Paychex, Inc. (NASDAQ:PAYX) Q3 2024 Earnings Call Transcript

Paychex, Inc. (NASDAQ:PAYX) Q3 2024 Earnings Call Transcript April 2, 2024

Paychex, Inc. beats earnings expectations. Reported EPS is $1.38, expectations were $1.36. Paychex, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, everyone, and welcome to today’s Paychex Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you’ll have an opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note this call is being recorded. And it is now my pleasure to turn today’s call over to President and Chief Executive Officer, John Gibson. Please go ahead.

John Gibson: Thank you, Mike. Thank you, everyone for joining our discussion today on the Paychex third quarter fiscal year 2024 earnings release. Joining me today is Bob Schrader, our Chief Financial Officer. This morning before the market opened, we released our financial results for the third quarter. You can access our earnings release on our Investor Relations website. Our Form 10-Q will be filed with the SEC within the next day. This teleconference is being broadcast over the Internet and will be archived and available on our website for approximately 90 days. I’m going to start the call today with an update on the business highlights for the third quarter and then turn it over to Bob for a financial update and then of course, we’ll be happy to take your questions.

We delivered solid results in the third quarter and the first nine months of the current fiscal year. Total revenue growth of 4% in the third quarter reflected a lower contribution for our employee retention tax credit or ERTC service as compared with the prior year period. This is consistent with our previously communicated expectations that ERTC revenue would become a headwind in the second half of the current fiscal year. Excluding this impact, our total revenue growth accelerated to 7% in the quarter, while our new client volumes remained solid and in line, and both client and revenue retentions were in line with our expectations. Several factors including our decision to wind down the ERTC program based upon the recent legislative developments on Capitol Hill, continued moderation of employment growth within our client bases and slightly lower realized rates all combined to create headwind, a larger headwind than what we had anticipated in the quarter.

With the end of the ERTC program, we are now officially in the post pandemic era at Paychex, and I will tell you I am very pleased with how our teams have performed during these past several years. We put nearly $90 billion of financial aid into the hands of our clients, and based upon an analysis by MIT, we estimate that we save over 300,000 small business jobs. While these pandemic error programs are not part of our normal reoccurring revenue product strategy or our business model at Paychex, they were certainly consistent with our purpose. And that’s simply to help businesses succeed. And I believe that we are a better company today than when we entered the pandemic four years ago. We are winning in the marketplace, and our long proven a recurring revenue growth formula still holds true.

And this post pandemic and digitally driven era for the company, focused client growth, value-based price realization, increased product penetration, and opportunistic acquisitions are still the key pillars of the Paychex growth strategy. We are exiting the pandemic era with an even greater focus on our purpose, more opportunities to impact our clients and their employees, and with an even stronger reputation as a trusted advisor to small and mid-sized business owners. Despite the headwinds in the quarter, we delivered 7% growth in diluted earnings per share, and expanded operating margins, due to our longstanding tradition of expense discipline. As one of the best operators in the business, we continue to demonstrate our ability to deliver on earnings in uncertain times, and still make the necessary strategic investments to drive long-term profitable growth.

Our culture of expense management along with investments we’ve made the past several years in digitization and enhanced sales and operational excellence capabilities have positioned us well for future profitable growth as well. The macroeconomic and labor market remains challenging for small mid-size businesses, a tight job market for qualified workers reduce access to affordable growth capital and inflationary pressures continue to be headwinds for small businesses. Our small business employment watch continues to show moderation in both job growth and wage inflation. But however, a relatively stable macro environment, the softening in hiring we started to see in the second quarter continued in the third quarter. There is more choppiness in hiring across all customer segments and industries now.

