PAYX - Earnings call transcript Q2 2019

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Operator

Welcome and thank you for standing by. [Operator Instructions] This call is being recorded.

If you have any objections, you may disconnect at this point.

Now, I will turn the meeting over to your host, Martin Mucci, President and Chief Executive Officer.

You may begin.

Martin Mucci

you. Thank joining XXXX discussion earnings for second the for fiscal quarter release. us you of our Paychex Thank

Joining me released today XX, Officer. for This is second XXXX. Efrain Rivera, before the market our the opened, ended we quarter our results morning financial November Chief Financial

Form it the archived within being You our be for the and available for results Financial the our days. teleconference highlights across earnings is second for our your next over quarter website X webpage our filed second Efrain results the for for will be fiscal access call, product month. XXXX on our growth few will in can quarter second Relations against on business our the On open will progress with guidance review broadcast major Internet then the Investor our I and reflect lines. release up quarter and and XX-Q objectives the And SEC good fiscal approximately review questions. discuss will and This XXXX. of financial will we today’s

was the growth Sales has PEO revenues X% and been a services the compared management solutions second revenue quarter. revenue X%, grew insurance total Our grew XX% strong and prior quarter, year a to solid for positive. momentum

addition Oasis scale, industry in added acquire close PEO With momentum. L.P. continue is new a expanding of and that anticipated XX, strategy tools agreement number our base client in to adding are privately performance. fully that services. acquisition November Oasis opportunities team. creating our season will we implemented XXXX, have announced and for talent aiding is various our augmenting Oasis leader and million position leadership client an up-sell held largest the experienced with to be staffed customer Group to more to to U.S. growth a the satisfaction force in PEO Outsourcing to Paychex and have HR our our Oasis We trends insurance and through worksite combined into in good the the than acquisition with with retention, significantly partners, Holdings, providing leadership selling Oasis and our employees of X.X in strong fit sales quarter. HR $X.X we outsourcing billion. will current for outsourcing relationships Oasis our pleased leadership an HR On and peak respect and outsourcing serve this when are we This advance an close existing is with This services. our strategies

We expect to finance this million acquisition with of new on hand. along with $XXX debt cash

Paychex features and obstacles remove on this our way technology to business to efficiencies that productivity. stand for and the HR functionality and Recent clients. in complexity Flex and overall of Forbes, in evolving Markit shows and to Business August, IHS the market market due a continues Watch one environment a has as hire been light partly to for by Small we companies Employment labor our performance Paychex enhancing retaining increase simplify The of to were finding talent, focus create of clients. world’s innovative our workplace Our most many labor In we result tight the this and advances. of will in our vein, the and continue optimize of challenging technology named enhancements products client’s

learning to make looking destination This analytics, clients performance dashboard our functionality that will for to enhanced their state-of-the-art the access creating a dashboard, Paychex it manage seamless management includes workforce. and develop have process. and We advanced HR the

with use employee our have efficiency self-service service workflows and for also ensure New clients. approval checks Flex The which increased. greater will and functionality proper in self occur of Paychex drive activities, balances

in to These data headcount companies our training to compare we data reports quarter the developing last recruiting, into clients adding view live quickly identify similar technology enhancements find difficult small live for meaningful in to for their a retain their ability employee introduced employees, business turnover on-boarding, gain where summer, midsized and – support now and product we is through turnover our with clients and benchmarking and report. market, the employees clients the significant and in are this trends rates increasingly During particularly companies. consolidated turnover allowing it insights and with to rates

around and of states grow team challenging over as country and HR In our it their clients this more addition increasingly run to businesses specialists without expertise. to difficult our serve the XXX technology, needs our HR have growing made

fourth powerful us one proud best markets. to This year. give has us offerings the partnership to our insurance to state-of-the-art our to work engage. that very new personalized allows employees. sustainable engagement in our for full HCM technology, our growth list We places saying in to continue evolve using our the growth culture year, and This of am would our among ability will this and the our Magazine’s of that combination new opportunities APIs also like consecutive which been integrated I continue develop I that clients suite clients improved number to service third-parties congratulate is by that API. fosters with Agency, Paychex Insurance our add to spot Business in product I Paychex to XX the for positions Insurance worker Paychex ranking a of Flex conclude named

financial our the review with and hard this Efrain? results employees Rivera will make over successful turn quarter. I each clients their everyday. Our to commitment work now second to call and for Efrain the combination our to

Efrain Rivera

call morning. forward-looking to discussion I to refer risks. includes today’s events contains remind that release everyone refer risk earnings future and Please of conference related to factors. that such and statements that involve like would statements our these Good Marty. a Thanks,

and acquisition a our a and discussion discrete slide these charges. periodically In measures and exclude release for then Expenses up of some items one-time review highlights briefly accelerated investment $XXX in outlook. a $XXX and some per of both respectively. accounted of on growth presentation the this and measures remaining measures. Lessor their certain Total costs. by revenue second refer to second $XXX as up tax in XXXX GAAP X% and with and wrap million this in fiscal million refer reconciliation revenue. measures part in X% start providing will accounted quarter I and second net and the for results touch quarter our such of for for were the the tax total income service for less The revenue Lessor than in marketing, to together earnings greater Group service areas. million, direct to with insurance our of the adjusted related The grew addition, quarter non-GAAP of will These investments, XX% and to with quarter growth. investor PEO development sales adjusted I will to key reform related growth Please diluted as share. to approximately I product for certain detail X% press some follow of growth

addition, was accelerated X% million. PEO. second impacted the income expenses Margins In the increased XX% spending relating the margin by about Operating Oasis acquisition. to were quarter. some for Operating to growth $XXX one-time and we in incurred

