Q4 2020 Automatic Data Processing Inc Earnings Call
[music].
I would like to inform you said this conference is being recorded and all lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session.
If you would like to ask a question during this time because our that's number one on your telephone keypad to withdraw your question pressing county.
I'll now turn the conference over to Mr., Danyal Hussain Vice President Investor Relations. Please go ahead.
Thank you Crystal good morning, everyone and thank you for joining 80 piece fourth quarter fiscal 2020 earnings call and webcast.
Participating today, our Carlos Rodriguez, our President and Chief Executive Officer, and Kathleen Winters, Our Chief Financial Officer.
Earlier. This morning, we released our results for the fourth quarter fiscal 2000, 2030 materials are available in the Fccs web site at our Investor Relations website at investors out ATP Dot com, where you'll also find the investor presentation that accompanies today's call as well as our quarterly history of revenue and pre tax earnings by reportable segment.
During our call today, we will reference non-GAAP financial measures, which we believe to be useful to investors and that that exclude the impact of certain items. A description of these items along with a reconciliation of non-GAAP measures to their most comparable GAAP measures can be found in our earnings release.
Today's call will also contain forward looking statements that refer to future events and involves some risk. We encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ materially from our current expectations as always please do not hesitate to reach out should you have any questions with that let me turn the call over to Carlos.
Thank you Daniel thank everyone for joining the call. This morning, we reported our fourth quarter and fiscal 2020 results.
Although we ended the year this year against a significant headwinds related to cope with 19, we believe we executed well over the course of the last 12 months and our product offerings remain well positioned to support sustainable long term revenue growth as we continue to help companies and their workforces all types of environments.
For the quarter, we delivered revenue of $3.4 billion down, 3% reported and 2% organic constant currency, which was better than our expectations for the full year, we delivered revenue of $14.6 billion up 3% reported and 4% organic constant currency.
Our adjusted EBIT margin increased 10 basis points in the quarter and increased 60 basis points for the full year.
Well ahead of our expectations as we managed our expense base prudently to absorb the impact of a decline in revenue in the fourth quarter, while simultaneously, providing an elevated level of service to our clients.
With this revenue and margin performance, our adjusted EPS growth was flat for the quarter and up 9% for the year.
Considering the unprecedented in <unk> and evolving macroeconomic situation, we're very pleased with our execution in the quarter and our current positioning as employment continues to gradually recover from the steep declines our clients have experienced.
The global Health crisis from covered 19 has clearly evolve over these past few months and I'll start today's discussion by providing a brief update on the trends we've experienced.
When we reported our fiscal third quarter results in April we were just starting to see some preliminary signs of stabilization extra weeks of rapid deterioration.
More specifically across our own data sources, including weekly payroll clock and volume job postings and background screenings. There were multiple indications that we were reaching the trough.
Now three months later, we do believe we saw conditions bottom in late April.
Whereas our pays per control was trending down mid teens in April it has since improved to be down about 10% as we exited the quarter.
And for the full quarter pays per control was down 10.8% better than we had contemplated in our outlook.
Last quarter, we also discussed our expectation for elevated out of business losses in May and June.
Those losses ultimately developed in line with our expectations.
This yielded a decline in our retention rate of 20 basis points to 90.5% for the full year, though if not for the elevated out of business losses. In Q4, we believe our retention rate would have been up for the year.
In fact, despite these losses in Q4 for fiscal 2020, we tied an all time high retention for our Midmarket and hit a multiyear high in our up market.
Looking ahead, what we have been encouraged by signs that the economic distress brought about by Kobin 19 has started to ease in certain countries and several U.S. states, we're seeing continued or even increasing distress and others and over the past several weeks, we've seen the pace of employment recovery slow.
Accordingly, as we set our expectations for the coming year, we believe that the worse is behind us, but the global economic recovery over the coming quarters will be gradual.
Kathleen will discuss some of our specific macroeconomic assumptions in more detail.
I'd like to turn now to employer services new business bookings.
We reported decline of 21% for the year, which was inline with our revised outlook. Despite the limited visibility we had in making that forecast.
And although this represents a significant decline the actual execution by our Salesforce was better than what this reported growth rate suggests.
As we mentioned last quarter, there are two components to our bookings figure.
Our gross bookings, we actually sold in the quarter and adjustments for previously recorded bookings.
Our gross bookings sold in Q4, well down significantly came in ahead of our forecast and most importantly exited the quarter with improving momentum.
This gives us confidence that buying behaviors continuing to trend in the right direction, which we believe will drive further bookings recovery in the coming quarters.
Furthermore, our Salesforce has continued to adapt to this virtual sales environment.
As we've invested in training state agile on sales messaging and continued to foster our channel relationships.
We're also continuing to see week on week improvement in leading indicators, such as referrals appointments per salesperson and demos scheduled.
In addition to these gross bookings we regularly adjust bookings we have previously recognized if for example, a client is no longer expected to start within the original estimated timeframe or starting with fewer employees than originally anticipated.
These backlog adjustments are ordinarily immaterial to our bookings growth, but as we said last quarter covert 19 is causing some clients to delay implementations or to start with fewer employees than we originally signed.
We made a larger backlog adjustment in Q4 than previously planned.
And this offset the better underlying sales performance we experienced.
Looking ahead, we expect we will likely see negative bookings growth in the first half of fiscal 2021, as we are still selling into an unfavorable macro environment.
We expect growth to be flat to positive in Q3 with me with much more substantial growth in Q4, driving full year bookings growth of flat to up 10%.
Beyond fiscal 2021, a key priority will be getting our sales productivity back two or above its previous level.
Within our control or the investments, we make and in fiscal 2021, we're planning to continue investing in product innovation digital sales capabilities and leading edge sales tools to drive sales productivity higher.
In addition at this point, we are planning to add modestly to the size of our Salesforce and together. We believe these investments will position us well to return to our previous to our prior new business bookings growth trend line as client buying behavior continues to normalize.
Doctors beyond our control involved including overall GDP trends as well as the timing and scope of workers returning to their job sites will in the meantime, likely continue to impact our bookings.
Moving on service has remained critical to our clients our clients look to us for supporting guidance in navigating through the complexities of key HR challenges and regulatory change.
And our goal has been to serve as a trusted partner as they faced covered 19.
Our clients have responded very positively to the robust service, we have provided and that in turn has led to record NPS scores in June as a direct outcome of our commitment to providing exceptional the level of service and we expect this favorable NPS trend to have positive implications for us in the years in the years ahead.
In response to an initial surge in service volumes related to covert 19, we redeployed hundreds of sales implementation associates to help meet the service needs.
While average resolution time spent per service request remains elevated as our clients work through complex issues. We've now seen our service requests volume returned to more normal levels and we are happy to report that we have now deployed mostly because of these associates back to their sales and implementation rules.
We continue to keep watch on proposed legislation that could drive another surge in client service demands and we remain prepared for such a scenario.
We also continue to serve our clients through product innovation.
During the quarter, we rolled out a range of solutions to help our clients through the crisis and prepare for the recovery.
We implemented over 1000 feature changes in response to 2000 legislative updates in 60 countries.
And we also had over 400000 clients run over 2 million Paycheck Protection program reports for a total loan volume of approximately $115 billion.
Many of those clients have also now run the necessary reports to apply for their loans to be forgiven.
