David Togut: Thanks for that. Just as a quick follow-up, Don, you called out part of the 90 basis point margin decline in PEO being traced to a difficult comparison on workers’ compensation reserve adjustments a year ago. Can you quantify for us how large those were as we think through the margin comparisons for Q2, Q3 and Q4 of FY ‘24 in PEO?
Don McGuire: Yeah. So as we’ve had very favorable reserve releases over the last number of years and somebody called out last year in the K, you would have seen the favorability there. So just to be clear, we are still seeing favorable reserve releases, but we are not seeing — we didn’t see the reserve release to the extent that we did Q1 to Q1 of the prior year. So the numbers will be in the Q, but it’s about $6.2 million less than it was in the prior year. So that’s the quantification of it. And if you kind of translate that into the margin, it’s about 60 bps to 90 bps — 60 bps of the 90 bps decline comes from the lower reserve release. Now once again, we think that we’re going to continue to see reserve releases and were favorable as the actuaries get back to us and let us know what’s happening, but we’re not seeing any underlying changes or large changes that would lead us to be any less optimistic about seeing continued releases in the reserve.
Danyal Hussain: And David, sorry, just to clarify, it was a $6 million benefit in Q1, which is about $8 million less than the prior year.
David Togut: Got it. Thank you very much.
Operator: Thank you. Our next question comes from Mark Marcon with Baird. Your line is open.
Mark Marcon: Hey. Good morning, and thanks for taking my question. At HR tech, you got to see a lot of your new solutions, particularly focused on, the AI Assisted solutions. Maria, I’m wondering if you can talk a little bit about your philosophy with regards to, which solutions you would charge additional for — how are you thinking about monetization? And then I’ve got a follow-up in terms of process improvement.
Maria Black: Sure. Good morning, Mark. I’m pretty excited about all of our new solutions that you would have seen at HR tech. So I think I’ll take a minute to kind of think or talk through how I’m thinking about Gen AI in general, and then I’ll tell you how I’m thinking about monetization because I think it’ll make more sense on the other side. But when I think about Gen AI, I think it will impact everything. So the answer is it’s going to be everywhere impacting everything that we do across the entire client life cycle. So it’s about how we develop products. That’s everything from developer co-pilot types of tools that everyone is talking about. It’s about how Gen AI will be embedded into our product, it’s about how we go-to-market and modern seller stuff that I’ve spoken about for years and how we actually have the ability now leveraging Gen AI to actually acquire clients.
And then the most obvious being how we serve them, how we implement them, how we become more productive and make our clients more productive as we serve our clients. And so when I think about Gen AI, and I think most — everyone has probably likened it to things like whether it’s software or the Internet, I think my answer to you is, it will be in everything that we do and in the fabric of who we become. And so in terms of the monetization side, I think it’s less about, charging a PEPM (ph) on a per feature. So let’s say, you know, some of the things I talked about today, which probably doesn’t sound that exciting, like report writing or if you look at the earnings release document, you’ll see in there a job description that’s pulled in the screenshot showing roles.
So these things probably don’t sound that exciting, but they’re pretty exciting because they are the seeds of innovation, as I used earlier to really show what — how Gen AI will interact with everything that we do kind of in the fabric. So said differently, Mark, like, I don’t think we’re going to be charging separately to get Gen AI job description written or Gen AI report written. I think it’s really about continuing our innovation journey to do all the things we’ve always done, which is really about becoming more productive. It’s about solving things for our clients and making them more productive. And I think that, to me, the fruits of that labor really end up in new business bookings, and they end up in retention. And so that’s not to suggest that there may not be things.
But I don’t think it’s really to me about $0.50 PEPM (ph) here and there. To me, it’s really about the innovation journey we’ve been on. This just allows us to do it at a faster clip. And I’m really optimistic and excited about the things that we’re seeing. In terms of other things that we’re measuring, we actually have the entire organization rallied to engage in these tools. We actually have some goals that we put out there in terms of — by the end of the year, how many of our associates that set across sales and implementation and service and technology that are engaging with these tools. Right now, they’re sitting at already above 10% of our base of associates that have the ability to touch these tools are already playing with them. I would tell you our entire sales organization are comping up a bit because the digital sales or inside sales where we’ve deployed a lot of these modern tools over years, have an ability to become that much more productive, engaging our new prospects and new sales.
So as you can probably tell, like, I literally could go on and on and on, but I think my answer to you is, it will be everywhere across the entire client life cycle that we have, and I’m very optimistic about the long-term implications of this on all the major metrics that make up this great business model.
Mark Marcon: That’s terrific. And then with regards to just the productivity enhancement. I mean, particularly when we think about service and implementation, from a longer-term perspective, can you describe how much more efficient you think your service personnel could become? And how much efficiency you could end up gaining there and the implications from, continuous margin improvement as you continue to go along that journey? I know it’s early days, but just how are you thinking about that?
Maria Black: Yeah. Listen, Mark, it is early days, right? And that’s not for a lack of scoping it, right? So we have had because it’s not as though we haven’t had all of these business cases over many years on how to become more productive, and we’ve had machine learning and regular AI in our house for a long time. And this does give us a step change to that innovation. But it’s still too early. I think to sit on an earnings call and commit numbers, but that’s not for a lack of internally having scoping and line of sight to what we believe are pretty exciting goals for us to go chase. And again, some of those goals have existed for a long time, but now we have technology that I’m hopeful that we can actually finally crack the code on some of these really big enhancements that we see.
But certainly, productivity is a big piece of it. I know I talked today about Agent Assist and this idea of call summarization. Again, it probably doesn’t sound that exciting. But for someone who used to sit on the other side of that, you see whether it’s a prospect call or a client call gets summarized and recapped into a very quick format that’s usable. These are, hours and minutes of time. even on the seller side, we actually are launching something called rapid pre-call planning, and I think about the hours I used to spend 27 years ago, researching a company to get myself ready to go in and have a conversation with a prospect that brings value, enabling our sellers to have all of that productivity. So I think it’s — again, it’s too early to give you exact hundreds of millions of dollars of types of quantifications.
