Paychex, Inc. is a leading provider of integrated human capital management (HCM) solutions, offering a comprehensive suite of technology and advisory services in human resources (HR), employee benefits, insurance, and payroll for small- to medium-sized businesses in the United States and parts of Europe **[0000950170-24-082958_payx-20240531.htm:73]** **[0000950170-24-040129_payx-20240229.htm:6]** **[0000950170-24-110834_payx-20240831.htm:6]** **[0000950170-24-110834_payx-20240831.htm:24]**. The company's product offerings are divided into two main categories: Management Solutions and Professional Employer Organization (PEO) and Insurance Solutions **[0000950170-24-082958_payx-20240531.htm:84]** **[0000950170-24-110834_payx-20240831.htm:24]**. Paychex continues to invest in technology and advisory solutions to support its clients, maintaining a strong financial position with high-quality cash flows and earnings **[PAYX_3369663_2]** **[0000950170-24-082958_payx-20240531.htm:41]**.

1. **Management Solutions** - Provides integrated HCM services and HR solutions, including payroll processing, HR management, and administration services, which clients can select on an á la carte basis or as part of various product bundles. Revenue is recognized over time as services are performed **[0000950170-23-072195_payx-20231130.htm:10]** **[0000950170-24-082958_payx-20240531.htm:84]**.
2. **Professional Employer Organization (PEO) and Insurance Solutions** - Involves co-employment arrangements where Paychex offers health insurance coverage and assumes risks related to workers' compensation insurance. Revenue is recognized over time as services are performed **[0000950170-23-072195_payx-20231130.htm:10]** **[0000950170-24-082958_payx-20240531.htm:84]**.

f4205a4089f569765a82b768ada492d6823e587d69c160a5cc85829544f483e1

Total Revenue [USD, Millions]

Cost of Goods Sold (COGS) [USD, Millions]

Selling, General, and Administrative Expenses (SG&A) [USD, Millions]

Research and Development (R&D) [USD, Millions]

Depreciation and Amortization (D&A) [USD, Millions]

Interest Expense [USD, Millions]

Operating Income (EBIT) [USD, Millions]

Net Income [USD, Millions]

Earnings Per Share (EPS) - Basic [USD, Units]

Earnings Per Share (EPS) - Diluted [USD, Units]

2e1445870b63bb582ade5fe01270f56c63f147c8efd560d672d5e6a4b1ace526

dd07bf801fcda12f1acef22d164bed08ff7421ea40f640bc2c92b1cb8ee6b77b

2c13cad8cfc38d99247e7fe26e427e8734583630fc1b294ade5e76a220973933

| Segment/Metric (USD Million) | Q1 2025 | Q4 2024 | Q3 2024 | Q2 2024 | Q1 2024 | Q4 2023 | Q3 2023 | Q2 2023 |
|------------------------------|---------|---------|---------|---------|---------|---------|---------|---------|
| **Management Solutions**     | **962**  **[PAYX_3402500_4]**  | **930.3**  **[0000950170-24-077622_payx-ex99_1.htm:0]**  | **1,049.9**  **[0000950170-24-039769_payx-ex99_1.htm:0]**  | **930.7**  **[0000950170-23-072066_payx-ex99_1.htm:0]**  | **955.5**  **[PAYX_3329869_3]**  | **905.2**  **[PAYX_3254382_2]**  | **1,000**  **[PAYX_3246119_2]**  | **895**  **[PAYX_1987784_2]**  |
| **PEO and Insurance Solutions** | **319**  **[PAYX_3402500_4]**  | **326.6**  **[0000950170-24-077622_payx-ex99_1.htm:0]**  | **345.5**  **[0000950170-24-039769_payx-ex99_1.htm:0]**  | **295.7**  **[0000950170-23-072066_payx-ex99_1.htm:0]**  | **297.8**  **[PAYX_3329869_3]**  | **299.5**  **[PAYX_3254382_2]**  | **321.2**  **[PAYX_3246119_2]**  | **273**  **[PAYX_1987784_2]**  |
| **Interest on Funds Held for Clients** | **38**  **[PAYX_3402500_4]**  | **38.2**  **[0000950170-24-077622_payx-ex99_1.htm:0]**  | **43.9**  **[0000950170-24-039769_payx-ex99_1.htm:0]**  | **31.5**  **[0000950170-23-072066_payx-ex99_1.htm:0]**  | **32.7**  **[0000950170-23-050045_payx-ex99_1.htm:0]** **[0000950170-23-050438_payx-20230831.htm:23]**  | **25**  **[PAYX_3254382_2]**  | **35**  **[PAYX_3246119_2]**  | **22**  **[PAYX_1987784_2]**  |
| **Total Revenue**            | **1,300**  **[PAYX_3402500_4]**  | **1,295.1**  **[0000950170-24-077622_payx-ex99_1.htm:0]**  | **1,439.3**  **[0000950170-24-039769_payx-ex99_1.htm:0]**  | **1,257.9**  **[0000950170-23-072066_payx-ex99_1.htm:0]**  | **1,286**  **[0000950170-23-050045_payx-ex99_1.htm:0]** **[0000950170-23-050438_payx-20230831.htm:23]**  | **1,200**  **[PAYX_3254382_2]**  | **1,400**  **[PAYX_3246119_2]**  | **1,200**  **[PAYX_1987784_2]**  |

f9b66c9e8d5a946e78b57641c9af277cf7c8c7f7d2f3a5cc6064ffa0ae2ad183

1. With clients not adding new locations and this trend impacting your unit growth, how do you plan to accelerate growth in the current economic environment where your clients are hesitant to expand?  
2. Rising healthcare costs are a significant concern for your clients seeking affordable benefits; how do you intend to offer cost-effective benefit solutions without compromising your margins?  
3. You've made considerable investments in your new go-to-market strategy, including marketing and sales technology—can you provide specific metrics that demonstrate the return on these investments, and what is your plan if these initiatives don't meet expectations?  
4. As you introduce AI-driven products like the Paychex Recruiting Copilot, how are you addressing data privacy and security concerns, and what steps are you taking to maintain a competitive edge in the rapidly evolving AI landscape?  
5. While you mention that the outsourcing message of PEOs is building back, what challenges do you anticipate in sustaining high growth in worksite employees given the competitive HR outsourcing market, and how are you differentiating your offerings from technologically advanced competitors?

