Q3 2026 Paychex Inc Earnings Call

March 25, 2026

Speaker #2: Thanks. I just would like to thank you guys for waiting. Can you send me the playlist? Literally, we just got the email. That's the kind of stuff we get at the end, so.

Speaker #3: Good morning, and welcome to Paychex's third quarter fiscal 2026 earnings call. Participating on the call today are John Gibson and Bob Schrader. Following the speakers' prepared remarks, there will be a question-and-answer period.

Operator: Good morning and welcome to Paychex's Q3 fiscal 2026 earnings call. Participating on the call today are John Gibson and Bob Schrader. Following the speaker's prepared 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 one on your telephone keypad. If you would like to withdraw your question, please press star two on your telephone keypad. As a reminder, this conference is being recorded and your participation implies consent to our recording of this call. I would now like to turn the call over to Bob Schrader, Paychex's Chief Financial Officer.

Speaker #3: If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad. If you would like to withdraw your question, please press star 2 on your telephone keypad.

Speaker #3: As a reminder, this conference is being recorded, and your participation implies consent to our recording of this call. I would now like to turn the call over to Bob Schrader.

Speaker #3: PAYCHEX's Chief Financial Officer.

Speaker #4: Thank you for joining us to discuss Paychex third quarter fiscal 2026 results. Our earnings release and presentation are available on our investor relations website.

Bob Schrader: Thank you for joining us to discuss Paychex Q3 fiscal 2026 results. Our earnings release and presentation are available on our investor relations website. We plan to file our Form 10-Q within a couple of business days. This call is being webcast live and will be available for replay on our investor relations portal. Today's call includes forward-looking statements that refer to future events and involve some risk. We encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ from our current expectations. We will also reference non-GAAP financial measures. Description of these items, along with the reconciliation of non-GAAP measures, can be found in our earnings release. I would now like to turn the call over to John Gibson, Paychex President and CEO.

Speaker #4: We plan to file our Form 10-Q within a couple of business days. This call is being webcast live and will be available for replay on our investor relations portal.

Speaker #4: Today's call includes forward-looking statements that refer to future events and involve some risk. We encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ from our current expectations.

Speaker #4: We will also reference non-GAAP financial measures, a description of these items, along with a reconciliation of non-GAAP measures can be found in our earnings release.

Speaker #4: I would now like to turn the call over to John Gibson, Paychex President and CEO.

Speaker #5: Thanks, Bob. Hello, everyone. I'll cover this quarter's operational highlights and Bob will come back and discuss our financial results. An outlook and then we'll open it up for your questions.

John Gibson: Thanks, Bob. Hello, everyone. I'll cover this quarter's operational highlights, and Bob will come back and discuss our financial results, and outlook, and then we'll open it up for your questions. We delivered a strong quarter, with revenue up 20% and adjusted operating income up 22% year-over-year, driven by effective execution and progress advancing our strategic priorities, most notably the Paycor integration and acceleration of our transformational AI initiatives. In this very dynamic environment, financial strength is important, and our free cash flow generation continues to be robust, as Bob will highlight later. Amid a dynamic macro backdrop, our clients' workforce levels remained stable, supported by our solutions that help manage costs and source talent in a tight labor market.

Speaker #5: We delivered a strong quarter with revenue up 20% and adjusted operating income up 22% year over year. Driven by effective execution and progress advancing our strategic priorities, most notably the pay core integration and acceleration of our transformational AI initiatives.

Speaker #5: In this very dynamic environment, financial strength is important, and our free cash flow generation continues to be robust, as Bob will highlight later. Amid a dynamic macro backdrop, our clients' workforce levels remained stable.

Speaker #5: Supported by our solutions that help manage costs and source talent in a tight labor market. In a highly regulated industry, our compliance depth, advisory expertise, and award-winning platforms provide a clear competitive advantage in navigating a constantly changing and complex regulatory environment.

John Gibson: In a highly regulated industry, our compliance depth, advisory expertise, and award-winning platforms provide a clear competitive advantage in navigating a constantly changing and complex regulatory environment. As we embed AI into our expert-enabled technology, we are strengthening that advantage by leveraging our vast data to scale our expertise, enhance productivity, and elevate client outcomes. As you all know, we operate in HR, benefits, and payroll, some of the most mission-critical aspects of a business. We are honored that 800,000 clients rely on us for trusted support and advice. For many of our clients, we effectively serve as their HR department, managing a foundational part of their business, their people. Errors paying employees, withholding taxes, or administering benefits carry significant regulatory and reputational risk, driving demand for trusted compliance solutions where accuracy matters most.

Speaker #5: As we embed AI into our expert-enabled technology, we are strengthening that advantage by leveraging our vast data to scale our expertise, enhance productivity, and elevate client outcomes.

Speaker #5: As you all know, we operate in HR, benefits, and payroll—some of the most mission-critical aspects of a business. And we are honored that 800,000 clients rely on us for trusted support and advice.

Speaker #5: For many of our clients, we effectively serve as their HR department, managing a foundational part of their business—their people. Errors paying employees, withholding taxes, or administrating benefits carry significant regulatory and reputational risk, driving demand for trusted compliance solutions where accuracy matters most.

Speaker #5: Demand for our comprehensive advisory and benefits solutions remains strong. Differentiating us from the tech-only providers, clients are increasingly turning to our HR professionals for strategic advisory expertise and assistance over routine transactional support.

John Gibson: Demand for our comprehensive advisory and benefit solutions remain strong, differentiating us from the tech-only providers. Clients are increasingly turning to our HR professionals for strategic advisory expertise and assistance over routine transactional support. Robust revenue growth in retirement, ASO, and PEO highlights the durability of our model, and it reinforces our expectations of a long secular growth runway for these businesses. Our ASO and PEO worksite employee growth continues to outpace the industry, reflecting our value in navigating regulatory complexity and ensuring compliance, often for clients with no or, as I said, limited HR support. Our PEO business remains strong with high single-digit worksite employee growth, driven by robust demand and record retention rates. Our PEO solution empowers small businesses to offer competitive benefit packages on par with Fortune 500 companies, aiding talent attraction and retention in a tight labor market.

Speaker #5: Robust revenue growth and retirement ASO and PO highlight the durability of our model and reinforce our expectations of a long secular growth runway for these businesses.

Speaker #5: Our ASO and PO work-site employee growth continues to outpace the industry, reflecting our value in navigating regulatory complexity and ensuring compliance, often for clients with no or, as I said, limited HR support.

Speaker #5: Our PO business remains strong with high single-digit work-site employee growth driven by robust demand and record retention rates. Our PO solution empowers small businesses to offer competitive benefit packages on par with Fortune 500 companies aiding talent attraction and retention in a tight labor market.

Speaker #5: January enrollment in our at-risk Florida MPP medical plan went well and in line with our expectations. Helping drive sequential revenue growth. We received positive feedback on the new AI-driven benefits intelligence we embedded in the enrollment workflow this year.

John Gibson: January enrollment in our at-risk 40 MPP medical plan went well and in line with our expectations, helping drive sequential revenue growth. We received positive feedback on the new AI-driven benefits intelligence we embedded in the enrollment workflow this year. It leverages employee-specific data to recommend plan choices and streamline benefit selection. We continue extending our SMB benefit leadership with Paychex Perks, our award-winning digital marketplace offering affordable, transferable benefits to our clients' employees. Perks is a compelling growth opportunity that empowers our clients to offer meaningful benefits with no added cost to the employer or administrative burden. In the first 18 months, Perks has grown to over 25 benefit offerings, with purchases from nearly 350,000 unique employees, creating a direct end-user relationship with portable benefits that they can keep if they change employers.

Speaker #5: It leverages employee-specific data to recommend plan choices and streamline benefits selection. We continue extending our SMB benefit leadership with Paychex Perks, our award-winning digital marketplace offering affordable, transferable benefits to our clients' employees.

Speaker #5: Perks is a compelling growth opportunity that empowers our clients to offer meaningful benefits with no added cost to the employer or administrative burden. In the first 18 months, Perks has grown to over 25 benefit offerings, with purchases from nearly 350,000 unique employees.

Speaker #5: Creating a direct end-user relationship with portable benefits that they can keep if they change employers. By bringing enterprise-level benefits down-market, we are enabling our clients to better compete for talent and addressing a historically underserved market.

John Gibson: By bringing enterprise-level benefits down market, we are enabling our clients to better compete for talent and addressing a historically underserved market. The Paycor integration continues to progress well. We remain on track to exceed our fiscal 2026 synergy targets we discussed last quarter. Leading indicators such as bookings and broker referrals have re-accelerated to pre-acquisition levels, and we are adding sales headcount to capture the demand we see. We are gaining momentum cross-selling Paychex ASO, PEO, and retirement solutions to Paycor's clients, and we continue to win larger than expected ASO deals and broker-referred PEO opportunities. This momentum reflects the hard work and alignment of our teams and positions us well going into fiscal year 2027. Our Paychex Flex and Paycor platforms were recognized as industry-leading HCM solutions with two 2026 Lighthouse Tech Awards.

Speaker #5: The pay core integration continues to progress well. We remain on track to exceed our fiscal 26 synergy targets. We discussed last quarter. Leading indicators such as bookings and broker referrals have re-accelerated to pre-acquisition levels and we are adding sales headcount to capture the demand we see.

Speaker #5: We are gaining momentum cross-selling Paychex ASO, PEO, and retirement solutions to Paychex clients, and we continue to win larger-than-expected ASO deals and broker-referred PEO opportunities.

Speaker #5: This momentum reflects the hard work and alignment of our teams and positions us well going into fiscal year 2027. Our Paychex Flex and Paychex Core platforms were recognized as industry-leading HCM solutions with two 2026 Lighthouse Tech Awards.

Speaker #5: This achievement underscores our commitment to empowering businesses with modern, AI-powered solutions that simplify HR processes and drive business outcomes. Integral to our growth strategy, we continue to accelerate in embedding AI into our workflows.

John Gibson: This achievement underscores our commitment to empowering businesses with modern AI-powered solutions that simplify HR processes and drive business outcomes. Integral to our growth strategy, we continue to accelerate in embedding AI into our workflows. This amplifies our expertise with human-in-the-loop oversight and strong governance. We now have over 500 AI-powered capabilities and agents that can drive higher productivity and smarter decisions and outcomes. Our generative AI-powered employment law and compliance platform processed tens of thousands of inquiries this quarter, helping clients and Paychex HR experts navigate complex and always changing wage and employment law. Internally, we are expanding AI use cases to enhance the client experience and sales effectiveness. Following successful pilots last quarter, we are scaling the use of our voice and email agents for payroll processing, enabling service teams to focus on proactive, higher value advisory support.

Speaker #5: This amplifies our expertise with human-in-the-loop oversight and strong governance. We now have over 500 AI-powered capabilities and agents that can drive higher productivity, smarter decisions, and better outcomes.

Speaker #5: Our generative AI-powered employment law and compliance platform processed tens of thousands of inquiries this quarter, helping clients and Paychex HR experts navigate complex and always changing wage and employment law.

Speaker #5: Internally, we are expanding AI use cases to enhance the client experience and sales effectiveness. Following successful pilots last quarter, we are scaling the use of our voice and email agents for payroll processing, enabling service teams to focus on proactive, higher-value advisory support.

Speaker #5: We also expanded our agentic AI sales and service tools to the entire sales team, with a goal to drive revenue growth and efficiency. AI agents orchestrated real-time information across service and product systems, equipping thousands of service personnel to support clients more effectively.

John Gibson: We also expanded our agentic AI sales and service tools to the entire sales team with a goal to drive revenue growth and efficiency. AI agents orchestrated real-time information across service and product systems, equipping thousands of service personnel to support clients more effectively. This agent swarm architecture really removes prior friction and serves as a foundational capability to future agentic developments. Our strategic AI investments are bolstering our leadership in HCM innovation. We are moving from insight and efficiency tools to proactive agents that leverage our vast and growing data set to complete work to drive business success. Payroll and HR, as we know, are mission-critical and highly regulated functions where accuracy and compliance matter more than automation alone.

Speaker #5: This agent swarm architecture really removes prior friction and serves as a foundational capability to future agentic developments. Our strategic AI investments are bolstering our leadership in HCM innovation.

Speaker #5: We are moving from insight and efficiency tools to proactive agents that leverage our vast and growing data set to complete work to drive business success.

Speaker #5: Payroll and HR, as we know, are mission-critical and highly regulated functions where accuracy and compliance matter more than automation alone. We believe Paychex's proprietary payroll data, regulatory expertise, and advisory relationships create a sustainable advantage that will enable us to respond and responsibly embed AI into our solutions while maintaining a durable competitive moat.

John Gibson: We believe Paychex proprietary payroll data, regulatory expertise, and advisory relationships creates a sustainable advantage that will enable us to respond and responsibly embed AI into our solutions while maintaining a durable competitive moat. In our business, trust is critical. It's not just what you do, but it's how you do it that matters to prospects, clients, partners, employees, and key stakeholders. That's why I'm proud that Paychex was once again named one of the world's most ethical companies by Ethisphere for the eighteenth time. This rare achievement highlights our unwavering commitment to ethical operations and corporate responsibility. Supporting communities is also integral to our identity, and I am pleased that Paychex was recognized as a leading corporate partner by United Way Worldwide, reflecting our commitment to making a positive impact where we live and work.

Speaker #5: In our business, trust is critical. It's not just what you do, but it's how you do it that matters to prospects, clients, partners, employees, and key stakeholders.

Speaker #5: That's why I'm proud that Paychex was once again named one of the World's Most Ethical Companies by Ethisphere for the 18th time. This rare achievement highlights our unwavering commitment to ethical operations and corporate responsibility.

Speaker #5: Supporting communities is also integral to our identity. I am pleased that Paychex was recognized as a leading corporate partner by United Way Worldwide, reflecting our commitment to making a positive impact where we live and work.

Speaker #5: Lastly, I'd like to thank our team for the exceptional hard work during this busy year-end season and through a very, very challenging year of integration.

John Gibson: Lastly, I'd like to thank our team for the exceptional hard work during this busy year-end season and through a very challenging year of integration. The work that they've done to support our clients to come together is truly exceptional, and I think really is positioning us well as we move into fiscal year 2027. I will now turn the call over to Bob to discuss our financial results and outlook.

Speaker #5: The work that they've done to support our clients to come together is truly exceptional, and I think really is positioning us well as we move into fiscal year '27.