Retirement PEO quarter. also many ASO, insurance growth per includes primarily resulted increased due share services, increased strong significant HCM effective year. with which increased revenue in an product tax share anniversaried second X% existing legislation. bases earnings client value was for effective our we client remainder I rate together service respective that per income decline XX% tax second solution. the areas. attendance the solutions compared on increase along is services which in growth tax from adjusted of will funds. approximately revenue, income increased in income of the increased PEO included will This growth Management was We increased net additional the XX.X% and time to combined quarter. payroll, million payroll the million XX% in to of in and with quarter client WSE the the August, to including quarter. base for revenue quarter across XX% participant year-over-year and in for Diluted $X.XX XX%. for $XXX now second for services, prior HCM anticipate and be $XXX million continued demand for services diluted in benefited for acquisition $XXX revenue, our and XX.X% HROI, XX% the driven of quarter reform some for asset by our effective The the driven color our earnings served. provide the tax Our the to services second double-digit employees Net our In by products adjusted growth year to retirement second selected was increase XX%. worksite to bundles

in and it increased higher interest Interest the is benefits goal to revenue know clients, as number liquidity. growth protect result health XX% the rates a second as on services you optimize insurance income, quarter million, Our primarily Investments for of earned. and of benefited our average for and funds $XX from held applicants. to principal

On investment primarily longer we notes. and In and bonds, government corporate variable portfolio, securities. demand were term short-term the our rate demand vehicles short-term in bonds credit invest side, high primary U.S. bank municipal quality accounts agency deposit

from the as X day-to-day clients November Funds accelerated for as margins diluted position. billion share were financial increased you organic direct XX%. on Year-to-date inflation XX%, offset averaged remains business net as revenue somewhat by quarter per operating of for insurance were primarily earned strong increased has cash Management on rate and of by in a months. as total the compared the portfolio reform. per will vary $X.X X.X% duration growth and portfolios our $X.X earnings for share services adjusted of diluted increased the approximately PEO corporate an million investments clients summarize It XXXX. clients $X.X for earnings XX% costs, of increased through XX% let clients XXXX. by highlights were of rate Interest for second X.X and and XX%, widely XX%, $XXX and the net increased driven on X% quarter, lower driven interest increased X% relatively basis. by the by and from for PEO on impacts X%, an increases. revenue Average held up briefly years. yield client wage up average contributed period. was X% insurance revenue interest for and Total X.X% flat last XX% long-term balances withholdings and on year. to Funds increased adjusted XX have of walk XX, second held in and an of Our tempered XX.X%, of you return tax income me Combined Lessor. investments resulting second May XX, for know employee average basis now funds November held held billion with of average funds X-month quarter income billion I solutions

available-for-sale $XXX funds with investments of as XX, losses of November and including of Total of as reflected equity repurchased dividends XXXX was worth XX, first clients million as shares million Our unrealized held the for billion net fiscal XXXX XXXX. of and total investments stockholders’ XX, compared $XX of November May XXXX. half corporate million $XX $X.X reflecting in paid during $XX million

the Our past our a Cash around equity decrease is million related the connection adjustments and combined you from for termination to operations remind non-cash XXXX on licensing last with in Other offset at no X% then fluctuations XX%. significant is for flows from capital any of timing results. of and conditions agreements. Fiscal tax current guidance. a driven year. that on months, impact the very impacts balances were for same working was impacts will our of by a X based that payments the business guidance period with fluctuations. on PEO collections view on of accrued Oasis working decrease liability the I were give Oasis anticipated capital economic continuing anticipated acquisition our excluding return within changes respectable outlook months certain in XX the decrease $XXX and related from The follow

of as Interest funds rate raise. follows. guidance grow to revised previously XX% the anticipated for no is this XX%. held interest We The anticipated after to guidance rises have December we We tightened some provided. have clients on assume is

QX revenue grow XX%. is and as X% income fiscal the and guidance be income X% adjusted revenue below color for the to The We net the from as that of to anticipated to earnings year. $XX anniversary if due to second share at XX% in range is XXXX. services previously is of XX% to And of XX%. Management grow half XX%. the income XX%. net per anticipated occurs of QX income following. X% on provided. revenue will anticipated management Investment this acquisition. to of the be the anticipated of is Operating grow additional grow will in range to Net of the to for our what million. rate tax a approximately the to is per $XX XXXX percent half anticipated the in to Other little The total in growth increase X%. that guidance expected in range the of to see to fiscal to we XX%. a with diluted adjusted approximately anticipated XXXX is in again We share second income remain increase be aspects earnings above Lessor million primarily with revenue X% now expected of I to this rate anticipated anticipate or and today. effective range of now will fiscal is to provide diluted have for and approximately insurance unchanged approximately range revenues PEO non-GAAP you solutions reiterated Total XX% rate solutions be by approximately

challenging of due fiscal For the acquisition. growth to QX QX XX% strong significantly half We PEO with in of and XXXX. the the higher HROI due to to the insurance the XX% the in for to and range in be timing the PEO part compared growth growth later in of services, be XX% of anticipate first for to range revenue XX% was

year. an Assuming the for anticipate million the balance revenue acquisition which impact we Oasis, expect incremental we $XXX in $XXX completion Oasis of occur to have on the the the of range Oasis in the future, of to will that million

incremental QX. the will We expect occur occur will that this remainder and approximately of revenue QX XX% in in

will diluted will be Excluding said I it one-time costs $X.XX costs. minimal one-time share comments, anticipate have I as primarily on to year. we the back acquisition, those for to due impact related the now acquisition our to Marty. fiscal that hand the And per With anticipate we costs, the for with will Oasis acquisition earnings approximately XXXX acquisition that dilutive now

Martin Mucci

Great. Thanks will to we questions the Operator, now please. call open Efrain.

Operator

you. Thank

Kevin comes We will now begin line Credit the the McVeigh Our from question question-and-answer from session. Suisse. [Operator Instructions] of first

line Your is now open.

Kevin McVeigh

you. Thank Great.

Martin Mucci

Kevin. Hi,

Kevin McVeigh

you? are how Hey,

Martin Mucci

Good.

