Paychex Inc Q2 2025 Earnings Call Summary

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

Question: Mark Marcon - Robert W. Baird & Co. Incorporated - Analyst : Wondering what you're seeing with regards to any sort of change in terms of business sentiment post election. We did see the NFIB confidence index really jump up fairly materially. And I'm wondering if that's actually translating to events in the field just in terms of the pipeline build. Any commentary there would be really helpful.

Question: Mark Marcon - Robert W. Baird & Co. Incorporated - Analyst : My follow-up question relates to the PEO business. It actually looks like relative to all the public data that we see, it looks like you're actually growing the PEO business faster than some of the competitors that are out there. And what I'm wondering is, what are you attributing that to? To what degree are some of the new AI field solutions that you're offering helping? What are you doing on the insurance side that's really addressing some of the needs that you outlined?

Question: Bryan Bergin - TD Cowen - Analyst : I wanted to start on management solutions growth here. So I guess, like in total, I know you maintained all the growth ranges, and we appreciate the color on the PEO. Do you have an offset in the Management Solutions business that will offset that and help you maybe land favorably within the total range? Just curious where you feel most comfortable in the Management Solutions range. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 19, 2024 / 2:30PM, PAYX.OQ - Q2 2025 Paychex Inc Earnings Call

Question: Bryan Bergin - TD Cowen - Analyst : Okay. That's clear. And then just on ERTC. I know you were reserving revenue for this year given some proposed legislation. Was there any reserve release in the quarter here? And if not, how are you thinking about that going forward? Is that proposed retroactive legislation on the ERTC seems less likely?

Question: Ramsey El-Assal - Barclays Bank - Analyst : I think last quarter, you were contemplating something like 125 basis points worth of Fed cuts into guidance. You maintain that range despite the solid beat this quarter. I'm just curious about how we should think about that given what the Fed sort of announced yesterday, do you see this range being a little more conservative, perhaps?

Question: Ramsey El-Assal - Barclays Bank - Analyst : Got it. Okay. And then you called out higher product penetration of the HCM products and management solutions, which is obviously an ongoing trend. Can you kind of give us an update on your growth algorithm? How much does HCM in totality contribute versus the core business? How has that sort of evolved over time? Just trying to put my finger on the pulse of the way that core key drivers of your growth have changed over time?

Question: Andrew Nicholas - William Blair & Company L.L.C. - Analyst : I wanted to ask about the upper single-digit growth in outsourced or HR outsourcing worksite employees. Is there any way for us to think about how much of that comes from upsell from clients with an existing payroll relationship versus clients that are new to Paychex entirely? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 19, 2024 / 2:30PM, PAYX.OQ - Q2 2025 Paychex Inc Earnings Call

Question: Andrew Nicholas - William Blair & Company L.L.C. - Analyst : Makes sense. And then for my follow-up, just on the enrollment dynamic in Florida. Could you speak a little bit more if you have any insight in terms of what's driving that? And also if there's any way to kind of refresh us on the PEO businesses exposure to Florida, obviously, quite a bit of that came from Oasis over a decade ago now. But just trying to get an understanding of how much of the business that represents at this point?

Question: Michael Infante - Morgan Stanley - Analyst : I just wanted to start on the partnership channel more broadly. If I think about one of your competitors striking an SMB partnership to embed some of their payroll capabilities alongside of some of their B2B payments capabilities. I'm just curious how you think about the partnership channel and whether or not that's a source of incremental investment for you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 19, 2024 / 2:30PM, PAYX.OQ - Q2 2025 Paychex Inc Earnings Call

Question: Michael Infante - Morgan Stanley - Analyst : That's helpful. Maybe just on the retention front, you obviously spoke to the fact that you're sort of tracking above historical ranges. Is that both on a revenue and logo basis? And how would you sort of compare those two buckets relative to historical levels?

Question: Bryan Keane - Deutsche Bank AG - Analyst : Any pickup yet or any signs of growth that you'll see for kind of new business starts or the development of new business starts?

Question: Bryan Keane - Deutsche Bank AG - Analyst : And is that something that cyclically comes back if the economy starts to improve? I'm just trying to think about timing on when that might balance.

Question: Bryan Keane - Deutsche Bank AG - Analyst : Got it. And just as a follow-up, you called out kind of the mid-market HCM business strong sales activity. Anything in particular causing that? Is that a competitive dynamic? Or is that a new product that seem to be resonating better?

