Mark Marcon

Mark Marcon asked about the specific areas where AI is causing disintermediation in finance and accounting roles, its widespread impact, and RGP's adjustments. He also inquired about the focus areas for scaling RGP's consulting business, clarification on SG&A guidance, the impact of healthcare costs, and CEO Roger Carlile's strategic vision for the next 12-24 months.

Answer

CEO Roger Carlile and COO Bhadresh Patel explained that AI primarily impacts operational and transactional accounting roles, with clients in an experimental phase. They noted a shift towards higher-level skills and AI knowledge. Roger Carlile identified consulting growth areas as financial transformation, technology, data analytics, risk, and tax. CFO Jenn Ryu clarified that Q3 SG&A guidance of $40M-$42M is exclusive of $6M-$7M in non-run rate costs and attributed a $1M+ Q2 healthcare cost impact to an anomaly. Roger Carlile outlined a strategy to align cost structure, optimize on-demand services, and scale consulting.

Mark Marcon inquired about the breakdown of the revenue guidance between segments, specifically for consulting and on-demand talent, and asked about any regional differences in demand within the U.S. for these segments. He also asked about the location of the new CFO advisory leader.

Answer

Jenn Ryu (CFO, RGP) indicated that Europe and Asia-Pacific would continue to show strength, while on-demand and consulting trends would be similar to Q1, contingent on pipeline conversion. Kate Duchene (CEO, RGP) added that the pace of progress in the CFO advisory pipeline would be a key factor. Bhadresh Patel (COO, RGP) noted strong demand in the West Coast and Southeast, attributing it to team tenure, and confirmed consistent demand across core offerings. Mr. Patel also stated that the new CFO advisory leader is based in Washington, D.C., Northern Virginia.

Mark Marcon asked for a breakdown of the Q2 revenue guidance by segment, focusing on expectations for consulting and on-demand talent. He also inquired about any regional differences in demand for on-demand and consulting services within the U.S., specifically mentioning the West Coast, Chicago, and Tri-State areas, and asked about the base location of the new CFO advisory leader.

Answer

Jenn Ryu, CFO, indicated that Europe and Asia-Pacific segments are expected to maintain or improve strength in Q2, while on-demand and consulting trends will be largely consistent with Q1, depending on pipeline conversion timing. Kate Duchene, CEO, added that momentum in CFO advisory, driven by the new leader, could accelerate pipeline progression. Bhadresh Patel, COO, noted strong demand in the West Coast and Southeast, with consistent demand across core CFO advisory and digital transformation offerings. He confirmed the new CFO advisory leader is based in Washington, D.C., Northern Virginia.

Mark Marcon from Robert W. Baird & Co. asked for more detail on the expected Q1 trends for the consulting and on-demand segments, clarification on the meaning of 'stable' for on-demand, and the reasons for the pipeline contraction.

Answer

CFO Jenn Ryu and CEO Kate Duchene explained that while Europe and Asia Pacific are stable, the Q1 softness is concentrated in U.S. on-demand and consulting, with consulting more affected by specific large project start delays. Kate Duchene confirmed 'stable' for on-demand refers to the Q4 trend. COO Bhadresh Patel detailed that the total pipeline contracted due to disciplined funnel management and clients abandoning or delaying some discretionary projects, while new pipeline creation has rebounded.

Inquired about the expected Q1 trends for the consulting and on-demand segments, sought clarification on the definition of 'stable' for the on-demand business, and asked about the reported pipeline shrinkage, its causes, and efforts to rebuild it.

Answer

The company expects stability in Europe/APAC, with softness in the US affecting both on-demand and consulting, the latter being more impacted by large project start delays. 'Stable' for on-demand refers to the Q4 constant currency trend. The overall pipeline contracted due to disciplined funnel management and clients pausing projects, but pipeline creation has rebounded, and the focus is on generation and management.

Inquired about recent trends in project delays versus cancellations, the level of client uncertainty, the Q4 revenue guidance breakdown, cash flow from operations, dividend sustainability, and long-term margin and free cash flow targets.

Answer

Executives confirmed that the trend is more towards project delays rather than cancellations, with client uncertainty peaking recently. The Q4 revenue guide's variability is concentrated in North America, and the quarter contains extra business days. Past cash flow was impacted by technology investments but is expected to improve significantly. The dividend is considered sustainable, and long-term targets include returning to high single-digit EBITDA margins and historical free cash flow conversion rates as revenue normalizes.

Mark Marcon inquired about the underlying growth contribution from the Paycor acquisition, addressing perceived optics and integration challenges. He also asked for observations on the current selling season and the potential for longer-term cost synergies from AI initiatives, specifically the agentic AI pilots.

Answer

CFO Bob Schrader clarified that Paycor's pro forma growth was estimated at 8-9% for the quarter, adjusting for prior year-end processing fees. CEO John Gibson added that Paychex is progressing well against value opportunities, exceeding cost synergy targets ($100M vs. original $80M), and seeing accelerating activity and bookings for Paycor, with broker bookings returning to pre-acquisition levels. Regarding the selling season, Mr. Gibson noted consistent demand but observed clients being very cost-conscious, leading to more 'shoppers' and careful selection of bundles. On AI, he emphasized Paychex's long-standing operational excellence and the early success of agentic AI pilots, expecting AI to drive productivity, expand margins, and enable service teams to become more proactive advisors, enhancing customer lifetime value and creating a competitive moat.

Mark Marcon asked about the underlying reasons for the stock's decline, specifically inquiring about Paycor's contribution to growth and integration challenges, and followed up on the selling season and long-term cost synergies from AI.

Answer

CFO Bob Schrader clarified that Paycor's estimated pro forma growth was 8%-9% for the quarter, adjusting for year-end processing fees. CEO John Gibson added that Paycor integration is progressing well, exceeding cost synergy targets ($100M vs. original $80M), with strong client and revenue retention, and accelerating activity and bookings. Gibson also noted that demand for solutions remains consistent, with clients being cost-conscious and opting for lower-tier bundles. He emphasized Paychex's operational DNA and the potential of AI to enhance productivity, expand margins, and reposition service providers as proactive advisors, improving customer lifetime value.

Mark Marcon asked for an update on the PEO environment, noting a sequential slowdown from Q4 to Q1, and inquired about primary headwinds. He also questioned the outlook for direct expenses as a percentage of revenue and compared it to SG&A, excluding one-time charges.

Answer

President and CEO John Gibson highlighted strong PEO performance with mid-single-digit worksite employee growth, double-digit bookings, and record retention, though noting challenges in the competitive Florida market. CFO Bob Schrader added that PEO performance exceeded expectations, but the agency segment was a drag due to workers' comp rate pressures. Schrader also indicated that most expense growth was due to the Paycor acquisition, with organic expense growth around 3%, and strong adjusted operating income growth.

