Paychex Inc Q1 2025 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Mark Marcon - Baird - Analyst : Good morning. And thanks for taking my questions. Two questions first with regards to the environment that you're currently seeing, how would you differentiate the true small business market relative to the upper end of your target range, companies with 50 to say 1,000 employees.

Question: Mark Marcon - Baird - Analyst : Great. And then the second question is, I had the pleasure of reviewing all of your new solutions at HR Tech and the team there just did a tremendous job in terms of giving a really professional presentation, but the solutions were very impressive. I was really struck by the Recruiting Copilot. The one thing that struck me also is that it seems like a lot of the tools like, for example, the Flex benefits I think would benefit every company. Some of the other tools seem to be more geared towards companies that were a little bit larger. And so what I was wondering is, to what extent do you think you could become an even bigger player in the upper end of your market or how would you characterize, where the tools are our best employed.

Question: Mark Marcon - Baird - Analyst : That sounds really compelling. Are you going to advertise a little bit more? Because those are compelling solutions.

Question: Peter Christiansen - Citigroup - Analyst : Good morning. Thanks for the question. Good morning, John and Bob. Just curious if there's any sense of how seasonal hiring is shaping up? I know it was a bit of an issue in the December quarter, sorry the November last quarter year, any sense of how that's trending? Appreciate it. Thank you.

Question: Peter Christiansen - Citigroup - Analyst : The recruiting tool certainly sounds exciting here. Just curious if this deepens your relationship with staffing agencies. I know that's a reasonable portion of your base. Just curious if this tool has potential to broaden that exposure. Thank you.

Question: Kevin Mcveigh - UBS Group AG - Analyst : Great, thanks so much and congrats on the quarter. Hey, if I think about the pacing of the Q1 to Q2 revenue, is that primarily less headwinds from ERTC, John? Or is it maybe a little bit better than expected client interaction or just any thoughts around that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 01, 2024 / 1:30PM, PAYX.OQ - Q1 2025 Paychex Inc Earnings Call

Question: Kevin Mcveigh - UBS Group AG - Analyst : That's super helpful. And then just the adjustments on the float, where was the offset? Because obviously, nice job being able to reaffirm that the margin targets, was there any offset on that or is it just where you think you're going to fall in the range?

Question: Bryan Bergin - TD Cowen - Analyst : Hi, guys. Good morning. Thank you. I wanted to dig in a little bit on the modestly better 1Q revenue growth. You noted client hiring was better than expected. Can you comment on how bookings and retention, just how did those perform versus your plan?

Question: Bryan Bergin - TD Cowen - Analyst : Okay, and then on PEO growth, can you remind us what makes the PEO accelerate from here as you go through the year and maybe just comment on how, from a PEO health enrollment standpoint, how the October 1 enrollment period is going versus expectation?

Question: Tien-tsin Huang - JPMorgan Chase & Co - Analyst : Thanks. Hi, Bob. Hi, John. I just want to ask on the, well definitely some good product velocity echo a lot of comments that I'm going to call, just going into the selling season, would you expect some of the new products you're showcasing to impact unit growth more or was it more about upselling and higher revenue per, just wanted to understand that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 01, 2024 / 1:30PM, PAYX.OQ - Q1 2025 Paychex Inc Earnings Call

Question: Tien-tsin Huang - JPMorgan Chase & Co - Analyst : On that ladder, that's a great point because I've been attending a lot of FinTech conferences. So this concept, you mentioned earlier with access, the concept of maybe doing more of that directly versus with partners. Has your view changed on that?

Question: James Faucette - Morgan Stanley & Co. LL - Analyst : Hi everyone, it's Michael -- for James. Thanks for taking our question. I just wanted to go back to some commentary that you provided last quarter just in terms of, you know, some of the challenges that you maybe saw just in terms of your capacity to sort of get deals across the finish line? And how pricing and discounting is playing into that? Was that sort of one-time in nature? Did you see any of that in the quarter and how should we expect that to play out over the near to medium term? Thanks.

Question: James Faucette - Morgan Stanley & Co. LL - Analyst : Got it. That's helpful. Maybe just to piggyback on Bryan's earlier question, just in terms of bookings composition, if you sort of had to stratify it between two buckets, payroll and HCM versus insurance and retirement. I think insurance and retirement were sort of some of the key drivers last quarter, but sort of what's driving the relative strength now? Is it fairly broad-based and how do you think that you know, strength is going to persist over the near term? Thanks.

Question: Samad Samana - Jefferies Group LLC - Analyst : Hi. Good morning and thanks for taking my questions. Maybe first just on the new kind of benefits or financial wellness solutions, could you just remind us how the monetization works there? And what type of contribution you've embedded into the fiscal `25 outlook? And just remind us what segment it goes into as well, and then I'll have one follow-up.

Question: Samad Samana - Jefferies Group LLC - Analyst : Great, I guess.

Question: Samad Samana - Jefferies Group LLC - Analyst : Sorry, go ahead. No, please, go ahead.

Question: Samad Samana - Jefferies Group LLC - Analyst : Got it. And then maybe just a follow-up, I know the last couple of quarters you guys have talked about the discounting environment and the pricing environment. So I'm curious just what you saw in this most recent quarter from a discounting perspective and the need, the frequency and magnitude that you're having to discount and just maybe what trends you've observed and if there's been any change from what you've observed over the prior couple of quarters?