Speaker #5: I will now turn the call over to Bob to discuss our financial results and outlook.

Speaker #6: Thank you, John. I'll start with our third-quarter financial results, then provide an update on our outlook. Total revenue increased 20% over the prior year to $1.8 billion.

Bob Schrader: Thank you, John. I'll start with our Q3 financial results, then provide an update on our outlook. Total revenue increased 20% over the prior year to $1.8 billion. This represents an acceleration in the organic growth of the business relative to H1 of the year. Management Solutions revenue grew 23% to $1.4 billion, driven by product penetration and price realization. Paycor contributed approximately 19 percentage points to growth. PEO and insurance solutions revenue increased 9% to $398 million, driven primarily by strong growth in the number of average PEO worksite employees, as well as an increase in PEO insurance revenues. Interest on funds held for clients increased 33% to $57 million, largely due to the addition of Paycor balances.

Speaker #6: This represents an acceleration in the organic growth of the business relative to the first half of the year. Management Solutions revenue grew 23% to $1.4 billion.

Speaker #6: Driven by product penetration and price realization, Paychex Core contributed approximately 19 percentage points to growth. PEO and insurance solutions revenue increased 9% to $398 million.

Speaker #6: Driven primarily by strong growth in the number of average PEO worksite employees, as well as an increase in PEO insurance revenues. Interest on funds held for clients increased 33% to $57 million, largely due to the addition of pay core balances.

Speaker #6: Total expenses increased 24% to just over $1 billion, primarily driven by the Paycor acquisition. Excluding Paycor, we estimate that expenses grew in the low single digits during the quarter.

Bob Schrader: Total expenses increased 24% to just over $1 billion, primarily driven by the Paycor acquisition. Excluding Paycor, we estimate that expenses grew in the low single digits during the quarter. Operating income margin was 43.8% and adjusted operating income margins increased approximately 80 basis points to 47.7%, driven by increased productivity and cost discipline while increasing our investments in AI. Diluted earnings per share increased 9% to $1.56 per share, and adjusted diluted earnings per share increased 15% to $1.71 per share. Our financial position remains strong with cash, restricted cash, and total corporate investments of $1.8 billion and total borrowings of approximately $5 billion as of the quarter close. Our cash flow generation continues to be a strength of our model.

Speaker #6: Operating income margin was 43.8%, and adjusted operating income margins increased approximately 80 basis points to 47.7%, driven by increased productivity and cost discipline while increasing our investments in AI.

Speaker #6: Diluted earnings per share increased 9% to $1.56 per share. Adjusted diluted earnings per share increased 15% to $1.71 per share. Our financial position remains strong, with cash, restricted cash, and total corporate investments of $1.8 billion and total borrowings of approximately $5 billion as of the quarter close.

Speaker #6: Our cash flow generation continues to be a strength of our model. Operating cash flows were nearly $2 billion year to date, and our free cash flows increased 27% year over year.

Bob Schrader: Operating cash flows were nearly $2 billion year to date, and our free cash flows increased 27% year over year. After the quarter close, we did repay the initial $400 million tranche of debt from our Oasis acquisition that matured in March. Our recent $1 billion stock repurchase authorization underscores our commitment to delivering long-term shareholder value. We returned $463 million this quarter and over $1.5 billion year to date to shareholders in the form of cash dividends and share buybacks, and our twelve-month rolling return on equity remains robust at 41%. Shifting to our guidance for FY 2026, which is based on current market conditions. We reaffirm our prior fiscal 2026 outlook, except for raising our interest on funds held for client expectations.

Speaker #6: After the quarter close, we did repay the initial $400 million tranche of debt from our OASIS acquisition that matured in March. Our recent $1 billion stock repurchase authorization underscores our commitment to delivering long-term shareholder value.

Speaker #6: We returned $463 million this quarter and over $1.5 billion year to date to shareholders in the form of cash dividends and share buybacks, and our 12-month rolling return on equity remains robust at 41%.

Speaker #6: Shifting to our guidance for FY26, which is based on current market conditions, we reaffirm our prior fiscal 26 outlook except for raising our interest on funds held for client expectations.

Speaker #6: Interest on funds held for clients is now expected to be in the range of $200 to $210 million. All other guidance metrics remain unchanged.

Bob Schrader: Interest on funds held for clients is now expected to be in the range of $200 to $210 million. All other guidance metrics remain unchanged. I'm gonna turn to Q4 to provide you a little bit of color on Q4. We would anticipate Q4 growth to be approximately 12% with an adjusted operating margin of 41% to 42%. Q4 growth rate reflects a couple of dynamics. First and foremost, I think most of you know, we anniversary the Paycor acquisition during the quarter, and to a lesser extent, Q3 benefited modestly from the timing of certain items relative to Q4. However, our H2 outlook remains consistent with our expectations in the organic revenue growth acceleration we saw in Q3.

Speaker #6: I'm going to turn to the fourth quarter to provide you a little bit of color on the fourth quarter. We would anticipate fourth quarter growth to be approximately 12%, with an adjusted operating margin of 41% to 42%.

Speaker #6: The fourth quarter growth rate reflects a couple of dynamics. First and foremost, I think most of you know we anniversary the Paychex acquisition during the quarter, and to a lesser extent, Q3 benefited modestly from the timing of certain items relative to Q4.

Speaker #6: However, our second half outlook remains consistent with our expectations and the organic revenue growth acceleration we saw in Q3. We believe Paychex has never been better positioned to succeed in the AI era of HCM and deliver shareholder value. Our business fundamentals remain strong. As the best operators, we have unrivaled operating and free cash flow margins, with an opportunity for further expansion.

Bob Schrader: We believe Paychex has never been better positioned to succeed in the AI era of HCM and deliver shareholder value. Our business fundamentals remain strong. As the best operators, we have unrivaled operating and free cash flow margins with an opportunity for further expansion. Our financial strength and the durability of our business model are evident in our consistent performance as a Rule of 50 company. We are committed to returning capital to shareholders, and confident in our ability to deliver sustained value through continued revenue and earnings growth. I will now turn the call back over to John for questions.

Speaker #6: Our financial strength and the durability of our business model are evident in our consistent performance as a Rule of 50 company. We are committed to returning capital to shareholders and confident in our ability to deliver sustained value through continued revenue and earnings growth.

Speaker #6: I will now turn the call back over to John for questions.

Speaker #7: Thank you, Bob. We will now open the call to questions.

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

Speaker #1: Thank you. If you'd like to ask a question, press *1 on your keypad. To leave the queue at any time, press *2.

Operator: Thank you. If you'd like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. We do ask that you limit yourself to one question and one follow-up. Once again, that is star one to ask a question. Our first question comes from Bryan Bergin with TD Cowen. Your line is now open. Please go ahead.

Speaker #1: We do ask that you limit yourself to one question and one follow-up. Once again, that is *star one* to ask a question. And our first question comes from Brian Bergen with TD Cowen.

Speaker #1: Your line is now open. Please go ahead.

Speaker #8: Hi, guys. Good morning. Thank you. Bob, can you put some finer points just first on the level of organic growth in the third quarter, and then bridge that forward to your commentary on the fourth quarter?

Bryan Bergin: Hi, guys. Good morning. Thank you. Bob, can you put some finer points just first on the level of organic growth in Q3, and then bridge that forward to your commentary on Q4? If you can kinda unpack that 12% growth across the business, I think that would help.

Speaker #8: If you can kind of unpack that 12% growth across the business, I think that would help.

Speaker #7: Yeah, Brian. I think consistently, even if you go back to Q4 of last year, the organic growth of the business has been a bit weaker.

Bob Schrader: Yeah, Brian, I think consistently, even if you go back to Q4 of last year, you know, the organic growth of the business has been a bit weaker. I think a lot of that had to do with comparability issues, particularly in the PEO business, with our MPP plan in Florida. If you go back to Q4 of last year, I think we've seen sequential improvement each quarter in the organic growth of the business. If you look at H1, total revenue organic growth was roughly 4%, and that improved from Q1 to Q2. Then when you look at H2, whether it's Q3 or Q4 combined, you know, we would expect...

Speaker #7: I think a lot of that had to do with comparability issues, particularly in the PEO business with our MPP plan in Florida. But if you go back to Q4 of last year, I think we've seen sequential improvement each quarter in the organic growth of the business.

Speaker #7: So if you look at the first half, total revenue organic growth was roughly 4%, and that improved from Q1 to Q2. And then when you look at the back half, whether it's Q3 or Q4 combined, we would expect it accelerated in Q3, and we would expect to see similar organic growth performance in Q4.

Bob Schrader: It accelerated in Q3, and we would expect to see similar organic growth performance in Q4. You're now getting to a back half organic growth rate that's closer to 6%. When you put the two of those together, it's roughly 5% on a full year basis. Again, I think there's a couple drivers of it. You know, one, to be fair is the easier compare on the PEO business. I mean, I think you'll see that the headline PEO number sequentially went from 6% last quarter to 9%. There are some timing things there, but you know, there's certainly a strength in the underlying operating performance of the business, particularly in the PEO, and we can get into that probably in maybe some later questions.

Speaker #7: And so you're now getting to a back-half organic growth rate that's closer to 6%. And then when you put the two of those together, it's roughly 5% on a full-year basis.

Speaker #7: And so again, I think there are a couple of drivers of it. One, to be fair, is the easier compare on the PEO business. I mean, I think you'll see that the headline PEO number sequentially went from 6% last quarter to 9%.

Speaker #7: There are some timing things there, but there's certainly a strength in the underlying operating performance of the business, particularly in the PEO. And we can get into that probably in maybe some later questions.

Bob Schrader: We anniversaried the headwind from the MPP enrollment, so that's why you're definitely seeing the combination of an easier compare, stronger operating performance driving accelerated organic growth in the H2.

Speaker #7: But we did anniversary the headwind from the MPP enrollment, and so that's why you're definitely seeing the combination of an easier compare and stronger operating performance driving accelerated organic growth in the back half of the year.

Speaker #8: Okay. As far as the Q4 exit rates that are implied, as we think forward into fiscal '27, any important considerations that you want to share?

Bryan Bergin: Okay. As far as the Q4 exit rates that are implied, as we think forward into fiscal 2027, any important considerations that you wanna share?

Speaker #7: Yeah. And I may be able to head off the question that I'm probably going to get as it relates to next year and guidance. We're in the early stages, I would tell you, of our operating plan, and we're going to finalize that over the next six to eight weeks.

Bob Schrader: Yeah. You know, I've maybe head off the question that I'm probably gonna get as it relates to next year in guidance. You know, we're in the early stages, I would tell you, of our operating plan, and we're gonna finalize that over the next 6 to 8 weeks. I think we kinda established a precedent coming out of COVID in providing some more details around what we were thinking for next year. I think we needed to do that given, you know, some of the uncertainty in the environment back then.

Speaker #7: And I know we kind of established a precedent coming out of COVID, and provided maybe some more details around what we were thinking for next year.

Speaker #7: I think we needed to do that given some of the uncertainty in the environment back then. Our preference now is to kind of build the plan, come out in Q4 like we historically did, and consistent with what our competitors do, and provide guidance at that point in time.

Bob Schrader: Our preference now is to kinda, you know, build the plan, come out in Q4 like we historically did, and consistent with what our competitors do and provide guidance at that point in time. You know, that being said, you know, we obviously have visibility to what's out there in the models and FactSet. I think, Brian, what you'll see is the organic growth rate, whether it's Q3 or Q4, we're really looking at the back half 'cause there are some timing differences, particularly in the PEO between Q3 and Q4.

Speaker #7: That being said, we obviously have visibility to what's out there in the models and, in fact, set, and when I look at that, I really don't see any reason that I need to steer you in one direction or another.

Speaker #7: I'm fairly comfortable with what's out there. And I think, Brian, what you'll see is the organic growth rate—whether it's Q3 or Q4—we're really looking at the back half because there are some timing differences, particularly in the PEO, between Q3 and Q4.

Speaker #7: When we look at the organic growth rate, in the back half of this year, it pretty much aligns with kind of what's assumed from a consensus standpoint for next year.

Bob Schrader: When we look at the organic growth rate in the back half of this year, it pretty much aligns with kinda what's assumed from a consensus standpoint for next year.

Speaker #1: Thank you. And we'll take our next question from Mark Marcon with Baird. Your line is now open.

Operator: Thank you. We'll take our next question from Mark Marcon with Baird. Your line is now open.

Speaker #9: Thanks for taking my questions. And nice performance this quarter. I'm wondering if you could talk about a couple of things. One, you did mention that Paycor was seeing new broker engagements, or a renewal of some of the broker engagements and that pipeline.

Mark Marcon: Thanks for taking my questions, and nice performance this quarter. I'm wondering if you could talk about a couple of things. One, just you did mention that, you know, Paycor was seeing, you know, new broker engagements or a renewal of some of the broker engagements and that pipeline. I was just wondering if you could just talk about new sales, generally speaking, you know, during the core selling season, what did you end up seeing, this year, and how would you describe the competitive environment, win rates, et cetera?

Speaker #9: I was just wondering if you could talk about new sales, generally speaking, during the core selling season. What did you end up seeing this year, and how would you describe the competitive environment, win rates, etc.?

Speaker #7: Okay, Mark. This is John. I'd say the competitive environment is stable and the same—it's competitive. I wouldn't say I've seen much change there.

John Gibson: Hey, Mark Marcon, this is John Gibson. I'd say the competitive environment is stable and the same. It's competitive. I wouldn't say I've seen much change there. From a sales perspective, look, they're very pleased with our performance in Q3. Not only in line with our expectations, but, you know, quite frankly, we were accelerating PEO and bookings growth in Q3, and we've kind of seen that sequentially as we've come out of the disruption. As you know, at the start of the year with the integration of the teams continuing to grow there. PEO double-digit bookings, Paycor double-digit bookings as well. We actually see bookings and the Paycor referral continuing to accelerate back to pre-acquisition levels. We're actually adding headcount in the enterprise space.

Speaker #7: From a sales perspective, looked at very pleased with our performance in Q3. Not only aligned with our expectations, but quite frankly, we were accelerating part in bookings growth in the third quarter.

Speaker #7: And we've kind of seen that sequentially as we've come out of the disruption, as you know, at the start of the year with the integration of the teams, continued to grow there.