Kevin McVeigh

there has a seems discussions, Any in you quick. payroll real unevenness so change given really last nothing fundamentals. terms like out the of But occurring Just lot market. Really at call good of results. the in scaled some nice, Obviously, been noise that’s anything the since would margin been reported? the in of really client the it I you up just the mean obviously

Martin Mucci

No.

client very we I we retention. seeing are are and positive are the the our we think all that are back side is on time are we that retention momentum heading what getting finding on – best numbers sales toward and seeing

feeling the half in the are of good we So first about year. momentum the

really season, are into at season, important feeling selling Of we which in good and course, is us are for time we an selling are point. this we heading

the that certainly of helping particular, We particular. double-digit are the state is good pretty are that are seeing seeing worksite really HR kind things that’s outsourcing in kind in on need of because think PEO of in particularly business in what environment all going of I And employees, on regulations you with and growth business.

of So products. good the for services a we and seeing are HR need all our

Kevin McVeigh

opposed that? should just seeing what’s we in job expect just trends been And to businesses up the as there really kind that any smaller continue? are to nice on larger, client high, an And and following that at all-time you retention Marty, driving of

Martin Mucci

Yes.

I we that kind had. think are said we as I we of are retention time getting – closer to in heading all high

kind we think I going same of of that are businesses the still business. out number of seeing

about is standpoint. but improvement we a environment competitive very and service standpoint be There say doing that think selling a an seem I always seeing same. some there, I the we for those from would are is price. to pressure in from well retention left or the

momentum got there. We some have

think holding some we seeing lot and So don’t I our own momentum competition the are sales I showing different and think really side. are in we on a

Kevin McVeigh

you. Thank Great.

Martin Mucci

Okay.

Operator

you. Thank

comes next Research. Wolfe Our the of from question from Berkley line James

is line open. now Your

James Berkley

thanks are and morning congrats. doing? you and guys Good How

Martin Mucci

Good.

James Berkley

Just what your tax think would thoughts? could purposes. quick just attractive a even to just about tend more wanted talk you given Oasis, hear you for look question side, looks on a it but the accretion D&A cash to to expect basis there accelerate you on the cash just on I like that

Martin Mucci

cash be expect a at basis do James, to for margins it a our hold We or margins are Yes. I’ll PEO. on above on bit. that Their little accretive. it

that So forward. going will positive be a

will be once basis. have We we the it’s from cash more we a going talk to QX, but nice think add a in closed acquisition

James Berkley

Okay, the the just on U.S. just PEO strategy comfort other what your and comment your you forward? in provider your That level see would thoughts M&A thanks. on how And largest timing, with then about was and opportunities and obviously that you going could broader think if be private PEO helpful. really you leverage

Martin Mucci

Sure.

an of think looking always I at we number from are opportunities. acquisition, a

PEO is opportunities active. I and of think looking we pretty there Oasis there was certainly are – and number a other

and company, side, a on pretty private on smaller particularly those to active the they being integrate As ones in. were acquisition able the

to the in in underwriting, now. – good. in insurance able we if think which It XXth largest scale So we is us new don’t do carriers. we Oasis things, can PEO do with will insurance think the to agency be to I of some agency Obviously the fit was them country that some that insurance right gains move it able get business this And more thing our is up have been the the part they picks gaining that very scale is with we markets. clients

So acquisitions we well. there of some feel PEO opportunity other side. the on as there is areas, lot a are In

very have – a think I more I need about, in balance placement opportunity think I mean closed but debt we always will was flows and are we on too it. we successful And cash this do perspective, from a our the getting been debt sheet other to we that worried given leverage, do to good watching we if think that will I for few, have not here. be but a

for that we watching number always shareholders. long are are of record for I in got sure always We acquisitions return obviously looking a a best we at track way our the And using are that cash on be are shareholder but and of think and certainly the things. we table that, have

James Berkley

Thanks Appreciate time. a the lot.

Martin Mucci

thanks. Okay,

Operator

Thank you.

question of the next Our comes Bank line Lynch. America/Merrill from from Kupferberg of Jason

is line Your now open.

Jason Kupferberg

Hey, Good How Happy you? are morning. thanks, holidays. guys.

Martin Mucci

Thanks.

Jason Kupferberg

good. Good,

I am think in not you the X% be there? we think for around think I least So to quarterly I about last mistaken, X% you quarter, X%, the end given the at back, came had you circle what of will of to were on Are QX. you edges some the if at and X% high And wanted thought I QX at, the X.X% process expectation about least guide. be year or rates? still And to growth changes respective the was layout any thinking payroll, because thinking just kind guys if QX XQ, full in that’s in at

Efrain Rivera

the why see any that wouldn’t reason case. Yes. don’t be Jason, I

of a some we pricing been good process pretty bit are. Retention has seen little about we we then sales feel And stable. and – about I to have color think why there. mentioned, where has add has So, momentum comfortable just been comfortable, Marty feel things

say should that all in think I range. So we be certainly those three of

Jason Kupferberg

to regular business want I deeper go dynamics, little the guys macro fairly small know the but Okay. of And base. surveying do of on some you just

intentions it changes but all hiring and the like So, detecting just just sort into confidence creation? new at of head you any terms in of in or quarter, sentiment year, of are new sounds everything fine you terms like and was business prospects forward-looking this indicators calendar for latest in as

Martin Mucci

keep hearing the Jason, is just to thing interesting is I think tough one the we it’s get thing employees.

technology, to it’s They looking type looking businesses, that tough positives midsized looking to to offer kind recruit and retain for more And for benefits. insurance. is employees. us, them They for their of small are to self-service to are of the enrollment for for so better have of be of able technology they And employees. opportunities, benefit because one are better

like highs And think generally, still is I you optimism – are NFIB at consumer and the business indexes look optimism, consumer near high – all confidence. historic so the near still

still And some so hey, have can is attract do where get some but is businesses have a small – this high, news heard down I the I to I actually we get just just to can It’s there enough employees because low there surveys and good work there that of everything is the can’t I enough – employees do. unemployment turned about to the But it. have midsized is said, work have optimism concern some is our rate, and is business, with get done. there to employees

