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

Good day, everyone, and welcome to today's Paychex Fourth Quarter and Fiscal Year-End Earnings Conference Call. [Operator Instructions] Please note, this call may be recorded. [Operator Instructions]. It is now my pleasure to turn the conference over to Mr. John Gibson, President and CEO. Please go ahead.

Thank you, Stephanie. Thank you, everyone, for joining us for our discussion of the Paychex Fourth Quarter and Fiscal Year '23 earnings release. Joining me today is Efrain Rivera, our Chief Financial Officer. This morning, before the market opened, we released our financial results for the fourth quarter and full fiscal year ended May 31. You can access our earnings release on our Investor Relations website. Our Form 10-K will be filed with the SEC before the end of July. This teleconference is being broadcast over the Internet and will be archived and available on our website for approximately 90 days. I'll start with the call today with an update on the business highlights for the fourth quarter and fiscal year April. We'll review our financial results for fiscal '23 and our outlook for '24. We'll then open it up for your questions. We finished fiscal year '23 with solid financial results and momentum heading into fiscal year 2024. Total revenue grew 9% for the full year, and we hit a major milestone for the company with over $5 billion in total revenue. I was personally reflecting on this last night. When I joined the company, we were just over $2 billion. It took us 6 years to go from $2 billion to $3 billion, 3 years to go to $3 billion to $4 billion, and it took us 3 years to go to $4 billion to $5 billion, but I remind everybody that was during a global pandemic. So certainly, very proud of those results. In addition to that revenue growth at 9%, adjusted diluted earnings per share grew 13% to $4.27 and operating margins finished at 41% as we continue to benefit from our continued investments in technology, our focus on driving digitalization in all aspects of our business, and our long-standing tradition of operating excellence. These results are due to the hard work and dedication of our more than 16,000 employees. I'm very proud of what we've achieved this fiscal year. Our industry-leading technology and advisory solutions have made a positive impact on our clients and their employees. And in return, they continue to reward us with additional business and a continued loyalty. Momentum in sales has continued with solid growth in new annualized revenue for both the fourth quarter and the full fiscal year. HR Solutions and retirement were areas of particular strength with double-digit growth. We are well positioned in terms of our staffing levels and [indiscernible] tenure heading into the new year. Revenue retention finished the year near record levels as we continue to focus on retaining and increasing our share of wallet with our high-value customer segments. Client retention was impacted by higher losses due to out of business concentrated mainly in newly formed businesses in the last 2 years and financial distress in the lower revenue small clients. We continue to see strong demand for our HR outsourcing solutions with worksite employee growth over 10% year-over-year. Over the year, we achieved record level of worksite employee retention due to our strong and unique value proposition of our leading HR technology and advisory capabilities. Businesses of all sizes continue to navigate the challenges of a very complicated regulatory environment, a competitive labor market and now tightening credit. Demand for our solutions remained strong due to the depth and breadth of our integrated offerings, including HR technology designed to deliver efficiency for both the employer and the employee. Our comprehensive HR outsourcing, which leverages the strength of our technology and the experience of a trained HR professional and our outstanding compliance organization and the need for businesses to offer quality benefits, including retirement to compete for talent. Our retirement solutions are benefiting from the growing expectations of a retirement plan as a core benefit offering for small and midsized businesses. Recent passage of the Secure Act 2.0 legislation and various state mandates requiring employers to provide retirement services to their employees are making 401(k) as a key benefit for small and midsized businesses. With more state mandates expected to take effect in the future, we expect a strong market for retirement to continue for the foreseeable future, and we are well positioned as a leader to take advantage of this opportunity. The SMB credit environment has continued to fuel demand for our employee retention tax credit service. Our full-service ERTC offerings has helped tens of thousands of businesses obtain tax credits and getting access to funds they need to keep their businesses running and growing. We continue to communicate this opportunity to existing clients and prospects. Industry recognition continues to reinforce the competitive strength of our technology solutions. For the fourth consecutive year, Paychex Flex earned an HR Tech Award for best small and midsized business focused solution in the core HR category. Our consistency in winning these awards and being placed repeatedly in the leadership quadrant of respected technology analyst rankings speaks to our market leadership in HR technology. I'm not only very proud of these results and the performance of the team, but I'm also equally proud of how we achieved these results. We have been consistently recognized as one of the world's most admired, most ethical and most innovative company. In addition, we have been ranked as one of the best places to work for people in sales, for women, for diversity, and for our outstanding training and investment in our employees development. These awards are a testament to how our employees not only get the job done, but do it the right way and we are constantly looking for new ways we can make ourselves and our communities better. As we move into fiscal year '24, we will continue our focus on developing leading customer experiences that combine our technology, our advisory capabilities and our partnerships to deliver superior value to our customers. Paychex is uniquely positioned to help small and midsized businesses navigate the challenges they face in a complex and ever-changing and evolving world. We remain committed to our purpose, and that is to help businesses succeed. And we'll continually strive to have a positive impact on our clients, our employees our communities and our shareholders. Now I'll turn it over to Efrain who will take you through our financial results for the fourth quarter and the fiscal year as well as our guidance for fiscal year '24. Efrain?

