Paychex, Inc. (PAYX) on Q2 2021 Results - Earnings Call Transcript

Operator: Ladies and gentlemen, thank you for standing by and welcome to the Paychex Q2 FY 2021 Earnings Conference Call. At this time, all lines have been placed in a listen-only mode. After the speakers’ remarks, there will be a question-and-answer session. Thank you. Martin Mucci: Thank you, and thank you for joining us for our discussion of the Paychex second quarter of fiscal 2021 earnings release. Joining me today is Efrain Rivera, our Chief Financial Officer. This morning, before the market opened, we released our financial results for the second quarter ended November 30, 2020. You can access our earnings release on our Investor Relations website and our Form 10-Q will be filed with the SEC within the next few days. This teleconference is being broadcast over the Internet and will be archived and available on our website for approximately 90 days. I will start today’s call with an update on our business highlights for the second quarter. Efrain will review our second quarter financial results and provide an update on our outlook for fiscal 2021 and then we will open it up for your questions. While the first-half of fiscal 2021 was affected by the economic impacts of COVID-19, we have been pleased with the results of our business and the sequential improvement over the first quarter in both revenues and earnings. Improvements in revenue occurred across the board, all lines of business, most of our key business metrics have continued to show steady improvement, though at a more moderate pace as we ended the quarter. We have not yet experienced any deterioration related to recent surges in COVID-19 cases across the country, but we continue to monitor trends closely, especially as new restrictions are being implemented in many states. Throughout the COVID-19 crisis, our business model has proven resilient, our client base has grown despite economic headwinds and we continue to see good sales momentum with growth year-over-year in new units sold. Our digital sales remain an area of strength and we continue to invest in digital marketing, lead generation and sales technologies to drive growth. We also see strong demand for HR solutions and HR outsourcing, which we deliver through both our ASO and PEO models. Since the onset of the pandemic, we have seen a greater interest in ASO – in the ASO model as businesses are looking for more immediate HR support. We are on track for another year of record retention as losses have declined significantly compared to the prior year. Client satisfaction scores continue to improve as we focus on providing excellent service to our customers, supporting them in this most challenging time in helping them simplify complex regulations. Efrain Rivera: Thank you, Marty. Before I begin, let me just wish everyone on the phone call a safe and a joyous holiday season. I hope you get some time off to enjoy this Covidian season. We are making of it what all of us can make of it to make it a good time. So let’s start. I want to remind you that today’s conference call will contain forward-looking statements, refer to the customary disclosures. In addition, I’ll periodically refer to some non-GAAP measures. Please refer to the press release and investor presentation for more information on these measures. Martin Mucci: Great. Thanks, Efrain. Operator, we will now open the call to questions. Operator: Certainly. And your first question is from Ramsey El-Assal of Barclays. Ramsey El-Assal: Hi, guys. Thanks for taking my question this morning. Efrain Rivera: Hi, good morning. Ramsey El-Assal: Hi, good morning. I was wondering if you could let us know whether your guidance assumptions include stimulus. And I guess also as a follow-on question to that, now that you’ve lived through it once, what would a second round of stimulus – do you have any kind of a better understanding of how that would impact the P&L? Efrain Rivera: Yes. So let me handle the first-half and then the second-half. So the short answer, Ramsey, is that, no, it doesn’t include the impacts of any stimulus, it’s a little bit tough to gauge, but it would be a net positive. I’ll let Marty talk to kind of what we think the benefit might be. Martin Mucci: Yes. I think a number of benefits, obviously, a lot of clients have been kind of holding – some clients have been holding on waiting for a second stimulus. What we have found is that, those who – when we surveyed our clients, those who took a PPP loan the first time, virtually 100% of them were still in business, so 99.8% or something. So obviously, the stimulus, the first one made a big difference for holding clients over and until things pick back up. And I think the second one will do the same thing and it’s very targeted to small and – kind of on the smaller end of mid-sized businesses, which is even better and has better parameters from what we can see, at least that was signed or approved by Congress for forgiveness for loans as well. We also have done some things like made sure that we’re totally connected now with fintech providers and lenders like Biz2Credit. So we can pass our information from payroll and they can – clients can approve the fact that they can move information directly to a fintech provider like Biz2Credit to get a loan. So I think everything is going to speed up faster from a stimulus perspective. If you need a loan, you’re going to get it easier, faster. The forgiveness is going to be even better than before, particularly if you are on the low end. And not to mention that I think payroll and HR Solution services software is covered by the expenses or part of the expenses that can be covered. So I think it’s going to be positive. Certainly, it’s going to be positive to the degree how much, it’s hard to tell at this point. Ramsey El-Assal: Great. And then I was wondering if you could also comment on or give us a little more color on the underlying drivers in management solutions for the rest of the year. It’s great to see the outperformance this quarter. It looks like there is some moderation expected. Maybe a little more color on what you are seeing in your portfolio that’s causing you to be a little bit conservative going forward here? Efrain Rivera: Yes. So let me talk about first kind of what have been the drivers in the first six months and then why third quarter looks a little bit different perhaps than – sequentially than other quarters. And by the way, I would just ask for other people in the queue, if there is a question that’s really kind of related to what we are discussing, if you could just sort of keep your questions brief, because we want to try to get to everyone. So, the short answer to your question on Management Solutions is that, Management Solutions has HR outsourcing and the ASO model in that revenue stream. It’s got retirement services in that stream. Other modules of Flex, including and very importantly, time and attendance in that revenue stream and then some other items. All of those products are doing very well. And I would highlight the fact that if you look at the year, this has been the year of demand for HR services. So, if you look at our worksite employees across all of our platforms that provide HR support, our worksite employees are up. So we’ve seen a very strong demand driving the revenue growth or the revenue recovery. Now we are battling, as I mentioned in my comments, we are battling the fact that the number of employees paid is down, obviously because of current unemployment, but the underlying trends are very, very positive. So, why as we get into Q3 does that change? In Q3, there are a number of revenue streams that are built annually and depend on the number of employees on the payroll at that point in time. Because they are lower, we anticipate that they will be lower simply because of the number of worksite employees that are being paid. It has a moderating impact on the revenue in the third quarter. That’s what’s driving that result. Obviously, then as we come out of Q3, those revenue streams are no longer a factor in Q4 and we expect a rebound in Q4. So, that’s really what’s driving the – what would appear to be conservatism in Q3. We like where the underlying trends are in all of the revenue streams on Management Solutions and we see those continuing through the year into Q4. Ramsey El-Assal: That was super helpful and happy holidays to you both. Efrain Rivera: Thanks. You too. Operator: Your next question is from Kevin McVeigh of Credit Suisse. Kevin McVeigh: Great. Thanks so much. Happy holidays to you all. Hey, Efrain. Hey, Marty. Hey, congratulations on the retention, just really, really fantastic outcome. I wonder, Marty or Efrain, it just – it feels like based on the transition to the cloud that part of that is clearly structural, is there a way to think about whether how much you can narrow it from a retention perspective and then ultimately kind of translate that into revenue relative to the cloud-based providers? Because it seems like as you’ve transitioned the business model to the cloud, it should clearly call for even higher levels of retention. So, maybe help us understand that a little bit? Martin Mucci: Well, I think