I. Thank you very much.

John Gibson: Could you quantify the 2025 revenue or cost benefits from implementing Gen-A-I? You called out use of Gen-A-I in prospecting, and I'm curious if you could go a little deeper into how you implement that in the business and what the financial benefits are? Yeah, I really can't quantify it outside of just looking at how we've historically improved our operating performance without increasing our cost, actually decreasing our cost of the way I look at it. So with that in the sales area where I look at how it's been used to increase prospecting, how we've used it to drive rep productivity, I look at it in the service area in terms of what we're doing from a retention perspective.

Speaker Change #145: And look at you know maybe first half back half actually RTC I'd say right now our thinking is the growth rates are similar front half back half, maybe a little bit.

John B. Gibson: In the higher end of the market, the higher end of the market, even less decision-making and slower decision-making. So, again, if you think about it, if your average deal size goes from 75 to 72, that may not seem like much, but you spread that across our volume. Those three extra are three less worksite employees.

Speaker Change #145: Stronger, but not materially different than in the back half versus the front half you saw we did that this year you know we have plans in place that we're executing on but really the difference in the gating is primarily.

John B. Gibson: So, what we saw in the mid-market was good volume, there's good activity, good proposals,

Speaker Change #146: Being driven by the ramp down of.

Speaker Change #147: D C you know quarter to quarter as we move through the year he will get through Q1.

John B. Gibson: A little slower decision making. We have a good active pipeline. And what I would say, there's a segmentation from the upper end of that market to the lower end of the market. More buying in the lower end of the market than the upper end. Does that give you some more color, Peter?

Speaker Change #147: Trying to provide you guys some color on Q.

Speaker Change #147: On Q1, and just given you know the pluses and minuses over the last few years with with <unk>. We're trying to help you get close to where you need to be for the next quarter, but not necessarily get into setting a precedent of giving you know exactly where we expect to be for each quarter I'll provide another.

John Gibson: The biggest problem we've benefit that we see from it, quite frankly, is in this pricing and price realization area where we can in real time do a lot of analysis around price realization and price sensitivity at the client level so that as we're both proposing to a prospect as well as looking at the roll downs of discounts of prospects and they become clients and now their discount is rolling down. How much of that can we get back? We've gotten very sophisticated in understanding what their service experience has been, what the utilization of our product and technology has been, and we know those are predictable factors in understanding the value they're seeing us providing and where we're having the most value being delivered to a client. As you can imagine, we can realize more price appreciation as we benefit them over the lifetime of the client.

Peter Corwin Christiansen: Absolutely, it does, it's a fantastic color, but back on the discounts, I guess on an overall level, promotions, discounts, all that, would you say that that's rising?

Speaker Change #148: The update.

Speaker Change #149: When when when we get to the end of the Q1 and we have that call.

Speaker Change: No, it's stable. It's really stable.

Speaker Change #150: Fair enough. Thanks, so much yes.

Speaker Change: All right, that's super helpful. Thank you, John . Appreciate it.

Speaker Change #151: Thank you and we will take our next question from Bryan Keane with Deutsche Bank.

Speaker Change: Thank you. And our next question comes from Ramsey Ellisol with Barclays.

Bryan Keane: Hi, Good morning, guys and Bob just a follow up on that on the on the one less processing day in the quarter does that just automatically.

Speaker Change: Hi, thanks for taking my question.

Ramsey Clark El: Given the slower growth in Q1, can you help us think through the Q2 through Q4 cadence in terms of our models for management solutions? And also, if I could just tack on, how much M&A contribution are you assuming in the full year guidance? Thank you.

Bryan Keane: There's a catch up in the second quarter, So youll see the boost of the processing day ends up.

Speaker Change #153: Adding to my second quarter is that how it works.

Speaker Change #153: Unfortunately, not I mean, sometimes it does Brian.

Speaker Change #154: Sometimes it balances out in the quarter, sometimes it balances out in the year. This day, we actually this year just the way the calendar falls, we actually lose the day, but the impact that growth on a full year basis. It is minimal but it impacts the quarter. So I wish I could get it back in the next quarter, but but but I don't but the full year impact is minimal.

John Gibson: So nothing specific that I could really fall out, but I can certainly tell you that across the board, if I went and told my team I was going to turn off AI and that sort of thing, they would not be happy about keeping their commitments. I'd say another example, and it kind of take long to a question that was asked earlier about the PEO performs another example where we leverage these technologies is in the PEO business. I mean, we talked to you guys about this in the beginning of the year; that was one of our strategies to re-accelerate growth in the business.

Speaker Change: Yeah, let me start with your second question first, and the answer to that is none. I mean, we did do a really small acquisition last year. There may be a few weeks of benefit, but it probably doesn't even round to 0.1. So there's really no assumption around M&A.

Speaker Change: in the model. You know, Ramsey, I don't necessarily want to get into the, you know, giving you quarterly guidance here, but what I will say is

Speaker Change #155: Okay, and then and then just on the operating margin component in itself, but it starts lower.

Speaker Change #156: In the first quarter and then it ramped pretty significantly is there is there are cost actions that are doing that or is that part of the processing. The less processing day that comes back or just trying to think about the well I mean, there's a pick up in operating margin.

Speaker Change: Obviously the ERTC

John Gibson: We had really strong year last year with ASO, and we knew that we're going to be able to leverage our data and AI models to really go back into that customer base, identify those prospects that were good clients for the PEO model, and really go back and upgrade them to PEO and be able to do that in a productive and efficient way with low customer acquisition costs. That is one of many things that we did to really improve the PEO performance this year, but I think that is a great example on the real benefit it's having in our business model.

Speaker Change: Headwind ramps down quarter to quarter as we go through the year. And so the revenue growth that we see in the model of both total revenue management solution is going to accelerate during the year quarter to quarter based on that ramp down. When I just kind of take a step back...

Speaker Change #157: There's the last processing day, there's the <unk> headwind right that again that the headwind get smaller as you move through the year. That's you know high margin. So that's going to have an impact and then just in general when you look at our margins are there typically stronger in the back half than the first half and that's because of some of the way we.

Speaker Change: and look at, you know, maybe first half, back half, XCRTC. I'd say, you know, right now our thinking is the growth rates are similar, front half, back half, maybe a little bit.

Speaker Change #157: Recognize revenue or around some of the year end processing stuff in Q3, which is also very high margin. So historically, if you go back and look at our margins by quarter, you're going to see that that Q3 in the back half are typically a little bit higher. So you know that those are the big differences.