Our clients tell us they still can’t find qualified employees and are not willing to hire just anyone at higher wage rates, especially in areas with recent minimum wage increases and aggressive legislative changes. The demand for our HR technology and advisory solutions remains robust and the volumes of new clients added in the quarter were strong. We continue to deliver value for our customers as seen on our revenue retention results, which remain above pre-pandemic levels. Client retention for the third quarter was also in line with pre-pandemic levels and both revenue and HR outsourcing work site employee retention remains at record levels. As we continue to focus our resources on acquiring and retaining high value clients. Our sustained high revenue retention demonstrates that our value proposition and our market leadership remain intact.

The fundamentals of Paychex are same. I’d like to highlight the success in our PEO business specifically, which has continued to gain momentum with strong results during the first nine months of the fiscal year. We finished the quarter with strong results in sales, retention and insurance enrollment. We have continued to see a shift back towards the PEO offerings both outside and inside our client base. This shift mix has a long-term positive impact on the customer lifetime value in our model, particularly as clients attach insurance benefits. AI and related technology investments are also key areas of focus in our industry and something that, as many of you know, we’ve been focused on for many years. We are proud to announce that we successfully implemented in the quarter several additional innovative AI models that significantly improved results for Paychex and our clients.

Leveraging innovative technology and advanced analytics has allowed us to gain deeper insights into prospects and client behavior, their preferences, and their growing needs. Last month, we announced that Beaumont Vance has joined the company as our Senior Vice President of Data Analytics and AI. In this newly created role, he will be responsible for refining and executing the company’s data strategy, including the use of business intelligence, advanced analytics, and AI driven automation to drive both improved business performance and enhanced customer value. We are excited to have Beaumont on Board to help us capture the full value of our vast data assets. I want to thanks to the hard work of our more than 16,000 employees and their focus on our company’s values.

Paychex continues to be recognized for both what we do and more importantly in my opinion, how we do it? We are proud to be recognized for the 16th time by Ethisphere, as one of the world’s Most Ethical Companies in their recent annual list. Paychex was also recently recognized by Fortune Magazine as one of the Most Innovative Companies for the second consecutive year. These recognitions and the many product and service awards that we have received in the past year and over the decades is a testament to the strength of our business model, culture and the commitment to invest in our business and our employees to deliver long-term value for our customers and investors. I’m very proud of how our employees have delivered for our customers, for each other, for our communities, and for our shareholders throughout the pandemic area.

We exit at this period in Paychex history, more focused and determined to be the digitally driven HR leader in our industry, and we are even better positioned to capture the opportunities in the markets we serve. I’ll now turn it over to Bob to give you a brief update on our financial results for the quarter.

Bob Schrader: Thanks, John, and good morning, everyone. I’d like to start by reminding everyone that today’s commentary will contain certain forward-looking statements that refer to future events, and therefore, involve some risks. In addition, I will periodically refer to some non-GAAP measures, like adjusted diluted earnings per share. I’d refer you to our press release for our customary disclosures around those metrics. I’ll start with a summary of our third quarter and year-to-date financial results and then provide an update on our fiscal ’24 outlook, and as promised too many of you on the phone, I will share some preliminary thoughts around fiscal ’25. Total revenue for the quarter increased 4% to $1.4 billion, which reflects a lower contribution from our ERTC as compared to the prior year quarter.

Management Solutions revenue increased 2% to $1 billion. This was primarily driven by growth in the number of clients served across our suite of HCM solutions and increased product penetration, and that was offset by the decline in our ERTC revenue. And as we disclosed in the press release, that has impacted the growth by about 300 basis points. PEO and Insurance Solutions revenue increased 8% to $346 million, that was driven by higher average worksite employees and an increase in our PEO and Insurance revenues. Our PEO saw continued momentum in worksite employee growth and medical plan participant volumes during the third quarter. Interest on funds held for clients increased 25% to $44 million, primarily due to higher average interest rates.

Total expenses increased 3% to $790 million. Expense growth was attributable to higher compensation costs and PEO direct insurance costs related to the higher average worksite employees as well as the higher Insurance revenues during the quarter. Operating income increased 6% to $650 million with an operating margin for the quarter of 45.1%. That represents about 80 basis points of margin expansion over the prior year period. I would like to highlight that margin expansion is despite the ERTC headwind that we just called out, we were still able to deliver really strong margin expansion in the quarter. And I think as many of you know, ERTC is pretty much like interest rates, it’s pretty much all margin. Both diluted earnings per share and adjusted diluted earnings per share increased 7% to $1.38.