Mark Marcon inquired about the Q4 impact from sales force integration disruptions, potential spillover into Q1, and the outlook for revenue synergies from the Paycor acquisition, particularly regarding ASO cross-sales.

Answer

President & CEO John Gibson stated that sales integration changes were strategically completed in Q4 to avoid Q1 disruption and highlighted early cross-sell successes. CFO Bob Schrader added that the Q4 revenue result was impacted by a slight delay in the Paycor deal closing, not sales disruption, and that the Q1 guide reflects PEO headwinds.

Mark Marcon from Baird asked about the extent of sales force integration disruption in Q4, its potential spillover into Q1, and the outlook for revenue synergies from cross-selling ASO and PEO solutions into the Paycor client base.

Answer

President & CEO John Gibson stated that all sales integration changes were strategically completed in Q4 to avoid Q1 disruption, noting early cross-sell wins with ASO and PEO. CFO Bob Schrader added that the Q4 revenue result was impacted by a slight delay in the Paycor deal closing, not sales disruption, and that the Q1 guide reflects PEO headwinds that will ease in the back half of the year.

Mark Marcon asked for more color on the Paycor acquisition, specifically regarding revenue synergy expectations, the items that will be excluded to calculate accretion, and commentary on macro business sentiment and bookings.

Answer

Executive Robert Schrader clarified that adjustments for accretion will exclude amortization of intangibles, converted stock-based compensation from the deal, and one-time transaction costs. CEO John Gibson stated that while the team is increasingly confident in revenue synergies, the primary focus has been on cost synergies and integration planning, with more details on revenue to come post-close. Schrader added that the base Paychex business plan for next year should align with current consensus expectations.

Mark Marcon asked about the impact of post-election business sentiment on the sales pipeline and the key drivers behind the PEO business's strong, market-share-gaining performance.

Answer

CEO John Gibson stated that while post-election optimism has improved, it has not yet translated into significant changes in the moderate growth environment. He attributed the PEO business's success and market share gains to its broad suite of products, the flexibility provided by its embedded insurance agency, and strong client retention, which allows clients to grow and change their needs without leaving the Paychex ecosystem.

Mark Marcon asked about the differences in the business environment between the small business market and the upper mid-market, and how new solutions like Recruiting Copilot and Paychex Perks are positioned to serve these segments.

Answer

CEO John Gibson explained that while moderate growth is consistent across segments, the demand for efficiency and HR outsourcing is strong. He emphasized that new products are designed to bring enterprise-level tools to all business sizes to solve key problems like recruiting and offering affordable benefits. Gibson noted these tools are designed to attract new clients and improve retention, with a significant marketing push planned for the selling season.

Mark Marcon inquired about the usage patterns of IWant, specifically asking about executive frequency, the breadth of its adoption, and feedback from the sales field regarding its potential impact on the selling season. He also asked about the efficiencies driving the decline in operating cost of revenue and how recent personnel changes might impact these costs in the fourth quarter and beyond.

Answer

Chad Richison, President and CEO, described IWant as an easier way to access value, noting it's the predominant method for new users and has widened the aperture for existing users. He anticipates more people will utilize IWant for navigation and information access in the future. Regarding cost efficiencies, Mr. Richison stated that the primary benefits from recent changes, including a reduction of approximately 500 administrative staff, would materialize in 2026. He emphasized the company's ongoing focus on automating administrative tasks to improve efficiency, noting that prior efforts had already contributed to margin improvements.

Mark Marcon inquired about Iwant's usage patterns, specifically the frequency and breadth of executive usage, and sought feedback from the sales field regarding its potential impact on the selling season. He also asked about the decline in the cost of service, operating cost of revenue efficiencies, and the timing of benefits from recent personnel changes.

Answer

Chad Richison, President and CEO of Paycom Software, explained that Iwant simplifies access to value and decisioning automation. He noted it changes behavior for existing users and is the predominant method for new employees, expecting increased future utilization. Regarding cost of service, Mr. Richison stated that benefits from recent changes, including a reduction of approximately 500 administrative staff due to automation, would primarily materialize in 2026. He expressed regret over the layoffs but reaffirmed the company's continuous focus on automating administrative tasks for efficiency, noting that efficiencies were already evident before these reductions.

Mark Marcon from Robert W. Baird & Co. inquired about the marketing and rollout strategy for the new iWant product, asking about the activation timeline for existing clients, the training methodology, and plans for a national advertising campaign.

Answer

CEO Chad Richison detailed that the iWant rollout began on July 31, with plans to activate all clients by the end of the current quarter. He emphasized that activation is simple and requires minimal client effort, positioning it as a 'reward' for customers. He noted that while users can still navigate the old way, most adopt iWant quickly. The national advertising will continue to focus on full solution automation, with iWant presented as the primary way to access that value.

Mark Marcon asked for details on recent fine-tuning of the sales process and the internal CRR group's client approach, and also requested guidance on the typical Q1 to Q2 margin seasonality.

Answer

CEO Chad Richison highlighted a "reconstitution" of sales training that began last year, focusing on fundamental "blocking and tackling," which has led to meaningful increases in both book sales and new logo units. He attributed margin strength to the automation of internal back-end tasks and the removal of product usage barriers for clients, which improves both the client experience and internal efficiency.

Mark Marcon asked for a comparison of revenue performance against total client growth, probing into module sales, pricing, and the shift to larger clients. He also questioned how the 2025 margin guidance balances improvements across gross margin versus operating expenses.

Answer

CEO Chad Richison highlighted record sales months and a strategic shift toward larger clients, noting 12% growth in the segment with over 1,000 employees. Retiring CFO Craig Boelte explained that gross margin was temporarily impacted by a new building but will improve, while the company continues to invest in R&D and seek efficiencies elsewhere.

Mark Marcon asked about the primary drivers behind the recurring revenue acceleration, questioning the relative impact of new module uptake like GONE versus improvements in the sales go-to-market strategy.

Answer

CEO Chad Richison explained that product automation, exemplified by GONE, is a key sales driver. He noted GONE is included in an existing module and helps shift the value proposition to the system doing more for the client. He reiterated that sales execution is strong, with elevated unit counts and a record sales month in September.

Mark Marcon from Robert W. Baird asked for an update on Paylocity's Office of the CFO initiative and the Airbase acquisition, seeking details on client engagement, go-to-market strategy, early sales trajectory, and target appeal. He also questioned why the full-year Adjusted EBITDA guidance raise was less than the Q1 beat.