ultimately, the retention is about – as you know, about the level of service and value that you are bringing these clients. And I think the work that we’ve done on innovation and technology investment to the cloud has made a lot of benefits. And I think they’ve really shown up in this pandemic environment. If one of the positives, there can be a positive in this environment for businesses was that they could see the full value of Paychex and the service that we bring. So being on the cloud and the fact that many of them have – people working from home, they could see the technology and what being in the cloud meant to them. So, they could handle – they could improve productivity, they could have better retention of their employees, they could still develop them, train them, onboard them, they can do – they can handle all kinds of time and attendance measures. They can do anything that I don’t think they even really thought a lot about beforehand and I don’t think it’s ever going to go back for them the way it was prior to that. So they understood the investments that we had made in the technology and innovation that we have. They found much more of a value from that and the cloud is certainly a big part of that, that they don’t have to rely and there is a lot more self-service that they took advantage of and their employees took advantage of that saved them time and money and saved us time and money as well and focuses on high-value parts of the products. Efrain Rivera: The other thing I would add to that, Kevin, so your question is, okay, can we expect 25% or 50 basis points, 75 basis points better retention. I don’t have a direct answer for that right now, but I will say this. It’s very easy to envision that we have one service model that applies across the breadth of our 700,000 plus clients. The reality is that that’s not correct. We have a variety of different service models that respond to the needs of the client as we understand. And I think that we have very high degree of customer intimacy with our clients and understand what kind of service model they need. And so we have a variety of different models that are designed to ensure that the client has the highest possible net promoter score we can have. Our net promoter scores in this year are at all-time record highs and it’s in part because we have understood and have the capability, which others do not of being able to provide hybrid, flexible service models based on what the customer desires. And so I think as we continue to refine that, as we continue to get better and better at understanding what each customer and each segment needs, whether it’s no service to full service, I think you are going to see our retention continue to improve. Kevin McVeigh: Super helpful. I want to be respectful of time, but – so I will go back into queue. I have another question, but I don’t want to really get . Thank you all. Efrain Rivera: Okay, thanks. Martin Mucci: Thank you. Operator: Thank you. Your next question is from Jason Kupferberg of Bank of America. Jason Kupferberg: Hey, thanks. Good morning guys. Happy holidays. Martin Mucci: Thank you. Same to you. Jason Kupferberg: Thanks. Thanks. I wanted to just get your view as you head into the key selling season here. Do you think COVID is going to have an impact on competitive dynamics in the sense that perhaps fewer SMBs look to switch providers, because they are consumed, we are just trying to keep their businesses afloat or is it actually possible that we see the opposite scenario with an above average amount of competitive switching as small businesses look to watch every dollar even more closely during the pandemic or perhaps their needs have become even more complex as a result of COVID? Martin Mucci: Yes. Jason, what we have seen and I would assume it’s going to carry through into January this quarter selling season is there much more of a hesitancy to switch. So our retention is certainly benefiting from that. It does make sales away from competitors, a little more challenging to the degree, because they – I think your first assumption is what we have seen is more correct, which is just that people are not focused on switching. They don’t want to go through the switch right now. And they have also at least in our – from our perspective, they have really, as I mentioned earlier, seen the value of what we can bring at an all-time high. So they are going to be reluctant to switch, because they are not focused on that. And also I think they have also seen we have gotten this feedback directly from clients with the way we help them, with the PPP loans, the first group, the way we help them with the forgiveness, the feedback they got from their accountants on how easy it was to file and get forgiveness or apply for the forgiveness of loans was really a step ahead of other competitors for us. We were able to pre-populate all their reports, the forgiveness application was pre-populated and signature ready with adding just a few bits and now that’s even easier that we are going to tie them into the fintech lenders as well. So I think it’s one a reluctance to move, but I also think they are seeing a lot more value and that’s made a big difference in our retention. And then for sales, I also think that’s going to help us. Jason Kupferberg: Okay. The revenue upside this quarter was more pronounced in HR management and wanted to get a better understanding of which specific products were especially outperformers in the second quarter? Martin Mucci: Yes. I think we may have mentioned that the ASO product really was strong. Any HR product, the need for HR, particularly when you think of so many employees working from home, some being furloughed whether they – how do you handle the credits, the tax credits and so forth about employee retention. All of those things helped really push HR support and more on the ASO side than the PEO side. I think insurance was not as important to them right now from a benefits perspective as the HR support wasn’t, so more tended to say, look, I am not ready to switch or begin insurance, but I need the HR support pretty dramatically. Jason Kupferberg: Okay. Well, thanks for the answers. Have a great holiday. Martin Mucci: Alright. Thanks. You too. Operator: Thank you. Your next question is from David Togut of Evercore ISI. Josh Schimmer: Hi, good morning, everyone. This is Josh Schimmer on behalf of David Togut. Just wanted to ask my first question on business formation, so you mentioned last quarter that new businesses start up – new business startups were up 20% year-over-year, how did you see those trends continue into 3Q and can you give any projection for what you are expecting for the rest of the year? Martin Mucci: Well, I think yes, nationally, we have seen it continue, it’s even higher than that. I think it’s approaching high 30s or 40% increase in new business start-ups. I think what you are finding is both people shifting in the pandemic to new business opportunities and those starting new businesses. Some have been laid off from other businesses and have decided this is the time. Also money is fairly easy to get a hold of at low cost. They have home equity where they can take loans as well at low cost to start their businesses, so that has continued. We have seen the household sales that I mentioned in the first quarter, lot of nannies, tutors things like that where people had their kids at home and were buying for that. We have seen a lot of other new upstart businesses get started or change what they were doing and create a new business. So, it has continued. It’s continued to accelerate higher than in the first quarter. And I would assume that may moderate to some degree because – but we will have to see. Josh Schimmer: Great. Thank you for the color. Next on capital allocation, can you provide or update your priorities and kind of what you are thinking in terms of capital allocation as we move beyond the COVID-19 environment? Efrain Rivera: Yes. I think we haven’t really changed significantly. I mean obviously, payment of the dividend is an important part of the equation. We buyback shares to maintain share count level, but we are interested in looking at M&A and remain in the discussion for opportunities that we think could be interesting. Obviously, prices are high, but we think there is selected pockets of opportunity, where it may make sense. So, that’s where we are at. Josh Schimmer: Great. Thank you all very much and have happy holidays. Martin Mucci: Thanks. Same to you. Operator: Thank you. Your next question is from Steven Wald of Morgan Stanley. Steven Wald: Hey, good morning and happy holidays. Martin Mucci: You have the same. Thanks. Steven Wald: Maybe just starting off on what you guys are talking about with sort of the incremental penetration, the bundles, you called out the ASO strength. It just seems like you are getting better economics relative to each client and maybe that’s part of additional market penetration and all the things you and other platforms have talked about in terms of incremental HCM demand. Just curious how big of a runway you see for that seeing it’s already starting to show up as well as how you think of that in terms of lowering