Paychex, Inc. (PAYX) Earnings Call Transcript & Summary

Good morning. Welcome to shareholders of Paychex, Inc. and guests. We will now begin the 2021 Annual Meeting of Shareholders. We will start with a short video and then turn it over to Tom Golisano, Chairman of the Board of Paychex, Inc. [Presentation]

Good morning, ladies and gentlemen, and welcome to the 2021 annual meeting of stockholders for Paychex, Inc. I am Tom Golisano, Chairman of the Board of Paychex, and it's my pleasure to welcome you all today. Before getting into the business of the meeting, I just wanted to acknowledge the company's 50th anniversary. We started this business back in 1971 to address the unique needs of the small business community. Since then, through innovation and expansion, Paychex has grown from a payroll service provider to a complete human capital management software solutions company, serving over 710,000 clients across the U.S. and Europe. I want to thank our shareholders, employees and clients for their commitment to Paychex, and I'm so proud of all we have accomplished together over the past half century and excited about what the future holds. Back to the business at hand, we are hosting our meeting virtually, which allows to observe safety protocols and to reach a greater number of our shareholders. We have shareholders and guests attending via the web portal. As is our custom, we will conduct the business portion of our meeting first and answer questions at the end of the presentations from our President and CEO and our CFO. Though we may not be able to answer every question, we will provide a response to as many as possible in the time allowed. In keeping with the digital approach to this year's meeting, it is now 10 a.m. Eastern Time on Thursday, October 14, 2021, and this meeting is officially called to order. At this time, I would like to introduce our Board of Directors. Present with us virtually today are Thomas Bonadio, Joseph Doody, David Flaschen; Pamela Joseph, Marty Mucci, Kevin Price, Joseph Tucci, Joseph Velli and Kara Wilson. We are also joined virtually by our independent auditors, PricewaterhouseCoopers, being represented by Sean Hoover. PwC is available during the question-and-answer session to respond to appropriate questions. Finally, Todd Card; Corporate Counsel for the company has been appointed to act as inspector of election. I would like to take a moment to comment on our dividend. Our quarterly dividend now is at $0.66 per share. During fiscal 2021, we paid out $909 million in dividends. $909 million in dividends, which is 83% of our fiscal 2021 net income. Now we'll move on to the more formal part of the meeting, we will provide time for general questions later in this meeting. Only validated stockholders may ask questions in the designated field of the web portal. [Operator Instructions] Please notice that this meeting is being reported. The Board of Directors fixed August 16, 2021 as the record date for determining stockholders entitled to vote in this meeting. An affidavit has been delivered attesting to the fact that either, a, notice of Internet availability on the notice of meeting, the proxy statement and the 2021 annual report to shareholders, or 2, the documents themselves were mailed out on about September 3, 2021 to all stockholders as of the record date and will be incorporated in the minutes of this meeting. The stockholder list shows that as of the record date, there were approximately 360 million shares of common stock outstanding and entitled to vote. At this meeting, we were informed by the inspector of election that approximately 88% of the outstanding common stock is present in person or by proxy. I, therefore, declare a quorum is present for purpose of transacting business at this meeting. On behalf of the Board of Directors of the company, I would like to thank all stockholders who returned their proxies. Now I will present the matters to be voted upon. Please note that we give stockholders the opportunity to ask questions or comment on the proposals themselves after all the proposals have been presented. Proposal #1, election of directors. The first matter to come before this meeting is the election of 10 directors, each of whom will hold office until 2022 Annual Meeting of Stockholders or until their successors are duly elected and qualified. The following persons have been nominated: B. Thomas Golisano, Thomas Bonadio, Joseph Doody; David Flaschen, Pamela Joseph, Marty Mucci, Kevin Price, Joseph Tucci, Joseph Velli and Kara Wilson. The Board is recommending a vote for all of our Board nominees. Proposal #2, advisory vote to approve named executive officer compensation. The second proposal is the advisory vote to approve the compensation of our named executive officers as described in our proxy statement, commonly known as the say-on-pay vote. This Board is recommending a vote for this proposal. Last year, our stockholders overwhelmingly approved the compensation of our named executive officers with approximately 95% of the votes cast in favor of the proposal. It is our belief that the compensation plan as described in the proxy statement and supplemental materials is effective in achieving the desired goals of aligning our executive compensation with the interest of our shareholders. Proposal #3, ratification of the selection of our independent registered public accounting firm. The last matter to come before this meeting is the ratification of selection of our independent registered public accounting firm. The Audit Committee has approved PricewaterhouseCoopers as the company's independent accountants for the fiscal year ending May 31, 2022. The Board believes that this is appropriate to seek stockholder ratification of this appointment. The Board is recommending a vote for this proposal. If any stockholder would like to ask a question or make a comment regarding any of the proposals, please submit them to the web portal. We will address them during the question-and-answer period. Polls are now open for voting. Any stockholder who has not yet voted may do so by clicking the voting button on the web portal and following the instructions that are there. Stockholders who have sent in proxies or voted via telephone or Internet, do not need to take any further action. While that is being done, I will now turn the meeting over to Marty Mucci, our President and Chief Executive Officer, to provide an overview of what is happening at Paychex and to answer your questions. Please welcome Marty Mucci. [Presentation]

Good morning, and welcome to the Paychex Annual Shareholder Meeting. We appreciate your participation and interest as we come to you virtually again this year. I want to thank you -- thank all of those who put that video together. The future of work is here, and I think at Paychex, our employees are more than ready to support our clients. And as we celebrate our 50th year, we are very proud of our commitment to serving our clients with industry-leading software and a multitude of products and service options. Our goal is still to make it simple for our clients through a combination of innovative technology and personalized service. We are particularly proud of the support we've been able to provide to our clients during the pandemic. It continues to be a challenging time for all businesses. We work to be the best in the industry for our clients, our employees and our shareholders. I'd like to introduce the executive team to you now. Mark Bottini, Senior Vice President of Sales; Teresa Carroll, Vice President of the PEO, our Professional Employer Organization; Neal Collins, Vice President of Corporate Development; John Connors, Vice President of Software Development, Chris DeSalvo, Vice President of Service Excellence and Operations; Tamara Duncan, Vice President of Small Business Sales; Frank Fiorille, Vice President of Risk, Compliance and Data Analytics; John Gibson, Senior Vice President of Service; Mike Gioja, Senior Vice President of IT and Product Development; Tom Hammond, Vice President of Corporate Strategy and Product Management; Mike Jeffrey, Vice President of Major Market Sales; Ted Jordan, Vice President of Service; Maureen Lally, Vice President of Marketing; Karen McClendon, Vice President of HR and Organizational Development and our CHRO; Efrain Rivera, our Senior Vice President, CFO and Treasurer; Stephanie Schaeffer, our Vice President, Chief Legal and Ethics Officer and Secretary; Brad Schaufenbuel, Vice President and Chief Information Security Officer; Bob Schrader, Vice President and Controller; and Terry Sukalski, Vice President, HRS and Retirement Sales; and Mick Whittemore, our Vice President of IT Operations. Even with the impact of the pandemic, we have had solid financial performance in fiscal '21. And I thank that executive team that I just mentioned and all of our employees with increases in both service revenue and adjusted earnings per share in a year through the pandemic. We had strong sales performance with good growth in our digital HR outsourcing and retirement sales, more than 710,000 payroll and PEO clients, as Tom mentioned. With the pandemic, we continue to focus on the safety of our employees and the critical assistance of our clients during one of the most challenging economies in our history. We continued to invest in our marketing, sales and software development and introduced a significant number of new innovative software enhancements to support our clients' HR, payroll, retirement and insurance needs. We once again increased our dividend and continue to have one of the highest dividend yields in our sector and closed the fiscal year at $36 billion market cap and in fact, today, are over $42 billion market cap. We have continued focus on driving top line revenue and profit growth. The total revenue has averaged 7% annual growth over the last 5 years and net income has averaged an annual growth rate of 8%, and this was even including the difficult fiscal '21 through the pandemic. Once again, net income exceeded $1 billion for fiscal '21. With the significant growth of our human capital management software and services, more than half of our revenue now comes from nonpayroll services and products. And we're also very proud of the response of our employees given the continued impact of the pandemic on all areas of the business. The majority of our employees continue to work from home, either full or part-time to maintain their safety while continuing to provide excellent sales results and service to our clients. We have played a critical role in helping our clients secure over $65 billion in Paycheck Protection Program loan. That's 9% of the total loans provided in the U.S. Also making the process for forgiving the loan simple with prepopulated signature-ready forms from Paychex, as of today, over 90% of these loans of our clients have been forgiven. We are also working with clients to receive employee retention tax credits, over $4 billion to date for our clients and growing, to help them retain and recruit new employees in this challenging hiring environment. Our COVID help center online is updated daily and by state with the latest news and requirements, and we have held numbers of webinars that have been attended by well over 10,000 participants. Past investments in mobile technology and innovative product offerings positioned us well not only for future growth, but also to respond to the pandemic environment. Our clients concerns in this environment are retaining and hiring talent, staying compliant, engaging their employees and improving efficiency and managing cash, staying compliant with their ability to handle paid family and sick leave, managing a distributed workforce, vaccine policy and much more, and they're reopening safely with iris scan time clocks, COVID testing through our partner, HireRight, mobile health attestations and OSHA incident tracking and the support of our over 650 HR professionals, helping our clients in person or virtually. We have integrated our Flex hiring software with Indeed, the world's largest job board, provided the option of online video interviewing of candidates, paperless onboarding of employees that are hired and training of these new hires as well. Communicating with employees through our Flex app allowing for documents to be sent, received, e-signed and organized through our application, including performance management support. Integration, we also have with all 3 voice-assisted platforms, Google, Siri and Alexa. We are the only company in our space to have all 3. Optimizing cash flow, making it easier for our clients to file and receive forgiveness for the PPP loans and our federal stimulus program and other federal stimulus programs, and we've also been offering flexibility to employees to be paid on demand, and we were the first to offer real-time payments to our clients, meaning they can be paid and be done on demand for our clients and normally in less than 10 seconds. For many clients, the definition of services changed with most looking for more technology solutions. These preferences have accelerated with the work-from-home situation over the last 18 months. Distributed workforces are using more self-service, online and mobile, benefiting the clients, their employees and Paychex. In fact, over 85% of direct deposit and address changes for our employees are now done either by the client or their employee on our mobile app, no calls, no paper. Flex Assistant, our automated response to service has handled over 2.5 million interactions with automated responses to questions online. But you can always reach a live payroll specialist, 7/24/365 days a year, and we are the only company to do this in our space. It allows us to be responsive through either technology or live in person, the way clients need us when they need us. Client retention and satisfaction in our last fiscal year reached all-time record highs. We also continue to be proud of the fact that we maintain leading market positions in our businesses. This is very important to us. We remain a leader in small and midsized business payroll markets and serving approximately 12 million employees, paying 1 in every 12 private sector employees. HR outsourcing, our PEO and ASO models, serving more client employees than any other competitor by far at 1.7 million worksite employees. And we're #1 in 401(k), 96,000 plans in place, 10% of all U.S. plans and greater than 1 million participants and our insurance agency is 1 of the 30 largest in the U.S. with over $2.7 billion in annual premiums. All of these businesses continuing to grow and have much more opportunity and much -- and very successful in upfront selling. We're also proud of the recognition we continue to receive as a company. It is a great reflection on our employees, in particular, recognition for high ethics, product innovation and technology and the excellent training of our team. And that we are recognized on the Fortune 50 list by Forbes -- the Future 50 list by Forbes for consistent performance and continued innovation. And for the third year in a row, we've been recognized as a top HR product innovator at the HR Tech Conference. So how about the economic trends that we're seeing currently in the economy. First, let me talk about the economy. Our Paychex IHS Markit Employment Watch showed the Small Business Jobs Indexes continuing to show improvement. The last few months have shown a solid rebound in job growth, particularly in the leisure and hospitality sector, given the large drop last year that we saw. However, many jobs remain open. This and supply chain issues continue to provide challenges to businesses of all sizes to find new ways to compete and increase efficiency. Wages have also seen solid growth with the scarcity of the resources, well over 3% wage increases in some sectors like leisure and hospitality, pushing much higher over 8% on an hourly wage basis to attract talent in their openings. And let's talk about industry trends. They continue in our favor and most have accelerated with the pandemic. The need for HR software support has increased and has certainly come down in employee size. Workforce is much more part time and of course, remote or distributed, making employee communication, scheduling, time tracking, recruiting, all demands that need to be done online or on our five-star mobile app. Client and employee experience is very important, the user interface ease being flexible and allowing much more employee self-service, allowing our clients and employees to do what they want to do when they want to do it from where they are. The need for technology for client, employees and data analytic capabilities for our clients have become very important to employee retention. In compliance, there are more state and federal regulations, complexity and enforcement than ever before, and we see this continuing to grow. Related to COVID, relating to time off, health and safety tracking, mandated policies and vaccinations, all can be done online and through many of our apps. And so you think about the strategic investments we've made in the past, our marketing spend, advertising and advertising continue to increase with our web presence and our sales leads. A lot more is coming through the marketing and obviously through the web to our web for even self -- e-commerce enrollment. We've increased our sales team, including inside sales, of course, in web chat and product demo abilities in self-onboarding capability. Innovations and products have accelerated. Recent product launches have focused on the solutions for hiring and retaining talent, so critical to our clients right now. We continue to look for acquisitions in our markets as well for additional growth and ancillary product enhancement like our most recent announcement of Flock, a state-of-the-art benefit administration software that will make things much easier for our clients. Our purpose is clear: make it simple for clients and give them the freedom to succeed in what they do best and what they are passionate about, running their business, even in the most challenging of times. With leading positions in our markets, accelerated investments in our innovative Software-as-a-Service, cloud-based full-service solutions, combined with flexible, personalized online and direct service models, we provide the best opportunity for continued growth in our small and midsize markets and to continue to be a leader in shareholder returns. I'm excited by our prospects and our future, and I appreciate your support and investment. I'd now like to ask Efrain Rivera, our Chief Financial Officer, to take you through the numbers in a little more detail. Efrain?

Thanks, Marty, and good morning, and welcome to all of our shareholders and guests attending this virtual event. It's a pleasure to be here with you today. I'll review our financial results for fiscal 2021 and our financial position. I'll also update you on the start of fiscal 2022 and share expectations for the full year. Let me begin with our standard legal disclaimer. Management will make certain statements that are forward-looking in our presentations to you today. Please be aware that these statements need to be evaluated in light of certain risk factors. These risk factors are disclosed in our earnings press releases and other periodic filings with the SEC. Also, you'll hear reference to what are known as non-GAAP measures. These measures exclude certain noncontrollable or onetime items to provide a better reflection of our results of operations. Specific non-GAAP measures we use are adjusted earnings before interest, taxes, depreciation and amortization, amortization, EBITDA, adjusted operating income, adjusted net income and adjusted diluted earnings per share. For a discussion of these measures and the reconciliation of the related GAAP measures, I refer you to the Management's Discussion and Analysis section of our annual report on Form 10-K and our quarterly report on 10-Q filed with the SEC and available on our Investor Relations web page. Now let's look at some highlights of our fiscal 2021 results. First, let's start with revenue. Our largest revenue source is Management Solutions, which includes Payroll and HCM software, ASO HR Outsourcing and Retirement Services. This revenue represents our suite of integrated HCM solutions. The second category is PEO and Insurance Solutions revenue. Our PEO, which stands for Professional Employer Organization, which Marty mentioned earlier, and our Insurance Solutions have similar operational economic characteristics, both involve the provision of insurance benefits to clients. As you can see from the chart, Management Solutions makes up about 3/4 of our service revenues while Management Solutions is the largest category of revenues over the past several years. It has been declining as a percentage of total service revenue due to investments to grow our PEO presence, particularly acquisitions made during fiscal years 2018 and '19, which added scale to this part of the business and made us the second largest PEO. Let's talk about fiscal 2021 financial highlights. It was one of the most challenging periods in our history. But due to the resilience of our business model and our commitment to clients, we finished the year reporting positive growth of 1% for both service revenue and adjusted diluted earnings per share. When we provided guidance at last year's annual meeting for fiscal 2021, we actually anticipated that results would be down year-over-year. We were in the middle of the depths of the pandemic. So these results that we're reporting exceeded our initial expectations. Fiscal 2021, similar to fiscal '20 was a tale told in 2 parts. During the first 3 quarters of the year, we saw large impact from the pandemic on the economy and small businesses in general. Overall employment levels were down year-over-year, putting pressure on our revenues. While results were down year-over-year throughout that period, our key business indicators did reflect continuing gradual economic recovery. In our fourth quarter, we had an easier compare with our anniversary of the low point of the pandemic. However, we also saw acceleration in economic recovery as businesses began to reopen due to the economic stimulus that Marty mentioned earlier and increasing vaccination rates. As a result, we were able to achieve record levels of revenue and earnings for the fourth quarter. And we finished the year with overall with positive growth. To summarize our overall performance, total service revenue grew 1% over the prior year. Adjusted operating income, which includes -- excludes certain onetime costs related to cost savings initiatives increased 2% and was approximately 37% of our total revenue, an increase of 70 basis points compared to the prior year. Margins benefited from careful cost management during the pandemic. Discretionary spending, such as travel and entertainment and office supplies, along with lower facilities maintenance costs were down due to office closures and restrictions related to the pandemic. We also accelerated some longer-term cost savings initiatives, including reduction in our physical brick-and-mortar footprint and headcount optimization, while we recognized $32 million of onetime costs in fiscal 2021. We anticipate ongoing savings of approximately $40 million to $50 million annually from these initiatives. Margin expansion was somewhat moderated by continued investment in sales marketing product and technology, which we did even in the midst of the pandemic. We also increased our dividend and returned capital to shareholders, as Tom mentioned earlier. During fiscal 2021, we returned $1.1 billion back to shareholders in the form of dividends and also share repurchases. We continue to have a strong financial position with cash and total corporate investments of over $1 billion as of May 31, 2021. Now let's look at our fiscal 2021 results of operations in a little bit more detail. Management Solutions revenue grew 2%, driven by growth in our client base, which reflected solid sales performance and record levels of client retention. We also experienced increased product penetration throughout our suite of solutions. In particular, ASO increased due to strong demand for HR support during this challenging period of time. These impacts were offset by a decline in check volumes experienced during the first 3 quarters of our fiscal year from an overall reduction in employment levels. PEO Insurance Solutions revenue decreased 2%. This was attributable to a decrease in the number of average worksite employees in our PEO related to employment levels. In addition, our insurance services, which make up approximately 20% of our total PEO and insurance services revenue for fiscal 2021 declined as a result of lower workers' compensation premiums, which were driven by reduced wages, and softening of market rates. Interest on funds held for clients decreased 32% during fiscal 2021 due to lower average interest rates and realized gains. The Fed funds rate has been in the range of 0 to 25 basis points since March of 2020. Our combined investment portfolios, interest on funds held for clients and corporate investments earned an average rate of return of 1.2% for fiscal 2021 compared to 1.8% for fiscal 2020. Our average investment balances remain relatively consistent year-over-year. Net income and diluted earnings per share were flat compared to fiscal 2020. Our non-GAAP measures of adjusted net income and adjusted earnings per share exclude the impacts of onetime costs and certain discrete tax benefits and reflect growth of 2% and 1%, respectively for fiscal 2021. Let's talk about balance sheets and cash flows. Corporate cash and investments remain strong at $1.1 billion as of May 31, 2021. Our ability to generate cash from our operations allowed us to pay substantial dividends to shareholders while still investing in the business. We have approximately $800 million of total debt, which is primarily private placement issued during fiscal 2019 to fund the Oasis acquisition, which was the largest acquisition in our history. Our cash flows from operations were approximately $1.3 billion for the fiscal year. Our stockholders' equity was almost $3 billion as of May 31, 2021, reflecting approximately $909 million in dividends paid during the fiscal year and $153 million in repurchases of Paychex stock. Our return on equity for the 12 months ended May 30, 2021 -- May 31, 2021 was 38%. Now I'll take you through the results for the first quarter of fiscal 2022 and our expectations for the full year. Fiscal 2022 is off to a strong start as we achieved double-digit growth in both revenue and earnings. Our first quarter results reflected strong internal execution and improved economic environment and a favorable compare against the prior year period. Management Solutions revenue increased 17% for the first quarter, driven by higher checks per payroll, growth in client bases across most of our HCM solutions and pricing realization. Client base growth reflected continuing retention at near record levels along with solid sales performance driven by ongoing strength in digital, mid-market and HR outsourcing sales. PEO and Insurance Solutions revenue increased 14%, driven primarily by higher SUI revenues, higher average worksite employees served and higher PEO health insurance revenues. Insurance Solutions revenue increased due to higher health and benefits applicants and workers' compensation premiums. Interest on funds held for clients decreased slightly as a result of lower average interest rates. This is partially offset by growth in average investment balances. Average investment balances were impacted by growth in the overall client base and improving macroeconomic conditions. Total expenses actually decreased 1%, excluding onetime costs of $31 million that occurred during the first quarter of fiscal 2021. Expenses actually increased slightly to 4%. The growth in expenses was impacted by higher PEO direct insurance costs related to the higher PEO insurance revenues and increase in fringe benefits to our employees and continued investment in product development and information technology. Net income increased 58% and diluted earnings per share increased 56% for the first quarter. Adjusted diluted earnings per share increased 21%. Now let me look -- take you through our outlook for 2022. Looking forward beyond the first quarter, we document our short-term expectations through the guidance we provide in disclosures to stockholders and to Wall Street. The guidance is provided in our press releases and our periodic SEC filings that can be found on our Investor Relations website. Our guidance for the full year fiscal 2022, as updated with our first quarter earnings, incorporates our current assumptions and market conditions. Changes in the macroeconomic environment could alter our guidance. With consideration of these impacts, our guidance is as follows. We anticipate that Management Solutions revenue will now grow approximately 8%. PEO and Insurance Solutions is now anticipated to grow in the range of 8% to 10%. We anticipate interest on funds held for clients will be flat compared to fiscal 2021. Total revenue is anticipated to grow approximately 8%. Adjusted operating margin is anticipated to be in the range of 38% to 39%. Adjusted EBITDA margin is anticipated to be approximately 43%. Other expense net is expected to be in the range of $23 million to $26 million. The effective income tax rate is anticipated to be in the range of 24% to 25%. And finally, adjusted diluted earnings per share is anticipated again to grow in the range of 12% to 14%. Long-term capital management. Management and the Board continuously look for opportunities to maximize cash deployment. We continue to invest in our integrated cloud-based suite of HCM solutions and our mobility offerings as well as digital sales and service capabilities. We also continue to evaluate potential acquisition opportunities as they arise. We are anticipating capital expenditures of approximately $135 million to $145 million for fiscal 2022. During fiscal 2021, we returned $1.1 billion to stockholders. This was comprised of approximately -- as I mentioned previously, $900 million in dividends, representing approximately 83% of net income and $156 million used to repurchase our common stock. In July 2021, our Board authorized the stock repurchase plan for up to $400 million to be utilized by January 2024. A previous authorization of May '19 for $400 million, which expires May 31, 2022, has $72 million remaining. To summarize, we're very proud of our performance during the past year. Our employees adapted well to the challenging work environment and provided excellent service to our customers, resulting in record client retention. We received numerous awards recognizing our valuable services to clients during the pandemic and our new technological offerings. Our business model has proven to be resilient, and we saw our cost savings initiatives helped position us for even stronger margin performance going forward. While we are gratified by performance during fiscal 2021, we are also confident that it has positioned us for growth in fiscal 2022. The combination of our sales momentum, client-based growth and satisfaction, industry-leading satisfaction -- industry-leading operating margin and increased investment in our marketing and lead generation and product development has us well positioned for another year of strong financial performance in fiscal year 2022. We will continue to drive revenue and earnings growth and generate robust cash flows, which allow us to invest back into the business and continue to return value to shareholders. Our investments in the business have positioned us for future long-term growth, and we remain committed to building value for you, our shareholders. And finally, few companies can say 50 years and still growing strong, but even fewer can say the best is yet to come. That is Paychex. And at this time, I'd like to turn the meeting back To our President and CEO, Marty Mucci.

Thank you, Efrain. I appreciate those great words, on behalf of our employees and the team. At this time, I would now like to open the meeting for shareholder questions and comments. We can begin with a few that we received in advance of today's meeting, and we'll take shareholder questions that are being entered today on the web portal. Though there may not be time to answer every question, we'll provide a response to as many as we can. Only questions that are germane to the meeting will be addressed and our Corporate Secretary, Stephanie Schaeffer, will now proceed to read the questions submitted by our shareholders. Stephanie?

Thank you, Marty. Our first question is this, does Paychex plan to announce a stock split soon?

Well, the Paychex Board of Directors regularly discusses the potential for a stock split. Everyone knows, I think, that the stock split really does not change the fundamentals or value of the company's stock. It basically increases the number of shares but decreases the price proportionately. So the value of the stock remains unchanged. The benefit of a stock split for investors is the reduction of the stock price making it more affordable to buy shares. However, in today's market and in fact, for many years now, there's been investment options that do allow investors to buy even fractional shares if they want. So that requirement, that need is really not as much there anymore. Weighing all those factors, at least to date, the Board has not chosen to do a stock split and don't think it would be overall beneficial at this time, but they will continue to monitor that, I'm sure, and will continue to evaluate it.

Okay. Our next question. What is Paychex doing to diversify our Board to include younger members, more women and people of color?

We value the concept of diversity and have been acting on a plan to refresh and increase the diversity on the Board. In fact, some of the very actions we've taken since 2017, we've added 4 board members, 2 of whom have been female and 1 is racially diverse. During fiscal '21, the Board voluntarily adopted a Board and CEO diversity search policy to ensure the governance and comp committee considers diversity of any nominees. And in July of 2020, the Board amended the Governance and Compensation Committee charter and nomination policy to require the initial list of independent director candidates to fill vacancies on the board include racially and ethically and gender diverse candidates that are -- that any third-party search firm would be instructed to include those diverse candidates on the initial list. So we've always -- the Board -- on behalf of the Board, we've always valued diversity and skills of experience, and we believe we've done a good job in the last few years that the adds that we've made, even an expansion of the Board, have taken us toward those goals. Steph?

Okay. What is the criteria the company used to decide the repurchase of its common stock in 2019 and 2020? How does management evaluate the results of the repurchase of common stock to determine whether the repurchase accomplished its goals?

Yes, Paychex uses stock repurchases basically to help offset dilution to stockholders from the issuance of additional shares to our stock incentive plan. We do not set a goal to repurchase a set number of shares, but rather purchase opportunistically when we feel it's appropriate. Over the past 5 years, we have achieved our goal and kept the shares of our stock outstanding at a relatively consistent level as stock repurchases generally offset the new stock issuances over that period. Steph?

How do you explain the company's success in light of high unemployment? I thought that the more people working, the more demand for Paychex services.

Well, it's a good question. And certainly, our financial results, as Efrain detailed for you, were significantly impacted by the employment levels. During the pandemic, when unemployment increased back in the fourth quarter of fiscal 2020, we saw a decline in our revenues. Since unemployment levels have gradually improved, and we've seen a corresponding recovery in our revenues. That's more clients, more checks. We -- there's also been several factors that allowed us to be successful even during this challenging environment and the impact on businesses. Small businesses were incredibly resilient. And with the addition of stimulus dollars that we've been able to help them receive actually, in many cases, have been able to kind of hold on and now start to grow again. Our employees came together and really have gone above and beyond to support our clients, and that led to increasing and in fact, record-breaking client satisfaction and record levels of client retention, and that certainly helped us as well. And we saw a very strong demand for our HR outsourcing services. Imagine, all of the new demands on clients, both of small and midsize, particularly our ASO offering, the demand for ASO was really increased. The pandemic showcased really the value of those services as clients needed more help than ever during pandemic, many times never seen these kind of issues before how to handle a mandate, how to handle vaccination policy, how to return to work or work from home in all those policies. So our HR business did extremely well, as Efrain has mentioned, and continues to grow at a very strong rate. And our prior investments in sales tools and investment in our inside sales team had prepared us very well, too and prepared our sales team and our service team for that matter. They have a number of tools that we moved 95% of our employees to home within 6 days in March of 2020. And -- but because of the work that our IT operations team had done and many other teams in preparing for this, they were able to really pick up the business very quickly and continue to sell from home, continue to service very well from home and really beat many of the goals that we actually expected. So we really feel like the investments in our technology and certainly the great commitment of our team supported our folks and gave us great financial results as well.

Next question. Is it really necessary for Paychex to have 10 directors?

Well, having a board of the size of ours and increasing it that had allowed us to have a level of diversity in terms of skills, experience and thought that I think -- and I think -- I know the Board and Tom feels this way, leads the strong oversight of the company. The expansion of the Board to 10 directors allowed us to, as I said, also increase the racial and gender diversity on the board but really, the overall skills and experience that is needed to run a company worth over $40 billion now in the size that we are, I think, is very necessary. In fact, I think the average Board of companies our size is 10 to 11 board directors as well. So I feel like that was a very good size, a good reason to increase. And I know that the Board was very supportive and decided to do that.

Okay. And our final question today, how is Paychex maintaining employee staffing levels, whereas many of its clients are struggling to keep employees and fill open jobs?

Yes. Again, a very good question. It's still been challenging both on the sales and service side. I don't think we've ever seen disruption like this in across our clients and ourselves. And what you have to be is very flexible and I think very innovative in the way that you look at it. Particularly in service, what we've looked at is more part-time positions. We found that while there's many parents, for example, working from home, if you can give them a part-time position that has 4-hour increments or in the evening or even in the middle of the day, and things like that, you're finding many more people applying for the jobs. And we're having a lot of luck with that and just going in the way we compensate, in the way our benefits are extremely competitive. And I think just the overall culture of the company is attracting that. So you have to be innovative. You have to try some new things, you have to give a lot of support. And I also think that many employees who are looking at a company like Paychex know the greater good that Paychex is providing, which is really supporting the U.S. economy through the growth of small and midsized businesses. And that means a lot to those applying particularly generation that is applying for those frontline jobs today.

That concludes our questions today, Marty.

Great. Thank you, Stephanie. So that will now end the Q&A period. Thank you for your questions. I'll now turn it back over to Tom Golisano for election results. Tom?

Now that everyone has had an opportunity to vote, I now declare the polls for the 2021 Annual Stockholders Meeting closed. Our inspector of election will now report on the preliminary results, Todd Card?

Mr. Chairman, the preliminary vote report shows that the 10 nominees for election to the Board have been duly elected. The compensation of the named executive officers has been approved by advisory vote and the selection of the company's independent registered public accounting firm has been ratified. We'll be reporting the final vote results in a Form 8-K to be filed with the SEC within 4 business days.

Thank you, Todd. If there is no other business, then this concludes our meeting. On behalf of my fellow directors and the company's executives, I wish to express our appreciation to all of you who are attending this meeting and for your investment in Paychex. Our 2021 Annual Meeting of Shareholders is now adjourned.

That concludes the Paychex, Inc. 2021 Annual Meeting of Shareholders. Thank you for attending, and have a good day.