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 will have an opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing Star one on your telephone keypad. 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. 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 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. 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. Based upon an analysis by MIT, we estimate that we saved over 300,000 small business jobs. While these pandemic-era programs are not part of our normal recurring revenue product strategy or our business model at Paychex, they were certainly consistent with our purpose, and that's simply to help businesses succeed. 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 recurring revenue growth formula still holds true in 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 midsize 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 and midsize businesses. A tight job market for qualified workers, reduced 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 this third quarter was also in line with pre-pandemic levels, and both revenue and HR outsourcing worksite 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 sound. 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 offering, 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 give 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 era. We exit 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. 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 risk. In addition, I will periodically refer to some non-GAAP measures like adjusted diluted earnings per share and 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 2024 outlook. As promised, to many of you on the phone, I will share some preliminary thoughts around fiscal 2025. 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. As we disclosed in the press release, that 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 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 nine months grew 4% to $2.3 billion, and our operating margins for the first nine months of the year were 42.5%. That's a 70 basis points 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 nine 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 returned a total of $1.1 billion to shareholders through the first nine months of the year. That included $963 million in dividends and $169 million of share repurchases. 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 has 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 for 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 31st of this year. I think it's passed the House. It hasn't yet passed the Senate, but that does create a level of uncertainty around ERTC. We continued 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 31st, 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 of 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%-4%. We previously had guided to the lower end of the 5%-6% range. PEO and Insurance is still expected to grow in the range of 7%-9%, although we now expect 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-$150 million. Total revenue is now expected to grow in the range of 5%-6%. Our prior guidance was 6%-7%. Other income net is expected to be income in the range of $40-$45 million, and this is raised from the previous guidance of $35-$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%-42%. Adjusted diluted earnings per share is still expected to grow in the range of 10%-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 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 2025. On a preliminary basis, we would expect total revenue growth to be consistent with the fourth quarter growth rate. As a reminder, as I just told you, that would be in the 5% range. This does include a headwind from ERTC of approximately 2%. I mean, ERTC, for all intents and purposes, is zero 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 2025, and that is assumed in the 5% range number that I gave you. Then, despite this headwind, we are committed to delivering operating margin expansion in fiscal 2025. 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'll refer you to our investor slides on our website for additional information. With that, I'll turn it back over to John. Okay. Thank you, Bob. Mike, we'll now open it up for questions. Absolutely. At this time, if you would like to ask a question, please press the star and one on your telephone keypad now. You may remove yourself from the queue at any time by pressing star two. And once again, that is star and one if you'd like to ask a question. We'll pause for just a moment to allow questions to queue. We do have our first question from Mark Marcon with Baird. Morning, and thanks for taking my questions. 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. That's basically bipartisan and is basically going to end retroactively on January 1st. So you then stopped recognizing the revenue. Is any ERTC revenue that you sold from January 1st through February actually included in the third quarter number that you just reported? Yeah. Everything that we sold and filed in the month of January, Mark, is included in the quarter, but nothing beyond January 31st. So we continued to sell it in the month of February. I would say the faucet was still running steady in February on 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 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 that's. How does this? Yeah. Go ahead. I mean, just related to the guide that you were providing, obviously, for the third quarter within management solutions, because of the ERTC headwind, things were tougher. It seems like you actually did see some acceleration ex-ERTC on total revenue. I was just wondering, is there any way to quantify the impact in terms of not recognizing that revenue in February? Because obviously, you were anticipating that coming in. Any thoughts there? Yeah. I mean, high level, Mark. I mean, we provided guidance for the quarter. I think 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 set. And I would say probably a third or a little bit more of that was related to the decision that we took on ERTC. So you could probably do the math on that and back into to get to a number that's close to the impact in February. 