Good day, everyone, and welcome to the Paychex Q2 earnings conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing the star and one on your touchtone phone. You may withdraw yourself from the queue by pressing star two. Please note, this call will be recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mr. John Gibson, President and CEO. Please go ahead, sir Thanks, Todd. Good morning, everyone. Thank you for joining us for our discussion of the Paychex Q2 fiscal year 23 earnings release. Joining me today is Efrain Rivera, our Chief Financial Officer. This morning, before the market opened, we released our financial results for the Q2 into November 30th. 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. We'll start the call with an update on the business for the Q2, and then Efrain will review our financial results and outlook for fiscal year 23. We'll then open it up to your questions. We delivered solid financial results for the Q2, with total revenue of 7% and adjusted diluted earnings per share growth of 9%. Demand for our comprehensive solution suite remains strong, and we are well-positioned to help our clients succeed. Our unique combination of leading HR technology, HR expertise, and the wide breadth of solutions we have to address the many needs in the marketplace continue to help small and mid-sized businesses navigate this very dynamic and challenging environment. We continue to closely monitor the macroeconomic environment and our internal leading indicators. The latest findings from our Paychex IHS Small Business Employment Watch revealed moderating growth in jobs and steady growth in wages. Our clients continue to be challenged by the continuing impacts of the pandemic, inflationary pressures, and the challenges of this labor market. However, small and mid-sized businesses continue to show their resilience. Our revenue retention remains solid as we focus on retaining clients and driving increased value and penetration of our HR outsourcing, HCM software, and retirement solutions. Our overall HR outsourcing business continues to perform well, with strong growth in worksite employees and record revenue retention. We achieved a major milestone this quarter. We now serve over 2 million worksite employees across our ASO and PEO business, clearly establishing us as a HR leader. Our industry-leading HR advisory services sets us apart, and our certified HR professionals are truly a unique asset as they're advising our clients on HR issues, as well as leveraging our HR technology and the analytics from our vast SMB data set to help our clients achieve greater operational efficiency, increase employee engagement, and reduce turnover. While demand for our technology and HR outsourcing solutions remain strong, we continue to see shifts in what offerings clients find are the best fit for their current situation. Both early and during the pandemic, we saw lower demand for adding employer health benefits. We continue to see this trend and also high demand for our ASO solutions, driven by businesses seeking immediate assistance with HR issues and filing for tax credits, but delaying decisions on adding or changing their insurance offering to their employees. In addition, the lower medical plan sales and participant volumes in our health and benefits area of our insurance agency that we discussed last quarter continued in the Q2, and we saw some similar trends in our Florida At-Risk Insurance Program in the PEO, impacting revenue growth in that area of the business. Awareness and demand of our employee retention tax credit, or ERTC service, which helps clients maximize eligible tax credits, continues to grow. To date, we've helped more than 50,000 clients secure $ billions in ERTC. A recent survey actually showed just that 63% of business owners didn't even know that they were eligible for these credits. We continue to educate existing clients of the benefits as well as leverage this service to attract new clients. We continue to invest and enhance our product suite and customer experiences. In November, we released our enhancements to Paychex Flex, focused on further streamlining the recruiting, onboarding, time and attendance, and benefits administration experiences. Through our HR technology, 3 out of 4 Paychex clients surveyed have shortened the time required from recruiting, screening, tracking, and onboarding new employees. Those clients reported an average time savings of 26%, indicating that the typical 2-month recruiting cycle has now been reduced to just 6. I'm very excited about our Retention Insights offering, which continues to deliver strong results for our clients at a time when businesses remain committed to retaining their existing staff. This feature uses predictive analytics coupled with our vast data sets to provide insights on potential employee flight risk. Clients leveraging the Retention Insights offering are showing a 15% reduction in turnover when compared against their industry peers. We're very pleased we received the bronze Brandon Hall Group Excellence Award for best advance in HR predictive analytics technology for this solution. This is the 10th consecutive year they've recognized us. During the quarter, we also were recognized with the IDC 2022 SaaS Customer Satisfaction Award for Core HR. We are honored to have received this award as another confirmation of the power of our HR technology and the quality of our advisory services. These awards continue to validate that Paychex is a technology leader, and that our focus on HR is delivering real impact for our clients and their employees. At this time, we're heading into our critical year-end season. We are fully staffed in both sales and service, and we have good momentum. I wanna thank all the employees in advance for all their hard work and dedication in making this the best year-end ever. I'll turn it over to Efrain, who will take you through our financial results for the Q2. Efrain. Thanks, John. Good morning. I'd like to remind everyone that today's commentary will contain forward-looking statements that refer to future events. You know the customary comments. Take a look on our press release if you have any questions on that. Let me start by providing some of the key points for the quarter. Then I'll finish with a review of our fiscal 2023 outlook. Both service revenue and total revenue increased 7% to $1.2 billion. Management solutions revenue increased 8% to $895 million, driven by higher client employment levels and revenue per client. Revenue per client was positively impacted by additional product penetration. HR ancillary services, largely ERTC and price realization. We continue to see strong attachment of our HR solutions, retirement, and time and attendance solutions. I will note that revenue from our ERTC service benefited Q2 revenue growth by approximately 1%. We anticipated ERTC revenue would moderate in fiscal 2023, but strong demand and execution have led to better than expected results. While ERTC was a tailwind to management solutions growth for the first half, it will become a moderate headwind in the second half. PEO and insurance solutions revenue increased 4% to $273 million, driven by growth in average worksite employees and revenue per client. The rate of growth was tempered by the impact of factors John previously discussed, including lower medical plan attachment and participant volumes, along with a mix shift to ASO. I would