Question: Andrew Nicholas - William Blair & Company - Analyst : Hi, good morning. Wanted to first follow-up on that last question, just specific to the PEO business. I want to make sure that you could speak to, like, competitive dynamics in the pricing there. It seems like some of your peers, both public and private, are talking about increased aggressiveness on the pricing front. You've had very good growth in that business now for several quarters in a row? So just curious if your comment about it being a little bit more stable also applies to that part of your business?

Question: Andrew Nicholas - William Blair & Company - Analyst : Okay, understood. And then for a follow-up, just curious on the agency business or the insurance solutions business specifically, I know, you've had some growth headwinds on the rate side over the past couple years, just curious if there's any signs of stabilization there or that bottoming and what that could potentially mean for growth in the back half of this year or out into future years, if there's a trough in that part of the business? Thank you.

Question: David Paige - RBC Capital Markets - Analyst : Hi, this is David Paige on for Ashish. Thanks for taking our question. Just a quick follow-up on what was discussed a little earlier, the 5.5% year-over-year growth and cost of service revenues. What was the, can you provide more color on what was driving that growth

Question: Nate Svensson - Deutsche Bank AG - Analyst : Hi guys, this is Nate Svensson on for Brian. I just kind of wanted to follow-up on the margin comments there. So, you're expecting 2Q margins of 40%, maybe a little bit lower than we had expected and you still maintain the full year guide, calling for 42% to 43%. So I know there's seasonality in the business, and the back half tend to be stronger for you guys in terms of margin, but maybe you can talk about your confidence in realizing, I guess, some pretty material margin, sequential margin experience in the back-half, particularly as it looks like there's still going to be some ERTC headwinds in the third quarter?

Question: Nate Svensson - Deutsche Bank AG - Analyst : Got it. That's helpful. And then for the follow-up, you mentioned updates on the go-to-market strategy a couple of times in the prepared remarks. And I know last quarter, we talked about some, maybe some rollout issues with the digital channel, but I assume those are behind us now. Maybe beyond that, are you starting to see some traction on the changes you made with your go-to-market approach? Are there any lessons you've learned, maybe positive proof points on the things that you've changed and some early progress that you're seeing there?

Question: Ramsey El-Assal - Barclays Corporate & Investment Bank - Analyst : Hi, this is Owen on for Ramsey. I appreciate you taking our question this morning. You just touched on kind of your sales team and wanted to get an update on sort of the growth drivers within Management Solutions. Just wondering if the focus has shifted a bit from new client wins to further penetration in your existing client base with the additional HCM services? Any of your expectations going forward with given all the new product rollouts, which you expect to lean into more one versus the other? Any insight there would be helpful. Thanks.

Question: Ramsey El-Assal - Barclays Corporate & Investment Bank - Analyst : Got it. And just on cost of service revenues. You touched on that a bit early in the call. Just also interested on the benefit side, if any increase in cost is associated with kind of the utilization in kind of claims cost? Any color there and kind of expectations going forward would be helpful as well. Thanks.

Question: Kartik Mehta - Northcoast Research Partners, LLC - Analyst : Hey, good morning John and Bob. Hey, John. Hey, just getting your thoughts on acquisitions versus buyback or you may be talked a lot about some of the new products you have, maybe a change of what businesses want and need. And so I'm wondering, as you look forward, just your thoughts on maybe what you're trying to prioritize and how you might allocate capital?

Question: Kartik Mehta - Northcoast Research Partners, LLC - Analyst : And just one follow-up. Maybe Bob, I think when you initially gave guidance, you anticipated kind of flat pace per control it seems like things are going a little bit better than you expected. Any thoughts in terms of kind of as you look out if those expectations need to be changed or maybe feel better about the guidance for per control?

Question: Jason Kupferberg - Bank of America Merrill Lynch - Analyst : Thanks, guys. Good morning. I wanted to start on the Management Solution. You give us a sense of what you'd expect for second quarter growth there. I know you will still have the ERTC headwind, but you won't have the processing day headwind? And then just any comments on visibility on the second-half acceleration implying the guide? It doesn't sound like you're coming in improvement in underlying performance, but just any other color on that aspect, too? Thanks.

Question: Jason Kupferberg - Bank of America Merrill Lynch - Analyst : Okay, understood. Just on operating margins, I think you came in above the guide for the first quarter. Were there any expense timing dynamics there or other factors? I mean, I know you're in the full-year outlook.

Question: Scott Wurtzel - Wolfe Research, LLC - Analyst : Hey, good morning, guys. Thanks for squeezing me in here. Just wanted to touch on the two key margins guidance a little bit more. I know we touched on sort of the cadence for the full-year. But just kind of looking, obviously, guidance implies a similar year-over-year change, I guess, relative to what you reported in the first quarter, but we have a little bit of improving or better ERTC headwinds? Just wondering if there's any kind of items we should think about with respect to the 2Q margin? I understand we're going to get to the selling season, if there's any items around that or others that we should be contemplating?

Question: Scott Wurtzel - Wolfe Research, LLC - Analyst : Got it. And then just a follow up. I mean, I'm just looking at the presentation, you called out high-single-digit growth in HR outsourcing WSEs, which seems pretty impressive. And I just want to maybe understand the drivers there a little bit better? And if you can talk about maybe some of the that you saw in the ASO business during the quarter would be very helpful.