Answer

Toby Williams, President and CEO, reported strong Q1 results, noting positive market reception and early traction for the Finance product (V1 launched in July) with both new and existing clients. Ryan Glenn, Chief Financial Officer, added that the sales field is fully trained and leveraging the broader platform story, supported by an inside sales team for spend management. Regarding the Adjusted EBITDA guidance, Mr. Glenn explained the conservative approach due to prudence, timing elements, and the need for investment flexibility, while still expecting increased profitability and Q2 leverage.

Mark Marcon inquired about the Office of the CFO and the Airbase acquisition, seeking details on client engagement, go-to-market strategy, and early sales trajectory. He also asked why the full-year Adjusted EBITDA guidance raise was less than the Q1 beat.

Answer

President and CEO Toby Williams and CFO Ryan Glenn highlighted strong Q1 performance and positive market reception for the v1 Finance product launched in July, seeing traction with both new and existing clients. Mr. Glenn explained that the Adjusted EBITDA guidance reflects prudence, flexibility for continued investments, and an expectation for increased profitability and leverage in Q2, with overperformance potentially accruing to margin later in the year.

Mark Marcon of Robert W. Baird & Co. inquired about the early expectations, pricing model, and ideal client profile for the new 'Paylocity for Finance' offering, as well as its long-term market penetration goals.

Answer

Executive Chairman Steve Beauchamp reported positive early feedback, emphasizing the value of an integrated platform. He noted that while the sales cycle may be longer due to a higher price point, the long-term goal is a 10-20% penetration rate. He clarified that pricing is typically on a PEPM basis for expense management, with other modules priced per employee per user.

Mark Marcon asked for an update on the Airbase acquisition's integration and market resonance, and also inquired about trends in the broker referral channel, particularly in light of recent competitive industry moves.

Answer

Executive Chairman Steven Beauchamp reported that the Airbase product is resonating well and performing slightly ahead of plan, with the larger opportunity to come from phased platform integration. President and CEO Toby Williams noted that Paylocity's consistent, non-competitive partnership strategy with brokers has resonated particularly well recently, positioning the company as a 'steady hand' amidst industry consolidation.

Mark Marcon from Robert W. Baird & Co. asked about differing trends between the mid-market and the upper end of their target market, particularly regarding sales cycles, and inquired about the market receptivity for the new Benefit Decision Support and Headcount Planning products.

Answer

President and CEO Toby Williams noted that the market has become more stable compared to last year's longer sales cycles, leading to strong execution. Executive Chairman Steven Beauchamp added that both Headcount Planning and Benefit Decision Support are off to a good start, with positive feedback from existing customers, and are on track to meet long-term penetration goals.

Mark Marcon questioned the initial reaction from existing clients regarding the Airbase acquisition and asked for details on the expected areas of margin leverage for the remainder of the fiscal year.

Answer

Executive Chairman Steven Beauchamp noted that while direct client exposure is limited, the conceptual value is understood, and feedback from mutual customers is very positive. CFO Ryan Glenn highlighted that margin leverage is expected to come from gross margin and G&A, consistent with Q1's performance, where adjusted EBITDA margin ex-float expanded by 270 basis points.

Mark Marcon asked about the expected duration of elevated demand for healthcare solutions due to employer pressures from healthcare inflation, and how the current 'softer' insurance cycle compares to previous ones, particularly regarding its impact on WTW's ability to gain new clients from competitors.

Answer

Julie Gebauer, President of Health, Wealth, and Career, confirmed that higher healthcare inflation is typically a multi-year phenomenon, with high estimates already for 2026. Lucy Clarke, President of Risk and Broking, characterized the current cycle as 'softer' following five years of rate increases, noting that most carriers still consider current levels rate adequate. She emphasized that clients seek differentiation through WTW's specialization strategy, not just the lowest price, which aids in client attraction.

Mark Marcon asked Julie Gebauer about the expected duration of elevated client demand for healthcare solutions due to inflation, and Lucy Clarke about characterizing the current softer insurance cycle and its impact on gaining new clients.

Answer

Julie Gebauer, President of Health, Wealth, and Career, confirmed that high healthcare inflation is typically a multi-year phenomenon, with 2026 estimates still showing high costs. Lucy Clarke, President of Risk and Broking, characterized the softer cycle as a return to rate adequacy after five years of increases, noting that clients seek differentiation through specialization, not just the lowest price, which aids in client acquisition.

Mark Marcon of Robert W. Baird & Co. asked for elaboration on WTW's long-term AI strategy for efficiency and automation. He also inquired about the long-term (3-5 year) outlook for the Health business, particularly concerning plan redesigns driven by inflation.

Answer

CEO Carl Hess explained that WTW has used AI for years, providing the 'Coverage Clarified' tool as an example that boosts efficiency by up to 40%, and stated they see long-term benefits for growth and margins. President of Health, Wealth & Career Julie Gebauer addressed the Health outlook, stating that cost drivers are persistent, which will necessitate ongoing client focus on cost management, supporting the company's expectation for long-term high single-digit growth in the business.

Mark Marcon inquired about the most surprising area of new bookings growth, details on the embedded payroll solution (its widespread adoption, percentage of sales, and economic impact), and the utilization, satisfaction, retention, and profitability impacts of ADP Workforce Now® NextGen.

Answer

Maria Black (President and CEO) expressed satisfaction with accelerated growth in small business (retirement, insurance), Employer Services HR outsourcing, and ADP® Lyric HCM. She noted that embedded payroll is in its "early days" with Pfizer, and its significant bookings contribution is anticipated in the future, not yet impacting Q1. For NextGen, she highlighted faster implementation, improved satisfaction, and higher overall client satisfaction, contributing to record NPS and sustainable retention. Peter Hadley (CFO) added that NextGen is expected to boost productivity through easier digital onboarding and fewer client contacts, presenting a profitability opportunity.

Mark Marcon inquired about the most surprising areas of new bookings growth, and sought more details on the Embedded Payroll Solution, including its market penetration, contribution to sales, and economic impact. He also asked about the utilization and client satisfaction of Workforce Now NextGen, its impact on retention, and profitability.

Answer

President and CEO Maria Black expressed satisfaction with accelerated growth in Q1, highlighting strength in small business (retirement, insurance), Employer Services HR outsourcing, and Lyric HCM. She noted that Embedded Payroll is in its early stages, a key growth agenda item, but its significant bookings contribution is still ahead. Regarding Workforce Now NextGen, Maria Black confirmed its deployment to over 80% of new mid-market clients (50-150 employees), leading to faster and smoother implementations, improved client satisfaction, and positive retention impacts. CFO Peter Hadley added that NextGen is expected to boost productivity through more digital onboarding and fewer client contacts, creating a profitability opportunity.

