Paychex 4Q15 Earnings Call Notes

Many employers are just starting to pay attention to the requirements of the Affordable Care Act

“Yeah, we had a nice bump in that the last six months, I think as clients started to really pay attention to it and I do think now we’ll probably see another resurgence of interest in it. And then as Efrain, I think mentioned earlier, I think when you get to the end of the year and those first filings have to be done and the penalty start to come into the 100 plus employee clients, I think they are really going to get a lot of attention at that point. And so the 50 or up, below a 100 will have to file, or the 50 to 100 will have to file. So that will be an awakening, I think for them that well this is a lot more difficult. And I think this is going to be another good year for the ESR product that we have, that helps them with Affordable Care Act.”

Go to market approach changed vs. five years ago from hook and ladder to direct sales of ancillary products

“if you went back to where we were four or five years ago, and I think this is not well understood about the company, I think we were a hooks and ladder approach. So let’s hook him with Payroll and then let’s ladder on everything else. We recognized post-recession that and this, to be fair, the credit goes to the sales force, and to our sales leader, he said, look certain clients need certain solutions very predictably. Let’s do the data analytics and understand by size who needs what. So we did it and we said you know what lo and behold, if you’re — I won’t say the number but a client of a certain size you typically, in our base are going to take x, y and z.

If we know that, then let’s put the right sales people in front of that client and we have one doing that. So that’s what you’re seeing there. Obviously there is pricing too. So I don’t want to completely oversell the point, but I do think we have simply gotten better at understanding when we have a client, and by the way, we had well over a 100,000 of them that we sold, we have a lot of opportunities to go in and say, hey here’s what you really need, if you’re a client of a certain size. And because of the breadth of what we offer, we have a lot more opportunities than most people to do that.”

Haven’t seen a big impact from new competitors

“Yeah, it’s still pretty much the usual players. I know that obviously there has been a lot of announcements but it really hasn’t — we haven’t seen a big impact there, some for price but I think when they look at the feature functionality, the size of the company, whether it’s public or not, meaning that you are trusting your payroll taxes, a very significant cost as a small business with someone and that limited functionality and the limited compliance resources, when you think about Paychex we have 200 people that focus on compliance and been able to deal with all the agencies federal, state and local, it has not been a big impact at this point. We certainly take all competitors very seriously but we haven’t seen a big impact at this point at all.”