Paychex Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
June 29, 2023

There are 12 speakers on the call.

Operator

Good day, everyone, and welcome to today's Paychex Fourth Quarter and Fiscal Year End Earnings Conference Call. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer session. Please note this call may be recorded. I will be standing by should you need any assistance.

Operator

It is now my pleasure to turn the conference over to Mr. John Gibson, President and CEO. Please go ahead.

Speaker 1

Thank you, Stephanie. Thank you everyone for joining us for our discussion of the Paychex 4th quarter fiscal year 2023 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 Q4 and full fiscal year Ended May 31. You can access our earnings release on our Investor Relations website.

Speaker 1

Our Form 10 ks will be filed with the SEC before end of July. This teleconference is being broadcast over the Internet and will be archived and available on our website for approximately 90 days. I'll start the call today with an update on the business highlights for the Q4 fiscal year. Efra will review our financial results We finished fiscal year 2023 with solid financial results and momentum heading into fiscal year 2024. Total revenue grew 9% for the full year and we hit a major milestone for the company with over $5,000,000,000 in total revenue.

Speaker 1

I was personally reflecting on this last night when I joined the company. We were just over $2,000,000,000 It took us 6 years to go from $2,000,000,000 to $3,000,000,000 3 years to go to 3 to 4, and it took us 3 years to go to 4 to 5, but I remind everybody that was during the global pandemic. So certainly very proud of those results. In addition to the revenue growth at 9%, adjusted diluted earnings per share grew 13% to 4 point and operating margins finished at 41%. As we continue to benefit from our continued investments in technology, Our focus on driving digitalization in all aspects of our business and our long standing tradition of operating excellence.

Speaker 1

These results are due to the hard work and dedication of our more than 16,000 employees. I'm very proud of what we've achieved this fiscal year. Our industry leading technology and advisory solutions have made a positive impact on our clients and their employees. And in return, they continue to reward us with additional business and their continued loyalty. Momentum in sales has continued with solid growth in new annualized revenue for both the Q4 and the full fiscal year.

Speaker 1

HR solutions and retirement were areas of particular strength with Double digit growth. We are well positioned in terms of our staffing levels and rep tenure heading into the New Year. Revenue retention finished the year near record levels as we continue to focus on retaining and increasing our share of wallet with our high value Customer segments. Client retention was impacted by higher losses due to out of business, concentrate mainly in newly formed businesses over the last 2 years solutions with worksite employee growth over 10% year over year. For the year, we achieved record level Worksite employee retention due to our strong and unique value proposition of our leading HR technology and advisory capabilities.

Speaker 1

Businesses of all sizes continue to navigate the challenges of a very complicated regulatory environment, A competitive labor market and now tightening credit. Demand for our solutions remains strong due to the depth and breadth of our integrated offerings, including HR technology designed to deliver efficiency for both the employer and the employee, our comprehensive HR outsourcing, which leverages the strength

Speaker 2

of our

Speaker 1

Technology and the experience of a trained HR professional and our outstanding compliance organization And the need for businesses to offer quality benefits, including retirement to compete for talent. Our retirement solutions are benefiting from the growing expectations of a retirement plan that's a core benefit offering for small and midsized businesses. Recent passage of the SECURE Act 2.0 legislation and various state mandates requiring employers to provide retirement future. We expect the strong market for retirement to continue for the foreseeable future and we are well positioned as a leader to take advantage of this opportunity. The SMB credit environment has continued to fuel demand for our employee retention tax credit service.

Speaker 1

To funds they need to keep their businesses running and growing. We continue to communicate this opportunity to existing clients and prospects. Industry recognition continues to reinforce the competitive strength of our technology solutions. For the 4th consecutive year, Paychex Flex earned an HR Tech Award for best small and midsized business focused solution in the core HR category. Our consistency in winning these awards and being placed repeatedly in the leadership quadrant of respected technology analyst rankings Speaks to our market leadership in HR Technology.

Speaker 1

I'm not only very proud of these results and the performance of the team, But I'm also equally proud of how we achieved these results. We have been consistently recognized as one of the world's most admired, Most Ethical and Most Innovative Companies. In addition, we've been ranked as one of the best places to work for people in sales, For women, for diversity and for our outstanding training and investment in our employees Development. These awards are a testament to how our employees not only get the job done, but do it the right way and we are To deliver superior value to our customers, Paychex is uniquely positioned to help small and midsize businesses navigate the challenges they face In a complex and ever changing and evolving world, we remain committed to our purpose and that is to help businesses succeed. And we'll continually strive to have a positive impact on our clients, our employees, our communities and our shareholders.

Speaker 1

Now I'll turn it over to Efrain, who will take you through our financial results for the Q4 and the fiscal year as well as our guidance for fiscal year 'twenty four. Efrain?

Speaker 2

Thanks, John, and good morning to all of you. I hope you're indoors on this smoky Thursday. I thought we were past it, but not quite. I'd like to remind everyone that today's commentary will contain forward looking statements referred to the customary disclosures that we make. I'm going to start by providing a summary of our Q4 financial results, talk about full year results and then finish with a review of our fiscal Before I start, I also wanted to add that joining us in the room today, this morning is Bob Schroeder, VP of Finance and IR, many of you have met Bob.

Speaker 2

Okay. For the 4th A little bit over $900,000,000 driven by additional product penetration, intra ancillary services, which Currently, mostly ERTC and also price realization. We continue to see strong attachment of our HR solutions, retirement and time and Products. Demand for our ERTC service remains strong, as John mentioned, and it contributed approximately 1% to 2% You should have continued to exceed our expectations, while ERTC has been a tailwind And we expect demand to continue into fiscal year 2024. It will become a moderate headwind next year, especially in the growth in average worksite employees.

Speaker 2

The rate of growth was tempered a bit by lower medical plan sales and participant volumes along with Continued preference for ASO in this environment. We expect these trends will Start to normalize as we progress through fiscal 2024, but it won't be evident necessarily in Q1, I'll talk about that in a little bit. Interest on funds held for clients increased 69% to 25,000,000 Primarily due to higher average interest rates, partially offset by realized losses taken in Q4 As we reposition the portfolio heading into the back half of this year. Total expenses increased 3% to $776,000,000 Gross growth is largely attributable to higher headcount, wage rates and general corp To support growth in the business, operating income increased 15% to $453,000,000 With an operating margin of just under 37 percent, a 2 40 basis point expansion over the prior year period. Diluted earnings per share increased 18% to $0.97 per share and adjusted diluted earnings per share increased 20 For the quarter to again $0.97 per share.

Speaker 2

Let me quickly summarize our full year results. Total revenue increased 9% to $5,000,000,000 And total service revenue increased 8% to $4,900,000,000 As you are all aware, we raised guidance a number of times during the year. Management Solutions increased 8% to $3,700,000,000 PDO and insurance increased 6% to $1,200,000,000 Total expenses were up 7% to $3,000,000,000 Operating income increased 10% with a margin of 40.6%. John mentioned this earlier, that's a 70 basis point expansion over the prior year. The leverage in the model was Pretty evident.