Speaker #7: PEO double-digit bookings, PAYCOR double-digit bookings as well. We actually see bookings and the PAR referral continuing to accelerate back to pre-acquisition levels. We're actually adding headcount in the enterprise space.

Speaker #7: Again, remember, Paycor for us is a brand for the enterprise—market 100 plus. And we think that's a great opportunity for our HR outsourcing services as well as technology solutions.

John Gibson: Again, remember, Paycor for us is a brand for the enterprise market, 100 plus, and we think that's a great opportunity for our HR outsourcing services as well as technology solutions. We're gonna continue to go after that as well. We continue to gain momentum, I think, across the board, and we feel good about where we are positioned going into 2027, both in terms of our competitive positioning, our headcount, and I think you really look at it. I mean, we're entering 2027 with all of the integration work behind us that we did early in the beginning of this fiscal year, and we're entering with not only an aligned team, but really the most comprehensive and I think flexible and innovative set of solutions in the marketplace.

Speaker #7: And so we're going to continue to go after that as well. So we continue to gain momentum, I think, across the board. And we feel good about where we are positioned going into '27, both in terms of our competitive positioning, our headcount, and I think you really look at it.

Speaker #7: I mean, we're entering '27 with all of the integration work behind us that we did early in the beginning of this fiscal year.

Speaker #7: And we're entering with not only an aligned team, but really the most comprehensive, and I think flexible and innovative, set of solutions in the marketplace.

Speaker #7: And so, I feel good about where we are.

John Gibson: I feel good about where we are.

Speaker #9: That's great to hear. And then I thought the gross margin performance was particularly impressive. When we take a look, if we're defining gross margin as revenue minus the direct costs.

Mark Marcon: That's great to hear. Then I thought the gross margin performance was particularly impressive. You know, when we take a look, if we're defining gross margin as revenue minus the direct costs, and part of that was obviously the higher interest income off of the float. Beyond that, it looks like it's doing extremely well. How much of that is related to some of the AI initiatives that you've put in place in terms of embedding AI across your service infrastructure and making them more productive versus other initiatives that you've put in place in terms of perhaps shifting some of your costs to lower cost labor markets like India? And how much more can we do there?

Speaker #9: And part of that was, obviously, the higher interest income off of the float. But beyond that, it looks like it's doing extremely well. How much of that is related to some of the AI initiatives that you've put in place in terms of embedding AI service infrastructure and making them more productive versus other initiatives that you've put in place, in terms of perhaps shifting some of your costs to lower-cost labor markets like India?

Speaker #9: And how much more can we do there? Because it's been fairly impressive. I'm wondering if this is basically setting us up for continued margin expansion for multiple years.

Mark Marcon: Because it's been fairly impressive. I'm wondering if this is basically setting us up for, you know, continued margin expansion for multiple years.

Speaker #7: Mark, I think that we have a long track record of being able to drive, as the best operators, margin expansion as we grow revenue in the business.

John Gibson: Mark, I think that we have a long track record of being able to drive, as the best operators, margin expansion as we grow revenue in the business, and I think you're gonna continue to see that. We use every lever imaginable to do that. I think that when you look at AI, as you know, we've been using AI and predecessor type of models for many years since I've been here. Now with this new technology that almost every day something new is coming out, what we're seeing is pretty impressive. It's pretty incredible.

Speaker #7: And I think you're going to continue to see that. We use every lever imaginable to do that. I think that when you look at AI, as you know, we've been using AI and predecessor-type models for many, many years.

Speaker #7: Since I've been here, and now with this new technology—almost every day something new is coming out—what we're seeing is pretty impressive.

Speaker #7: It's pretty incredible. Some of the things we're doing in terms of AI models, which we've now released to scale after the pilots—doing voice payroll, doing email payrolls—what we're seeing in the early stages in our beta groups in sales using our Sales Guru tool, and what we're seeing from a service perspective.

John Gibson: Some of the things we're doing in terms of agentic AI models, which we've now released to scale after the pilots, doing voice payroll, doing email payrolls, what we're seeing early stages in our beta, in our beta groups, in sales using our sales guru tool and what we're seeing from a service perspective. I feel good about what the opportunities are. Look, if we grow the top line, we are going to be able to grow margins and expand margins over time. When you look at these new tools that we can put in our arsenal as the best operator, I really feel good about where we are. I would say that it's part of the thing on 2027 we're just getting in. That's a big debate right now.

Speaker #7: So, I feel good about what the opportunities are. Look, if we grow the top line, we are going to be able to grow margins and expand margins over time.

Speaker #7: And then, when you look at these new tools that we can put in our arsenal as the best operator, I really feel good about where we are.

Speaker #7: And I would say that's part of the thing on the 27th. We're just getting in. That's a big debate right now. I think that's the big question: how much, how do you begin to quantify the real positive impact from sales productivity, the way we're using it in marketing, what the potential is from a service perspective?

John Gibson: I think that's the big question is how do you begin to quantify the real positive impact from sales productivity, the way we're using it in marketing, what the potential is from a service perspective. I can assure you, we're gonna have some very lively discussions next week during our planning sessions about exactly the potential that this technology has, both to drive the top line, but also to continue to expand margins. I think there's more room ahead. You know, every year something new comes out, and we are innovators in that regard and are gonna grab every tool we can to continue to drive efficiency.

Speaker #7: So I can assure you we're going to have some very lively discussions next week during our planning sessions about exactly the potential that this technology has both to drive the top line, but also to continue to expand margins.

Speaker #7: So I think there's more room ahead. And every year, something new comes out. And we are innovators in that regard and are going to grab every tool we can to continue to drive efficiency.

Speaker #1: Thank you. We'll go next to Tian-Sen Huang with JPMorgan. Your line is now open.

Operator: Thank you. We'll go next to Tien-Tsin Huang with J.P. Morgan. Your line is now open.

Speaker #5: Hey, thanks, John and Bob. I wanted to ask about the advisory work, John, that you talked a little bit about. I think that's probably underappreciated in terms of what Paychex does there.

Tien-Tsin Huang: Hey, thanks. Hi, John and Bob. I wanted to ask on the advisory work, John, that you talked a little bit about. I think that's probably underappreciated in terms of what Paychex does there. How AI proof is the

Speaker #5: How AI-proof is the advisory side of the business? Because I get the question quite a bit: can AI come in and supplant what Paychex does on the advisory side?

Tien-Tsin Huang: Advisory side of the business. You know, 'cause I get the question quite a bit that, you know, can rules-based advice from AI come in and supplant what Paychex does on the advisory side? But I'm guessing that a lot of your advisory work is centered around compliance and very complex data issue that only Paychex has. Can you maybe elaborate on that?

Speaker #5: But I'm guessing that a lot of your advisory work is centered around compliance and very complex data issues that only Paychex has. Can you maybe elaborate on that?

John Gibson: Yeah. Look, Tien-Tsin Huang, I think this is something I think is extremely interesting for people to understand. For the vast majority of our clients, we are their HR department, right? Not only do we provide them the advice, we literally are talking to them and holding their hand when they're making some of these decisions and supporting them. You look at our PEO, the most comprehensive part of our model, where we're actually in a co-employment arrangement. We're actually helping represent them and deal with their employee situations, which are numerous, I may add, in today's world. We're actually, you know, doing so much more that there's no way that I think technology is going to replace that, at least that I see in the short term.

Speaker #7: We are their HR department, right? So not only do we provide them the advice, we literally are talking to them and holding their hand when they're making some of these decisions and supporting them.

Speaker #7: If you look at our PEO, the most comprehensive part of our model, we're actually in a co-employment arrangement. We're actually helping represent them and deal with their employee situations, which are numerous, I may add.

Speaker #7: In today's world. And so we're actually doing so much more that there's no way that I think technology is going to replace that, at least that I see in the short term.

Speaker #7: Now, your point is, we actually own the patent on using eugenic AI in a mesh form, and structured and unstructured data to answer HR and compliance data.

John Gibson: Now, your point is, we actually own the patent on using agentic AI in a mesh form and structured and unstructured data to answer HR and compliance data. Why is that? Because we have a huge compliance regulatory team that's constantly keeping that system up to date. What I will tell you is, the changes in Akron, Ohio, are not automated. Someone has to go onto Akron's website, has to look at it, has to interpret it, has to watch what's going on in Ohio courts to understand how it's being interpreted, and then put that into a system to be able to respond to a client who's asking a question about whether or not they can terminate an employee in Akron, Ohio, or not. So I think that part of the

Speaker #7: Why is that? Because we have a huge compliance regulatory team that's constantly keeping that system up to date. What I will tell you is the changes in Akron, Ohio, are not automated.

Speaker #7: Someone has to go onto Akron's website, has to look at it, has to interpret it, has to watch what's going on in Ohio courts to understand how it's being interpreted.

Speaker #7: And then put that into a system to be able to respond to a client who's asking a question about whether or not they can terminate a client in Akron, Ohio, or not.

Speaker #7: So I think that part of both the—we've got the AI-embedded tools, and now we've actually launched those tools inside of our—with our HR generalists.

John Gibson: We've got the AI-embedded tools, and now we've actually launched those tools with our HR generalists. We're actually seeing pretty significant productivity improvements since we've done that. Our clients, we're embedding that into our platforms so our clients can gain access to that. I think that's gonna drive more efficiency. At the bottom line, for most of our clients, increasingly upmarket, we are becoming the HR department and HR partner for helping people manage people. As long as our clients have people, they're going to need Paychex holding their hand and helping them understand how to work with those people, in my opinion.

Speaker #7: We're actually seeing pretty significant productivity improvements since we've done that. Our clients were embedding that into our platforms, so our clients can gain access to that.

Speaker #7: I think that's going to drive more efficiency. But at the bottom line, for most of our clients and increasingly up market, HR department and HR partner for helping people manage people.

Speaker #7: So, as long as our clients have people, they're going to need Paychex holding their hand and helping them understand how to work with those people, in my opinion.

Speaker #5: Yeah, love that. Your opinion is very important, John. That's why I'm asking it. So thank you for going through that. Maybe just as a follow-up, thinking about these agents as they get deployed, and as you said, the proprietary data that you have, does this get monetized through your normal way pricing that you typically would put through in the spring?

Tien-Tsin Huang: Yeah. No. Well said. Your opinion is very important, John. That's why I'm asking it. Thank you for going through that. Maybe just as a follow-up, thinking about these agents as they get deployed and as you said, the proprietary data that you have, does this get monetized through your normal way pricing that you typically would put through, in the spring? Or do you think of this as a new monetizable opportunity for Paychex?

Speaker #5: Or do you think of this as a new monetizable opportunity for PAYCHEX?

Speaker #7: Well, I think we've been monetizing our data and providing insights going back to the early days. We won the 2022. We won the best use of AI in HCM with our retention insights.

John Gibson: Well, I think we've been monetizing our data and providing insights going back to the early days. In 2022, we won the best use of AI in HCM with our retention insights. That was before all this AI madness befell us. The fact of the matter is that we've been doing that. We monetize that with our clients. It actually provides them insights about how to retain their clients. I think what you're seeing today is we're applying it into our products and services to improve the user experience. We're putting it in there to be able to improve really the insights that we can provide in other areas, such as benefits.

Speaker #7: That was before all this AI madness befell us. And the fact of the matter is that we've been doing that. We monetize that with our clients.

Speaker #7: It actually provides them insights about how to retain their clients. I think what you're seeing today is we're applying it into our products and services to improve the user experience.

Speaker #7: We're putting it in there to be able to improve really the insights that we can provide in other areas such as benefits. We mentioned what we're doing in the PO.

Speaker #7: Which was just phenomenal. The way the tool helped advise clients, employees, and what benefits package was right for them. So I think you're going to continue to see us use it to really drive better outcomes.

John Gibson: We mentioned what we're doing in the PEO, which was just phenomenal, the way the tool helped advise clients, employees, and what benefits package was right for them. I think you're gonna continue to see us use it to really drive better outcomes. You made a critical point. In order for AI to work, you have to have a large, robust data set. The other thing that we've learned, and particularly when we're building the agentic AI models for payroll, you had to have a constantly moving set of data. The way I look at it is this flywheel effect.

Speaker #7: And you made a critical point. In order for AI to work, you have to have a large robust data set. And the other thing that we've learned, and particularly when we were building the eugenic AI models for payroll, you had to have a constantly moving set of data.

Speaker #7: And so the way I look at it is this flywheel effect. Now that we're capturing every interaction that we have from an HR, payroll, and compliance perspective with our clients, through every form of communication, every interaction we have with them or one of their employees adds to our data set.

John Gibson: Now that we're capturing every interaction that we have from an HR payroll and compliance perspective with our clients through every form of communication, every interaction we have with them or one of their employees adds to our data set, and with our tools constantly looking and doing the analysis around what are common trends, we're getting more insights, and those insights are allowing us to be more proactive with our clients. As the transactional work gets automated, it frees up our time to be able to gain the more insights, and then the system is proactively giving our HRGs a list of insights that they can then call clients and make recommendations on, whether that's compensation, whether that's retention, or whether that's workplace trends that we're seeing in specific geographies that they need to be aware of.

Speaker #7: And with our tools constantly looking and doing the analysis around what are common trends, we're getting more insights. And those insights are allowing us to be more proactive with our clients.

Speaker #7: So as the transactional work gets automated, it frees up our time to be able to gain the more insights and then the system is proactively giving our HRGs a list of insights that they can then call clients and make recommendations on.

Speaker #7: Whether that's compensation, whether that's retention, whether that's workplace trends that we're seeing in specific geographies, that they need to be aware of. So I think it's just going to continue to improve the value proposition that we have.

John Gibson: I think it's just gonna continue to improve the value proposition that we have, and I think it's also gonna improve the outcomes that our clients see.

Speaker #7: And I think it's also going to improve the outcomes that our clients see.

Speaker #1: Thank you. We'll move next to Brian Keane with Citi. Your line is now open.

Operator: Thank you. We'll move next to Bryan Keane with Citi. Your line is now open.

Speaker #8: Yeah, hi. Good morning. Was hoping you guys could just talk a little bit about the strength of PO insurance. It jumped above the range at 9%.

Bryan Keane: Yeah. Hi, good morning. Was hoping you guys could just talk a little bit about the strength of PEO insurance. It jumped above the range at 9%. Can you talk a little bit about some of the drivers and some of the sustainability as we head into Q4?

Speaker #8: Can you talk a little bit about some of the drivers in some of the sustainability as we head into the fourth quarter?