1311a56cdf55f7518cabcabcd18a74f150dbd62256526831918b26baa6f1a7a9

### Q1 2025 Earnings Call
- **Issued Period**: Q1 2025
- **Guided Period**: FY 2025
- **Guidance**:
  1. **Total Revenue Growth**: 4% to 5.5%, including 200 basis points headwind from ERTC expiration  **[PAYX_3402500_5]** .
  2. **Management Solutions Revenue Growth**: 3% to 4%  **[PAYX_3402500_5]** .
  3. **PEO and Insurance Solutions Revenue Growth**: 7% to 9%  **[PAYX_3402500_5]** .
  4. **Interest on Funds Held for Clients**: $145 million to $155 million  **[PAYX_3402500_5]** .
  5. **Other Income, Net**: $30 million to $35 million  **[PAYX_3402500_5]** .
  6. **Operating Income Margin**: 42% to 43%  **[PAYX_3402500_5]** .
  7. **Effective Income Tax Rate**: 24% to 25%  **[PAYX_3402500_5]** .
  8. **Adjusted Diluted Earnings Per Share Growth**: 5% to 7%  **[PAYX_3402500_5]** .
  9. **Q2 Total Revenue Growth**: 4% to 5%  **[PAYX_3402500_5]** .
  10. **Q2 Operating Margin**: Approximately 40%  **[PAYX_3402500_5]** .

### Q4 2024 Earnings Call
- **Issued Period**: Q4 2024
- **Guided Period**: FY 2025
- **Guidance**:
  1. **Total Revenue Growth**: 4% to 5.5%, including 200 basis points headwind from ERTC expiration  **[PAYX_3392917_4]** .
  2. **Adjusted Diluted Earnings Per Share Growth**: 5% to 7%  **[PAYX_3392917_4]** .
  3. **Management Solutions Revenue Growth**: 3% to 4%  **[PAYX_3392917_4]** .
  4. **PEO and Insurance Solutions Revenue Growth**: 7% to 9%  **[PAYX_3392917_4]** .
  5. **Interest on Funds Held for Clients**: $150 million to $160 million  **[PAYX_3392917_4]** .
  6. **Other Income, Net**: $35 million to $40 million  **[PAYX_3392917_4]** .
  7. **Operating Income Margin**: 42% to 43%  **[PAYX_3392917_4]** .
  8. **Effective Tax Rate**: 24% to 25%  **[PAYX_3392917_4]** .
  9. **Q1 Total Revenue Growth**: Approximately 2%  **[PAYX_3392917_4]** .
  10. **Q1 Operating Margin**: 40% to 41%  **[PAYX_3392917_4]** .

### Q3 2024 Earnings Call
- **Issued Period**: Q3 2024
- **Guided Period**: FY 2024 and preliminary FY 2025
- **Guidance**:
  1. **Total Revenue Growth**: 5% to 6%  **[PAYX_3379468_5]** .
  2. **Management Solutions Revenue Growth**: 3.5% to 4%  **[PAYX_3379468_5]** .
  3. **PEO and Insurance Solutions Revenue Growth**: 7% to 9%  **[PAYX_3379468_5]** .
  4. **Interest on Funds Held for Clients**: $140 million to $150 million  **[PAYX_3379468_5]** .
  5. **Other Income Net**: $40 million to $45 million  **[PAYX_3379468_5]** .
  6. **Operating Margins**: High end of 41% to 42%  **[PAYX_3379468_5]** .
  7. **Adjusted Diluted Earnings Per Share Growth**: 10% to 11%  **[PAYX_3379468_5]** .
  8. **Q4 Revenue Growth**: Approximately 5%  **[PAYX_3379468_5]** .
  9. **Q4 Operating Margins**: Around 40%  **[PAYX_3379468_5]** .

### Q2 2024 Earnings Call
- **Issued Period**: Q2 2024
- **Guided Period**: FY 2024
- **Guidance**:
  1. **Management Solutions**: 5% to 6%  **[PAYX_3369663_3]** .
  2. **PEO and Insurance Solutions**: 7% to 9%  **[PAYX_3369663_3]** .
  3. **Interest on Funds Held for Clients**: $140 million to $150 million  **[PAYX_3369663_3]** .
  4. **Total Revenue**: 6% to 7%  **[PAYX_3369663_3]** .
  5. **Operating Income Margin**: 41% to 42%  **[PAYX_3369663_3]** .
  6. **Other Income Net**: $35 million to $40 million  **[PAYX_3369663_3]** .
  7. **Effective Income Tax Rate**: 24% to 25%  **[PAYX_3369663_3]** .
  8. **Adjusted Diluted Earnings Per Share**: 10% to 11%  **[PAYX_3369663_3]** .
  9. **Q3 Revenue Growth**: 5% to 6%  **[PAYX_3369663_3]** .
  10. **Q3 Operating Margins**: 44% to 45%  **[PAYX_3369663_3]** .

78439f85b6c210063c2dbf21becce6aeb66e4e8b854d6d91d9f17e382a427404

- **Automatic Data Processing, Inc.** (direct competitor)  **[0000950170-24-082958_payx-20240531.htm:39]** 
- **Global Payments, Inc.**  **[0000950170-24-082958_payx-20240531.htm:39]** 
- **Broadridge Financial Solutions, Inc.**  **[0000950170-24-082958_payx-20240531.htm:39]** 
- **Intuit, Inc.**  **[0000950170-24-082958_payx-20240531.htm:39]** 
- **Corpay, Inc.** (formerly FleetCor Technologies, Inc.)  **[0000950170-24-082958_payx-20240531.htm:39]** 
- **Jack Henry & Associates, Inc.**  **[0000950170-24-082958_payx-20240531.htm:39]** 
- **Equifax, Inc.**  **[0000950170-24-082958_payx-20240531.htm:39]** 
- **Moody's Corporation**  **[0000950170-24-082958_payx-20240531.htm:39]** 
- **Euronet Worldwide, Inc.**  **[0000950170-24-082958_payx-20240531.htm:39]** 
- **SS&C Technologies Holdings, Inc.**  **[0000950170-24-082958_payx-20240531.htm:39]** 
- **Fair Isaac Corporation**  **[0000950170-24-082958_payx-20240531.htm:39]** 
- **TransUnion**  **[0000950170-24-082958_payx-20240531.htm:39]** 
- **Fiserv, Inc.**  **[0000950170-24-082958_payx-20240531.htm:39]** 
- **Verisk Analytics, Inc.**  **[0000950170-24-082958_payx-20240531.htm:39]** 
- **Gartner, Inc.**  **[0000950170-24-082958_payx-20240531.htm:39]** 
- **WEX, Inc.**  **[0000950170-24-082958_payx-20240531.htm:39]** 

f906dac593446299bf2bfc81f604a9a28dce1ca37732be40d6a57ddf673ee709

Adjustments for Non-Cash Items [USD, Millions]

Stock-Based Compensation [USD, Millions]

Changes in Working Capital [USD, Millions]

Capital Expenditures (CapEx) [USD, Millions]

Proceeds from / Repayments of Debt [USD, Millions]

Share Repurchases [USD, Millions]