your macro sensitivity going forward? Martin Mucci: Well, I think there is a lot of opportunities still there. When you think about time and just take products like time and attendance, time and attendance has really been growing very strong double-digits for some time. We are seeing that with the innovation that we have put out there from the iris scan time clocks to the kiosks to punch in and punching out on your watch. All these things have driven even more demand for things like time and attendance. HR certainly has been driven a lot by the COVID environment, how different – I mean, you can understand that clients are facing for the first time challenges they have never seen before and they are going to continue, I think as the next big question will be, do you require vaccinations, for example, to bring people back to work? How do you verify that? What are the rules around that? What do you do with absences due to COVID or family or things like that? So, these are all so complicated for small to midsized businesses, who typically don’t have an HR person. I think there is a great opportunity for continued demand for the services from light HR right to full ASO and PEO as well and that includes insurance, which we think will pickup in the back half of the year? Efrain Rivera: Hey, Steven. To the second part of your question, it’s a good one. And I think frankly, if you really disaggregate our results and we look at kind of the second level of why the performance has been what it’s been I think it’s two things. The first thing is, our sales unit or our volumes on HCM have been up the first 6 months. We hope it continues into the back half of the year, but frankly, it’s been higher than we expected. That strength of digital – strength of digital sales, marketing and a lot of the efforts that we put into the platform over the last several years, that’s part one. But I think you highlight the second part, which is important, which is when you look at that – at the next level, what you realize or what you see is that, we have really had strength in terms of selling other products to the base. And I would say you are seeing in important respects the criticality of having an HR solution in the bundle of offerings that you give to clients. And by the way, I don’t mean a HR solution in the sense of an HR administration module almost everyone has that, but the real ability to be able to provide counseling and consulting to clients in a very complex environment. And so we have benefited from the fact that we not only have been able to increase unit sales, but also increase penetration of services within the base. So part of that to your point has lessened the impact of what is obviously not a great macro-environment still, we hope it – in the back half of the year, it starts to get a bit better and it has moderated, but I think our ability to sell within the base, the importance of HR services across the continuum of what we sell has proven out thus far this year. Martin Mucci: And one other thing, I think it bodes well for retention. Sometimes when they took the HR product, they needed to set up their handbook for the first time they needed a couple of things that they never had, employee rules and kind of benefits and so forth. But now, when you think about it, there is such a continuation of this need, it’s going to go on for some time, but I think that does bode well for retention of the HR products as well. Steven Wald: Okay, great. Appreciate the robust commentary from both of you there. Just maybe one follow-up to, I think something that Ramsey had asked about, the sort of baking in a stimulus and other factors. If we tape six or nine months, I think the way you described how you think of the upswing is sort of a gradual recovery. And I know you had characterized it as, the next six months are not going to be quite as robust as the last six months, but if I think about the sensitivity to the upside and downside if stimulus added in, as you see it is a slight net benefit. Is it also fair to think about the potential for a step back in employment or other macro factors has also not baked in, so this could be possible drag to offset that? How should we think about the push and pull there? Efrain Rivera: Yes. So that’s interesting complex question, but I will try to give a simple answer. I mean, it could end up having that effect. My sense is that you didn’t factor in completely what the impact of a vaccine has in all of that and that’s really kind of the joker in the deck to the extent that it becomes more widespread and now you see an uplift in employment that’s going to be a positive. If we continue in the same – with the same environment, I think what we are assuming is gradual improvement unless things get much worse, I think we are in reasonable shape. If it goes backwards, we will have to see what happens. As I mentioned and Marty mentioned too, we have seen some moderation over the last month or so in the improvement in forward-looking trends. Will it go the other way? I don’t know, too early to call on them, Steven. Steven Wald: Okay. I just wanted to see how you were thinking about it. So appreciate the thoughts there. Happy holidays. Efrain Rivera: Thanks. Martin Mucci: Thanks. You too. Operator: Thank you. Your next question is from Andrew Nicholas of William Blair. Andrew Nicholas: Hi, good morning. First, I was hoping you could provide maybe a bit more detail on the health of the PEO business specifically. Anything you can say about kind of the growth rate in that business over the past couple of quarters? And then also just how conducive is the market right now for starting a brand new PEO relationship, just wondering if people are kind of stuck in their ways given the current environment or if there are still opportunities to initiate a new relationship there? Thanks. Efrain Rivera: Marty will take the second. I will come back to trends in the PEO. Martin Mucci: So, I think the second one is, I think as I mentioned, there has been some – there has been a much more of a demand for the HR support and sometimes that’s with the PEO, but it’s been a little bit more heavy in the ASO side for us and of course, we offer both. I think people have been a little more reluctant to change insurance providers and so forth. However, I do think that’s going to start to change, because I think that’s been a real benefit. And we also, as I mentioned, has provided a new bundle that’s providing EPLI, so employment practices, liability protection, that’s going to be very important right now, there’s a lot of questions that are out there about how am I treating employees that are working from home, who have COVID, who are connected to someone who has, it may take time off. I think there is going to be – there is a lot of, as you know, of course, in the congressional discussion about liability protection for businesses, this is going to become a bigger issue as the overall health concern start to moderate. I think with the vaccine getting out, they’re more widespread. So I think there is going to be an increased demand for the PEO. I don’t know if it’s going to be in the next quarter. They are steady demand and I think people are more open to it, everyday people understand the PEO business a little bit better, and they’re looking for the same concept that the PEP has for retirement. It’s a shared plan where we can share some of the liability protection, the fiduciary responsibility, the – and also get better rates and kind of better benefit packages by going with the PEO. So I think it maybe quiet for another – quieter for another quarter, but then start to pickup a little bit more as things calm down. Efrain Rivera: Yes. And with respect to your first question, Andrew, I think there is three factors driving the PEO results. The first is, in the first six months, if you look at our client base, we over-index a bit in terms of our exposure to hospitality and accommodations and so that as we entered this year, we were more exposed than we might have been in previous years. We had a pretty sharp rebound in first quarter that continued into the second quarter, but we were coming off a lower base. That’s one. The second thing is, I called out in my comments, what we’re seeing is much lower workers’ comp and SUI rates. Those have an impact on revenue too. That’s a trend that we’re seeing. Certainly through the back half of the year, that’s having an impact on revenues. And then, I would say, the final point is we’ve seen lower at-risk insurance attachment in the PEO, part of that has been our decision on underwriting standards in this environment. So, we have been a bit tighter than we have. I think, in part, that’s helped a bit of the ASO business, but it’s hurt the PEO business a little bit. And also we prefer to be a little bit more conservative on underwriting as we get into the back half of the year and we see what the environment looks like. If you look at where the guidance was, we basically maintained, there is a lot of positives on the underlying performance, but there are some headwinds that we’re battling on in other parts of the revenue streams in PEO. Andrew Nicholas: Great. Thank you. That’s really