just note on PEO and insurance solutions, insurance solutions was significantly below the growth rate of PEO. Interest on funds held for clients increased 54% for the quarter to $22 million, primarily due to higher average interest rates along with growth in investment balances. Total expenses increased 7% to $718 million. Expense growth was largely attributable to higher headcount, wage rates, and general costs to support the growth of our business. Operating income increased 7% to $472 million, with an operating margin of 39.7%, in line with the prior year period. Our effective tax rate for the quarter was 24.2%, compared to 24.1% in the prior year period. Net income increased 8% to $360 million, and diluted earnings per share increased 9% to $0.99 per share. Adjusted net income and adjusted diluted earnings per share both increased 9% from the quarter to $359 million and $0.99 per share, respectively. Quick summary of year-to-date financial results. Total service revenue and total revenue both increased 9% to $2.4 billion. Management solutions increased 10% to $1.8 billion. PEO and insurance solutions increased 6% to $556 million. Op income increased 10% with a margin of 40.4% with modest expansion year-over-year. Adjusted net income and adjusted diluted earnings per share both increased 12% to $731 million and $2.02 per share. Let's look at our financial position. It's strong with cash, restricted cash, and total corporate investments of more than $1.3 billion and total borrowings of approximately $808 million as of November 30, 2022. Cash flow from operations increased and was $686 million for the first half of fiscal 2023, this was driven by higher net income and changes in working capital. We paid out quarterly dividends at $0.79 per share for a total of $569 million during the first half of 2023. Our 12-month rolling return on equity was a absolutely stellar 46%. I'll turn to the guidance for the current fiscal year ending May 31, 2023. Our current outlook incorporates our first half results, obviously, and our view of the evolving macroeconomic environment. We have raised guidance in many areas, but moderated the range for PEO and insurance solutions based on factors previously discussed. Updated guidance is as follows: Management Solutions revenue expected to grow in the range of 7%-8%. PEO and insurance solutions expected to grow in the range of 5%-7%. Interest on funds held for clients is expected to be in the range of $100 million-$110 million. Total revenue is expected to grow approximately 8%. Other income slash expense net, I just remind you that the net of our debt service plus earnings on our corporate portfolios, that number is now expected to be income of $5 million-$10 million. Adjusted diluted earnings per share is now expected to grow in the range of 12%-14%. Guidance for margins and effective tax rate are unchanged, although we do anticipate leaning towards the upper end of the range on operating margin and the lower end of the range on effective tax rate. Turning to the Q3, we currently anticipate that total revenue growth will be approximately 6%, and that operating margin in the Q3 will be in the range of 43%-44%. Of course, all of this is subject to our current assumptions, which could change if there are changes in the macro environment. We will update you again on the Q3 call, and I will refer you to our investor slides on the website for more information. I'll now turn the call back over to John. Thank you, Efrain. Todd, we will now open the call for questions. Thank you, sir. At this time, if you would like to ask a question, please press the star and one on your touch tone phone. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question. We'll take our first question from Ramsey El-Assal with Barclays. Hi, Ramsey. Hi there. Thanks for taking my question this morning, and happy holidays to you. Yeah. Thank Thank you. I had a, I had a question on the insurance business. I'm just curious, you mentioned lower medical plan attachment and the mix shift ASO. What do you think is the underlying driver there? Is there any other color or insight that you have in terms of why that sort of those dynamics are kind of kicking in right now? Yeah, look, I think, you know, I'll step back a little bit, and then I'll zero in on your question. I think our HR solutions, when you look at the combination of ASO and PEO, continues to grow at double digit rates. We're very happy with the progress there. As we said, we surpassed the 2 million employees served. If you go back and think about that, in fiscal year 19, we were at 1.2 million disclosed, so that's a 72% increase. Then you think about that, we had one year of COVID, where I think is probably like 3%. Very solid growth in both of those products. I think when you look inside, the agency has struggled. When you look under, there's a lot of economic pressure, I think on employers and employees. Most of our insurance agency tends to attract first time, employers who are offering insurance for the first time, a lot of new business start type of driven activity. I think in this environment, I think even though they would want to offer insurance to their clients, I think they're finding that it's, it's economically difficult for them to think about adding that product. When we look at the participation rate, the other dynamic there is you need two things. 1, you need an employer to buy it, and then you need the employees to contribute their fair share. We've also seen some decreases in employees who are electing not to participate in their employer plans. You have those two dynamics. I can't connect the two directly, but certainly when I look at the hours work, when I looked at inflationary pressure, of wages, I wouldn't be surprised if that's some of the economic decision that's being made there. Got it. Okay, thank you. Super helpful. 1 follow-up for me. You also talked about management solutions hire, you know, product attachment, cross-sell. Can you kind of update us on your strategy there, what levers you're using to execute on cross-sell, and what inning we're in terms of that broader opportunity? You know, look, what we've seen across the board, our digital offerings, our online solutions, continue to attract. They're driving efficiency inside companies. That's things they're looking for. You think about our time and attendance solutions. They're also dealing with more dispersed workforces, so that's driving demand. Onboarding, recruiting and onboarding. We still have a very tight labor market for small and medium-sized businesses, so our, our recruiting and onboarding experience has really driven demand. It's been partnership with Indeed. As a matter of fact, I think the last time we reported, we were somewhere around 1.8 million employees hired through this new onboarding hiring and onboarding experience, and we're approaching the 3 million mark in just 6 months since we last reported the numbers. That's been very attractive as people are trying to attract and retain. Our Retention Insights. We go out, we have our HR professionals talking to our clients. It's interesting on the Retention Insights, we're actually doing behind the scenes insights through a data analytics team, we're actually flagging clients that we think have an issue, we're proactively going out to them and having our HR consultants engage them in a conversation. Fantastic. Thanks so much. I appreciate your