PAYCHEX INC Q1 FY2025 earnings call

• Post-pandemic era: Off to a good start in fiscal 2025 with total revenue growth exceeding expectations, 7% excluding ERTC and processing day impact. - Product innovations: Launched Flex Engage, Paychex Perks, and Paychex Recruiting Copilot to address talent acquisition and retention challenges. - Financials: Total revenue $1.3 billion, expenses up 3% to $772M, operating income $547M with 41.5% margin, diluted EPS up 2% to $1.18.

Total revenue increased 3% to $1.3 billion in the first quarter. Management Solutions revenue increased 1% to $962 million, driven by growth in clients served and higher client worksite employees, partially offset by ERTC headwind. PEO and insurance solutions revenue increased 7% to $319 million, primarily due to higher average worksite employees and PEO insurance revenues. Interest on funds held for clients increased 15% to $38 million, due to higher average interest rates and invested balances.

Total revenue expected to grow 4%-5.5% (including ~200bps ERTC headwind). Management Solutions expected to grow 3%-4%, PEO and insurance 7%-9%. Interest on funds held for clients $145M-$155M (down from prior guidance), other income net $30M-$35M (down from prior guidance). Operating margin 42%-43%, effective tax 24%-25%, adjusted EPS 5%-7% growth. Q2 total revenue growth expected 4%-5%, operating margin ~40%.

• Impact from expiration of ERTC program. - Interest rate changes affecting interest on funds and other income. - Competitive pricing environment in the market.

Q: 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?

A: Yes, Mark, this is John. How are you? So I would say this is what we're seeing pretty consistently across the board is we continue to see moderate growth both in the small and the mid-market. I would say from a demand perspective, certainly what we're seeing across the board is a lot more demand for driving efficiency or HR outsourcing. I think the pure tech play particularly up in the mid-market to enterprise, I see a little bit slower decision making going on there, but we're not seeing that in the upper end of our HR outsourcing market. So I think right now what I see across the board are businesses are trying to drive efficiency and are looking for opportunities to reduce costs in their business.

Q: 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.

A: Yes, so far Pete, I think we made reference to this in the script in the press release. Hiring within our base, both within the HCM base and then in our HR outsourcing solutions was positive in the quarter. And for the second quarter in a row, has been slightly above our expectations. We had a couple of quarters last year where things were a little bit below where we expected them to be. We tweaked that in our forecast. Again, we didn't build our plan this year, assuming a lot of growth in those areas, but for the second quarter in a row, hiring had been positive within our base and certainly running ahead of our expectations in our plan.