helpful. And then, Marty, you mentioned the PEP plan that you introduced a few weeks back. It seems to me like Paychex is obviously really well positioned to be able to offer a plan of that type. But I’m just wondering, bigger picture, to what extent new regulations on PEPs will impact Paychex? Does it increase the target market for retirement administration business? Does it open you up to additional competition? Just any additional color on that offering and what it means for Paychex would be great? Thank you. Martin Mucci: Yes, sure. I think the fact that we’ve been in this for so long, well over 20 years, in the retirement business and that we provide more new retirement plans than anybody else in the business for at least the last 8 years, I think we’re well positioned. I think that also proves the point that we were the first out – I think, pretty much that one of the first out with the PEP plan, we think it can be very competitive to opening up new market opportunities. Those small or mid-sized businesses that didn’t want to get into a plan because they were worried about kind of administering the whole thing. We could be the record keeper, but they still have to take care of investments and would also have some other costs. This is going to lower their cost, allow it to be much more accessible to those who didn’t quite step up to it. And I do think, as you said, I think Congress is going to push more and more of this – the new Congress and the new President administration, I think, will push for 401(k)s and probably give even more credits and benefits if you start one. So, I do think it opens up a market that we’re already strong in, and it has great potential for us. Andrew Nicholas: Great. Thank you and happy holidays. Martin Mucci: Thank you. Efrain Rivera: Thank you. Same to you. Operator: Your next question is from Bryan Keane of Deutsche Bank. Bryan Keane: Good morning. Efrain, I just wanted to clarify something you said. The hit in 3Q revenues due to the number of employees on the payroll being lower, I guess why doesn’t that have that same impact in 4Q ‘21? Is it – it sounds like it’s more of just a one-time impact then in 3Q. Efrain Rivera: Yes, because there are certain revenue streams, Bryan, that are only build in the third quarter, and so – and they have – they obey or they follow the amount of employees you have on your books at that point, then it doesn’t recur until the following third quarter. Bryan Keane: Got it. Efrain Rivera: annual. It’s just an annual bill. It’s somewhat unusual, but happens every year. Bryan Keane: Got it. That makes sense. And then, when I think about how we modeled it out, at least we have a little bit lower now a third quarter, but a stronger fourth quarter. And just thinking about that fourth quarter, now it sounds to be a little bit stronger than what you kind of talked about last quarter. Just thinking about any pent-up demand in sales as we get to that easier comp in fourth quarter and how you’re thinking about it? Efrain Rivera: Well, we hope it’s going to be a good quarter because the compare certainly sets up to be a good quarter. I think it’s comprehended, obviously, in the guidance. Obviously, Bryan, a lot – as you know, a lot of it depends on the momentum we come out of the third quarter with. So if we come out of the quarter with good momentum and the macro environment arrows are pointing upwards, I think a fourth quarter will be good. If the others don’t pan out, then it will be slightly different. We’ll update when we get through third quarter. Bryan Keane: Okay, great. Happy holidays, guys. Enjoy it. Martin Mucci: Thank you. Efrain Rivera: Thank you. You too, Bryan. Operator: Your next question is from Kartik Mehta of Northcoast Research. Kartik Mehta: Hey. Good morning, Marty and Efrain. Efrain Rivera: Good morning, Kartik. Kartik Mehta: Marty, I wanted to ask, I know you’ve talked about the selling season and some hesitancy of people wanting to switch. Is that – what’s the pricing environment like? Are you seeing more competition because people are trying to get market share or has the pricing environment not been that aggressive this year compared to maybe seasons past or even though the last few months? Martin Mucci: Kartik, I think it’s been very consistent, which means it does get quite aggressive, particularly right now at this point, November, December. So I think you’re seeing – we’re seeing the typical same number of months free upfront or over the first year kind of thing. I wouldn’t say anything more aggressive than we’ve typically seen and I’m not sure that that’s making as much of a difference. As I said, I think there is still a hesitancy to switch. We’re definitely seeing that. I think it’s helping, certainly, our retention and it is putting a little more pressure on sales. But right now, we’re feeling pretty good going into selling season, we definitely have seen again a quarter of more unit growth than second quarter of last year, and that’s pretty amazing to me when you think everyone is still home and they’re selling from home. And we’re strongly – we certainly have been selling inside for many years, but we also have a majority outside. And for their ability to adapt and be able to get to clients and then use the technology that we have that allows clients to search, demo and even sign up to some degree for the service has really been good. So to see up units over last year in total units sold is pretty positive for us as we head into selling season in this quarter. Kartik Mehta: And then, Efrain, just maybe this is too early, but any thoughts on changing how you’re managing the full portfolio? The yield curve is getting a little bit steeper, but have you made any changes or any thoughts on maybe the next few months? Efrain Rivera: It’s funny, it’s like you were looking over my shoulder when I was scribbling notes this morning before the call. There are some things we can do in terms of altering duration. I’m – Kartik, I want to see where we end up or what – how things look in the spring. My sense is that interest rates start to float up a bit not significantly, but then on that level of yield curve steep. But yet that level of yield curve steepness, it again probably give us some additional opportunities to think about managing the portfolio slightly differently. The first half of the year, we tended to be pretty conservative in terms of the approach we took. We wanted to see what macro environment we’re in. It looks like maybe next year might be incrementally a little bit better. Kartik Mehta: Perfect. Hope you guys have a great holiday. Thank you. Martin Mucci: Thank you. Efrain Rivera: Thank you. Same to you, Kartik. Operator: Thank you. Your next question is from Jeff Silber of BMO Capital Markets. Jeff Silber: Thanks so much and happy holidays to you both as well. Martin Mucci: Yes, thank you. Efrain Rivera: Thank you. Jeff Silber: Thanks. I think one of the surprises in the pandemic has been the growth in new business applications and new startups. I know it’s not necessarily an area that you focused on, but I think you do have some clients there. Are you seeing any impact of that on your business? Efrain Rivera: Well, definitely. We’re – I mean, part of the unit sales on the small end in particular have been a lot of new business starts. Now, we typically have been very successful at selling brand new businesses on our Paychex and SurePayroll platforms, but then it’s continued to assist us and give us some positive benefit. So yes, we’re seeing it. It has been amazing. I do think, as I said earlier, that cash is available, that’s out there, home equity, these are how new businesses start and people also have decided, believe it or not, that this is sometimes the environment where they want to go ahead and get started because of some big change, either laid off or they see a new opportunity or their existing business does not fit in the – under the pandemic and people have made switches to get into new things and capitalize on them. I mean new business starts being up, I think high-30% is the last number I’ve seen over last year is pretty amazing. Jeff Silber: Yes. That’s true. And if I could just ask a quick outlook question, Efrain… Efrain Rivera: Sure. Jeff Silber: In looking at, I guess, it’s the PEO and insurance services, are you expecting growth this year in worksite employees or is that something we won’t see till next year? Thanks. Efrain Rivera: No, we expect growth this year in worksite employees for sure. I would say, Jeff, the other thing that I called out probably when in response to someone’s answer. We are unique in that, we have both an ASO and a PEO and we look at the worksite employees together. And if you look at the growth in worksite employees across both platforms, we’re up year-over-year. So, we’re going to be up year-over-year on the PEO and certainly in terms of where we ended the year. So, we’ll have a nice rebound there. And then, when you put in ASO, we think it should be a pretty good year in terms of worksite employees served by our HR solutions to the point that Marty was making earlier. That’s been a big source of demand this year. Jeff Silber: Okay, great. And stay healthy and