That’s why we relaunched the Retention Insights AI offering over a year ago because small business owners want to keep their good employees. I do think now that small business owners are trying to make sure that they have high quality workforces. And that’s what we see them talking to our HR generalists about is really more about how do I lead and feed my employee base? I maybe don’t have the employee base that I wanted because I was kind of forced to hire some people two years ago when it was hard to find people. Now there’s more opportunity to upskill my workforce. That’s kind of what we’re seeing in the slow and I wouldn’t say any hoarding.
James Faucette: Okay, got it. I just wanted to make sure that I was interpreting that correctly. Thank you. And then, you mentioned that we still are in a period of strong business starts. What about on the other end? I think there had been this view over — in the economy generally that we weren’t seeing failure rates or out of business rates get back to pre-pandemic levels yet. But can you just give us an update on what kind of out of business levels we’re seeing? And how much — and particularly in the context of continued strong business stores, I’m just wondering on that component of the customer set.
John Gibson: Yeah, I would tell you that bankruptcies are up, and have been on the rise probably over the last year. You’re still seeing births outpacing deaths. Now, deaths typically report a little lag. I would just tell you in our data that bankruptcies continue to accelerate this year over last year in terms of out of business reasons. Again, what I always want to warn people here because I think people read into that data, other concerns on a macro basis, I don’t view it that way. The fact of the matter is we had such high levels of new business burst two years ago during the pandemic that if you just do the math of survivability rates of those businesses that most of them are gone after five years and 50% of them are gone in the first two years.
So, what you’re seeing is that shedding of that big bulk that started two years ago, the first group of those are going out of business. So, I think it’s not a sign that there’s an abnormal level of bankruptcies given the level of business starts that we had over the last three years, if that makes sense. Did I say that properly?
James Faucette: It does. Yeah, I just — on that point, so clearly bankruptcies have been rising, but have they — in your customer sets, have they surpassed pre-COVID levels or not yet? Or — and it sounds like, given that large number of bursts, we probably should expect them to surpass pre-COVID levels at some point if they haven’t, right?
John Gibson: Yeah, I would — let me get right here, because — what I would tell you is bankruptcies are definitely up and have surpassed the fiscal year ’20 levels, which is just…
James Faucette: Got it.
John Gibson: …[first year] (ph) of the pandemic. And just passed that mark in the second quarter.
James Faucette: Okay. Fantastic. Thank you so much for that.
John Gibson: Yeah.
Operator: Thank you. Our next question will come from Mark Marcon with Baird.
Mark Marcon: Hey, good morning, and thanks for taking my questions. So, on Management Solutions, John and Bob, you started off by talking about the upper — the mid and upper end being a little bit stronger and seeing good performance there. I’m wondering to what extent is that being driven by some of the new tools that you’ve recently introduced? In other words — and what are you seeing just in terms of the strength dissecting between new logos versus further upsells into the existing client base?
Bob Schrader: Yeah, I mean, as John mentioned, I think we’ve seen a lot of strength in the mid-market. And from a sales performance standpoint, our unit performance that we had in Q2, I think you mentioned in the prepared remarks, John, was above where we were at this time last year. We continue to see strong penetration within the existing client base, upsells into the base, whether that’s ASO, PEO, retirement, but I would say, Mark, there’s strength across the board, both from a new logo standpoint, particularly in the mid-market as well as upsells into the base.
Mark Marcon: Great. And then, despite that strong growth, we’re basically assuming a slightly slower pace with — so it basically would be the [SBS] (ph) side, and you’ve mentioned an increase in terms of bankruptcies. In terms of the selling season, are there any things that you’re seeing in terms of differences between Paychex versus SurePayroll? Any sort of differences? And I know it’s still early in the selling season, but any color that you would provide above and beyond what you’ve already said?
John Gibson: Yeah, Mark, I would say what we’re seeing is what we’ve typically seen, again, SurePayroll more in the micro set. So, if I look at the micro set, continuing to see similar type of — there’s a lot of new business starts. So, there’s a lot of opportunity there for growth. And then, in the small business, we’re just so early in the key selling season. Really as you know, the next 60 days are really going to tell us how that’s going to shake out. Back to I think what your original question was as well on Management Solutions is, remember, you have the geography issue occurring at the same time. So, while we’re selling a lot more inside our human capital management base and into our ASO base, some of what we’re upselling is PEO.
And so, they’re moving over to the other geography on the P&L, which is a good thing from a long-term perspective. And then, as we said, this issue relative to the seasonal hiring, which happened in the upper end of the market, that impacted both the PEO on the PEO and Insurance side and the ASO market on the Management Solution side.