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? Yeah, Mark. This is John here. Again, as you know, we pride ourselves in being the best operators in the industry and have the 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 three 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've really focused 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 their 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. Perfect. Thank you very much. We have our next question from Kevin McVeigh with UBS. Thanks so much. Hey, Kevin. On the execution. Hey, I guess, Bob, this would be for you. The 2025 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? Yeah, 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. Yeah. 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've 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%-3.5%, high 2s, even if you go back, in 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 our HR professionals that are engaged as you know, we have about 2.2 million of our clients' 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 burnt 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. Actually, January and February were the first two months in our index, still over 100, still showing growth. But those were the first two months that we actually saw growth under pre-pandemic levels. 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 point. What we're seeing is openings, vacancies, trouble hiring, and businesses being cautious in who they're bringing into their workforce. A lot of sense. Then, John, just to follow up on that point, is kind of that tight labor what's driving kind of the re-enrollment on the insurance side of the PEO, or just anything to call out in terms of what's been driving that? Oh, 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 looked at all aspects of both our product, our insurance product offerings, our enrollment processes, and how we engage employees around that, top to bottom. We made some changes in both the product offerings we have as well as the way we approach clients and the employees in our insurance offerings in the PEO. I think the team's done a good job there. What we've seen is now we're back to at the slightly above attachment rates, and our participation rates are back to our historical norms. I think that was a little bit more of an execution issue than any macro item. Thank you. We have our next question from Tien-Tsin Huang with J.P. Morgan. Hi. Thanks. Good morning. I wanted to ask on PEO. I know the commentary around sales, retention, and attach was quite strong, and then you're moving to 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. Thank you. Yeah. You want me to? Yeah. Go ahead. No. So I'll just start listening. And then fight you over it. No, no, no. So I'd say the big driver of maybe guiding more towards the lower end of the range was 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. And we mentioned we continue 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. The other thing I'll call out on the PEO, I think the print is strong at 8%, but as you guys know, 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 standalone 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 in 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. 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 three 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 timeframe and if that's baked into your look ahead or preliminary 2025 outlook? Thank you. Well, that is a broad question, multi. So if I miss something, you come back at me, Tien-Tsin. 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 could 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, ERTC. When I look at our actual revenue per client, because 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 the pricing that we're getting across the various product groups being on par with what we have seen historically. I would remind you that over the last three years, we have guided and have said what's been at the high end of our traditional range. I think that our assumption is, as we go into the post-pandemic era, that we're going down like everything else seems to be going back to the mean, to slightly higher. 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 two dynamics going on that were interesting to me when I looked at the data. Again, 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, 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 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 decisions, slower. You've heard some other competitors that are more targeted in the upper end of the market talk about extended decision timeframes, etc. 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 negotiating in their approach, which is kind of what you sense in the economy with high inflation. Yeah. Thank you for the complete answers. Yeah. We have our next question from Bryan Bergin with TD Cowen. Hi, guys. Good morning. Thank you. 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? If you can, give us some added color across client size, PEO versus ASO as well. Yeah, 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. 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, a worksite employee per deal, it can have an impact on the revenue you expect. Okay. Understood. And then just on the sales front and sales investment, I guess, can you give us a sense on how sales headcount has trended relative to the start of the year? And as you go forward and plan for 2025, how are you thinking about adding absolute sales headcount versus trying to lean on more tech investments to drive more productivity? Yeah, Brian, I would say this. Our sales headcount has been at our expectations through the year. When we went into the selling season, we were at headcount. 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 as 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. 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. Okay. That's clear. Thank you. We have our next question from Samad Samana with Jefferies. Hi. Good morning. Thanks for taking my question. So maybe first, we'd heard about maybe pricing increases going into effect, let's call it, either toward 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. Yeah. I'll take the first question. Yeah. No change, Samad. I mean, I think your timing I mean, it's not always the exact time every year, but it's in that range typically towards the end of the fiscal year. Beginning of the next fiscal year is typically when we have our annual price increases. So really no change to timing there. Okay. Great. 