Speaker Change: stronger but not materially different in in the back half versus the front half you saw we did that this year you know we have plans in place that we're executing on

John Gibson: Now, I go back again; I guess we pull ERTC without the models that we had from an AI perspective. ERTC would have been a very difficult and manual calculation that we would have had to have done relative to the framers, and all of that was really done through a data and AI model that was generating reports. Basically, the client was giving us a couple of the missing data points that we needed to be able to complete the application and complete the processing. I think some providers actually moved away from wanting to even offer ERTC because they looked at it as a very complicated, very labor-intensive type of effort.

Speaker Change: But really, the difference in the gating is primarily...

Speaker Change: being driven by the ramp down of ERTC, you know, quarter to quarter as we move through the year. Hey, we'll get through Q1. You know, I'm trying to provide you guys some color on...

Speaker Change #157: Got it thanks for the color.

David <unk>: Thank you and our next question comes from David <unk> with Evercore ISI.

Thank you very much.

Speaker Change: on Q1, and just given, you know, the pluses and minuses over the last few years with ERDC, we're trying to...

David <unk>: Could you quantify the 2025 revenue or cost benefits from implementing our gen. AI you called out usage Nai and prospecting and I'm curious you know so.

Speaker Change: Hope you get close to where you need to be for the next quarter, but not necessarily get into setting a precedent of giving exactly where we expect to be for each quarter. I'll provide another update when we get to the end of the Q1 and we have that call.

Speaker Change #159: You could go a little deeper into how you implement that in the business and what the financial benefits are.

Speaker Change #159: Yes.

Speaker Change #160: Really can't I really can't quantify it out outside of just looking at.

John Gibson: We knew a lot of our CPA partners did not want to touch it at all, and really, as Bob said, it's highly profitable because that was really built off of an AI and data model that we built and automated that entire process. Just following up on your points around service, are you able to use Gen AI a lot to, you know, create more automated chat and reduce the labor intensity of servicing the client? Yes, and I would say even more to come as we have now begun to digitize our entire from prospect to servicing all of our interactions with our clients.

Speaker Change #160: How we have historically improved our.

Speaker Change: Fair enough. Thanks so much. Yep.

Speaker Change #160: Operating performance without increasing our costs actually decreasing our cost is the way I look at it.

Speaker Change: Thank you and we will take our next question from Bryan Keane with Deutsche Bank.

Speaker Change #160: As in the sales area, where I look at.

Bryan Connell Keane: Hi good morning guys and Bob just a follow-up on that on the on the one last processing day in the quarter does that just automatically like there's a catch up in the second quarter so you'll see the boost that the processing day ends up adding to the second quarter is that how it works?

How it's been used to increased prospecting, how we've used it to drive rep productivity.

Speaker Change #160: In the service area in terms of what we're doing from a retention perspective.

Speaker Change #160: I mean, the biggest probably benefit that we see from it quite frankly is in this pricing and price realization area, where we can in real time do a lot of analysis around price realization and price sensitivity at the client level. So the adds were both proposing to a prospect as well as looking at the roll downs of discounts.

Robert L. Schrader: Unfortunately not. I mean sometimes it does, Bryan, you know, sometimes it balances out in the quarter, sometimes it balances out in the year. This day we actually, you know, this year just the way the calendar falls, we actually lose the day, but the impact that growth on a full year basis is minimal, but it impacts the quarter. So I wish I could get it back in the next quarter, but I don't, but the full year impact is minimal.

John Gibson: In 2023, we captured 158 years of call interactions. Now that means we took the calls, they were recorded, they were transcribed, they are now sitting in a data model where we can use that to do. And then another 250 years of calls in electronic communications between chat and emails that we have between the clients, and all of that data is being used to analyze. What are our clients asking us, why are they asking us, and how do we avoid them needing to ask us those questions to start with? So you do that matter, that's the scale of the data set that we generated in one year by digitizing and leveraging data in AI in our service area.

Speaker Change #160: Prospects as they become clients and other discount is rolling down how much of that can we get back we've gotten very sophisticated in understanding what their service experience has been what the utilization of our product and technology has been and we know those are predictable.

Speaker Change: Okay, and then just on the operating margin component in itself, it starts lower in the first quarter and then it ramps pretty significantly. Is there...

Speaker Change #160: <unk> and understanding the value theyre, seeing us, providing and where we're having the most most value being delivered through a client as you can imagine we can.

Speaker Change: Cost actions that are doing that, or is that part of the processing, the less processing data that comes back, or just trying to think about the pickup and operating margin?

Speaker Change #161: Can realize more price appreciation as we as we benefit them over the lifetime of the clients. So nothing specific that I can really pull out but I can certainly tell you that across the board. If I went and told my team I was going to turn off.

Speaker Change: Yeah, there's the Less Processing Day, there's the ERTC.

Edwin: Headwind, right? Again, the headwind gets smaller as you move through the year. That's, you know, high margin, so that's going to...

Speaker Change #162: [laughter] things they would that they would not be happy about keeping there.

Edwin: have an impact. And then just in general, when you look at our margins, they're typically stronger in the back half in the first half, and that's because of some of the way we recognize revenue around some of the year-end processing stuff in Q3, which is also very high margin. So historically, if you go back and look at our margins by quarter, you're going to see that Q3 and the back half are typically a little bit higher. So, you know, those are the big differences.

John Gibson: That service along, by the way, that doesn't include the millions of SMB companies that we engage in our prospecting and sales process through the years.

Speaker Change #162: Commitments I would say another example, and it kind of tag along to a question that was asked earlier about the P. P. O performance. Another example, where we leverage these technologies in the PEO business I mean, we talked to you guys about this in the beginning of the year that was one of our strategies to reaccelerate growth in the business. We had really strong year last year with ASI and we knew that was going.

John Gibson: Understood, thanks so much.

Kartik Mehta: Thank you, and we will take our next question from Cardi Chimera with North Coast Research. Hey, good morning, John. We took a step back at FY25 and looked at the growth model for the company. You know, I always used to think about that client growth, pace with control price, and then until we sales. And on those factors, would you say price is more historical? Are we still at a point where you're getting a little bit better price? And then I'm assuming pace with controlled incidents are strong, are likely black. So, if you kind of look at that growth model, how would you say things that are different than historical?

Speaker Change: Got it. Thanks for the color. Yep.

Speaker Change #162: And be able to leverage our data and AI models to really go back into that customer base to identify those prospects that were good good clients for the for the PEO model and really go back in in and upgrade them to go in and be able to do that in a productive and efficient way with low customer acquisition cost and that that is.

Speaker Change: Thank you. And our next question comes from David Toget with Evercore ISI.

David Toget: Thank you very much. Could you quantify the 2025 revenue or cost benefits from implementing Gen-AI? You called out use of Gen-AI in prospecting and I'm curious you know if you could go a little deeper into how you implement that in the business and what the financial benefits are.

Speaker Change #162: One of many things that we did too.

