Revenue Growth and ERTC Headwind
Q: What's causing the slowdown in Q1 revenue growth?
A: The first quarter's revenue growth is impacted by a larger than usual over 300 basis point headwind from the ending of the Employee Retention Tax Credit (ERTC) program, which is more pronounced in the first half of the year. Additionally, there is one less processing day in the quarter, affecting growth comparisons. Adjusting for these factors, the underlying growth rate is similar to the previous year's back half, excluding ERTC.

Margin Expectations and Cost Actions
Q: How are cost actions influencing the EPS growth outlook?
A: Cost optimization initiatives, including workforce reductions and real estate adjustments, have been underway for 12 months in anticipation of ERTC ending. These actions are factored into the fiscal '25 outlook, enabling expected margin expansion despite headwinds.

PEO Growth Drivers
Q: What's driving near double-digit PEO worksite employee growth?
A: The strong PEO growth is volume-driven, fueled by a competitive offering, strong medical plan attachments, and higher enrollment rates. There's increasing demand for HR outsourcing solutions as businesses look to outsource HR functions to cut costs in an inflationary environment.

Pricing Trends
Q: Will pricing increases be at the lower end given SMB softness?
A: The company continues to see good value pricing opportunities and expects pricing to remain in line with historical levels. While pricing has been a bit higher in recent years, it's projected to return to normal levels, contributing to growth.

Mid-Market Demand and Decision Delays
Q: What's causing decision delays in the mid-market segment?
A: Despite increased volumes and proposals, there's a longer sales cycle in the mid-market due to clients delaying decisions. Factors include more shopping around for better deals and slower decision-making, especially in the higher end of the market.

Technology Changes Impacting Micro Segment
Q: Did changes in the micro segment affect sales conversions?
A: Yes, technology platform changes aimed at improving the digital customer experience in the micro market led to integration issues and disrupted sales conversions. These issues are now resolved, and better conversion rates are expected in fiscal year '25.

Use of Gen AI for Cost Savings
Q: How is Gen AI implementation affecting costs and revenue?
A: Gen AI is enhancing operating performance by improving prospecting, sales productivity, and service efficiency. It's particularly beneficial in price realization and identifying PEO prospects, leading to productive and efficient client acquisition.

Client and Worksite Employee Growth
Q: What's the outlook for client growth and WSE growth?
A: Client base growth was close to 1% this year. The growth formula remains strong and similar to historical patterns, focusing on selling more, losing less, and driving client base growth. Worksite employee growth continues to be strong, especially in the PEO segment.

Processing Days Impact
Q: Is there a catch-up in Q2 for the one less processing day in Q1?
A: No, the loss of a processing day in Q1 due to the calendar does not get recovered in Q2. While it affects the quarterly growth, the full-year impact is minimal.

M&A Strategy and Outlook
Q: How does M&A factor into the growth strategy?
A: M&A remains part of the growth formula, with plans to be active as market valuations become more rational. There's a focus on expanding partnerships with fintechs to provide clients with access to capital rather than acquiring companies solely for that purpose.

Cost Optimization Charges Details
Q: Can you break down the cost optimization charges?
A: Of the $30 million in charges, approximately 20% is related to headcount reductions, with the remainder split between real estate and technology assets. No incremental charges are expected in fiscal '25.

Labor Market Trends
Q: Are you seeing any signs of a recession in client behavior?
A: No signs of a recession are observed. Clients have open positions but struggle to find qualified employees, indicating a tight labor market. The company is rolling out products to help clients retain and attract qualified employees.

Demand and Go-To-Market Changes
Q: Why were go-to-market changes necessary, and what's the impact?
A: Changes were made to refresh sales plays and marketing positions post-pandemic. There's a focus on areas clients are most concerned about: attracting qualified employees, accessing affordable benefits, and obtaining capital. Resources are being pivoted into market segments with higher growth potential for fiscal year '25.

First Quarter Margin Dynamics
Q: What factors are affecting Q1 margins, and how will they improve?
A: Q1 margins are impacted by the high-margin ERTC ending and the loss of a processing day. Historically, margins are stronger in the back half due to the timing of year-end processing revenue. Cost actions and the diminishing ERTC headwind will contribute to margin improvement throughout the year.

Acquisitions Contribution to FY25
Q: How much M&A contribution is in the FY25 guidance?
A: The FY25 guidance assumes none from acquisitions. The company did a very small acquisition last year, but its impact is negligible.

Discounts and Competitive Landscape
Q: Are discounts increasing due to competition?
A: Discounts in the mid-market are stable. While more deals required discounting and average deal sizes decreased slightly, overall discounting practices haven't seen significant changes.

Use of Gen AI in Service Automation
Q: Is Gen AI being used to automate client service?
A: Yes, Gen AI is used to create automated chat and analyze large volumes of client interactions to improve service and reduce labor intensity. In 2023, the company digitized and analyzed 158 years of call interactions and 250 years of electronic communications.

Impact of Processing Days on Revenue
Q: How do processing days affect revenue growth?
A: The loss of one processing day in Q1 affects quarterly revenue growth comparisons but has minimal impact on the full-year growth. The company's growth rates are expected to accelerate through the year as ERTC headwinds diminish.