comments. Thanks, Ramsey. Thank you. Thank you. Our next question comes from Brian Bergen with Cowen. Hi, Brian. Hey, guys. Good morning. Happy holidays. You too. One of the big in here just on some of the leading indicators and the demand environment. Just since you reported last and then over the last few weeks, can you just talk about what you're seeing in that new demand across employer size as well and offering? Yeah. Yeah. Again, what I would tell you is, even though it's a challenging and kind of a mixed macro environment, everything you read about, the resiliency that we're seeing in the small mid-sized businesses continues to be strong. When you look at the leading indicators that we would be looking at of kind of the first signs of a downturn, we're simply not seeing those in our indicators at this time. That's sort of what we've reported here. I think there's certainly been a roller coaster effect from the COVID perspective. Certainly when you look under the covers, I think our mid-market customers and larger customers seem to be doing better than our small customers, and small customers seem to be doing better than the micro customers in terms of dealing with inflation and the recruiting scene. When you look at it at the overall macro perspective, we're not seeing anything at this time in our indicators that would indicate any kind of downturn for small businesses. Okay. Okay. That's good to hear. I guess just a follow-up on that. As you think about the, you know, macro assumptions underlying the second half outlook, can you just talk about what you're thinking about for client employment levels, out of business client losses, things like that? I think at this point, you know, I think we're assuming an environment that's similar to what we saw in the first half. With this caveat, Brian, that as we've looked at quarter-over-quarter, you continue to see a pace that is moderating versus the previous quarter. I think that's the trend we think continues into through the end of the fiscal. While it doesn't represent a sharp departure, we still see continuing signs of moderation as we go through the year. That assumes that the impact of the Fed's rate raising continues to have the same incremental impact it's had in the first couple of quarters. What do I mean by that? I mean, right now what we see is it's having the effect of starting to tamp wage pressures. It's not having a dramatic impact on hiring, especially in SME in the SME firms that we serve. If that started to change, it would change our assumptions. Right now, we don't see that occurring, but right now we're not at 5% short-term rates. We're gonna have to monitor that. There is just a note of caution that we have as we approach what they would consider their peak short-term interest. No dramatic departure from the first half. Okay, understood. Thank you. Thank you. Our next question comes from Jason Kupferberg with Bank of America. Hi, Jason. Good morning, guys. Morning. Hi. Happy holidays. Thanks, Samana. I wanted to start just on management solutions with the raise of the revenue guidance there. Just which of the key operating metrics are you now bullish on? I mean, is it pricing, retention, bookings, checks per client? Yes. Yeah. Yeah. Good answer. what's driving that, Jason is, let me pick a couple of those out and say where we're stronger, where it's not as strong. Obviously, we expect client retention and revenue retention to remain strong. It's strong, and we expect that to occur during the balance of the year. We're seeing a little bit more increase in unit and in unit churn on the low end. That's to be expected given the mix of the client base over the last couple of years, but it's coupled with very strong client retention. Higher value clients, we're retaining, which is what we wanna do. On the checks question, that's a good one because in the first half, we saw good checks per payroll or pace per control growth in the first half. We don't expect it to be that strong in the back half of the year. We expect it moderates as we get into the second half of the year, partly compares partly simply because of the amount of growth that we saw last year. It still will be a positive contributor. We think that ERTC will still be a factor in the back half of the year, although I called it out in management solutions, that's moderating. It just won't moderate quite as much as we perceive it to be. We consider the demand environment to still be positive and obviously think that sales will remain positive as we go through the year. That's a little bit more color on each of those. Yeah. Jason, I would probably add to that. I mean, we continue to see the demand for our HR solutions, both ASO and PEO. We like the demand, what we're seeing an increase in worksite employees and the retention in those has been I mean, historic record high, when you look at our HR outsourcing businesses, both of them at record highs. We've had solid revenue retention, across at the macro level. When you look at what's going on in the HR area, very, very positive results. That's certainly helping us as well. Okay. Understood. My next question is just on the, coming back to the insurance side of things. You talked about some macroeconomic effects that you think are causing that business to be a little softer than you would have anticipated. Are there any execution issues you feel you need to take a look at or anything that could border on structural challenge vis-à-vis cyclical? Just wanted to see if we can unpack that a little more. Yeah. Well, Jason, let's talk a little bit because we've talked about the agency a little bit. I mean, P&C has been a continued product, where again, remember, most of our P&C business is workers' comp, the vast majority of it, to new startup businesses. That's been a very soft market for a period of time. You know, certainly that has continued to be a drag, and that has not turned around. I think when you look at the H&B side, which has been a little bit more impacted up and down, as we went through this, we went through this pandemic, it's what I kinda say, you have a little slower new business starts, so people, you know, less people we're talking to. You have the economic pressure of adding a benefit at that cost, both from an employer and employee side. I don't think there's anything, you know, terribly structurally. One of the things we're certainly doing is we're trying to make adjustments to our approach, both in terms of driving more digital engagement on the P&C side. We're also doing a lot more going back to current clients on the H&B side, where we think we may have more success in converting them from existing benefit programs. We're gonna continue to look at expanding our insurance product portfolio to meet the demands of the marketplace with some things that may be more economical. I don't think there's anything major there. We have those, but again, this is really a continued sluggishness with P&C and then this kind of a, you know, lack of attachment and lack of participation in H&B. Okay. That call was helpful. Thanks again, guys. Thank you. Thank you. We'll take our next question from Kevin McVey with Credit Suisse. Great. Thanks so much. Happy holidays. John, congratulations on the first call. Your inaugural call. Hey, I wanted to go into the puts and takes on the guidance a little bit. I mean, there's been a pretty sizable step up in flow, which is pretty