Speaker 2

Other income net increased by over $30,000,000 due to higher average interest rates and average investment balances Within the corporate investment portfolio, diluted earnings per share increased 12% to 4 point earnings per share increased 13% to $4.27 per share. Our financial position remains rock Solid with cash, restricted cash and total corporate investments more than $1,600,000,000 and total borrowings of approximately $808,000,000 as of May 2023. Cash flow from operations was $1,700,000,000 for the year, an increase of 13% from the prior year, driven by higher net income and changes in working capital. Free cash flow generated For the year, it was $1,500,000,000 up 15% year over year. And while it's easy to gloss over those numbers, I think it's really important that when we to note that when we report numbers, the quality of our earnings and our quality of our cash It's very, very strong as noted by some of you.

Speaker 2

Not only do we deliver on the top line, but we deliver in a quality way for them On the bottom line, we intend to continue to do that. We paid out a total of $1,200,000,000 in dividends during fiscal 2023 or 70% of our net Our 12 month rolling return on equity was a stellar 48% with an arrow pointing up. Now Let me turn to guidance for the upcoming fiscal year ending May 2024. Our current outlook, as you saw, is as follows: Management Solutions expected to grow in the range of 5% to 6%. PO and Insurance Solutions expected to grow in the range of 6 To 9%, we widen that a bit just to accommodate the fact that sometimes attachment on insurance It can vary from quarter to quarter and from year to year as you saw last year.

Speaker 2

Interest on funds held for clients is Grow in the range of 6% to 7%. Operating income margin is expected to be in the range of 41% to 42%. Other income net is expected to be income in the range of $30,000,000 to $35,000,000 And then our effective income tax rate is expected to be in the range of 24% to 25%. Adjusted diluted earnings per share Expected to grow in the range of 9% to 10%. This outlook assumes current macroeconomic environment, which as you know, Some uncertainty surrounding future interest rate changes in the economy.

Speaker 2

We have better visibility in the first half fiscal 2024 as each quarter progresses, we have a little better visibility into the remaining quarters in the year. For the first half of fiscal twenty twenty four and the first quarter, we expect total revenue growth We anticipate operating margins for the Q1 to be approximately 41%, we'll Doing a little bit on your modeling. And we expect PEO and Insurance Solutions revenue to be below the low end of The range for the Q1, then it will be solidly in the range. That's our expectation at this point. Before you ask me the question, I'll answer.

Speaker 2

The Q1 was actually the strongest quarter of the year on last year and as a consequence, the compare will be a little bit tougher than we expect the business to build as we go through the year. Of course, All of this is subject to our current assumptions and they can change. We'll update you again on the Q1 call. There's a number of questions because it's, of course, the time when we give guidance. So if I could just for your forbearance on something, which is to say, ask a question and limit yourself to one follow-up.

Speaker 2

Now I will say I understand some of those questions will be compound questions, but if it's a 5 part Compound question that violates the rules. But just so we can get through the call without going excessively long. With all of that, I will refer you to our investor slides on our website for additional information. And I'll turn the call back over to John.

Speaker 1

Okay. Now with all the conditions and restrictions that Efrain has

Operator

Our first question will come from Ramsey El Assi with Barclays.

Speaker 3

Can you comment on the pricing environment? You called it out a little bit in the press release. And I guess the question is, are you seeing Sort of a window right now for more aggressive pricing adjustments just given the inflationary environment? Or is this sort of are you feeling now that you're in sort of a Steady state kind of continual trajectory when it comes to pricing?

Speaker 1

Yes. Thanks for the question. Yes, I would say we're more in a steady state. I feel good about where we are. I think the value of our products and services, I think what we see When we talk about price inside our customer base, they're rewarding us.

Speaker 1

They're seeing the value we're getting. And as we did last year, we believe we have Pricing power inside the base and we'll continue to avail ourselves of that. And then in terms of in new clients and Prospects in the competitive environment, hey, we've always been in a competitive market and I see stable pricing. I think as we go through this year, we'll continue to do what we need to do to be competitive in the marketplace. So I don't see any major shifts

Speaker 3

So about retention, obviously, retention is at healthy record levels. At the same time, you called out a little bit of where you were seeing a little bit of I think it was from out of business from newly formed businesses and I think there were some other color that Efrain provided. If you could just elaborate on that

Speaker 4

a little bit, I'd appreciate it.

Speaker 1

Yes, Ramsey, I think it's been pretty consistent. And I think on all the prior calls, I said probably as we expected. So We continue to really focus our efforts on the high end part of our valuable clients, particularly in HR outsourcing there. We continue to Both in the PO and ASO, record retention from a revenue and client perspective there. Where we did see and we have near record retention overall across the business, again, because of that focus that we're adding, the things we're doing From driving value in our high value customer segments.

Speaker 1

As we expected, we did see some out of business. And then when I pull that back, what you're seeing is exactly what I thought. We had a very high number of new business starts 2 years ago In almost every model, and I don't care whether we're in a recession, good times or bad times, a business starts and in the 1st 2 years, About half of them are gone. And so I'm not surprised when we were saying we kind of expected that to be the case. And that's what we saw on kind of the client But again, even if you look at the client retention side, we're back to where we were prepend in the levels.

Speaker 1

So nothing dramatic there. So I'd say that's more stabilizing and we kind of expect that kind of more typical stable kind of client attrition To occur as we're going into 'twenty four.

Speaker 3

Got it. Thanks so much.

Operator

Thank you. Our next question will come from Jason Kupferberg with Bank of America.

Speaker 4

Hi, this is Eric Dre on for Jason. I had a question just kind of high level. We've seen small businesses be really resilient, kind of seems The macro may avoid a hard landing, but curious about kind of trends you're seeing among different client groups. Anything to call out, maybe blue collar versus white collar, any color you can add there?

Speaker 1

Yes. Look, I think again, Not seeing anything, Eric, that's out of the norm. I think generally we've continued to see the hospitality. When you go back and look at our Jobs Index, hospitality has probably been the laggard, leisure and hospitality has been the laggard through the course of the recession. What we've seen there is they've really made a good strong comeback, I would say, in the back half of this fiscal year for And getting back to what I've kind of level employment levels of the other segments, not really seeing anything Specifically out of the ordinary, certainly in the low end of the market, you're seeing a lot more of the small companies goes back to what we said on the retention side.

Speaker 1

Newer startups, smaller companies finding more pressure relative to inability to pass price and so they're being squeezed by inflation And then also the credit situation.

Speaker 4

Okay, great. Thanks. And then on the This is for Efrain. On the float guidance, kind of 2 parts. What are you thinking about for interest rates?

Speaker 4

And What are your thoughts on kind of managing duration? I know this question comes up every call, but thought I'd ask. Thanks.