Looking ahead, a key product focus is enabling a safe returned to the workplace and we're offering tools, including touch lists and voice enabled clocking health attestation and enhance scheduling analytics to help clients manage their workforces as the we resumed workplace operations.
We continue to make progress on our other major product initiatives, including the rollout of our next Gen HCM platform and payroll engines.
Two weeks ago, we won yet another award for our next Gen HCM solution. The Ventana annual digital Innovation Award.
And we remain excited about its rollout.
Perhaps more importantly, despite shifting our workforce, we reported by remote environment, we remain on track to hit our R&D development roadmap milestones and just this quarter, we pilot, we piloted nexgen HCM and payroll in Australia.
Our product team also launched our new workforce management solution in the Downmarket launched a new time kiosk in the Apple App store and we went general availability with wisely direct in our Midmarket and down market.
Now taking a step back I'd like to say that in every challenge there is potential for upside and covered 19 is no exception.
We believe that the nature of this shock in which businesses of all sizes have faced major uncertainties in managing their employees has media HCM partnership they have with ETP got much more valuable.
And as companies emerged from this crisis, we expect them to see even more clearly the benefits of investing in robust secure HCM offerings that include expertise and service to support their mission critical activities.
So although coded 19 has created temporary headwinds in our growth past experience has taught us to stand firm regarding our investments and strategy as part of our commitment to drive long term sustainable growth.
The strength of our business model and balance sheet allow us to do that exactly that and we are well positioned in our product service and go to market strategy.
Last before turning it over to Kathleen I'd like to quickly touch on our plans for our own associates.
Last quarter, we discussed having over 98% of our workforce operating virtually including our Salesforce and we've been pleased with that transition and the overall performance in this environment.
While we are well positioned to continue operating this way we are in the early stages of bringing back a small portion of our workforce to the office on a volunteer only basis.
And I'm actually pleased to join you today from our Roseland headquarters, which we opened Justice Monday.
Our Salesforce will continue to primarily engaged with prospects and clients virtually but they are beginning to conduct face to face meetings in some geographies to the extent that day and our clients and prospects are ready to do so.
And with all that said I'd like to once again take a moment to recognize our associates for their outstanding effort and the sacrifices they've made.
I understand the monumental task of managing work in home life as a complex situation and I also know it's not easy.
A heartfelt thanks to our associates and leaders for their commitment.
I'll now turn it over to Kathleen.
Thank you Carlos and good morning, everyone.
During the quarter, our revenues declined as we felt the full brands of the double digit decline a little employment among our clients.
Buying with other recession driven headwinds.
But we believe we executed well and are well positioned to do so for the quarters ahead.
For the fourth quarter, our revenue declined 3% recorded and 2% organic constant currency was ahead of our expectations at pays per control MTO performance were better than we have plans.
Our adjusted EBIT margin was up 10 basis points in the quarter also well ahead of our expectations.
We took certain cost actions in the quarter.
Can you to benefit from cost savings related to our ongoing transformation initiative.
And also benefited from lower selling.
Which together offset the margin impacts from the law of high margin revenues related to cope with 19.
Our adjusted effective tax rate decreased 210 basis points to 22.9% compared to the fourth quarter fiscal 2019.
And our adjusted diluted earnings per share was flat at $1.14 as lower year over year revenues were offset by modest margin expansion.
Lower tax rate and a lower share count compared to year about.
We ended fiscal 2020 with revenue growth of 3% recorded 4% organic constant currency adjusted EBIT margin up 60 basis point.
And adjusted EPS growth of 9% all in solid year, particularly given the significant decline in economic activity and deployment that we faced over the last few months.
As I move onto segment results.
It's important to emphasize how resilient business performance was in the context of unprecedented headwinds, including a 10.8% decline in pays per control and a 22% drop in client funds interest revenue.
During the quarter, our employer services revenue declined 6% on a reported basis and 5% on an organic constant currency basis in line with our expectations as better underlying growth was offset by incremental FX drag.
Our clients on balance declined 8% fourth quarter, reflecting lower pays per control.
Lower state unemployment insurance rate payroll tax deferral of among some of our clients.
And the continued lapping of the closure of our Netherlands money movement operation in October 2019.
Combining that balance decline. This a 30 basis point decline in average yield through all of our client revenue to decline by 22%.
$215 million.
For the full year EPS revenue was up 1% reported and 2% organic constant Johnson County solid performance.
Employer services margins were flat for the quarter well ahead of our most recent expectations.
We had the impact of lower revenues at relatively high incremental margin as we discussed last quarter offset by crude cost control measures across all categories.
Yes margins were up 60 basis points for the full year.
Moving on.
Also solid performance given the circumstances.
Our total CEO segment revenues increased nearly 4% for the quarter to $1.1 billion, an average worksite employee declined 3% to 548000.
This revenue Worksite employee growth with both ahead of our expectations driven by better retention performance and pass through revenue.
James to employment at our PEO clients performed in line with our expectations of a mid single digit decline.
And as expected with more resilient than the average client.
Segment.
Revenues, excluding here on margin benefits pastors declined 5%.
And in addition is being driven by lower Worksite employees continue to include pressure from lower workers' compensation, and sealy costs and related price.
CEO margin declined 450 basis points in the quarter.
This included about 530 basis points of Unfavorability from a net expense in ATP indemnity of approximately 34 million, which contrasts to the 22 million dollar benefit we had in last year's fourth quarter.
As a reminder, we had experienced favorable workers comp claims trends over the past several years, which translated to favorable reserve adjustment in ATP indemnity.
Those trends remain positive, but not as much as what weve factored in our most recent reinsurance agreements and as a result, we had a slight throughout the other way this year.
Let me turn now to our outlook for fiscal 2021.
I'll start by discussing some of the specific you ask macro driven assumptions that underpin our guidance.
The Davis with these assumptions is a combination of our along trend data and third party macro economic forecasts and we believe we are utilizing a balanced outlook.
First our pays per control outlook.
We are assuming a decline in average pays per control, 3% to 4% for the year.
Driven by a decline in the high single digit range for the first half of the year.
Improving to a decline of mid single digit by Q3.
Followed by a rebound to positive mid to high single digit growth in the fourth quarter.
This outlook corresponds to a gradual improvement in employment picture through the fiscal year.
So it did not contemplate full employment recovery.
To help translate this trend into a single number you can anchor to.
Our guidance contemplates the us getting to approximately 7% unemployment by June 2021.
Second out of business losses.
Our retention was negatively impacted by losses in this most recent quarter as we had a number of clients churn enacted that after monitoring and zapping, we decided to write off as losses.
While we believe government stimulus programs have helped many small businesses. We continue to see some company in enough to stay where they are not paying employees and we expect continued elevated losses in the early part of fiscal 2021 as restrictions and lower demand in certain industries continue to drive fallout.
As a result, we're setting our expectation for EPS retention to decline by another 50 to 100 basis points over this coming fiscal year.
Lastly on client fund interest.
As discussed last quarter, our clients balanced growth is being impacted by the combination of a decline in pays per control.
Lower new business bookings and other business losses.
And we had some modest pressure from companies taking advantage of the payroll tax deferral provision of the care that.
We are several clients on balance declined 6% to 8% for the year.
Unlike pays per control, we expected to be negative for the first three quarters, and then returned to growth in Q4.
We expect our average yields decline as well as a reminder, in Q4, we temporarily suspended our purchases of new security and reinvestment of maturing securities our client portfolio.