Speaker Change #162: Really.

Speaker Change #162: Prove the PEO performance this year, but I think that is a great example, on the real benefit is having in our business model now.

Speaker Change: I really can't quantify it outside of just looking at

Speaker Change #162: I'd go back again I guess.

Speaker Change #162: Paul E. R. T C without the models that we had from an AI perspective.

Speaker Change: how we've historically improved our...

John Gibson: I'd say they're similar to historical cardiac. I mean, if you were to kind of break down the components of it and look at the guide, XERTC. You know, we've talked about pricing has been a little bit higher the last couple of years. I'd say that's getting back in our expectation is that that gets back more towards normal levels. You know, the checks for client and that's been an up and down thing over the last couple of years. And right now in the plan, we're not really assuming a lot of growth. We really have that flatish.

Speaker Change #162: Our T C would have been a very difficult in manual calculation that we would've had to have done relative to that.

Speaker Change: increasing our cost actually decreasing our cost is the way I look at it so I you know whether that's in the sales area

Speaker Change #163: The parameters and all of that was really done through a data and AI model that was generating reports and basically the client was giving US a couple of the missing data points that we needed to be able to complete the application complete the processing. So you know if we would have and I think some providers actually moved away from one.

Speaker Change: where I look at, you know, how it's been used to increase prospecting, how we've used it to drive rep productivity. I look at it in the service area in terms of what we're doing from a retention perspective.

Speaker Change: The biggest probably benefit that we see from it, quite frankly, is in this pricing and price realization area, where we can, in real time, do a lot of analysis around price realization and price sensitivity at the client level, so that as we're both proposing to a prospect as well as looking at the roll-downs of discounts of prospects that have become clients and now their discount is rolling down, how much of that can we get back? We've gotten very sophisticated in understanding what their service experience has been, what their utilization of our product and technology has been, and we know those are predictable factors in understanding the value they're seeing us providing, and where we're having the most value being delivered to a client, as you can imagine.

Speaker Change #164: Even offer ER T C. Because they looked at it as a very complicated very labor intensive type of effort. We know a lot of our CPA partners did not want to touch it at.

John Gibson: And then when you look at maybe some of the larger client size, where we refer to kind of change in base in our HR outsourcing models, we typically see growth there. You know, we had a couple of challenging quarters this year. John mentioned it. We actually saw that turnaround a little bit in Q4; hopefully that continues. We have a little bit of growth assumed there. I'd say it's probably we're a little cautious there, given the macro uncertainty. And maybe have dialed that back a little bit relative to where it's been historically. But you know, right now we're not expected in a big impact, positive or negative.

Speaker Change #164: At all and really as Bob said, it's highly profitable because that was really built off of an AI and data model that we built and automated that entire process.

Speaker Change #165: Just following up on your points around service are you able to use gen AI a lot to create.

Bob: Create more automated chat and reduce the labor intensity of servicing the client.

Speaker Change #166: Yes, and I would say even more to come as we have now began to digitize our entire from prospect to servicing all of our interactions with our clients.

Speaker Change: As you can imagine, we can realize more price appreciation as we benefit them over the lifetime of the client. So, nothing specific that I could really pull out, but I can certainly tell you that across the board, if I went and told my team I was going to turn off AI and that sort of thing, they would not be happy about keeping their commitments. Yeah, I'd say another example, and it kind of tags along to a question that was asked earlier about the PEO performance, another example where we've leveraged these technologies, is in the PEO business. I mean, we talked to you guys about this in the beginning of the year. That was one of our strategies to re-accelerate growth in the business. We had a really strong year last year with ASO, and we knew that we were going to be able to leverage our data and AI models to really go back into that customer basis.

John Gibson: What's assumed in the plan is it relates to macro and employment in those type of things. I think our growth formula is strong, and what's assumed in the plan next year is in line with where it's been historically. Yeah, Cardic, I think you know, we talk a lot about, you know, what do you realize from client-based growth? What do you realize from price? Remember, we got a pretty broad growth formula. And when you look at product penetration, that's been an area that's been historically very strong. And I would say that accelerated during the pandemic. So if I was pre-pandemic, the post-pandemic, and say what changed?

Speaker Change #167: In 2023, we recaptured a 158 years.

Speaker Change #168: I'll call interactions now that means we took the calls they were recorded they were transcribed they're now sitting in the data model, where we can use that to do and then another 250 years.

Speaker Change #168: Calls.

Speaker Change #168: In electronic communications between chat and email set we have between clients and all of that data is being used to analyze.

Speaker Change #168: What are clients asking us why are they asking us and how do we avoid them needing to ask those questions to start with so you do that math, that's the scale of the dataset that we generated in one year by.

John Gibson: We're exiting, exiting the pandemic and entering the post-pandemic era in a stronger position as a company. And we're more profitable. I think we're more agile. We have a stronger value proposition instead of solutions. I think we've established ourselves as a trusted advisor with our clients. I mean, we've got over $90 billion of money in our client's hand from ERTC and PPP. And so that built up a lot of goodwill. So when I look at what we can do from an insurance penetration, what we're seeing in the PO, remember we saw the PO both inside the base and outside the base.

Speaker Change: to identify those prospects that were.

Speaker Change: Good clients for the PEO model and really go back in and upgrade them to PEO and be able to do that in a productive and efficient way with low customer acquisition costs. That is one of many things that we did too.

By digitizing and leveraging data and AI and our service area that service alone by the way that doesn't include the millions of SMB.

Speaker Change: really improved the PEO performance this year, but I think that is a great example on the real benefit it's having in our business model. Now, you know, I go back again, I guess we pull ERTC, without.

Speaker Change #169: The companies that we engage in our prospecting and sales process through the years.

Speaker Change #170: Understood. Thanks, so much.

Speaker Change #170: Yeah.

Speaker Change #170: Thank you and we will take our next question from Kartik Mehta with Northcoast research.

Speaker Change: The models that we had from an AI perspective.

Speaker Change: ERTC would have been a very difficult and manual calculation.

John Gibson: And we're seeing both of those accelerate. We're seeing our HR outsourcing inside the base. We're seeing 401k inside the base accelerating. So that product penetration is something sometimes gets left out. And that's also a key part of our good formula. The company has been for, as you know, for 50 years.

Speaker Change #171: Hey, good morning, John and Bob.

Speaker Change: that we would have had to have done relative to the parameters. And all of that was really done through a data and AI model that was generating reports and basically the client was giving us a couple of the missing data points that we needed to be able to complete the application and complete the processing.

Speaker Change #172: I think we took a step back.

Kartik Mehta: FY 'twenty fives and looked at the growth model for the company you know how are you thinking about net client growth basically control price sale.