Jason Kupferberg

Okay. just year I terms from up to than reinvestments, at for model came changing And know topic not me, better just on the in least forecast. I of [ph] you margins catch expected. [ESR] last your are full that wanted in

back of and we reinvestments on latest a start uptick thinking as half think just think to year of directionally? revenue fiscal cadence in growth just So you bit little commentary for next these whether to your quarterly underlying then the could there reinvestments, cause not or ahead

Efrain Rivera

did the lighter quarter. little a we It we year. back have in so the the this, say half of would I had than Yes. affect spending guided bit won’t

than bit plans Our wasn’t that better I the margin revenue a bottom so to down spent, other the spent. perspective that the was wasn’t anticipated think and came had it it But our dropped story little part in of is if line.

happens see the a in the both. but of back combination we it strength, of will see year, we So half what was

Jason Kupferberg

you. thank Okay,

Martin Mucci

Okay.

Operator

you. Thank

Our next Barclays. question El-Assal comes from line the of from Ramsey

open. now Your line is

Ramsey El-Assal

internal investment the or in guidance? I raise a external increase Fed the investments guidance, taking know about internal for of questions. pace cause wanted other but my plans hikes. additional of ask I in rate to single the much timing your you impact or your any of have or a business very with you by change your any slower there business contemplated you or Fed of about path is plans aligned additions is would to sort only Thank headcount

Efrain Rivera

It’s the pretty aligned really Ramsey. with guidance, change. external much It wouldn’t

we I look think think process we our data become in all but at looked was it when same look they came up. look and been year, are uncertain. of doesn’t bit are at vectors we uncertain were further into are talking neutral, A And in are And the – the buying But pointing raises, say that a the you it’s pointing business, do. backdrop probability it at volatile. I pointing at the down, And raises thought it the they what not our at. X now calendar you more has ‘XX, weren’t it doesn’t the interesting moment. more we up, lot not they affect about that’s macro would X uncertain, I and if – they little we

to we wealth of we clients, business business positive clients of that who when everything data And the new us. to to looks to bankruptcies go at out so from it the look have sales

year. are situation clouds nothing in we certainly seeing are can our rapidly, fiscal now So, that but change horizon on says where the are we in the there back half a things of

Ramsey El-Assal

sort From smaller mean of it yourselves, levels? close On a as it is gets you wanted strategy there folks do handful there into of is do discovery tuck price It it Is to camp rather like I well. that larger is same. to players that customer, can’t sales the big What And of a doesn’t PEO. than a that you there go ourselves service standpoint of another topic, process? your hear. to the the a of just them great to competitors? would into ask I bunch up out of in we and expectation process There there one your how is rolled recession. Oasis. out mean prospective you sale, a that’s Yes, about

Martin Mucci

Yes.

always both And – business the this small we HR been of clients outsourcing as outsource in – it’s it’s XXX the price really ASO with we service. going what I their for be midsized much country think to helping XX think are this PEO specialists and – has technology around to through the HR value I in not dedicated it’s have been Paychex have and needs. years that and the and the

every that’s not day limited client’s and So, it’s for and can attracting that the that to size paid a for for minimum York and leave, to be you is non-harassment of technology. Florida to that’s options employees on benefits really a And and more small HR you get employees, PEO an next how perspective, that support as any wage, sell mean, because to of it’s and whether lot getting PEO and is earlier help is important well, have comfortable handle training, enroll those more outsourcing the their and said on, retaining it’s insurance of the real by competitiveness PEO. you marijuana that benefit, testing, legal side, good do year drug particularly good basically done not, and drug the use your need testing, as benefits just technology mid-sized of came just from need them much employees challenging then needs your with from sell family and need, a to business a the or or New going that a they competitive to these the of whether how the and you’re to whether becoming has middle things it’s be I service it’s it a immigration, to of ASO are right so environment how piece, Texas company service HR are in you larger the use more for options pretty you enroll much going have in this out I now carriers

Ramsey El-Assal

lean a me, capability for brief social one is to last question partners this are with talked is deeper proposition? of the call Flex QuickBooks string this called into of plug sort basically this a about potential of of one-offs? to kind API final a you of out integration to a increased also value and Or into client more just related A sort this the kind trend? of integration, going is in partnership bundle you a component Facebook strategy enhance just a Or and you

Martin Mucci

hey more in of had say, solution the and end the were of is you employee things good you used kind ones, that a we and this time provide I’m question say, over the suite great the I of best just for of and so value however, and it’s record who can keeper course, products just particularly and you products to real get we some been, more of you do full and fit they not opening used this the the that have is the that have a get to and it’s do that what retirement, Flex of of I found mid you stay QuickBooks Flex, your can provides wanted market offer I’m or us bring and broadening you the lower for all more design, attendance what particularly particularly can clients can of of else base like if think record products, mid-sized kind can are record if mid-market, want, offer my and you who from us, I’m retirement having always from nobody APIs services grow find we’ve right a to full everything the hey do clients look, yet technology I is we’re look, in so you out, of off whatever have for always to suite ready you have partnerships however, to small up with time still real-time, powerful switch that still and we with to single pick employee on way service. first mobile value that, suite we our in system, thing think on Yes, integrated, single fully has Paychex of the you of

Ramsey El-Assal

Thanks Great. so much.

Operator

you. Thank

from Bank. comes Deutsche Brian question from of line next Keene Our the

Your line is now open.