Mark Marcon asked about the early results from the Workforce Software acquisition and the progress of selling the Workforce Now NextGen product relative to the legacy version.

Answer

President & CEO Maria Black and CFO Peter Hadley reported that the Workforce Software integration is proceeding ahead of expectations, already contributing to bookings and being co-sold with ADP's Lyric and GlobalView platforms. They also noted that Workforce Now NextGen is being rolled out more broadly, with strong client satisfaction scores and improved implementation experiences, contributing to their confidence in fiscal 2026 bookings.

Mark Marcon asked if macroeconomic uncertainty is causing deal delays in the mid-market and PEO segments, and requested an update on the Workforce Software integration and ADP Lyric's performance.

Answer

CEO Maria Black stated that demand feels solid across segments as HCM is not discretionary. CFO Don McGuire added that PEO bookings and worksite employee growth were good. Regarding products, Maria Black reported that the Workforce Software integration is proceeding 'incredibly well' and that ADP Lyric is resonating strongly with enterprise clients, driving significant new business.

Mark Marcon inquired about the long-term potential of the Fiserv and Clover partnership and its possibility of expanding beyond the RUN product. He also asked about the integration timeline for WorkForce Software and its expected impact on the upmarket business by fiscal 2026.

Answer

CEO Maria Black expressed a vision for the Fiserv partnership to become a meaningful distribution channel, comparable to their bank and accountant channels, and was open to future expansion beyond small business. Regarding WorkForce Software, she stated that integration planning is on track after 100 days, with a focus on go-to-market alignment now and deeper product integration to follow, which will be critical for their enterprise and global offerings alongside Lyric.

Mark Marcon asked about the factors driving record-high client satisfaction scores and inquired about the integration and go-to-market plan for WorkForce Software.

Answer

CEO Maria Black attributed the record first-quarter client satisfaction (NPS) to investments in product and service tools, with notable year-over-year improvements in the mid-market, enterprise, and HR outsourcing businesses. Regarding WorkForce Software, she explained the plan is to integrate its offerings into ADP's global and enterprise go-to-market strategy, creating a powerful combination with the new ADP Lyric platform to target the global MNC space.

Mark Marcon inquired about the materialization and conversion rate of Protiviti's pipeline, pricing dynamics, and the drivers behind gross margin changes, including utilization. He also asked about Robert Half's commitment to its dividend and the company's leverage to protect it amidst current trends.

Answer

CEO Keith Waddell confirmed pipeline growth and winning projects as expected, but noted a shift from large to smaller, shorter-duration projects impacting efficiency. He mentioned competitive pricing and margin compression due to reallocating full-time Protiviti employees to contractor roles to maintain deployment. Regarding the dividend, Mr. Waddell affirmed strong commitment, highlighting that free cash flow covers the dividend in Q2, Q3, and Q4 guidance, supported by a $360 million cash cushion. He also stated the company would adjust its cost structure if trends reversed, emphasizing the commitment to return all free cash flow to investors, with dividends currently taking a disproportionate share.

Mark Marcon inquired about the materialization of Protiviti's pipeline projects, conversion rates, and pricing dynamics, specifically asking if gross margin compression was due to utilization rates or pricing. He also asked about Robert Half's commitment to the dividend given recent revenue trends and available leverage.

Answer

CEO Keith Waddell confirmed the pipeline is growing and winning as expected, but large projects are being replaced by smaller, shorter-duration, less efficient ones. He noted competitive pricing and margin compression due to reallocating Protiviti full-time employees to contractor roles to maintain deployment, rather than major pricing issues. Regarding the dividend, Mr. Waddell emphasized its importance and commitment, stating that free cash flow covers the dividend in Q2, Q3, and Q4 guidance, with a $360 million cash cushion. He added that cost structure adjustments would be considered if positive trends reversed.

Mark Marcon asked for details on Protiviti's extended project conversion timelines and the progression of the technology solutions business, questioning if its strength would spill over into finance and accounting.

Answer

President & CEO M. Keith Waddell explained that Protiviti's Q3 outlook is impacted by a few large projects ending, but noted the pipeline remains strong with a recent surge in new opportunities. He also confirmed that the tech solutions practice is very strong, driven by AI readiness and modernization, and expects that strength to benefit higher-level finance and accounting consulting.

Mark Marcon inquired about the composition of Protiviti's business, specifically the mix of recurring versus discretionary services, and its potential margin performance in the current economic climate. He also asked about the company's capital allocation priorities, focusing on the security of the dividend.

Answer

Executive M. Waddell detailed Protiviti's service lines, categorizing them by their discretionary nature, and noted that while pipelines are strong, project conversion times have lengthened. He explained that profitability is expected to improve sequentially due to better staff utilization. Waddell also reaffirmed a strong, long-term commitment to returning cash to shareholders, stating the company intends to not only maintain but continue increasing its dividend, dismissing any notion of a cut.

Mark Marcon of Robert W. Baird & Co. inquired about the drivers behind Protiviti's guided revenue reacceleration in Q1 2025 after a Q4 deceleration. He also asked how the surge in the NFIB Small Business Optimism Index might translate to hiring differently this cycle, considering factors like AI, and how this influences Robert Half's internal staffing and margin strategy.

Answer

Executive M. Waddell explained that Q4 Protiviti results were impacted by holiday-related client soft closes and contract signing delays, but underlying momentum remains strong. Regarding the NFIB index, Waddell noted that current conditions like job openings and unemployment are more favorable than in past recoveries. He stated that AI is not having a meaningful impact and that the company plans to maintain current internal staffing levels, consistent with trough margins in prior cycles which are expected to recover.

Mark Marcon asked for clarification on Protiviti's Q4 guidance, which seems conservative given its strong Q3 acceleration, and questioned the competitive impact from the Big 4. He also asked for a reminder of the typical Q4 to Q1 seasonal margin patterns.

Answer

CEO M. Waddell explained that Protiviti's Q4 guidance is cautious due to a couple of large projects winding down and the typical holiday slowdown. He noted that price competition from the Big 4 has leveled off and highlighted Protiviti's effective use of contractors as a key advantage. For seasonality, he stated Q1 is typically Protiviti's lowest profitability quarter due to seasonal revenue dips and annual salary increases, while Talent Solutions sees flat same-day contract revenue and a perm placement step-up.

Mark Marcon sought clarification on whether gross margins for enterprise clients were holding steady on a like-for-like basis within key markets, what initiatives could stimulate the convenience side of the market, the impact of Sophy AI wins on RPO given the frozen market, and how political turmoil in France is affecting decision-makers.

