Paychex, Inc.

everyone and welcome to today's paychecks first quarter 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 you may register to ask a question at any time by pressing the star and one on your telephone keypad you may withdraw yourself from the queue by pressing star and two please note this call is being recorded and and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to John Gibson.

Thank you, Shelby. Thank you, everyone, for joining us for our discussion of the Paychex first quarter fiscal year 24 earnings release. Joining me today is Efren Rivera, our chief financial officer, and Bob Schrader, vice president of finance and investor relations. This morning before the market opened, we released our financial results for the first quarter. You can access our earnings release on our investor relations website. Our form 10Q will be filed with the SEC within the next day. The teleconference is being broadcast online and will be archived and available on our website for approximately 90 days. I will start the call with an update on the business highlights for the first quarter. I'll then turn it over to Efren and Bob for a financial update, and then we'll open it up for your questions. But before getting into the discussion of our earnings results, I want to take a brief moment here to make a few brief comments to acknowledge Efren Rivera, who announced his intention to retire as CFO effective October 12th of 2023, though he will remain as a senior advisor at least through the end of the calendar year. Efren has been a valuable member of this senior leadership team at Paychex for the past 12 years. He's provided strong financial stewardship, but more importantly, great strategic leadership as well. During his time with Paychex, the company has transformed into a technology-enabled services company, and we've significantly expanded our HR solutions and capabilities. Efren has been a key strategic advisor and a catalyst for this transformation. Efren, I think you know how truly I appreciate your intellect, your wisdom, your integrity, the guidance you've given me personally over my decade here, and to the company. And we're all in great gratitude for what you've done for each one of us personally and for the company. Our customers, our employees, and our shareholders are better off because you were here. So, thank you. Joining us today is Bob Schrader, who will succeed Effern as CFO. Bob joined Paychex back in 2014 and is taking on progressive leadership roles over the past nine years, including over the last year and a half since I was named president and subsequent CEO of being a co-lead of many of our strategic review efforts and strategic initiatives. Bob's promotion is a part of a strategic succession plan to bring in an innovative leader who will continue to guide the company going forward. I want to congratulate Bob, and Bob, I look forward to continuing to work with you as I have the last 10 years as we continue to continue our track record of delivering strong financial results and continuing to position Paychex as a leader, an innovator, and a company that you can count on for predictable and sustainable results. Now, moving on to the first quarter results, speaking of predictability and sustainability. We have begun the fiscal year 24 with solid growth of 7% in total revenue and 11% in adjusted diluted earnings per share. We've seen operating margin expansion approximately 60 basis points year over year, while still investing in our business to drive future growth. Our first quarter reflected solid execution by our sales, service, and all of our teams across paychecks. The demand for our HR technology and advisory solutions continued, resulting in strong quarter new sales, revenue growth. We saw positive trends in client, revenue, and HR outsourcing worksite employee retention during the quarter, and we continue to focus our resources on acquiring and retaining high-value clients. We are starting to see improvements in some of our key PO and insurance metrics during the quarter, with good results across sales activity, insurance attachment, and retention. We will know more after our open enrollment season is completed, which primarily runs from October through January. But at this time, we believe that the actions we have taken in response to headwinds we faced in 2023 are beginning to gain traction. Employment levels within our client base have remained stable. Small businesses, which are central to the U.S. economy, continue to show their resiliency. Our Small Business Employment Watch has shown that small businesses continue to add workers at sustained but modest rates. Also, the trend in wages has shown some cooling in wage growth consistent with overall inflation. Our data indicate a continued stable macro environment for small and mid-sized businesses. We continue to monitor our leading indicators and are prepared to take appropriate actions to navigate any changes. But again, at this time, we don't see any material change to the macro environment. Small businesses have faced challenges getting access to capital and managing cash flows in this environment. This has continued to drive demand for our full-service employee retention tax credit service. I know there's been some recent news of the IRS pause in ERTC processing in order for them to perform increased audits. This is not expected to have an impact on our ability to provide this service, though it may take longer for our clients to receive their funds. We continue to communicate this opportunity to existing clients and prospects, and we continue to file amended returns with the IRS on their behalf. We anticipate that ERTC revenue will be a slight tailwind for the first half of the fiscal year and then turn to a headwind in the back half as the program ends. We are seeing greater adoption of HR software as businesses look to digitize their HR efforts to support the complexities of managing today's workforce in a more efficient manner. We also continue to see strong demand for our HR advisory solutions as businesses deal with the continued challenges of being an employer in today's challenging employment world. Paychex is uniquely positioned to offer a continuum of HR products, technology, and services from do-it-yourself payroll all the way to full-service PO HR outsourcing. All of these products deliver a strong return on investment for our clients. For the 13th year in a row, we were named the leading retirement record keeper by number of plans by Plan Sponsor Magazine. Our leadership position in retirement makes us an excellent resource for small businesses, and we continue to educate and execute on this opportunity. There has There's certainly been a lot of excitement about AI and related technology and advancements around the monetization of large data sets. At Paychex, as we've talked on prior calls, this isn't anything new or it's not a fad. We have been using artificial intelligence to transform our business for over a decade. We have over 200 AI models that are actively working in our business today designed to provide valuable insights fueled by our vast data assets. Our award-winning retention insight tool uses AI-based predictive analytics to provide HR leaders with early insights into potential employee retention issues. Our Flex intelligence engine is an embedded AI chat capability within our Flex platform that allows a customer to get quick answers to over 900 of the most common questions and access over 1,200 instructional resources. Companies like Paychex with large amounts of data will clearly be the winner with AI. And we will continue to harness the power of AI and leverage our extensive data to drive internal efficiencies and provide actionable insights and solutions to our clients. This quarter, we continue to be recognized for our innovation, service, and the positive impact we are having on our customers, our industry, and the world. For the third time, Paychex has been recognized by TrustRadius with a 2023 Tech Cares Award for the company's corporate social responsibility programs and our community impact. We also received an award from Selling Power for our commitment to fostering a diverse and inclusive workforce, and from Forbes as one of the best employers for women in 2023. On the product and service side, Nelson Hall once again identified Paycheck as a leader in its 2023 Next Generation HCM Technology Market Report. We also learned at Silver Brandon Hall Group 2023 HR Excellence Award for breadth and depth of training that we provide our HR advisors to keep them up to speed on the ever-changing complexities of the employer-employee relationship. Paychex was also named the 2023 consolation research on our short list for best payroll for North American small and mid-sized businesses. The depth and breadth of our product suite provides American businesses the freedom to succeed with the technology and advice that they desperately need to remain competitive in a very complicated world. I want to thank our over 16,000 global employees who consistently deliver for our clients and our shareholders. It's because of them that we're off to such a good start this fiscal year. I'll now turn it over to Bob Schrader to give you a brief update on our financial results for the first quarter. Bob?