Thanks, John, and good morning to all of you. I hope you're indoors on this smoking Thursday. I thought we're past it, but not quite. I'd like to remind everyone that today's commentary will contain forward-looking statements refer to the customary disclosures that we make. Let me start by providing a summary of our fourth quarter financial results, talk about full year results and then finish with the review of our fiscal 2024 outlook. Before I start, I also want to add that joining us in the room today this morning, Bob Schrader, VP of Finance and IR. Many of you have met Bob. Okay. For the fourth quarter, you saw total revenue increased 7% to $1.2 billion. Management Solutions revenue was up 7%, a little bit over $900 million driven by additional product penetration into our ancillary services, which currently is mostly ERTC and also price realization. We continue to see strong attachment of our HR solutions, retirement and time and attendance products. Demand for our ERTC service remained strong, as John mentioned, and it contributed approximately 1% to 2% to total revenue growth for the full year. Demand for this service along with our internal execution have continued to exceed our expectations, while ERTC has been a tailwind and we expected demand to continue into fiscal year '24. It will become a moderate headwind next year, especially in the back half of the year where it will become more of a headwind. PEO and Insurance Solutions revenue increased 5% to $300 million, driven by higher revenue per client and growth in average worksite employees. The rate of growth was tempered a bit by lower medical plan sales and participant volumes along with continued preference for ASO in this environment. We expect these trends will start to normalize as we progress through fiscal 2024, though it won't be evident necessarily in Q1, and I'll talk about that in a little bit. Interest on funds held for clients increased 69% to $25 million, primarily due to higher average interest rates, partially offset by realized losses taken in Q4 as we reposition the portfolio heading into the back half of this year. Total expenses increased 3% to $776 million, expense growth was largely attributable to higher headcount, wage rates and general cost to support growth in the business. Operating income increased 15% to $453 million, with an operating margin of just under 37%, a 240 basis point expansion over the prior year period. Diluted earnings per share increased 18% to $0.97, per share and adjusted diluted earnings per share increased 20% for the quarter to again $0.97 per share. Let me quickly summarize our full year results. Total revenue increased 9% to $5 billion and total service revenue increased 8% to $4.9 billion. As you are all aware, we raised guidance a number of times during the year. Management Solutions increased 8% to $3.7 billion. PEO and Insurance increased 6% to $1.2 billion. Total expenses were up 7% to $3 billion. Operating income increased 10% and with a margin of 40.6%, John mentioned this earlier, as a 70 basis point expansion over the prior year. The leverage in the model as pretty evident. Other income net increased by over $30 million due to higher average interest rates and average investment balances within the corporate investment portfolio. Diluted earnings per share increased 12% to $4.30 per share, and adjusted diluted earnings per share increased 13% to $4.27 per share. Our financial position remains rock solid with cash, restricted cash and total corporate investments of more than $1.6 billion and total borrowings of approximately $808 million as of May 2023. Cash flow from operations was $1.7 billion for the fiscal year, an increase of 13% from the prior year. Driven by higher net income and changes in working capital, free cash flow generated for the year was $1.5 billion, up 15% year-over-year. And while it's easy to glance over those numbers. I think it's really important that when we work to note that when we report numbers, the quality of our earnings and our quality of our cash is very, very strong, as noted by some of you. Not only do we deliver on the top line, but we delivered in a quality way for them on the bottom line, and we intend to continue to do that. We paid out a total of $1.2 billion as dividends during fiscal 2023 or 70% of our net income. Our 12-month rolling return on equity with a stellar 48% with an arrow pointing up. Now let me turn to guidance for the upcoming fiscal year ending May 2024. Our current outlook, as you saw, is as follows. Management Solutions expected to grow in the range of 5% to 6%. PEO and Insurance Solutions is expected to grow in the range of 6% to 9%. We widened that a bit just to accommodate the fact that sometimes attachment on insurance can vary from quarter-to-quarter and from year-to-year as we saw last year. Interest on funds held for clients is expected to be in the range of $135 million to $145 million. Total revenue is expected to grow in the range of 6% to 7%. Operating income margin is expected to be in the range of 41% to 42%. Other income net is expected to be income in the range of $30 million to $35 million. And then our effective income tax rate is expected to be in the range of 24% to 25%. Adjusted diluted earnings per share expected to grow in the range of 9% to 10%. This outlook assumes current macroeconomic environment, which, as you know, has some uncertainty surrounding future interest rate changes in the economy. We have better visibility in the first half fiscal 2024 as each quarter progresses. We have a little better visibility into the remaining quarters in the year. For the first half of fiscal 2024 and the first quarter, we expect total revenue growth to be approximately 6%. That's the first half and the first quarter. We anticipate operating margins for the first quarter to be approximately 41%. That'll help do a little bit on your modeling. And we expect PEO and Insurance Solutions revenue to be below the low end of the range for the first quarter, then it will be solidly in the range. That's our expectation at this point. Before you ask me the question, I'll answer the first quarter was actually the strongest quarter of the year on PEO last year. And as a consequence, the compare will be a little bit tougher, and we expect the business to build as we go through the year. Of course, all of this is subject to our current assumptions, and they can change. We'll update you again on the first quarter call. There's a number of questions because, of course, the time when we give the annual guidance. So if I could just ask for your forbearance on something, which is to say, ask a question and limit yourself to one follow-up. Now I will say I understand some of those questions will be compound questions. But if it's a 5-part compound question, then it violates the rule. But just so we can get through the call without going excessively long. With all of that, I will refer you to our investor slides on our website for additional information. And I'll turn the call back over to John.

Okay. And now with all the conditions and restrictions that Efrain has laid out for you, we'll now open the call for questions.

[Operator Instructions] Our first question will come from Ramsey El-Assal with Barclays.

Can you comment on the pricing environment. You called it out a little bit in the press release. And I guess the question is, are you seeing sort of a window right now for more aggressive pricing adjustments just given the inflationary environment? Or is this sort of -- are you feeling now that you're in sort of a steady state kind of continual trajectory when it comes to pricing?

Ramsey, yes, I would say we're more in a steady state. I feel good about where we are. I think the value of our products and services. I think what we see when we talk about price inside our customer base they're rewarding us. They're being the value we're getting. And as we did last year, we believe we have pricing of power inside the base, and we'll continue to avail ourselves of that. And then in terms in new clients and prospects in the competitive environment, hey, we've always been in a competitive market, and I see stable pricing. And I think as we go through this year, we'll continue to do what we need to do to be competitive in the marketplace. So I don't see any major shifts of change on either side of the pricing equation.

Okay. And I wanted to ask also about retention. Obviously, retention at healthy record levels. At the same time, you called out a little bit of where you were seeing a little bit of headwind. I think it was from out of business from newly formed businesses. And I think there was some other color that Efrain provided. If you could just elaborate on that a little bit, I'd appreciate it.

Yes, Ramsey. I think it's been pretty consistent. And I think on all the prior calls, I said probably as we expected. So we continue to really focus our efforts on the high-end part of our valuable clients, particularly in HR outsourcing there. We continue to maintain both in the PEO and ASO. Record retention from a revenue and client perspective there. Where we did see -- and we had near record retention overall across the business, again, because of that focus that we're having and the things we're doing from driving value in our high-value customer segments. As we expected, we did see some out of business and then when I pull that back, what you're seeing is exactly what I thought we'd see we had a very high number of new business starts 2 years ago. And almost every model, and I don't care whether we're in a recession, good times or bad times, a business starts and in the first 2 years, about half of them are gone. And so I'm not surprised when we're saying we kind of expected that to be the case, and that's what we saw on kind of the client retention side. But again, even if you look at the client retention side, we're back to where we were pre-pandemic levels. So nothing dramatic there. So I'd say that's more stabilizing, and we kind of expect that kind of more typical, stable kind of client attrition to occur as we're going into '24.