Speaker 2

So what we're thinking and then how we're managing, I'll break those 2. And I mentioned in the previous call that I was really concerned about A sharp decline in rates in the first half so the first half of 'twenty four and the end Of this year calendar year, I don't think that's likely to happen. So at this point, our thinking is that There'll be a couple of rate increases as we go through the first half of the year and likely to see some rate as we enter next year. Certainly Jerome Powell's comments recently, We've seen to indicate that's where we're going. But I think we think our assumption is that in the first half Calendar year 'twenty four, our second half, you're going to see rate decreases.

Speaker 2

So net net, that's what's incorporated In our guidance, so while we could adjust and play games in terms of where we are with futures, That's what our thinking is. And as we get through the year, in the back half of the year, we'll update kind of where Brad, so as to positioning the portfolio, my bias is to go along as we go So through the year to mitigate what in 2024 is likely to be a set of rate decreases. I can't call it any closer than that. I think that our numbers kind of support that kind of scenario.

Operator

Thank you. Our next question will come from Rayna Kumar with UBS. Good morning. Thanks for taking my question. Can you talk about what bookings was?

Operator

Hello. Can you talk a little bit about bookings in The quarter, anything to call out on different customer sizes and products where you're seeing strength or weaknesses?

Speaker 1

Yes. So, look, we actually saw strong demand continuing. I would say, Actually, the we actually saw some acceleration in the Q4 when you look at it. In the back half Of the fiscal year was actually stronger than the first half, which it was a pleasant thing. HR Services, Our HR solutions continue to resonate at retirement.

Speaker 1

We saw a pickup in the low end digital end of our business In the Q4, which was nice to see, and in fact, I would say the PO had improvement In Q4 as well, which was an encouraging sign that some of the changes and approach that we've been looking on Are beginning to get traction, Alex. It's early there and the key part of that season is in the Q1, which leads into the Q2. But again, very pleased with the strong demand that we saw across the platform. So I think we've got a good set of products In services, there's strong demand in this environment across all the market segments.

Operator

Got it. It's very helpful. And then just a quick really quick follow-up to stay within Efren's guidelines here. Could you call out the ERTC contribution just for the Q4?

Speaker 2

No, we didn't. I think right now we're going to stick with it's 1% to 2% on growth for the full year. So And then that converts from a tailwind into a headwind next year. That's as far as we'll go.

Operator

Got it. Okay. Thank you.

Speaker 1

Yes. You're welcome.

Operator

Thank you. Our next question will come from Andrew Nicholas with William Blair.

Speaker 5

Hi, good morning. Thanks for taking my questions. I was going to ask first on kind of M and A within Paychex,

Speaker 6

if you

Speaker 5

could just kind of give us an update on your ambitions both in the near term and medium term. This is Justin, a compound question, but preference between HCM and PEO and anything you could say on valuations?

Speaker 1

Yes. Andrew, thanks for the question. Our ambitions remain the same. We're trying to find Opportunities that meet our strategic objectives and at the same time make sense Financially, the latter has been more challenging in the environment, I would say, over the past few years. But I think we certainly began to see Some change in the market dynamics and our pipeline, you're beginning to expand with opportunities that I think are more realistic for us to consider.

Speaker 1

I don't think our focus has really changed. We're going to continue to look for tuck ins that help us kind of add scale In new markets or expand our product suite, we're looking for capability enhancements, particularly in the digital area, digital capabilities, Data, data analytics, HR, HR analytics. And then and again, we're constantly looking at Numerous adjacencies as the market continues to evolve and looking for new growth platforms that are adjacent to our current Suite of solutions and really help us continue to deliver that value proposition with small, medium sized businesses to help them succeed. So Again, small tuck ins, capability enhancements and new growth platforms, that's our areas of focus and we're going to continue to Be mindful of making sure we're getting good deals and out of the bank.

Speaker 5

That's helpful. Thank you. And then for my follow-up, I just wanted to ask on kind of the margin guide for next year. I think last Quarter, you spoke to a preliminary target of 25 to 50 basis points. I think the 41% to 40 2% range you put out this morning is a decent bit higher at the midpoint.

Speaker 5

So if you could just kind of unpack that a little bit, What's changed in terms of your outlook, if anything, or if it's just a matter of rounded numbers and that's totally fine as well. Just trying to get a little bit more insight there. Thank you.

Speaker 2

Yes, I guess I'd answer that in a couple of ways. Look, March is preliminary, We haven't gone through a plan. I think that John has continued a tradition that we've had in the company, which is to say, Where can we find sources of leverage in the P and L? So obviously, mix has an impact on that, Andrew, as you're aware. I mean, if you have more PEO, you have less Opportunity to have more management solutions that gives you more opportunity.

Speaker 2

But I would say we went through a pretty disciplined Process in the planning process to see where there were opportunities for leverage uncovered them And that's what you're seeing in the guidance. I'd say one other thing that's really important. The process of planning a year is a 3 65 day activity. As we get through the Q1 as we go through, we see opportunities both on the investment side and also So on the cost side, we go for it and we challenge ourselves to find those opportunities. So I think that In addition to the fact that that was a byproduct not byproduct, but a theme of the planning process, We think in those terms and so because you have to go into the year with multiple levers To find leverage if you need it.

Speaker 2

So we're, as we speak, thinking about, okay, how can we even do better or And a little bit of D and A.

Speaker 5

Perfect. Thank you.

Speaker 2

Yes.

Operator

Thank you. Our next question will come from Kevin McVeigh with Credit Suisse.

Speaker 1

Great, thanks. I'll just have one to make up some time. Hey, Efrain. Pardon me. You talked a little bit about, I think, kind of revenue retention versus client And revenue retention being at all time high despite kind of I think a little shift in client.

Speaker 1

Can you help us frame what the delta is there, kind of what it is today and kind of where that's been historically? And I'd imagine it's probably narrowed over time, but is there any way to frame that a little bit more?

Speaker 2

Yes. So look, when it was approaching the mid-80s during the pandemic, but that Really is in some ways kind of an outlier. When we reported last year, which is kind of like 1 year post The midpoint of the pandemic, I'm sorry, again, the midpoint of the pandemic, we were between 83 84, and And this year, we're between $82,000,000 $83,000,000 So as John mentioned, we saw some Larger losses on the low end of the market. I'll frame that in one second. That 8,283 is consistent with where we've been in prior years.

Speaker 2

There's nothing unusual about that. What was unusual during the pandemic was that the number of bankruptcies, what we call involuntary losses was much lower than it normally has been. And there's obvious reasons, I don't need to tell everyone on the call about PBT. So a lot of those clients kind of Got through the client base to John's point. What was going on was that you had a pent up group of very small clients That we're being propped up a bit by funding.

Speaker 2

In some ways, the losses were higher because of that. And I think we're now back to a more normalized environment in terms of losses. But I want to make an important point And John referenced it. We put a lot of emphasis on revenue retention, especially among high value clients and what's not Different or what is different from pandemic is that our revenue retention is higher than it was pre pandemic. So we're at Record retention levels from revenue.