profitable, and then the swing factor on the other income's pretty profitable too. We're kinda holding the EBITDA, and I know the other income's below the line, but the flow's above. Is there anything offsetting that, Efrain, or is that a little conservatism? You know, 'cause it seems like, you know, you're overperforming in some of the more profitable parts of the business as opposed to not, and doesn't seem like that's flowing through. Is there anything I'm missing there or just not thinking about that right? No, not really, Kevin. I mean, I think when you do the arithmetic, what you end up, and the color that I gave you was that we saw ourselves more towards the top of the range. There is flow through on that revenue and in the back half of the year. We don't assume that 100% floats through. We look at the year, position ourselves also to anticipate potential spending going into 2024. We may end up outperforming that number, but at this point, we do always approach with an element of caution and conservatism as we go through the year. That makes a lot of sense. Can you remind us, Efrain, just what Federal Funds is in that $100 million, 110 in terms of from a Federal Funds perspective? Yeah. We assume we're gonna end up close to where the Fed is, around a 5% terminal rate as we get into the spring. You know, I just caution that you can't simply take the portfolio and put that rate in because it will depend on what the balance between short term and long term is. I've been saying throughout the year that what I wanna do is position the portfolio if we're in a situation where the Fed decides to raise and then suddenly sharply cut, we're a little bit more protected than we were during the last cycle and when the same thing occurred. Obviously, we're flowing that through the P&L. Great. Thank you. Thank you. Our next question comes from Samad Samana with Jefferies. Hey, Samad. Hi, good morning, and thanks for taking my questions. Hey, Efrain, how are you? Good. Maybe just on the, on the record sales performance, I guess, can you comment on bookings activity, both in aggregate and then maybe the linearity to the quarter and what you're seeing as we get closer toward the end of the year and as your clients adjust to maybe the changing macroeconomic environment? Yes, Samad, we, you know, look, we continue to see very strong demand for our products and services, as I said, continue on the HR side, continue to see strength there. All of our digital products, we're not seeing a lot of change in the competitive landscape at this point at all. Again, we continue to find our clients are really struggling with dealing with inflation. Certainly, our technology solutions are making them more efficient, so we've got a definitely efficiency play there. We're also helping them with the ERTC. Again, remember, you know, I think our average is over $150,000 per client that we're helping them. We've helped, you know, 50,000 clients, and that's become a big economic help to them. That's helping us. We continue to see strength in the 401 business as well, as an attachment, a critical benefit that people wanna have, there are state mandates, and that's becoming very popular as well. I mentioned time and attendance and all of our online services, this comprehensive group of online digital experiences that we're rolling out from recruiting, all of those are really resonating with the problems that small businesses are having. Hey, Sumad. To your question. By the way, I think you had me stumped there for a second as to the linearity of it. Here's my answer to that, and you can tell me if I answered it correctly. If I look at first half sales bookings growth, it was certainly solid strong. You have to go back to how are we comparing now, and on the two-year stack pre-pandemic, and we compare favorably certainly to that period of time. The question for this business is, as everyone on the call knows, Q3 is a really important quarter, our most important quarter. Generally, when we line up strong in the first half, we end up strong in the second half. When we start to wobble a little bit in the first half, it gets a little bit tougher in the second half. I think, to John's point, we're well positioned for the selling season. The only caveat I would have is that we have to get through the selling season to see how we come out, to really kind of get a sense of where the year was. By the time the Q3 has rolled through, we're, we're pretty much, we pretty much know where you are for the year. I think we're lined up well. I think the numbers would suggest that. We're in the middle of it, and we'll report out more in the Q3. Yeah, that's the color I was looking for, Efrain. Maybe just a, I guess, a follow-up on your own. I think that's about what your customers are doing. You said that you're at the expected staffing levels. How are you thinking about your own, maybe hiring going forward, in the sales and marketing organization? How are you guys planning for based on the assumptions you've made in your own guidance as well? Well, as we said, we're fully staffed, both in sales and service, going in to the selling season, which is exactly where we wanna be given the demand that we're seeing. We're gonna continue to monitor that. We're being very cautious in adding above that at this point in time. I would say we do see some opportunities for investment, as Efrain said, we will make those investments in the selling season if we see the opportunity to promote certain products and services that we think are resonating in the market. We're holding back to be able to do that. If we see some sort of change, we know what the levers are. As we've said, we're the best operators in the business. We're gonna continue to do that. We've got our hands on the levers, but we're not pulling them at this point because we're just not seeing that decrease in the demand that would merit that. Great. Wishing you and your families a great holiday season. Take care. Thank you. To you. Appreciate it. Thanks. Thank you. Our next question comes from Kartik Mehta with Northcoast Research. Hey, Kartik. Hey, Kartik. Hey, good morning, John. Hey, good morning. Efrain or John, just, thoughts on pricing, how it's sticking. I know, John, you said the co-competitive environment has been changing, so I'm wondering how your customers have reacted to the most recent price increases that you had to put in. Well, Kartik, I would say, our average revenue per client is like double digits. It's above even any of the pricing levels, and that's really driven by the value we're providing. We've already talked about it, the attachment, the upgrading we're doing from the HCM to the HR solutions, the attachment we're seeing from our digital experiences that we're adding. From a revenue per customer as well as a revenue per new sold customer, we've actually are doing very, very well there. I think it demonstrates the value, and I think it demonstrates the pricing power that we have. Then just looking at the balance sheet, obviously, the balance sheet's in great shape. You know, if the economy slows and maybe valuations come down, just your thoughts on maybe buying back stock versus M&A opportunities, you know, what makes more sense for Paychex? I don't think anything's changed, Kartik, in the sense that, you know, if the right opportunities for M&A came along, we would obviously be constructive on those opportunities. We have a range