And earlier this month, we resumed reinvesting.
We have over 5 billion and securities maturing in fiscal 2021, yielding on average over 2% and we expect to reinvest them at prevailing yields that are well below that level.
As a result, we expect our average client on yields to be down 50 basis points to 1.6% for the year.
With this combination of lower balance and yield we expect interest income on client funds to be 390 $400 million down about $150 million versus fiscal 2020.
We expect interest income from our extended investment strategy to be 430 $440 million down about 125 million versus fiscal 2020.
With that said without the benefit of our client investment strategy, which utilizes laddered maturity. We believe the headwind fiscal 2020 would have been even greater.
Having covered the major macro topics for fiscal 2021.
Let me share with you how we are deploying our downturn playbook to manage expenses.
We've concentrated on areas, where we have excess capacity and on reducing discretionary costs, while maintaining investments in sales product and our associates.
And as we emphasized last quarter, we continue to have the strong cash flow profile and balance sheet strength to withstand impacts to our revenue without taking immediate actions on our investments.
We said, we would be thoughtful and strategic in assessing the most prudent path forward a path that balances positioning for recovery against near term margin performance.
We have now how to quarter to assess our business capacity.
And during the fourth quarter, we identified businesses across ATP, where unfortunately, we didn't believe a recovery with likely in the near term and therefore had excess capacity and service and implementation.
In addition to taking specific headcount actions, we have further titles on non essential spends including teeny and other discretionary spends.
We're also continuing to move forward with our transformation initiative.
For the past few years, we've highlighted for you some of the discrete material initiative that we have worked on and their estimated level of benefit.
In fiscal 2019, we executed on a voluntary early retirement program, which yielded over 150 million in annual run rate benefit.
In fiscal 2020, we executed on our workforce optimization program and a procurement initiative.
Which together yielded approximately $150 million in annual run rate savings against our original expectations of 100 million.
For fiscal 2021, we have two important initiatives to call out.
First we are moving forward with a digital transformation initiative that leverage as many of the capabilities. We highlighted at on February 2020, innovation day, primarily to optimize our implementation and service. In addition to enhancing efficiency in other parts of the organization.
As examples were further utilizing automation in the implementation process.
Deploying additional self service features throughout our platform.
Broadening the use of guided us this tool and expanding the use of chat and cap off.
We expect this to be a multiyear effort as we work to optimize large parts of our service delivery model.
Our innovation agenda is running full speed ahead and that includes innovation in our client engagement.
We also expanded our procurement transformation initiative and expect further benefit for fiscal 2021.
We've reassessed our real estate footprint.
And although we had already closed over 70 subscale locations as part of our service alignment initiative in recent years.
We recently closed several additional locations, including a large office in New Jersey.
We will continue to evaluate whether there was further opportunity for location consolidation.
Between these two initiatives, our digital transformation initiative and the expansion of our procurement initiative.
We expect to realize a combined $125 million on savings during fiscal 2021.
Over $150 million in run rate savings exiting the year.
Let's now turn to our outlook for fiscal 2021.
We'll start with the segment.
We expect to decline of 3% to 5% in revenue for the full year driven by our outlook for a decline in pays per control balancing yield pressure in our client funds interest portfolio as well as pressure from new business bookings and elevated out of business losses.
Compared to what we just experienced in the fourth quarter.
We expect the first half of fiscal 2021 to experience a slightly greater revenue decline.
The incremental impact from lower sales out of business losses, and lower client funds interest more than offset the gradual recovery in pays per control that we're anticipating.
We expect revenue growth to improve modestly in Q3, and then turn positive in Q4.
We expect our margin in the employer services segment to be down about 300 basis points for the year.
And as a reminder, the revenues we lose from pays per control out of business losses in client funds interest are all high margin.
As with revenue we are expecting a decline in ETF margin during the first three quarters and an increase in the fourth quarter.
For our PL, we expect revenue down 2% to up 2% for the full year with average Worksite employee count flat to down 3% driven by similar factors as our EPS segments, namely headwinds in same store employment out of business losses and booking pressure.
We expect average worksite employee growth to be negative during the first three quarters and turned positive in Q4.
Our revenues, excluding zero margin pass throughs are expected to be down 1% to 4%.
And we continue to expect lower workers' compensation and see repricing.
For PEO margin, we expect to be down about 100 basis points in fiscal 2021, driven in part by drag from higher zero margin pass through revenues, partially offset by favorable compare for ATP indemnity.
With the segment outlooks, we now anticipate total ATP revenue to decline, 1% to 4% in fiscal 2021.
And we anticipate our adjusted EBIT margin to be down about 300 basis points.
As the benefits from our continued expense management and transformation initiative.
Our partially offsetting the detrimental impact margin impact of expected loss revenue due to cobot 19, as well as the investments we continue to make.
We anticipate our adjusted effective tax rate to be 23.1%.
This rate includes less than 10 basis points of estimated excess tax benefit from stock based compensation related to restrict restricted stock vesting in Q1 fiscal 21.
But it does not include any estimate tax benefit related to potential stock option exercises given the dependency of that benefit on the timing of those exercises.
Last quarter, we temporarily suspended our share repurchases as we decided it would be prudent to wait for stabilization of the overall environment.
At this point, we anticipate resuming our share repurchase program at some point this fiscal year subject to market condition, and we have a slight net share count reduction contemplated in our guidance.
And as a result of our outlook for lower revenue and margins and higher tax offset partially by lower share count. We currently expect adjusted diluted earnings per share to declined 13% to 18% in fiscal 2021.
As most of you are aware, we also have $1 billion notes due September of this year.
At this point, we expect to issued new debt in the coming weeks or months, depending on market conditions.
I'd like to conclude by saying that although coated 19 is putting pressure on our financial performance.
We believe this is transitory and the long term prospects for ATP are no way diminished and may even be enhanced by the current environment.
For fiscal 2021, we're remaining focused on opportunities for innovation and growth.
While taking a deliberate balanced approach to managing expenses.
And we're confident in our long term growth process.
I look forward to updating you on our progress.
With that I will turn it over to the operator for QNX.
Thank you.
If you wish to ask the question. Please press Star then one please be aware of the allotted time. Your question. Please ask one question with a brief follow up and again, ladies and gentlemen that start and then one.
And our first question comes from Mark Marcon from Baird. Your line is open.
Good morning, Thanks for taking my questions.
Right.
One one key one is just from a bookings perspective as you look out over the coming year, and and you gave us a bit of the Sun's for the cadence that you expect which which of the new solutions do you expect to see the greatest traction from which ones are you. The most excited about.
And which ones could be the most incremental from a really long term perspective.
Well I think from a from an incremental standpoint, the start off with the last part of the question from a long term standpoint, I think some of the investments we've made in some or Nexgen solutions.
Thanks for me.
Has to be were on the most optimistic in terms of potentially moving the needle from an incrementality standpoint, right because we already have a very large as you know bookings number.
Anything that we can add on top of that goes into the top of funnel in terms of revenue revenue growth and Thats really was the reason for these.
These investments is to really move the needle competitively and to improve our position from a differentiation standpoint, and so the early signs of course now somewhat temporarily interrupted by covered 19 were were positive in terms of the traction we were getting.
Both with our next Gen HCM platform as well as with our next Gen payroll platform.