Speaker #9: Yeah. Maybe I'll start, and then John can add some color. I think it's twofold, Brian, as I alluded to earlier. I think it's strength in the underlying operating performance of the business.

John Gibson: Yeah. Maybe I'll start, and then John can add some color. You know, I think it's twofold, Brian, as I alluded to earlier. I think it's strength in the underlying operating performance of the business. We saw double-digit demand for PEO. We continue to see record WSE retention in the PEO. We saw high single-digit worksite employee growth. You know, PEO business is all about worksite employees, and we continue to outpace the competitors in that space with our ability to drive worksite employee growth. The underlying operating performance is strong.

Speaker #9: So, we saw double-digit demand for PEO. We continue to see record WSE retention in the PEO. We saw high single-digit worksite employee growth.

Speaker #9: PEO business is all about work site employees. And we continue to outpace the competitors in that space with our ability to drive work site employee growth.

Speaker #9: So the underlying operating performance is strong. January is the big annual enrollment. So we anniversary two things. We anniversary the tougher compares from the prior year when MPP was down.

Bob Schrader: January is the big annual enrollment, so we anniversary. You know, two things. We anniversary the tougher compares from the prior year when MPP was down, but we got through that annual enrollment, and I would tell you know, enrollment in our MPP is up modestly. You have an easier compare. We drew the enrollment. When you zoom out a little bit and you look at medical enrollment across all the PEO, not just the at-risk business in Florida, but across the entire PEO space, our medical enrollment was up, you know, high single digits, near double digits as we went through this annual enrollment period.

Speaker #9: But we got through that annual enrollment. And I would tell you enrollment in our MPP is up modestly. So you have an easier compare we grew the enrollment.

Speaker #9: And then when you zoom out a little bit and you look at medical enrollment across all the PEO, not just the at-risk business in Florida, but across the entire PEO space, our medical enrollment was up high single digits, near double digits, as we went through this.

Speaker #9: Annual enrollment period. And I think that's the strength of the PEO value proposition. The ability for us to offer to our small business clients the ability to offer medical insurance and workers' comp insurance, leveraging our scale to be able to offer affordable benefits to them. We had a pretty good year-end enrollment related to that.

Bob Schrader: I think that's the strength of the PEO value proposition, you know, the ability for us to offer to our, you know, small business clients, the ability to offer, you know, medical insurance or workers' comp insurance, leveraging our scale to be able to offer affordable benefits to them. You know, we had a pretty good year-end enrollment related to that. It's really a combination of all those factors. I would also just say, and I've alluded to this a little bit, on the agency side, we had some timing benefit. You get some timing between Q3 and Q4 between carrier bonuses. SUI revenue can be a little bit stronger in Q3, a little bit weaker in Q4. You know, relative to our expectations, there was a little bit of timing that came into Q3.

Speaker #9: So it's really a combination of all those factors. I would also just say, and I've alluded to this a little bit, on the agency side, we had some timing benefit.

Speaker #9: You get some timing between Q3 and Q4 between carrier bonuses. SUI revenue can be a little bit stronger in Q3, a little bit weaker in Q4.

Speaker #9: And so relative to our expectations, there was a little bit of timing that came into Q3. But all in all, really strong performance. And pretty much what we planned in the back half of the year, and it's nice to see that come into fruition.

Bob Schrader: All in all, you know, really strong performance and, you know, pretty much what we planned in H2, and it's nice to see that, you know, coming to fruition.

Speaker #7: Yeah, I just want to add to this. I mean, the PEO performance is amazing—outpacing the industry, I think, rather significantly. Double-digit revenue growth, double-digit bookings, seeing success upmarket.

John Gibson: Yeah. I just wanna add to this. I mean, the PEO performance is amazing, outpacing the industry, I think rather significantly. You have double-digit revenue growth, double-digit bookings. Seeing success upmarket, I think this is another point. Again, I'll make it. It's gonna be interesting. We're having success with the Paycor sales team into the broker channels, positioning PEO upfront. This is one of those what I call revenue geography problems. A Paycor rep is out, and they're talking to a broker, what would have normally been, because all they had was HCM to sell, it was gonna be an HCM sell. All of a sudden, the discussion comes about what the problem is, and we got multiple solutions.

Speaker #7: I think this is another point. Again, I'll make it—this is going to be interesting. We're having success with the Paycor sales team, into the broker channels, positioning PEO up front.

Speaker #7: So this is one of those what I call revenue geography problems. So a Paycor rep is out, and they're talking to a broker. What would it normally been?

Speaker #7: Because all they had was HCM to sell. It was going to be an HCM sell. All of a sudden, the discussion comes about what the problem is, and we got multiple solutions.

Speaker #7: And now we're selling a PEO, and we had some. And it's larger deals than what we typically would see coming in. So in January, that was another big positive that, quite frankly, I think is going to continue to help us and move forward.

John Gibson: Now we're selling a PEO, and we had some larger deals than what we typically would see coming in. In January, that was another big positive that quite frankly, I think is gonna continue to help us and move forward. I would also say, 'cause I do wanna say this, look, the agency was certainly still a drag in the quarter to the segment, but we saw sequential improvement. I'd actually say, even in bookings, which is the precursor to-

Speaker #7: I would also say, because I do want to say this—look, the agency was certainly still a drag in the quarter, to the segment.

Speaker #7: But we saw sequential improvement. And I've actually say, even in bookings, which is the precursor to revenue moving, we actually saw a solid bookings there in the quarter.

Bob Schrader: Mm-hmm

John Gibson: ...revenue moving. We actually saw solid bookings there in the quarter. I'm pleased with the teams. [We] made a lot of changes there. We've made some changes in the agency. We're trying to be more innovative because the market is the market. Healthcare issues are healthcare issues. Soft workers' comp is soft workers' comp. We're building strategies to work around those situations, and the team is making some progress there. That also contributed a little bit as well. The other thing that I think is that I would point out for you guys to go back and look at, and I think it's probably a story that we plan on probably duplicating in the enterprise space.

Speaker #7: And so I'm pleased with the team's made a lot of changes there. We've made some changes in the agency. We're trying to be more innovative because the market is the market.

Speaker #7: Healthcare issues are healthcare issues. Soft workers' comp is soft workers' comp. We're building strategies to work around those situations. And the team is making some progress there.

Speaker #7: So that also contributed a little bit as well. The other thing that I think is that I would point out for you guys to go back and look at, and I think it's probably a story that we plan on you duplicating in the enterprise space.

Speaker #7: If you go back and look at our PEO success, and you go back to 2020 through 2025 and look at those five years, I think you're going to find that our CAGR of work site employee growth is in double digits and far surpasses any of the other providers that I'm aware of, both public and private, in terms of growth.

John Gibson: If you go back and look at our PEO success, and you go back to 2020 through 2025 and look at those five years, I think you're gonna find that our CAGR of worksite employee growth is in the double digits and far surpasses any of the other providers that I'm aware of, both public and private, in terms of growth. Now, what was the setup for that? 2018, we make an acquisition of Oasis. Prior to that, we made a decision that strategically we were gonna position the company as an HR advisory company, that we believe there was more than technology that our clients were going to need and want, and we started to really grow our business organically. We then went and made an acquisition.

Speaker #7: Now, what was the setup for that? 2028, we make an acquisition of Oasis. Prior to that, we made a decision that strategically we were going to position the company as an HR advisory company, that we believed there was more than technology that our clients were going to need and want.

Speaker #7: And we started to really grow our business organically. We then went and made an acquisition. One year after that acquisition, we're growing that business at industry, and we're gaining share in that industry.

John Gibson: One year after that acquisition, we're growing that business at industry, and we're gaining share in that industry. I think that's exactly what you should expect us to try to do, and we are doing with the Paycor acquisition. We saw the opportunity to take HR advisory solutions upmarket. We wanted more capability to be able to do that, more distribution. Now we're a year into it, and I think we're well-positioned to duplicate the story that we did in PEO in the enterprise space.

Speaker #7: I think that's exactly what you should expect us to try to do, and we are doing. With the Paycor acquisition, we saw the opportunity to take HR advisory solutions up market.

Speaker #7: We wanted more capability to be able to do that, more distribution. And now we're a year into it, and I think we're well positioned to duplicate the story that we did in PEO in the enterprise space.

Speaker #5: Got it. Got it. And just a quick follow-up, Bob. The 12% revenue growth you called out for Q4, I think that's a point below the street.

Bob Schrader: Got it. Just a quick follow-up, Bob. The 12% revenue growth you called out for Q4, I think that's a point below the street.

Speaker #5: But it sounds like some timing, maybe there was a slight benefit, some of the stuff you just talked about, obviously, in the PEO business from Q3 to Q4.

John Gibson: Yeah.

Bob Schrader: It sounds like some timing, maybe there was a slight benefit, some of the stuff you just talked about, obviously in the PEO business from Q3 to Q4. Organically, the organic growth doesn't move much. Maybe just talk about some of the benefit, maybe if Q3 should be stronger organically than Q4.

Speaker #5: But organically, the organic growth doesn't move much, maybe just talk about the some of the benefit, maybe if Q3 should be stronger organically than Q4.

Speaker #7: No, I think you would probably see a slight uptick, a continued acceleration in the organic growth of the business in Q4 relative to Q3.

John Gibson: No, I think you would probably see a slight uptick, a continued acceleration in the organic growth of the business in Q4 relative to Q3, so we should see sequential improvement there. I mean, as you guys know, we don't give quarterly guidance. I'm trying to give you some color each call to help you with your models going forward. I would tell you, we were intentionally conservative last quarter when we kind of provided some color on Q3. Obviously, Q3 is a big quarter for us. You have year-ends, you have just the year-end, you have selling season. We have our year-end processing fees, which is a lot of money and margin that hits in the month of January. We had our large enrollment in the PEO.

Speaker #7: So, we should see sequential improvement there. And it means, you guys know, we don't give quarterly guidance. I'm trying to give you some color each call to help you with your models going forward.

Speaker #7: I would tell you, we were intentionally conservative last quarter when we kind of provided some color. On Q3, obviously, Q3 is a big quarter for us.

Speaker #7: You have year-ends. You have just the year-end. You have selling season. We have our year-end processing fees, which is a lot of money and margin that hits in the month of January.

Speaker #7: We had our large enrollment in the PEO. So we were intentionally conservative. I would tell you Q3, was in line a bit better than our expectations.

John Gibson: We were intentionally conservative. I would tell you Q3 was in line a bit better than our expectations. As I mentioned, there were some puts and takes between Q3 and Q4 and largely the back half of the year.

Speaker #7: And as I mentioned, there were some puts and takes between Q3 and Q4 and, largely, the back half of the year. It was in line with our expectations.

Speaker #7: And again, you'll continue to see some sequential improvement, assuming we deliver the forecast and the guidance. You'll continue to see some sequential improvement in the organic growth of the business, which I think positions us well, as John mentioned, as we move into FY27.

Bob Schrader: Was in line with our expectations. Again, you'll continue to see some sequential improvement in the, you know, assuming we deliver the forecast and the guidance, you'll continue to see some sequential improvement in the organic growth of the business, which I think positions us well, as John mentioned, as we move into FY 2027.

Speaker #1: Thank you. We'll move next to Andrew Nicholas with William Blair. Your line is now open.

Operator: Thank you. We'll move next to Andrew Nicholas with William Blair. Your line is now open.

Speaker #4: Hi guys. Good morning. This is Daniel on for Andrew today. Thanks for taking my questions. Real quick, just turning back to the revenue timing.

Bob Schrader: Hi, guys. Good morning. This is Daniel on for Andrew today. Thanks for taking my questions. Real quick, just turning back to the revenue timing. It sounds like that was mostly concentrated in PEO. Is there any way you can size how large that was? Looking forward, can sequential growth in PEO specifically continue into Q4 off of that? Yeah, I think the growth rate in Q4 will be lower because of some of those things.

[Analyst] (William Blair): Hi, guys. Good morning. This is Daniel on for Andrew today. Thanks for taking my questions. Real quick, just turning back to the revenue timing. It sounds like that was mostly concentrated in PEO. Is there any way you can size how large that was? Looking forward, can sequential growth in PEO specifically continue into Q4 off of that?

Speaker #4: It sounds like that was mostly concentrated in PEO. Is there any way you can size how large that was and looking forward, can sequential growth in PEO specifically continue into the fourth quarter off of that?

Speaker #7: Yeah, I think the growth rate in Q4 will be lower because of some of those things. I don't have the exact percentage. And I think when we again, if we look at it, the two quarters combined Daniel, you'll see a sequential or if you look at back half, because of some of those puts and takes between the quarter, you'll see a fairly significant lift in the organic sequential growth of the PEO and insurance.

[Analyst] (William Blair): Yeah, I think the growth rate in Q4 will be lower because of some of those things.

Bob Schrader: I don't have the exact percentage, and I think, again, if we look at it, the two quarters combined, Daniel, you'll see a sequential or if you look at H2, because of some of those shifts and changes between the quarters, you'll see a fairly significant lift in the organic sequential growth of the PEO and insurance in the H2 relative to the H1. The overall growth rate, I think when you start doing the math, you'll see that the math is gonna show you that the growth rate is gonna be a little bit lower in Q4 than Q3. When you put the two of them together, it's a fairly big step up in the sequential organic growth relative to the H1 of the year.

Speaker #7: In the back half relative to the first half. But the overall growth rate, I think when you start doing the math, you'll see that the math is going to show you that the growth rate is going to be a little bit lower in Q4 than Q3.

Speaker #7: But when you put the two of them together, it's a fairly big step up in the sequential organic growth relative to the first half of the year.

Speaker #4: Great, that's helpful. And then for my follow-up, going back to the mention of a re-acceleration of referrals and bookings to pre-acquisition levels, can you add any incremental detail on specific areas of momentum there? And maybe just level set after a few quarters of integration where the lion's share of the synergy opportunities now sit, whether that's on the revenue or the cost side?

Bob Schrader: Great. That's helpful. For my follow-up, going back to the mention of a re-acceleration of referrals and bookings to pre-acquisition levels. Can you add any incremental detail on specific areas of momentum there and maybe just level set, after a few quarters of integration, where the lion's share of the synergy opportunities now sit, whether that's on the revenue or the cost side?

[Analyst] (William Blair): Great. That's helpful. For my follow-up, going back to the mention of a re-acceleration of referrals and bookings to pre-acquisition levels. Can you add any incremental detail on specific areas of momentum there and maybe just level set, after a few quarters of integration, where the lion's share of the synergy opportunities now sit, whether that's on the revenue or the cost side?