safe. Thanks again. Efrain Rivera: Thank you. You too. Martin Mucci: Same to you. Operator: Your next question is from Samad Samana of Jefferies. Samad Samana: Hi, good morning. Thanks for taking my questions. Likewise, happy holidays, like as everybody else wished. Maybe first one, I think the announcement with Fiserv Clover was interesting. So, just maybe help us understand how our relationship like that – Is that more of a technology partnership or does that – is there an economic relationship there as well? Efrain Rivera: Well, it’s got a couple of different parts to it. First, it’s a referral relationship. So they, Clover – what we have always found is many new businesses and we’ve talked a lot about the growth of new business startups start with, obviously, with credit card or merchant processing services, and so – and then go to payroll and HR, etcetera., later. We established – with a leader like Fiserv, we have a referral arrangement where they can refer payroll or HR needs that their clients as they sell in merchant services over to us and we have a process – a pretty streamlined process to get those referrals to our sales team to be able to sell. And then there is a technology piece as well. We have a connection into the Clover system, which I think is an industry-leading system, certainly, where, between our Flex platform and the Clover system, the demographic information, the employee information, for example, you add a new employee on the Clover system and you’re using Flex payroll or HR, that will automatically sync with the Flex system. And in addition, we saw an opportunity with Clover with time and attendance. Clover users for Fiserv use a lot of time and attendance. We have industry-leading time and attendance solutions, a number of them. You can clock in and clock out on the Clover system, but you can then look in Flex and see who is on – who is punched in, who is there, who is out, you can shift swap, you can also look and see if they’re approaching overtime requirements, you can do a number of things. And we’re going to continue to advance this to the point where if you’re a Clover client and have signed up with Clover and you start, you can actually – you’ll be able to in the future – near future, be able to sign up with Paychex in a self-service mode, just be able to sign right up for payroll yourself right over the Clover system. So it’s a referral arrangement now, a technical arrangement with connection. It has great opportunity for us on the payroll side and time and attendance and other products as well. Samad Samana: Thank you very much for that, guys. And maybe just a follow-up, Efrain, if I think about the strong bookings commentary for the last several quarters I know you’ve mentioned that digital sales have been a big contributor. How should we think about – are there any interesting dynamics that you’ve seen on the cohorts that have been coming through digital versus direct sales? And any interesting retention trends or the size of the average customer just as we think about this being something that may be structurally sticky going forward as well? Efrain Rivera: Yes. Early on the retention side, so you need a years worth of experience to really kind of get a sense of that. So, we don’t anticipate that it will be different. I do think that, and I’ve said this to a number of you, it does skew smaller. That’s part of it, but that may also be a function of the environment we’re in. So, it may be that with this amount of new start-ups that Marty mentioned, we’re – you’re getting a lot of the mix has shifted a little bit smaller than we would otherwise see, but it does tend to be smaller. We’re hopeful, obviously, over time that in the relationship with Paychex, we can nurture them. Marty mentioned I think in his comments, I mean we really take a lot of care with customers and our analytics are such that we can help a small business navigate some of the storm. Obviously, a lot of them go out of business, so you can’t do that. But I would say in terms of the ability to interact with a provider – a solution provider that can maximize your chances of doing your best, there is really kind of no finer solution on the market. Samad Samana: Great. Very helpful. Good to see the quotes for calendar 2020 and what would happen in 2021. Have a happy holiday season. Martin Mucci: Thank you. Efrain Rivera: Thank you. Operator: Thank you. Your next question is from Mark Marcon of Baird. Mark Marcon: Hey, good morning, and happy holidays, Marty and Efrain. Efrain Rivera: Yes, thanks. Martin Mucci: Thanks Mark. Mark Marcon: Hey. So, just following up on the bookings question, when we think about more units in terms of the smaller units that are coming to us through, combined with some of the pressures on some of the bigger units and less switching activity, how do you think that balances out? When we think about – I fully appreciate, in fiscal Q3, we’re going to have some of the dynamics that you mentioned in terms of the employees within the existing accounts, but when we just think about new employees coming on from new units on the whole, how do you think that compares in fiscal Q1 relative to a year ago – I mean fiscal Q3 relative to a year ago as we get through the selling season? Martin Mucci: Well, it’s a very interesting question, Mark. I think definitely as we’ve said, and I think Efrain has mentioned it and I have, both, the sales have skewed smaller. One, because there’s a lot of brand new businesses as we’ve talked about a couple of times on the call and that the mid-market is a little more hesitant. So – but the good news that as you look at selling season right now, as I would say is the pipeline looks very healthy. So while we’ve had presentations and there has been some hesitancy to kind of close the deal from the client perspective, I think they’re a little concerned probably waiting to see what Congress does, what kind of stimulus there is, what’s happening with demand. I think between the news of the stimulus, the vaccine and where that standing, multiple vaccines, I do think some of these decisions will start to get closed in this quarter and it’ll still produce a pretty good selling season. We definitely saw improvement in the mid-market from Q1 to Q2 in our sales. And so, while there has been smaller – the small end has been strong, I do think that the mid-market is picking up speed. It certainly did in the second quarter and we expect it will, given the pipeline in the third quarter. Mark Marcon: Excellent. And then can you just talk a little bit about – we’re still early days in terms of the reduction in terms of the geographic footprint and the office space and working from home, and it sounds like the Net Promoter Scores just continue to go up. Can you just talk about the efficiency gains that you’ve seen and the productivity gains that you’ve seen from that? And then, hate to ask this, but just any sort of commentary with regards to solar wins and what your checks have shown thus far? Martin Mucci: Yes. No problem at all on that. There is no – we have – none of that is in our systems at all. We’ve done a thorough check of that and we feel very good that, that has not impacted us whatsoever. Mark Marcon: Great. Martin Mucci: And on the… Efrain Rivera: Yes, that is great. Martin Mucci: So then on – I think the first part of the question, sorry, I jumped into this. Efrain Rivera: Yes. The first part, Marty, was just about the efficiency that we… Martin Mucci: Yes, I’m sorry. So yes, we’ve been very – I mean, very impressed with the employee team. On the service side, in particular, we have found that who have had less experience working from home, we certainly added over 1,000 service on the service team working from home pre-pandemic, but they have done just an outstanding job. And Efrain said the Net Promoter Scores continued to increase well year-to-date over last year and the productivity has been very good. So those offices that we closed will remain closed, those that were permanently closed obviously and we will continue to have those service people work from home. It seems to be going extremely well. We’ve gotten positive feedback from the employees on the support and I think there will be continued productivity gains to get there. So, we’ve increased the number of clients that they’ve been able to handle, improve the Net Promoter Score and have the record breaking retention this part – so far this year. So I’d say it’s working really well and we’ll continue to capitalize on it. Mark Marcon: It sounds like a win-win-win. Happy holidays. Efrain Rivera: Yes. Martin Mucci: Thank you. Same to you. Operator: Thank you. Your next question is from Tim Willi of Wells Fargo. Tim Willi: Thank you, and good morning. Efrain Rivera: Hi, Tim. Welcome back. Tim Willi: Yes. Thank you. Good to be back. Happy holidays to both of you. Efrain Rivera: Thank you. You too. Tim Willi: Just a question sort of tied into the Clover partners. I guess when you think about all the discussion around business formations, working with a platform like Clover, small business start-ups, and again if you talked about this in prior calls, I apologize, but just sort of thinking about the platform