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 mid-market? Then same question between management solutions and PEO, if you'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? No. Samad, 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, this many, 500-999. You get the drill, right? And on average, 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. And the PEO came in in the ASO and came in in the traditional HCM. And we made up the volume in more slightly average-sized 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? I'm going to briefly. It It does. I'm going to squeeze one more in. I know two are normally delivered. But just is there any—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 next quarter for management solutions, ERTC and PEO, what's implied in the guide, that that wouldn't be the trend line heading into next year? Is there anything that would materially get you off of those trend lines? Yeah. I mean, I wouldn't say significantly, Samad. I mean, I don't want to get into providing specifics on the two categories yet as we're still going through our annual budget process. But we certainly would expect the PEO insurance category growth next year to be similar to what we've seen this year. Management Solutions is where the big headwind is with ERTC. I would say similar trend lines to where we're exiting the year. Great. Thank you so much. Have a great day. Thanks, Samad. And Samad, I appreciate that you're recognizing the three questions. So I'm going to remind everyone of the Efrain rule. Although he's gone, we've. Thanks for indulging me. Take care. We have our next question from Jason Kupferberg with Bank of America. Hi. This is Caroline. I'm on for Jason. In terms of capital deployment heading into 4Q and also 2025, can you give an update on the relative attractiveness of buybacks versus M&A? And then also, could you give an update on the general health of your M&A pipeline? You want to start with the M&A? Yeah. I'll start with the M&A. Yeah. Look, I would say that we continue to be open to acquisitions that meet the strategic objectives that we've laid out and that make financial sense. I would say that I feel like in several areas and industries that we have interest, that the multiples that I've seen are getting into line that are more reasonable and trying to be active. And the key thing is just the timing of that. When's the right time of that? So we're certainly open for business, active, engaging in both tuck-ins where we can add capability. We're doing a lot of things and looking at what we can do from an AI and digital HR perspective, constantly looking for adjacencies that are driving really the needs of our customers in terms of what they need to succeed in what we've talked about, the access to capital, being able to retain and then hire employees, and really getting access to affordable benefits that allow them to attract clients. So all of those things are open. We've got an active, engaged team that is talking to a lot of different prospects, but more to come. We certainly have the capital capability and the ability to do acquisitions, and we're prepared to pull the trigger if we can come across something that makes financial sense. And Caroline, I mean, the only thing I would add to that just overall as it relates to capital allocation, really no change in our approach there. We're going to continue to invest in the business. Dividends, we're going to continue to grow the dividend, and that will continue to be our primary use of cash. You mentioned share repurchases. Really no change in our philosophy there. We do that to offset dilution from executive comp. You saw recently, a month or so ago, we did do a new share reauthorization, so we can continue to do that. The old authorization had expired. And then to John's point, we certainly are interested in M&A opportunistically, and we'll continue to use M&A to drive growth in the business. So our strategy and philosophy around capital allocation is very consistent with what you are all used to in the past. Okay. Awesome. Thanks. That's great color. I appreciate you guys taking my question. We have our next question from James Faucette with Morgan Stanley. Thank you so much. I wanted to go back on just a quick couple of macro points that you were making. If I rewind back in December, you talked a little bit about some concerns you had about potential for increases in out-of-business rates, etc. And just wondering how that's evolved and what your current outlook is there. And it seems like you feel better about it, but I just want to make sure I'm interpreting your comments correctly. Yeah, James. I would say that out-of-business rates are not out of the norm that you would expect given the accelerated new business starts that we saw 2-3 years ago. Small business starts are down a little bit from those peaks and high, but still above pre-pandemic levels. But again, it goes back to what I said before. We're not seeing signs of what would typically be seen in a recessionary period where there was accelerated out-of-business. Right now, what I would say out-of-business is elevated, and particularly in the low end. But when you look at that in context of how many new businesses were started over the last 3 years, that's not atypical because within 2 years, 50% are gone. Within 5 years, 75% of them are gone. It's not being driven by what I would say economic hardship or broad-based businesses that you would not expect to go out of business don't seem to be going out of business, if that makes sense. Yep. It does make sense. I appreciate that. And then we've talked about kind of labor scarcity pretty consistently for the last few years. And I think your incremental comments in terms of the quality of labor and specifically employers being more discerning now is interesting. Any specific areas or whether it be industries or geographic regions that that's important to? And I'm asking the question because I'm trying to think about what the path to resolution there is or if this is just something we're perpetually going to be grappling with. Well, look, what we keep trying to focus ourselves on is what more can we do to help our clients retain and attract quality employees? It's in their interests. It's certainly in our interests given the way we get paid. I think as you know, we launched two years ago the AI-based Retention Insights product that gives them insights to where they may have retention risk. We've got the partnership with Indeed that's fully