Speaker 2

That's where we put our that's where we put a lot of our focus on and I can I won't do it, but we could cite many, many efforts that go into retaining our highest clients? So we can deliver Approximately 88% revenue retention, that's important. That's an important number for us. And so while in the past, we've talked a lot Unit retention, nothing wrong with that. You want that.

Speaker 2

The reality is that what's becoming become much more important is that you save and you retain your highest And so while our unit retention is In line with what it was pre pandemic, our revenue retention was higher and has remained higher and will be an area of focus going forward.

Speaker 1

Yes. Kevin, the thing I would add to that, I want to remind everybody since I go back and we go back and look at this over the last 4 to 5 years. When we say pre pandemic levels, you go back to 2019, if you read our transcript, what you would also hear in 2019 is that On a client retention, we were aligned that we actually had historical high client retention back in 2019 as well. So we are returning on the client side to levels that historically for Paychex would have been historical high In terms of client retention, and then as Efrain pointed out, we've had a lot of focus on what we need to do to drive better retention in our high value segments, And we've been very successful to do that. And I think coming out of the pandemic, the value that we've demonstrated to those clients in terms of both our technology Enhancements as well as the advisory support that we've given them through very challenging times.

Speaker 1

I think they rewarded us. They rewarded us By buying more from us, they've rewarded us by giving us the opportunity to have a better pricing For those products and services because they see the value and they've rewarded us with their royalty.

Speaker 7

Very helpful. Thank you.

Operator

Thank you. Our next question will come from Bryan Bergin with TD Cowen.

Speaker 4

Hey, guys. Good morning. Thank you. I wanted to dig into Management Solutions here a bit more and maybe some of the underlying Growth driver assumptions for 2024. When we look here just this year in 2020, I see total company client growth Like a 0.5 in 23, and you're citing increased product penetration price realization.

Speaker 4

Can you kind of roll that forward for us here, can you give us a sense on how you're thinking about the pieces here across the client growth versus pricing versus product attach?

Speaker 2

Yes. I would say, Brian, 2 things is that we have said that typical client growth In the year, it's going to be in the 1% to 3% range. We were on the low end of that range. We expect to be middle or higher next year. So that's Part of the equation on the pricing side, we're typically in the 2% to 4% range, although in recent years, Higher than that.

Speaker 2

We're on the mid to maybe perhaps a little bit higher than mid Level on the pricing side, those are sort of the basic elements and then you got mix and additional product penetration Driving the remainder of that. Now if you start reconciling me, I got to take the negatives too. And the negative is, I'm going to get some from ERTC, which you will see on the Management Solutions side. So that When you triangulate all those pieces, that's where you get to our 5% to 6% growth.

Speaker 4

Okay. How about client employment there? So and I guess specifically in 4Q, how did it compare to 3Q? And then for Q4 as well.

Speaker 2

Sorry, I started talking over your apologies, Brian. You were saying Q4, Q4, what were you saying there?

Speaker 4

Yes. So when as you think about client employment, curious about how you're factoring that for 2024. But also, I think you guys were assuming 4Q was going to be relatively flattish from 3Q. Did that play out? Or was that different too?

Speaker 2

Yes, that played out and going into next year, we expect to be flattish. I will say that, I mean, you always have to have an element of caution On the impact of higher rates, I mean, They hear the levels there. That would cause me to get a little bit more concern that I am right now. So we'll have to play that out. And that definitely would have an impact on worksite I think it's manageable and we've taken that into account in our plan.

Speaker 2

But at this point, we're not expecting that it's going to Change as we go into next year.

Speaker 4

Okay, makes sense. Thank you very much. Thanks.

Operator

Thank you. Our next question will come from Bryan Keane with Deutsche Bank.

Speaker 8

Hi, guys. Good morning. Hi, how are you doing?

Speaker 2

Good afternoon. I just wanted

Speaker 8

to follow-up on the client growth Question, it sounds like you expected to go up a little bit higher than

Speaker 9

it was. It was on the low end of

Speaker 8

the range and then it will go up. Is that a function of what you're seeing in the sales Channel or is that a little bit of retention just given that maybe some of the smaller clients that churned off During the pandemic, you won't have that same issue as you go into this year.

Speaker 2

Yes, Brian. So two answers to that is, And John didn't mention this because we generally don't go into this level of detail. But we saw a pretty strong unit growth As we in the back half of the year. So it wasn't a sales driven issue, it was really more of a retention driven Based on the factors that we talked about earlier in the call, I. Just to go one level deeper, we all remember that one of the anomalies in The pandemic was that the business starts really, really accelerated.

Speaker 2

And I think to this day, A few people can completely explain it. And so we benefited from that unit growth. But as John said, we know a number of those clients are going to go business and after 2 years, we did the analysis that we all looked at and a lot of those clients did not Survive once the PGP and other government stimulus went out of business. I'm sorry, once that stimulus was gone. So that's primarily Driver somewhat of a normal situation.

Speaker 2

I think that will return to more traditional patterns as we get into next year. That's our expectation.

Speaker 8

Got it. And the guidance looks pretty consistent as you look at the revenue and the margins that You're not wildly off from the first half to second half and sometimes there's bigger changes there. Any kind of key macro Factors that you watch that we should be watching that could move it up or down that could change at least maybe as we get into the second half we think about the macro?

Speaker 2

Yes, I'll let John talk about it too. But what I'd say, Brian, is look, Everyone on the call was worried about a crash landing as we move to 'twenty three. And look, I mean, there was skepticism in the market As to whether we're going to be able to hit our numbers, I really have tough conversations with investors and I assured them one thing that Continues to be the factor that or the environment that we're seeing now. We're not seeing dramatic changes in the environment and we would start to see them and exercise the appropriate level of caution if we did. So we're going to look at what's the impact of these interest rates at this point.

Speaker 2

Small business seems to be absorbing them. They seem to be getting what they need to be able to fund their businesses. We don't think that Happening on the macro is really important. The internal stuff, we can manage that. We will manage that.

Speaker 2

And I've said Too many people that look, if we have to pivot inside the base, there's a lot of opportunity inside the base. We'll pivot inside the base if the external environment Doesn't give us opportunities for growth. John, do you want to add anything?

Speaker 1

Yes. No, I think the other thing that I think to keep in mind A little bit about the macro. Again, we'll go back to the macro side. I look at our small business index. I look at the start of this calendar year.

Speaker 1

We went the 1st 3 months, the index actually went up every month. So it went up for 3 consecutive months and then it sort of stabilized. So we continue to see that. As Efrain said, we probably expected in the Q4, we're always kind of sitting here waiting for employment to go down and it didn't. So actually, I would say, I was actually a little pleasantly surprised at Where we were on checks and where we were on worksite employee growth inside the base of clients that we have.