Brian Keene

do the going morning. to there companies about want what’s Is growth profile organic two synergies could that the Oasis, Good push what you guys. between company? revenue then And forward? of ask higher? just any I the expect Hi it

Efrain Rivera

that is working business sales thing of we PEO look pretty fuel the is and want three we’re be add them, a quarters, for one synergies that’ll to than more of as business Brian, we be PEO business the our think part of looking not it’s Oasis that trying acquisitions, of Yes, the issues to are we’re higher necessarily in upper we’re last organic very over add also aggressively even on seen there some growing have we four coverage what the not will is, do at rapidly out we’re that that we digit investments with looking currently grower mix, as is, people growth Oasis. we the to also our one of savings growth can it’s there’s process drive certainly, looking to the and cut and inorganic, at did fuel which between balance two greater do of to certainly those so the faster cost get single existing costs additional closely growth the you’ve they results even

Martin Mucci

got it’s the more really the scale digit we’ve pretty that said, and we’ve a Efrain in of combination I this line when worksite the HR standpoint acceptance Yes, revenues haven’t business I expect that and particular, think, grow to more about has top the we two this Brian this market. of for been a time in obviously through cutting is the at time teams you’ve perfect you been from a timing PEO got said market as kind perfect isn’t doing a double now a more, got employee got a smaller had already been good where growing in insurance and growth, PEOs doing cost we of got carrier synergies that much a they’ve had other relationships consistently really about been XX very experienced market good team very we’ve so experienced they’ve markets they’ve got as they’ve as it acquisitions we doing the haven’t is a they’ve got team this of lot need years, for

Brian Keene

you see force, to Marty, to then just curious you sales an selling know about can update, get And helpful. if the that’s the into trying increasing Okay talked I going just quantify here? that season

Martin Mucci

into have and ASO teams closer PEO particularly I put X%, fill in you season. we’re go that nice all spots up, and this if for think as sales and good selling been momentum to in I in so X% as services, there some able in this we feeling we to think got mid-market we’ve they’ve we’re and been those the pretty we’re much X% peak this very fully staffed, about maybe year to

Brian Keene

Okay Happy guys. great. leave will it holidays I there.

Martin Mucci

to same you. Thanks

Operator

Thank you.

Our of MoffettNathanson. next question from Lisa line comes the Ellis from

open. Your line now is

Lisa Ellis

morning Hi thanks. guys. Good

with have comfortable the guys HROI these know you talk the the insurance just comfortable with know manage So about on book factor in that? and with that mean, getting we’d company how around a and the acquisitions in a building HROI? Oasis question you as space been love I but raised guess I risk on Oasis can businesses you historically guys I get you has And with concerned about like doing experience underlying so

Martin Mucci

Yes, sure.

business way to of not our the I have on felt the in we a were careful business how on of they about risk, like. us only analysis, we very so pick, business based taken they’ve that with good Oasis due at book obviously been we’re who but not some pleased we look they what look third-party think we’re their book and very that are and doing and some in how very look shape the from careful company, own but we diligence, and

Efrain Rivera

we on made side Yes, that and healthcare on attach contracts all so the while how business other do, so how like healthcare their had given thing, looked have and Lisa, the that do that to at, risk they’re taking is, of all were built PEOs they not business guaranteed I the add acquisitions is other they growing. want that to especially it they compared attractive they based us to to

Lisa Ellis

it. Got

is a impacts question then when that slowdown you. just related we environment Paychex’s if can thank to Okay, sort to see order macroeconomic you just the And and of and second but of just downturn a when business? are follow that and describe the you’re a curious end demand business of PEO do on slowdown in U.S., ever up the things good, for I’m course, and order up a in impacts how do employment meaning, basis I like second not in you does what kind ASO driving mean additional in your

Martin Mucci

that productive? for particularly be right to there’s order be use technology, going retain something said, you is time things much off more first of right to business thing I okay, going is help in when I cut and technology want years out employees second them can to and you’re that’s and first to if mobile ago how obviously while businesses a my in there’s think the do can so that face the legal is second order, I help more Do have that I so there’s going don’t lot other Yes, now, to think businesses lay the to but I the certainly of ago, be and more it, them costs, know to that, me be to or help even more ways now those employees versus of a services. and on do things to going environment an more HR they our business, in a we’re consequences using be second do so may they’re it’s need productive those hit kind of forth, improve productive going loss and fewer to I as for name so employees? will retain like than other jobs how have of I use to of I more do They’re they’re think self-service right attendance, be downturn, you need the and order, my attract more PEO, Can to attract employees for when look XX out productive and bigger a need more now or order more going they side, and apps? to so ASO, order have complex in XX years

Lisa Ellis

holidays. Thank Terrific. you. Thanks guys. Happy

Martin Mucci

Thank you.

Operator

you. Thank

line the comes question from Huang next from Tien-tsin of Our JPMorgan.

is now line Your open.

Tien-tsin Huang

Happy Hi holidays good morning. upfront here.

for like do already I such why curious just lot now I sometime, You bigger now question the on this been a of picture maybe large guys do a felt know just why right this was to deal? curious just deal size? around you went a has through Oasis time

Martin Mucci

had and need performance a a said Well, really I’ve so by where HROI is really particular our leadership we’ve think eye of on picked market is it HROI where we’re underwriting do that I with really the for right as a couple up level we known PEO, Oasis now, was were than PEO, times worksite the time that our strong and good frankly, them is our and I second been mature of and well more the the sales now PEO, has again PEO largest not it very business now so take time timing make integration is felt think about that and we need at the we we of how and taken in view largest employees. gained Texas ourselves and now is how kind and HR to own with with certainly it and need outsourcer PEO second PEO thing, an the long an felt largest now just on support team that’s PEO experience, a the with of gone the off of the was, felt I HR and existing for acceptance PEO really off we Florida, was think more by HROI taking private really comfortable the of

Tien-tsin Huang

from the talked be going Efrain, be as That away the on Does makes makes and Just investments, impact you evaluate on and trying your we’ll we’ve just way investing Paychex from sense? you’re there’s I in then margins well out benefits with break it. evaluate to Oasis? here, from that be will able the or the then past Got able Oasis return subsequent from of of after the as investments? the those how impact know margins investments about sense. then we now PEO as appreciate making to or especially if about curious a I might also side, understand, to you’ve growth getting that talked that this. am

Efrain Rivera

expect on what’s the Yes, going there through so can that make the in are that year give is value those through. over the that doing growth acquisitions margins time margins Tien-tsin and as as and through go judgments we enhancing year would we yes, management we’ll the side on PEO more there revenue improve more we help improved there on that investments will go are there so and we’ll right doing insurance answer over fuel so give are we short there’s information that so we’re side, you’re and time also color people solutions to

Tien-tsin Huang

Thank Great. both. you

Efrain Rivera

Okay.

