Bob Schrader: Yeah. This is Bob here. I mean, we, obviously, take risk in the PEO business on workers’ comp. Obviously, we are very prudent in managing that risk in which — and picking on which risk we are willing to take. I’d say there is growth in the quarter, primarily driven by, we have growth in worksite employees, that is going to drive higher workers’ compensation costs. We go through every quarter and do true-ups of our reserves and so forth, but nothing specific to call out other than growth in the business that would drive growth in direct costs.
John Gibson: Yeah. There has been no change to our underwriting standards. There’s no change to our programs in terms of caps and limits, and there is no real change in the overall program performance.
Daniel Maxwell: All right. Thanks a lot, guys, and congrats again to Efrain on your retirement and Bob on your promotion.
Bob Schrader: Thank you.
Operator: And we’ll take our next question from Bryan Bergin with TD Cowen. Your line is open.
Bryan Bergin: Hi. Good morning, guys. Thank you. Efrain and Bob, let me echo my congrats as well. Efrain, it’s been nice working with you here. Enjoy your retirement.
Efrain Rivera: Thank you.
Bryan Bergin: I got to ask the question because we’ve gotten a lot of question, just as it relates to ERTC. So, it doesn’t sound like you have any change in your fiscal ’24 revenue expectation there surrounding ERTC after this recent IRS announcement, but can you just dig in there a little bit more since there have been a lot of questions? Is there any evidence of any clients wanting to potentially delay submitting new claims there? Any dynamic there to be mindful of?
John Gibson: Listen, Bryan, appreciate the question. Look, ERTC was in line with our expectations in the first quarter. We continue to submit. No one is wanting to delay. The program is going to end. And, I — again, the IRS announcement is not stopping anyone’s efforts — our efforts in approaching clients who are assisting and then filing the tax credits. And in fact, the IRS specifically commented to clients and small business owners that they should seek trusted partners to complete their filings. The IRS pause in processing that, and accepting. So they’re accepting filings. It’s really due to some just really bad actors out there that are providing bad advice to small businesses and putting them at risk. I talked about this probably a year ago when this started when these little pop-up companies started to show up.
And again, I think the IRS is trying to do a prudent thing to tamp down on fraud and also to make sure these small businesses are not getting bad advice from these pop-up firms. So, we actually are continuing to accept and encouraging our clients and prospects to file, and we provide a service where we are confident that the advice we are giving them is adequate and we’ll continue to try to get their processing done before the filing deadline early next calendar year. The delay impact for the client is really going to be in the processing, which is really going to be when they get the refund.
Bryan Bergin: Okay. Very good. That’s clear. And then, my follow-up, just on the target here. Can you share as it relates to the M&A the financial profile of this target? Just any revenue attribution to call out now included in the current year outlook? I did hear you mentioned, I believe, the upper end of your growth range. But just wanted to confirm there were no organic offsets of that.
Efrain Rivera: Organic offsets, which…
Bryan Bergin: As far as anything in the organic side being offset by now any incremental inorganic in the year?
Efrain Rivera: Not really, Bryan. I mean, it will contribute a modest amount of revenue, we’ll call it out as we go through the year. But it’s not masking something or additive in that respect. I think there’s a number of different vectors of growth within the company that are working pretty well. So, no, not really.
Bryan Bergin: All right. Thank you.
Efrain Rivera: Yeah, you’re welcome.
Operator: And we’ll take our next question from Ashish Sabadra with RBC Capital Markets. Your line is open.
Ashish Sabadra: Thanks for taking my question. And Bob and Efrain, congrats to both of you. Just on my question, I wanted to better understand the raising of the guidance and confidence in the back half. Is that both on Management Solution as well as PEO? Any color on that front? Thanks.
Efrain Rivera: Yeah. So, one is, kind of, I’d say, process and structural, and then, the second is the substance of what we saw in the first half. So, the process and the substance is simply that, at a point in time you’re taking a snapshot and saying, okay, when we issued the guidance back four months or so ago, we had a certain set of macro conditions. We didn’t know of it, whether they would hold at that point. The macro conditions, as John said earlier, haven’t changed significantly. So, we fast forward four months and now we have more certainty as to what environment we are looking at, at least in the medium-term. Medium-term being three to six months. So that’s one. The second part is, we look at the trends in the business where we close, where we correct in terms of the trends that we saw.
You heard some of the comments that John said on the PEO, so much of that was what we expected from an execution standpoint, but it’s one thing to expect it, it’s another thing to deliver it, and thus far we’ve started on a good note. So those are those are two parts of it. So, by the time we get to September and we are in the October now. We know with reasonable degree of certainty what Q2 looks now. We project forward into the back half of the year and do we feel reasonably confident based on the combination of all the factors that we are seeing at the back half expectations will be as we expect. As we sit here, the answer is yes. So, as you look at the guidance it anticipates that PEO will strengthen in the back half of the year. And at this point, we are seeing indications.
Can we say that with certainty? You can never say anything certainly. But we — based on all of that combination of factors, we feel pretty positive about where things are turning.