Speaker #7: Yeah. Yeah, Daniel. What I would say is very pleased with the acceleration. We've seen each quarter as we came through the first quarter when we did all of the reorganization and as we talked about, we made a conscious decision when the deal closed almost a year ago now, April a year ago, that we were going to get the hard work out of the way.

John Gibson: Yeah, Daniel Jester, what I would say is we are very pleased with the acceleration we've seen each quarter as we came through the Q1 when we did all of the reorganization. As we talked about, we made a conscious decision when the deal closed almost a year ago now, April a year ago, that we were going to get the hard work out of the way. We saw the opportunity rather than dragging it out. We did that.

Speaker #7: And we saw the opportunity rather than dragging it out. And so we took the we did that. And of course, from the time you announced the deal in January, of last year to the time that we closed the deal in April, as you can imagine, a lot of competitive noise in the market, a lot of questions from brokers about what's going to happen.

John Gibson: Of course, from the time you announced the deal in January of last year to the time that we closed the deal in April, as you can imagine, a lot of competitive noise in the marketplace, a lot of questions from brokers about what's gonna happen, and we couldn't say much. As we've gotten our story out there and gained momentum, we've continued to build momentum each of the quarters. As we said, we've gotten ourselves back to where we were pre both in terms of bookings volume, it was double digits again, year over year, and broker engagement. I would say it's getting back to kind of where we were, except for now we have the cross-sell opportunity.

Speaker #7: And we couldn't say much. So as we've gotten our story out there and gained momentum, we've continued to build momentum each of the quarters.

Speaker #7: And as we said, we've gotten ourselves back to where we were pre—both in terms of bookings, volume. It was double digits again, year over year.

Speaker #7: And broker engagement. So I would say it's getting back to kind of where we were, except for now we have the cross-sell opportunity. So where I would say expense synergies are pretty much behind us at this point in time.

John Gibson: Where I would say, you know, expense synergies are pretty much behind us at this point in time. We've taken those actions. We've exceeded the expectations that we laid out as part of the deal model. Now you're in what I call normal, you know, DNA, best operators, you know, continuing to improve the model of both companies and look for opportunities. Where the opportunity is now, and we continue to build momentum on, is around the cross-sell inside the client base, 401(k), ASO, PEO, all of our other products and services. You'll be seeing us putting our Perks product into the Paycor ecosystem as well. That's where we see the opportunity as we roll into fiscal year 2027.

Speaker #7: We've taken those actions. We've exceeded the expectations that we laid out as part of the deal model. Now you're in what I call normal DNA, best operators, continuing to improve the model of both companies and look for opportunities.

Speaker #7: Where the opportunity is now and we continue to build momentum on is around the cross-sell inside the client base 401(k), ASO, PEO, all of our other products and services.

Speaker #7: You'll be seeing us putting our perks product into the pay core ecosystem as well. So that's where we see the opportunity as we roll into fiscal year '27.

Speaker #1: Thank you. We'll go next to Kevin McVeigh with UBS. Your line is now open.

Operator: Thank you. We'll go next to Kevin McVeigh with UBS. Your line is now open.

Speaker #5: Great, thank you so much. Hey, I wonder—can you just remind us what the initial Paycore revenue and expense synergies were, and where we are today on those?

Bob Schrader: Great. Thank you so much. Hey, I wonder, can you just remind us what the initial Paycor revenue and expense synergies were and where we are today on those? 'Cause it seems like you've been doing a nice job on the integration, but just remind us what the revenue and expense synergies were, 'cause I guess we're bumping up on a year. I think that would help. Yeah, Kevin, if you go back to, I think when we originally announced the deal, now I'm kind of losing track of the quarters, but at one point in time, I think the expense synergies were in the $80 to 90 million range. I think the last update that we gave that we expected those to be in the $100 million range.

Kevin McVeigh: Great. Thank you so much. Hey, I wonder, can you just remind us what the initial Paycor revenue and expense synergies were and where we are today on those? 'Cause it seems like you've been doing a nice job on the integration, but just remind us what the revenue and expense synergies were, 'cause I guess we're bumping up on a year. I think that would help.

Speaker #5: Because it seems like you've been doing a nice job on the kind of the integration, but just remind us what the again, the revenue and expense synergies were because, I guess, we're bumping up on a year I think that would help?

Speaker #7: Yeah, Kevin, if you go back to—I think when we originally announced the deal, now I’m kind of losing track of the quarters—but at one point in time, I think the expense synergies were in the $80 to $90 million range.

Bob Schrader: Yeah, Kevin, if you go back to, I think when we originally announced the deal, now I'm kind of losing track of the quarters, but at one point in time, I think the expense synergies were in the $80 to 90 million range. I think the last update that we gave that we expected those to be in the $100 million range.

Speaker #7: I think the last update that we gave, we expected those to be in the $100 million range, and as John said, now we're kind of moving into BAU.

Bob Schrader: As John said, now we're kind of moving into BAU. We'll continue to look for opportunities, and we haven't stopped even though we kinda exceeded our target. I think we have ideas certainly in areas around procurement and things like that. I think there's additional opportunities, but that was kind of the last update on the expense synergies. Then I think the update we gave on revenue synergies was a current year update. You know, we expected it to contribute 30 to 50 basis points of growth this year. I would say we're probably on the high end of that. As John said, we're building momentum. Really, listen, I think the expense synergies are not why we did the deal. I think they probably justified the purchase price.

Speaker #7: We'll continue to look for opportunities. And we haven't stopped even though we kind of exceeded our target. And I think we have ideas certainly in areas around procurement and things like that.

Speaker #7: I think there's additional opportunities. But that was kind of the last update on the expense synergies. And then, I think the update we gave on revenue synergies was a current year update.

Speaker #7: We expected it to contribute 30 to 50 basis points of growth this year. I would say we're probably on the high end of that.

Speaker #7: And as John said, we're building momentum. And really, listen, I think that the expense synergies are not why we did the deal. I think they probably justified the purchase price but really the value creation opportunity longer term with this deal is the cross-sell.

Bob Schrader: Really the value creation opportunity longer term with this deal is the cross-sell. We know we're extremely effective and have driven a lot of growth in our model selling and expanding the share of wallet within our existing client base. When we look at where that growth has come from, our higher value solutions, ASO, PEO, retirement solutions, you know, those are solutions that John mentioned play well more upmarket. Listen, I think we're excited about the opportunity. Paycor

Speaker #7: We know we're extremely effective and have driven a lot of growth in our model selling and expanding the share of wallet within our existing client base.

Speaker #7: When we look at where that growth has come from, our higher value solutions, ASO, PEO, retirement solutions, those are solutions that John mentioned play well more up market.

Speaker #7: And so listen, I think we're excited about the opportunity. Pay core average client size is quite a bit larger than ours. And those clients are more apt to have some of the needs that those solutions meet.

John Gibson: average client size is quite a bit larger than ours, and those clients are more apt to have some of the needs that those solutions meet. We're trying to be intentional and cautious and thoughtful in going after the opportunity. We know that we're extremely effective at doing it. It might not always be the best client experience, and so we're trying to go after it the right way, and we're building a lot of momentum there. As we move forward, we expect to continue to be able to capitalize on that opportunity.

Bob Schrader: average client size is quite a bit larger than ours, and those clients are more apt to have some of the needs that those solutions meet. We're trying to be intentional and cautious and thoughtful in going after the opportunity. We know that we're extremely effective at doing it. It might not always be the best client experience, and so we're trying to go after it the right way, and we're building a lot of momentum there. As we move forward, we expect to continue to be able to capitalize on that opportunity.

Speaker #7: We're trying to be intentional, cautious, and thoughtful in going after the opportunity. We know that we're extremely effective at doing it. It might not always be the best client experience.

Speaker #7: And so we're trying to go after it the right way and we're building a lot of momentum there. And as we move forward, we expect to continue to be able to capitalize on that opportunity.

Speaker #5: That's helpful. And then, just a real quick follow-up—John, you had some great commentary on the AI opportunity. As you think about AI across a 100-person client as opposed to an 8-person client, is the go-to-market strategy on that different in terms of the consumption patterns, or how are you positioning for that? Because, obviously, you serve a terrific market from kind of micro to medium. Just any thoughts on the shift in the go-to-market through an AI lens?

Kevin McVeigh: Helpful. Just a real quick follow-up. John, you had some great commentary on the AI opportunity. As you think about AI across, you know, a 100-person client as opposed to an 800, is the go-to-market strategy on that different in terms of the consumption patterns or, you know, how are you positioning for that? Because obviously, you know, you serve a terrific market from kind of micro to medium. Just any thoughts on, you know, the shift in the go-to-market through an AI lens?

Speaker #7: Well, I think Kevin, I'll take a shot at it. As I said, for the vast majority of our clients, we are their HR department.

John Gibson: Well, I think, Kevin, I'll take a shot at it. As I said, for the vast majority of our clients, we are their HR department. You mentioned an eight-man company. They don't have an HR director, right?

Speaker #7: And you mentioned an eight-man company. They don't have an HR director, right? Probably don't even have a payroll person. And I think the thing that you find with our ASO and our PEO business is that a lot of the clients are foregoing building that capability, right?

Kevin McVeigh: Mm-hmm.

John Gibson: Probably don't have a payroll person. I think the thing that you find with our ASO and our PEO business is that a lot of the clients are foregoing building that capability, right? What they're saying is, "Why would I build a department when I can leverage Paychex at scale, their technology?" Now you get their datasets, our insights, our HR expertise, and depth of knowledge. Oh, by the way, we have actually employment lawyers on staff that support those people, so you're getting, you know, a lot more capability. People are avoiding building HR departments. I think the value proposition there is, I'm going to leverage something at scale, and AI really makes, if you're a scaled player, really makes a big difference, is what I'll tell you.

Speaker #7: So what they're saying is, 'Why would I build a department when I can leverage Paychex at scale?' Their technology—now you get their data sets and our insights, and our HR expertise and depth of knowledge.

Speaker #7: And oh, by the way, we actually have employment lawyers on staff that support those people. So you're getting a lot more capabilities. So people are avoiding building HR departments.

Speaker #7: So I think the value proposition there is, "I'm going to leverage something at scale." And AI really makes if you're a scaled player, really makes a big difference is what I'll tell you because I have a lot more insights about what restaurants are paying in Rochester, New York, or San Francisco.

John Gibson: Because I have a lot more insights about what restaurants are paying in Rochester, New York, or San Francisco. I've got that data. I can bring that together and I'll present it in a way to give you advice. If you had your own HR director, you're not gonna get that. So those are things we can do. When you get into 100 plus, and I would actually say even larger than that, what has been a pleasant surprise to us as we've had more conversations with the Paycor client base, is how much they're looking for our support.

Speaker #7: I've got that data. I can bring that together and now present it in a way to give you advice. If you had your own HR Director, you're not going to get that.

Speaker #7: So those are things we can do. When you get into 100 plus, and I would actually say even larger than that, what's been a pleasant surprise to us as we've had more conversations with the pay core client base, is how much they're looking for our support.

Speaker #7: So now you’re talking a 250- or 500-person company that does have an HR department that’s probably understaffed and under-equipped. And we can bring our expertise, our technology, our additional support staff, and begin to augment their HR organization and allow their people to spend more time on strategic HR activities.

John Gibson: Now you're talking a 250- or 500-person company that does have an HR department that's probably understaffed and underequipped, and we can bring our expertise, our technology, our additional support staff, and begin to augment their HR organization and allow their people to spend more time on strategic HR activity. I think when you start looking at companies trying to figure out, "How do I become more efficient?" What I think you're gonna find companies ask themselves is, "Yeah, do I apply AI into my HR department and try to make it a little more efficient, or should I really radically think about my HR department differently?" Right? "Should I go and leverage someone who can provide both the tools and the people and have the breadth of the data we have to provide the insights?

Speaker #7: So I think when you start looking at companies trying to figure out how do I become more efficient, what I think you're going to find companies ask themselves is, "Yeah, do I apply AI into my HR department and try to make it a little more efficient?

Speaker #7: Or should I really radically think about my HR department differently?" Right? "Should I go and leverage someone who can provide both the tools and the people and have the breadth of the data we have to provide the insights?

Speaker #7: Is that a better alternative?" And that's a traditional enterprise HR outsourcing value proposition. And I think AI allows us to do that at scale.

John Gibson: Is that a better alternative?" That's a, you know, traditional enterprise HR outsourcing value proposition. I think AI allows us to do that at scale, and do it at all sizes of the market. One of the things we've actually began to introduce at Paycor that they didn't have is a managed payroll and a managed benefit offering. Now, you know, where typically the tech players say, "Here's the tool, knock yourself out," we're now, and we're getting clients that are asking us, "Would you mind doing it for us or doing it with us?" Now we're approaching that market with either you can buy our tech and get technical support, or you can come and we can do it for you.

Speaker #7: And do it at all sizes of the market. So one of the things we've actually began to introduce at pay core that they didn't have is a managed payroll and a managed benefit offering.

Speaker #7: So now we're typically the tech players say, "Here's the tool. Knock yourself out. We're now and we're getting clients that are asking us, "Would you mind doing it for us?

Speaker #7: Or doing it with us?" And so now you're approaching that market with either you can buy our tech and get technical support, or you can come and we can do it for you.

Speaker #7: So, I'm really excited about the opportunity here. And I think, at scale, AI takes large data sets. We have large data sets. And I think we can add value to our clients and their HR departments, regardless of whether they're eight people or 100 people.

John Gibson: I'm real excited about the opportunity here, and I think at scale, AI takes large datasets. We have large datasets, and I think we can add value to our clients and their HR departments, regardless of whether they're 8 people or 100 people.

Speaker #1: Thank you. Our next question comes from Samad Samana with Jefferies. Your line is now open.

Operator: Thank you. Our next question comes from Samad Samana with Jefferies. Your line is now open.

Speaker #5: Hi. Good morning, and thanks for taking my questions. Good to hear it sounds like trends are getting pretty good. You'd mentioned recently that maybe the initial land per client was a little bit smaller than historical, or fewer add-on modules at the point of sale.