Yeah, thanks, John. Good morning. It's good to be here with you this morning, and I certainly look forward to working with each of you as we move forward. I'd like to remind everyone that today's commentary will contain forward-looking statements. Obviously, those involve risk, and we will refer to some non-GAAP measures. I'll refer you to our customary disclosures in our press release and our investor presentation that will be posted later today. I'll start providing a summary of our first quarter results, and then I'm going to turn it over to Efren, and he'll give an update on our financial position and updated guidance for the year. Total revenue for the quarter increased 7% to $1.3 billion. Management solutions revenue increased 6% to $956 million, primarily driven by hired clients and client employees, product penetration, price realization, and HR ancillary services. We continue to see increased attachment and demand for our HR solutions retirement, and time and attendance solutions. PEO and insurance solutions revenue increased 5% to $298 million, driven primarily by higher revenue per client and higher average worksite employees. As John mentioned, we definitely saw some positive momentum in the PEO in the first quarter as it relates to both sales activity and medical plan participation and attachment. Those were obviously headwinds last year, and we're definitely seeing some positive signs as we move through the first quarter here. Interest on funds held for clients increased 83% to $33 million, primarily due to higher average interest rates. Total expenses increased 5% to $750 million. Expense growth was largely attributable to higher compensation costs, PEO direct insurance costs, and investments that we've made into the business. Operating income increased 8% to $536 million, with an operating margin of 41.7%. That's a 60 basis point improvement versus the prior year period. And diluted earnings per share increased 10% to $1.16 per share. And adjusted diluted earnings per share increased 11% for the quarter to $1.14 per share. I'll now turn it over to Akron to take you through our financial position and our updated guidance for the year.