Speaker Change #174: Those factors would you say is more historical or are we still at a point, where you were getting a little bit better.

John Gibson: John, just the last question. Just on acquisitions, you mentioned earlier in the call the ability to provide clients with access to Capo. I'm wondering, as you look at maybe acquisitions, is the thought that you'd want to continue building on that? Or would the strategy be to acquire other types of companies? Well, let me talk about, let me talk about, you know, M&A in general. I would say another part of our growth formula has been historically M&A as well. And that would be one that we've continually looked at. I would, I would tell you that I do find the market getting back to more rational valuations, both directly in our space.

Speaker Change: So, you know, if we were to, and I think some providers actually.

Speaker Change #175: And then I am assuming pays per control and since they've been so strong are likely lag.

Speaker Change: moved away from wanting to even offer ERTC because they looked at it as a very complicated, very labor-intensive type of effort. We know a lot of our CPA partners did not want to touch it.

Speaker Change #175: Yeah. So if you kind of look at that growth model, how would you say things have.

Speaker Change #175: Are different than historical.

Speaker Change: at all. And really, as Bob said, it's highly profitable because that was really built off of an AI and data model that we built and automated that entire process.

Kartik Mehta: I'd say, they're similar to historical Kartik I mean, if you were to kind of break down the components of it and look at the guide actually RTC.

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

Kartik Mehta: We've talked about pricing has been a little bit higher the last couple of years I'd say, that's getting back and our expectation is that that gets back more toward.

Kartik Mehta: Towards normal levels.

Speaker Change #176: Export client and you know that that's been an up and down thing over the last couple of years and right now in the plan, we're not really assuming a lot of growth, we really have that flattish and then when you. When you look at maybe some of the larger client size, we referred to kind of change in base in it and our HR outsourcing models, we typically see growth.

Speaker Change: Yes and and I would say even more to come as we have now began to digitize our entire from prospect to servicing all of our interactions with our clients.

John Gibson: And then at the adjacencies that we have been looking at historically, where I think there was a lot of inflation, as I see this, go back. We're going to continue to be, you know, very active in that market, specifically in the area you're asking the question. We're more interested in expanding our partnerships with Fentex and other companies digitally, so that as the client comes in to run their, remember, for most of all business owners, the biggest check they're going to ride every month is their payroll. And so that's the source that, if we can provide them alternatives to, you know, float some of that or get a loan if they need to repair a truck or something like that in their business.

Speaker Change: In 2023, we captured 158 years.

Speaker Change #176: There you.

Speaker Change: of call interactions. Now that means we took the calls, they were recorded, they were transcribed, they are now sitting in a data model where we can use that to do. And then another 250 years.

Speaker Change #177: You know we had a couple of challenging quarters. This year, John John mentioned, it we actually saw that turnaround a little bit in Q4, hopefully that that continues we have a little bit of growth assume there I'd say, it's probably we're a little cautious there given the macro uncertainty and maybe have dialed that back a little bit relative to where it's been.

Speaker Change: [inaudible]

Speaker Change: In electronic communications between chat and emails that we have between the clients and all of that data is being used to analyze

Lee: Storage Lee, but right now we're not expecting.

Speaker Change: What are our clients asking us? Why are they asking us? And how do we avoid them needing to ask us?

Lee: A big impact positive or negative.

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

Speaker Change #179: What's assumed in the plan as it relates to macro in employment in those type of things. So I think our growth formula is strong and what's assumed in the plan next year is in line with where.

Speaker Change: Those questions to start with.

Speaker Change: So if you do that math, that's the scale of the data set that we generated in one year.

Speaker Change: by digitizing and leveraging data and AI in our service area. That service alone, by the way, that doesn't include the millions of S&B companies that we engage in our prospecting and sales process through the years.

John Gibson: Thank you so much. Thank you.

Speaker Change #180: It's been historically, yeah Kartik I think you know we talk a lot about what have you realized from client based growth what are you realized.

Scott Wurtzel: And we will take our last question from Scott Whartsle with Wolf Research. Hey, good morning, guys, and thanks for squeezing me in. I just wanted to go back quickly to the cost optimization charges and wondering if you can maybe provide a split out between the real estate optimization, the, you know, shifting of technology investments, and the headcount actions would be appreciated. And then also, are you expecting any incremental charges related to these fiscal 25 as well? Yep. So the answer to the second question is No. Scott, I think we have all that behind us. You know, it's 30 million dollars.

Speaker Change #181: From price.

Speaker Change #182: Remember, we got a we got a pretty broad.

Speaker Change #183: Growth Formula and and when you look at product penetration that's been an area. That's been historically very strong and I would say that accelerated during the pandemic. So if I look pre pandemic.

Speaker Change: Understood. Thanks so much.

Speaker Change: Thank you. And we will take our next question from Kartik Mehta with North Coast Research.

Kartik Mehta: Hey, good morning, John and Bob. We took a step back at FY25 and looked at the growth model for the company. You know, I always used to think about net client growth based on control price and then ancillary sales.

Speaker Change #183: <unk> pandemic and say what changed we're exiting exiting the pandemic in entering the post pandemic era in a stronger position as a company.

Speaker Change #183: And we're more profitable.

Speaker Change #183: I think we're more agile we are a stronger value proposition instead of solutions I think we've established ourselves as a trusted advisor with our clients I mean, we've got over three we got over $90 billion of money in our clients hands for me our Tc in PPP.

Speaker Change: And on those factors, would you say price is more historical, or are we still at a point where you're getting a little bit better price, and then I'm assuming pace for control, since they've been so strong, are likely flat.

Bob Schrader: I'd say, you know, roughly 20% of that is probably headcount related, and then the balance from there is probably split. You know, roughly half between the real estate assets and the technology assets. There'll be some more disclosures when you see our 10-K in a couple of weeks around that. But that's the rough breakdown of those costs.

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

Speaker Change #183: And so.

Speaker Change #183: <unk> built up a lot of goodwill so when I look at what we what we can do from an insurance penetration what we're seeing in the PEO remember, we sell apio, both inside the base and outside the base and we're seeing both of those accelerate we're seeing our HR outsourcing inside the base, we're seeing 401k inside the base accelerating so you know that that product penetration is something sometimes.

Speaker Change: I'd say they're similar to historical cardic, I mean if you were to kind of break down the components of it and look at the

John Gibson: Great. Thanks, guys. Yes. Thank you.

Speaker Change: The Guide, XCRTC, you know, we've talked about pricing has been a little bit higher the last couple years. I'd say that's getting back, and our expectation is that that gets back more to our...

John Gibson: Yes.