I’ll quickly summarize our results for the year-to-date period. Total revenue grew 5% to $4 billion. Management Solutions revenue increased 4% to $2.9 billion. PEO and Insurance Solutions increased 7% to $939 million. And interest on funds held for clients increased 44% to $108 million. Total expenses for the first 9 months grew 4% to $2.3 billion. And our operating margins for the first 9 months of the year were 42.5%, and that’s a 70 basis point expansion over the prior year period. Diluted earnings per share and adjusted diluted earnings per share both increased 9% year-over-year to $3.62 and $3.60, respectively. I’ll now give you a quick overview of our financial position. As many of you know, we maintain a strong financial position with high-quality cash flows and earnings generation.

Our balance for cash, restricted cash and total corporate investments was $1.8 billion. And our total borrowings were approximately $817 million as of the end of the quarter. Cash flow from operations for the first 9 months was $1.7 billion, that’s up 30% compared to the same period last year. That was driven primarily by higher net income and fluctuations in working capital. And we returned a total of $1.1 billion to shareholders through the first 9 months of the year. That includes $963 million in dividends and $169 million of share repurchases. And our 12-month rolling return on equity remains robust at 47%. I’ll now turn to our updated guidance for the current fiscal year. This outlook assumes the current macro environment, which obviously had some level of uncertainty.

We have revised our guidance on certain measures based on performance this quarter and this also reflects the impact of our decision to wind down our ERTC service based on recently proposed legislation. I just want to pause there from my prepared remarks to provide a little bit more color on ERTC. I think many of you guys are aware that there is bipartisan legislation out there that would end the ERTC program retro to January 31 of this year. I think it’s past the House. It hasn’t yet passed the Senate, but that does create a level of uncertainty around ERTC. We continue to sell it in the month of February. We made a decision based on that level of uncertainty to stop recognizing the revenue on ERTC subject to — or subsequent to January 31 and we’ve essentially removed it from the forecast in Q4.

And so that’s part of what you see as it relates to the impact to the quarter and also impacts the guidance the updated guidance that I’m about to give you for the year. Management Solutions is now expected to grow in the range of 3.5% to 4%. We previously had guided to the lower end of the 5% to 6% range. PEO and Insurance is still expected to grow in the range of 7% to 9%, although we now expect that it will be more towards the lower end of that range. Interest on funds held for clients is still expected to be in the range of $140 million to $150 million. Total revenue is now expected to grow in the range of 5% to 6%. Our prior guidance was 6% to 7%. Other income net is expected to be income in the range of $40 million to $45 million, and this is raised from the previous guidance of $35 million to $40 million.

Our guidance for operating margins and effective tax rate are unchanged, although we still do anticipate being at the high end of the operating margin guidance range, which was 41% to 42%. And adjusted diluted earnings per share is still expected to grow in the range of 10% to 11%. Now let me just provide a little bit of color on the fourth quarter. We are currently anticipating total revenue growth to be approximately 5% in Q4. We expect the ERTC headwind to Management Solutions growth in the fourth quarter to be similar to what it was in the third quarter. And we would also expect the operating margins to be around 40% in the quarter. We are currently in the middle of our annual budget process and working on our expectations for the next fiscal year.

We obviously will provide formal guidance like we normally do at the end of the Q4 when we get to that call. However, I will share some preliminary thoughts and I will emphasize the word preliminary around what we’re expecting for fiscal ’25. On a preliminary basis, we would expect total revenue growth to be consistent with the fourth quarter growth rate. And as a reminder, as I just told you, that would be in the 5% range. And this does include a headwind from ERTC of approximately 2%. I mean, ERTC, for all intents and purposes, is 0 going forward. I know what that headwind is going to be. I know what the dollar amount was this year, and it will be approximately a 2% headwind to revenue growth for FY ’25 and that is assumed in the 5% range number that I gave you.