Answer

Chairman and CEO Jonas Prising and EVP and CFO Jack McGinnis explained that within-country gross margin changes are primarily due to business mix shifts towards enterprise clients in challenged markets, not price competition. They noted ongoing convenience initiatives, particularly successful in Italy. Prising stated RPO will likely face near-term headwinds due to slower permanent hiring and extended implementation timelines, despite AI improving win rates. He acknowledged French political turmoil is unhelpful but clients remain pragmatic, responding to demand and leveraging ManpowerGroup's offerings.

Mark Marcon questioned whether gross margins for enterprise clients within countries are holding steady on a like-for-like basis, what actions could stimulate the convenience market, if new RPO wins from Sophie AI are offsetting the 'frozen market,' and the impact of political turmoil in France on decision-makers.

Answer

Chairman and CEO Jonas Prising and EVP and CFO Jack McGinnis confirmed that gross margin changes within countries are primarily due to business mix shifts towards enterprise demand in challenged markets, not pricing competition. They noted significant convenience initiatives in Italy and France. Jonas Prising stated that RPO continues to face headwinds due to slower permanent hiring, despite AI helping win rates, as companies are less focused on large-scale recruitment. Regarding France, Jonas Prising acknowledged political turmoil is unhelpful but noted client pragmatism and resilience, with businesses responding to demand and utilizing ManpowerGroup's offerings.

Mark Marcon of Robert W. Baird & Co. questioned what catalysts are needed for improvement in Northern Europe and the long-term profitability goals for the region. He also asked about competitive dynamics in France.

Answer

Chairman & CEO Jonas Prising stated that Northern Europe's recovery depends on an improved economic environment and resolution of geopolitical uncertainties, noting they have taken significant restructuring actions. EVP & CFO Jack McGinnis added that the region's profitability can align with the company average during growth periods. Regarding France, McGinnis noted that trends stabilized and came in better than expected, with the Q3 guide reflecting a slightly improved rate of decline.

Mark Marcon asked for more detail on the mindset of European clients regarding tariff policies, the expected savings from restructuring in Northern Europe, the outlook for the temporary French tax increase, and the contribution of permanent recruitment to gross profit.

Answer

CEO Jonas Prising stated that European clients are in a 'wait-and-see' mode, largely believing the tariffs are a negotiation tactic that will result in a manageable settlement. CFO Jack McGinnis detailed the $15.8 million in Q1 restructuring charges, primarily in the Nordics, Belgium, and the U.K., with an expected payback of about nine months. McGinnis also confirmed the French tax is enacted as a one-year measure for 2025 and noted that permanent recruitment was 16.4% of gross profit in Q1.

Mark Marcon asked if rising U.S. business confidence is translating into order growth, inquired about the European macro outlook and potential catalysts, and questioned the strategy behind recent business dispositions.

Answer

Chief Executive Officer Jonas Prising stated that U.S. optimism has not yet led to a meaningful change in employer demand, though the Manpower U.S. brand's return to growth is a positive sign. He described Europe's challenges, particularly in the North, and noted that potential catalysts include rate cuts and reduced inflation. Regarding dispositions, Prising explained it's part of an ongoing portfolio optimization strategy based on value creation and risk assessment. Chief Financial Officer John McGinnis added that potential French tax hikes are not yet in their guidance.

Mark Marcon questioned the potential catalysts for a recovery in Northern Europe, inquired about further cost actions, and asked for guidance on interpreting the proposed French tax changes.

Answer

CEO Jonas Prising identified macroeconomic improvement, like recent ECB rate cuts, as the primary catalyst for Northern Europe, while noting the company is focused on sales activity and cost controls. CFO John McGinnis characterized the French tax proposal as a likely temporary measure for 2024-2025, with more clarity expected by year-end.

Mark Marcon asked for more details on a significant deal with a large HCM company, including the scope and potential size of such programs. He also inquired about learnings from Professional Search and Interim Solutions acquisitions, identifying the best fit areas for future acquisitions, and the number of remaining opportunities. Finally, he asked about AI's impact on client labor demand and Korn Ferry's internal AI strategy, including specific areas of injection, spending, expected efficiency gains, and potential headcount impact.

Answer

CEO Gary Burnison described the HCM deal as a multi-year, multi-million dollar transformational leadership development program involving IP licensing, consulting, assessments, and coaching, with client consumption speed influencing backlog. For Professional Search and Interim Solutions, Burnison noted the enormous market opportunity, particularly outside the U.S. He clarified that contingent recruiting in Professional Search does not align with the brand, making Interim Solutions a more likely area for future acquisitions due to its synergy and alignment with the mega-trend of fractional workers. CFO Bob Rozek highlighted over 1,200 incremental cross-referral opportunities within Interim Solutions. On AI, Burnison discussed the demographic-driven need for technology to bridge labor force gaps and companies seeking efficiency, leading to potential workforce reductions. Rozek detailed Korn Ferry's internal AI strategy, including centralizing 40 individuals, rolling out licenses, and focusing on 'human plus AI' to drive efficiency and free up capacity to deliver backlog, rather than solely reducing headcount.

Mark Marcon asked for more details on a significant deal with a large HCM company, its potential program size, and the consumption rate of such multi-year engagements. He also inquired about the strategy for Professional Search and Interim Solutions, lessons learned from acquisitions, and future acquisition opportunities, particularly regarding the contingent recruiting piece. Finally, he asked about the impact of AI on labor demand, how Korn Ferry is injecting AI into its processes, the spending involved, and its expected impact on efficiency and headcount.

Answer

CEO Gary Burnison described the HCM deal as a multi-year, multi-million dollar transformational leadership development program involving IP licensing, consulting, assessments, and coaching, with consumption dependent on the client's speed. For Professional Search and Interim Solutions, he noted the enormous market opportunity, particularly outside the U.S., but clarified that contingent recruiting does not align with the brand. He indicated a preference for Interim Solutions acquisitions due to its synergy with the brand and the mega-trend of fractional workers. Gary Burnison also discussed AI's role in correcting labor supply/demand imbalances due to lower birth rates and its impact on workforce strategy, leading to potentially fewer employees. CFO Bob Rozek detailed the company's AI strategy, centralizing 40 individuals under a leader, rolling out licenses, and focusing on 'human plus AI' as an efficiency tool. He expects AI to help free up capacity by automating menial tasks, enabling faster delivery of services and impacting overall headcount.

Mark Marcon of Baird asked about the user-facing improvements in the fourth release of the Talent Suite, the type of leader clients are now seeking, international growth drivers, and the company's capital allocation priorities.

Answer

CEO Gary Burnison explained the Talent Suite aims for seamlessness across the talent lifecycle and that clients now seek leaders who can 'embrace ambiguity' amid profound change. He attributed strong global search growth to both strategy and market factors like demographics and burnout. CFO Robert Rozek detailed the balanced capital allocation strategy, prioritizing reinvestment, M&A, and shareholder returns via dividends and buybacks.