Our next question will come from Jason Kupferberg with Bank of America.

This is [ Eric Drey ] on for Jason. I had a question just kind of high level. We've seen small businesses be really resilient. It kind of seems like the macro may avoid a hard landing. But curious about kind of trends you're seeing among different client groups. Anything to call out, maybe blue collar versus white collar, any color you can add there?

Yes. Look, I think, again, not seeing anything, Eric, that out of the norm. I think generally, we've continued to see the hospitality when you go back and look at our jobs index, Hospitality has probably been the laggard. The leisure and hospitality has been the laggard through the course of the recession. What we've seen there is they've really made a good strong comeback, I would say, in the back half of this fiscal year for us and are getting back to what I'm trying to level employment levels of the other segments, not really seeing anything specifically out of the ordinary. Certainly, in the low end of the market, you're seeing a lot more of the small companies go back to what we said on the retention side. Newer start-ups, smaller companies finding more pressure relative to inability to pass price. And so they're being scored by inflation and then also the credit situation.

Okay. Great. And then on the -- this one is for Efrain. On the float guidance, kind of 2 parts. What are you thinking about for interest rates? And then what are your thoughts on kind of managing duration? I know the question comes up every call, but thought I'd ask.

So what we're thinking and then how we're managing, I'll break those 2. And I mentioned in previous calls that I was really concerned about a sharp decline in rates in first half '24 in the end of this year, calendar year. I don't think that's likely to happen. So at this point, our thinking is that there'll be a couple of rate increases as we go through the first half of the year and likely to see some rate decreases as we enter next year. Certainly, John's comments recently would seem to indicate that's where we're going. But I think -- we think our assumption is that in the first half of calendar year '24 or second half, you're going to see rate decreases. So net-net, that's what's incorporated in our guidance. So while we could adjust and play games in terms of where we are with futures. That's what our thinking is. And as we get through the year, in the back half of the year, we'll update kind of where we're at. So as to position in the portfolio, my bias is to go along as we go through the year to mitigate what in '24 is likely to be a set of rate decreases. I can't call it any closer than that. I think that our numbers kind of support that kind of scenario.

Our next question will come from Rayna Kumar with UBS.

Can you talk about what bookings was? Can you talk a little bit about bookings in the quarter? Anything to call out on different customer sizes and products where you're seeing strength or weaknesses?

Yes. So look, we actually saw strong demand continuing, I would say, actually, the -- we actually saw some acceleration in the fourth quarter when you look at it. In the back half of the fiscal year was actually stronger than the first half, which was a public thing, HR services, our HR solutions continue to resonate a retirement. We saw a pickup in the low and digital end of our business in the fourth quarter, which was nice to see. And in fact, I would say the PEO had improvement in Q4 as well, which was an encouraging sign that some of the changes in approach that we've been working on are beginning to get traction. It's early there and the key part of that season is in the first quarter, which leads into the second quarter. But again, very pleased with the strong demand that we saw across the platform. So I think we've got a good set of products and services. There's strong demand in this environment across all the market that we're in.

Got it. It's very helpful. And then just a quick -- really quick follow-up to stay within Efrain's guidelines here. Could you call out the ERTC contribution just for the fourth quarter?

No, we didn't. I think, Rayna, we're going to stick with it 1% to 2% on growth for the full year. So -- and then that converts from a tailwind into a headwind next year. That's as far as we go.

Our next question will come from Andrew Nicholas with William Blair.

I was going to ask first on kind of M&A within Paychex. If you could just kind of give us an update on your ambitions, both in the near term and medium term? This is definitely a compound question, but a preference between ACM and PEO and anything you could say on valuations?

Yes. Andrew, thanks for the question. Our ambitions remain the same. We're trying to find opportunities that meet our strategic objectives. And at the same time, make sense financially. The latter has been more challenging in the environment, I would say, over the past few years, but I think we certainly begin to see some change in the market dynamics and our pipeline you're beginning to expand with opportunities that I think are more realistic for us to consider. I don't think our focus has really changed. We're going to continue to look for tuck-ins that help us kind of add scale in new markets or expand our product suite. We're looking for capability enhancements, particularly in the digital area, digital capabilities, data, data analytics, HR analytics. And again, we're constantly looking at numerous adjacencies as the market continues to evolve and looking for new growth platforms that are adjacent to our current suite of solutions and really help us continue to deliver that value proposition to small and medium-sized businesses to help them succeed. So again, tuck-ins, capability enhancements and new growth platforms that's our areas of focus, and we're going to continue to be mindful of making sure we're getting good deals and not as a pain.

That's helpful. And then for my follow-up, I just wanted to ask on kind of the margin guide for next year. I think last quarter, you spoke to a preliminary target of 25 to 50 basis points. I think the 41% to 42% range you put out this morning is a decent bit higher at the midpoint. So if you could just kind of unpack that a little bit, what's changed in terms of your outlook, if anything, or if it's just a matter of rounded numbers, and that's totally fine as well. Just trying to get a little bit more insight there.

Yes. I guess I'd answer that in a couple of ways. Look, March is preliminary, I mean that we haven't gone to a plan I think that John continue to tradition that we've had in the company, which is to say where can we find sources of leverage in the P&L. So obviously, mix has an impact on that, Andrew. As you're aware, you have more you have opportunity and more management solutions that gives you more opportunity. But I would say we went through a pretty disciplined process in the planning process to see where there were opportunities for leverage and cover them and that's what you're seeing in the guidance. I'd say one other thing that's really important. The process of planning a year is a 365-day activity. If we get through the first quarter as we go through, we see opportunities both on the investment side and also on the cost side, we go for it, and we challenge ourselves to find those opportunities. So I think that in addition to the fact that, that was a byproduct that we're not byproduct, but a theme of the planning process, we think in those terms. And so because you have to go into the year with multiple levers to find leverage if you need it. So we're -- as we speak, thinking about, okay, how can we even do better or offset any potential issues that might come up in the year. So it's that. There's a little bit around a little bit of planning and a little bit of D&A.

Our next question will come from Kevin McVeigh with Credit Suisse.

I'll just have one to make up some time. Efrain, you talked a little bit about, I think, kind of revenue retention versus client retention and revenue retention being at all-time high despite kind of, I think, a little shift in client. Can you help us frame what the delta is there, kind of what it is today and kind of where that's been historically? And I'd imagine it's probably narrowed over time, but is there any way to frame that a little bit more?