John Gibson: That concludes our question-and-answer period. I would now like to turn the call back over to John Gibson for closing remarks. Okay. Thank you, Madison. At this point, as we close the call, if you're interested in a replay of the webcast, it will be archived for approximately 90 days. Again, I want to continue to thank each and every one of you for your interest in paychecks. And I hope everybody has a great day. And I'm grateful for the joy.

Speaker Change #183: Gets left out and that's also a key part of our of our growth Formula as a company and has been for as you know.

Speaker Change: towards normal levels.

Speaker Change: You know, the checks for client, and you know, that's been an up and down thing over the last couple years.

Speaker Change #183: For 50 years.

Speaker Change #184: Yeah, Hey, John.

Speaker Change: And right now in the plan, we're not really assuming a lot of growth.

Last question is just on acquisitions, you mentioned earlier in the call.

Speaker Change: We really have that flattish.

Speaker Change #185: Our ability to provide clients with access to capital I'm wondering.

John B. Gibson: And then when you look at maybe some of the larger client size, what we refer to kind of change in base in our HR outsourcing models, we typically see growth there. You know, we had a couple of challenging quarters this year, John mentioned it, we actually saw that turnaround a little bit in Q4, hopefully that continues. We have a little bit of growth assumed there, I'd say it's probably...

Speaker Change #185: As you look at maybe acquisitions.

Speaker Change #185: Yes.

Operator: Thank you, that concludes today's Fourth Quarter, 2024, Paychex Earnings Conference Call.

Speaker Change #186: I thought that you'd want to continue building on that or would the strategy be to acquire other types of companies.

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

Speaker Change #187: Well, let me talk about let me talk about M&A in general I would say another part of our growth formula. It has been historically M&A as well and that would be one that we've continually looked at I would I would tell you that I do find the market getting back to more rational.

John B. Gibson: We're a little cautious there, given the macro uncertainty, and maybe have dialed that back a little bit relative to where it's been historically. But right now, we're not expecting a big impact.

Speaker Change #187: Valuation both directly in our space and then at the Adjacencies that that we have been looking at historically, where I think there was a lot of inflation as I see those go back we're going to continue to be.

John B. Gibson: or negative, what's assumed in the plan as it relates to macro and employment and those type of things. So I think our growth formula is strong and what's assumed in the plan next year is in line with...

Speaker Change #188: Three active in that market specifically in the area you're asking the question.

Karthik: where it's been historically. Yeah, Kartik, I think, you know, we talk a lot about, you know, what do you realize from client-based growth? What do you realize?

Speaker Change #188: We're more interested in expanding our partnerships with fin techs and other companies digitally so that as the client comes in to run their remember promotional business. Soon is the biggest check they're gonna right every month as their payroll.

Karthik: from Price. Remember, we've got a pretty broad...

Speaker Change: , and the growth formula. When you look at product penetration, that has been an area that has been historically very strong. I would say that accelerated during the pandemic. If I look pre-pandemic to post-pandemic and say what changed, we are exiting the pandemic and we are going to be

Speaker Change #188: And so that's the source that if we can provide them alternatives to.

Some of that or get a get a phone if they need to repair a truck or something like that in their business. So what we're trying to do is build more partnerships. There. So that we can actually give them access to capital at the point of funding their payroll.

Speaker Change: exiting the pandemic and entering the post-pandemic era in a stronger position as a company.

Speaker Change: and we're more profitable.

Speaker Change: I think we're more agile. We have a stronger value proposition instead of solutions. I think we've established ourselves as a trusted advisor with our clients. I mean, we got over $90 billion of money in our clients' hands from ERTC and PPP.

Speaker Change #189: Perfect. Thank you so much.

Speaker Change #189: Thank you and we will take our last question from Scott Wurtzel with Wolfe Research.

Speaker Change #189: Yeah.

Scott Wurtzel: Hey, good morning, guys. Thanks for squeezing me in just wanted to go back quickly to the cost optimization charges. I'm wondering if you can maybe provide a split out between the real estate optimization.

Speaker Change: And so that built up a lot of goodwill. So when I look at

Speaker Change: What we can do from an insurance penetration, what we're seeing in the P.O., remember we sell the P.O. both inside the base and outside the base, and we're seeing both of those accelerate, we're seeing our H.R. outsourcing inside the base, we're seeing 401K inside the base accelerating, so, you know, that product penetration is something that sometimes gets left out, and that's also a key part of our growth formula as a company, and has been for, as you know, for 50 years.

Scott Wurtzel: Shifting of technology investments.

Speaker Change #191: Count actions would be appreciated and then also are you expecting any incremental charges related to these fiscal 'twenty five as well.

Scott Wurtzel: Yes.

Scott Wurtzel: So the answer the second question is is no Scott I think we have all that behind us.

It's $30 million I'd say, roughly 20% of that is probably head count related and then the balance.

John B. Gibson: And John , just a last question. Just on acquisitions, you mentioned earlier in the call, you know, the ability to provide clients with access to capital. I'm wondering, you know, as you look at maybe acquisitions,

Scott Wurtzel: From there, it's probably split.

Scott Wurtzel: Roughly half between the.

Scott Wurtzel: The real estate assets and the technology assets there'll be some more disclosures when you see our 10-K.

Speaker Change: Is the thought that you'd want to continue building on that or you know would the strategy be to acquire other types of companies?

Scott Wurtzel: A couple of weeks around that but that the rough breakdown of those costs.

Speaker Change #192: Great. Thanks, guys.

Speaker Change: Well, let me talk about M&A in general. I would say another part of our growth formula has been historically M&A as well. And that would be one that we've continually...

Speaker Change #192: Yes.

Speaker Change #193: Okay lessen that wraps it up.

Speaker Change #194: Yes that concludes our question and answer period I would now like to turn the call back over to John Gibson for closing remarks.

Speaker Change: I would tell you that I do find the market getting back to more rational.

Madison: Okay. Thank you Madison at this point as we close the call if you're interested in a replay of the webcast.

Speaker Change: Evaluation.

Speaker Change: both directly in our space and then at the adjacencies that we have been looking at historically, where I think the result of inflation, as I see those go back, we're going to continue to be, you know, very active in that market, specifically in the area you're asking the question.

John Gibson: It will be archived for approximately 90 days again want to continue to thank each and every one of your interest in Paychex and I hope everybody has a great day and a great fourth of July take care.

Speaker Change #196: Thank you that concludes today's fourth quarter 2020 for Paychex earnings Conference call. You May now disconnect. Your lines at this time and have a wonderful day.

Speaker Change: We're more interested in expanding our partnerships with Fintechs and other companies digitally so that as the client comes in to run their pay... Remember, for most small business owners, the biggest check they're going to write every month is their payroll.

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

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

Speaker Change: Perfect. Thank you so much.

Speaker Change: Thank you. And we will take our last question from Scott Wurtzel with Wolf Research.