Samad Samana: Hi, good morning, and thanks for taking my questions. Good to hear, well, it sounds like trends are getting pretty good. You'd mentioned recently that maybe the initial land per client was a little bit smaller than historical or, like, fewer add-on modules at the point of sale. I'm curious if you've seen that trend change as well, if that was a one-time kind of occurrence, what you saw last quarter, and if that's improved. I have one follow-up question. Thank you.

Speaker #5: I'm curious if you've seen that trend change as well. Was that a one-time kind of occurrence, what you saw last quarter, and if that's improved? And then I have one follow-up question.

Speaker #5: Thank you.

Speaker #7: Yeah. Samad, I would say the market's been relatively stable in that regard. I think we probably had higher expectations going into the year about the number of modules that we would be able to add, and I would say that did not change much in Q3 selling season.

John Gibson: Yeah, Samad, I would say that the market's been relatively stable in that regard. I think we probably had higher expectations going into the year about the number of modules that we would be able to, you know, add, and I would say that did not change much in Q3 selling season from what we saw before.

Speaker #7: From what we saw before.

Speaker #5: Understood. And then in the PEO business, I think that as we all try to figure out what's happening underlying the hood in terms of different verticals and what the employment outlook looks there, can you remind us what the kind of vertical exposure inside of the PEO business is broadly speaking versus let's call it white-collar, blue-collar, and then related just as you think about that high single-digit PEO, WSE growth, how much of that is driven by net new deals versus headcount growth within the install base?

Samad Samana: Understood. In the PEO business, you know, I think that as we all try to figure out what's happening under the hood in terms of different verticals and what the employment outlook looks like there, can you remind us what the kind of vertical exposure inside of the PEO business is, broadly speaking, versus, let's call it, white collar, blue collar? Related, just as we think about that high single digit PEO WSE growth, how much of that is driven by net new deals versus headcount growth within the installed base? Thank you again.

Speaker #5: Thank you again.

Speaker #7: Yeah. So on the industry thing, again, as big as we are, we take every we're very broad in terms of where we are. Now, I would say that when you look at our aggregate business because we did an analysis on this, and you look at the actual job codes of our employee bases across the business, and I would say there's not a major variance in the PEO business.

John Gibson: Yeah. On the industry thing, again, as big as we are, we're very broad in terms of where we are. Now, I would say that when you look at our aggregate business, because we did an analysis on this, and you look at the actual job codes of our employee bases across the business, and I would say there's not a major variance in the PEO business. We skew a little bit more towards the blue and gray than what you would see in the general workforce. Again, some of that has to do with, you know, large enterprises are more white collar. Get up 5,000, 10,000, you're gonna have more white collar type of jobs.

Speaker #7: We skew a little bit more towards the blue and gray than what you would see in the general workforce. Again, some of that has to do with large enterprises are more white-collar.

Speaker #7: So, get up to 5,000, 10,000, you're going to have more white-collar type of jobs. So, a little bit more blue and gray across the business.

John Gibson: A little bit more blue and gray across the business, and I think that applies to the PEO. We had good net new client and worksite employee gain in the PEO.

Speaker #7: And I think that applies to the PEO. We had good net new client and work-site employee gain in the PEO. And.

Speaker #4: I would say that's the entire driver. I mean, employment has been relatively flat. And it is most years. I mean, it's driven by the double-digit demand that we talked about, Samad, as well as the record retention.

Bob Schrader: I would say that's the entire driver. I mean, employment has been relatively flat, and it is most years. I mean, it's driven by the double-digit demand that we talked about somewhat, as well as the record retention. It really is, net new is driving the growth in worksite employees.

Speaker #4: So it really is net new is driving the growth and work-site employees.

Speaker #1: Thank you. We'll go next to Ramsey Al-Assaal with Answer Fitzgerald. Your line is now open.

Operator: Thank you. We'll go next to Ramsey El-Assal with Cantor Fitzgerald. Your line is now open.

Speaker #8: Hi. Thank you for taking my question this morning. I wanted to ask about something you mentioned, which was that pay core bookings had re-accelerated to pre-acquisition levels.

Ramsey El-Assal: Hi, thank you for taking my question this morning. I wanted to ask about something you mentioned, which was that Paycor bookings had re-accelerated to pre-acquisition levels. How should we think about the bookings conversion to revenues for Paycor relative to legacy Paychex? Do the larger clients translate into sort of a slower conversion process or not so much?

Speaker #8: How should we think about the bookings conversion to revenues for pay core relative to legacy paychecks to the larger clients translate into sort of a slower conversion process or not so much?

Speaker #7: Yeah, it is a little longer than what we're accustomed to. I think that's a fair point. There's a couple of quarter lag, as near as I can tell.

John Gibson: Yeah, it is a little longer than what we're accustomed to. I think that's a fair point. There's a couple quarters lag as near as I can tell. Again, just what I see in the data is a couple quarters.

Speaker #7: Again, just what I see in the data is a couple of quarters.

Speaker #4: Yeah, obviously it depends on the size of the client. But it is much longer than ours, where you could sell them and implement them in the same day, same week, so.

Bob Schrader: Yeah, it obviously depends on the size of the client.

John Gibson: Size of the client.

Bob Schrader: It is much longer than ours, where we, you know, you could sell them and implement them in the same day, same week. Yep.

Speaker #4: Yep.

Speaker #8: And is that the same for—I mean, I understand that would be the case for sort of a new client implementation. But does that also apply across upsell or new product attach?

Ramsey El-Assal: Is that the same for, I mean, I understand that would be the case for sort of a new client implementation, but is that also applied to cross-sell or new product attach, or is that something that you can kinda turn on more quickly?

Speaker #8: Or is that something that you can kind of turn on more quickly?

Speaker #7: Yeah. That's far more quickly. I mean, again, those cadences if you recall, one of the things, again, that we did is to drive all the disruption up front.

John Gibson: Yeah, that's far more quickly. I mean, again, those cadences, if you recall, one of the things again that we did is to drive all the disruption upfront. We integrated all of our ancillary products, I think it was in probably Q1 post the acquisition. Those things are very similar to legacy Paychex.

Speaker #7: And so we integrated all of our ancillary products within, I think it was in probably the first quarter post the acquisition, so. Those things are very similar to the legacy paychecks.

Speaker #1: Thank you. Our next question comes from James Fawcett with Morgan Stanley. Your line is now open.

Operator: Thank you. Our next question comes from James Faucette with Morgan Stanley. Your line is now open.

Speaker #9: Great, thank you very much. I wanted to ask a quick macro question, and I guess tie it to a margin question. You mentioned that you still see kind of a tight labor environment.

James Faucette: Great. Thank you very much. I wanted to ask a quick macro question and I guess tie it to a margin question. You mentioned that you still see a kind of a tight labor environment. Just wondering if you can provide any anecdotes or color on that comment. As it relates to margins, I know you said that you expect there's some margin expansion to go. Just wondering how we should think about the Paycor integration and how that matures and, you know, getting past some of these acquisition-related costs because they still look elevated. Just looking for a little color on the timing around those couple things. Thanks a lot, guys.

Speaker #9: Just wondering if you can provide any anecdotes or color on that comment. And then as it relates to margins, I know you said that you expect there's some margin expansion.

Speaker #9: Just wondering how we should think about the Paycor integration and how that matures, and getting past some of these acquisition-related costs, because they still look elevated.

Speaker #9: Just looking for a little color on the timing around those couple of things. Thanks a lot, guys.

Speaker #7: Well, I think on the macro side, I think what we said is, and what we see is that it's been relatively stable. It's really a low fire and a low hire type of environment right now.

John Gibson: Well, I think on the macro side, I think what we said is and what we see is that it's been relatively stable. It's really a low fire and a low hire type of environment right now. We've not seen a significant change in this fiscal year in terms of the small business index that we report. Again, I think we're in a dynamic environment right now where again, what we hear from clients, particularly in the small end of the market, less than 50, is continued inability to find qualified people for the jobs that they have open, and we're doing a lot of things to try to support them there.

Speaker #7: We've not seen a significant change in the in this fiscal year in terms of the small business index that we report. And again, I think we're in a dynamic environment right now where again, what we hear from clients, particularly in the small end of the market, less than 50, is continued inability to find qualified people for the jobs that they have open.

Speaker #7: And we're doing a lot of things to try to support them there. And then I think you got a degree of potential hesitancy to add in this uncertain environment as you move up market.

John Gibson: I think you got a degree of potential hesitancy to add in this uncertain environment, as you move up market. Again, when we look across the business, it's been relatively flat employment levels.

Speaker #7: But again, when we look across the business, it's been relatively flat employment levels.

Speaker #4: Yeah. And just on the integration-related stuff question as it relates to margin, James, I mean, we're backing a lot of that stuff out. So that's really not included in the adjusted operating margins.

Bob Schrader: Yeah, just on the integration-related stuff and question and as it relates to margin, James, I mean, we're backing a lot of that stuff out, so that's really not included in the adjusted operating margins. You know, I think if you were to look at our margins from a GAAP standpoint, they're still pretty high, probably in the 40% range. I think John hit on it. I think we still think there's room as we move forward, as we continue to embed AI in all of our processes across the company. We feel like there's still plenty of room to expand margins.

Speaker #4: I think if you were to look at our margins from a gap standpoint, they're still pretty high, probably in the 40% range. But I think John hit on it.

Speaker #4: I think we still think there's room as we move forward, as we continue to embed AI in all of our processes across the company.

Speaker #4: We feel like there's still plenty of room to expand margins. That's certainly part of our DNA. And we're always trying to make that trade-off of trying to find ways to be more productive, more efficient.

Bob Schrader: That's certainly part of our DNA, and we're always, you know, trying to make that trade-off of trying to find ways to be more productive, more efficient, so we can, you know, expand margins, continue to deliver the strong, you know, earnings growth that our investors have come accustomed to. At the same time making sure that we're investing back into the business, which is a priority for us to make sure, you know, we have a sustainable model as we move forward. That's been our model. That's how we go about our business here.

Speaker #4: So we can expand margins continue to deliver the strong earnings growth that our investors have come accustomed to. And at the same time, making sure that we're investing back into the business, which is a priority for us to make sure we have a sustainable model as we move forward.

Speaker #4: So, we'll continue to—that's been our model. That's how we go about our business here, and I think today, just, margins are high from a non-GAAP standpoint.

Bob Schrader: I think today just margins are high from a non-GAAP standpoint, but given some of the advancements in technology, we feel like we still have a runway to be able to, you know, shuffle all those different priorities, and expand margins.

Speaker #4: But given some of the advancements in technology, we feel like we still have a runway to be able to shuffle all those different priorities and expand margins.

Speaker #9: Thanks so much, John. Thanks, Bob.

Speaker #4: Yep.

James Faucette: Thanks so much, John. Thanks, Bob.

Bob Schrader: Yep.

Speaker #1: Thank you. Our next question comes from Daniel Jester with BL Capital Markets. Your line is now open.

Operator: Thank you. Our next question comes from Daniel Jester with BMO Capital Markets. Your line is now open.

Speaker #10: Hey. Good morning. This is Kyle Aberastrion for Dan Jester. Thank you for squeezing me in here. Just a quick one from me. I was wondering if you guys quantified how much impact the annual form filing revenue had on the business in the quarter?

John Gibson: Hey, good morning. This is Kyle Aberasturi on for Daniel Jester. Thank you for squeezing me in here. Just a quick one from me. I was wondering if you guys quantified how much impact the annual form filing revenue had on the business in the quarter. Thank you.

Kyle Aberasturi: Hey, good morning. This is Kyle Aberasturi on for Daniel Jester. Thank you for squeezing me in here. Just a quick one from me. I was wondering if you guys quantified how much impact the annual form filing revenue had on the business in the quarter. Thank you.

Speaker #10: Thank you.

Speaker #4: How much impact it had? I mean, it's always a large number in Q3. I would say it's probably consistent with maybe where it was in prior years.

Bob Schrader: How much impact it had on. I mean, it's always a large number in Q3. I would say it's probably consistent with

John Gibson: How much impact it had on. I mean, it's always a large number in Q3. I would say it's probably consistent with

John Gibson: Maybe where it was in prior years. Obviously, it's pretty high margin revenue, so that's why you see the higher margins in Q3 relative to the rest of the year. I'd say the one comment that they're related to the year-end filing, we definitely saw a little bit better price realization there. Discounting on that was better than what we had seen historically, and certainly a little bit better than what we had assumed in our forecast. That is a lever that sales reps can use, particularly as they're getting towards the end of the calendar year and selling new deals. That's kind of a discounting lever that they use.

Speaker #4: Obviously, it's pretty high margin revenue. So that's why you see the higher margins in Q3 relative to the rest of the year. I'd say the one comment that they're related to the year-end filing, we definitely saw a little bit better price realization there, discounting on that was better than what we had seen historically.

Speaker #4: And certainly, a little bit better than what we had assumed in our forecast. That is a lever that sales reps can use, particularly as they're getting towards the end of the calendar year and selling new deals.

Speaker #4: That's kind of a discounting lever that they use. And we fly a little bit blind in finance because we don't really know how that's going to come through until it actually bills in January.

John Gibson: We fly a little bit blind in finance because we don't really know how that's gonna come through until it actually bills in January. I would tell you the discounting on it and the price realization was a bit better than what we assumed. You know, not a big growth driver year over year and similar performance probably than what we've seen in past years.

Speaker #4: And I would tell you that the discount on it in the price realization was a bit better than what we assumed. But not a big growth driver year over year in similar performance, probably than what we've seen in past years.

Speaker #1: Thank you. Our next question comes from David Grossman with Stifel. Your line is now open.

Operator: Thank you. Our next question comes from David Grossman with Stifel. Your line is now open.

Speaker #10: Good morning. Thank you. I think last quarter, your bias was the low end of the revenue growth range. And I'm just wondering, and reiterating the guide that we still favoring the low end or just given some of your commentary about the third quarter and going into the fourth quarter, are you feeling better about the business and feeling maybe we're better than the low end?

David Grossman: Good morning. Thank you. You know, I think last quarter, your bias was the low end of the revenue growth range. I'm just wondering, in reiterating the guide, are we still favoring the low end? Or just given some of your commentary about Q3 and going into Q4, are you feeling better about the business and feeling maybe we're better than the low end?

Speaker #7: Yeah. I think we would stay where we're at, David. That's why we reiterated as we mentioned, "Listen, I think we are a little bit conservative than what we guided towards in Q3." There were some puts and takes.