So that's kind of where I feel the most optimistic in terms of the over the long term in terms of kind of the cadence and more kind of the short to medium term in terms of next year.
As really the fourth quarter is an important part as we've kind of been alluding to here in our in our prepared comments.
And some of that is really clearly the piece of the recovery. So there is we have an expectation, which I think is in line with.
Generally accepted I think forecast if you will and you heard kind of as a proxy the expectation that unemployment reach a certain stage by the end of this fiscal year and those things were all proxies for GDP growth and.
You guys all have plenty of access to your own firms economic forecasts and so for so the second half is really the key for us for booking standpoint and.
There aside from the Incrementality question. This issue that we have around for example, adjusting to our adjustments to our to our gross bookings is an important one because to the extent that we that the recovery continues on the piece, we expect it would help us a lot if we would be able if we can start.
And continue to implement clients that were previously sold in that that so clearly one one.
Positive would be that doesn't degreed any further because in full transparency. We we mentioned that in our in our prepared statements. That's a concern under this kind of environment, but there's potential upside as well there. So theres downside in there is upside there as well.
But when you see the incredible decrease in activity in just a couple months following the beginning of the of the crisis. It takes a while for that those buckets, we get filled up again in terms of leads then turning into first appointments then turning into presentations to clients. So our hope.
Process of how the sales.
Evolution goes is critical for us in the second in the second half from the places that were hurt the most which.
In our case.
Some of it is perhaps just because of the nature of the crisis that the Downmarket was hit very very hard in terms of pays per control and also just declines in activity, but also came back frankly.
Surprisingly.
You can't called strong could still down year over year, but I think the bookings performance in the Downmarket has been I.
I think.
Gratifying and so if we continue on that trends that will be good news for the second half of the year and then we expect based on the current trends at the mid market in the and the up market will then kind of follow suit as the kind of pipeline.
Leading indicators that we mentioned translate into actual bookings and actual actual sales so I guess.
The short story is the things that were the hardest hit or the things that in the initial stages are the things that should have.
In our opinion the biggest rebound in the second half and then on top of that obviously, our new product investments.
I think are a source of optimism for US. We've also invested in and if you heard US mentioned were workforce management in the down market and we have a lot of things going on you can see it in our investments in technology over the last four to five years and obviously some of those things are longer term like the next gen stuff.
Some of it has been.
We've been investing stage for six to 12 month, we expect those things to translate now into new into new sales. So I don't know if you heard our total over the last several years, we pivoted to investing more in product.
And particularly more around agile technology and that hopefully gives us some some some firepower here in terms of our bookings incrementality going into the into this year, but also went to following the following years as well.
Yes, some more color.
Mark Yes, just too.
You know allow add a little bit more there in terms of by each segment for sure we're expecting sales growth across each of the segments in fiscal 2000, lawns and as Carlo said down market seems to be.
Resilient.
Has trended up since we were at the low point.
Several weeks ago, but.
Down market and trending up earlier and then during the latter part of the year, we'd expect up market and international for that matter to continue along those lines, but for short segment sales growth across all segments and.
Carlos is point from a long term incremental perspective, certainly expecting next gen HCM to be a driver there, but our strategic platforms in the near term Ron workforce now have been performing really well in the market and we expect them to continue to perform really well mark as we recovered through the through this.
Yes.
Great.
Just as a follow up could you just give us an update in terms of where we stand in terms of the number of implementations on nexgen, HCM or or sometimes known as lifting on and also nexgen payroll. This percentage of the client base has been converted.
So on our next Gen HCM you'd probably appreciate.
For two or three month that wasn't really something that ever a lot of.
Companies, we're we're focused on or for that matter secure.
Unfortunate.
But but the good news is we did actually.
Start a client just a week ago. So that is array of Sunshine in what was otherwise a lot of dark dark clouds. So we had a number of clients that were set to be implemented in our fourth fiscal quarter, which delayed and one of those actually started here already in the early part of the first quarters, that's encouraging but.
We're not that different from where we were before so call. It still a handful I think we have like seven or eight clients live somewhere in that neighborhood on next Gen. HCM on next Gen payroll.
There the target at the beginning from a from a piloting standpoint, it really was.
Clients were not quite the same size of next Gen. HCM. So it's a slightly different dynamic in its and we're making in terms of numbers of clients more more progress, but that doesn't mean that the product necessarily is making more progress just the difference between the markets were serving Nextgen HCM is really in the early stages aimed more at the mid may.
Market. If you will then really the the up Mark even though we expected to be for next Gen payroll engine across our Midmarket and up market in the initial stages, it's really mid market. So I think we have somewhere around 100 clients.
Sold.
I think maybe at that same number implemented it from not mistaken that's right.
So we are so you know, we're making some good progress there and there the pace is a little bit better in the sense that we didn't come to a complete stop on on.
Our next Gen payroll.
And we continue to implement clients, there and kind of move move forward, but it's a there's a very challenging situation for our our clients and we really need to kind of help them get through the situation in the crisis not necessarily press them too.
To get started as quickly as possible, although thats, obviously our desire.
From our standpoint.
Of course, thank you.
Thank you.
Next question comes from Ramsey Thats all from Barclays. Your line is open.
Please check that your line is on mute.
Okay fair enough.
Yes, we can area.
Hello.
Go ahead.
Okay.
Hello.
Yes.
We didn't hear you if you.
Hello Hello.
Pardon me Sir Please proceed with your question.
And we'll move onto our next question. Our next question comes from David Togut from Evercore ISI.
Thank you good morning could you characterize the gross bookings performance in the June quarter prior to the backlog adjustments.
Yes, I mean, I think we we were just trying to give a nod to our salesforce in terms that we they were they performed better than we clearly had forecasted in that we gave in terms of color commentary. During this same earnings call. We're during the earnings call over the last quarter, but they were still doing.
So at the end of the day, we just wanted to make sure that you guys got the rate impression that we weren't disappointed in that we didn't do worse than we expected.
But from a mechanical number standpoint.
I think still down somewhere around 50% like.
If that's a.
That's a fair characterization of Kathleen has any more color yeah.
The gross bookings were.
Slightly positive to what we had expected the approximately down 50% is is right on which is what we had been anticipating and then the backlog adjustment, which actually part of our normal process.
Factored into the.
The overall bookings number being down slightly more down slightly more than that for the fourth quarter.
Got it and just as my follow up.
Assuming the employment recovery proceeds as you.
Laid out Catherine negative seven 7% unemployment by the end of that fly 21.
Would you expect to be back on your.
Sort of normalized growth path I asked why 22.
Yes.
Go ahead.
Okay. Good.
It's a great question in terms of when do we return to previous levels of.
Growth and profitability.
And as you pointed out a lot really depend on the shape of the recovery and look we've taken the.
Vast view, we can and tied to share with you what we're thinking about that in terms of the shape of that recovery, but.
It really is going to depend on that last recession. It took a couple of years for sales and retention and revenue growth to return to the pre recession levels now is it going to look exactly like it looked last time.
We don't know this crisis is different.
Makeup of ATP is different.
So you know I hate to say it but it's going to depend on a lot of factors.
Returning to those previous growth rate certainly will not be in fiscal 21 based on what we see right now.
And we'll update you as things change and as we go through the current year.
I think it I think maybe just a little bit of this in terms of my own observations from looking at the.