And then despite this headwind, we are committed to delivering operating margin expansion in fiscal ’25. We are still going through the annual budget process, working through the details. We’ll provide more color as we get to the end of the year. Obviously, this is based on our current assumptions, which we are still working through. Those may change, but we’ll update you again when we get to the fourth quarter. I will refer you to our investor slides on our website for additional information. And with that, I’ll turn it back over to John.

John Gibson: Okay. Thank you, Bob. Mike, we’ll now open it up for questions.

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Q&A Session

Operator: [Operator Instructions] And we do have our first question from Mark Marcon with Baird.

Mark Marcon: So ERTC, just one thing just to clarify, Bob. When you talked about that you sold it in February, but because of the legislation you’re going to end. It’s basically bipartisan and it’s basically going to end retroactively in January 1. So you then stopped recognizing the revenue. Did you — is any ERTC revenue from — that you sold from January 1 through February actually included in the third quarter number that you just reported?

Bob Schrader: Yes. Everything that we sold and filed in the month of January, Mark, is included in the quarter, but nothing beyond January 31. So we continue to sell it in the month of February. I would say the faucet was still running steady in February in ERTC and we made the decision not to recognize revenue around that just because there’s so much uncertainty. And obviously, we’re telling our clients that because of that level of uncertainty, if that bill does pass, we would not — we would refund their monies for the service that we sold in the month of February. So we think it’s the right decision from an accounting standpoint to stop recognizing revenue on it. And then I would just say, as we move forward in the month of February, that faucet has slowed to a drip on ERTC.

Obviously, we’re not focused on it and it’s there’s probably a little bit that came in, in March, but that was probably stuff that we already had kind of in the queue that we were still processing. It’s pretty much that program is over. And yes, go ahead.

Mark Marcon: I mean, just related to the guide that you were providing, I was — obviously, for the third quarter within Management Solutions because of the ERTC headwind, things were tougher and it seems like you actually did see some acceleration ex ERTC on total revenue. So I was just wondering like is there any way to quantify the impact in terms of not recognizing that revenue in February just because obviously you were anticipating that coming in. So any thoughts there?

Bob Schrader: Yes. I mean, high level, Mark, I mean we provided guidance for the quarter. I think we — you guys know what the guidance was that we provided for the quarter. The Q3 actually came in maybe about 100 basis points in that range lower than what we had said. And I would say probably 1/3 or a little bit more of that was related to the decision that we took on the ERTC. So you could probably do the math on that and back in to get to a number that’s close to the impact in February.

Mark Marcon: Okay. Great. And then with regards to the margin expansion, obviously, that’s very encouraging, especially when you’re not getting that benefit from ERTC. What are the key drivers in terms of that? Is it the AI initiatives? Is it efficiency on the sales side? What’s driving the margin expansion? And how do you think — to what extent do you think you’re going to be able to continue that strong progress?

John Gibson: Yes, Mark, this is John here. Again, as you know, we pride ourselves in being the best operators in the industry and have a DNA of — and we know the levers to pull as we see the type of trends that we see. So we’ve certainly done those, what I would say, typical things, but the deeper question you’re asking is the right one. The fact of the matter is over the past 3 years, we’ve done a lot of investments as we’ve had the opportunity with the ERTC benefit to make a lot of investments in the business. We really focus that investment around our digitalization and digital adoption capabilities. We’ve built global capabilities in our operations footprint. And we started to really roll that out and really test and pilot that over the course of this fiscal year.

And particularly during selling season, a lot of the enhancements both on the client service and retention side as well as the digital onboarding across each of our platforms, we launched a series of products that demonstrated to us at scale that we can drive stronger operational and sales efficiency in our model. And so we’re going to continue to double down on that and continue to look for opportunities that we can drive digital transformation in our back office; drive digital adoption by our prospects and channel partners, clients and employees. And we believe that’s going to continue to drive margin expansion. That’s what we’ve seen in these tests and pilots and now we’re really starting to push and roll that out at scale.