Yes, yes. So look, it was approaching the mid-80s during the pandemic, but that really is in some ways kind of an outlier. When we reported last year, it's kind of like 1 year post the midpoint of the pandemic -- I'm sorry, the pandemic, it was between 83% and 84% and this year, we're between 82% and 83%. So as John mentioned, we saw some larger losses on the low end of the market. I'll frame that in one second. That 82%, 83% is consistent with where we've been in prior years. There's nothing unusual about that. What was unusual during the pandemic was that the number of bankruptcies, what we call involuntary losses will be much lower than it normally has been. And there's obvious reasons I don't even tell everyone on the call about PPP. So a lot of those clients kind of got through the client base to John's point, what was going on was that we had a pent-up group of very small clients that were being propped up a bit by funding. In some ways, the losses were higher because of that. And I think we're now back to more normalized environment in terms of losses. But I want to make an important point and John referenced it. We put a lot of emphasis on revenue retention, especially among high-value clients and what's not different or what is different in pandemic is that our revenue retention is higher than it was pre-pandemic. So we're at record retention levels from revenue. That's where we've put a lot of our focus on, and I can -- I won't do it but we could cite many, many efforts that go into retaining our highest clients so we can deliver approximately 88% revenue retention. That's important. That's an important number for us. And so while in the past, we talk a lot about unit retention, nothing wrong with that. You want that. The reality is that what's become much more important is that you save and you retain your highest value clients. And so while on -- while our unit retention is in line with what it was pre-pandemic our revenue retention was higher and it has remained higher and will be an area of focus going forward.

Kevin, the thing I would add to that, I want like to remind everybody is I go back and -- we go back and look at this over the last 4 to 5 years. When we say pre-pandemic levels, you go back to '19 and if you read our transcript, what you would also hear in '19 is that on a client retention, we were aligned, we actually had historical high client retention back in '19 as well. So we are returning on the client side to levels that historically for Paychex would have been historical high in terms of client retention. And then as Efrain pointed out, we've had a lot of focus on what we need to do to drive better retention in our high-value segments, and we've been very successful to do that. And I think coming out of the pandemic, the value that we've demonstrated to those clients in terms of both our technology enhancements as well as the advisory support that we've given them through very challenging times. I think they've rewarded us. They reward this by buying more from us, they've rewarded us by giving us the opportunity to have a better pricing for those products and services because they see the value and they reward this with their loyalty.

Our next question will come from Bryan Bergin with TD Cowen.

I wanted to dig into management solutions here a bit more and maybe some of the underlying growth driver assumptions for '24. When we look here, just this year, in '23, I see total company client growth of like 1.5 points in '23, and you're citing increased product penetration and price realization, can you kind of roll that forward for us here? Can you give us a sense on how you're thinking about the pieces here across the client growth versus pricing versus product attached?

Yes. Yes. I would say, Bryan, 2 things is that we have said that typical client growth in a year, it's going to be in the 1% to 3% range. We were on the low end of that range. We expect to be middle or higher next year. So that's part of the equation. On the pricing side, we're typically in the 2% to 4% range, although recent years, higher than that. We're on the mid to maybe perhaps a little bit higher than mid-level on the pricing side. Those are sort of the basic elements and then you got mix and additional product penetration driving the remainder of that. Now if you start reconciling I got to take the negatives, too. And the negative is I'm going to get some headwind from ERTC, which you will see in on the management solution side. So that's when you triangulate all those pieces, that's where you get to a 5% to 6% growth.

Okay. How about client employment there, so and I guess specifically in 4Q, how do it occur in 3Q, and then for 24 as well?

Sorry, I started talking on the [indiscernible]. You were saying in Q3 and then Q4, what you were saying it.

Yes. So as you think about client employment, I'm curious about how you're factoring that for '24. But also, I think you guys were assuming 4Q was going to be relatively flattish from 3Q. Did that play out? Or was that different, too?

Yes. Yes, that played out. And going into next year, we expect to be flattish. I will say that. I mean, you always have to have an element of caution on the impact of higher rates. I mean -- they -- there are levels there that would cause me to get a little bit more concerned than I am right now. So we'll have to play that out. And that definitely would have an impact on worksite employee growth. I think it's manageable. We've taken that into account in our plan. But at this point, we're not expecting that is going to change as we go into next year.

Our next question will come from Bryan Keane with Deutsche Bank

I just wanted to follow up on the client growth question. It sounds like you expect it to go up a little bit higher than it was. It was on the low end of the range and then it will go up. Is that a function of what you're seeing in the sales channel? Or is that a little bit of retention, just given that maybe some of the smaller clients that churned off during the pandemic, you won't have that same issue as you go into this year

Yes, Bryan, 2 answers to that is, and John mentioned that generally don't go into this level of detail. But we saw a pretty strong unit growth as we -- in the back half of the year. So it wasn't a sales-driven issue is really more of a retention-driven issue based on the factors that we talked about earlier in the call, i.e. just to go one level deeper, we all remember that one of the anomalies in the pandemic was that the business starts really, really accelerated. And I think to this day, [indiscernible] completely explain it. And so we benefited from that unit growth. But as John said, we know a number of those clients are going to go out of business. And after 2 years, we did the analysis that we all looked at and a lot of those clients did not survive once the PPP and other government stimulus moving out of business. I'm sorry, once that stimulus was gone. So that's primarily a driver somewhat of an normal situation. I think that we'll return to more traditional patterns as we get into next year. That's our expectation.

Got it. And the guidance looks pretty consistent as you look at the revenue and the margins, you're not wildly off from the first half of the second half and sometimes there's bigger changes there. Any kind of key macro factors that you watch that we should be watching that could move it up or down that could change, at least maybe as we get into the second half as we think about the macro?

Yes. I'll let John talk about it, too. But what I'd say, Bryan, is, look, everyone on the call was worried about a crash landing that will move through '23. And look, I mean, there was skepticism in the market as to whether we are going to be able to hit our numbers. We had some conversations with investors. I assured them with one thing that continues to be the factor that -- or the environment that we're seeing now, we're not seeing dramatic changes in the environment, and we would start to see them and exercise the appropriate level of caution that we did. So we're going to look at what's the impact of these interest rates at this point. Small businesses seems to be absorbing them. They seem to be getting what they need to be able to fund their businesses. We don't think that will last forever. There are rates at which it's going to prove to be difficult. I would say what's happening on the macro is really important. The internal stuff, we can manage that. We will manage that. And as I said, too many people that look we have to pivot inside the base. There's a lot of opportunity inside the base. We'll pivot inside the base if the external environment doesn't give us opportunities for growth. John, do you want to add anything?