Dividend Payments [USD, Millions]

Net Change in Cash [USD, Millions]

bea36d14441df2a805d990f05273222d9f614fd3a6de2b889075637ea078e0b9

23794d91c53ae875c8e247d72561e35d9d06ee07c70c9e0dbcc977a6d161504a

| Name                  | Position                                                   | Start Date       | Short Bio                                                                                                                                                                                                                                                                                                                                                   |
|-----------------------|------------------------------------------------------------|------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| John B. Gibson        | President and Chief Executive Officer                      | October 2022     | John B. Gibson has served as the **President and Chief Executive Officer** of Paychex, Inc. since **October 2022**. Before becoming CEO, he was promoted to the role of President and Chief Operating Officer in December 2021, where he led the daily operations of the company, including sales, service, marketing, and management  **[0001193125-24-210377_d826431ddef14a.htm:11]** **[0001193125-23-226898_d474083ddef14a.htm:14]** **[0000950170-24-082958_payx-20240531.htm:111]** .               |
| Robert L. Schrader    | Senior Vice President and Chief Financial Officer          | October 13, 2023 | Robert L. Schrader has served as the **Senior Vice President and Chief Financial Officer** of Paychex, Inc. since **October 13, 2023**. He joined the company in **December 2014** and has held various roles, including Vice President, Finance and Investor Relations, Vice President and Controller  **[0000950170-24-082958_payx-20240531.htm:111]** **[0001193125-24-210377_d826431ddef14a.htm:46]** .                                               |
| Mason Argiropoulos    | Chief Human Resources Officer                              | April 2024       | Mason Argiropoulos joined Paychex as the **Chief Human Resources Officer** in **April 2024**. Before joining Paychex, he served as Chief Human Resources Officer for UnitedLex, a global legal services provider, from 2018 to 2024  **[0000950170-24-082958_payx-20240531.htm:111]** .                                                                                                                     |
| Sipi Bhandari         | Chief Legal Officer, Chief Ethics Officer, and Secretary   | May 2024         | Sipi Bhandari joined Paychex as **Chief Legal Officer, Chief Ethics Officer, and Secretary** in **May 2024**. Before joining Paychex, she served as **SVP, Deputy General Counsel, and Corporate Secretary at AIG** from 2022 to 2024  **[0000950170-24-082958_payx-20240531.htm:111]** .                                                                                                                   |
| Mark A. Bottini       | Senior Vice President of Sales                             | October 2011     | Mark A. Bottini joined Paychex in **October 2011** as Senior Vice President of Sales. Before joining Paychex, he served as Vice President of Sales for Ricoh, North America, from 2008 to 2011  **[0000950170-24-082958_payx-20240531.htm:111]** **[0000950170-23-032988_payx-20230531.htm:100]** .                                                                                                                                                     |
| Michael E. Gioja      | Senior Vice President of Information Technology and Product Development | July 2011        | Michael E. Gioja has been with Paychex, Inc. since **November 2008**. He was named Senior Vice President of Information Technology and Product Development in **July 2011**  **[0000950170-24-082958_payx-20240531.htm:112]** **[0000950170-23-032988_payx-20230531.htm:101]** .                                                                                                                                                                        |
| Elizabeth Roaldsen    | Senior Vice President of Operations and Customer Experience | May 2023         | Elizabeth Roaldsen joined Paychex, Inc. in **May 2023** as the Senior Vice President of Operations and Customer Experience. Before joining Paychex, she served as Managing Director, head of enterprise business services, and wholesale banking at HSBC from 2021 through 2023  **[0000950170-24-082958_payx-20240531.htm:112]** **[0000950170-23-032988_payx-20230531.htm:101]** **[0001193125-24-210377_d826431ddef14a.htm:48]** .                                                                   |
| Beaumont Vance        | Senior Vice President of Data, Analytics, and AI           | March 2024       | Beaumont Vance joined Paychex, Inc. as **Senior Vice President of Data, Analytics, and AI** in **March 2024**. He is a member of the Executive Committee. Before joining Paychex, Mr. Vance served as Managing Director of AI and Investments at WestCap Management, a private equity firm, from 2021 to 2024  **[0000950170-24-082958_payx-20240531.htm:112]** .                                           |
| Christopher Simmons   | Vice President, Controller, and Treasurer                  | October 2023     | Christopher Simmons was named **Vice President, Controller, and Treasurer** at Paychex, Inc. in **October 2023**. He joined the company in **2014** and has held various leadership roles within the corporate finance department, most recently serving as Vice President and Treasurer before his current position  **[0000950170-24-082958_payx-20240531.htm:112]** .                                    |

8db1428d1229722ab2b39df092b85a2385f4023cefe5c14ee20a2ef016155945

Management Solutions

PEO and Insurance Solutions

Payroll Service Revenue

Human Resource Services (HRS) Revenue

Total Service Revenue

Interest on Funds Held for Clients

Total Revenue

913c26402a5ec740a1baf667d69714c5c504abcd128a4b0f6b4ffec7f85b8488

| Program Details            | Program 1     | Program 2     |
|----------------------------|---------------|---------------|
| Approval Date              | N/A           | N/A           |
| End Date/Duration          | **January 31, 2024**  **[0000950170-24-138425_payx-20241130.htm:4]**  | **May 31, 2027**  **[0000950170-24-138425_payx-20241130.htm:42]**  |
| Total additional amount    | **$400.0 million**  **[0000950170-24-138425_payx-20241130.htm:4]**  | **$400.0 million**  **[0000950170-24-138425_payx-20241130.htm:42]**  |
| Remaining authorization amount | N/A           | **$296.0 million**  **[0000950170-24-138425_payx-20241130.htm:42]**  |
| Details                    | N/A           | **Manage common stock dilution**  **[0000950170-24-110834_payx-20240831.htm:40]** **[0000950170-24-138425_payx-20241130.htm:42]** **[0000950170-24-110834_payx-20240831.htm:4]**  |

46e8e988edea31e0c9fa2525cfbb0fbb9cc8a01fcdc0e837558f421ac9cd39db

**Quarterly guidance for Q3 2025:**
- **Total Revenue Growth**: 4.5% to 5%  **[PAYX_3402500_5]**  (no prior guidance)  
- **Operating Margin**: 46% to 47%  **[PAYX_3402500_5]**  (no prior guidance)