Operator: And we have our next question from Kevin McVeigh with UBS.

Kevin McVeigh: On the execution. I guess, Bob, just would be for you the 25% guidance preliminary, pretty helpful. Any sense of what type of macro environment you’re factoring into that, I guess, from an employment perspective more broadly?

Bob Schrader: Yes, Kevin, I mean, we’re still going through and finalizing all of our assumptions. But I would say at this point in time, we would assume a fairly stable, steady macro environment. Obviously, there’s an expectation that the Fed is going to start cutting rates later this year. We do have some of that factored in at this point in time. But I would say, overall, the assumption is a fairly steady-state macro environment with some expectation that there’ll be rate cuts as we move into the fiscal year.

John Gibson: Yes. And Kevin, I would just add on that on the macro side, we are adjusting our view and have adjusted our view even more as we looked at the third quarter based upon some of the hiring dynamics that we’re seeing in the client base because there is somewhat of a disconnect when you look at an economy that’s growing at 3% to 3.5%, high 2s, even if you go back and what you’re seeing from a hiring perspective. And I would say the state of hiring in small businesses continues to be a challenge. I think it’s a labor issue. It’s not a demand issue. What we continue to see is clients telling us they’re having trouble filling open positions, and quite frankly, with qualified candidates. I think one of the things that professionals that are engaged, as you know, we have about 2.2 million of our client worksite employees under management by our HR team, so as we saw some of the trends we saw that were disconnected from our models in a 3% GDP economy, why weren’t we seeing the hiring that we would have anticipated happening in the base, we had active structured dialogues with those clients and what we’re hearing is that they have open positions.

They want to hire. They can’t find qualified people. And I think they had been burned through the course of the pandemic in hiring just anyone. And so they’re not willing to do that at the current labor rate. So the macro environment that we see, you look at our job index, continued moderation in hiring, continued moderation in wage inflation. We saw that January and February — I would say this December, January and February, if you look at our releases, continued to show moderation. And actually January and February were the first 2 months in our index, still over 100, still showing growth, but those were the first 2 months that we actually saw growth under pre-pandemic levels. And so stay tuned. Tomorrow we’ll release the March one, but what I would tell you is that what we see is a moderating economy.

We see a stable economy. We don’t see signs of a recession. We don’t see all the other — demand was strong. Our pipeline was strong. The other things that you would typically see that would be more recessionary, we’re not seeing mass layoffs. We’re not seeing layoffs across. What we’re seeing is openings, vacancies, troubled hiring and businesses being cautious in who they’re bringing into their workforce.

Kevin McVeigh: Lot of sense. And then, John, just to follow up on that point. Is that — is kind of that tight labor what’s driving kind of the reenrollment on the Insurance side of the PEO? Or just anything to call out in terms of what’s been driving that?

John Gibson: I think on the PEO enrollment, I want to really give credit to the team there. I think, as you recall, a year ago, a little over a year ago, this was a challenging area for us. We were seeing things, participation rates weren’t as high. Attachment wasn’t as high. We really look at all aspects of both our product, our insurance product offerings, our enrollment processes and how we engage employees around that top to bottom. And we made some changes in both the product offerings we have as well as we approach clients and the employees in our insurance offerings in the PEO. And I think the team has done a good job there. And what we’ve seen is now we’re back to at to slightly above attachment rates and our participation rates are back to our historical norm. So I think that was a little bit more of an execution issue than any macro item.

Operator: And we have our next question from Tien-Tsin Huang with JPMorgan.

Tien-Tsin Huang: I wanted to ask on PEO, I know the commentary around sales retention and attach was quite strong and then you moved into the low end. I’m just curious if maybe you can elaborate on that and maybe your initial thinking around PEO momentum going into next year as well because I know that was something that we were tracking.