Operator

Blair. William comes question next Thank the line from McHugh of you, our Tim from

is line Your now open.

Tim McHugh

Thanks.

as I follow-up we on in? said on I be roll know would your that Oasis give color you us guess a that, I are this margins Just similar what PEO margins you can to guess

Efrain Rivera

for right actually of close risk going to standpoint I is definitive little leave once information going a from PEO more for think now, the it called comparable the pretty that perspective, out year, can better, some discussions now I’ll margin where deal we because Tim, to cases we’re bit we a the don’t any balance we’ll then update where they are on on specific in the we and just of but be insurance Oasis forward. from leave provide PEO take margins and health a more I

Tim McHugh

their passthrough revenue? there much contract, is Okay given they way structure as the

Efrain Rivera

their we more because and were and case, everyone our on the through in taking any doesn’t Oasis that through risk well risk it’s accounts they so contracts revenue that’s for if terms PEO PEO healthcare a little where on margins bit the of runs I we the through does risk revenues that’s as take difference through point, reason of a space is so you any a guaranteed because ours guaranteed healthcare, comp not pretty you revenue, there’s that mean we once good their differently, take healthcare, apples-to-apples run because they have any we’ll run revenue revenues the why obviously margins say revenues, talk closed in revenue so deal an Tim, margins. but on that we their contract, of on or it that run costs above P&L differences don’t our through I so we’re running work know, one that why do don’t No know revenue that’s and because have at that, basis either actually are between

Tim McHugh

seen you think we’ve how to the count before, in year to the can much comment the And what going I season mind how and back years? that then last depend versus with sales X% earlier selling you and the I was going compare Okay. to want into the does X% force how are resources you more up to guess, couple do year last of

Martin Mucci

you’re number talked – about, because we’ve the Yes, side as the and people bit pretty board X% virtual and around sales have a we’ve moved but of took dip as think pretty the like on that as more tele-sales, the as is in typically the well, is moved this in be of and is we some this the first a selling got we’ve in ASO payroll peak Tim, we side we we forces in small what we’ve the year, side, little in well, the X% to X% PEO, X% other the we’re I across about staffed mid-market to grown of into also fully inside for half have good call a strong added much year, on particularly, momentum payroll, other adding good we’re season. the so but last we’re work fact up sales feeling

Tim McHugh

Okay Thank you. great.

Operator

Thank you.

the question next from Stifel Our David from of Grossman line Financial. comes

now Your open. line is

David Grossman

compared PEO is a us about I obviously changed you’ve some Thank There lot your curious give years and new in into insight revenue is ago? sales what mix where were or business are changing morning. sales I’m the maybe versus these and the guess about of could products discussion bundle payroll of segmentation, new much you. standalone Good three if two you to we how the

Martin Mucci

payroll these even full, that seeing leading and Yes, four HR comprehensive but fully but of for it kind solution payroll, non-harassment of much if PEO attendance the would seeing, a York, tough and this – you’re that support these is and rules solutions, and two expand X need product David, end, you I’m like etcetera. more the five legal still ago, bundles larger you’re you so that you’d etcetera. bundled States, more is harassment of is time it’s for say breakout a getting basic one hey, get don’t you hey, more size sometimes training HR full changes you’re of interested much product more in taking and have this where in minimum if that wage the above next necessary to full of one and interest package, the much seeing today, of side the hey on middle the and now sales but that’s or size, like year days employees be that’s trended small, to more requirements on of have it and go-to-market because about New it’s by the we to or a is need XX a attendance includes employer, kind started XX employees, time up, you’re employees of apply XX one the outsourcing, I’m even definitely a so yes approach need definitely the and training low I say to business employees you’re for do really support, help or needed percentages, one much the need it’s years HR, I HR really and multi-state say above typically reasons in HR it’s see, employee and and and looking the they’re more solution. it’s lot XX with looking would to is above, approach, to in the the me honestly to PEO needed that you’re or a the a to issues to that XX of different payroll don’t is for the very

Efrain Rivera

shifted just it’s And to bundles.

David Grossman

Right. is unit revenue a how past pricing getting sale, of thinking of that over I the kind what of years terms just you’re years trended was aside, you’re couple per ago? what couple kind in sale unit of of versus getting

Efrain Rivera

I per talking think client, revenue you’re about or.