And on a quarterly cadence if you will and how would the implications are for F. Why 22, it really depends on how are we thinking about sales are we thinking about revenue are we thinking about profit growth and.
There are all kind of different buckets, but I guess, it's kathleen's point it really all depends if if this is unlike the financial crisis not a two or three you. The financial crisis really was you go back and think about it the kind of mini crises that occurred over the course of the following two or three years remember we had the European.
Debt crisis, we had a number of things that elongated dot dot situation, but that could happen here as well and we're of course, not scientists and we don't know exactly what's going to happen, but we're using kind of same forecasts that I think all of you are using and if if you make those assumptions around.
When the healthcare crisis passes.
He vaccines and therapeutics and so forth.
If you follow that that path then F. White 20 to one when we exit in the fourth quarter of F. why 21.
From a mathematical standpoint, do you think you used the term growth rate growth rates are going to look pretty good.
Terms of as you exit from a booking standpoint, and then starting maybe with profitability in the in the first quarter of F.. While 20 Twoq is in the fourth quarter before 20, we saw some indeed.
Expense, but some of that.
Frankly is really the comparison, so we're going have three quarters enough white 22 that are going to.
Look pretty good because if we still think that the first couple of quarters of every 21 are still impacted pretty significantly by by Covidien by the first couple of quarters of every 22, you don't have that impact you're going to have some I hope some really good tailwinds on some of these growth numbers, but the key for me was looking at.
Absolutely booking dollars.
In the fourth quarter of 21 compared to the fourth quarter of 19, because obviously 20 is not a good comparison.
And looking also at our absolute profitability in the fourth quarter of 21, and our revenue in the fourth quarter of 21, and again I feel some sense of optimism about 22 based on those exit rate assumptions with a capital a in a capital s. as.
You MPPR and because.
This is what we're a long way away from having certainty and you've seen how fluid the situation as has been but I think the math.
I think works.
We're kind of Favourably once we get through fiscal year, 21, and particularly when we get through the first three quarters of fiscal year 21.
Understood greatly appreciated.
Thank you.
Our next question comes from Jason Kupferberg from Bank of America. Your line is open.
Thanks, Good morning, guys and just wanted to start with the kind of a high level question on April 21 guide when we got revenue down modestly, but obviously edge down.
Quite a bit and that's being driven by a little bit attached, but mainly to 300 decades of EBIT margin decline and I guess it looks like you may be transformation savings should largely offset the head to float income. So are we really just sounds kind of isolating. This again decremental margin that that maybe people did.
Appreciate the kind of the severity of or are there other factors. There hey, good high level people were surprised to see how much GPS is going to be down relative to revenue for the current fiscal year.
Let me take a crack at a couple of high level things and then I think Kevin you probably can provide some additional maybe detailed to help in terms of quantify some of the stuff but.
We I'm not sure if it was clear from our comments last quarter this quarter, but.
Having been through the through these types of not through a healthcare crisis, but I personally have been through.
Our common downturn white to KDP 911, and the global financial crisis in our board as a board that is long term oriented and.
It feels like despite how horrible situation is it feels like this situation is transitory and so.
One of the things that we have as a first principle is to maintain our level of investment that doesn't mean that were not prudent around our expenses and I think we have been I think Kathleen gave you. Some examples of some of the things that that we're doing but we're going to add to our sales head count next year, which might surprise some people and maybe not something that you were expecting and the.
As long as and when you model only one fiscal year for a company like ATP or recurring revenue model. If you decrease your sales cost or even your investment in product and technology, it actually looks quite favorable.
You can.
You can probably offset quite a bit of revenue decline. The question is is that the really the right thing to do long term, we don't believe that that it is and so.
So that's one that's one factor philosophically second factor is that even though we clearly have some decline in the number of clients Didnt nature of the revenues that are going down is very high margin. So you mentioned Klein funds interest, but we also have another.
The decrease from a comparison standpoint 20 to 21 in pays per control, which is call it 100% margin as well and there's very little work related to the number of Worksite employees sorry, the number of employees paid by our clients are working workload is generally driven by number of clients and then whereas we've all now.
Observed in the last quarter also driven a lot by the regulatory environment and so the amount of work has not decreased much in in some cases increased.
On behalf of our clients and again Thats, a place where we could cut some of that support.
And then it would lead to lower NPS scores and we probably would have retention go down but the single most important driver of financial value for ATP is client retention and lifetime value to lose clients. We then have to go sell them again and implement them again makes absolutely no sense and all the experience we that are.
We have in that our board has tells us to kind of stand firm and make sure that doesn't mean that we ignore the reality is around us if we thought that this was a permanent.
Decrease in capacity of the economy War in terms of the global outlook.
And there was going to last.
234 years, we probably would be behaving differently, but that's not our expectation if not or the felt the way. The we're managing the company. There's also a couple of other.
Items, I think that mathematically may be not helping us and maybe kathleen can coupled with some of those sure yes.
Yes look on the service the 300 to the Guy to 300 basis point decline on the surface may sound like a lot, but there's a lot going on now when you pick it apart I think is really and you put into the kind of buckets I think you'll see how we arrived at that.
That guidance on that expectation right you know as we've talked about and as you know we've got obviously a substantial impact some loss of very high margin revenue right, we thought that high margin revenue.
Got client on interest, which is a hurt on margin.
Year over year.
We also have growth in zero margin path.
Which falls right to the bottom line from a margin perspective that is going be a significant her for us where hasn't been as much in the path.
And the continued investment.
Along the lines.
We think it's prudent and smart to take to continue our long term view and to continue to invest in sales and in products.
We are committed to that level investment.
That's Uh huh.
Factor.
And then you do have as you pointed out that transformation and other cost actions that we've been taken.
That only partially offset that so.
So I would think about it in those buckets in terms of look you've got this high margin revenue you've got some other things that fall right to the bottom line like your margin pass through and client on interest you've got the commitment to continuing to invest and quite frankly, I think we've been executing really well from a transformation perspective and also.
So.
In terms of looking at.
Navigate through this period, the excess capacity costs that we have and being really smart about addressing those.
But I guess limits really Howard comment just to provide a little bit of color on kind of our view because I learned the hard way from my two predecessors about some of these things. So if you just look at the sales engine aspect of our of our business you look at our over multiple years, you can actually do the math that if our if we decreased our headcount.
Call it 5% or even if we just kept it flat and you assume the productivity continued on kind of its normal trend, which is a big assumptions.
But if you even if you assume that.
You can see the impact that hasn't revenue growth for multiple years down the down the road so.
Obviously, if you expect that you're not going to be able to ever returned to the same kind of sales productivity. You had before then you have to do something differently, but thats not the expectation we have right now and it's critical to our growth in 20 to 23 in 24 for us to maintain our investment in our in our sales engine not to mention in our product in our technology in a few of.
Other places as well.
Okay. Yes, that's that's really good color for my follow up I wanted ask just about retention I know you're forecasting the 50 to 100 beds decline. This year I wanted to see if we can get a sense of how that compares to how you exited the june quarter on that metric and it really just trying to get a sense of whether you're forecasting acceleration in churn.
Over the next few quarters or more or just kind of a a stable in steady pace of churn.
Again, let me, let me give you some maybe philosophical high level.
Comments and then Kevin maybe you can give you some color on the fourth quarter and some of the some of the assumptions so.
In general we've been and I've been again, having been through multiple downturns and crises.