of opportunities in the funnel that we're looking at. Sometimes we see opportunities that may be worth going after more aggressively. At this point, I think that we have the normal set of opportunities that we have in the funnel. With respect to buying back shares, I don't think we've changed our outlook in terms of, at this point, buying back based on our desire to combat pollution. I don't think a lot has changed in that sense. I do think the environment, and John can also talk to this, but the environment looks more productive for doing both tuck-in acquisitions and a little bit larger scale M&A, and we're very interested in doing that. Yeah. I'd think to add on to that, Kartik, look, I think the market is changing for sure. We've always, I think, had a very similar position. The position's not changed. I think the opportunities are changing, meaning they're presenting themselves to more reasonable valuations. We always are, I think, known to be very conservative and good allocators of capital. It's not that we've not been interested in doing M&A or going after some technology bolt-ons, but the valuations have just been unreasonable for us to be able to cross that barrier. At least what we're seeing is we're starting to see some moderation there, and we're gonna continue to be as active as we have been in the past. Hopefully, we can get to a point where the market valuations match what we think is a reasonable amount to pay for some of these businesses we're interested in. Oh, perfect. Thank you both. I really appreciate it. Thank you. Thank you. Our next question comes from Brian Keane with Deutsche Bank. Hi, guys. Good morning. Just thinking about wage inflation or just inflation, in general, what's the direct effect for Paychex? Is it less attachment, less spending from the client that you'll end up seeing? Let's talk about wage inflation. First of all, I'd probably tell you that we have wage inflation, but it's been moderating. If you look at our IHS, our Paychex IHS index, we've been steady for the last three months at about 5%, and that's actually kind of moderated a little bit from what the increases we were seeing before. When you think about the wages, in certain parts of our business and certain pricing models in the PEO in particular, some of our pricing is based on a percentage of wage, similar to what's in the industry, so that can have some uplift. In general, the wage rate does not have a big impact on our revenue. It typically doesn't have a big impact on their appetite to buy attachments or spend more with you guys? Not really. I don't see that. I have never seen that analysis that would indicate that. The one thing I would probably say, look, the number of employees, worksite employees, is the key driver in our HR businesses, checks in the payroll side of the business. The more people that are, you know, employed, the more people that are getting checks, the better. One of the things that I would tell you that we're seeing in terms of the impact of inflation on employees is they're now working more hours. That's one component that we see. A recent survey of the American Staffing Association actually found that 58% of adults are looking at potentially adding a second job. We are beginning to see people getting checks at two different places within the client base. As you can imagine, that's a check is a check. Again, if you see that type of where people are going and working more, working in more places, getting more checks, that's positive for our business. Got it. No, that's helpful. Obviously, as you guys talked about, the key selling season, is happening over the next few months. What are your guys' expectations for new client growth? Is it... I always think about 2%-4%. Is it high-end, low-end of that as you head into the season? Well, Brian, I think typically we say 1% to 3%. We will see where we come out of the range there. We expect it to be a good season. I think that's about as much as I can say, because we're in the midst of it. Great. All right. Happy holidays. Thank you. Thank you. Same to you. Thank you. Our next question comes from Eugene Simonyi with MoffettNathanson. Thank you. Good morning, guys. Eugene, that was a good pronunciation of your last name. It's not an easy one, so I always appreciate a good try of it. Hi, guys. I wanted to come back to the PEO insurance for a second, if you don't mind. A lot of questions have been answered on the insurance side of things, but I wanted to just double-click on the PEO specifically. Putting the agency aside and even putting the issues with the insurance attachment aside, which we've talked about, can you just comment explicitly on what you're seeing in the, you know, bare bones PEO business, literally, you know, PEO worksite employees. Yes. Your booking trend there, I think that that would be very helpful. Yeah. I'll let John talk to sales, but I think that's a great question. I just wanna take a second to kind of, as you said, double-click on the PEO and the elements of revenue that affect revenue growth there. If everyone on the call knows the first thing that revenue and insurance in the PEO is primarily derived from the state of Florida on the healthcare side. Workers' comp is different, but on the healthcare side. It's a big number. Mm-hmm. It's primarily going to be influenced by Florida. To John's point, we anecdotally saw some interesting things in the first half of the year where we had people who had insurance, stayed with the PEO, but decided they didn't want insurance, and it was a little bit of an unusual situation. We didn't call out specific characteristics of the state of Florida in the first half of the year because frankly, don't wanna, don't wanna pile on that excuse as to what happened there, but Florida had an unusual idiosyncratic period in the first half of the year. Long story short, the level of attachment that we expected to see in that state in particular didn't materialize. As I looked at it and we looked at it, we said, "What makes sense?" Well, we expect the second half of revenue in PEO will be stronger than the first half. We're a little cautious based on what we're seeing with respect to insurance attachment. That's why we out of an abundance of caution, we lowered the range for revenue on PEO in the second half. I think it's really important, all of that is the punchline to make this point, has no impact on margins or. Mm ... or on net income. We could easily have 5% or 6% PEO growth and have 8% or 9% depending on the mix of revenue, insurance versus admin, it wouldn't have any impact on margins. That's largely driven by softness on that side of the business, and I could be reporting, and we could be reporting that in fourth quarter, we had a really sharp spike in insurance attachment. That's the reason we manage the business the way we do. We're not expecting to make money out of there. Obviously, we'd like it to be a bit higher than it is, but I think it's really important to remember that. Worksite employees, that's an important point. What we're seeing is we're seeing solid growth in worksite employees in PEO, in the PEO business, which is one thing that encourages me in terms of the back half of the year. We're not seeing softness in terms of worksite employees, excuse me, and that's really the driver profitability in the business. You don't have the worksites, you're not gonna have it. Yeah ... so it's a little bit, digging