John Gibson : Yes, go ahead.

Bob Schrader: So I’ll just start with the — no, no, no. So I’d say the big driver of maybe guiding more towards the lower end of the range, it was with the employment headwinds that John called out in the script, we continue to see moderation in employment, and that really was across the board. For the most part, the PEO has been able to outrun it with strong execution, both in sales retention. We mentioned we continued to see record levels of worksite employee retention. Really strong worksite employee growth in that business and then really getting our medical insurance attachment and volumes back to where we see it. So it’s really a little bit of the macro headwind. And the other thing I’ll call out on the PEO, I think the print is strong at 8%.

But as you guys know, that, that category is PEO and Insurance, and Insurance is typically dilutive to the growth of that overall category. So I would say that the PEO stand-alone growth is north of that number, obviously, that we gave you. So really strong performance in the PEO business. And we’re building momentum and we see that carrying into next year. I’m not ready to give splits on next year between Management Solutions and the PEO , but we certainly would expect the PEO and Insurance to grow at a faster overall rate than the total revenue growth that I gave you.

Tien-Tsin Huang: Got it. Okay. Very clear. So it’s just really the employment side that’s out of your control. Perfect. So my quick follow-up, just on the pricing front among the 3 factors, you mentioned pricing last. Any more color on the pricing? Is it more discounting that you’re seeing? And I’m curious if that informs your typical price action that you would take in the May or the spring time frame. And if that’s baked into your look-ahead or preliminary ’25 outlook?

John Gibson: That is a broad question. So if I missed something, you come back. But here’s what I would say, we’re still able to go into the market and command our traditional value-based pricing for the value we provide. I think you can see that in the retention. And what I would tell you is, again, and I’ll be so glad when I don’t have to use this word again, which I think will probably be 12 months from now, ex ERTC. When I look at our actual revenue per client with ERTC was in a lot of the pricing bundles that we would sell when you’re looking at the data is we’re actually seeing that the pricing that we’re getting across the various product groups being on par of what we have seen historically. I would remind you that over the last 3 years, we have guided and have said what’s been at the high end of our traditional range.

And I think that our assumption is as we go into the post-pandemic era that we’re going to — like everything else seems to be going back to the mean to slightly higher. So when I look at retention, again, retention back to kind of pre-pandemic levels, but slightly better. I think that’s where you’ll see pricing, and we still feel good about where we can go in terms of pricing. I think the competitive environment, it’s always been a competitive environment. I think there were 2 dynamics going on that were interesting to me when I looked at the data. And again, when I’m looking across — when I’m looking across our 401(k) business, our PEO business, our HCM mid-market business, our small business HCM business, our SurePayroll business, I just — when I go across our insurance business, the broad set of businesses and look at the third quarter, which is one of our largest volume quarters, and I see the volume hold up to what I expected.

But what was interesting, the average client size was down in almost all of those slightly, which impacts our realized price, right? You just have less employees, you have less checks. And what I sense is, is that they’re in the — if you think of our business, boulders, rocks and pebbles, right? I think boulders have been harder to move. Less decision. You’ve heard some other competitors that are more targeted in the upper end of the market talk about extended decision time frames, et cetera. So while we got the volume we expected, we got a little more rocks and pebbles than we expected, which drove a little bit of the rate. And then it was a more competitive environment in terms of both clients from a retention perspective and from a purchase perspective, demanding more and I would say being a little more negotiative in their approach, which is kind of what you sense in the economy with high inflation.

Operator: And we have our next question from Bryan Bergin with TD Cowen.

Bryan Bergin: I wanted to just dig in a bit more on bookings. Can you just talk about how the third quarter bookings came in relative to your expectations? How 4Q is trending so far? And if you can, give us some added color across client size, PEO versus ASO as well.