Speaker 1

So Continuing to see that hiring is also an issue and staffing continues to be an issue of our HR concerns. So we look at What are the questions and issues that are coming into our HR consultants? We continue to see that to be an issue. And I do think you're going to see something interesting here that we Probably not seen. Small and midsize business owners are scarred by their experience of employment over the last several years.

Speaker 1

And they fought to get back to staffing levels. I think what's going to be interesting is they're going to be very hesitant to let go, I think they remember what it was like trying to find talent. And there's just simply not enough labor supply here. So I think it would be very interesting to kind of win this tug of war back and forth relative to employment. The other thing that we see We're seeing a lot of non traditional labor being tapped by businesses, gig workers, contract workers, Maybe a little bit more part time.

Speaker 1

And what I'm curious about to see or will those be the first things to go? Would that before a small business owner is going to Go permanent staffing that they've got that they're paying every week. Are they going to try to ride it out by tightening in other areas such as this non traditional Gig employment that's kind of sprung up. So the labor market is a very, very interesting Thing I think for us to look at and study right now, and I don't think it sets up for traditional recessionary models That people have built. So that's just my pontification based upon my conversations with what we're hearing from clients And what we see in our data.

Speaker 8

Super helpful. Thanks, guys.

Operator

Thank you. Our next question will come from Scott Wertzel with Wolfe Research.

Speaker 6

Hey, good morning guys Thanks for taking my questions. Just on the expense side, wanted to see if you guys can just go over maybe what some of your Top investment priorities are over the next 12 months and sort of folding into that, how you're thinking about maybe incorporating generative AI into your business as well?

Speaker 1

Yes. So investments are in growth and growth. Those are probably the top 2. And then you mentioned digital. I mean, we've been making a lot of investments In the digital area, both in terms of our sales and what we're doing from a go to market perspective, Which we're very happy with and how we're leveraging technology, AI in the back office.

Speaker 1

And I'm very pleased With several things that we've got going on. So we've been actively leveraging AI for several years across every area of the business, Driving efficiency, delivering a lot of our large client. One of the things I keep telling people is, We're one of the few players in this industry that has the size of data set that we have. And I do think in these type of in AI, you got to have a large data set. We're using it in customer service.

Speaker 1

We're using it in risk. We're using it in finance. We're using it In our HR outsourcing advisory capacity, we're building it into our products, in our retention insights products. So There's a lot of investment that we're making and a lot of learnings that we have in terms of how we can digitize the front office and the front of house and kind of the back office of our business, so that's going to be an area that we continue to invest and continue to explore.

Speaker 6

Got it. It's very helpful. And then Efrain, just a quick clarification on the float income side with the guidance. So I'm wondering if you could maybe help us With how you're thinking about client balance growth for the year?

Speaker 2

Client balance growth, roughly in line With wage inflation, which is to say low single digits.

Speaker 4

Great. Thanks, guys.

Operator

Thank you. Our next question will come from Kartik Mehta with Northcoast Research.

Speaker 2

Hey, good morning. Are you battling the smoke there in Cleveland too?

Speaker 10

Yesterday was a lot worse than it is today. So it's a little bit better today, but thank you for asking, Efra.

Speaker 1

You should start away, Codex.

Speaker 2

We'll do so.

Speaker 10

I'm wondering just on pace per control, Efrain, I know they've come down obviously from Pretty high levels. And I'm wondering if what your expectations are for FY 2024, not only for the payroll business, but Also the PEO and if you're seeing anything different.

Speaker 2

Yes. Two good questions. So flattish, I guess, is the short answer to what we expect for 2024. Don't expect Too much in terms of in client base growth And that's a mix. I think our larger clients are doing fine and in some cases adding employees, we look at it.

Speaker 2

Smaller clients, less so, and then you got to factor in what your anticipated losses are. So you intend to lose a little bit higher than what you probably gained in a given year and then you expect your in client Your deploying from the base to grow the worksite employee. But this is an environment where I don't think it's going to be robust in terms of Hiring in part because of what John said earlier, which is that many businesses would like to hire, but just simply aren't the people Who were there, who were available and also they figured out how to do it without people. But they probably will be, as John mentioned, Less inclined to perhaps get rid of them. On the PEO and I'd say also the ASO side, Our worksite employee, we have worksite employee growth this year.

Speaker 2

We expect that to continue into next year. You could see Solid work site and play growth as the CEO rebounds going into next year. But overall, and I think that Brian asked his question. It's not going to be a significant driver of revenue growth, perhaps in CEO, but not On the HCM side.

Speaker 10

And then just one follow-up. John, I'd be interested in your thoughts on kind of job We see all these numbers, Jolt's numbers, but it seems like, employers have become cautious. So just Your perspective on what you really think job openings are as you look at your customers versus maybe what we see in the news?

Speaker 1

Yes, Kurt. I go back to what I said before. We continue to have clients that are wanting to fill open positions. And I don't I'm not seeing that change. I would say that they're being more successful in filling those positions.

Speaker 1

So we've certainly seen that and we've seen recovery I mentioned, leisure and hospitality in particular, which was well behind and had good recovery in the back half of our fiscal year here. I do think relative to they're not maybe opening up as many positions, I would also tell you that one of the things that I think did happen is When we were in the great resignation, which was probably 18 months ago, it seems like forever now, but really only 18 months ago, Pretty much a lot of business owners were thinking every position I have needs to be posted, because I've got to assume that I'm going to Potentially lose those positions. So I think there was a lot of postings for jobs that people were passively looking for. And I think some of the contraction that we've seen in the postings are more business owners being a little more disciplined about what am I actually going to hire And being out in the market and focused on that. I don't know if that makes sense or helps you.

Speaker 2

Yes, it does. Thank you both. I fully appreciate it.

Speaker 1

I may add that those individuals that are using our onboarding and recruiting experience in Flex are Realizing about a 20% improvement in their time to hire. So just if there's any customers or prospects on the phone.

Operator

Thank you. Our next question will come from Eugene Samimy with MoffettNathanson.

Speaker 11

Thank you. Hi, guys. Good morning. I wanted to ask a question about the PEO. So We expected the deceleration here.

Speaker 11

And you highlighted again Insurance, healthcare insurance attach rates is one of the drivers. So I was wondering if you can elaborate a little bit on that Kind of where are you seeing softness in healthcare insurance attached? What kind of businesses? I think that will be helpful to hear just because There's so much variability about around, I feel like the PO industry in terms of this healthcare insurance rate attach. And it would be helpful to hear specifically in your client base what you're seeing.

Speaker 11

And then related to that, As we are looking for the reacceleration in the PEO and as you kind of guiding to that, what gives you confidence That there will be pivot there over the next 12 months.

Speaker 2

Hey, Eugene. Let me start and then Then John will provide additional comments. With us it's less about verticals, although I'll caveat that in a second. It's really more about where we derive revenue on The healthcare side that flows through the PEO and L and that's the state of Florida. So for us on the PEO healthcare As it relates to revenue, really it's a Florida game primarily.