in. You asked the right question. When you look at it really, the fundamentals beneath the issue of insurance, look solid. I'll let John talk to what's happening on the sales side. Yeah, no. You know what? Our deference point, you know, this insurance attachment thing is localized to Florida. You know, our attachment rate in the PEO for our clients in Texas has no impact on our revenue at all. The fact that it does in Florida has an impact. Look, I think the PEO value proposition is still strong, it's still very solid. You look at evidence of that. I look at our revenue retention and our retention of clients there is at near record levels, very strong. We continue to see a strong work site employee growth. Again, I feel really good about where we are positioned. We're fully staffed there. We're into the selling season, and very confident that we have the right products and services for that market. Again, if dynamics in the market change, I would expect those are going to impact others just like they impact us. Got it. Got it. Well, thank you for this very comprehensive double-click. Very helpful. For my follow-up, I actually wanted to ask on the kinda HR management side of things. On the competitive landscape, was curious if you can provide your thoughts on any competitive pressure you're seeing from, you know, the trend of embedding payroll into software solutions. You know, we're seeing obviously a lot of the, your payments providers, software providers looking to expand their offerings with, you know, other business modules, if you will, and payroll is always at the top of the list. We talk a lot about that. Curious from your guys' side, you know, how successful do you think those efforts are, and are you seeing any competitive pressure there? I would say that I've not seen a dramatic change in anything and not seeing any type of new entrants that are worrisome in terms of what I think about our growth. I think, probably the other point I would make is that one of the things I think we will, it'll be interesting to see as we go into the selling season, is some of the upstart competitors who don't need to necessarily make money, whether or not they'll still be able to, you know, approach the market and marketing and marketing spend, et cetera, in the same way they have in the past. We've already seen, I think, some of that dialing back. Not that I'm seeing in any of the data that I see, that I'm seeing them having an impact. Eugene, I'd go back probably three, four years ago, and one of the fintech. Yeah a big one, embedded payroll and our stock traded down, I don't know 3% in a day. I was getting calls about why and said, well, such and such has an embedded solution on payroll. I think, you know, look, the surest way to stumble is to act arrogant. We're not arrogant about those folks. We've looked at, by the way, some of the people that you cover. Mm-hmm. Think there's an opportunity in the market for those solutions. They're just not a dramatic impact. We've never seen a dramatic impact on us because the other thing you need to think about or the other thing to consider there too is depending on what part of the market you're addressing, there's, there, especially in the low end, there's a benefit to having some level of service attached to. Mm-hmm ... attached to payroll, not obviously in the enterprise space or in the upper mid, upper end of the market. That ability for simple payroll, we've got that pretty much covered with SurePayroll. Yeah. Got it. Well, thank you very much, guys. Happy holidays. Thank you. Happy holidays. Thank you. We'll take our next question from Peter Christensen with Citi. Good morning. Welcome John, and happy holidays to all. Thanks. Efrain, I wanna ask a question about you called out working capital as a benefit this quarter. Wondering if that's indicative of changing activity with some of your staffing clients, and if that's, you know, a key lead into perhaps what's going on more macro-wise, and then just had a quick follow-up. Great question, Peter Christensen. So the short answer to that is if you look at the comparable period last year, the staffing business really rebounded significantly. We had a net use of working capital as the receivable balances grew. The staffing business continues to be pretty strong. Staffing funding business, just so everyone on the call knows, that's our Advance Partners business. We're not, we don't have the growth in receivables that we had last year. As a consequence from a net change in working capital perspective, we didn't have that, we didn't have that use, that use of funds. That's really what's driving it. Just a quick advertorial on the staffing funding business, it's doing well, and we're continuing to see growth in that part of both our business and the market as a whole. That's helpful. Thank you. I just wanna follow, dig a little bit deeper into the last question, particularly, dealing directly with merchants on the merchant side. How are you guys? Are you guys pleased or wondering if you just qualify how things are going with channel sales? I know you have a relationship with Clover, and I think you have some other channel distribution partners. Just if you could talk about the sales efficiency that you're seeing there, that'd be helpful. Thank you. I would say in our business development, you're continuing to add additional channels. It's still a, I'd say a small portion still when you look at where we're getting our clients. It's from our CPA partners. It's from our existing clients referring us. It's from digital marketing. And then we have a cadre of business development. We continue to add to them. We continue to do that. I'd say I'm pleased, but I'm not saying that I see anything. It goes back to my prior comments. I've not seen a major shift which says, "Oh my goodness, this is a big emerging trend or emerging threat." They're incremental. They're helpful. There's obviously a segment of the market that looks for that type of integrated solution. As Efrain said, as their needs get more complex, what we tend to find is they migrate into one of our HCM solutions and are getting into our HR products. I don't know if that makes sense. If it's simple, if you're looking for something very simple and the integrated is important, the minute you have one of these modules as sort of a add-on, and then you get into complexity, that's where the service model kind of breaks down, and they- Mm-hmm you kind of see this unbundling start to occur. There's a portion of the market that I think it makes sense for. We're continuing to look at that. Again, you know, when we look up at particularly our HR businesses and where we're seeing the need for our digital offerings, not so much. I think it's less important to those clients. That's real helpful color. Thank you both. Great holidays. Thank you. Happy holidays. Thank you. We'll take our next question from James Faucette of Morgan Stanley. Great. Thank you very much. Just a couple of follow-up questions from me. First on margins, it seems like, you know, we're pretty near peak levels right now. How should we think about the durability of these margin levels going forward? Particularly a question we get a lot is, you know, if we were to see a recession and revenue growth were to be impacted, you know, how should we anticipate that would impact margins, and what leverage do you have to get us to the higher end of your margin