**Annual guidance for FY 2025:**
- **Total Revenue Growth**: 4% to 5.5%  **[PAYX_3402500_5]**  (no change from 4% to 5.5%   )  
- **Management Solutions Revenue Growth**: 3% to 4%  **[PAYX_3402500_5]**  (no change from 3% to 4%   )  
- **PEO and Insurance Solutions Revenue Growth**: 7% to 9%  **[PAYX_3402500_5]**  (no change from 7% to 9%   )  
- **Interest on Funds Held for Clients**: $135 million to $155 million  **[PAYX_3402500_5]**  (lowered from $145 million to $155 million   )  
- **Other Income, Net**: $30 million to $35 million  **[PAYX_3402500_5]**  (no change from $30 million to $35 million   )  
- **Operating Income Margin**: 42% to 43%  **[PAYX_3402500_5]**  (no change from 42% to 43%   )  
- **Effective Tax Rate**: 24% to 25%  **[PAYX_3402500_5]**  (no change from 24% to 25%   )  
- **Adjusted Diluted EPS Growth**: 5% to 7%  **[PAYX_3402500_5]**  (no change from 5% to 7%   )

89cb1a6187821a95daa8770576a90343f58a95930c1360a2c18b2e5055883cd9

| Name                          | Start Date | End Date | Reason for Change |
|-------------------------------|------------|----------|-------------------|
| PricewaterhouseCoopers LLP   | 2013  **[0000950170-24-082958_payx-20240531.htm:69]**    | Present  | Current auditor   |

32ad536fa77a46e746f6a0f6a9d471bb90dd24f44904f0c64d14decb063efcbf

8cc97798741104fbcd47d3b025800bb45272a92076beb2c8c41e07629467173d

- **Paychex expects to deliver operating margin expansion in fiscal 2025 despite the headwind from winding down the ERTC program**, demonstrating strong financial discipline and operational efficiency. \[6\]
- **The PEO business is gaining momentum** with strong results in sales, retention, and insurance enrollment, achieving participation rates back to historical norms, indicating positive client engagement and increased lifetime value. \[12\]
- **Investments in digitalization, AI, and operational excellence are driving margin expansion and positioning Paychex for future profitable growth**, highlighting its ability to innovate and adapt in the industry. \[14\]

07b465681212abffdd76d2b5ec34a0539a458e71f96d2d4105b4504194e08a1b

- Total Revenue Q2 2025: $1,316.9 million (+4.7% YoY)  **[0000950170-24-138425_payx-20241130.htm:27]** **[0000950170-24-138425_payx-20241130.htm:1]**   
- PEO and Insurance Solutions Q2 2025: $317.9 million (+**7.5%** YoY)  **[0000950170-24-138425_payx-20241130.htm:27]**   
- Interest on Funds Held for Clients Q2 2025: $36.1 million (+**14.6%** YoY)  **[0000950170-24-138425_payx-20241130.htm:27]**   
- Operating Income (EBIT) Q2 2025: $538.1 million (+**6.3%** YoY)  **[0000950170-24-138425_payx-20241130.htm:1]** **[0000950170-24-138425_payx-20241130.htm:3]** **[0000950170-24-138425_payx-20241130.htm:6]**   
- Net Income Q2 2025: $413.4 million (+**5.3%** YoY)  **[0000950170-24-138425_payx-20241130.htm:1]** **[0000950170-24-138425_payx-20241130.htm:3]** **[0000950170-24-138425_payx-20241130.htm:6]**   
- EPS (Basic) Q2 2025: $1.15 (+**5.5%** YoY)  **[0000950170-24-138425_payx-20241130.htm:1]** **[0000950170-24-138425_payx-20241130.htm:3]** **[0000950170-24-138425_payx-20241130.htm:6]**   

f854c28f96ec92d69bbe75d6c9ea0ed160d2f93b3336280d948a622509259cb8

Average interest rate on funds held for clients (percentage)

Average interest rate on corporate cash equivalents and investments (percentage)

Average interest rate on combined funds held for clients and corporate cash equivalents and investments (percentage)

Weighted-average duration of AFS securities (years)

Weighted-average yield-to-maturity of AFS securities (percentage)

8637212dadba5d93ad0df92429f4f531deb743644f8f13c2d81b8540b49e7a8a

1f845644795fdcaea5bab87b6005c1d1720f664cac8369e1df508bdcdc08b5cc

| Year | Amount Due (in millions) | Debt Type              | Interest Rate (%) | % of Total Debt                                                                 |
|----------|------------------------------|----------------------------|------------------------|-------------------------------------------------------------------------------------|
| 2024     | $18.2 **[0000950170-24-138425_payx-20241130.htm:31]**                | PNC Bank Credit Facility   | 4.77 **[0000950170-24-138425_payx-20241130.htm:21]**          | 2.2% = (18.2 / 818.2) * 100 **[0000950170-24-138425_payx-20241130.htm:31]** **[0000950170-24-138425_payx-20241130.htm:2]**                                        |
| N/A      | $800.0 **[0000950170-24-138425_payx-20241130.htm:31]**               | Senior Notes (A & B)       | N/A                   | 97.8% = (800.0 / 818.2) * 100 **[0000950170-24-138425_payx-20241130.htm:31]** **[0000950170-24-138425_payx-20241130.htm:2]**                                      |

d9592d47af4540e69a0bb4bbcb753fdfff2db0eb10c8e61b901f55f57c555dd6

- **Strong Product Innovation Driving Growth**: Paychex has launched several new AI-driven products, including **Paychex Recruiting Copilot**, **Flex Engage**, and **Paychex Perks**, designed to help small and midsized businesses attract and retain qualified employees. These solutions are expected to drive **unit growth**, improve **client retention**, and offer **upsell opportunities**. Notably, Paychex Recruiting Copilot is available to non-Paychex clients, potentially attracting new customers.  **[PAYX_3402500_14]** **[PAYX_3402500_7]**
- **Significant Growth in HR Outsourcing Services**: Paychex reported **high single-digit growth** in HR outsourcing worksite employees (WSEs), driven by the **strength of their comprehensive HR outsourcing value proposition**. The company is experiencing strong **client retention** in this segment and is **accelerating sales hiring** to capitalize on this momentum.  **[PAYX_3402500_32]** **[PAYX_3402500_24]**
- **Better-than-Expected Client Hiring and Record Retention Levels**: Client hiring was **positive and better than expected** in the first quarter, contributing to revenue growth exceeding expectations. **Client retention remains at or near record levels**, with improved retention in HR outsourcing and reduced client losses due to financial distress.  **[PAYX_3402500_2]** **[PAYX_3402500_12]** **[PAYX_3402500_29]**

a8466c50a1b653412dc53d05e9182e4a95aecf88e0624919e063dc6ed9f28f0e

- **Paychex's revenue growth is not accelerating in the underlying business; the apparent acceleration in the second half is due to prior-year comparisons, not an improvement in performance.**  **[PAYX_3402500_29]**
- **Margins are expected to slightly contract year-over-year due to headwinds from the Employee Retention Tax Credit (ERTC), impacting profitability despite the company's cost discipline.**  **[PAYX_3402500_31]**
- **Significant investments in go-to-market strategies, including retraining over 3,000 sellers and accelerating sales hiring, may increase operating expenses and pressure margins.**  **[PAYX_3402500_24]**