I've been surprised by the resilience of our retention.
And we think there could be a number of factors here one of them could be owned government stimulus the Pete the pitch of protection program. All these things might.
Now. These are these are all new things compared to the compared to the past that might be.
Helping there's also the potential that some clients are are.
Frozen in place if you will like we've talked about how difficult our bookings have been.
I think logic would tell me that.
That's probably happening across multiple industries and multiple competitors and so we would be intellectually dishonest not to assume that I might be helping our retention in some parts of our businesses like the mid market.
And the and the up market because in the down markets really driven more by by out of business. So having said all that.
Say that a lot of these things are really about timing because if if.
If there continues to be government stimulus and there continues to be optimism about this being transitory then I think this this kind of holds and you have probably some additional fall out in the Downmarket as result of out of business and so forth, but you don't have kind of a major downturn or a collapse in in retention, so and that's kind of where I am.
Today that we're expecting what I would say is.
I would consider these to be re reasonable in modest declines and retention when you compare them to other downturns that we have some data on and some history about.
Yeah and.
We did do a lot of work around and analysis around.
What happened in the last recession, and what happened to retention and by segment and.
I think we've got a pretty balanced view if you look at the declining retention that we experienced in Q4 and what we are guiding to inspecting and planning for in fiscal 2001 is you know basically in line with the retention pressure that we had during the last week.
Session.
I will say I mean, it's really hard to predict and to to tell what level of support the.
T program.
Has had any going to have but that's no best view right now.
And I think I don't we normally don't give it but I think I feel like this is an environment where transparency is probably.
Not a bad idea just to give you like like that's why we gave you kind of the gross bookings number.
Number besides the net bookings number because you guys need a model is stuff. So you can understand what's happening here, but think think the fourth quarter somewhere around couple hundred basis point decline in in retention, which which I think again all things considered I thought was and most of that decline.
Frankly came in the down in the down market. So that to me feels like better than I would've expected three months before that.
Okay, well, we appreciate all the disclosure thank you guys.
Thank you next question comes from 10 Gen. Wang from JP Morgan Your line is open.
Hi, Thanks, so much for all this detail just on the transformation initiatives I caught all the details there how about looking beyond the two initiatives are there any other potential actions that you could take anything.
That could be material.
Over a similar size.
Again, I'll, Oh, maybe give some high level comments and that I.
I think Kathleen give some additional detail.
We have a very large menu of of things that we can do.
This company has a very long history.
Of navigating through multiple changes in environments, and multiple economic circumstances, and and now I think we will add to our repertoire manage managing through a major health crisis and at a pandemic and so.
We have.
I don't know house to put it we have a huge number of things that we could do if necessary and one necessary. This is an incredibly resilient business model.
I recognize that.
Yes, it's unusual for ATP to be to be down the way we are but it is what it is in terms of the economic circumstances around us.
The believing we have a number of of of lever so as as I said.
Like some of these some of these things are in our business model or somewhat self correcting.
If in the unlikely event.
There was a belief that there was a permanent impairment of kind of old global economic GDP or or growth vis-a-vis other industries or other companies I think that we are in somewhat of a have a better place because the amount of money that we spend on and D and an implementation alone would at least for the short term.
I would certainly enhance our bottom line and help us from a margin standpoint, that's something we want because of the real value to be created years through growth breakthrough profitable growth not by kind of shrinking our way into into profitability, but we have no intentions of of allowing ourselves too.
No underperform, if you will.
On a long term basis below what we have to both below what we have delivered for many many decades and that's what 21 is all is all about but if circumstances change we have a very long list and our and quite a lot of variable expense in our piano and a very strong balance sheet and a very strong.
Cash prizes position.
So to engine. Thank you.
Question.
The logical question because when you think about kind of the path in the history over the last several years right in terms of what we've been driving from a transformation perspective, you can see that we've had.
Several kind of big major initiatives over the last several years right. We had service alignment initiatives first we have.
A voluntary early retirement program, we told you about the workforce optimization and the procurement and now the procurement continued and we've shared with you our work that we're doing around digital transformation the question.
Hum.
Quite frankly, I think there's a lot of runway we have a lot to do from a digital standpoint and.
Also from a procurement standpoint, it does get harder as you go I will say, but there's a lot to do there and a lot of the digital products projects first of all the digital is certainly focused on our service and implementation because there's opportunity there, but it is across the entire comp.
And so every single segment and every single Department, whether your front office and or your backlog.
Cast with thinking about digital transformation automation how'd, you make the work more efficient how do you take work out.
There's long late there. So I expect that you will hear us talking about that for some time to calm the procurement while it does get.
Harder as you go.
What I would say is in an environment like today that we're in right now any downturn. It does present, some procurement opportunity, but maybe didn't exist a year ago. When you actually when you go back and you're negotiating with vendors and suppliers and so whats. So we thought real work to do there and as you heard us saying.
The prepared comments, we expanded procurement and make sure we're capturing all the opportunities from real estate perspective in terms of what the environment has changed the way to World is working has changed let's make sure we are thinking about our real estate.
Footprint.
In a fresh modern forward looking way to ensure we are utilizing the assets that we have to the fullest extent possible. We're understanding how we're going to get work done in the future. We are understanding how we can.
Utilize mobility models, where it makes sense to do that so we've got a lot of work and some really good work to do here on the due to digital procurement real estate perspective.
And just one last comment.
On that the other thing that maybe is under appreciated but it's worth mentioning here because again, we're we're typically.
Talking about these things was there more longer term, but if your question was really more about what's potentially next longer term and not just in 21. Our next gen investments are the largest potential potential digital transformation effort, we've ever undergone and we always focused on them around what they're going to do in terms of our winning in the markets.
Place and our sales sales growth in our revenue growth but.
Trust me when I tell you that.
The business cases for those investments.
And the progress we've been making over all these years.
There's enormous.
Yes expectation for.
All right call it automation call it efficiency, whatever you want to call. It and we don't usually talk about our tax engine, we talk about HCM and payroll, but one of those next gen investments is our tax engine, which again there. The early signs we already have a couple of hundred thousand clients migrated onto that platform and when you see.
How quickly we were able to make these legislative changes in that platform and the the cost structure and the cost of support.
Again, I would be very optimistic that one of the largest transformation efforts will be talking about in the future. When we look backwards is these next generation investments I'm, hoping they're also going to lead to the growth incrementality and and winning more market share in the in the marketplace.
But do not underestimate the value of these investments in terms of our back office and also our cost structure.
Yes, thank you for that that Thats very complete answer.
If you don't mind, just one quick follow up you mentioned the legislative changes and lot of the work in effort that you put into that and colors I know ask if this all the time, so I'm going ask you again.
Could we see more demand I know you mentioned improved bookings momentum he started to see because you see more demand for the service model in general here I don't know, where you're seeing maybe some switching from more or demand for work, but again election year lot of complexity, probably more changes coming could.
That help you here.
I mean, I don't see how it can't so and usually I'm not that optimistic for that definitive because if it will only be election, I would say you know we have to wait and see.
But I don't.
Again I usually.
From typically later, but I just don't see how companies after all this don't.
You know reassess not just kind of how they do HCM and payroll and so with that so many other parts of their of their business model, where continuity and resiliency and so forth are critical in that applies to the smallest client to the very largest clients I think that for a lot of us I don't think we're the only ones are the only.