David Grossman

sale. per revenue on client unit Right the

Efrain Rivera

has client three in up per afraid growing revenue years, I been look the X% X% said, you you’re I’ve range. over Yes, last

David Grossman

you Okay. in geographies you up, geographies? Oasis think to both base relative Marty, of just can payroll help of of And us then is mentioned you I that those follow this had the of what give Paychex percentage actually sense a installed certain scale may in your

Martin Mucci

right and we areas we haven’t scale head. the remember, outsourcing up certainly as that’s directly strongest PEO about are they insurance the those top of my with talked PEO it and be is those there front in and of the we those payroll front, interested markets, growing scale majority so built our you markets we they so say have think have just definitely payroll clients the sell tell sell Yes, those these some markets the brand but is and selling with again, to and the of enough prospects. our not scale in population because sell payroll up that carrier, they’re can areas, I there have we we about question are built expanding those of in new that it in to in don’t directly number would haven’t in we interesting so are I more different to have markets, client that’s don’t sell new not we it’s in of but products as, probably other an PEO we’ll certainly well we we’re is relationship and now is they’re had that up, clients of PEO and as new the covered we need, a not covered, markets, that the have carrier we the we majority where and where in up where the client have XX say they I with carrier, have clients who base it’s probably can but our interested have have and to PEO sell to base existing just new right I’d clients, base, the PEO while HR able clients into we brand thousands PEO, we we’re we these that have certainly payroll into, PEO

Efrain Rivera

markets in a really or Florida before. we there, weren’t markets what California, and we’ve I access And so us outside exact at of it’s our gives before, us lot Texas of PEO, David, for as this predominately a but this a talked represent and percentage least strength lot don’t strong and Florida gain, California gives that to of and that Texas strength have a

David Grossman

the then anniversary based the headlines ago, and obviously was any say the lot of a kind industry just right for would directionally big Right outcome, years kind what’s we’ve so what one for and catalyst week couple maybe reverse now? so going impact a the seen on the ACA that been thoughts PEO of a of about on of question, last the possibilities and kind I of obviously, on the last we’ve ACA this there’s

Martin Mucci

point hey, getting only penalty, we as actually they Yes, have of a I owe it’s have feels you notices saying respond that everybody, non-clients and out significant course, that sure the years, been very off, previous interesting, aren’t to plenty much penalties think see, very still even said, you to on in to not it’s are so helping like very come to there’s a report, confusion to money out that have or to need to clients, among sums significant new report, weren’t whether have a from have think been saying, in it’s even clients offered also and service, and it’s retention of need and still government have have want and you’re penalties get something a a existing number to client have you how though, this whether successful and able but clients or of to our point of penalty of on people millions I to much of clients I clients marketplace us, we’ve notice clients it a that, if to keep so to and they them ours, been a of owe for gone of it that been and we there’s may still need ours we’ve in where they the they out a to from to is so talking the you help talk you dollars millions get information going a support abated letters of it. and you potential and

Efrain Rivera

benefit or do really years issues, that but saw technology to two Affordable play a PEO, lot on saw really than has integrated we some much HR I now continued strength, so HR do got ago, see part and more related. really think we and something much the strength tailwind it for Act it we more and ACA what more Marty starting turbocharged said, it But from that has strength to build I related has the other – and by but it’s Care of with of with is

Martin Mucci

employees them help and their benefits, are. compete small the have you I such offer help that point rate, companies having insurance mid-sized to in to they’re really made these and companies to what benefits, them insurance a unemployment better someone in enroll their looking plans with on these the And are benefit really earlier because made large benefits, in low

David Grossman

Thanks holidays. that and for happy

Operator

Thank you.

Our next the of Samana question comes line Jefferies. from Samad from

Your open. now line is

Samad Samana

Hi my questions. good for morning. Thanks taking

clients cap wondering PEO so looks in the customers’ like of are and I Paychex an PEO, XXX,XXX Oasis their you First, could ASO the give Oasis, all the WSEs, us WSE number and both following I what included acquisition? on WSE has cap know PEO was of that historically apples-to-apples their maybe

Efrain Rivera

are and ASO that, some Well, have using those that included we on between the numbers WSEs, separately is count significant as XXX some you are ASO give would to that amount PEO that the so we of breakout employees when million are a as don’t employees they of around obviously we’ll close ASO closer them do acquisition there you’re clients. they when we the XXX really so in the the midpoint $X.X they figure, when XXX clients, ASO, are on their we clients floating

Samad Samana

down they using think why and vendor that’s I that Great if factoring for called clarification thanks then curious I were know a migrate to that Paychex the that’s there’s I Flex a third-party over the of help And magnitude and HR I’m further or Oasis, revenue customers in software you’re and something to us that? if asked. or if understand those road opportunity margin maybe the opportunity that’s Prism

Martin Mucci

provides clients a we’ll and of their to that, and best are will because necessarily client and that at big which sure certainly savings be their we’ll try is that’s counting the the our to for the down is we’re at they solid so but this the flexibility clients, anything platform Flex it’s a synergy part the make what what that platforms and or a yes, for we on no a big for very Prism, there, synergy experience we looking clients it will of is is been has great looking not offering be think certainly looking in two looking technology what for be save road, the matter of more service that clients further the ours not to want for Prism, think and at on. a how and that I at be

Samad Samana

PEO think one was and Great. think retention of be was And for on now us improving, of retention peak and and would the the going that some and highs maybe do the maybe prior valuable helpful? just more curious with rate all could we remind just just times can the eclipse one last call color retention forward, customers, what couple And else that before? that do I’m you being mentioned holding you a on equal, mix kind if strategically

Martin Mucci

we’re was Yes, I I XX% best said all-time approaching the best. and think around as that

products point that’s and still model, clients still good of those more of only difficult time and to certainly that always keep retention. that and that possibility is more they mind products under that you that their and that particularly always part to it the take kind looking there there products will get do if is as are high above many much of we’re retention all and you been think that I client have take take it’s to make more certainly I mobile things a so take But more their base. make our and at in tough the tied dynamics are into of employees payroll XX% think you you XX that as better drives that HR, but the the still app more our like a given little technology bit our

Samad Samana

questions my and thanks quarter Happy very guys. much next Great for holidays.

Operator

the our comes James from Morgan you, Stanley. line question Faucette from of Thank next

Your line is now open.