ba7a11da19abbbb336cab6612a8be83141efac2edf2affd4d3b4d221ad7bd9da

- **Strong growth in PEO business with worksite employee growth close to double digits**, driven by higher average worksite employees and increased medical plan participant volumes.  **[PAYX_3392917_12]**
- **Leveraging AI and data analytics** to enhance customer service, optimize pricing, improve sales productivity, and drive operational efficiencies, positioning the company for future growth.  **[PAYX_3392917_20]**
- **Revenue retention remains near record levels**, with client retention in fiscal year 2024 in line with last year and pre-pandemic levels, demonstrating the company's value proposition is resonating with clients.  **[PAYX_3392917_0]**

f8ca058b095e22d12a0276addad0c377e405932bc2feb3575e003764d70458f1

1. **Margin Expansion**

   **Q:** What's driving margin expansion, and can it continue?

   **A:** Margin expansion is driven by investments in digitalization and digital adoption capabilities over the past **three years**.  **[PAYX_3379468_8]**  The company built global operational capabilities and launched enhancements during the selling season that improved operational and sales efficiency.  **[PAYX_3379468_8]**  They plan to continue these initiatives, expecting ongoing margin expansion as they scale them up.  **[PAYX_3379468_8]** 

2. **Macro Outlook and '25 Guidance**

   **Q:** What macro environment assumptions are in your '25 guidance?

   **A:** They assume a fairly stable macro environment with some expectation of **Fed rate cuts** later this year.  **[PAYX_3379468_9]**  Employment challenges persist due to a lack of qualified labor, not demand.  **[PAYX_3379468_9]**  Clients struggle to fill open positions, leading to moderating hiring trends.  **[PAYX_3379468_9]**  Despite these challenges, they don't see signs of a recession and expect steady conditions.  **[PAYX_3379468_9]** 

3. **Pricing Dynamics**

   **Q:** Are you seeing changes in pricing or discounting affecting the outlook?

   **A:** They continue to command traditional value-based pricing with strong retention.  **[PAYX_3379468_12]**  Pricing across product groups is on par with historical levels.  **[PAYX_3379468_12]**  However, average client size has slightly decreased, impacting realized price due to fewer employees and checks per client.  **[PAYX_3379468_12]**  The competitive environment has led to clients being more negotiative, but they feel confident about their pricing strategy.  **[PAYX_3379468_12]** 

4. **PEO Performance**

   **Q:** Can you elaborate on PEO momentum going into next year?

   **A:** PEO showed strong performance with **8%** growth, and standalone PEO growth is higher.  **[PAYX_3379468_11]**  Despite employment headwinds, they achieved record levels of worksite employee retention and strong growth.  **[PAYX_3379468_11]**  Medical insurance attachment and volumes are back to expected levels.  **[PAYX_3379468_11]**  They expect this momentum to carry into next year, with PEO and Insurance growing faster than total revenue.  **[PAYX_3379468_11]** 

5. **Bookings and Deal Size**

   **Q:** How did Q3 bookings compare to expectations, and what about client size?

   **A:** Demand was solid with volumes in line with expectations.  **[PAYX_3379468_13]**  However, the average deal size was slightly smaller than anticipated, affecting revenue expectations.  **[PAYX_3379468_13]**  Small differences in average employees per deal can impact overall revenue due to their scale.  **[PAYX_3379468_13]** 

6. **Sales Strategy**

   **Q:** How is sales headcount trending, and are you leveraging tech for productivity?

   **A:** Sales headcount met expectations during the selling season.  **[PAYX_3379468_14]**  Digital channels drove impressive business growth, approaching traditional channels.  **[PAYX_3379468_14]**  They're exploring new go-to-market strategies to enhance sales rep productivity and focusing on proper territory management.  **[PAYX_3379468_14]**  They aim to determine the optimal number of salespeople per market segment.  **[PAYX_3379468_14]** 

7. **Labor Supply Challenges**

   **Q:** How are labor shortages affecting your clients?

   **A:** Clients face challenges filling open positions with qualified candidates.  **[PAYX_3379468_9]**  This is a systemic issue due to generational changes in the labor force and lower participation rates.  **[PAYX_3379468_19]**  The company is helping clients retain and attract employees through AI-based tools, partnerships, and benefit offerings.  **[PAYX_3379468_19]**  They see this as an ongoing issue but also an opportunity to provide value to clients.  **[PAYX_3379468_19]** 

8. **Price Increase Timing**

   **Q:** Any changes in timing of price increases this year?

   **A:** There is no change to the amount or timing of price increases.  **[PAYX_3379468_15]**  Annual price increases typically occur towards the end of the fiscal year or the beginning of the next fiscal year.  **[PAYX_3379468_15]** 

9. **Customer Size Trends**

   **Q:** Are there trends by customer size or segment?

   **A:** They haven't seen significant changes overall.  **[PAYX_3379468_16]**  However, there were fewer large enterprise deals ("boulders") in PEO, ASO, and HCM.  **[PAYX_3379468_16]**  They compensated with more average-sized deals, but fewer large deals resulted in slightly less worksite employees or checks than planned.  **[PAYX_3379468_16]** 

10. **ERTC Revenue Impact**

    **Q:** Did you recognize any ERTC revenue from February sales?

    **A:** They included ERTC revenue from January sales in Q3 but stopped recognizing revenue from February sales due to legislative uncertainty.  **[PAYX_3379468_6]**  Approximately **one-third** of the **100 basis point** shortfall in Q3 revenue was due to this decision.  **[PAYX_3379468_7]**  They believe it was the right accounting decision given the circumstances.  **[PAYX_3379468_6]** 

239cf5e9b9accb6afea05bd2c003de4b872ce6b628826e82b089b11950cad154

- **PEO and Insurance Solutions revenue growth is expected to be at the lower end of the 7% to 9% range**, due to factors affecting MPP enrollment in Florida.  **[PAYX_3411949_4]**
- **Prospects and clients are more price sensitive than pre-COVID**, potentially pressuring pricing power and impacting growth.  **[PAYX_3411949_23]**
- **Limited hiring within the existing client base**, with "not a lot of hiring" expected, which may constrain revenue growth.  **[PAYX_3411949_22]**

bbdcea5733517ef2b5290f42dbfd624f8778b605f2a60c8336be54e3e0110ab2

- **Paychex lowered its total revenue growth guidance for fiscal year 2024 to 5%–6% from the prior 6%–7%,** mainly due to the wind-down of its Employee Retention Tax Credit (ERTC) service and other factors.  **[PAYX_3379468_5]**
- **The company experienced lower checks per client and smaller client sizes in Q3,** indicating a moderation of employment and leading to revenue headwinds.  **[PAYX_3379468_24]**
- **Clients are facing challenges in hiring qualified employees due to a tight labor market,** which could impact Paychex's growth as small businesses struggle to fill open positions.  **[PAYX_3379468_9]**