Speaker 2

And the anomaly and when you talk about Florida, You know immediately that you're going to over index only your hospitality. So a bit of what's going on is it In offering healthcare to clients. Now a number of them do, and that's not all clients in Florida to be fair, that's probably Too much of a generalization, but it was more of a regional issue than it was, I'd say, as It affected revenue than it was something else. So why do we feel more comfortable Because we have put a tremendous amount of focus on it. And that's not to say that guarantees success, but I would say as we saw what was going on, we took a lot of measures To improve that, that aren't going to necessarily again be evident in Q1, but should be evident beyond that.

Speaker 2

And there were things in which we've talked about in current calls, I won't repeat, there were somewhat anomalous that we saw people actually In the PEO decided they didn't want health care insurance, we thought our hypothesis was They were feeling some pressure from a wage perspective and perhaps decided that from a total Compensation perspective, they we're not going to offer healthcare. But we've taken a number of actions that we think We'll create better momentum going into next year. I'll let John talk about that issue.

Speaker 1

Yes. No, not much to add Eugene. I do think it's important to understand on the insurance component, There was a trend that we saw happen not just in the field, but also in our insurance agency, in the health and benefits area, which It's not just the client. There's 2 decision points here. 1 is the client deciding they're going to offer benefits And second is an employee deciding they're going to enroll and pay their fair share.

Speaker 1

And we saw in both cases That clients, particularly clients, less clients were adding an insurance, that's one part of it, Right. You certainly can go and try to get someone to switch from their existing insurance carrier, but we saw less people adding health insurance as an option. And then when you look inside, when we went through our normal enrollment period, we found that less of the employees that were offered Insurance elected to sign up for it. And so all the things Efrain just said, we saw that happen in both areas. That caused us to go back and what you can do is you can go back and look at your plan designs, you can look at leaner plans, you can look at plans, all of those things, we went through an exhaustive review of every one of our core PO markets, To look at every one of our planned designs and look at every one of our offerings to make sure we have the broadest suite.

Speaker 1

Now those decisions are made. We're actively out in the market selling clients on those today. Those will go in, in the July timeframe, if you will. And remember, our enrollment for PO begins in that July timeframe and really goes through the January timeframe. So you won't see kind of that pickup Of that going on, so we've looked at every aspect of it.

Speaker 1

We've made some modifications and changes where we think it makes sense. We know that the HR outsourcing value proposition is still strong because it's growing at 10% and we saw Strong demand in the second half of the year. We know that the PO value proposition is strong because of our record retention and the clients that Can't afford it and have it are doing well. So we have reason to believe there were some early signs, as I said earlier in the Q4 Of improvement there and now we're getting into the heart of it and we'll see that kind of build as we go into The second, third and fourth quarter of this coming fiscal year. So again, we got We feel confident that we have the right plans in place and now we'll go out and execute that in the marketplace and see how it goes.

Speaker 11

Got it. Super helpful. And then quick follow-up on some of the comments you made earlier on retention Bookings and Climb growth to title together. So when we're thinking about your guidance for next fiscal year and Efrain you mentioned that you expect Client growth to pick up from the kind of 1.5% level we saw this year, would that be a result of Both improved retention and improved sales? Or is it primarily one or the other that will drive that improvement in client growth?

Speaker 2

No, you got to do both. You got to do both, Gene. I mean, over relying on one Long story short, both sides of that equation have pretty powerful incentives to make sure that they occur. You don't always hit it 100%. Sometimes you hit it more.

Speaker 2

But you got to get to Both sides to work to get the right net client getting a number. Yes.

Speaker 1

And I'll add on to that. Again, I would say, the second half was stronger than the first half From a sales unit perspective, and if you dig under our retention numbers first half to second half, Our controllable losses improved in the second half. So again, what we can control and I do believe that there's a degree of what I call fleshing out of the bankruptcies from 2 years ago In terms of us looking at clients that are kind of on the financial edge and whether or not we want to continue to or feel confident we can continue to do business with them. Those We can continue to do business with them. Those type of things are kind of flushed out of the system.

Speaker 1

We've been investing a lot in what we can do to control what we can control regardless of the environment. And talk about AI. We've been deploying a lot of very sophisticated AI models inside our service organization And inside our client base that are giving us very strong indications of where we may have a client at risk And we're demonstrating success and demonstrate success in the back half of the year of being able to intercept those And turn those situations into positive retention story. So when I look at the retention story and the sales story, First half, back half of last fiscal year, I feel good about the progress we're making there.

Speaker 4

Got it. Thank you very much.

Speaker 2

Welcome.

Operator

Thank you. Our next question will come from Peter Christiansen with Citigroup.

Speaker 7

Thank you. Good morning. Thanks for your question. How are you doing? Good.

Speaker 7

Efrain, I was curious about the portfolio And I know it wasn't too large, but should we expect, I guess, future maybe operating outperformance To be reinvested for portfolio repositioning, maybe layering into rates faster. And then as a follow-up to that, maybe looking at prior cycles, is there a relationship between interest rates and competitive pricing? I would imagine this float income becomes more a bigger part of the business model that gives more leeway for competitors to be more aggressive on the pricing side. Any commentary would be helpful. Thank you.

Speaker 2

Those are 2 absolutely fantastic questions. Literally, I mean, wow, okay. So let me take one. Part of what you do and part of what you work with the team is Understand what you need to deliver and understand what your degrees of freedom in delivering them are. When you perform at a certain level, you have more degrees Not surprising.

Speaker 2

So to all my colleagues, CFOs out there who struggle sometimes because they don't have the degrees of freedom, I feel you. When you do have the opportunity to reposition because Better than the NPV of not doing that. And so in the Q4, we thought there was a positive NPV to that approach. When we do it in the future, I'd have to see there's other issues that come into play, which is how much what do you want your max duration To be and are you picking the right time? You never get it right Because you're trying to predict other behaviors, but I think that we've done a good job.

Speaker 2

To your point, This is really kind of the interesting question that we're wrestling with. So

Speaker 1

We don't know.

Speaker 2

I can give you a sense of what happens when interest rates get to 6%. I know because I studied that pretty extensively when I came into the job now 12 years ago. And two things you got to worry about or be concerned about there. Number 1 is that, you can attempt to be pretty aggressive on Pricing, in that kind of environment. So if interest rates are high, you can take it as a signal to price high.

Speaker 2

But what I find at least in our history was when you did that, when you get overly aggressive in pricing in 2,007, 2,008, You're going to pay a price on retention. It just is it follows. And at least that's a conviction that I have. Now maybe you leave some money on the table by not pricing even more aggressively, but I think that there's a balancing act there for clients Because you're trying to create a level of trust in terms of the value that you've delivered to them and there is a tipping point at which That level of trust gets breached. So we need to look at that closely.