concept and the ease of which people can start a business and who they sort of go-to for maybe some of those initial critical functions, should we think about more Clover-like partnerships? And then just any sort of thoughts about how a sales or service organization has to adapt to that kind of distribution channel I guess, if you see that as an opportunity to acquire and build out the sales channels? Martin Mucci: Well, I think – look, I think there will still be a number of direct sales opportunities for us obviously, whether that’s, by the way, feet on the street or telephonic or digital sales. Digital, as Efrain mentioned to the question a little bit earlier, digital has worked very well from us where it’s going to get completely to the point of sale setup is available, you can search, demo the product and sign yourself up, that’s already available with our SurePayroll platform and Flex is moving that way as well. So finding new sales channels is always important to us and also making sure that we’re responding and even looking ahead to the way the market wants to do it. The market has changed pretty dramatically and that they wanted – they’re used to doing things on their own, both the client and the employees of the client, and we were glad to have the innovation that we’ve already done the investments to allow a lot of self-service and that includes right from starting up. Connecting with Clover moved us back in the decision making a little bit earlier, which we’ve always been looking at, which says that, hey, I might not be ready for payroll yet when one of our sales reps directly goes to someone, but what it does is say that, hey, I did get my merchant processing and wow, now I see Paychex show up on the Clover platform that I’m used to. I can transfer my information right now back and forth and very shortly I’ll be able to set up my payroll right from that. So, I do think it’s always about finding new sales channels the way clients want to buy and it is becoming much more of a client-directed, probably always was, but it’s definitely much more now a client-directed decision. Self-service, do it myself, when I want to do it and we’re set up very well with that either directly with Paychex or through partnerships like that. And I think, Yes, you will see more as we find one – ways to do that. Another example in the back into that is just thinking about the new stimulus loans and the connection I mentioned earlier to Biz2Credit. We’re allowing a client to go in and when they are in their Flex platform doing their payroll, okay, do you want another PPP loan, do you want to apply for one? Yes. Do you want to just move your payroll data and everything right to Biz2Credit so that they can approve your loan probably the same day? Yes. Okay, done. Never talk to anybody, everything was all done digitally and that’s the way of the future. Tim Willi: Thank you very much for the insights. Appreciate it. Happy holidays to you. Efrain Rivera: Thank you. Martin Mucci: Thank you. Same to you, Tim. Operator: Thank you. Your next question is from Lisa Ellis of MoffettNathanson. Lisa Ellis: Hi. Good morning, guys and happy holidays. A question on this shift you’re seeing with all the new business formation and then the roll off of employees within larger businesses, just a broader question. As this vault through your business assuming it’s going to persist for a period of time, are the unit economics of these smaller businesses typically more attractive, similar to the base? Is there sort of broader kind of business structural dynamics that we should be keeping in mind? Martin Mucci: Well, I think there is two ways to look at it. One, we certainly having been in the business a long time and serving small clients for the longest period of time, we know how to obviously make a great profit from that as you know from our margins. And so the small businesses, we can do very profitably, and in fact, probably even more so today with the digital stuff that we’ve been – the digital investments we’ve talked about right through to self-service. We’re making it so much more productive to sign up a new small client. Then, when you think of the mid-market, the opportunity there is obviously for much more revenue penetration of the additional services that we offer these days. So, while the cost to set up and serve maybe slightly what will be maybe more, the revenue opportunity is more. So that’s very profitable. So we don’t see any major changing of the dynamics there. In fact, it’s probably given us – the investments we’ve made have given us an opportunity to continue to earn well. Even if prices come down a little bit on the small end due to competition, we’ve taken more costs out of the setup in the ongoing service that have still – that have really appealed to those clients because that’s the way they want to be served. And then on the mid-market, the enhancement of the products that we offer gives us a much bigger share of revenue per client in the mid-market. Lisa Ellis: Okay. And then my follow-up is another question on the Clover partnership. Just thinking about their – the size of that installed customer base is probably similar in scale to your installed base. Is there an initial part of that partnership aimed at kind of cross-selling, identifying Clover clients that aren’t Paychex’s clients and vice versa to – that might create like an initial pretty heavy lift from that relationship? Or is it more focused on sort of – should we be thinking about it is more like incremental over time new sales-oriented? Martin Mucci: No, at least we’re hoping so. We’re – obviously, there is the cross-selling right off the bat, so yes, Clover is reaching out to their client base immediately and letting them know when they’ve already started issuing emails to their client base to say, hey, we’re connected to Paychex, this is an easy set up to go to Paychex, we will transfer data back and forth, you have Flex and Clover in sync. So I – we’re hoping that there’ll be some initial jump in success right off the bat with that, and then we’re certainly excited about, on an ongoing basis, being on that Clover platform as they’re – I think they’ve been very successful at adding new clients to it. Lisa Ellis: Terrific. Thank you, and happy holidays, guys. Thanks a lot. Martin Mucci: Thank you. Same to you. Operator: Thank you. Your next question is from Pete Christiansen of Citi. Pete Christiansen: Good morning. Thanks for taking my question and happy holidays. Martin Mucci: Hi, Pete. Pete Christiansen: Hi. Martin Mucci: Yes. Thank you. Pete Christiansen: Two quick ones here. So Marty, I was just – how are you thinking about the absolute level of go-to-market spending relative to other periods? How aggressive is Paychex being right now? And what are you seeing on the ROI front? And then my follow-up question is, on the PEP, is there a difference in the economics, the unit economics, and how should we think about that? Thank you, gentlemen. Martin Mucci: Sure. On the first one, I think the go-to-market spend, we’ve increased our marketing spend pretty consistently. You may have seen we’ve also gotten into TV advertising even for the brand and getting the brand out there. It was helpful to us during the beginning of the pandemic and it is continued to be. So when I think we’ll continue that, it’s not a massive amount of TV advertising, I’m not sure it always is worth a bit. If some ROI, there is some breakeven there, that’s hard to predict. But we are getting more leads that seem to be following the advertising that we’re doing, and I think there is opportunity there. The investments that we’ve already made in go-to-market from the webinars, from the information, we have really enhanced that this year under COVID, and I think it has brought a lot of clients to us. If you think about a webinar on the original stimulus package or I’m sure of one coming up that will have on this stimulus package, those webinars used to bring different information, webinars used to bring a couple of hundred clients, prospects and CPAs, maybe 400, 500, now they’re bringing 6,000, 7,000, 10,000, which gives you a lot of leads, certainly gets your brand out there and your product set, but also a lot more leads because you have that information once they signed up for the webinars. So they’ve been extremely successful at a pretty low cost, frankly. So I think a good ROI return of our investment there. On the PEP, just quickly, I think the economics are very good there. It’s a little bit lower cost, you’re a little bit more, and there’s probably a little bit more retention to that plan because you’re more involved, you’re not just a record keeper but you’re the fiduciary. And I think it’s going to be a lot stickier from a sale that we have on 401(k) and we’re very successful at selling 401(k) plans. And this, instead of telling the client, hey, we’re going to be a record keeper but here is – you’re going to go to a financial advisor to do this or that, we can now say, look, we’ll set up basically the whole thing for you with some partnerships and we can take care of all of it at a lower cost. So the economics we feel are still going to be very good. There is always a risk