78c171910fa8158486a1eaf735dd96e0ca4e19569269bb37832e96c334176d47

1. **PEO Business Growth**  
   **Q:** Why is the PEO business growing faster than competitors?  **[PAYX_3411949_7]**   
   **A:** The PEO is gaining market share, with contracted revenue up by **high double digits** and client additions also up **high double digits**. Increased demand is driven by health inflation causing clients to shop for better options. Paychex differentiates itself with a broad suite of products and services, offering flexibility and allowing clients to grow without needing to leave Paychex.  **[PAYX_3411949_7]** 

2. **Florida PEO Enrollment and Health Inflation**  
   **Q:** How is health inflation impacting PEO enrollment in Florida?  **[PAYX_3411949_13]** **[PAYX_3411949_19]**   
   **A:** In Florida, PEO at-risk medical plan enrollment was flat due to conscious decisions to underwrite more conservatively amidst rising health inflation. Despite this, insurance penetration increased, and more clients are attaching insurance products, though sometimes through less risky options like agency plans. Employees are downgrading their health plans to manage costs, with downgrades doubling to **double-digit percentages**, reflecting real concerns over health inflation.  **[PAYX_3411949_13]** **[PAYX_3411949_19]** 

3. **Margin Outlook and Cost Efficiencies**  
   **Q:** What is driving improved margins and cost efficiencies?  **[PAYX_3411949_25]**   
   **A:** Margins are improving due to continuous efforts to do things better every day and leveraging digital adoption and AI to drive productivity across all areas. Clients and their employees are increasingly adopting digital methods, and Paychex uses AI and data analytics to enhance decision-making, improve close rates, and proactively address client needs, thereby reducing costs and enhancing efficiency.  **[PAYX_3411949_25]** 

4. **Management Solutions Growth**  
   **Q:** How is Management Solutions growth offsetting PEO business trends?  **[PAYX_3411949_8]**   
   **A:** Management Solutions remains strong, with no change to revenue guidance. New bookings and worksite employee growth are in the **upper single digits**, and several businesses within this category, like Retirement Solutions and Funding Solutions, grew **double digits**. Both PEO and Management Solutions are contributing positively without trade-offs between them.  **[PAYX_3411949_8]** 

5. **Pricing and Competitive Dynamics**  
   **Q:** Are there changes in pricing dynamics and discounting in the market?  **[PAYX_3411949_20]** **[PAYX_3411949_23]**   
   **A:** The market remains competitive but rational. Paychex continues to achieve a price-value premium with no significant changes in pricing dynamics. While clients are more price-sensitive than pre-COVID, the company maintains its historical growth approach, focusing on providing value without engaging in aggressive discounting or jeopardizing profitability.  **[PAYX_3411949_20]** **[PAYX_3411949_23]** 

6. **Interest Rates and Impact on Guidance**  
   **Q:** How do recent Fed rate cuts affect financial guidance?  **[PAYX_3411949_10]** **[PAYX_3411949_24]**   
   **A:** The financial guidance had already contemplated **125 basis points** of rate cuts, including the **50 basis points** cuts in September and November, plus recent cuts. One more cut is assumed in the back half of the year. Any further changes are not expected to have a material impact on earnings due to timing. There are no significant changes planned in managing the float, with a continued focus on optimizing based on the yield curve.  **[PAYX_3411949_10]** **[PAYX_3411949_24]** 

7. **M&A Pipeline and Inorganic Growth**  
   **Q:** What is the update on the M&A pipeline and any inorganic contributions to guidance?  **[PAYX_3411949_28]**   
   **A:** No M&A contributions are included in the fiscal '25 guidance. The M&A pipeline is strong—the largest seen—indicating more targets are interested in transacting deals. The focus remains on opportunities that add scale in existing or new markets, expand the product suite, and provide synergistic growth, pursued with disciplined valuation to ensure fair shareholder value.  **[PAYX_3411949_28]** 

8. **HCM Product Penetration and Contributions**  
   **Q:** How is HCM product penetration contributing to growth?  **[PAYX_3411949_11]**   
   **A:** HCM product penetration continues to drive significant growth, contributing at least **half of the overall growth**. Increased monetization of the existing client base and upselling additional services are key, with penetration rates of key solutions still relatively low, indicating substantial room for future growth.  **[PAYX_3411949_11]** 

9. **Retention Rates**  
   **Q:** How are retention rates trending compared to historical levels?  **[PAYX_3411949_15]**   
   **A:** Retention is solid, continuing near **record levels**, demonstrating the company's strong value proposition. Client losses have improved over the last year, with both revenue retention and logo retention tracking above historical ranges across all segments.  **[PAYX_3411949_15]** 

10. **Mid-Market HCM Sales and Competition**  
    **Q:** What is driving strong sales activity in the mid-market HCM business?  **[PAYX_3411949_17]**   
    **A:** Strong sales are due to investments in new products like the **Paychex Flex Engage** AI-based engagement tool, enhancing technology offerings. The HR outsourcing value proposition resonates with clients, and the company benefits from market disruptions by positioning itself favorably.  **[PAYX_3411949_17]** 

11. **New Business Starts Trends**  
    **Q:** Are there any signs of growth in new business starts?  **[PAYX_3411949_16]**   
    **A:** New business starts are down year-over-year but remain above pre-pandemic levels, indicating sustained entrepreneurship. No significant increase is expected soon, as small businesses face challenges like access to capital and finding qualified employees, even though the overall economy is solid.  **[PAYX_3411949_16]** 

12. **ERTC Impact**  
    **Q:** What's the status of ERTC revenue and reserves?  **[PAYX_3411949_9]**   
    **A:** The company no longer holds reserves for ERTC revenue as there's been no movement on the proposed legislation that put it at risk. The reserve was small and was assumed in the guidance, so its release doesn't materially impact results.  **[PAYX_3411949_9]** 

13. **Go-to-Market Strategies**  
    **Q:** Are clients adopting more products on initial sale versus cross-sell?  **[PAYX_3411949_26]**   
    **A:** There's no major shift observed. The company is improving sales execution by offering the full value proposition upfront. In the upper mid-market, clients increasingly adopt integrated suites from the outset, often replacing multiple point solutions with Paychex's comprehensive offerings.  **[PAYX_3411949_26]** 