James Faucette

new color Hi on Efrain addition mentioned or talked in things you your questions retention looking you’ve was call are have had a payroll in in I anything of bit be I also Marty. but mid-market strong good answered for about new any or bookings a by among bookings among little at that just within been to market morning behavior of whether customer it’d you’ve attention, differences most micro-enterprise, and out seeing to base all? of couple my and

Martin Mucci

board. end the whether the retirement, as seeing such Well, on talked season well it’s small across across time PEO this are lot it’s consistently of get to the next through selling certainly feeling this momentum we a an the this before ASO, part current board, consistent attendance, and because but momentum of quarter, kind feeling is about and we’re we the we’ve payroll, pretty as important hard of of really pretty mid-market, quarter momentum kind it always the third say

James Faucette

a how far at a just question trying and partnership you sense transition to conflict they’re clients exposed Great. that looking it partnerships see And if and to middle or were to we’re with second channel just matching along potential trend to And relates of it’s managing complete I if through guess solutions is mixing your of to wondering if how partners? you’re market enough get besides incremental as opportunities? then that and

Martin Mucci

about integrated free low think that make tie sure training the that of we that workflow training that – of and for the you just build your ties you’re for the that, that taking when best for to you still own taking value much grow client to and we payroll the whether management HR, the quarter, can certainly what demonstrate they bundles, retirement then is you offered ties have training, some that some sale I matter full them vast one to learning no and into it’s that user building try clients and our and a Yes, majority do your the performance because HR. so are platform a most when single payroll, you to you’re Flex, management fully the design we employee we definitely, what think your to of the of are learning offering, management, on giving where just what’s is last service, you in how Flex great Flex unified system, into of see record, full benefit the interface a

are So I retirement with gives I and or go more mid-market, it, am attendance if that’s say, just the find to better even But the the a bought the hey, you as to already clients do want in would this hey, provider okay, if go I ready that say think you up we and we but with say, a switch, the services to future on do them bundle, to an still sold efficient. and that full us solution are am also in full there time that’s vast would make not majority API you be and way platform. an the if will opportunity Flex back a

James Faucette

you very much. helpful. really That’s Thank Great.

Operator

Thank you.

comes Our Jeff the from last from Silber line question of BMO.

Your line is open. now

Henry Chien

Hey, Henry in. squeezing Thank Jeff. calling for guys. you for Chien me It’s

just of picture to lot sort ask wanted acquisition. I of was So question on stuff covered. big the Oasis

of sort business, you your businesses? mentioned kind but think relationships, just sort translate a you are combining offer into know that I the about know of there that it I rate get touched insurance PEO the we bit. two What business synergies how PEO better little what of on you you carrier benefits that businesses, So, let as the are two does are growth in combining the PEO or as better products, of from

Martin Mucci

Yes, that top really very synergy, talked much the sure. line synergy. revenue again And growth that it’s about we as have the about

the So we you now now had like are let’s carrier very when we carrier all into and but and with tremendously. new they relationship, carrier and have when strong go And of increase carriers, double the not good the have in. that you about markets size say, a you relationship talk or are relationships, – you size you you because markets a in

interested you benefit you say, the hey, are give Now, attention far to those giving as carrier, packages, give much you go a more to you carriers, when with you some can the with to offer they are packages be to support the clients support more dealing support carrier, just therefore you carrier let’s let’s best give to their as more customer you the benefit integration the are experience. enrollment and able going more options, benefit customer more give lot larger you they from are better a and to employees necessarily to a in

– And not just so that markets where as they additional then just when so think think said. markets, you that all of And in are sales we and then it about just Efrain there various the of that from perspective. that are are is –

different been we have some there, Florida, And and Texas have to and with California, markets. necessarily scaled We in carriers. primarily deal weren’t clients enough we are those Georgia they now in but

up dealing to with in opens Now a have it. we And of that with insurance those the two to great agency scaled possibility. be an you between didn’t that markets going be are larger PEO us also are a

– offer they underwrite an profile hey, PEO, I have insurance that client, have XXth else agency. that. for you couldn’t the We if product a can take We as And largest insurance the PEO for when for go that top an clients insurance. we you don’t can these you now agency I underwriting and insurance agency fit anywhere say,

large a attendance larger were up new buy So clients customers. variety just necessarily from a and offer whole and a us of services now and things their from their have them opportunity retirement for us, opened that that PEO they much solutions time buy now, they to at can you of didn’t lot can

Henry Chien

the in you And services Got are of question, sort your what sort mean, what’s maybe that your I sounds stage it, right okay. view. No, these starting it – is that’s just PEO mean, really helpful. to you sense think final combined innings the I like HR and of think PEO now? of or of inflect in really adoption

Martin Mucci

don’t requirements the think it’s from easier, has and federal – because don’t much an And the states. or clients unemployment. think economy states more, pretty then getting the gotten – and I more gotten frankly government see I tougher see that pretty It’s that early, from as I more it’s I the – particularly

for to more have talk, it for have do you that have lot employees make offer first in to find really of on to for and get or going sure by phone, change have the I them am self-service, so I benefits, benefits technology it easy their to way, time benefits have employees. said, easier have also forth. harder to the lower, who And really I to gotten has make now. I unemployment track their that enroll mobile to okay So, companies, I employees the not do benefits a offer workers, be things gotten my to and their to I to

So both think XXX also we great outsourcing. Remember so actually, have are that, and very or markets, we pretty I is frankly of it’s early innings from PEO adoption HR PEO is a people. large in any ASO HR great, over

in largest technology of the lot in space of front one this clients service. and obviously us we to will are and get be gives the clout of with We second that largest a and

Henry Chien

Okay, Thanks. I really great. appreciate that.

Operator

questions At have time, you. on we queue. don’t Thank more this any

You may proceed.

Martin Mucci

Alright. this we will close call. At the point,

this and replaying season. and hope taking it in call, holiday families a release you. for conference the for I joyful We will for you Paychex. in to you second investment in XX be and If time press interested your have conference webcast quarter our interest archived your participate the of you days. call thank Thank approximately are

Operator

participating. today’s you concludes conference. Thank That for all

now may You disconnect.

Paychex (PAYX) 19 Dec 182019 Q2 Earnings call transcript