outlook versus perhaps falling back to the lower end? Let me answer that too, as then I'll throw it over to John. Look, I think James, we get that question a lot. I think it's part of the transformation that the company has gone through over the last year, last, I would say, five years in particular, especially post I'd remind everyone of the investments that we made post tax reform, and that we delivered on. Our intent was to accelerate the transformation to look much more like a technology company than what we had been before, which was certainly a perfectly well-functioning tech services business, but more technology. You hear a lot of what we say, but don't, I think, see the background of it as much. We deploy a lot of technology in the background, I say this in many of the calls, where today's tech service is tomorrow's technology delivered by a set of technology tools on the back end. We feel really passionate about the ability to deliver service, but service delivered through state-of-the-art technology. What's the point of all of that? The point of all of that is that if you can do that, and if you can do it successfully, then you get margin expansion of the type that we have been driving. We think there's still a long road to go in terms of our ability to fully optimize and digitize everything that we're doing. As a consequence, we challenge ourself every year to look at a range of potential investments that can drive margin improvement balanced by investments that also drive revenue growth. We're trying to play those off. The short answer is, yeah, I think if you were five years ago, if you said we'd hit 40% and then we'd be talking about the potential to expand beyond 40%, look, I wouldn't have known that with precision that we were gonna be there, but that's exactly where we're at. There may come a day where we say, "Hey, look, I don't think for the growth of the business, the level of investment we need to make in the business, we can really continue to leverage." We're not at that point at this stage. I'll turn it over to John for comments too. Yeah, I mean, I think you covered it, Ever. I mean, I said from the start, you know, we are known as the best operators in the business, and that's something I'm very proud of to have been part of. It's in our DNA, and we're gonna continue to do that. I do think we have some macro opportunities, and that is the digital adoption that's happening in the marketplace is a benefit. Employees and employers don't wanna talk to us anymore. They wanna get on our five-star app, and they wanna be able to do it themselves whenever they wanna do it. That adoption helps them, and it helps us. It provides a better client experience. We're investing in that, looking for ways to drive efficiency there. That macro adoption, and then what we're doing in digitizing our back office, is another opportunity to have some points that I think we still have runway on, and we're still continuing to invest in and push in and continue to move on. I think there's plenty of opportunity for us to continue to look for ways to not only provide digital solutions to our clients, but also continue to digitize what we're doing in the back office. That's in all areas of the business. I mean, you look at our digital sales, unbelievable growth in that mode of selling over the last decade and over the last five years as we've invested in that. We've launched a digital onboarding capability that'll be fully operational for the low end of our market across the business starting in January, so looking forward to that test and learn. We have several other test and learn investments coming out of our November strategy session that are all built around driving additional growth and driving further digital adoption across the business. That's helpful. I guess a related question. I mean, it sounds like you guys are going into the selling season well-staffed, and I know that had been a point of concern earlier. I mean, you know, just on that topic and, more broadly of service levels, you know, I guess are you seeing that as an indicator of just a little bit of a change in the hiring market generally? You know, and as we dig into the efficiencies, are the technology investments, et cetera, allowing you to increase the typical client count for an existing account manager, and how has that been trending? I'm just wondering about kind of the hiring environment through your own needs as well as points of efficiency that you're realizing right now. Yeah. I would say the hiring environment for us, I think, like most people are reporting, has stabilized, much different than it was probably a year ago. When we were sitting here a year ago, we were not fully staffed to where we would like to be entering the selling season and the year-end season. We sit here today, fully staffed, fully trained, and prepared to execute going into that. It's a much different hiring environment for us as well. We are continuing- Great to drive productivity as well. Got it. Thank you so much. Thank you. Thank you. Thank you. We'll take our next question from Mark Marcon with Baird. Hey, happy holidays, John and Efrain. Same to you. I just wanna save you Efrain, I've got a little gift for you just to save you some time on all your callbacks. Okay ... 'cause I'm getting this question a lot, online. Okay. Well, listen, Mark- Um, can you- I'm all ears. Can you just break out the PEO and insurance services, that $273.3 million? Yeah Can you break it out between the agency component versus the PEO component? Yeah. And then. Go ahead. ... and then to break down, you know, what you ended up seeing in terms of the year-over-year change, within those and this is more than double-clicking, but it'll save you a lot of time. Just, you know, how much of an impact there was with regards to, you know, to the, to the change in terms of the... Yeah ... the uptake of the health insurance and the Property and Casualty the workers' comp. Yeah. Mark, I would point all of the good investors who are asking you those solid questions to a chart that we included at the beginning of this fiscal year/end of last fiscal year, which broke out PEO and insurance by percentages. If you go there and look at that, you'll see the exact percentages. The percentages as of the end of the year really didn't change significantly in the first half of the year. That's the first part. The second part is roughly half and half is H&B. Roughly half of the insurance revenue is H&B, and the other half is P&C, as John said, but that's largely workers' comp insurance. Yeah. I will only describe it qualitatively, which is to say that we're still seeing growth, low single digits. We're still seeing growth in H&B, and on P&C. P&C itself, workers' comp in the quarter was flat to down. The impact of a really soft insurance market, which was different than it was 3-4 years ago, is weighing on that. In summary, that word salad says, look at the end of the quarter, end of the last fiscal year. I got a breakout on management, on Management Solutions and also on PEO and insurance. It's there. You'll see what it is. You can say that in the insurance, roughly, it's half workers' comp and half H&B. We still see growth in H&B, to John's point, that should grow as smaller clients become more constructive on buying insurance. Workers' comp is the one that's exerting a drag on that entire segment. Got it. If we strip out the insurance component- Yep ... is the PEO business x the insurance component still growing high single digits, low double digits? I won't split it out that way because it's a little bit tough with the, with the value proposition, Mark. What I'd point to is what I said earlier in the call, that we're getting good work site employee growth, and that's kinda where we're focusing it. It's hard to strip it out that way because then you'd have to do a deep dive on what's happening in Florida versus other parts of the market. When you look across the markets that we serve and look at work site employee growth with, and certainly in most of the major markets, we're seeing good work site employee growth. What was, I'm sorry, I'm sure you mentioned it before. It's in one of the releases, but what was the work site employee growth? We did not say that. Good try, though, Mark. We didn't say it. We'll report on it at the end of the year. What we did say, and what John said, is that we've had significant work site employee growth, both in the ASO and PEO model, and we surpassed 2 million employees. Remember, Mark, one other thing for everyone, we don't force a client into either the PEO or ASO. We're unlike a lot of other providers. We say to a client, you can have either, depending on what you value in the bundle. What we're seeing across both of those solutions is strong demand. Great. Then on Managed Solutions- Yeah ... you know, obviously solid and better than expected, better than what we've, you know, modeled and better than what you've guided. The one question that I got from some investors is basically, you know, why did the Management Solutions, you know, slow in Q2 relative to 1Q? Yeah. Okay. That was a good question. I answered that one after first quarter, but the short answer to the question, Mark, I'd say bucket it three ways. The first thing is that significant growth in pace per control or checks per payroll in the quarter versus the prior quarter, that was one. The second part was that ERTC was a significant contributor in the it wasn't as great a contributor in the Q2. In other words, it wasn't as large incremental growth. Third was everything else, which was positive Got it. Great. Then John, you mentioned, you know, that the really cool innovative tools, you know, during the last quarterly discussion, you know, particularly the voice-activated solution. I'm wondering if you can give us a sense for like, for your most innovative tools, what sort of uptake are you currently seeing? Well, I mentioned one of the where clients are having the issues, which is really on the hiring and onboarding is one. If you look at that, when we last reported, I mentioned that we had launched that product in beta and then announced it. At that point, we had 1.1 million. I think 1.8 million maybe, employees that had actually been hired through that process. As I sit here today, we will approach 3 million people hired through that platform. Give you some idea of the use of that and how frequently that's being used, and that's a very popular. Paychex Retention Insights is another one that we've had very good uptake and utilization of, and impact, quite frankly. Getting good reviews there. Yeah, I was talking about the Google- That's right. -uh, voice act- 401(k), time and attendance, all of those other online traditional products doing well as well. Yep. I was referring to the Google voice-activated. Yeah ... solution. Yes. Yeah. We, we've launched that. It's, we're, you know, starting to launch that, and we're watching to see how customers adapt to it and utilize it. Okay. Great. Happy holidays. Yeah. Thank you, Mark. You too. Thank you. Our last question will come from Tien-Tsin Huang with J.P. Morgan. Hey. No, thanks for including me. Good morning. Just wanted to ask on the retention side. I know it's record retention. It's been doing really well, and I think I've been getting a lot of questions around SMB and retention, bankruptcy risk here going into possible recession. I know, Efrain, you've shared this before, but can we revisit what it did in past down cycles? Yeah. I would imagine that you would do probably a little bit better. I think you always do a little better than people fear, but I would think you would do better here given, you know, the shifts in the platform, the investments in tech. I just wanna revisit that before we close out the year. Thanks. Yeah. Yeah. you know, I mean, if you go back to 2007, 2008, 2009, where the business was rough, Tien-Tsin, you would know this, it was roughly about 80% payroll and 20% HRS. Mm-hmm. He said about, trough, I guess, depending on which side you're looking at about, 77%, retention on a unit basis. I don't know what the revenue retention was back then, but, you know, we were down to about, 23% attrition. Now, that's. There were a lot of reasons why that's, certainly a lower, lower band. You know, not to mention the fact, Tien-Tsin, as everyone on the call knows that right now, if we just isolate pure what we would call payroll, that's less than half of what we sell. The rest of the stuff when you attach in our model creates and generates better retention. Now you put yourself in a completely different position, even in PEOs. I think the factors there dictate that you're gonna have a very different outcome than you would have back in 2007, 2008, and 2009. One other point that I would add to that. I mentioned in the and during my comments that we did see, we are seeing more elevated churn in the micro segment than perhaps a year ago. There's a mix element to that that's not... If you wanna understand it, call me. It's not worth going into here. We anticipated that, by the way. From a revenue retention standpoint, we still are very, very solid, and those are the clients that you're less likely to see churn in a downturn. That's my long-winded answer to your question. No, thanks for going through that. My quick follow-up, I know there's a lot of margin questions here. The overperformance in the first half... Okay ... any surprises, or what would you attribute or rank the big contributors to the, to the margin overperforming here so far? Yeah. You know, Tien-Tsin, I hate to use kind of a very generic answer to the question. Okay It is the very generic answer to the question. We had an expense plan. We beat it. Okay. There was some mix effect. I mean, I don't wanna say that management solutions overperforming the way it did didn't impact. It did. I think that's part of it, but also expenses were better in the first half. Got it. No, look, I like the simple answer, so I appreciate that. Have a blessed holiday. Thank you. Thank you. You too, Tien-Tsin. Thank you. We have no further questions at this time. I'll turn it back to Mr. John Gibson for any additional or closing remarks. Thank you, Todd. Well, at this point, we'll close the call. I would like to thank you for your support during my first call as president and CEO. I look forward to getting to know each and every one of you better in the future. I know we've got a chance to talk to some of you. I'm sure we'll get a chance to talk to more. If you're interested in a replay of the webcast of this conference call, it will be archived for approximately 90 days. I wanna thank you for your support of Paychex. I hope all of you and your families have a happy holiday and Happy New Year. Thank you. This concludes today's call. We appreciate your patience. You may disconnect at any time.