Industry or space, where that's going to be a tailwind, but it's hard to believe that this isn't a positive now in one quarter and how do I quantify that because you have GDP going down I don't know 30 something percent in the second quarter.
Even if people were thinking about that that wasn't really going to be a factor in certainly in the fourth quarter. The question is how does that net out in the math right. Because you want to somehow be able to parse that out understand how much of his incremental and I can't I can't necessarily do that scientifically but.
Intellectually, it's hard to believe that it isn't a tailwind going going forward for us and then on the election side you know we like we generally.
Change.
Because.
In in it doesn't matter, whether one party versus the other were a political as a as a company.
But usually when there is changed there is change and for employers employers are an instrument of policy of of the government. It's how public policy gets effectuated, whether it's through tax or all the various safety policies and.
Leave you are seeing all these changes in leave policies now to help manage through that health crisis.
So that's all incredible.
I think opportunity for us to help our clients and when there's opportunity to help clients that's opportunity to suddenly business as well.
Yes, I agree. Thank you I would say for the summer. Thanks. Thank you you too.
Thank you.
Next question comes from Brian Jain from Deutsche Bank. Your line is open.
Hi, guys. Good morning, I just wanted to ask take another crack on the margin question and looking at it from this perspective.
The fourth quarter margin any as was impressive to bring it to flatten you took a lot of the the brunt of.
The hit just.
Just thinking about that fourth quarter reversed the guide of down 300, I guess im a little surprise that it doesn't hold up better can you just contrast.
The margins in the fourth quarter being flat versus down 300 from that perspective.
Sure I mean, I think some of it is Kathy will go through some of the math, but the client funds interest impact is much bigger I think going forward than it was in the fourth quarter because of the laddering that we do.
Our in our portfolio the impact for example of bookings, we still had a lot of business starting because remember there's a lag between bookings and starts. So I think you would all be very surprised by how much even though we had some delays and some particularly for larger clients.
We started a lot of business in the fourth quarter also in a kind of the bookings decline now the starts and the amount of revenue that goes into the into the run rate declines as well as you move forward until you get that.
Sales number back back up again.
So I think there a number of just kind of mathematical.
Realities, I think that that hit us in the in the in the in the next two or three quarters.
In comparison to the to the fourth quarter, but I think that.
Again, you were not going to do that like what are going to provide quarterly guidance, but I would encourage you to.
Attempt to do either a first half for a second half based on the tone that you're hearing from us or even attempt to do it by quarter because.
The view that we have over the fourth quarter again, assuming the assumptions are correct I think paints a very different picture than the picture maybe that you're getting by looking at at a 21 number I would also would also argue that when we talk about 21, its fiscal 21, which happens to be only six months of 21 for every other comes.
Many out there when you talk about 21, you're talking about you know the beginning of January of 21, where everybody expects everything already to be back to normal and and that is a in terms of assumption of things being back to normal. So it's a little bit may be tricky in terms of the thought process and in the in the math, but I don't have Kathleen has anything.
Yeah, I mean, yes, it's a little bit.
Hard to say, okay compare a one quarter to eight full year, particularly in a year like this when there's so much going on and there's so much linear already aspect in fiscal 20 ones, but what I will say.
You know in Q4, we did have sales expands our end GE was actually a little bit about help in Q4 versus the ends up being hurt. So that's kind of one difference one to the other and the other thing is from a transformation perspective in terms of benefits and how the benefits flow well.
Well certainly being.
A favorable and help for us in.
Each year in fiscal 2000, unethical 20 months in Q4, there is a pretty substantial impact on favorability from transformation.
EBITDA compared to a full year fiscal 21 dose kind of the math of that how it all falls out in a quarter versus than a full year.
But again think about fiscal 20 as I started this 1.1 at look you've got this high margin revenue you've got topline successful right to the bottom line being the zero margin pass through on the client interest.
You've got our continued commitment to investment so you've got that hurt sales expense.
Partially offset by continued transformation work.
Got it that's helpful. And then just a quick follow up the elevated out of business losses, just trying to get a sense of how that's compared and past recessions and then how much more do we have to go on that I mean have you written down the majority of it and there's just a little bit leftover because I know in fiscal year 21, you're saying that.
Be some more losses as you just trying to get an impact of magnitude of previous recessions and how much is left thanks.
That really comes through in the retention. So it's not really we don't crinkle write it down rates. So that really comes through in terms of the the losses from a from a retention standpoint.
We have like maybe others some clients that have quote unquote stopped processing.
And but they are still there and so there's a question of which of those clients come back and which of those clients.
Don't come back, but we've modeled in the down market. This is really a downmarket issue.
We hope that it's down market is released in prior economic cycles. That's been the the case and I think you see it reflected in our in our retention rate, but you know, it's very very hard for us to say.
With any level of certainty.
How thats going to exactly play out in the in the future. We've looked at all the prior downturns and we know that there's probably some out of business. It's still there that's going to that's going to occur.
And a lot of this is in this case is going to depend on government stimulus and whether that continues to be some support for small.
Business or not and also just the overall level of GDP and obviously the overall piece of recovery in terms of people going back to.
Back to a to spending on on products that help small small businesses survive.
Okay. Thank you.
Thank you.
Next question comes from Lisa Ellis Some Moffettnathanson your line is open.
Hi, Good morning, guys I apologize the end can ask one more question on margin just a clarification on the back side, because I think and you know that maybe the effect of the de leveraging related to pays per control. It maybe a little bit steeper that late than we were expecting et cetera is the implication of that that coming.
Out of this as we get back to better employment levels late and 21 that you would see as to the similar snap back is that the wage we should be thinking about it.
As unemployment improves to me when we're looking out into F. by 22, or there are reasons that we wouldn't expect that to happen.
Thanks, No I think Thats, I think thats right and again I hate to go back to because I think I would encourage you like I'm doing to focus on both growth rates, but also with another important items models, and so forth, but absolute numbers as well because if pays per control doesn't grow in the fourth quarter of.
Fiscal year 22, we have a serious problem like if there's not a big snap back of that number like if there isn't a huge snapped back of bookings.
We have serious problems and so the only thing that we think is not something that we want to model improving its interest rates because it just doesn't feel like there is a basis.
For doing that but I think if you take reasonable assumptions based on economic forecast you do have a fairly significant snap back in terms of.
Growth rates, if you will or improvement percentages. The question. Then is what does that mean in terms of absolute numbers and so if you still have some 7% unemployment.
By definition that unemployment rate is still higher than it was in the third quarter of fiscal year 20, and that has some implications in terms of absolute level. If you will have pays per control and we've kind of model that in to our to our assumptions.
But for sure there's a snap back in the numbers no.
There's no denying tonight [laughter] get okay.
Alright, and then my follow up it is related to the PEO as you're seeing because I know you don't you bookings are our yes related bookings. It just kind of question on demand demanded by the PEO as you've seen companies adjusting down to the crisis in into the recession heavily heavily demand.
I think NPL, meaning is it positive because companies are looking to variabilize call shore or are you seeing some companies move away from the PEO, because they're reducing benefits when does that demand outlook look like thank you, but I think the demand is so far are experiencing the PEO has been that its was kind of inline with the rest of the business. It looked.