John Gibson: Yes. Bryan, I would just probably reiterate what I’ve kind of already said. We had solid demand for our solutions really across the board. Volumes were in line with our expectations. What I said before is across each one of those sectors, I would say that the average size of the deal that we landed was smaller than what we anticipated than typical. So — and I’m talking small, small amounts of differences. But as you all know, in a business of our scale, a small change going from average 1 or 2 employees or 3 or 4 employees or worksite employees per deal, it can have an impact on the revenue you expect.

Bryan Bergin: Okay. Understood. And then just on the sales front and sales investment, I guess, can you give us a sense on how sales head count has trended relative to the start of the year? And as you go forward and plan for ’25, how are you thinking about adding absolute sales head count versus trying to lean on more tech investments to drive more productivity?

John Gibson: Yes. Bryan, I would say this, our sales head count has been at our expectations through the year. When we went into the selling season, we were at head count, that’s what we reported. I think to your point, what was interesting in the third quarter, when I look holistically across the business, the amount of business we drove digitally across each of the platforms was impressive. And that’s approaching some of our other channels that have historically been Paychex’s bedrock of where we’ve gotten business. And so what we’re seeing is and what we’re doing with digital, I think, will continue to be something, and we’re looking at a lot of different go-to-market strategies that we think will drive more productivity in our sales reps.

And I think what we’re trying to do right now is make sure we’re doing the proper territory management so that we can have even more reps more productive. So I’m not prepared — we’re still working through our final budget planning process. What I can tell you is that we’re driving a lot of productivity on a per rep basis. And we’re going to make sure that we’re covering every nook and cranny of the market. So making sure how many salespeople do we actually need to go after the market opportunity we have in each of the segments? And I think getting more specific about segment sizes and product type is what we’re focused on as part of our new go-to-market strategy going into this post-pandemic era.

Operator: And we have our next question from Samad Samana with Jefferies.

Samad Samana: So maybe, first, we’ve heard about maybe pricing increases going into effect, let’s call it, either towards the end of the year or earlier this year. I was just curious if there is a change in the timing of when you push through price increases for customers this year? And then I have a follow-up question as well.

Bob Schrader: Yes, I’ll take the first question. Yes. No change to the amount. I mean, I think your timing, it’s not always the exact time every year, but it’s in that range typically towards the ended the fiscal year. Beginning in the next fiscal year is typically when we have our annual price increases. So really no change to the timing there.

Samad Samana: Okay. Great. And then I guess just as you think about segmenting by customer size, I know what you just said about the average deal size, comparing it being smaller, but are you seeing any trends within if you stratified it by your smallest customers versus maybe slightly more like mid-market? And then same question between Management Solutions and PEO, if we’re seeing anything that’s different by the type of customer that you’re seeing in terms of behavior or deal size or deal closing times.

John Gibson: No. So I don’t really see much change overall. What I would say is, and part of this I’m reading what I hear others have said that play in markets. And when I look at our — by deal size. So we’ve got a mid-market team, we’ve got a PEO team, they’re out in the market outside the base. And they’re going after deals and they’re getting an average deal size and we’ll get a mix. We’ll get this number of clients over 1,000 employees, as many 500 to 999, you get to drill, right? And on average, you just — you get a mix and that’s the mix that kind of holds in the marketplace kind of historically. What I think you see when I look across it, and Bob can comment as well, is that on the larger side, the larger end, the enterprise end of that market, there was less of those deals that came in, in the PEO, came in, in the ASO and came in, in the traditional HCM and we made up the volume in more slightly average size deals that we get.

But then when you add that all together because you have less boulders to the mix, you have a little less, either worksite employees or less checks than you planned on. Does that make sense?

Samad Samana: I’m going to break it — it does. I’m going to squeeze one more in. I know 2 are normally the limit. But just is there — I know you’re not guiding by segment for next year, but is there any reason, Bob, to assume that the trend line that you’ve guided for, for next quarter for Management Solutions ex ERTC and PEO, like what’s implied in the guide that, that wouldn’t be the trend line heading into next year? I guess, is there anything that would materially get you off of those trend lines?