Scott Darren Wurtzel: Hey, good morning guys, and thanks for squeezing me in. I just wanted to go back quickly to the cost optimization charges and wondering if you can maybe provide a split out between the real estate optimization, the shifting of technology investments, and the headcount actions would be appreciated. And then also, are you expecting any incremental charges related to these in fiscal 25 as well?

Scott Darren Wurtzel: Yep.

Speaker Change: So the answer to the second question is no, Scott, I think we have all that behind us. You know, it's $30 million, I'd say, you know, roughly.

Speaker Change: 20% of that is probably headcount related and then the balance.

Speaker Change: from there is probably split, you know, roughly half between the real estate assets and the technology assets. There'll be some more disclosures when you see our 10k in a couple weeks around that, but that's the rough breakdown of those costs.

Speaker Change: Great. Thanks, guys.

Speaker Change: Okay, Madison, that wraps it up.

Speaker Change: Yes, that concludes our question and answer period. I would now like to turn the call back over to John Gibson for closing remarks.

John B. Gibson: Okay, thank you, Madison. At this point, as we close the call, if you're interested in a replay of the webcast, it will be archived for approximately 90 days. Again, I want to continue to thank each and every one of you for your interest in Paychex, and I hope everybody has a great day and a great Fourth of July . Take care.

Speaker Change: Thank you. That concludes today's fourth quarter 2024 Paychex Earnings Conference Call. You may now disconnect your lines at this time and have a wonderful day.

Speaker Change: [inaudible]

Speaker Change: the the the the the the the the

Speaker Change: Good morning and welcome to the fourth quarter 2024 Paychex Earnings Conference Call. With us today are John Gibson and Bob Schrader. After the speaker's opening remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad.

Speaker Change: If you would like to withdraw your question, please press star and 2 on your telephone keypad. As a reminder, this conference call is being recorded, and your participation implies consent to our recording of this call.

Speaker Change: If you do not agree with these terms, please disconnect at this time.

Speaker Change: 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. Please refer to their press release for further information.

Speaker Change #100: I would now like to turn the call over to John Gibson, Paychex president and CEO . Please go ahead.

John B. Gibson: Thank you for joining us for our review of the Paychex fourth quarter and fiscal year 2024 fiscal results. Joining me today is Bob Schrader, our Chief Financial Officer.

John B. Gibson: This morning, before the market opened, we released our financial results for the fourth quarter and fiscal year ending May 31st, 2024.

John B. Gibson: You can access our earnings release and investor presentation on our Investors Relations website. Our Form 10-K will be filed with the SEC before the end of July .

John B. Gibson: This teleconference is being broadcast over the internet and will be archived and available on our website for approximately 90 days.

Speaker Change #101: I'll start the call today with an update on the business highlights for the fourth quarter and fiscal year. Bob will review our financial results for fiscal year 24 and outlook for fiscal year 2025. We'll then open it up for your questions.

Speaker Change #101: As we close out the fiscal year, I am pleased to report that Paychex delivered solid financial results reflecting our ability to

Speaker Change #101: to navigate changing market conditions by providing both innovative HR technology and advisory solutions that continue to deliver value for our clients and their employees. And as the best operators in the business, we are continually finding ways to run our business more efficiently.

Speaker Change #101: For fiscal 2024, we achieved 5% growth in total revenue and 11% growth in adjusted diluted earnings per share.

Speaker Change #101: These results are a testament to the hard work and dedication of our more than 16,000 employees and the investments we have made in our technology and advisory solutions.

Speaker Change #101: Revenue retention remains near record levels, and HR outsourcing worksite employee retention continued to improve and hit new record levels.

Speaker Change #101: We believe our sustained high-revenue retention demonstrates that our value proposition is resonating in a competitive marketplace.

Speaker Change #101: Our client retention for fiscal year 2024 was in line with last year and pre-pandemic levels without a business losses back to pre-pandemic levels but stable. We continue to see demand for our HR technology and advisory solutions.

Speaker Change #101: Our activity and pipelines remained strong and, in fact, increased year over year in the fourth quarter. But close rates were softer than historical norms and our expectations.

Speaker Change #101: Sales results in some market segments faced headwinds in the quarter. In S&B, we made some adjustments to our go-to-market strategy and in our digital technology stack in the micro segment, which impacted our lead and sales volumes. We believe these are one-time issues, which we have addressed.

Speaker Change #101: In the mid-market, we have seen some of the same pressures our competitors have mentioned with delays in decision-making and increased focus on cost.

Speaker Change #101: Our HR outsourcing, both ASO and PO, and our retirement business continue to perform well, and we believe the value proposition for those solutions remains strong.

Speaker Change #101: The breadth of our solutions, both technology and complete outsourcing advisory solutions, along with the market segments we serve, provides us with the ability to pivot our sales and marketing investments as market conditions change to maximize the opportunity.

Speaker Change #101: Small and mid-sized businesses continue to face a challenging operating environment due to complex regulations.

Speaker Change #101: a historically tight labor market and persistent inflationary pressures.

Speaker Change #101: Our Small Business Employment Watch has shown stabilization in job growth and continued downward pressure in hourly wages in the recent months.

Speaker Change #101: In fact, our May index posted the biggest one-month increase in job growth this year. We also saw improvements in hiring within our client base, with both better checks per client and worksite employee growth in the quarter after a few quarters of declines.

Speaker Change #101: As we mentioned last quarter, our data and conversations with clients reveal they are having a tough time finding qualified candidates.

Speaker Change #101: As an innovative leader in our industry, we took this as an opportunity to find a way to help these businesses by launching a new program starting in our P.O. called the Employer of Choice Playbook.

Speaker Change #101: This program combines our digital HR technology and analytics with our dedicated HR professionals to work directly with our clients to find, attract, hire, and retain qualified employees.

Speaker Change #101: It starts with our digital recruiting and hiring technology, which provides both seamless integrations with the top job boards. This solution streamlines and automates the hiring process for the employer and provides a better candidate experience.

Speaker Change #101: Our PO clients are able to attract top talent by offering a Fortune 500 suite of employee wellness benefits as well.

Speaker Change #101: To help them retain employees, our HR professionals proactively work with our clients to leverage our HR data analytics and our retention insights to identify at-risk employees, determine the top drivers of turnover, and implement strategies to engage and develop their people.

Speaker Change #101: We are excited to offer a comprehensive solution to help our clients solve one of their biggest problems.

Speaker Change #101: Hiring and retaining talented employees.

Speaker Change #101: We are planning more innovations in this area for all our market segments in the coming fiscal year.

Speaker Change #101: Our P.O. business has continued to gain momentum with excellent performance in fiscal year 2024. We finished the year with strong results in sales, retention, and insurance enrollment.