Yes. No, I think the other thing that I think to keep in mind a little bit about the macro. Again, we'll go back to the macro side. I look at our small business index, I look at the start of this calendar year, we went the first 3 months, the index actually went up every month. So it went up for 3 consecutive months, and then it sort of stabilized, so we continue to see that. As Efrain said, we probably expected in the fourth quarter, and we're always kind of sitting here waiting for employment to go down in it, and in it. So actually, I would say, I was actually a little pleasantly surprised at where we were on checks and where we were on worksite employee growth inside the base of clients that we have. So continuing to see that hiring is also an issue and staffing continues to be an issue of our HR concern. So we look at what are the questions and issues that are coming into our HR consultants. We continue to see that to be an issue. And I do think you're going to see something interesting here that we've probably not seen. Small and midsized business owners are scarred by their experience of employment over the last several years and they thought to get back to staffing levels. And I think what's going to be interesting is they're going to be very hesitant to let go because I think they remember what it was like trying to find talent. And they're just simply not enough labor supply here. So I think it's going to be very interesting who kind of wins this tug of war back and forth relative to employment. The other thing that we see is we're seeing a lot of nontraditional labor being tapped by businesses, big workers, contract workers, maybe a little bit more part time. What I'm curious about to see or will those be the first things to go, that before a small business owners going to let go permanent staffing that they've got, that they're paying every week, are they going to try to write it out by tightening in other areas such as this nontraditional gig employment that's kind of sprung up. So the labor market is a very, very interesting thing, I think, for us to look at and study right now. And I don't think it sets up for traditional recessionary models that people have built. So that's just my pontification based upon my conversations with what we're hearing from clients and what we see in our data.

Our next question will come from Scott Wurtzel with Wolfe Research.

Just on the expense side, I wanted to see if you guys can just go over maybe what some of your top investment priorities are over the next 12 months and sort of folding into that how you're thinking about maybe incorporating generative AI into your business as well?

Yes. So the investments are in growth, in growth. Those are probably the top 2. And then you mentioned digital. I mean we've been making a lot of investments in the digital area, both in terms of our sales and what we're doing from a go-to-market perspective, which we're very happy with and how we're leveraging technology, AI in the back office. And I'm very pleased with several things that we've got going on. So we've been actively leveraging AI for several years across every area of the business, driving efficiency, delivering a lot of our large clients. And one of the things I keep telling people was we're one of the few players in this industry to have the size of the data set that we have. And I do think in these type of an AI, you've got to have a large data set. We're using it in customer service. We're using it in the risk. We're using it in finance. We're using it in our HR outsourcing advisory capacity. We're building it into our products, in our retention insights products. So there's a lot of investment that we're making and a lot of learnings that we have in terms of how we can digitize the front office and the front of house and kind of the back office of our business. And so that's going to be an area that we continue to invest and continue to explore.

Got it. It's very helpful. And then, Efrain, just a quick clarification on the float income side with the guidance. So I'm wondering if you could maybe help us out with how you're thinking about client balance growth for the year?

Client balance growth, roughly in line with wage inflation, which is to say, most of the business.

Our next question will come from Kartik Mehta with Northcoast Research.

Are you battling the smoke there in Cleveland, too?

Yesterday was a lot worse than it is today. So it's a little bit better today, but thank you for asking, Efrain. I'm wondering just on paper control, Efrain, I know they've come down obviously from pretty high levels. And I'm wondering if -- what your expectations are for FY '24, not only for the payroll business, but also the PEO and if you're seeing anything different?

Yes, 2 good questions. So flattish, I guess, is the short answer to what we expect for '24. Don't expect too much in terms of in client-based growth, and that's a mix. I think our larger clients are doing fine and in some cases, adding employees who look at it. Smaller, smaller clients, less so and then you got to factor in what your interstate losses are. So you always tend to move a little bit higher than what you gain in a given year, and then you expect your in-clients, the base to grow the work on employed. But this is an environment where I don't think it's going to be robust. In terms of hiring in part as to what John said earlier, which is that many businesses would like to hire that just as they weren't the people who were there -- were available and also figured out how to do it without people, but they probably will be, as John mentioned, less inclined to perhaps get rid of them. On the PEO, and I'd say also the ASO side, our worksite employee, we have worksite employ growth. This year, we expect that to continue into next year. You could see solid worksite employee growth as we rebound going into next year. But overall, and I think that Bryan asked these questions, it's not going to be a significant driver of revenue growth. Perhaps in PEO, but not on the HCM side.

And then just one follow-up. John, I'd be interested in your thoughts on kind of job openings. We see all these numbers, [ Joe's ] numbers, but it seems like employers have become cautious. So just your perspective on what you really think job openings are as you look at your customers versus maybe what we see in the news?

Yes, Kartik. Go back to what I said before. We continue to have clients that are wanting to fill open positions and I don't -- I'm not seeing that change. I would say that they're being more successful in filling those positions. So we've certainly seen that, and we've seen some recovery. I mentioned regional hospitality in particular, which was well behind and had good recovery in the back half of our fiscal year here. I do think relative to not maybe opening up as many positions, I would also tell you that one of the things that I think did happen is when we were in the great resignation, which was probably 18 months ago. It seems like forever now, but really only 18 months ago. Pretty much a lot of business owners were thinking every position I have needs to be posted because I've got to assume that I'm going to potentially lose those positions. So I think there was a lot of postings for jobs that people were passively looking for. And I think some of the contraction that we've seen in the postings are more business owners being a little more disciplined about what am I actually going to hire and being out in the market and focused on that. I don't know if that makes sense or helps you.

It does. Thank you both. I fully appreciate it.

I may add that those individuals who are using our onboarding and recruiting experience in Flex are realizing about a 20% improvement in their time to higher. So just if there's any customers or prospects on the phone.

Our next question will come from Eugene Simuni with MoffettNathanson.

I wanted to ask a question about the PEO. So kind of we expected kind of the deceleration here. And you highlighted again insurance, health care insurance attach rates as one of the drivers. So was wondering if you can elaborate a little bit on that, kind of where are you seeing softness in health care insurance attached? What kind of businesses, I think that will be helpful to hear just because there's so much variability about around, I feel like the PEO industry in terms of this health care insurance rate attach. And it would be helpful to hear specifically in your client base what you're seeing? And then related to that, as we are looking for the reacceleration in the PEO and as you're kind of guiding to that, what gives you confidence that this -- there will be a pivot there over the next 12 months?