Mark Marcon requested more details on the large-scale transformation engagements, the performance within the Professional Search and Interim segment, and what indicators would signal a need for greater contingency planning.

Answer

CEO Gary Burnison described the large engagements as high-impact workforce transformations, often won against strategy firms and the Big 4, which have driven the consulting backlog to an all-time high. In the Interim segment, he noted the best success is at the higher end, while contingent placement is less strategic. For risk indicators, Burnison identified the 'cost of living crisis' as the primary macro concern, while Executive Robert Rozek added that he monitors daily new business volumes as a key tactical indicator.

Mark Marcon of Robert W. Baird & Co. asked about the sources of margin improvement in segments with declining revenue, the impact of the Korn Ferry brand on the interim business, new business trends in consulting, the client-facing impact of the new Talent Suite, and the potential effects of the U.S. election.

Answer

Executive Gary Burnison attributed margin strength to strategic decisions made 15 months prior to focus on profitability and actively manage the workforce, noting this was the primary driver over cost-cutting. He confirmed the Korn Ferry brand provides a "very powerful" lift to the interim business, driving higher bill rates and referrals. On consulting, he noted softness in DE&I but strength in large leadership development deals. The new Talent Suite aims to shift clients to a single subscription model integrated with major HCM providers. Regarding the election, he anticipates no material short-term labor market changes but acknowledged long-term optimism around reduced regulation.

Mark Marcon asked about the reasons for the recent dip or slower growth in HSA cash, specifically whether it's due to account holders shifting to investments or increased spending due to higher healthcare inflation, and how HealthEquity views the algorithm for future HSA cash growth.

Answer

James Lucania, CFO, attributed the trend to a combination of members becoming investors, increased spending, and higher contributions. He emphasized that HealthEquity's revenue growth story is multi-faceted, encompassing accounts, cash, invested balances, and platform spend, also noting the lumpiness of cash inflows.

Mark Marcon asked about the reaction from members and employers to the recent fraud and service issues and requested the client retention rate for the past year.

Answer

President and CEO Scott Cutler emphasized that the company's top priority is delivering a 'remarkable experience' and that the team works to make things right when issues arise. He stated that despite the challenges, client retention results remain strong and unchanged, in the 'high 90s'.

Mark Marcon of Baird asked about the account growth expectations embedded in the fiscal 2026 guidance, client retention trends, and whether the recent fraud activity had any negative impact on sales or retention.

Answer

CEO Jon Kessler expressed confidence in HSA retention heading into fiscal 2026. He indicated that on the CDB side, price increases might lead to some "healthy churn," which would support margin expansion. He asserted that the fraud incidents did not materially impact the sales cycle or retention, though they did increase the team's workload.

Mark Marcon from Baird asked if any recent developments have altered the company's long-term goal of doubling non-GAAP net income by fiscal 2027 and inquired about the potential impact of the political landscape, specifically a 'blue sweep,' on HSA adoption.

Answer

President and CEO Jon Kessler stated that nothing has changed their commitment to the long-term goal, citing strong underlying business performance as a positive offset to the pace of interest rate declines. Vice Chair Dr. Steve Neeleman addressed the political question by highlighting recent bipartisan support for HSAs, such as the HOPE Act, suggesting that the accounts have broad appeal and that legislation can move forward regardless of the election outcome.

Mark Marcon of Robert W. Baird & Co. requested specifics on the international nursing business, including peak versus current revenue. He also questioned the labor disruption guidance, the pricing impact from struggling competitors, the possibility of further divestitures, and the outlook for Q3 cash flow.

Answer

CFO & COO Brian Scott quantified the international revenue decline from a peak of ~$225M in 2023 to a current run-rate of ~$125M. President & CEO Cary Grace clarified the $5M labor disruption guidance is what they have line-of-sight to, with potential upside in Q3 and Q4. She noted pricing has been competitive for years and confirmed no other divestitures are planned. Scott projected the revolver balance would be around $30M by the end of Q3.

Mark Marcon inquired about the size and nature of five new MSP and VMS client wins, the competitive dynamics and margin outlook for the Language Services business, and whether Travel Nurse bill rates have finally stabilized.

Answer

President and CEO Cary Grace characterized the new MSP/VMS wins as small to medium but from significant clients, reflecting a strategic push initiated over a year ago. Regarding Language Services, she acknowledged that industry consolidation has increased price competition but stated AMN is well-positioned with its high-quality solutions. CFO and COO Brian Scott added that internal cost efficiencies are expected to help stabilize margins. Grace confirmed that Travel Nurse bill rates have stabilized since the second half of 2024, noting the premium over permanent labor costs is currently below pre-pandemic levels, suggesting potential for future increases.

Mark Marcon of Robert W. Baird & Co. asked for the Q1 VMS revenue assumption, trends in overall volumes across MSP and VMS, and commentary on competitive dynamics following recent industry consolidation.

Answer

CFO and COO Brian Scott projected Q1 VMS revenue to be just under $20 million, which he expects to be a low point. CEO Caroline Grace stated that about 80% of nurse demand is now from non-MSP sources, a key growth area. On competition, she noted that while winning new clients is still very competitive, suppliers are acting rationally by not filling unprofitable orders, which positions AMN's integrated solutions favorably.

Mark Marcon inquired about the Q4 Travel Nursing guidance excluding labor disruption benefits, market dynamics for fillable orders and pricing, VMS and MSP trends, and SG&A deleveraging.

Answer

President and CEO Cary Grace stated that the core Nurse and Allied Q4 outlook is flat to down low-single digits, excluding strike impacts. She noted signs of market stabilization but also an uptick in unfilled orders, indicating a competitive environment. She confirmed AMN is in a net win position for MSPs year-to-date and has embedded capacity in the international nurse business. Executive Randle Reece added that they see a path to resuming sequential growth in VMS revenue sometime next year.

Mark Marcon from Robert W. Baird & Co. asked about Dayforce's AI product suite, inquiring about monetization, pricing, the opportunity to sell to the existing customer base, and requested an update on the U.S. Federal contract.

Answer

Chairman & CEO David Ossip confirmed no new update on the U.S. Federal contract but highlighted the Canadian government's selection of Dayforce. On AI, he noted a tremendous opportunity to increase the average PEPM (currently ~$13) by selling into the base, with data and AI offerings representing a potential $10 PEPM uplift. He mentioned a roadmap of over 30 AI agents and strong current attachment rates for AI-powered modules like Learning and Analytics.

Mark Marcon questioned the dynamics behind the projected total revenue growth cadence, noting an apparent deceleration in Q2 followed by an expected acceleration in the second half of the year.