14. **Seasonal Hiring Trends**  
    **Q:** How are seasonal hiring trends impacting results?  **[PAYX_3411949_22]**   
    **A:** Hiring trends are in line with expectations, with low levels of seasonal hiring assumed in the guidance. Employment levels within the existing client base align with projections, and there are no significant deviations impacting results.  **[PAYX_3411949_22]** 

15. **Partnership Channel Strategy**  
    **Q:** How does Paychex view partnerships and the partnership channel?  **[PAYX_3411949_14]**   
    **A:** Paychex maintains numerous longstanding partnerships, including those in the payments space, and is open to embedded or white-label partnerships. The company seeks mutually beneficial collaborations and continues to explore ways to expand partnerships to bring value to both parties.  **[PAYX_3411949_14]** 

16. **Float Management**  
    **Q:** Any changes in managing the float due to the changing interest rate environment?  **[PAYX_3411949_24]**   
    **A:** No significant changes are planned in managing the float. Some repositioning was done earlier in anticipation of rate decreases, but the overall approach remains consistent, aiming to optimize investments based on the yield curve while spreading them out to mitigate reinvestment risk.  **[PAYX_3411949_24]** 

17. **Management Solutions Sales Execution**  
    **Q:** Is there an offset in Management Solutions that will help land favorably within the total growth range?  **[PAYX_3411949_8]**   
    **A:** Yes, Management Solutions is performing strongly, with no change to the revenue guidance. New bookings and worksite employee growth are in the **upper single digits**, and retention remains strong. Product penetration is contributing positively, with several businesses within this category experiencing **double-digit growth**.  **[PAYX_3411949_8]** 

18. **Entering Key Selling Season**  
    **Q:** Any differences in preparing for the key selling season versus last year?  **[PAYX_3411949_27]**   
    **A:** The company doesn't anticipate significant changes in the competitive landscape. It plans to kick off advertising campaigns highlighting its award-winning product suite, including enhancements like **Gen AI insights** in HR analytics, the **Paychex recruiting copilot**, and the **Paychex Flex perks** product. The focus is on promoting the unique value proposition Paychex offers to clients.  **[PAYX_3411949_27]** 

19. **Impact of AI and Technology Investments**  
    **Q:** How is AI impacting sales and targeting in the PEO business?  **[PAYX_3411949_12]**   
    **A:** AI models are effectively used to analyze the client base and identify those who might benefit from the PEO value proposition, especially during insurance renewals. This targeted approach has increased activity within the existing client base, contributing to PEO growth. The company balances inside-base and outside-base sales, with AI-driven targeting particularly impactful in recent periods.  **[PAYX_3411949_12]** 

20. **Interest Income and Float**  
    **Q:** How will future rate cuts impact interest income and earnings?  **[PAYX_3411949_10]**   
    **A:** The forecast includes expectations for one more rate cut in the back half of the year. Whether this occurs or not is unlikely to have a material impact on earnings due to the timing within the fiscal year. Interest income has been favorable, but with rate cuts, it will become a headwind moving forward.  **[PAYX_3411949_10]** 

21. **Employee Retention Tax Credit (ERTC) Legislation**  
    **Q:** Was there any reserve release for ERTC in the quarter, and what's the outlook?  **[PAYX_3411949_9]**   
    **A:** The small reserve related to ERTC was released, as there has been no progression on the proposed retroactive legislation. This release was assumed in the guidance and doesn't significantly impact earnings. ERTC is no longer expected to affect future financials materially.  **[PAYX_3411949_9]** 

22. **Economic Outlook and Small Business Sentiment**  
    **Q:** How is business sentiment post-election affecting the pipeline?  **[PAYX_3411949_6]**   
    **A:** Small business growth remains moderate, with no signs of a recession. While optimism indexes have improved post-election, this hasn't yet translated into significant positive momentum in results. Challenges like downward pressure on wages and difficulties in finding qualified people persist, but clients are still eager to add employees.  **[PAYX_3411949_6]** 

23. **Access to Capital and Labor Challenges**  
    **Q:** What are the main constraints on small business growth?  **[PAYX_3411949_16]**   
    **A:** The primary constraints are access to capital and the ability to find qualified employees. Even if businesses can secure funding despite higher capital costs, staffing remains a challenge, limiting their ability to expand or open new locations.  **[PAYX_3411949_16]** 

0c6c0bee354e618454eb3cc4fe798fd550c2988a9e414645e66d4827495cb7e3

- **Paychex is experiencing lower close rates and is retraining its sales team, indicating challenges in converting sales opportunities.**  **[PAYX_3392917_5]**
- **First quarter revenue growth is expected to slow to approximately **2%**, a significant decline from the prior quarter's **5%** growth, potentially reflecting underlying weaknesses despite explanations of ERTC headwinds and fewer processing days.**  **[PAYX_3392917_13]**
- **Pricing has become a headwind, with realization being less than expectations, suggesting potential pressure on the company's pricing power in the market.**  **[PAYX_3392917_10]** ,  **[PAYX_3392917_11]**

5ae943f882c6f88f51799a26c28cd0551f2dca7fb36f4ef4a5654a30fc0ec55d

1. **Revenue Outlook and ERTC Headwinds**  
   **Q:** Is the Q1 to Q2 revenue growth driven by reduced ERTC headwinds or better client interactions?  
   **A:** Revenue growth from Q1 to Q2 is influenced by both factors. The Employee Retention Tax Credit (ERTC) headwind was significant in Q1 but lessens in Q2 by about **200 basis points**.  **[PAYX_3402500_10]**  Additionally, we are seeing positive momentum with client hiring exceeding expectations, contributing to revenue growth.  **[PAYX_3402500_10]** 

2. **Margin Expectations and Guidance**  
   **Q:** How are you managing margins amid ERTC headwinds and interest rate changes?  
   **A:** Despite ERTC headwinds and interest rate cuts impacting revenue, we are maintaining our margin guidance through strong business momentum and disciplined cost management. We achieved margin expansion of about **200 basis points** in Q1 excluding ERTC impact.  **[PAYX_3402500_10]** **[PAYX_3402500_11]**  We expect to continue delivering margin expansion throughout the year.  **[PAYX_3402500_11]** 

3. **PEO Growth Drivers and Outlook**  
   **Q:** What is driving the strong growth in the PEO business, and what is the outlook?  
   **A:** The PEO business is achieving **double-digit growth**, driven by strong worksite employee growth and solid bookings.  **[PAYX_3402500_13]** **[PAYX_3402500_20]**  Our benefits plans are resonating with clients, with enrollments meeting or exceeding expectations.  **[PAYX_3402500_13]**  The compelling PEO value proposition is leading to increased client retention and participant penetration.  **[PAYX_3402500_20]** 