Eugene, let me start and then John will provide additional comments. With us, it's less about verticals, although I'll caveat that with a second. It's really more about where we derive revenue on the health care side that flows through the P&L, and that's the state of Florida. So for us, on the PEO health care as it relates to revenue, really, it's the Florida game primarily. And the anomaly -- and when you talk about Florida, you know immediately that you're going to over index on leisure and hospitality. So a bit of what's going on is it depends on what new clients coming into the base are and whether customers and leader in hospitality are really interested in offering health care clients, a number of them do. And that's not all clients in Florida to be fair, that's probably too much of a generalization. But there was more of a regional issue than it was, I'd say, as it affected revenue than it was something else. So why do we feel more comfortable? Because we have put a tremendous amount of focus on it. And that's not to say that guarantee success, but I would say, as we saw what was going on, we took a lot of measures to improve that aren't going to necessarily again be evident in the first quarter but should be evident beyond that. And there were things in which we've talked about in prior calls. I will repeat, there were some anomalous that we saw people actually in the PEO decided they didn't want health care insurance. We thought our hypothesis was that they were feeling some pressure from a wage perspective and perhaps despite of that from a total compensation perspective, they were not going to offer health care. But we've taken a number of actions that we think will create better momentum going into next year. I'll let John talk about that -- talk about that issue.

Yes. No, not much to add, Eugene. I do think it's important to understand on the insurance component, there was a trend that we saw happened not just in the field, but also in our insurance agencies. In the health and benefits area, which it's not just the client. There's 2 decision points here. One is the client deciding they're going to offer benefits. And second is an employee deciding they're going to enroll and play their fair share. And we saw in both cases that the clients, particularly clients, less clients were adding an insurance. That's one part of it, right? You certainly can go and try and get someone to switch from their existing insurance. We saw less people adding insured health insurance as an option. And then when you look inside, when we went through our normal enrollment period, we found that less of the employees that were offered insurance elected to sign up for it. And so all the things Efrain just said, we saw that happen in both areas. That caused us to go back and what you can do is you can go back and look at your plan designs, you can look at leaner plans, you can look at different plans, all of those things. We went through an exhaustive review of every one of our core PO markets to look at every one of our plan designs and look at every one of our offerings to make sure we have the broadest suite. Now those decisions are made. We're actively out in the market selling clients on those today. Those will go in, in the July time frame, if you will. And remember, our enrollment for PO begins in that July time frame, it really goes through the January time frame. So you won't see kind of that pickup of that going on. So we look at every aspect of it. We've made some modifications and changes where we think it makes sense. We know that the HR outsourcing value proposition is still strong because it's growing at 10%, and we saw strong demand in the second half of the year. We know that the PO value proposition is strong because of our record retention and the clients that can't afford it and have it are doing well. So we have reason to believe there was some early signs, as I said earlier, in the fourth quarter of improvement there. And now we're getting into the heart of it, and we'll see that kind of build as we go into the second, third and fourth quarter of this coming fiscal year. So again, we got -- we feel confident that we have the right plans in place and now we'll go out and execute that in the marketplace and see how it goes.

Got it. Super helpful. And then a quick follow-up on some of the comments you made earlier on retention bookings and client growth to title together. So when we're thinking about your guidance for next fiscal year and Efrain, you mentioned that you expect client growth to pick up from the kind of 1.5% level with so this year, would that be a result of both improved retention and improved sales? Or is it primarily one or the other that will drive the improvement in client growth?

No, you got to do both. I mean, we're relying on one -- long story short, both sides of that equation have pretty powerful incentives to make sure that they occur. You hit it 100%, sometimes you hit it more. But you've got to get both sides to work to get the right net client gain number.

Yes, and I'll add on to that. Again, I would say the second half was stronger than the first half from a sales unit perspective. And if you dig under our retention numbers first half to second half, our controllable losses improved in the second half. So again, what we can control. And I do believe that there's a degree of what I call flushing out of the bankruptcies from 2 years ago in terms of us looking at clients that are kind of on the financial edge and whether or not we want to continue to -- or feel confident we can continue to do business with them. Those type of things are kind of flushed out of the system. We've been investing a lot in what we can do to control what we can control regardless of the environment. We talked about AI. We've been deploying a lot of very sophisticated AI models inside our service organization and inside our client base that are giving us very strong indications of where we may have a client and risk and we're demonstrating success and demonstrate success in the back half of the year of being able to intercept those and turn those situations in the positive retention story. So when I look at the retention story and the sales story first half, back half of last fiscal year, I feel good about the progress we're making there.

Our next question will come from Peter Christiansen with Citigroup.

Efrain, I was curious about the portfolio repositioning and I know it wasn't too large, but should we expect, I guess, future maybe operating outperformance to be reinvested for portfolio repositioning, maybe layering into rates faster? And then as a follow-up to that, maybe looking at prior cycles, is there a relationship between interest rates and competitive pricing? I would imagine this float income becomes more a bigger part of the business model that gives more leeway for competitors to be more aggressive on the pricing side. Any comments there would be helpful.

Those are 2 absolutely fantastic questions. Literally, I mean, wow. Okay. So let me take one. Part of what you do, part of what you work with the team is to understand what you need to deliver and understand what your degrees of freedom in delivering them are. When you perform at a certain level, you have more degrees of freedom, not surprising. So it's all my colleague CFOs out there, who struggle sometimes because they don't have the degrees of freedom, I feel you. When you do have the opportunity to reposition because performance gives you that option. You look at it and you figure out, we're pretty disciplined here is the NPV of doing that better than the NPV of not doing that. And so in the fourth quarter, we thought there was a positive NPV to that approach. Would we do it in the future? I'd have to see. There's other [indiscernible] issues that come into play, which is how much -- what do you want your max duration to be and are you picking the right time. You never get it right. because we're trying to predict other behaviors, but I think that we've done a good job. To your point, this is really kind of the interesting question that we're wrestling with. So we don't know. I can give you a sense of what happens when interest rates get to 6%. I know because I studied that pretty extensively when I came into the job now 12 years ago. And 2 things you got to worry about or be concerned about there. Number 1 is that you can attempt to be pretty aggressive on pricing in that kind of environment. So the interest rates are high. You can take it as a signal the price high. But what I find at least in our history was when you did that, when you get that overly aggressive in pricing in '07, '08, you're going to pay a price on retention. It just is -- it follows. And at least that's a conviction that I have. Now maybe you leave some money on the table by not pricing even more aggressively. But I think that there's a balancing that there for clients because you're trying to create a level of trust in terms of the value that you delivered to them, and there is a tipping point at which that level of trust gets breached. So we need to look at that closely. The second part is as interest rates are now creeping up, if they were to go over 6%, now that starts to become a threshold where it becomes more difficult for small businesses and many medium-sized businesses to operate from a financing perspective. They got to look for other options. That's one thing, by the way, that we're looking at very closely, how do we help clients. ERTC was a great example of how we did that this year. That's why we think it did so well within the base. But you got to play those 2 elements off each other in determining what the price and how to help the clients navigate to an environment where interest rates are high. So hopefully, that answers your question.