Answer

CFO Jeremy Johnson explained that the cadence is influenced by seasonality, particularly from year-end services which affect the Q1 to Q2 comparison for Dayforce recurring revenue. He also noted that while professional services revenue growth was exceptionally strong in Q1 at nearly 50%, it is expected to moderate in Q2, though still grow faster than recurring revenue. The ongoing decline in 'other recurring' revenue also contributes to the quarterly dynamics.

Mark Marcon asked about the drivers behind strong January sales and shortening sales cycles, the potential impact of elections on the Government of Canada contract, and the competitive landscape for recent large customer wins.

Answer

CEO David Ossip attributed the sales momentum to the Discover conference accelerating deals, a more optimistic macro environment, and strong sales execution. President & COO Steve Holdridge stated they expect no impact on the Government of Canada contract from political changes. Regarding competition, David Ossip noted that Dayforce now competes mostly against ERPs and is taking share from its primary historical competitor.

Mark Marcon inquired about recent major customer wins, including the competitive landscape and who Dayforce displaced, and asked about the drivers behind elongated sales decision cycles.

Answer

CEO David Ossip described a significant hospitality win as a 12-to-1 system simplification against a payroll-focused competitor and an ERP, emphasizing Dayforce's compliance capabilities as a key differentiator. He attributed the 25% lengthening in deal cycles to moving upmarket with larger, full-suite deals that require more sign-offs, and increased customer diligence in the current macroeconomic environment.

Mark Marcon of Robert W. Baird & Co. requested monthly trend breakdowns for the PeopleManagement and PeopleSolutions segments, excluding acquisitions. He also asked about regional performance differences and the outlook for the renewable energy business.

Answer

CFO Carl Schweiss reported that PeopleManagement saw trends of +3% and +4% before being flattish in June and returning to growth in July. He noted improved trends in Florida and California. CEO Taryn Owen stated that the renewable energy pipeline remains very strong despite future policy changes and highlighted new wins across all TrueBlue segments in the broader energy market, including oil and gas. CFO Carl Schweiss added that energy constitutes about 10% of the company's portfolio.

Inquired about the growth rate and margin profile of the HSP acquisition, its impact on guidance, general business sentiment from clients, and any notable trends across different industry verticals.

Answer

Executives explained that HSP's performance was flat sequentially as modeled and its lower margin profile is impacting the consolidated gross margin outlook. They noted that client uncertainty persists, with hiring pauses mainly in PeopleScout. Transportation and retail are showing improvement, while manufacturing and hospitality remain soft.

Asked about regional and industry trends for the PeopleReady business, the impact of disaster recovery efforts, and details on SG&A cost management and future outlook.

Answer

Executives noted improving trends in Florida and southern border states for PeopleReady, with skilled trades and transportation being strong industries. They confirmed participation in disaster recovery efforts. On SG&A, they highlighted successful cost reductions which are funding a 50% increase in the PeopleReady sales force in a cost-neutral manner, with the current SG&A run rate expected to be stable.

The analyst inquired about the net financial impact of recent hurricanes, the expected recovery timeline for the renewables business, and trends with other large RPO clients following the loss of a major hospitality client, specifically regarding in-sourcing versus outsourcing.

Answer

Executives detailed the immediate negative financial impact of the hurricanes but expect the net effect to be neutral to slightly positive over time from cleanup work. They stated the renewables pipeline remains strong with new logos secured for 2025. The hospitality client loss was described as an outlier; while some clients are temporarily using in-house teams for low-volume recruiting, the company expects to regain that volume as hiring needs increase.

Mark Marcon from Baird asked about the net financial impact of recent hurricanes, the expected recovery timeline for the renewables business, and whether the loss of a large hospitality RPO client signaled a broader trend of in-sourcing among customers.

Answer

CFO Carl Schweihs quantified the hurricane impact as a net negative of approximately $700k in Q3 and $900k in Q4 to date, but expects it to be net neutral to slightly positive over time. Executive Taryn Owen stated the renewables pipeline remains strong and the recent slowdown was weather-related. She characterized the hospitality client loss as an 'outlier' business decision and not a broader trend, noting other clients remain committed to outsourcing once volumes return.

Mark Marcon inquired about the organic growth rate and margin profile for the HSP acquisition, its mix impact on consolidated gross margins, and any changes in client behavior, business cadence, or vertical-specific trends following recent economic news.

Answer

CFO Carl Schweihs explained that HSP's Q1 results were flat compared to its prior quarter and confirmed its lower margin profile contributed to the consolidated gross margin decline. Executive Taryn Owen stated that client uncertainty and caution persist, leading to reduced hiring volumes and hiring freezes, particularly in the PeopleScout business. Schweihs added that April trends were similar to March and noted improvement in transportation and retail, with continued softness in manufacturing and hospitality.

Mark Marcon from Robert W. Baird & Co. asked for details on the strategy to address rising healthcare costs, specifically the mix between pricing, plan design changes, and negotiations with UnitedHealthcare. He also sought clarity on the Workday rollout timeline and associated expenses.

Answer

James Allison, EVP & CFO, clarified that pricing increases are the primary method to address cost trends, while plan design changes and carrier negotiations aim to mitigate the overall trend's impact. Paul Sarvadi, Chairman & CEO, emphasized that contract discussions with UHC are critical for structural changes to protect against future volatility. Regarding Workday, Mr. Sarvadi confirmed a multi-wave beta rollout and noted that while initial onboarding will require investment, expenses should become capitalizable and will be offset by new revenue streams, including implementation fees.

Mark Marcon asked about the speed at which pricing can be adjusted to counter rising healthcare costs, whether there were regional or industry differences in cost trends and hiring hesitancy, and when to expect lead generation from the Workday partnership.

Answer

Executive Paul Sarvadi stated that pricing adjustments have already begun and are timed well, as over 85% of the client base renews throughout the remainder of the year, with a goal to rebalance price-to-cost by January. He noted that cost and hiring trends were a nationwide issue rather than regional. He also explained that the new Workday go-to-market plan includes a dedicated product-oriented delivery team that will manage lead generation, with an effective start date around July 1.

Mark Marcon asked about the Workday partnership, specifically the progress of sales leads and its impact on client retention. He also inquired about the timing of the $62 million in related expenses for 2025 and 2026, and how rising medical cost trends might affect pricing and sales.

Answer

CEO Paul Sarvadi explained that the Workday go-to-market plan is progressing well, with incentive structures now in place to drive lead flow, and noted the partnership has already tangibly improved large client retention. CFO Jim Allison stated that Workday-related operating costs would be relatively steady throughout 2025, with 2026 spending dependent on the official launch date. Sarvadi added that the company's pricing is strong and competitive, even with higher anticipated medical cost trends.

