Paychex, Inc.

Good morning and welcome to Paycheck's second quarter fiscal 2026 earnings call. Participating on the call today are John Gibson and Bob Schrader. Following the speaker's prepared remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star 2 on your telephone keypad. As a reminder, this conference is being recorded, and your participation implies consent to our recording of this call. I would now like to turn the call over to Bob Schrader, Paycheck's Chief Financial Officer.

Thank you for joining us to discuss Paycheck's second quarter fiscal 2026 results. Our earnings release and presentation are available on our Investor Relations website. We plan to file our Form 10-Q with the SEC within a couple of business days. This call is being webcast live and will be available for replay on our investor relations portal. Today's call includes forward-looking statements that refer to future events and involve some risk. We encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ from our current expectations. We will also reference non-GAAP financial measures. A description of these items, along with the reconciliation of the non-GAAP measures, can be found in our earnings release. I would now like to turn the call over to John Gibson, our president and CEO.

Thanks, Bob. I'll start with the second quarter business highlights, and then Bob will cover financial results and our outlook. And then afterwards, of course, we'll open it up for your questions. We delivered solid second quarter results. with revenue up 18% year over year and adjusted operating income grew 21% over the prior year, driven by higher productivity as we continue to demonstrate our longstanding capability to be the best operators and begin to drive AI into our operational systems and overall DNA as a company. We are proud of the significant progress we've made in advancing our strategic priorities, including the pay core acquisition, in integration and our data and AI initiatives. We continue to make progress on the PACOR integration. As best operators, we continue to identify additional expense opportunities and now expect approximately $100 million in cost synergies for fiscal year 2026. We also remain on track to achieve the revenue synergies targets we set for this fiscal year. We continue to strengthen broker relationships through our Partner Plus program and refresh value proposition centered on delivering greater value to our partners as we continue to expand and fully integrate the Paychex Enterprise team with Paycor. Cross-sales efforts continue to gain traction, including broker-referred PO deals and with larger clients than initially anticipated. We continue to make steady progress executing our go-to-market, technology, and cultural integration initiatives that are critical in an acquisition of this size, scale, and complexity. Our PO business continues to perform well, achieving market-leading mid-single-digit worksite employee growth driven by strong demand and near-record retention. Our P.O. solution empowers small businesses to offer competitive benefit packages on par with Fortune 500 companies, supporting their efforts to attract and retain talent in a tight labor market. October enrollment for our at-risk Florida MPP plan came in largely as expected, and early indications for January enrollment gives us confidence in finishing the year with solid revenue growth in the P.O., Regarding the labor market, our clients workforce levels remain relatively stable with flat same-store employment growth this quarter. Our small business employment watch index, while down from last year, has remained relatively stable throughout 2025 and our other indicators show no signs of a recession at this time. Small businesses continue to face challenges sourcing qualified talent in competitive labor markets, areas where we believe our solution is are uniquely positioned to add value. They are also looking for ways to manage cost. We remain confident in our value proposition and demand for our HR technology and advisory solutions continues to be in line with our expectations. We are halfway through the year and pleased with the progress we've made today. As we look at where we are today in the middle of our busy selling season, We have seen some trends that impact a few key metrics. Bob will provide more color about how we are thinking about those in context of the balance of the year. Given the increased focus on AI, this morning we published a presentation outlining why we believe paychecks is well positioned to succeed in this AI era, why we see ourselves as less exposed to AI employment risk, and how we are capitalizing on AI-driven opportunities. I encourage you to review it, but I'll share a few highlights. Starting with AI-related employee risk, we believe our portfolio is less exposed due to our client base and our business model. Over 70% of our clients' employees work in blue and gray color industries that are harder to displace, and the majority work at smaller businesses. where staff often wear multiple hats and AI investment tends to be lower. If AI disrupts large firms disproportionately, talent may shift to smaller businesses benefiting our clients. Meanwhile, our clients continue to face talent shortages and AI can help improve efficiencies to address those gaps. From a business model perspective, our revenue model has a significant fixed base fee component and has for years. providing downside protection against employment fluctuations. We also differentiate from tech-only providers by combining advanced technology with HR experts who provide strategic guidance and nuanced advice, which is difficult for our competitors and AI to replicate. In terms of our differentiation, AI success hinges on data quality and data scale. With one of the largest proprietary data sets in the industry, we believe we have a powerful competitive advantage to drive superior AI performance. In December, we proudly announced our patent pending AI powered knowledge mesh system, which transforms unstructured data such as phone calls and emails into a connected searchable network. This innovation unlocks deep insights and enables smarter workforce management positioning us at the forefront of AI-driven solutions. Paychex has a strong track record of delivering pragmatic AI solutions focused on measurable outcomes, such as time saved and friction removed from everyday processes. We are accelerating AI innovations that enhance efficiency and improve client outcomes while fueling our growth. We recently launched our GenAI-powered employment law and compliance platform that helps clients and paycheck HR experts efficiently navigate thousands of constantly changing federal, state, and local laws, generating compliant documents, and it stays current with the regulations. Since its deployment, we have seen strong adoption and frequent utilization by our HR experts. This advancement is key to our strategy to have the leading expert embedded technology platforms for businesses of all sizes, and we will be integrating across our three platforms, SurePayroll, Paychex Flex, and PayCore. We are proud that both Paychex Flex and PayCore platforms were recognized as leaders in Nelson Hall's 2025 HCM Technology and Gen AI evaluation. This distinction highlights our strength in delivering intelligent HCM solutions that enhance client outcomes streamline HR processes, and supports our partners. We are excited to share that our first Agenic AI pilots were a success this quarter. They autonomously handled thousands of payroll calls and emails with nearly 100% accuracy, decreasing payroll processing time and enabling our service teams to focus on higher value strategic advisory support. We are continuing to invest in these capabilities and are actively exploring additional applications across the business. In sales, we are leveraging a new Gen-I platform to drive revenue growth and improve efficiency by equipping our sales teams with instant answers, tailored scripts, objection handling, and prospecting insights. These AI-driven advancements reinforce our commitment to being the digitally-driven HR leader by reinventing the HCM experience as AI first. By leveraging our unique blend of innovative HCM technology, our unrivaled data, and the deep HR expertise, we believe Paychex is well positioned to capitalize on the evolving AI landscape to drive growth, expand margins, and strengthen our leadership in HCM. I will now turn the call over to Bob to discuss our financial performance and outlook. Thank you, John.