of some cannibalization of single-employer plans, but I think there is going to be a world for both of them that are out there and we may capture a lot more customers, prospects that have not had a 401(k) but now will jump in. Pete Christiansen: Thank you very much. That’s great. Martin Mucci: Okay, Pete. Efrain Rivera: You are welcome. Operator: Your next question is from Bryan Bergin of Cowen. Bryan Bergin: Hi, good morning. Thank you. First, I wanted to clarify on client retention, are you assuming that it’s going to remain at record levels in your second half outlook? And Marty, to your comments on being pleased with the sequential improvement, but at a more moderate pace near the end of the quarter, can you dig into that a little bit more on what KPIs specifically are you seeing moderate? Martin Mucci: Yes. So I think on the client retention, right now, we expect that it will – that we’ll stay at record-breaking. The issue really is the non-processing clients. We talked about them in the first quarter. They have come down dramatically from the first quarter, meaning that there was clients that didn’t leave us but they suspended payroll processing, but stayed with us as a client and we worked very hard to keep them as a client even if they were suspended. They’re now paying for that service to be – to kind of hang in there. It’s dropped dramatically, in fact, it’s continue to drop, but we’re trying to see if this last number of non-processing clients and it’s a pretty small number compared to our base. What will happen at year-end? Are they hanging in for year-end or not? That’s the only thing, Bryan, that we’re kind of watching is to whether if they all left then we probably wouldn’t hit retention. We’d still have a very strong retention number, but it wouldn’t be record-breaking. I think they’re – the fact that they’re still on the service, they’re just kind of holding in there. You’ve heard of restaurants that are saying, hey, I’m going to just close still spring, particularly in the Northeast and kind of hang in there. So that’s – I think it’s going to be record breaking through the year, but it could be closed depending on what happens with the stimulus. At the end of what I was saying with the moderation is that, like there was a lot of new business formation. And when you think about the quarter, September, October, November, September saw a lot of influx of new sales, particularly on the small end, because of households. So you had the start of a school year – most school years started in September. You had nanny – you had nannies, you had tutors, you had a lot of things. So we saw a big explosion of small sales like – that are small household sales in September. It’s just starting to moderate as people are kind of fitting into a new reality of the pandemic. So it moderated some. Still growth – still seeing growth, it just wasn’t quite as explosive, I guess I’d say at the first month or two of the quarter. Bryan Bergin: Okay, that’s helpful. And then can you comment on your sales head count. Just how that has progressed here in 2020? Martin Mucci: Yes, pretty flat. We went up a little bit in head count, low single digits for overall sales and we’ve continued to mix – while pre-pandemic, we continued to mix and plan for in-house sales, telephonic sales and online sales versus feet on the street. Obviously, they were pretty much all telephonic or digital now. But head count is up a few percentage points and doing very well, particularly when you think about, we’ve sold more units than second quarter last year as we mentioned in everybody’s home, it’s been pretty amazing. Bryan Bergin: Thanks guys. Happy holidays. Martin Mucci: Alright. Thanks Bryan, you too. Operator: Thank you. Your next question is from Tien-tsin Huang of JPMorgan. Tien-tsin Huang: Thanks so much. Just wanted to clarify on the change in the outlook, obviously, the second quarter was better than expected. Did the composition of your second half outlook changed at all, just curious if I missed anything there? Martin Mucci: No, I think it just – it I would say Tien-tsin it’s just got a little bit better than where we were at the last call. And I suspect we will have more to say when we get to third quarter season. So I would say it incrementally changed. Tien-tsin Huang: Got it. And then just with the ASO strength you noted and to the year of demand for HR services, I think you had mentioned Efrain – do you expect to sort of maybe put a little bit more energy into selling that versus 90 days ago? Efrain Rivera: I think there’s just a lot of demand as Marty has alluded. In some ways we have – we’ve placed a lot of emphasis on sales in that area and the market is generating demand in that area. So you got a good confluence of both factors. Martin Mucci: Yes, I think one thing I’d add Tien-tsin is that, really starting last year sometime, Mark Bottini and the sales team, they’ve really put an effort out to say it’s a power of 3,000, so all sales were leading with that HR value that we could bring. So instead of we’ve really moved from the traditional model of selling payroll, but then coming back with everything else. And I think that helped us a lot pre-pandemic and it really helped us with the momentum of the demand going up for HR. Because anybody, if I mean they’re talking to you about retirement, I’m also telling you about ASO and PEO that’s available to you and the value it brings. If I’m selling you payroll, I’m also talking about ASO and PEO. So it really has helped and so there has been a very high energy in the sales force, an opportunity for them all to sell HR and it was perfect timing. Tien-tsin Huang: Yes, great. Glad to see their hard work coming through. Have a blessed holiday guys. Thank you. Martin Mucci: Thanks. You too. Operator: Thank you. Your next question is from Matthew O’Neill of Goldman Sachs. Matthew O’Neill: Yes. Hi, gentlemen. Thanks for squeezing me and I know the call is getting long and happy holidays as well. Don’t mean to belabor the questions on FI serving Clover. But was curious on two fronts similar Lisa’s question. One, when you guys were working on initiating this relationship, was there an immediate identification of a good overlap of existing Paychex and Clover clients and providing the technological connectivity was something being asked for? Or was it really more sort of all offensive as far as this could be a great referral channel going forward? And then just to round out. Is there any sort of two way street element here? I understand that people are making probably a credit card processing decision potentially before a payroll decision. But are you guys able to help sell the Clover product on the other side of your existing clients? Thanks. Martin Mucci: Yes, in fact, we’ve been selling merchant processing with a number of partners and Fiserv of being a major one for some time. It stayed a small part of our business, because of what you just said. Typically they have merchant processing already, but we’ve been able to sometimes offer them better rates. Those rates can be very confusing and if we have payroll clients, we talked to them, we have been for a number of years, talking to them about merchant processing and we resell basically their products. So yes, there will be back and forth referral going both ways between us and it was – I think it was mostly offensive. We’ve always known that with this connection, because we sold merchant as well as payroll. And so we look for a partner, we thought that Fiserv particularly lately the Clover system is very strong and is very well penetrated. And I also mentioned earlier that, we found that probably over 30% of their clients have time and attendance solutions that are tied in with their point of sale Clover equipment and that we have very strong time and attendance solutions that can tie directly to the Clover equipment along with the payroll Flex platform. So we felt that from an offensive perspective to pick up referrals for payroll and it was positive for the connection that we could make, we could also enhance what Clover offers by giving them not only a payroll platform that’s tied in with the system, but time and attendance in a number of other products as well and the demand for HR obviously is typically there for those who are using those point of sale systems. So a lot of wins all the way around, we feel it will bring us. Matthew O’Neill: Makes sense. Thanks so much. Martin Mucci: Okay. Thank you. Operator: Thank you. Today’s final question is coming from Scott Wurtzel of Wolfe Research. Scott Wurtzel: Hi, good morning, guys. This is Scott on for Darrin Peller. Just had one question on sort of the structural positioning for the long-term. You mentioned that expenses were down this quarter related to lower discretionary spending and reduced facility costs or kind of a mix of short and longer term cost savings. And we are just wondering, if you’re still – if you are planning on doing more kind of cost savings on the longer-term side? Martin Mucci: Well, I think and Efrain can comment on this. So obviously, we’re
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Paychex Stock Falls 5% After Quarterly Revenue Misses Estimates