A little more resilient in April which you may have heard that tone from us, but then may and June pretty much in line with what was happening across yes in terms of in terms of bookings demand and I think some of that is because of just the sales cycle. If you think about the PEO the sales cycle resembles more the market the lower end of the up market than it does.
As the Downmarket, even though the average client size is small and that's because it's a high involvement product and high involvement sale because you're basically turning over all of your HCM, including your benefits you workers comp et cetera. So I think thats, what weve seen in the short term. If you look at again 2025 years worth of history I can't even.
We've I've been doing this for that long, but sorry, Mike theater in the PEO and every time, there's an economic cycle or a change whether its dot com or financial crisis, whatever there's a lot of theories and I think the secular demand and growth of the PEO doesn't seem to be impacted by many things So I would say.
We'll expect.
That kind of of solution to have a lot of legs for small and midsized clients for a long time to come in the interim there could be ups and downs because as you said if companies record unquote.
Hunkering down and don't want to offer benefits at least in our PEO part of the value proposition is benefits and so.
But so far when you look at sales results lead generation activity et cetera, There's no reason to believe that the PEO won't recover.
In the same way that we expect the rest of the business to recover from a from a booking standpoint.
Terrific. Thanks.
Thank you.
Your next question comes from Stephen malls from Morgan Stanley. Your line is open.
Great. Thanks for taking my question can you just coming at some of the implicit assumption under the guidance another angle.
Just curious what you guys thoughts are in terms of what you're seeing conditions on the ground wise in terms of geographic concentration I mean, certainly some parts of the country or more open than others. Some industries are doing better than others I guess I'm just curious.
You guys could sort of separate out how you guys are thinking about about that on a go forward on the unevenness of the recovery and what that means of your client base I know you've talked about being diversified, but certainly there is a quite disparate experience level across the country right now.
That's a great. It's a great question I think you probably saw in our comments that we said that we observed in our data that there has been a slowdown in them in the last few weeks. So we are looking at the data weekly and we do look at it geographically both globally and in terms of by country, but also within the U.S. by by state and as you would expect.
When it part of the challenge in the last several weeks and months has been into places where you've seen some of the the come back in terms of the virus or the resurgence of the of the virus in kind of the southern States and also Texas, and California, but nothing back to kind of the full shutdown that we saw.
In in the in April which is in line with web every whatever you're also seeing as well in the in the U.S and so far this is more about a leveling off of growth.
Rather than than kind of a decline so we've seen it in the same metrics that I talked about in the last quarter. So I can see it in.
Like the number of a job postings and screenings and so forth that have that we're on a you know on an upward trend line and frankly it was certainly on a v., but it was a nice upwardly sloped trend line, which then was translating into.
Improved employment, both in our numbers, but also in the government reported numbers, but we have seen a plateauing of that.
Over the last two or two or three weeks and so that's something that we are.
Fortunately, we re looked at our assumptions for fiscal year 21, the assumptions we have for pays per control for the first quarter are around where what the pays per control exit growth rate was for the fourth quarter and based on this kind of plateauing that feels like the right place for us to be and the problem is we don't want.
Actually go tweak the second quarter three during the fourth quarter goes as you've seen over the last three or four months.
Three or four months ago, we were actually thinking about opening our office in Orlando and in Maitland Orlando because everything was fine in Florida, nothing was happening in Florida, and we didn't know what the how we're going to do in New Jersey in New York and as we sit here today Im sitting in the office in New Jersey, and we're not opening anything in Florida. So so I think it's.
Unfortunately, very fluid very fluid situation.
And you have to keep an eye on all of these assumptions both at the macro level, but as you said, we have very detailed information in a heat map by state and I would say that what you're hearing and seeing in the news is what we're seeing in the in the data and but with touch translating into as a plateau going or a leveling off of employment.
Short term so far not a decline.
That's very helpful. Maybe I could just squeeze a quick follow up in here.
Carlos I think you guys laid out of your innovation day earlier this year that the addressable market ATP sits in that 150 billion a revenue a year growing at 5% to 6%, obviously, that's changed given Kobe, but I'm just curious to get any updated thoughts you have around.
Maybe where that stands today, but if you can't really speak to where it stands today given the fluidity of the situation, how we're thinking about it coming out of it given your comments and Kathleen comment about the enhanced opportunity for you for the space herein.
Listen, there's a lot of smart analysts out there and industry analysts out there that would probably be better answering their questions. They probably are going to need a little bit more time and information to answer that question, but our earnings for the same with I answered. It earlier today, which is I don't know by how much but it's hard to believe that.
Passed the transitory nature of the situation that that growth rate for the industry isn't at least what it is if not if not higher because in that and again I'm not trying to be arrogant that that is only for HCM, but there are other industries that high think have should.
Have tailwind from these events, where the acceleration of people to using cloud services and using what I would consider to be outsource services. So that you can focus on your core business, but also have resiliency I think and also you can improve efficiency and you can improve productivity of your workforce and improve engagement of your workforce.
All of those things I think are going to get tailwind and it's across multiple technology.
Sectors that I think are going to probably benefit on a longer term on a medium term and longer term basis from from this unfortunate situation.
Great. Thanks for taking my questions.
Thank you.
Thank you. This concludes our question and answer question for today I'm pleased to handle program over to Carlos Rodriguez for closing remarks.
Thanks, So I just a couple of a final thoughts one is I know I said it before but we.
We have navigated through a lot of issues over many decades I've had the the experience of being through several myself, whether it's the dot com recession will happen after 911.
The global financial crisis, because in that case, it was really a synchronized global.
Downturn and now this this health crisis in the one thing that I would say about Pdps business model, regardless of I know the focus here is on the short term, but if you stay focused on the long term, it's an incredibly resilient.
Business model financial model, but also business model the value of our products and our services is key and.
One small anecdote I think we may have mentioned it in the last call.
But as kind of this crisis unfolded, we we had to become like many other.
Parts of the economy, we had to go and talk to.
Governors and leaders, including the White house to make sure that we were deemed and a central service because we needed to stay in operation and so I don't know what.
What better sign it there is of a resilient long term.
Model then to be considered in the central service because we definitely we definitely are we're glad we were there to help our clients will still be there to help our clients, but I think that speaks volumes to the long term viability and also upside of the of the business that we are a critical service and essential service to the economy and to our cloud.
Yes, we're proud of that and I'm proud of what our associates did to live up to that.
Expectation and as to the.
The next year again, I would just encourage everyone to think through kind of first half second half or even by by quarter because at least for me assuming that we stay on the trajectory that were on which I realize is fluid, but with those assumptions you know the fourth quarter exit rate of F. Why 21 is really what I'm focus.
Based on and not necessarily the short term results.
Of the first few quarters of F. for 21, although we're going to do our best to perform as well as we can throughout that as well and lastly, I know Kathleen said in her comments, but.
We're very proud to have delivered 1.5 billion in cash back to dividends in a billion dollars through buybacks through.
Which I think is also another sign of the incredible.
Resilience and I think cash flow generation capability of this business model in this kind of short term hit that we're having to revenues into profitability I don't believe will impair our ability to continue that that tradition of returning cash to our to our shareholders and for that I want to say that I appreciate the patients of our shareholders as well and all of you and I think you today for.
Thanks for listening to us and for all your question and I wish you all a very safe a summer as well. Thank you.
Ladies and gentlemen. Thank this concludes today's conference call. Thank you for participating and you may now disconnect everyone have a wonderful day.
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