integrated, and we're actually elevating their job postings up in the listings for them as part of that partnership. We just did the Visier product, which is on the way to be launched. We'll give them compensation information to be done. We're going to be doing some things in the next fiscal year around creating benefit bundles for our non-insurance HCM clients that allow their employees to feel like being part of that employee's relationship gives them access to catastrophic care. We're trying to do a lot of things to solve this problem for our clients. And obviously, there's more we need to do because the simple fact is we have a generational change happening in the labor force. Participation rates remain below pre-pandemic levels. And it's going to be very difficult given the rate of retirements that we're seeing in baby boomers to really see that change. And what you see in the prime-age workers, we're actually at record highs. The problem is there's not enough prime-age people to fill all the opportunities. And then when you look at the productivity gap that you have generationally and that's just in terms of experience. I don't want to disparage any generations in any way, but just the fact you're replacing someone with years of experience with someone that's newer in experience, I really think this is going to be an ongoing public policy issue that's going to have to be addressed. There's a lot of retraining with AI and digital jobs. I think more needs to be done. I mean, we got the R&D tax credit thing that's sitting out there. Not to get on political bandwagon here, but we need to do more to allow businesses to invest in productivity and drive productivity enhancements. And that's not going to replace workers. That's going to enable them to get the work done with less workers that are going to exist in the marketplace. I think this is a systemic problem. I think it's a great opportunity for us because it really goes to the products and services that we offer for a small and medium-sized business owner. That's kind of my personal view on it, and it continues to show up in the data that we look at. That's great. I really appreciate that. We have our next question from Ramsey El-Assal with Barclays. Hi. Thanks for taking my question. How much did M&A contribute in the quarter? And if you could help us think through whether there's an inorganic contribution when it comes to your preliminary FY-25 guidance, what that might be as well? Yeah. Ramsey, I mean, M&A, we didn't do any new M&A. The only M&A that we've done this year was the small Alterity acquisition that we did at the end of Q1. Obviously, it contributes something. It's a small number. It doesn't even round to 1%, so it's really not a big contributor at all. In the guide, we typically don't, although we're always active and looking for opportunities, we're not going to put anything into a forecast until a deal is closed. So that does not assume any. The preliminary guide does not assume any level of M&A next year. Got it. Got it. One quick follow-up from me. Secure Act 2.0, what are you seeing there? Does that have the potential to emerge as kind of a tailwind that might help offset some of the ERTC headwind, or is it too early to tell? Maybe give us an update on what you're seeing on Secure Act 2.0. Yeah. I think, Ramsey, replacing ERTC is a very difficult thing to do both in terms of the revenue nature of it and the profitability of it. And I would say that helping and basically, we're doing filing. As you know, we were doing tax filings, which is something that's core to our business. And there was a lot of hype around ERTC, so there was a lot of education going on by others that was helping that. What I see in the Secure Act is I think it's a great thing. I mean, our retirement business had a solid quarter, and it's had a solid year to date, and that continues to be a strong growth driver. I think you still got to talk to business owners and educate them on it. It's still a sales process. We've had states that have made it mandatory. Those kind of come and go in the area. The other thing on the Secure Act 2.0, which we've been pushing on, is there is a little bit of a loophole that kind of disadvantages businesses with under 10 employees. I won't get into the nuances of it. There's pretty bipartisan support in both the House and Senate to try to close that loophole. We keep pushing for that because I do think that would particularly help in our micro-segment really accelerate some adoption there. But right now, that loophole is still there. Got it. All right. Thank you so much. And we have our next question from Ashish Sabadra with RBC Capital Markets. Hi. This is David Paige on for Ashish. Thanks for taking my question. I just had a question on your AI initiatives. Can you provide some of the customer feedback, I guess, what parts of your tools or your AI models that they're liking and maybe some of the benefits you're seeing internally in terms of greater sales teams, productivity, etc.? Thank you. Yeah. So, David, what I would tell you at this point in time, a lot of our AI initiatives and investments have really been focused internally, both in terms of how we drive efficiency, how we drive better sales productivity, how we do better marketing and targeting, how we do better customer service and identify clients that are at risk, how we do better pricing and discounting so that we're not giving too much away, but we're giving enough to get the right type of lifetime value that we want. Really, on the client side, the Retention Insights, it's been a very popular product with our larger customers in terms of getting insights of what they're doing. We're just in the stages of really rolling out our Visier product, which will give them basically 750 million compensation data points that will allow our customers in real time to understand how competitive they are if they're making a job offer, what they could potentially do. That's just in the early stages. What I believe is because of our vast dataset, we're going to be able to provide a degree of insights and information when coupled with our HR advisors that I truly think is going to set us apart from any of the smaller regional players or a local CPA because we're just going to be able to give them the vast dataset insights that we have. As I mentioned, we just hired a new SVP whose full-time job is to do nothing but pull all of the capabilities we have across the company and develop a robust