Question: Bryan Keane - Deutsche Bank AG - Analyst : Got it. Okay. Congrats on the results.

Question: Kevin McVeigh - UBS Investment Bank - Analyst : Great. You had mentioned, I think, that you were capturing some share in a PEO, which is good news to see. Where do you think that's coming from? I wanted to kind of start there because I thought that was an interesting data point.

Question: Kevin McVeigh - UBS Investment Bank - Analyst : That makes a lot of sense. And then just -- I've been in and out, I apologize. I think you gave some commentary on the Q3 revenue. Can you just remind us what that is and then the pace in Q4 as well. And what does it take to kind of get to the high end of the guidance range as opposed to the low end, I guess, more from a revenue perspective, just trying to kind of help understand that in the back half of the year.

Question: Tien-Tsin Huang - JPMorgan Chase & Co - Analyst : I just wanted to dig in really quickly just on the Florida comment, always educational, which you guys talked about there. Does that -- given that that's at risk and that safe only, does that inform your thinking on SMB, employee health and demand in general, assuming you get more data there? I'm thinking more about the downgrading of planned comments specifically.

Question: Tien-Tsin Huang - JPMorgan Chase & Co - Analyst : Got it. No, it's good. Now the attach being strong is great, and I'm just trying to learn around the planned selection there? It sounds like it's mostly health care inflation and SMBs attacking that. So this is not intended to be related, but just thinking about that and broader HCM pricing and discounting for you in terms of what you're seeing or maybe thinking any new considerations there? So not a PEO or health specific question, but just broader question around pricing and discounting as you're trying to retain and pursue new growth.

Question: Ashish Sabadra - RBC Capital Markets - Analyst : There was a reference to an increase in PEO direct insurance cost. I was just wondering if you could comment on how that's trending on a per worksite employee basis just given the health care inflation? And then as we think about going forward, are there any changes to the plan in order to manage this insurance costs.

Question: Ashish Sabadra - RBC Capital Markets - Analyst : Very, very helpful color. And just for my follow-up, a quick clarification. So in 2Q of last year that was impacted by slower seasonal hiring, I was wondering if you have seen any trends on the seasonal hiring trend this year?

Question: Kartik Mehta - Northcoast Research Partners - Analyst : Just on -- maybe just on the pricing commentary. Obviously, inflation probably a little bit higher than everybody expected. And I know last year, maybe the year before, you've got some better pricing than in the past. I'm wondering how that's playing out this year. You have some ancillary products and stuff, the opportunity to get some of that pricing back? Or do you anticipate pricing will be maybe on the lower end than it was couple of years ago? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 19, 2024 / 2:30PM, PAYX.OQ - Q2 2025 Paychex Inc Earnings Call

Question: Kartik Mehta - Northcoast Research Partners - Analyst : And then just, Bob, on the float, I know you talked about maybe at the beginning of the year, you anticipated more cuts that are going to happen. But I'm wondering, any change in maybe how you're managing the flow or how you'll manage the float because of this changing environment?

Question: Scott Wurtzel - Wolfe Research - Analyst : Just last on the margin side. I mean, the outperformance has been pretty constructive in our view also pointing towards the higher end of the guide for this year. And I know there's been some investments around the sort of advertising front. So I'm wondering if you can just remind us of where you're kind of finding some of those efficiencies to drive some of the better margin performance that we've seen.

Question: Scott Wurtzel - Wolfe Research - Analyst : Got it. That's helpful. And then just as a follow-up, just on the go-to-market side. I'm wondering if you're kind of seeing in your environment with your clients, are you seeing clients sort of maybe adopt more on the initial sale instead of maybe selling sort of the initial product and then going in more for sort of the cross-sell upsell dynamic.

Question: Jason Kupferberg - BofA Securities - Analyst : I was just wondering as you entered the key selling season, is there anything different you're preparing for in the environment versus last year's selling season, whether that's regulatory backdrop or a competitive environment or other factors?

Question: Jason Kupferberg - BofA Securities - Analyst : Understood. And just as a follow-up, can you give us an update on your M&A pipeline, what you're seeing out there? And just remind us whether or not there is any inorganic contribution in the fiscal '25 guidance? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 19, 2024 / 2:30PM, PAYX.OQ - Q2 2025 Paychex Inc Earnings Call