4. **Client Hiring Trends and Impact on Retention**  
   **Q:** How are hiring trends shaping up, and what is the impact on retention and bookings?  
   **A:** Client hiring within our base has been positive for two consecutive quarters, slightly exceeding expectations.  **[PAYX_3402500_8]** **[PAYX_3402500_12]**  Retention remains strong, at or near record levels, with improved client retention aiding in reduced uncontrollable losses.  **[PAYX_3402500_12]** 

5. **Competitive Environment and Pricing Dynamics**  
   **Q:** What are you observing about the competitive environment and pricing pressures?  
   **A:** The competitive environment is stable, with no significant changes in pricing dynamics over the past few quarters.  **[PAYX_3402500_16]** **[PAYX_3402500_19]**  While it's a highly competitive market, we are not seeing dramatic shifts in pricing pressures. Rationality is returning to the industry, focusing on profitability.  **[PAYX_3402500_19]** 

6. **Impact of New Products like Recruiting Copilot**  
   **Q:** How will new products like Recruiting Copilot affect growth?  
   **A:** Recruiting Copilot addresses the critical need of attracting qualified employees, a challenge for businesses of all sizes.  **[PAYX_3402500_7]** **[PAYX_3402500_14]**  This tool is expected to drive unit growth, improve client retention, and attract new clients, as it is available even to non-Paychex payroll customers.  **[PAYX_3402500_7]** **[PAYX_3402500_14]**  We're solving key problems for clients, enhancing our value proposition in the market.  **[PAYX_3402500_14]** 

7. **M&A Strategy and Capital Allocation**  
   **Q:** What are your thoughts on acquisitions versus buybacks in capital allocation?  
   **A:** We continue to evaluate acquisition opportunities that offer scale in existing markets, expand our product suite, or add digital capabilities. The market has become more rational, and our pipeline is robust. We prioritize deals that are accretive for shareholders and fit our strategic criteria.  **[PAYX_3402500_27]** 

8. **Cost Management and Investments**  
   **Q:** How are you balancing cost management with investment needs?  
   **A:** We have been disciplined in managing expenses, with overall expenses up only **3%** in the quarter.  **[PAYX_3402500_22]**  We continue to invest in growth initiatives, such as our new go-to-market strategies and product innovations, while maintaining cost efficiency.  **[PAYX_3402500_23]** 

c62288fc9caf354948dc5cf7a94f08d1ba69542113a12f9fe5b9dffccde65287

1. **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.  **[PAYX_3392917_13]**  Additionally, there is one less processing day in the quarter, affecting growth comparisons.  **[PAYX_3392917_13]**  Adjusting for these factors, the underlying growth rate is similar to the previous year's back half, excluding ERTC.  **[PAYX_3392917_13]** 

2. **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.  **[PAYX_3392917_8]**  These actions are factored into the fiscal '25 outlook, enabling expected margin expansion despite headwinds.  **[PAYX_3392917_8]** 

3. **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.  **[PAYX_3392917_12]**  There's increasing demand for HR outsourcing solutions as businesses look to outsource HR functions to cut costs in an inflationary environment.  **[PAYX_3392917_12]** 

4. **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.  **[PAYX_3392917_11]**  While pricing has been a bit higher in recent years, it's projected to return to normal levels, contributing to growth.  **[PAYX_3392917_21]** 

5. **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.  **[PAYX_3392917_14]**  Factors include more shopping around for better deals and slower decision-making, especially in the higher end of the market.  **[PAYX_3392917_14]** 

6. **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.  **[PAYX_3392917_7]**  These issues are now resolved, and better conversion rates are expected in fiscal year '25.  **[PAYX_3392917_7]** 

7. **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.  **[PAYX_3392917_19]**  It's particularly beneficial in price realization and identifying PEO prospects, leading to productive and efficient client acquisition.  **[PAYX_3392917_19]** **[PAYX_3392917_20]** 

8. **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.  **[PAYX_3392917_8]** **[PAYX_3392917_10]**  The growth formula remains strong and similar to historical patterns, focusing on selling more, losing less, and driving client base growth.  **[PAYX_3392917_10]**  Worksite employee growth continues to be strong, especially in the PEO segment.  **[PAYX_3392917_8]** **[PAYX_3392917_12]** 

9. **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.  **[PAYX_3392917_17]**  While it affects the quarterly growth, the full-year impact is minimal.  **[PAYX_3392917_17]** **[PAYX_3392917_18]** 

10. **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.  **[PAYX_3392917_22]**  There's a focus on expanding partnerships with fintechs to provide clients with access to capital rather than acquiring companies solely for that purpose.  **[PAYX_3392917_22]** 

11. **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.  **[PAYX_3392917_23]**  No incremental charges are expected in fiscal '25.  **[PAYX_3392917_23]** 

12. **Labor Market Trends**  
    **Q:** Are you seeing any signs of a recession in client behavior?  
    **A:** No signs of a recession are observed.  **[PAYX_3392917_6]**  Clients have open positions but struggle to find qualified employees, indicating a tight labor market.  **[PAYX_3392917_6]**  The company is rolling out products to help clients retain and attract qualified employees.  **[PAYX_3392917_6]** 

13. **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.  **[PAYX_3392917_5]**  There's a focus on areas clients are most concerned about: attracting qualified employees, accessing affordable benefits, and obtaining capital.  **[PAYX_3392917_5]**  Resources are being pivoted into market segments with higher growth potential for fiscal year '25.  **[PAYX_3392917_5]** 

14. **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.  **[PAYX_3392917_18]**  Historically, margins are stronger in the back half due to the timing of year-end processing revenue.  **[PAYX_3392917_18]**  Cost actions and the diminishing ERTC headwind will contribute to margin improvement throughout the year.  **[PAYX_3392917_13]** **[PAYX_3392917_18]** 

15. **Acquisitions Contribution to FY25**  
    **Q:** How much M&A contribution is in the FY25 guidance?  
    **A:** The FY25 guidance assumes **none** from acquisitions.  **[PAYX_3392917_16]**  The company did a very small acquisition last year, but its impact is negligible.  **[PAYX_3392917_16]** 

16. **Discounts and Competitive Landscape**  
    **Q:** Are discounts increasing due to competition?  
    **A:** Discounts in the mid-market are stable.  **[PAYX_3392917_15]**  While more deals required discounting and average deal sizes decreased slightly, overall discounting practices haven't seen significant changes.  **[PAYX_3392917_14]** **[PAYX_3392917_15]** 

17. **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.  **[PAYX_3392917_20]**  In 2023, the company digitized and analyzed **158 years** of call interactions and **250 years** of electronic communications.  **[PAYX_3392917_20]** 

18. **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.  **[PAYX_3392917_13]** **[PAYX_3392917_17]**  The company's growth rates are expected to accelerate through the year as ERTC headwinds diminish.  **[PAYX_3392917_16]** 

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Paychex Inc (PAYX)

Financials