strategy of how we can drive the most out of AI to drive more value for our customers and drive more operational efficiency into the company. Thanks. We have our next question from Bryan Keane with Deutsche Bank. Hi, guys. Good morning. I just had a couple of clarifications. The miss on revenue in third quarter versus your guided expectations, it sounded like a third of that was the ERT decision to stop recognizing the revenues. And I'm just trying to fill in the gap then, the other two-thirds of kind of versus your expectations on the miss, if I heard that correctly? Yeah. That's right. Hey, Bryan. So there's three big drivers that or three drivers that we've talked about. They're all small, but there's three drivers that we've talked about. Certainly, the continued moderation of employment. We definitely saw lower checks per client, lower change in base relative to what our assumptions were. That started in Q2. We updated our forecast in Q2 for some of the trends that we were seeing. But I would say employment came in a little bit softer than even our revised assumptions in the forecast. And then John mentioned a little bit on the rate. We saw smaller client sizes, maybe a little bit higher discounting than what we assumed. I mean, we're still getting really good price realization overall and strong growth in revenue per client. But I would say it was a little bit softer relative to what our forecast assumptions were. Then the bigger piece there was the ERTC that I mentioned. So when you look at those three things, they're roughly a third apiece is how I would characterize it. No, that's helpful. And then when I jump from the third-quarter revenue growth of 4% to the guided 5, what accounts for the extra strength of 100 basis points when I go into the fourth quarter? Yeah. So I'd say there's a few things to call out there, Brian. One, I mentioned the ERTC headwind being similar to Q3. It's a little bit less than it was in Q3, so that has a little bit of an impact. You have less of a headwind from ERTC in Q4. We're still getting a strong client base, price realization, product penetration that carries into Q4. And then I would say on the PEO side, we came out of selling season in a stronger position from a worksite employee standpoint, and medical enrollment. And so we're going to get the full quarter benefit of that in Q4 relative to where we were in Q3. So we got positive momentum, I would say, heading into Q4 in both businesses. And then we are getting a little bit of a lift in interest on funds in Q4. You're seeing a little bit stronger growth there versus Q3. Some of that is the compare. We did some repositioning of the portfolio. I think we had some realized losses that we took in Q4 to better position the portfolio going forward. And so you get a little bit of a tailwind in growth from that as well. And I'd say when you put those together, that's what accounts for a little bit stronger growth in Q4 relative to Q3. Got it. Thanks for taking the questions. Yep. We have our last question from Scott Wurtzel with Wolfe Research. Hey. Good morning, guys. Thanks for taking my question. Just one for me. I wanted to go back to the expense and margin side. I mean, the outperformance, I think, was notable despite the ERTC revenue going away. I just wanted to clarify. I mean, I know you talked about some of the efficiencies off of the investments over the last few years, but were there any specific actions on the expense side that you took during the quarter as the ERTC revenue sort of wound down? Yeah. I wouldn't say anything specific to call out, Scott. I mean, obviously, we're always trying to look at expenses and making sure that we're not letting new costs into the business and really focusing. We saw the headwind coming, so I wouldn't say there's anything specific to call out other than good expense management. And some of that margin expansion that you saw in the quarter is being driven by interest rates. But even when you exclude that, we saw good margin expansion during the quarter. Yeah. I don't want to shortchange the tremendous job that each and every employee does in the company in terms of managing expenses. We have this built into our DNA when we say, "Hey, we're seeing signs it's time to go." People know what to do, and they do it. Because, again, as Bob pointed out, some of that PEO insurance revenue is direct revenue pass-through. So when you look at our margins, you think some of that revenue, and you're losing the ERTC. I just want to commend how good a job we've done. I think we've done historically as part of our just DNA as being the best operators. It's every little bit, every little thing matters. There's no one big thing. I would say that the insights that we're gaining and the opportunity for digitalization, the investment we've made in enabling our clients and their employees to engage our systems, and the rate in which they're adopting that opportunity is tremendous. We've invested over the last several years into building out both our AI robotics capabilities and our global footprint. I think all of those investments we've made over the last three years during the pandemic era when we had the ERTC are going to serve us well as we move forward. I just look at it and say, as we exit this era of the pandemic from a Paychex perspective, I think we're entering the new era of just fundamentally a better-positioned company. I think we're a more positioned, trusted advisor to small businesses. We're delivering more value to our customers. They're rewarding that with retention and with better pricing in a market where there's a lot of cheaper alternatives out there. We're more digitally enabled in all aspects of our business than we've ever been. And I think we're more agile and focused and also more profitable, quite honestly. So hats off to the team for all the things we've done to get ourselves in this position that when the tide turned, we had leverage we could pull to make sure that we're delivering for our shareholders. Great. Thanks, guys. Thanks. Is that it, Mike? That does conclude our Q&A session for today. Okay. Well, listen, everyone, at this point, we'll close the call. If you're interested in a replay of the webcast of the conference call, it will be archived for approximately 90 days. I want to thank you for your interest in Paychex and hope all of you have a great day. Thank you. This does conclude today's program. Thank you for your participation. You may now disconnect.