Speaker 2

The second part is, as interest rates are now Creeping up, if they were to go over 6%, now that starts to become It becomes more difficult for small businesses and many medium sized businesses To operate from a financing perspective, they got to look for other options. That's one thing by the way that we're looking at very closely, how do we Help clients. ERTC was a great example of how we did that this year. That's why we think it did so well within the base, but you got to play those Two elements off each other in determining what the price And how to help your clients navigate through an environment where interest rates are high. So hopefully that answers your question.

Speaker 7

Yes, certainly does the balance. Yes, that's taking a challenge, I'd imagine. I don't want to be here. But thanks for the insight. Very helpful.

Speaker 2

Yes, you're welcome.

Operator

Thank you. Our next question comes from Tien Tsin Huang with JPMorgan.

Speaker 9

Hi, thanks. Good morning, John, Just want to ask on BEO, again, I know it's growing in line with peers in the quarter here. You're looking for some You talk through that with Eugene. How much of the acceleration again, just to simplify it, is coming from volume versus rate versus mix? Just want to make sure I understand The components.

Speaker 2

Well, I'll take that, Tien Tsin. So, look, I want to kind of clarify something to start, which is that we had worksite employee growth in the PEO. It's not as though we contracted in that area. We think we're off to a pretty strong start actually In terms of at least our bookings activity, but we expect relative to last year, for Healthcare Attachments to be higher than it was, the contribution from Healthcare That should be higher than it was last year. We just couldn't have hit the numbers that we hit last year if we had also seen Simultaneously, that the base business admin was going down, it would have been very difficult, challenging.

Speaker 2

So we expect growth in the business, growth in clients, we expect growth in attachment, that's It's really kind of driving the mix less so, Tien Tsin. I think that's less of an issue. Typically, just To remind everyone, our PO clients are typically upper 20s and low 30s in terms of clients. We're not trying to go downstream But it's really going to come from more clients, better health care touch.

Speaker 1

And we're just really not expecting any type of major pricing increases either on the health side or on the General administrative fee side, I mean, it's going to be well within our normal course. Although I would mention that on the healthcare side, our normal course It's in the single digits, which far beats on a historical basis what healthcare inflation is. So that's a And the retention benefit for our clients. The other thing I probably we haven't talked about that we have a thesis around We had very good HR outsourcing growth. And one of the things that we saw because of the insurance Anomaly was a tilt towards our ASO product.

Speaker 1

And so when we look on the aggregate, Yes. Very, very solid year. Our HR outsourcing offerings, ASO and the managed service side And PEO, but we tilted towards one versus the other. We're actually we actually I look at that Now I'm saying, wait a minute, I now have more clients that love our technology, love our HR, and now it's just a matter of finding the right healthcare solution going back and up So we have a pretty concentrated effort on that. Actually, that's another area where we're using AI, where we are actually Analyzing the deduction fees from existing payroll and ASO customers, so that we can triangulate what we think they are currently paying For healthcare and then using the demographic data that we have to do, AI based underwriting to give us a computer based targeted list Of clients that we can approach with a really almost prepackaged value proposition that says, hey, we think we can Help you save money on your insurance.

Speaker 1

If you join our PO, you're already an ASO client of ours. So We're just getting we've been working on that model for 9 months as part of our efforts and that's an area too that we think there's Opportunity inside our base to go back with our new insurance value proposition in the PEO and see if we can't move some clients over.

Speaker 9

Good. And that's the beauty of Paychex having both ASO and PEO. So I guess as my follow-up, any change in your appetite on the whole self versus the fully guaranteed PEO model to the extent that you can better maybe control the insurance packages? And I know Efrain's probably thinking, I'm trying to trick you guys to So the consolidation question, but I'll ask it too. So appetite to do acquisitions on the PEO side, I know it's been what 5 years since you did Oasis.

Speaker 9

You said tuck ins, but I know there's been some news in the market around consolidations. I know that probably is a multiplier question, so I'm on the bad That got it.

Speaker 2

No, no, no.

Speaker 9

Let's get it anyway. Thank you.

Speaker 2

You're good at it, sorry. Hey, let me answer the first one. I get that question, and I think investors are sensitive to the level of balance sheet, the risk. So when we originally did this a number of years ago, I said, I don't want to be reporting quarters where we blew up the balance sheet because we were doing the wrong On the insurance side, I would I won't think it's wrong, but it's a very important use of words. What I mean by that is just taking excessive risk.

Speaker 2

So Everyone knows what they get when they invest in the company. We have managed that without any hiccup because Two things help us. One is that

Speaker 4

even though

Speaker 2

we don't at risk, we don't make money, we make very little money on healthcare insurance and that Removes the incentive to necessarily push insurance, cheap insurance in the way of That's a fool's game. We don't play it. We'll never play it. Having said that, as we get to a certain density in Markets and many of the people on the call know what the big markets are. When we look at that, we evaluate whether A going at risk in insurance in a market would make sense.

Speaker 2

I won't forestall that we would not, It would be subject to the same very tight criteria. And the other part is that the reason for doing it Would not be necessarily to increase revenue, but for us to capture share in that market. So Nothing imminent, but that's our thought process. I think we've got a bit of a track record in terms of managing it In an appropriate way. I'll let John talk to PEO in M and A.

Speaker 1

Yes. Just to add to that, I don't think that our current approach To insurance in the PO was a driver to what we saw last year. And so I don't think taking more risk is I think that our current approach has demonstrated that we can grow at industry rates without Exposing ourselves to additional risk. And so to Efrain's point, I don't see that as a magic bullet. I don't think you need that To grow the PO value proposition to Efrain's point to the degree in which we thought it could accelerate growth in some way and the risk to be balanced, Something to consider, but not something that we're looking at.

Speaker 1

I mean, I think in terms of the PO M and A front, we haven't done much in five It's obviously a very attractive industry for private equity to pay very high multiples for which For my opinion, not much capability. When we made the acquisition of Oasis, we were looking at So getting significant scale on the PO and capability, we got that with Oasis. We were typically a smaller Kind of regional PO not and we knew we needed some national scale to get there. We're now top player in the industry. I think what we would be looking for is tuck ins in markets where that makes sense.

Speaker 1

If we were going to add a capability, Right. But a capability in terms of something different in the PO, that's interesting. But Again, what I continue to see is we're involved in and know about almost every deal in the industry. I still think the multiples are a little Hi for what they would bring value and we have enough organic and inside the base opportunity for us to continue to invest our dollars in. Awesome.

Speaker 9

Thanks for the complete answer. I promise just one question. Thanks guys.

Operator

Thank you. Our next question comes from James Faucette with Morgan Stanley.

Speaker 4

Hey, good morning. Just a couple of quick follow-up. Just a couple of quick follow ups for me. On the out of business commentary, I understand Kind of the conditions there where you maybe were below normal especially during the height of the pandemic and that's I'm just wondering if right now you would characterize that out of business run rate as being more elevated still Or is it kind of come back more into line with what you would expect to be kind of normal?