Paychex (NASDAQ:PAYX) shares dropped over 5% intra-day today after the company announced its latest quarterly earnings, falling short of the consensus revenue forecast.

The company reported second-quarter earnings of $1.08 per share, slightly better than the analyst estimate of $1.07. However, its revenue, which increased by 6% year-over-year, totaled $1.26 billion, just below the expected $1.27 billion.

Despite these figures, Paychex noted that the macroeconomic environment remains generally stable for small and mid-sized businesses. They acknowledged challenges related to the cost and accessibility of growth capital, as well as difficulties in recruiting quality talent. The company's Small Business Employment Watch indicates a moderation in both job growth and wage inflation.

Looking forward to the fiscal year ending May 31, 2024, Paychex expects its PEO and Insurance Solutions revenue to grow by 7% to 9%. Other income is projected to be in the range of $35 million to $40 million. The company also anticipates adjusted earnings per share growth of 10% to 11% for the year.

Paychex Reports Q2 EPS Beat, Revenues In Line

Paychex (NASDAQ:PAYX) reported its Q2 results, with EPS of $0.99 coming in better than the Street estimate of $0.95. Revenue was $1.19 billion, in line with Street expectations.

For fiscal 2023, the company expects total revenue to grow approximately 8%, Management Solutions revenue to grow in the range of 7%-8%, and PEO and Insurance Solutions revenue to grow in the range of 5%-7%.

According to management, the near-term outlook is somewhat cautious due to moderating employment trends and steady wage growth. However, there is still strong demand for the company's Managed Solutions and small to medium-sized businesses are continuing to rely on the company, despite macroeconomic uncertainty.

The company is focusing on retaining clients and increasing value and penetration in HR outsourcing, HCM software, and retirement solutions. On the other hand, there has been a decrease in demand for PEO and Insurance Solutions as employers and employees are reducing the additional coverage offered or purchased for their medical plans.

Paychex Shares Down 3% Despite Q2 Beat & Raised Guidance

Paychex (NASDAQ:PAYX) shares were trading more than 3% lower Thursday afternoon despite the company’s reported Q2 results, with EPS of $1.03 coming in better than the Street estimate of $0.97. Revenue grew 11.4% year-over-year to $1.21 billion, beating the Street estimate of $1.18 billion.

Despite continued investor concern surrounding macro and the health of SMBs, the company raised its fiscal 2023 EPS guidance growth to approximately 11-12% year-over-year (vs. 9-10% prior).

Margins and revenue growth are set to decline sequentially in Q2/23 before recovering in the second half of the year.

Paychex Reported Strong Q2 Beat & Raised 2022 Outlook

Paychex, Inc. (NASDAQ:PAYX) reported its Q2 results, with EPS coming in at $0.91, beating the consensus estimate of $0.80. Quarterly revenue grew 13% year-over-year to $1.09 billion, above the consensus estimate of $1.05 billion.

The beat was helped by full employment levels, SMB formation strength, effective monetization initiatives (cross-selling insurance, back office as well as professional services) as well as a more favorable float income outcome.

The company provided its full 2022-year outlook, expecting EPS growth of 18-20% (up from prior guidance of 12-14%) and total revenue growth of 10-11% (up from prior guidance of 8%).

Paychex Price Target Raised at Wedbush Following Strong Q1 Results

Analysts at Wedbush raised their price target on Paychex, Inc. (NASDAQ:PAYX) to $125 from $105 following strong Q1 results, which drove the share price more than 4% higher on Thursday.

The company delivered strong Q1 results and better-than-expected full 2022-year guidance, reflecting normalized new SMB formation levels, tracking above pre-pandemic levels.

Quarterly revenue came in at $1.08 billion, better than the Street estimate of $1.04 billion, and EPS came in at $0.89, compared to the Street estimates of $0.80.

The company’s management highlighted strong results driven by favorable compares, an improved economic environment, and good execution. Margins benefited from pandemic related expense adjustments, including delayed hiring and increased efficiencies from technology investments.