Speaker Change #101: We have continued this shift back towards the PO offering, both inside and outside our client base.

Speaker Change #101: This makeshift has a long-term positive impact on lifetime value in our model, particularly as clients attach insurance benefits.

Speaker Change #101: Our retirement services business was another strong contributor in the fourth quarter with double-digit revenue growth.

Speaker Change #101: As the industry leader in 401k plan record keeping in the U.S. with approximately $52 billion in assets under management and over 120,000 clients.

Speaker Change #101: We are dedicated to helping small and mid-sized business owners offer an affordable retirement solution for their employees.

Speaker Change #101: According to our own data, less than half of U.S. employers currently offer a retirement plan.

Speaker Change #101: We are committed to providing affordable solutions to these companies that will help them offer their employees the opportunity for a secure retirement.

Speaker Change #101: Legislation like the SECURE Act and SECURE Act 2.0, the introduction of pooled employer plans, and state mandates are helping to address the growing retirement crisis in the U.S., but there is still more to be done.

Speaker Change #101: We are committed to educating business owners and industry professionals on available programs, potential tax benefits, and the cost-effective plans available to them and their employees by Paychex.

Speaker Change #101: As you know, AI has been a hot topic in our industry, and it's something we have focused on for many years. Our AI initiatives and investments have been centered around enhancing our customer service model and identifying clients that are at risk.

Speaker Change #101: optimizing our pricing and discounting strategies and driving higher sales productivity through improved marketing and targeting efforts.

Speaker Change #101: Additionally, we are focused on harnessing the power of our vast data to drive more value for our customers.

Speaker Change #101: and continue to drive greater operational efficiencies across the company.

Speaker Change #101: We continue to gain recognition for the strength of our technology. For the fifth consecutive year, Paychex flexed the company's cloud-based SaaS solution.

Speaker Change #101: earned an HR Tech Award for Best Small Business Focused Solution in the Core HR and Workforce Category from White House Research and Advisory. For the tenth time, Paychex was named among the Best Employers in Excellence in Health and Well-Being.

Speaker Change #101: which affirms our long-standing commitment to our own employees.

Speaker Change #101: Paychex was also recently recognized by Forbes as one of America's best employers for diversity.

Speaker Change #101: These recognitions and the many product and service awards that we have received in the last year and over the decades are a testament to the strength of our business model, our culture, and our commitment to invest in our business to deliver long-term value for our customers and our investors.

Speaker Change #101: In this post-pandemic era, Paychex is uniquely positioned to help small and mid-sized businesses navigate the challenges they face.

Speaker Change #101: and a ever-evolving world and we believe our value proposition to these businesses remains compelling based upon the breadth and quality of the solutions we can provide.

Speaker Change #101: We remain committed to our purpose to help businesses succeed while making a positive impact on our clients.

Speaker Change #101: employees, communities, and shareholders.

Speaker Change #102: I'll now turn it over to Bob to give us a brief update on our financials.

Robert L. Schrader: Results for the fourth quarter and fiscal year. Bob? Thanks, John , and good morning, everyone. I'll start with a summary of our fourth quarter and full year financial results, and then I'll review our fiscal 25 outlook.

Robert L. Schrader: Total revenue increased 5% to $1.3 billion in the fourth quarter, which reflects a lower contribution from our ERTC service, and this impacted revenue growth by approximately 300 basis points in the quarter.

Robert L. Schrader: Management solutions revenue increased 3% to $930 million. This was driven primarily by growth in the number of clients served across our HCM solutions and increased product penetration partially offset by lower ERTC revenue.

Robert L. Schrader: PEO and insurance solutions revenue increased 9% to $327 million. This was primarily driven by higher average worksite employees and an increase in our PEO insurance revenues. Our PEO saw continued momentum in worksite employee growth and medical plan participant volumes during the fourth quarter.

Robert L. Schrader: Interest on funds held for clients increased 54% to 38 million. This was primarily due to higher average interest rates and invested balances and lower realized losses on investment sales related to some repositioning of the portfolio that happened in the prior year period.

Robert L. Schrader: During the fourth quarter, we did recognize a one-time charge of $39 million related to cost optimization initiatives. These initiatives include a reduction of our underutilized real estate, a reprioritization of our technology investments towards AI, and headcount optimization.

Robert L. Schrader: These measures, along with strong expense management during the year, will allow us to reallocate resources to invest in our strategic priorities, as well as continue to deliver operating margin expansion for Fiscal 25, despite the expiration of the ERDC program.

Robert L. Schrader: Including these charges, total expenses increased 5% to $813 million. Excluding these charges, total expenses were relatively flat for the fourth quarter as compared to the prior year period.

Robert L. Schrader: Operating income increased 6% to $482 million with an operating margin of 37.2%.

Robert L. Schrader: Adjusted operating income, which excludes the one-time costs recognized in the fourth quarter, grew 15% to $521 million, with an adjusted operating margin of 40.2%. This represents 330 basis points of margin expansion over the prior year period.

Robert L. Schrader: Diluting earnings per share increased 8% to $1.05 per share, and adjusted diluted earnings per share increased 15% to $1.12 in the fourth quarter.

Robert L. Schrader: Now I will quickly summarize our full year results. Total revenue grew 5% to $5.3 billion. It reflects a lower contribution from our ERTC service, and that impacted growth about 100 basis points on a full year basis.

Robert L. Schrader: Management solutions revenue increased 4% to $3.9 billion. P-owned insurance solutions increased 8% to $1.3 billion. Interest on funds held for clients increased 47% to $146 million.

Robert L. Schrader: Total expenses grew 4% to $3.1 billion excluding the one-time cost I discussed earlier. Expense growth was approximately 3% for the year.

Robert L. Schrader: Operating income increased 7% to $2.2 billion, and adjusted operating income increased 9% to $2.2 billion, with a margin of 41.9%, and that's an expansion of 130 basis points over the prior year period.

Robert L. Schrader: Diluted earnings per share increased 9% to $4.67 per share, and adjusted diluted earnings per share increased 11% to $4.72 per share.

Robert L. Schrader: Our financial position remains strong at the end of the year with cash, restricted cash and total corporate investments of $1.6 billion.

Robert L. Schrader: and total borrowings of approximately $817 million. Our cash flow from operations for the year was $1.9 billion, and that's up 11% from the prior year. That was driven primarily by higher net income and fluctuations in working capital.

Robert L. Schrader: We returned $1.5 billion to shareholders during the year, that included $1.3 billion of dividends and $169 million of share buybacks, and our 12-month rolling return equity remains robust at 47%.

Speaker Change #103: I will now turn to our guidance for the fiscal year 2025. This outlook assumes the current macro environment, which has some level of uncertainty. Our current outlook is as follows.