John Gibson: Yeah, I think we would stay where we're at, David. That's why we reiterated, as we mentioned. Listen, I think we were a little bit conservative than what we guided towards in Q3. There were some puts and takes. I mean, obviously we feel good about the business. We felt good about the business last quarter as well. It's nice getting through Q3 and putting up the quarter that we had. You know, John mentioned a lot of positive momentum. You know, I'd have to say it's probably one of the stronger selling seasons that I've seen in a while, and we have a lot of momentum in a number of businesses, so we feel good.

Speaker #7: I mean, obviously, we feel good about the business. We felt good about the business last quarter as well. It's nice getting through Q3 and throwing up the quarter that we had.

Speaker #7: John mentioned a lot of positive momentum. I'd have to say it's probably one of the stronger selling seasons that I've seen in a while.

Speaker #7: And we have a lot of momentum in a number of businesses. So we feel good. I mean, obviously, that translates into the P&L further down the road, particularly when you're talking about the enterprise space.

John Gibson: I mean, obviously that translates into the P&L, you know, further down the road, particularly when, you know, when you're talking about, you know, the enterprise space. I'd say largely the H2, as I mentioned, is in line with our expectations and, you know, that's why we're kind of leaving it where we had said it was gonna be, last quarter.

Speaker #7: And so, I'd say largely the back half, as I mentioned, is in line with our expectations, and that's why we're kind of leaving it where we had said it was going to be last quarter.

Speaker #10: Got it. And sorry to kind of stick on the financials here, but just you did make a general comment about a certain level of comfort with work consensus was for next year.

David Grossman: Got it. Sorry to kind of stick on the financials here, but just, you know, you did make a general comment about a certain level of comfort with where consensus was for next year. I know you don't wanna make any specific comments about next year, but is there anything now that you're a combined company that, you know, how we should think about PEOs or pricing and management solutions going into next year? You know, particularly given now that we've got Paycor in the base. I know you, it sounds like PEOs look like they're, you know, pretty stable, but thought I should just ask the question. Anything you wanna call out there on either PEOs or pricing?

Speaker #10: And I know you don't want to make any specific comments about next year, but is there anything now that you're a combined company that how we should think about PAYS or pricing and management solutions going into next year?

Speaker #10: Particularly given now that we've got Paycor in the base, I know it sounds like PAYS looks like they're pretty stable, but thought I should just ask the question: anything you want to call out there on either PAYS or pricing?

Speaker #4: No, David, I don't think there's any changes that we're making in any of our assumptions. I think, as you know, we had clients of all sizes before we had Paycor.

John Gibson: No, David, I don't think there's any changes that we're making in any of our assumptions. I think as you know, we had clients of all sizes before we had Paycor. We've added more upmarket, but I think relative to our assumptions and what we're expecting, you know, we're expecting very similar macro environment that we're seeing right now in a very uncertain time. That's the other thing that, you know, I'm sure Bob and I are going to be having a lot of conversations about. By the time we, you know, consult with the board in a few months, and we come back to you, hopefully, we have even more certainty about the external environment and what the risks are going into 2027.

Speaker #4: We've added more up market. But I think, relative to our assumptions and what we're expecting, we're expecting a very similar macro environment to what we're seeing right now in a very uncertain time.

Speaker #4: And that's the other thing that I'm sure Bob and I are going to be having a lot of conversations about. And by the time we consult with the board, and in a few months when we come back to you, hopefully we have even more certainty about the external environment and what the risks are going into '27.

Speaker #4: So we're trying to be prudent here. As you can imagine, this is a very unique time on a macro basis. And every day, something could change.

John Gibson: We're just trying to be prudent here. As you can imagine, this is a very unique time on a macro basis, and every day something could change that could impact where we are. Right now, we feel in good shape. What we're seeing is a stable macro environment, no signs of recession in any of our data or indicators. Nothing that would indicate that we would change what we're thinking in terms of pace on any of our segments at this point in time.

Speaker #4: That could impact where we are. Right now, we feel in good shape. What we're seeing is stable macro environment. No signs of recession in any of our data indicators.

Speaker #4: Nothing that would indicate that we would change. What we're thinking in terms of PAYS on any of our segments at this point in time.

Speaker #1: Thank you. Our next question comes from Jacob Smith with Guggenheim Securities. Your line is now open.

Operator: Thank you. Our next question comes from Jacob Smith with Guggenheim Securities. Your line is now open.

Speaker #11: Hey. Thanks for taking my question. Quick one, just a second company in the mid-market through Paycor. It's really talking about expanding headcount to capture opportunity.

Jacob Smith: Hey, thanks for taking my question. Quick one. Just in a second company in the mid-market through Paycor, you really talk about expanding headcount to capture opportunity. Just what are you seeing out there that's giving you conviction?

Speaker #11: Just what are you seeing out there that's given you conviction?

Speaker #4: Well, I think the key thing is going into that, we have a list of we know who the clients are and the prospects are.

John Gibson: Well, I think the key thing is, going into that, you know, we know who the clients are and the prospects are, and we have territories, and we have open territories that we wanna fill. We're continuing to expand that. I think before we bought Paycor, they were expanding headcount because they saw more opportunity. We believe now with our comprehensive offerings that we have, the opportunity has expanded. That's what gives us confidence to be able to expand the headcount and go after and capture the upmarket, not only for HCM, but as I said, really you're bringing our entire HR advisory value proposition to the enterprise market.

Speaker #4: And we have territories. And we have open territories that we want to fill. And so we're continuing to expand that. I think before we bought Paycor, they were expanding headcount because they saw more opportunity.

Speaker #4: And we believe now with our comprehensive offerings that we have, the opportunity has expanded. And so that's what gives us confidence to be able to expand the headcount and go after and capture the up market, not only for HCM, but as I said, really, you're bringing our entire HR advisory value proposition to the enterprise market.

Speaker #11: That's great. Thanks for taking my question.

Jacob Smith: Great. Thanks for taking my question.

Speaker #1: Thank you. Our next question comes from Ashish Sabadra with RBC Capital Markets. Your line is now open.

Operator: Thank you. Our next question comes from Ashish Sabadra with RBC Capital Markets. Your line is now open.

Speaker #12: Thanks for taking my question. I was wondering if you could provide some color on the year-on-year growth in Paycor in the quarter and if you could quantify the contribution for form filings for Paycor in the quarter.

Ashish Sabadra: Thanks for taking my question. I was wondering if you could provide some color on the year-on-year growth in Paycor in the quarter. If you could quantify the contribution from filings for Paycor in the quarter? Thanks.

Speaker #12: Thanks.

Speaker #4: Yeah, Ashish. I mean, I think as we've talked about in the past, the lines are somewhat blurred and have become increasingly blurred between what's Paycor and what's Paychex.

John Gibson: I think as we've talked about in the past, you know, the lines are somewhat blurred and have become increasingly blurred between what's Paycor and what's Paychex, you know, based on our early on decision to integrate those two businesses. I think if we look at it, you know, our best estimate is if you were to look at the organic growth of the Paycor business, it was consistent in Q3 with what we saw in H1, which is in that upper single-digit range. I would tell you what's less blurred, and this is how we'll talk about the business as we move forward, is when we look at our enterprise business.

Speaker #4: Based on our early-on decision to integrate those two businesses, I think if we look at it, our best estimate is, if you were to look at the organic growth of the Paycor business, it was consistent in Q3 with what we saw in the first half of the year, which is in that upper single-digit range.

Speaker #4: I would tell you what's less business as we move forward is when we look at our enterprise business. So when we look at our client base, above 100, irrespective of whether which sales organization sold it, which platform that it was on, that business has been growing, I would tell you, in the first half of the year, it was growing upper single digits.

John Gibson: When we look at our client base above 100, irrespective of whether, you know, which sales organization sold it, which platform that it was on, you know, that business has been growing. I would tell you in H1, it was growing upper single digits, and in Q3, it grew around 10%. That's how we're managing the business. That's how John and I are thinking about it. That's how we're going to market. You know, as we move forward after we anniversary the acquisition and we provide color on, you know, the different areas of the business and how they're performing, that's how we're gonna be looking at it.

Speaker #4: And in Q3, it grew around 10%. And so that's how we're managing the business. That's how John and I are thinking about it. That's how we're going to market.

Speaker #4: And as we move forward after we anniversary the acquisition and we provide color on the different areas of the business and how they're performing, that's how we're going to be looking. I think that's similar and maybe not too different than what the other assets in that space are growing at, and our expectation would be that we would prospectively be growing at or above the other assets in that segment of the market.

John Gibson: Again, I think that's, you know, similar and maybe not too different than what the other assets in that space are going at. Our expectation would be that we would, you know, prospectively be growing at or above the other assets in that segment of the market. That's currently where that enterprise space performed in Q3.

Speaker #4: And that's currently where that enterprise space performed in Q3.

Speaker #12: That's very helpful color. I was just wondering if you had some initial thoughts on pricing for next year and how does that trend compare to your historical range?

Ashish Sabadra: That's very helpful color. I was just wondering if you had some initial thoughts on pricing for next year, and how does that trend compare to your historical range? Also maybe a quick one on discounting. You made some comment around discounting was much lower. I think that was specifically for forms filing. I was wondering if you could comment on discounting for ASO in general. Thanks.

Speaker #12: And also maybe a quick one on discounting. You made some comment around discounting was much lower I think that was specifically for form filing.

Speaker #12: I was wondering if you could comment on discounting for ASO in general. Thanks.

Speaker #4: Yeah. So I'm going to say this. We're going into our budget meeting. This is where we discuss competitively how we want to position ourselves going into the next market.

John Gibson: Yeah, I'm gonna say this, we're going into our budget meeting. This is where we discuss competitively how we wanna position ourselves going into the next market. We have a tradition of being able to drive value to our clients and get price accordingly. I'm not gonna make any comments on how we're going to set pricing going into next year at this time. I don't wanna give anybody a heads up. I think our model and our long-term model is still in existence and viable. We're not gonna talk about the exact ranges we're looking at.

Speaker #4: We have a tradition of being able to drive value to our clients and get price accordingly. So I'm not going to make any comments on how we're going to set pricing going into next year at this time, so.

Speaker #4: I don't want to give anybody a heads-up. But I think our model, and our long-term model, is still in existence and viable. But we're not going to talk about the exact ranges we're looking at.

Speaker #1: Thank you. Our next question comes from Scott Wertel with Wolf Research. Your line is now open.

Operator: Thank you. Our next question comes from Scott Wurtzel with Wolfe Research. Your line is now open.

Speaker #13: Hey, guys. Thanks for squeezing me in. I'll limit it to one. Just going back to the PER. I mean, it sounded like your commentary on enrollment sounded pretty positive.

Speaker 16: Hey, guys. Thanks for squeezing me in. I'll limit it to one. Just going back to the P, I mean, it sounded like your commentary on enrollment sounded pretty positive. And-

Scott Wurtzel: Hey, guys. Thanks for squeezing me in. I'll limit it to one. Just going back to the P, I mean, it sounded like your commentary on enrollment sounded pretty positive. And-

Speaker #13: And I remember, I think you guys made some changes to benefits offerings and everything. But I also wonder, is there any element, do you think, that employees are maybe just sort of adjusting to this higher healthcare premium inflation environment?

John Gibson: Yeah.

Speaker 16: You know, I remember I think you guys made some changes to benefits offerings and everything, but I also wonder, is there any element of you think that employees are maybe just sort of adjusting to this higher healthcare premium inflation environment, and that could also be, you know, kind of helping to drive some of this enrollment growth that we've seen as well? Thanks.

Scott Wurtzel: You know, I remember I think you guys made some changes to benefits offerings and everything, but I also wonder, is there any element of you think that employees are maybe just sort of adjusting to this higher healthcare premium inflation environment, and that could also be, you know, kind of helping to drive some of this enrollment growth that we've seen as well? Thanks.

Speaker #13: And that could also be kind of helping to drive some of this enrollment growth that we've seen as well. Thanks.

Speaker #4: Yeah. Yeah, Scott. I think everyone's adjusting. I think we adjusted our plan designs. I think employees are adjusting in terms of what they're going to do in employers are adjusting how they're going.

John Gibson: Yeah. Yeah, Scott, I think everyone's adjusting. I think we adjusted our plan designs. I think employees are adjusting in terms of what they're gonna do, and employers are adjusting how they're going. You know, I mentioned the use of AI. I will say this. In tests where AI was used and where it wasn't, the choices that employees made, I think improved their outcomes and improved our outcomes. So that. What do I mean by that? As you know, you can immediately go to the cheapest plan. But given your circumstances or what you spent last year or changes that may have happened in your life relative to, you know, dependents, that may not be the most economic plan for you to participate.

Speaker #4: I mentioned the use of AI I will say this. In tests, where AI was used and where it wasn't, the choices that employees made I think improved their outcomes and improved our outcomes.

Speaker #4: So what do I mean by that? As you know, you can immediately go to the cheapest plan. But given your circumstances or what you spent last year or changes that may have happened in your life relative to dependents, that may not be the most economic plan for you to participate in these AI tools' ability to model that for you and for you to maybe make the middle plan choice versus the lower-end plan choice is, like I said, a better outcome for the participant and, of course, the impacts benefit for us as well because it's a higher-priced plan.

John Gibson: These AI tools' ability to model that for you and for you to maybe make the middle plan choice versus the lower-end plan choice is, as I said, a better outcome for the participant and of course that impacts benefit for us as well because it's a higher priced plan.

Speaker #13: Great. Thanks, guys.

Speaker #4: Thanks, Scott.

Speaker 16: Great. Thanks, guys.

Scott Wurtzel: Great. Thanks, guys.

Speaker #1: Thank you. Our next question comes from Hartik Mehta with North Coast Research. Your line is now open.

John Gibson: Thanks, Scott.

Operator: Thank you. Our next question comes from Kartik Mehta with Northcoast Research. Your line is now open.

Speaker #14: Hey, good morning, John and Bob. John, we talked to Bob Paycor Revenue Synergies as we go into FY27. And the opportunity to really take advantage of that.

Speaker 17: Hey, good morning, John and Bob. John, you know, you talked about Paycor revenue synergies as we go into FY 2027 and the opportunity to really take advantage of that. I'm wondering, you know, how the sales force alignment is going because I'm guessing, you know, that's part of the revenue synergies that you'd be able to capture.

Kartik Mehta: Hey, good morning, John and Bob. John, you know, you talked about Paycor revenue synergies as we go into FY 2027 and the opportunity to really take advantage of that. I'm wondering, you know, how the sales force alignment is going because I'm guessing, you know, that's part of the revenue synergies that you'd be able to capture.

Speaker #14: I'm wondering, how the Salesforce alignment is going? Because I'm guessing that's part of the revenue synergies that you'd be able to capture.

Speaker #4: Yeah, so on the alignment, clear-carded, and I think this is the challenge. And hopefully, we don't talk about Paycor anymore going forward, because Paycor, for us, is a brand that we're using to go and target the enterprise market as we're deciding 100-plus.

John Gibson: Yeah. On the alignment question, just so everyone's kind of clear, Kartik, and this is the challenge and that, you know, hopefully we don't talk about Paycor anymore going forward. Because Paycor for us is a brand that we're using to go and target the enterprise market as we're designing 100+. We've taken all the assets of the company, regardless of where they were, and we've placed them in that business unit for that unit to focus on that particular market. We're doing marketing there specifically for that target segment. Now we're spending marketing money in that segment. We're putting sales reps into that segment to go after that segment, and we're going to capture as much of the market as we can at 100+.

Speaker #4: And we've taken all the assets of the company, regardless of where they were, and we've placed them in that business unit for that unit to focus on that particular market.

Speaker #4: We're doing marketing there specifically for that target segment. So now we're spending marketing money in that segment. We're putting sales reps into that segment to go after that segment.

Speaker #4: And we're going to capture as much of the market as we can at 100-plus. Now, let's say a lead comes in digitally from marketing spend at Paycor.

John Gibson: Now, once, let's say, a lead comes in digitally from marketing spend at Paycor, and we look at that lead, and we go, "Hey, that looks like a great PEO opportunity." We're gonna move that over to the PEO, right? Now all of a sudden you've got an expense that's on the Paycor side of the equation. Same thing is happening with our reps as well. We've got the segmentation, if this is your question, of the sales force is clear. How we're going to market from a brand perspective is clear. What we're doing is both in terms of using our AI and also our incentives for all of our sales reps, is making sure we have every sales rep in the market looking and representing the entire capabilities of the company.

Speaker #4: And we look at that lead and we go, 'Hey, that looks like a great PO opportunity.' We're going to move that over to the PO.

Speaker #4: Right? And so, all of a sudden, you've got an expense that's on the Paycor side of the equation. Same thing is happening with our reps as well.

Speaker #4: So we've got this segment. If this is your question, the segmentation of the Salesforce is clear. How we're going to market from a brand perspective is clear.

Speaker #4: And then what we're doing is, both in terms of using our AI and also our incentives for all of our sales reps, making sure we have every sales rep in the market looking and representing the entire capabilities of the company.

Speaker #4: And so that goes back to every rep is representing the comprehensive capabilities of the company where that's technology, whether that's the platform, whether that's do-it-yourself, do-it-for-you, or do-it-with-you.

John Gibson: that goes back to every rep is representing the comprehensive capabilities of the company, whether that's technology, whether that's the platform, whether that's do it yourself, do it for you, or do it with you. We're offering every rep in every market the capability to do that, if that makes sense.

Speaker #4: We're offering every rep and every market the capability to do that, if that makes sense.

Speaker #13: Yeah. And then just a follow-up question, Bob. And this might be crazy considering it's Paychex, but I thought I'd ask anyway. Any thought about potentially using a little bit of leverage to buy back stock, considering where the stock price is?

Speaker 17: Yeah. Then just a follow-up question, Bob, and this might be crazy considering it's Paychex, but I thought I'd ask anyway. Any thought about potentially using a little bit of leverage to buy back stock considering where the stock price is?

Kartik Mehta: Yeah. Then just a follow-up question, Bob, and this might be crazy considering it's Paychex, but I thought I'd ask anyway. Any thought about potentially using a little bit of leverage to buy back stock considering where the stock price is?

Speaker #4: Yeah. I mean, listen, I think you saw our we just recently announced a new share back authorization significantly larger than what we've had in the past.

Bob Schrader: Yeah, I mean, Kartik, listen, I think you saw our we just recently announced a new share buyback authorization significantly larger than what we've had in the past. When you look at, you know, there's obviously, at least in my opinion, there's a disconnect between the underlying fundamentals of the business and the valuation, and that obviously, you know, I was always taught to, you know, buy low and sell high. You, you've seen us be a little bit more opportunistic there. I would tell you, I don't think we've necessarily changed our overall philosophy around share buybacks, but we know we're gonna have to buy shares back in the future to offset dilution.

Speaker #4: And when you look at it, there's obviously, at least in my opinion, a disconnect between the underlying fundamentals of the business and the valuation.

Speaker #4: And that obviously I was always taught the buy low and sell high. And so you've seen us be a little bit more opportunistic there, I would tell you.

Speaker #4: I don't think we've necessarily changed our overall philosophy around share buybacks, but we know we're going to have to buy shares back in the future to offset dilution.

Speaker #4: And we've done more of that this year than what we normally would have. As you guys can see in some of the disclosures. So I don't ever want to say never.

Bob Schrader: We've done more of that this year than what we normally would have, as you guys can see in some of the disclosures. You know, I don't ever wanna say never. You know, our leverage is pretty low. That's obviously a board-level decision. As you can imagine, I'm assuming a lot of CEOs and CFOs are in this market are having these conversations with their board on a regular basis, and Jon and I are certainly doing that. We'll continue. You know, we have lots of priorities from a capital allocation standpoint. Certainly wanna continue to invest in the business, but we'll continue to have those conversations. I don't wanna say never, but you know, it's something that we'll continue to evaluate.

Speaker #4: Our leverage is pretty low. That's obviously a board-level decision. And as you can imagine, I'm assuming a lot of CEOs and CFOs are in this market are having these conversations with their board on a regular basis and John and I are certainly doing that.

Speaker #4: And so we'll continue to we have lots of priorities from a capital allocation standpoint. Certainly want to continue to invest in the business. But we'll continue to have those conversations.

Speaker #4: So, I don't want to say never, but it's something that we'll continue to evaluate.

Speaker #1: Thank you. And our next question comes from Jason Kupferberg with Wells Fargo. Your line is now open.

Operator: Thank you. Our next question comes from Jason Kupferberg with Wells Fargo. Your line is now open.

Speaker #15: Thanks, guys. Good morning. I wanted to ask about management solutions specifically. I think the organic growth was 4% in the quarter. I think that's the same as we saw last quarter.

Speaker 18: Thanks, guys. Good morning. I wanted to ask about Management Solutions specifically. I think the organic growth was 4% in the quarter. I think that's the same as we saw last quarter. Do we expect that to accelerate in Q4? And if so, is that because you'll start to lap Paycor during the quarter, or would there be other accelerants we should be considering? Thanks.

Jason Kupferberg: Thanks, guys. Good morning. I wanted to ask about Management Solutions specifically. I think the organic growth was 4% in the quarter. I think that's the same as we saw last quarter. Do we expect that to accelerate in Q4? And if so, is that because you'll start to lap Paycor during the quarter, or would there be other accelerants we should be considering? Thanks.

Speaker #15: Do we expect that to accelerate in Q4? And if so, is that because you'll start to lap Paycor during the quarter? Or would there be other accelerants we should be considering?

Speaker #15: Thanks.

Speaker #4: Yeah. Hey, Jason. Yes. I would say I think it was 4 in Q2 and 4 in Q3. I would tell you one was a roundup and one was probably a rounddown.

Bob Schrader: Yeah. Hey, Jason. Yes. I would say, you know, I think it was four in Q2 and four in Q3. I would tell you one was a round up and one was probably a round down. You're also seeing a sequential improvement in the organic growth of Management Solutions as well. Part of it is when you get to Q4, you know, we would expect that to continue and maybe accelerate a little bit to the point that you're making. You're anniversarying the acquisition, so now we, you know, we have a scale business that's growing, you know, faster than the overall growth of the business. That would be accretive to the organic growth. We're continuing to build momentum on the synergy opportunity.

Speaker #4: And so you're also seeing a sequential improvement in the organic growth of management solutions as well. Part of it is when you get to Q4, we would expect that to continue and maybe accelerate a little bit.

Speaker #4: To the point that you're making your anniversary in the acquisition. So now we have a scaled business that's growing faster than the overall growth of the business.

Speaker #4: So, that would be a creative to the organic growth. And then we're continuing to build momentum on the synergy opportunity. And I think that showed up in the Q3 selling results.

Speaker #4: And that'll eventually make its way into P&L. And so you should see improvement in management solutions organic growth as we move into Q4 as well.

Bob Schrader: I think that showed up in the Q3 selling results, and that'll eventually make its way into P&L. You should see improvement in Management Solutions organic growth as we move into Q4 as well.

Speaker #15: Okay. Understood. And then just a clarification. I know we're not changing EPS guidance, but we did up the float income guide a little bit, which I would have thought would have lifted the EPS.

Speaker 18: Okay. Understood. Just a clarification. I know we're not changing EPS guidance, but we did up the float income guide a little bit.

Jason Kupferberg: Okay. Understood. Just a clarification. I know we're not changing EPS guidance, but we did up the float income guide a little bit.

Bob Schrader: Yeah.

Speaker #15: I don't know. Maybe a percent or so. I mean, there's only a quarter left in the year. So just curious, is it just some conservatism there leaving the EPS guide as is?

Speaker 18: which I would have thought would have lifted the EPS, I don't know, maybe 1% or so. I mean, there's only a quarter left in the year. So just curious, is it just some conservatism there, leaving the EPS guide as is? Or are you gonna reinvest some of that, upside floating income?

Jason Kupferberg: which I would have thought would have lifted the EPS, I don't know, maybe 1% or so. I mean, there's only a quarter left in the year. So just curious, is it just some conservatism there, leaving the EPS guide as is? Or are you gonna reinvest some of that, upside floating income?

Speaker #15: Or are you going to reinvest some of that upside float income?

Speaker #4: Yeah, probably a combination of both. I think we're certainly going to look for opportunities as we move through the balance of this year to invest.

Bob Schrader: Yeah, it's probably a combination of both. I think we're certainly gonna look for opportunities as we move through the balance of this year to invest. We wanna get out of the gate strong when we get into next fiscal year. It's always balancing those trade-offs, Jason. You know, Jon and I will manage through that as we go through the quarter and see where the opportunities are. It's really, you know, a combination of maybe a little conservatism and where we may potentially wanna take advantage and make some investments as we end the year.

Speaker #4: We want to get out of the gate strong when we get into next fiscal year. So it's always balancing those trade-offs, Jason. John and I will manage through that as we go through the quarter and see where the opportunities are.

Speaker #4: But it's really a combination of maybe a little conservatism and where we may potentially want to take advantage and make some investments as we end the year.

Speaker #15: Yeah. The great position we find ourselves in is we have plenty of opportunities for investment coming out of the third quarter that have the opportunity to both accelerate growth and accelerate margin expansion.

John Gibson: Yeah. The great position we find ourselves in is we have plenty of opportunities for investment coming out of Q3 that have the opportunity to both accelerate growth and accelerate margin expansion. That's, you know, we've got a lot of decisions to make over the next couple of weeks as we get to our planning process. Anything that we're thinking is a good investment in Q1 2027, I don't think that we wanna wait to make that investment. We're certainly trying to contemplate that as we go into our planning session next week.

Speaker #15: And that's we've got a lot of decisions to make over the next couple of weeks as we get to our planning process. And anything that we're thinking is a good investment in the first quarter in '27, I don't think that we want to wait to make that investment.

Speaker #15: So we're certainly trying to contemplate that as we go into our planning session next week.

Speaker #1: Thank you. At this time, there are no further questions. NQ. I will now turn the meeting back to John Gibson.

Operator: Thank you. At this time, there are no further questions in queue. I will now turn the meeting back to John Gibson.

Speaker #15: Okay. Well, thank you, everyone. Just a highlight. We delivered a strong double-digit revenue and earnings growth, continuing just really to reflect, I think, very disciplined execution and focus of the teams.

John Gibson: Okay. Well, thank you everyone. Just to highlight, we delivered a strong double-digit revenue and earnings growth, continuing just really to reflect, I think, very disciplined execution and focus of the teams. I do want to call out, you know, we're approaching a one-year anniversary mark of the acquisition of Paycor, and I want to call out the Paycor team in particular. The group's been through a lot. If you think back a year ago this day and what we were starting to prepare for and take the organization through. I think the way that we've responded and the way we've continued to come together and build momentum as this fiscal year has come together has been just really impressive.

Speaker #15: I do want to call out we're approaching a one-year anniversary mark of the acquisition of Paycor. And I want to call out the Paycor team in particular.

Speaker #15: The group's been through a lot. If you think back a year ago, this day, and what we were starting to prepare for and take the organization through.

Speaker #15: And I think the way that we've responded and the way we've continued to come together and build momentum as this fiscal year has come together has been just really impressive.

Speaker #15: I said it a year ago: we will be better together. And we are better together. And I point to you the example of what we did in the PEO industry, and how we focused on that strategically many years ago.

John Gibson: I said it a year ago, we will be better together, and we are better together. You know, I point to you the example of, you know, what we did in the PEO industry and how we focused on that strategically many years ago. I think that's a good model for us to replicate as we go into fiscal year 2027 and beyond, in the enterprise space. I think Paychex has never been better positioned than it is today. I think we've differentiated ourselves in the marketplace repeatedly.

Speaker #15: I think that's a good model for us to replicate as we go into fiscal year '27 and beyond in the enterprise space. So I think Paychex has never been better positioned than it is today.

Speaker #15: I think we've differentiated ourselves in the marketplace repeatedly. I think in this new AI era, our scale, our breadth, our capabilities from an expertise perspective, and the fact that we're dealing in mission-critical type of work, where errors are costly, I think that you're going to continue to find more and more clients of all sizes turn to Paychex to be their HR department and to provide them leading-class technology and advisory solutions in the years ahead.

John Gibson: I think in this new AI era, our scale, our capabilities from an expertise perspective, and the fact that we're dealing in mission-critical type of work where errors are costly, I think that you're gonna continue to find more and more clients of all sizes turn to Paychex to be their HR department and to provide them leading class technology and advisory solutions in the years ahead. I like where we're positioned, and I wanna thank you for your interest in Paychex.

Speaker #15: So, I like where we're positioned, and I want to thank you for your interest in Paychex.

Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Q3 2026 Paychex Inc Earnings Call

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