Mark Marcon asked for details on healthcare cost trends, specifically whether increases were driven by claim severity or utilization, and how this might affect future pricing, retention, and new sales. He also inquired about the timeline for the Workday partnership to be fully operational for the 2025-2026 selling season and if there were any early referral trends from the Workday pipeline.

Answer

CFO Jim Allison explained that healthcare trends are at the higher end of the historical range, driven by specialty drugs like GLP-1s and new high-cost treatments. He specified that Q3 saw a slight increase in utilization, but severity was in line with expectations, and this was anticipated in their pricing strategy. CEO Paul Sarvadi added that he is confident they will be actively selling and demoing the Workday solution during the fall 2025 selling season and that the joint go-to-market plan is being integrated into both companies' 2025 business plans to accelerate lead sharing.

Mark Marcon of Robert W. Baird & Co. asked about the maturity of client discussions regarding AI, the drivers behind unexpected project cancellations impacting the Q3 forecast, the current sales pipeline strength, and whether AI uncertainty is causing delays in legacy system upgrades.

Answer

President & CEO Joe Liberatore stated that most AI-related work remains foundational, focusing on data, governance, and cloud readiness. COO David Kelly clarified that recent project ends were due to clients reallocating budgets to other tech initiatives, not reducing overall spend, and described the demand environment as stable. Kelly also characterized the pipeline as strong, with growing demand for data and digital projects. Both executives asserted that clients are actively modernizing legacy systems to prepare for AI, viewing it as essential work rather than something to delay.

Mark Marcon asked for details on client sentiment, project stability, and the assumptions behind Q2 guidance. He also inquired about potential cost-saving levers and the competitive pricing environment for IT Flex staffing.

Answer

COO David Kelly confirmed a stable environment with no significant project cancellations, though new project acceleration is delayed. CFO Jeff Hackman stated the Q2 guidance assumes stability and noted that delivery headcount has already been reduced by nearly 40% over several years. CEO Joseph Liberatore added that Kforce's focus on mission-critical projects provides a buffer. Regarding margins, Hackman highlighted stable bill-pay spreads and a beneficial mix from higher-margin solutions work, with Kelly adding that clients are not demanding wholesale price cuts.

Mark Marcon inquired about the current demand environment, particularly regarding data cleanup for AI initiatives, and what clients need to see to increase spending. He also asked for details on the Pune, India initiative, including client response, potential scale, and policy risks, and sought clarification on the company's operating leverage guidance.

Answer

COO David Kelly and Executive Joseph Liberatore addressed the demand questions, noting that while AI-related data cleanup is a growing topic, it's not yet a majority of the business. They explained that clients are seeking predictability and stability to unlock pent-up project demand. Kelly detailed that the India development center was driven by client demand for blended-cost models and is built for flexible scaling. He also stated that potential immigration policy changes are not a great concern and could be an advantage due to Kforce's compliance strengths. CFO Jeff Hackman confirmed that the guidance for 100 basis points of enhanced operating leverage is relative to the 2022 peak.

Mark Marcon asked about the drivers behind the gross margin improvement, the catalyst for clients to engage on pent-up IT demand, and the strategic rationale and financial impact of opening a new development center in Pune, India.

Answer

CFO Jeff Hackman attributed the margin improvement primarily to better bill-pay spreads sequentially, with favorable health insurance costs also contributing year-over-year. CEO Joseph Liberatore stated that increased client confidence is the main catalyst needed to unlock spending and that the India center will allow Kforce to directly service clients who prohibit third-party offshore partners. COO David Kelly added that the India facility will ramp slowly in 2025 and will not have a meaningful impact on the typical Q1 margin seasonality.

Mark Marcon from Baird asked about the drivers behind the impressive gross margin performance, questioning if it was due to mix shift or improved like-for-like project margins. He also inquired about SG&A management and current client sentiment regarding future project starts.

Answer

CEO Ted Hanson attributed the gross margin strength to a favorable mix shift towards higher-margin commercial consulting and the value of new capabilities like TopBloc and AI services. He highlighted the company's variable SG&A cost structure as a key stabilizer. President Sadasivam Iyer added that clients continue to invest in strategic areas like AI and cybersecurity, though Hanson noted a general 'wait-and-see' attitude from clients on broader IT spending due to macro uncertainty.

Mark Marcon asked about ASGN's current operational capacity, the outlook for the government segment, specifics on TopBloc's business mix, and the potential impact of tariffs on its Mexican delivery center.

Answer

CEO Theodore Hanson stated that the company has ample capacity to handle increased demand, as evidenced by strong Q4 bookings, and that a commercial recovery would improve margin mix. On TopBloc, he confirmed it serves diverse industries with a full suite of Workday Finance and HR solutions and has a growing recurring revenue stream. He also noted that services have historically not been subject to tariffs, mitigating near-term risk for their nearshore operations.

Mark Marcon asked about the M&A environment, the timing for federal wins to convert to revenue, the potential impact of the election, and for a quantification of data-prep work versus pure AI assignments.

Answer

Executive Theodore Hanson noted that while M&A flow is increasing slightly, there are not enough data points to confirm more reasonable pricing. He expects recent federal wins to materially impact revenue more in 2025 than Q4 2024. Executive Randolph Blazer added that while they track AI-prep versus pure AI work, data-related services currently constitute a much larger portion of revenue.

Asked for details on the new Paycor Integration Platform and its impact on sales, and for an update on sales progress, particularly regarding seller maturity and growth in Tier 1 markets.

Answer

Raul Villar stated the Integration Platform has been live since the start of the fiscal year and is being used by clients to accelerate integrations, serving as a key differentiator. He highlighted that while Tier 1 markets continue to outperform, the standout driver of sales progress was the broker channel, which accounted for over 60% of field bookings.

Asked about the potential for further penetration of modules like applicant tracking, the value proposition of the new compensation module, and the size and growth potential of the internal cross-selling sales team.

Answer

Management sees a 'tremendous amount of white space' for cross-selling, supported by a growing cross-sell team that now comprises about 10% of the total sales organization. The new compensation module fits their strategy of empowering frontline leaders. They will continue to invest in the cross-sell motion due to the large opportunity.

Inquired about the company's move into enterprise accounts, asking how far upmarket they could go and how the sales force is managed accordingly. Also asked for more detail on sales force tenure and retention efforts.

Answer

The company is being pulled upmarket based on client needs, with some clients having over 10,000 employees. The most tenured reps are focused on these enterprise accounts. Increasing sales force tenure is a top priority, with person-months worked up over 15% year-over-year. Continued progress in onboarding and retaining reps is expected to drive future productivity.