Yes, it certainly does. The balance, yes, that's certainly a challenge. I'd imagine. I don't envy you, but thanks for the insight. Very helpful.

Our next question comes from Tien-Tsin Huang with JPMorgan.

John, Efrain, I just want to ask on PEO. Again, I know it's growing in line with peers in the quarter here. You're looking for some acceleration. You talked through that with Eugene. How much of the acceleration again, just to simplify it is coming from volume versus rate versus mix? Just want to make sure I understand the components.

Well, I'll take that, Tien-tsin. So look, I want to kind of clarify something to start, which is that we have worked on employee growth in the PEO. It's not as though we contracted in that area. We think we're off to a pretty strong start actually in terms of at least our bookings activity. But we expect relative to last year for health care attachment to be higher than it was, the contribution from health care that will be higher than it was last year. We just couldn't hit the numbers that we had last year, but we had also seen simultaneously that the base business in admin was going down. This is very difficult, challenging. So we expect growth in the business, growth in client. We expect growth in attachment that's really kind of driving the at least less so, Tien-Tsin. I think that's less of an issue. Typically, just to remind everyone our PEO points are typically upper 20s to low 30s in terms of clients. We're not trying to go down stream necessarily, but it's really going to come from more clients better help to attach.

And we're just really not expecting any type of major pricing increases either on the health side or on the general and administrative fee side. I mean it's going to be well within our normal course. Although I would mention that on the health care side, our normal course is in the single digits, which far beeps on a historical basis, what health care inflation is. So that's a benefit and a retention benefit for our clients. The other thing I probably, we haven't talked about that we have a thesis around is that we had very good HR outsourcing growth. And one of the things that we saw because of the insurance anomaly was a tilt towards our ASO product. And so when you look on the aggregate, we have a very, very solid year. Our HR outsourcing offerings, ASO and the managed service side and PEO, but we tilted towards one versus the other. We're actually -- we actually -- I look at that now and say, wait a minute, I now have more clients that love our technology, love our [indiscernible] -- and now it's just a matter of finding the right health care solution going back and upselling them into the POS. We have a pretty concentrated efforts on that. Actually, that's another area where we're using AI, where we are actually analyzing the deduction fees from existing payroll and ASO customers so that we can triangulate what we think they are currently paying for health care. And then using the demographic data that we have to do some AI-based underwriting to give us a computer-based targeted list of clients that we can approach with a really almost prepackaged value proposition that says, "Hey, we think we can help you save money on your insurance if you join our PO, you're already an ASO client of ours." So we're just getting -- we've been working on that model for 9 months as part of our efforts. And that's an area, too, that we think there's opportunity inside our base to go back with our new insurance value proposition in the PO and see if we can't move some clients over.

Good. And that's the beauty of Paychex having both ASO and PEO. So I guess as my follow-up, any change in your appetite on the whole self-insured versus the fully guaranteed PEO model to the extent that you can better maybe control the insurance packages? And I know Efrain is probably thinking I'm trying to trick you guys to answer the consolidation question, but I'll ask it too. So right appetite to do acquisitions on the PEO side, I know it's been, what, 5 years since you did Oasis. You said tuck-ins, but I know there's been some news in the market around consolidation or I know that probably is a multiplied question, so I'm on the bad guys there.

Let me answer the first one. I get that question and I think investors are sensitive to the level of balance sheet risk. So when we originally did this a number of years ago, I said I don't want to be reporting quarters when we blow up the balance sheet because we were doing the wrong things on the insurance side. I don't think [indiscernible]. What I mean by that is just taking excessive risk. So everyone knows what they get when they invest in the company, we have managed that without any hiccup because 2 things help us. One is that even though we go at risk, we don't make money. We make a little money on health care insurance and that removes the incentive to necessarily push insurance, chief insurances away selling PEO. That's a fool's game. We don't play it. We'll never play it. Having said that, as we get to a certain density in markets and many of the people in the core mill, what the big markets are. When we look at that, we evaluate whether going at risk and insurance in a market won't make sense. I won't forestall that we would not, but it will be subject to the same type criteria. And the other part is that the reason for doing it would not be necessarily to increase revenue, but for us to capture share in that market. So nothing imminent, but that's our thought process. I think we've got of a track record in terms of managing it in an appropriate way. I'll let John talk to PEO and M&A.

Yes. Just to add to that, I don't think that our current approach to insurance in the PO was a driver to what we saw last year. And so I don't think taking more risk is necessarily the solution I think that our current approach has demonstrated that we can grow at industry rates without exposing ourselves to additional risk. And so to Efrain's point, I don't see that as a magic bullet. I don't think you need that to grow the PO value proposition to Efrain's point, to the degree in which we thought it could accelerate growth in some way and the risk to be balanced, it's something to consider, but not something that we're looking at. I mean I think in terms of the PEO M&A front, we haven't done much in 5 years. It's obviously a very attractive industry for private equities to pay very high multiples for which for my opinion, not much capability. When we made the acquisition of Oasis, we were looking at both getting significant scale in the PEO and capability, we got that with Oasis. We were typically a smaller kind of regional PEO, not, and we knew we needed to national scale to get there. We're now the top player in the industry. So I think what we would be looking for is tuck-ins in markets where that makes sense. If we were going to add a capability, right, but a capability in terms of something different in the PEO, that's interesting, but again, what I continue to see is we're involved and know about almost every deal in the industry, I still think the multiples are a little high for what they would bring value, and we have enough organic and inside the base opportunity for us to continue to invest our dollars in.

Our next question comes from James Faucette with Morgan Stanley.