Speaker 1

It's back to normal. And again, I'd go back to say it's back to normal pre pandemic 2019, Which again were at reasonably historically low levels for us if you went back historically before that. Look, there was a big surge in new business starts right at the start of the pandemic. And we knew in our models Whether or not there was recession, whether or not interest rates were 1% or 6%, those businesses, a fair number of them were not going to And so we didn't know when it was going to come, but I think we knew it was going to come. I think we've seen that begin to flush through.

Speaker 1

We've kind of returned Back to what I would say are more normal business start levels. And again, business starts are still reasonably solid. We're not seeing a dip in business starts. Again, we don't the big spike. We're now back to where we were kind of pre pandemic, which again were very, very solid and conducive Numbers for growth in our business before the pandemic.

Speaker 4

Yes, yes. No, that makes sense. Appreciate that. And then Just a quick question to make sure that we're thinking about business sensitivities correctly. If we were to see macro deteriorate Further, which of the underlying verticals, whether it be payroll, HCM software, retirement, ASO Management Solutions Would be hit hardest versus what would be most resilient?

Speaker 4

I think we have some ideas there, but I just want to make sure we're thinking about that correctly.

Speaker 2

Yes. I'd say so you got two points of comparison kind of what happened in 20 7 and 'eight and then what happened during the What we saw during the pandemic was that on the PEO side, PEO our base at least, PEO clients Shed employees more quickly. It was I was surprised by the speed with which they did it. I think you'd see more of an impact there on the PEO if you saw more Sharp downturn. A garden variety softness, probably not.

Speaker 2

And then second, James, we'll see. But if we go back certainly due to pandemic, You saw employers start to shed clients shed employees, I should say, shed employees. Interestingly enough, what was a little bit anomalous during the pandemic, we didn't see huge client losses, but we did see them drop employees. And so Then that you see that impact. I'd remind everyone that our model is not a pure people model, it's subscription Plus people and so we have some insulation in the event that there's a downturn and overall employment levels fall.

Speaker 2

And finally, Last caveat. We do have the ability to pivot in the base, which we did during the pandemic, which helped To mitigate the impact of what was going on in the economy as a whole.

Speaker 1

Yes. And I would probably say we're actually more effective from the sales and marketing and digital perspective inside the base, than we were in any of the in the prior downturn. I mean, we just I've gotten very, very effective in driving product penetration and identifying opportunities within our client base Where we can add additional value with a pretty broad set of products and services.

Speaker 4

Great. Appreciate it.

Operator

Thank you. Our next question comes from Mark Marcon with Baird.

Speaker 2

Mark, this is Andren

Speaker 4

Childress on for Mark. Thank you for taking our questions. So I'll just Leave it at 1. Retirement Solutions continues to see strong growth and clearly has some nice tailwinds. Can you talk about some of the measures you are taking to capitalize on the opportunity provided by both the SECURE Act as well as state mandates?

Speaker 1

Yes. So as you know, we're a leader in small and midsized businesses in terms of the number of plans. We manage more retirement plans than any other company. For the 12th straight year, we actually have prepared and supported businesses, more businesses than any other provider. So we are actively already educating our existing customers and have a variety of digital marketing Programs in the market, I think you'll continue to see more aggressive positioning of Paychex in the 401.

Speaker 1

We're looking at how it can play a bigger role in our bundles, and in all of our payroll bundles as well. Because again, what we're finding is given both the state mandate Coupled with the SECURE Act 2.0, we're literally, if you're a company of 20 employees and we're working on trying to make some changes to that legislation that Actually drop it down even lower than that. We can start up a 401 plan and basically at no cost to you And you can then provide up to $1,000 of match to your employees and get that money back as well. So when you this is like one of those DRTC moments where our value proposition of what we can go to a small business owner and say, You can have a valuable benefit that's going to help you retain your employees, help you attract employees and really for it's not going to cost you anything To get it started, we think there's a powerful value proposition. And like I said, we're already the largest.

Speaker 1

We already know how to do this. We already Have the sales and marketing capabilities and the operational capabilities to do this in a very efficient In effective way, and so we're going to continue to capitalize on this as we go into this fiscal year.

Speaker 4

Great. Thank you for the color.

Operator

Thank you. Our final question will come from Samad Samana with Jefferies.

Speaker 4

Hi, great. Thanks for hey, good morning guys. Thanks for squeezing me in.

Speaker 1

So I just wanted

Speaker 4

to ask on maybe your own sales organization. Can you help us think through just between the last couple of years being strong and then us entering, let's say, a slightly different environment maybe looking forward, How maybe the sales organization performed versus quota in fiscal 2023? And maybe what assumptions around quota you're thinking for Fiscal 'twenty four in terms of goods quota increases for your sales organization?

Speaker 1

Well, as I said, we were very pleased With the record setting year that we had in sales execution, it really was a stellar year from a sales performance perspective, my hats off to the entire team. And as I said, the back half was stronger than the front half. And given that momentum we have coming out of there, the investments we've made in the Q4 in terms of Marketing, also a lot of work on what I would say is go to market support for our sales teams, The things we're doing relative to sales training and sales effectiveness tools that we invested in the 4th Quarter, given the momentum we're seeing, our sales team has readily and happily accepted higher quotas for fiscal year 2024.

Speaker 4

Appreciate that. Efrain, I'd love to ask you another PEO follow-up question, but I'll just add that first.

Speaker 2

No, I'll give you

Operator

Thank you. There are no additional questions at this time. I'd like to now turn it back to our presenters for any closing remarks.

Speaker 1

Okay. Well, I'd like to thank everybody For being with us today, I know probably many of you are starting ahead or are headed or about to head to The 4th July weekend, hope you have a great time with your family. I want to thank you for your questions and support. I want to reflect again on this past fiscal year. Certainly, a transition year for me Coming in into my new position as CEO, an absolutely phenomenal year for the company.

Speaker 1

The employees did a great job Navigating a very complex fiscal year and for the company to achieve that $5,000,000,000 milestone is really to their hard work and to do it at the speed we did it during the global pandemic is something to say. I was Reflecting last night as I was looking back over the last 5 year results across the board and I go back and anchor myself to fiscal year 2019, Which is hard to remember that was before the pandemic. And I looked at our 4th quarter and I looked at our full year Statistics. And when you go down there and see we had better revenue growth, better profit growth, Better retention metrics, better HR outsourcing metrics, better new sales revenue, better new sales unit rates of growth In the Q4 of this past fiscal year and the full year than we had in fiscal year 2019, we not only weathered the pandemic, But I think we actually came out of the pandemic in a stronger position across the board. And I just want to thank the 16,000 Employees at Paychex for making that happen and hope you all have a very nice Fourth of July weekend.

Speaker 1

Thank you very much. Have a great day.

Operator

Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect.

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Earnings Conference Call
Paychex Q4 2023
00:00 / 00:00