Speaker Change #103: Total revenue is expected to grow in the range of 4 to 5.5%. If you take the midpoint of this range, that is consistent with the preliminary thinking we provided last quarter. And as a reminder, this includes approximately 200 basis points of headwind from the expiration of ERTC.

Speaker Change #103: Adjusted diluted earnings per share is expected to grow in the range of five to seven percent. I'll now give you the breakdown of some of the components. Management solutions is expected to grow in the range of three to four percent.

Speaker Change #103: P.O. and insurance solutions is expected to grow in the range of seven to nine percent.

Speaker Change #103: Interest on funds held for clients is expected to be in the range of $150 to $160 million.

Speaker Change #103: Other income net is expected to be income in the range of $35 to $40 million.

Speaker Change #103: Those last two metrics, both...

Speaker Change #103: are impacted by short-term interest rates. We can talk more in the Q&A, but it is our expectation that the Fed begins to lower short-term interest rates as we get into the back half of the year.

Speaker Change #103: Operating income margin is expected to be in the range of 42 to 43 percent. This is also consistent with our preliminary expectations around margin expansion, and our effective tax rate is expected to be in the range of 24 to 25 percent.

Speaker Change #103: Turning to the quarter, we anticipate total revenue growth of approximately 2%.

Speaker Change #103: The first quarter growth rate is impacted by two headwinds. The first is the ERTC headwind that you are all familiar with. The second one is one less processing day in the quarter versus the prior year. And it's one of our largest revenue days.

Speaker Change #103: Combined, these two items represent a headwind of more than 400 basis points to revenue growth. We would also expect an operating margin in the range of 40 to 41 percent in the quarter.

Speaker Change #104: Of course, all of this is based on our current assumptions, which are subject to change. We'll update you again on the first quarter call. I will refer you to our investor slides on our website for additional information. And with that, I'll now turn the call back over to John .

John B. Gibson: Thank you, Bob. We will now open the call to questions.

Speaker Change #105: Thank you. Ladies and gentlemen, at this time, the floor is open for your questions.

Speaker Change #106: To ask a question, please press star 1 of your telephone keypad. To get out of the queue, press star and 2. In the interest of time, we do ask that you limit yourself to one question so that everyone has a chance to ask their questions. And we will take our first question from Bryan Bergin with T.D. Cohen.

Bryan C. Bergin: Hi guys, good morning, thank you.

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

John B. Gibson: Yeah, Bryan, just to step back, I'd say we had solid demand on our solutions for the year. Activity was high across the teams, as we talked about, and you can tell from the results.

John B. Gibson: The HR outsourcing and HR advisory areas are really picking up.

John B. Gibson: attraction with the market that's what that's what we're seeing versus the pure tech

John B. Gibson: And so we certainly are pivoting heavy into that. Retirement also is another area where we can see that. So, look, we see good demand for our products and services.

John B. Gibson: The changes we're making are really, we talked about it on the last call, we're really re-looking at, as you can imagine, we just went through the last three years of a pandemic year, as the ERTC program ends, we're really refreshing our entire go-to-market talking points, our sales plays, our marketing position, and really focused on the things that we find

John B. Gibson: clients are most concerned about in today's post-pandemic world, and

John B. Gibson: You know, those things are attracting and retaining qualified...

John B. Gibson: employees in a very tight labor market.

John B. Gibson: The second thing is being able to get access to affordable benefits, with health inflation likely to continue to increase. And they've really got to be able to put together a benefits package to be able to go out and compete against larger firms.

John B. Gibson: And then the third thing is access to capital, both constrained capital and cost of capital. I think you know we made a little tuck-in acquisition of a company, Altura, that we're very excited about, and we continue to expand our digital access to fintech.

John B. Gibson: So that our clients have access to capital during the payroll process as well. So we're really trying to retrain our sales team on those new areas. We also are pivoting some of our resources into those market segments where we think there's going to be higher growth as we go into fiscal year 25.

Speaker Change #107: Thank you. And we will take our next question from Kevin McVeigh with UBS.

Speaker Change #108: Great, thanks so much and always super, super helpful commentary.

Speaker Change #108: each on

Kevin Damien McVeigh: Could you maybe talk a little bit about, you know, because I find your commentary in the press release is super helpful.

Speaker Change #109: It seems like the environment overall, if we're hearing it right, is still relatively tight labor as opposed to maybe some increase in capacity.

Speaker Change #109: Are we right on that and maybe think about kind of the current environment in terms of clients and where they're kind of

Speaker Change #109: retention rates are of their employees. Has there been any change at the margin on that? I just want to start there because it feels like, you know, some of the macro data, employment related is slowing a little bit, but it definitely, if I'm understanding right, doesn't seem like you're seeing that yet, or am I not thinking about that right?

Speaker Change #110: Look, I think on the macro area, what we continue to see is growth and moderate growth.

Speaker Change #110: We continue to see, you know, wage inflation cool. You know, I would tell you, in May, in our report, we had the biggest one-month increase.

Speaker Change #111: There, as we said in our comments, we actually saw growth in checks and worksite employees in the fourth quarter, and that was a positive trend.

Speaker Change #111: We started engaging, because again, when you've got the economy growing at the rate it's growing...

Speaker Change #111: Our models would suggest that you'd see more hiring, so to your point, what's going on here? And what we did is we went out and started looking at our analytics and data to the point of retaining clients is a challenge for small business owners.

Speaker Change #111: Second, attract and qualify. And so we started engaging them, we did a lot of surveys, and what we found was they have open positions, they're just struggling to find them.

Speaker Change #111: And I think another thing they learned during the pandemic, when everyone was just trying to hire just anybody,

Speaker Change #111: that hiring just anybody doesn't help your culture or your workforce. And so I think they're being a little more selective. So we rolled out a series of products. We'll have more on the way. We started it in the P.O. because that's an area where we have a lot of direct contact with the client and their employees.

Speaker Change #111: and started doing a lot of comprehensive work both on retention and helping them directly attract using both our technology capabilities as well as our AI capabilities and then directly building recruiting strategies. And we saw success in that program and we're going to look to continue to move that forward as we go forward. But we're not seeing any signs of a recession or hearing from our clients or seeing layoffs or seeing those type of things that we would typically see in a recessionary period.

Speaker Change #112: Thank you. And we will take our next question from James Faucette with Morgan Stanley .

James Eugene Faucette: Great. Thank you very much. I want to go back a little bit on the changes you were making in the micro segment. And just to be clear, was that something that you felt like you needed to do for your own product, or were you seeing some market pressures?

Speaker Change #113: etc on on that segment and and when you say one time you know how quickly should we start to see some of those sales conversions etc come back to more normalized levels