Just a couple of quick follow-ups for me. On the out-of-business commentary, I understand kind of the conditions there where you maybe were below normal during the height of the pandemic, and that's normalizing. I'm just wondering if right now you would characterize that out of business run rate as being more elevated still? Or does it kind of come back more into line with what you would expect to be kind of normal?

It's back to normal. And again, I go back to say it's back to normal pre-pandemic '19, which, again, were at reasonably historically low levels for us if you went back historically before that. So look, there was a big surge in new business starts right at the start of the pandemic, and we knew in our models whether or not there was a recession, whether or not interest rates were 1% or 6%. Those businesses, a fair number, then we're not going to survive after 2 years. And so we didn't know whenever is going to come, but I think we knew it was going to come. I think we've seen that begin to flesh through. We've kind of returned back to what I would say are more normal business start levels. And again, business starts are still reasonably solid. We're not seeing a different business starts again. There was a big spike. We're now back to where we were kind of pre-pandemic, which again were very, very solid and conducive numbers for growth in our business before the pandemic.

Yes. Yes. No, that makes sense. I appreciate that. And then just a quick question to make sure that we're thinking about business sensitivities correctly. If we were to see macro deteriorate further, which of the underlying vertical, whether it be payroll, HCM software, retirement, ASO management solutions would be hit hardest versus what would be most resilient? I think we have some ideas there, but I just want to make sure we're thinking about that correctly.

Yes. I'd say -- so you got 2 points of comparison kind of what happened in 2007 and 2008 and then what happened during the pandemic. What we saw again the pandemic was that -- on the PEO side, PEO, our base, at least, a PEO client-shed employees more quickly. It was -- I was surprised by the speed with which they did it. I think you'd see more of an impact there on the PEO if you saw more of a sharp downturn. A garden variety of softness? Probably not. And then second, James, it will see but if we go back certainly to the pandemic, you saw employers start to shed clients -- shed employees, I should say, shed employees interestingly enough, or it was a little bit anomalous during the pandemic, but we didn't see huge client losses, but we did see them drop employees. And so then you see that impact. I'd remind everyone that our model is not a pure people model. It's subscription plus people. And so we have some insulation in the event that there's a downturn in overall employment levels fall. And finally, last caveat, we do have the ability to pivot in the base, which we did during the pandemic, which helped to mitigate the impact of what was going on in the economy as a whole.

Yes. And I would probably say we're actually more effective in terms of both our capabilities analytically to be able to target inside the base, our capabilities from the sales and marketing and digital perspective inside the base than we were in any of the -- in the prior downturn. I mean, we just have gotten very, very effective in driving product penetration and identifying opportunities within our client base where we can add additional value with a pretty broad set of products and services.

Our next question comes from Mark Marcon with Baird.

This is [ Andre Childress ] on for Mark. So I'll just leave that one. Retirement Solutions continues to see strong growth and clearly had some nice tailwinds. Can you talk about some of the measures you are taking to capitalize on the opportunity provided by both the Secure Act as well as state mandates?

Yes. So as you know, we're a leader in small and midsized businesses in terms of the number of plans. We manage more retirement plans than any other company. For the 12th straight year, we actually have prepared to support businesses, more businesses than any other provider. So we are actively already educating our existing customers and have a variety of digital marketing programs in the market. I think you'll continue to see a more aggressive positioning of Paychex in the 401(k). We're looking at how it can play a bigger role in our bundles and all of our payroll bundles as well. Because, again, what we're finding is given both the state mandate, coupled with the Secure Act 2.0, where literally, if you're a company gets up 20 employees, and we're working on trying to make some changes to that legislation to actually drop it down even lower than that. We can start up a 401(k) plan and basically at no cost to you. And you can then provide up to a $1,000 of match to your employees and get that money back as well. So when you -- this is like one of the ERTC moments where our value proposition we can go to a small business owner and say, you can have a valuable benefit that's going to help you retain your employees, help you attract employees and really for -- it's not going to cost you anything to get it started. We think there's a powerful value proposition. And like I said, we're already the largest -- we already know how to do this. We already have the sales and marketing capabilities and the operational capabilities to do this in a very efficient and effective way. So we're going to continue to capitalize on this as we go into the fiscal year.

Our final question will come from Samad Samana with Jefferies.

Great. So I just wanted to ask on maybe your own sales organization. Can you help us think through just between the last couple of years being strong and then us entering, let's say, a slightly different environment maybe looking forward, how maybe the sales organization performed versus quota in fiscal '23? And maybe what assumptions around quota you're thinking for fiscal '24 in terms of the quota increases for your sales organization?

Well, as I said, we were very pleased with the record-setting year that we had in sales execution. It really was a stellar year from a sales performance perspective. My hat's off to the entire team. And as I said, the back half was stronger than the front half. And given that momentum we have coming out of there, the investments we've made in the fourth quarter in terms of marketing, also a lot of work on what I would say is go-to-market support for our sales teams, the things we're doing relative to sales training and sales effectiveness tools that we invested in, in the fourth quarter, given the momentum we've seen our sales team has readily and happily accepted higher quotas for fiscal year '24.

Appreciate that. Efrain, I'd love to ask you another PEO follow-up question, but I'll just save that for -- I'm joking. I'm going to give you that one question. You guys have a great day.

There are no additional questions at this time. I would like to now turn it back to our presenters for any closing remarks.

Okay. Well, I'd like to thank everybody for being with us today. I know probably many of you are starting ahead or headed or about to head to the 4th of July weekend. Hope you have a great time with your family. I want to thank you for your questions and support. I want to reflect again on this past fiscal year. Certainly, a transition year for me coming in into my new position as CEO, an absolutely phenomenal year for the company. The employees did a great job navigating a very complex fiscal year. And for the company to achieve that $5 billion milestone is really a testament to their hard work and to do it at the speed we did it during the global pandemic is something to say. I was reflecting last night as I was looking back over the last 5-year results across the board, and I go back and anchor myself to fiscal year '19 which is hard to remember, that was before the pandemic. And I looked at our fourth quarter, and I looked at our full year statistics. And when you go down there and see we had better revenue growth, better profit growth, better retention metrics, better HR outsourcing metrics that are new sales revenues, better new sales unit rates of growth in the fourth quarter of this past fiscal year and the full year than we had in fiscal year '19. We not only weathered the pandemic but I think we actually came out of the pandemic in a stronger position across the board. And I just want to thank the 16,000 employees at Paychex for making that happen. Hope you all have a very nice 4th of July weekend. Thank you very much. Have a great day.

Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect.