Q1 2023 Automatic Data Processing Inc Earnings Call

[music].

Yeah.

Good morning, My name is Michelle and I'll be your conference operator at this time I would like to welcome everyone to Adp's first quarter 2023 earnings call I would like to inform you that this conference is being recorded.

After the Speakers' presentation there'll be a question answer session and instructions will be given at that time.

I'll now turn the conference over to Mr. Daniel Hussain Vice President Investor Relations. Please go ahead.

Thank you Michelle and welcome everyone to Adp's first quarter fiscal 2023 earnings call.

Participating today are Carlos Rodriguez, our CEO Maria Black, our president and Dan Maguire our CFO .

Earlier. This morning, we released our results for the quarter our earnings materials are available on the SEC website, and our Investor Relations website at investors ADP Dot Com, where you will also find the investor presentation that accompanies today's call.

During our call, we will reference non-GAAP financial measures, which we believe to be useful to investors and 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 involve 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 and with that let me turn it over to Carlos Thank.

Thank you Dan and thanks, everybody for joining the call as you saw this morning in the news, we have a little bit more excitement than normal, but I promise you that an hour and a half from now we will go back to our boring selves, because we do have a business to run but before I talk about the quarter I thought it was appropriate to just share a few thoughts given the transition for.

For me to Maria as our new CEO .

As you know I'm going to continue as exec chair, but obviously, that's going to be a role primarily to supporting Maria and also helping the board and not really involved in day to day operations. So it's definitely going to be my last earnings call, which is.

It's hard to it's hard to say because it's been <unk> 44 earnings calls for me.

But it's really been an incredible ride.

Obviously, I think a lot of people.

One person in particular that I do want to call out as John Jones, who is going to remain our lead independent director and combination of John and Les Brun beforehand more.

Incredible mentors to me incredibly helpful in providing advice and guidance on behalf of the board and I also I'm proud to call them friends I also want to thank.

Gary Butler and art wind back my predecessors, who gave the opportunity to be here today and also helped me a lot in terms of making use of person I am in a leader than I am today.

I am proud of a couple of things I'll just mention a few one of them is I am proud of our growth.

We doubled our revenues over the last 10 or 11 years and today as you know we reached an important milestone of 1 million clients. So I appreciate it.

I wish I could say there was anything other than a coincidence, but however, it happened.

Great thing to have happened here on my last earnings call. We made it through a lot of challenges economic we went through.

What I would call financial repression in terms of interest rates.

Fortunately now we have.

A little bit of the opposite situation, which we'll talk about today.

There are many <unk> I think there were three <unk> over my tenure.

And then the final straw that almost broke the camel's back was interest rates even on the 10 year going I think it was like under half a percent independencia.

Which was really kind of incredible to see happen and we also made it through a pandemic that hopefully only happens every 100 years.

And we had.

Some dissident shareholders that also had some opinions about how to run ADP that we had to deal with.

I'm also proud of our associates I'm proud as I've always said about their commitment to our clients and to ADP theres something that my predecessors, and the culture have around.

Our client Centricity, which is really remarkable and our associates always step up to the plate and deliver in a business that again, we don't get a lot of credit and I know that we're not.

Quite up there in terms of the list of first responders and.

And people, who who save lives, but we do keep the economy going and we do I think make sure that commerce worldwide.

Great.

Smoothly. So our associates are the ones, who get that done and I'm proud of them.

What I'm most proud of is Maria shoes.

Now been tested she's prepared she has been through a very thoughtful and long succession process and she is going to be the would've network is only the seventh CEO of ADP and I know that she is the right person starting from the ground up.

I wish I could have said that because that's what makes US special is placed special we love to bring in talent from the outside but we have some incredible people to grow up and no displaced understand this place and know how to make it continue to harm the way it's been humming for more than 70 years. Most importantly, she not only knows our industry, but she knows.

Our clients needs deeply and takes great interest in that and that is going to serve as well as well as for growth orientation, which I think is going to be very important for adp's.

Future last thing I'll say is that I recently told.

Our team at a senior meeting that I tried I strive to be what I learned about many many years ago something called a service leader.

And I tried to be that way to my team and to my organization here at ADP I want all of you to know that I tried to be that also to all of you and to our shareholders as much as I tried to be that way for our clients and our associates.

It's been truly an honor.

Of a lifetime to serve AEP CEO .

We are kind of a company that likes to fly under the radar, we kind of like it that way. So I know that nobody's going right any books about us or they may not even write any articles about us today, but this is one of the most successful commercial enterprises and history I have to do is go back and look at the track record.

Most people don't do that they don't go back and look at the 10 year, the 20 year and in our case. The 50 year Company went public in 1961 I encourage you to look at our history, our results and our CSR and compare it to some of the greatest.

Investors and investments of all time, and I think youll see the ADP ranks right up at the at the top.

Who knows me knows how much I love sports and how what a sports.

So I was trying to think of an analogy and I feel like not only that I joined the championship team, but I want the Super Bowl being here at ADP, and it's really been an incredible incredible right, but right now it's time to pass the torch.

It's always great to have change, especially in a company like ADP because I know you can rely on a consistent predictable results, but we also have to continue to grow.

For decades to come and the only way to do that is to bring in fresh thinking and to have changed and thats exactly what were doing with Maria So before I talk about the quarter and the results I'm going to turn it over to Marie and let him say a few things.

Thank you Carlos.

You mentioned service leadership and I have to say that you are truly the embodiment of servant leadership you have always kept our north Star Trail, we're just putting our clients and our associates first and I know I speak on behalf of all of our stakeholders our associates our shareholders. The communities, we serve and the Milligan clients now we have the honor of serving.

Thank you for everything that you've done over the decades that he served as our CEO . So my sincere. Thank you to you Carlos I'm truly humbled and grateful for this opportunity and certainly for the confidence Carlos that you've given me and the board has given me an entrusted me with this role I am genuinely thrilled to lead.

You mentioned it and it's true I just start from the ground up I started with the company 26 years ago, selling adp's products and operated store to door.

This ability to really see our clients from the frontline.

Given me a vision and a true understanding of the client Centricity that you mentioned that we and body as a company and selling 26 years going door to door I've served in roles all across ADP and sales and service implementation operations, including our PEO and Sps I'm really real.

Proud of the role that we play in our clients' lives and how they trust us so really help them succeed in their HCM journey for the last 73 years, we've had an amazing legacy and our culture and our culture is really anchored in innovation and it's anchored in developing and providing technology and solutions that help address.

Our clients' needs, but also help address the needs with our workers and I'm incredibly proud to be a part of that journey as we continue the modernization that we've been undergoing over the last few years of course as you mentioned none of this is possible without the 60000 dedicated associates that we have that are at the center of absolutely everything.

And that we deliver.

It is continuing to empower their great talent, which time and time again has reshaped the HCM industry through a relentless focus on again solving our clients' needs in predicting their future needs.

I'm also grounded by our history and our own beginning as a small business out of Paterson, New Jersey founded by Henry hub manned simply wanted to help help local businesses, then and now I know and I feel deeply that this core value concern is sheila.

To define us as a company so with that thank you again carlyle's and thank you to the board and now I will thank you in advance all of our stakeholders and your confidence as we continue to build on the ADP is incredibly strong results oriented foundation, we continue to drive product innovation, and leading technology and more than anything.

We continue to deliver the consistent value creation that we're known for as the leader in the HCM industry. So with that I think it's appropriate to add to turn it over to the results this quarter.

Thanks, Maria speaking of consistent value creation, let me start talking a little bit about the results here. So that we can get to the to the questions. We got off to a really strong start in fiscal 2023 with strong results that reflected the momentum we've been building for several quarters now in.

In Q1, we delivered 10% revenue growth and 11% on an organic constant currency basis.

This was driven by strength in a number of our businesses and on top of that we delivered 30 basis points of adjusted EBIT margin expansion as our revenue outperformance helped us overcome elevated expense grow over from last year's first quarter as well as continued investments in the business, which we had anticipated and communicated to you last quarter.

We delivered 13% adjusted EPS growth in the quarter and we remain well positioned as we move ahead for the rest of the year I'll cover a few highlights for the quarter before I turn it back over to Maria.

Our new business bookings.

We showed continued momentum through Q1 with demand strongest in our downmarket offerings like run and our retirement services businesses and we also continue to see strong traction in our PEO solution.

At the same time bookings growth in our international business started a bit softer than we had hoped we're continuing to watch the demand environment in international markets as clients and prospects. There are dealing with a number of uncertainties. As you know we are keeping an eye on the macroeconomic environment as well, but overall demand remains strong and our pipeline looks solid.

We will share further updates on what we're seeing with bookings as we progress through the year.

Our es retention was very strong with new with a new overall Q1 record levels led by great performance in our Midmarket. We accomplished this year over year improvement. Despite further normalization in small business out of business rates in the quarter.

We assume we will continue to experience normalization in out of business rates towards pre pandemic levels as the year progresses, but we are clearly very pleased with the Q1 results that were better than expected.

Our pays per control metric was 6% for the quarter in line with our expectations as strong hiring that our clients have conducted these past few quarters has carried through to strong pace per control growth this quarter.

We continue to expect deceleration in pays per control growth later this year and we've seen sequential employment growth begins to slow both in the national employment report and in public data.

But that said job postings and other leading indicators within our client base suggest that at the very least in the short term demand for labor will remain solid.

And moving on to our PEO, we saw a modest deceleration in average worksite employee growth in the average worksite employee growth rate, which was anticipated, but the 12% growth was slightly ahead of our expectations for the quarter and we're very pleased with that growth.

Demand for both our PEO and our <unk> offerings remains high as the value proposition for a fully outsourced model continues to resonate in the market and.

And in fact, our HRS businesses combined now to serve over 3 million Worksite employees out of the $40 million total workers paid by ADP.

Q1, not only provided a strong start to fiscal 2023, but also represented a major milestone in our company's history as we as I mentioned earlier, we crossed the 1 million client mark during the quarter, what an incredible accomplishment we.

We accomplish this by driving improvement and growth on a consistent basis through decades of different employment cycles business environments and technology shifts.

It's a proud moment.

That was made possible only because of our relentless focus on meeting the needs of our clients as Maria mentioned, both by delivering exceptional service and providing leading HCM technology.

And underpinning all of this is the dedication of our associates, who ultimately make ADP the company. It is today.

As we look ahead, we recognize the need to remain agile in this unique and dynamic economic environment and it is certainly our hope that inflation normalizes soon with our significant harm to the global economy.

But if macroeconomic conditions instead proved more challenging than we'd all like we believe our stable business model should allow us to maintain our focus on innovation and our steady approach to investment positioning us to continue driving long term sustainable growth for many years to come.

And it's for that reason.

While I am incredibly excited to have reached a million clients I'm, even more excited about the opportunities ahead for ADP and I will now turn it over to our new CEO Maria.

Thank you Carlos as I mentioned earlier I am also proud of the collective efforts of our associates, who made this achievement possible one of the beauties of having 1 million clients and directly serving 3 million worksite employees in our HRS businesses.

Have unparalleled insight into the needs of the HR Department and we are putting that insight to work I'm proud to share that in September we won top HR product at the annual HR Tech conference for the eighth year in a row.

It's time for a new offering we're calling intelligent self service HR departments today devote a significant amount of time to addressing questions from their workers to help better manage this volume a corker and practitioner interaction intelligent self service uses predictive analytics to help proactively address.

Common issues for workers needs of contact our HR leaders.

Not only does this solution ultimately improve the experience for the worker, but it further enables the practitioner to focus on more strategic items, which is a key objective for our clients. There are a few different components to intelligent self service.

It's something we're calling accident cards, which you can think of it as probably not proactive nudges and ADP mobile app that appear in the flow of work. So that workers are alerted and encouraged to act. When there is something they need to address such such as missed timelines or time heart approval.

Another component of the offering is our virtual assistant chatbot, which was previously available to our clients HR practitioners, but is now for the first time being expanded to workers as well in order to address their requests or questions and the third piece is case management, which helps with more complex problems.

That require HR systems. This feature presents a streamlined way to create manage and track workers interactions with our HR experts a quickly get to the right expert based on the workers need intelligent self service is designed to create a better HR experience and reduced work and we believe we.

Our designing a solution that can reduce our client's case volume by 30% or more which of course would be an incredibly value add win for everyone.

We have already rolled out some of these components are and are in pilot for others, but the feedback so far has been very positive.

I also want to give a quick Q1 update on our new user experience as a reminder, our new user experience represents a significant enhancement, we have been making to our scaled strategic platforms using new design principles to make them, even more intuitive and more personal so our users can easily leverage our <unk>.

Solutions to the full list last year, we move clients on run ICM and next Gen HCM as well as the ADP mobile app over to the new user experience and later in the year. We also made a 20000 workforce now clients to the new <unk> and.

Enhancing workforce now is especially important given how integral is the platform is to so many of our businesses and I'm pleased to now share we've taken that 20000 clients last year to over 80000 through the end of Q1 with essentially all of workforce now clients on this new enhanced experience.

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Among other user experience initiatives, we relaunched the ADP, Ron mobile App with our new UX with managers and HR practitioners of small businesses running payroll and HR will undergo this app is a powerful tool for them and the relaunch has been a resounding success you can see.

The app and the reviews for yourself, but it's doing phenomenally well, but four nine stars on several thousand reviews, representing meaningful improvement from the experience it is replacing.

These are exactly the types of outcomes, we had hoped to achieve with this user experience work and we are very excited about continuing to rollout more solutions within our key platforms.

From our voice of employee offering we mentioned last quarter to our new intelligent self service capability to our UX deployment into our ongoing nextgen rollout our product teams are busy and our clients are excited about the continued innovation at ADP and our overall modernization journey.

We look forward to continuing to develop ways to provide more value to our clients and prospects in this dynamic HCM and economic environment and to ultimately deliver on our bookings growth goals for this year and beyond and with that over to Don.

Thank you Maria and good morning, everyone.

Our first quarter represented a strong start to the year with 10% revenue growth on a reported basis and 11% growth on an organic constant currency basis. Our EBIT margin was up 30 basis points coming in above our expectations as strong overall revenue growth and growing client fund interest revenue contribution as well as.

Workers' compensation reserve adjustments in our PEO overcame inflation related cost pressures and higher than typical year over year head count growth, our robust revenue and margin performance combined to drive 13% adjusted EPS growth for the quarter supported by our ongoing return of cash to our investors via share repurchases.

Yes.

In our employer services segment revenue in the quarter increased 9% on a reported and 11% on an organic constant currency basis.

Key drivers to this growth were strong bookings and retention performance, we delivered in recent quarters as well as solid contributions from price and pays per control.

And of course client funds interest, which mostly benefits to Es segment grew nicely in Q1, with 39% growth driven by a healthy 9% balanced growth and 40 basis point improvement in average yield.

Partially offsetting that was FX, which was a slightly bigger headwind than we had anticipated our es margin increase of 50 basis points was higher than planned primarily as a result of that strong revenue growth.

For our PEO revenue in the quarter.

13% average worksite employees increased 12% on a year over year basis to 704000 as bookings and same store pays both continued to perform well, though at the same store pays contributed less than it did in recent quarters as we expected.

PEO margin increased 80 basis points in the quarter due primarily to revenue growth and favorable workers compensation reserve adjustments.

Let me now turn to our updated outlook for fiscal 'twenty, three I think overall youll find very steady outlook compared to our prior guidance with upside due in part to higher interest rates.

But again beginning with the Es segment revenues, we now expect growth of 7% to 8% driven by the following key assumptions.

First we continue to expect Es, new business bookings to grow.

Between 6% to 9% as Carlos covered we see a stable overall demand environment at this time, but it is still early in the year and with a wide range of outcomes and we will continue to watch for impact from a potentially slowing global economy as we progressed from Europe .

For Es retention, we were happy to deliver another strong quarter, but we believe it's prudent to anticipate further normalization of small business auto business rates as we move through fiscal 'twenty three.

Such at this time, we are leaving our outlook unchanged at down 25 to 50 basis points.

Meanwhile, we will look to maintain our strong retention levels and our other business units.

For pays per control, we had healthy 6% growth in Q1 in line with expectations and we continue to anticipate a return to a more typical 2% to 3% growth rate for the full year as employment growth moderates.

As we discussed last quarter, our pays per control growth outlook assumes a deceleration in growth in Q2, and very little growth in the second half of fiscal 'twenty three.

This could of course proved to be either too conservative or bullish depending on how a macroeconomic factors develop but it still feels like a reasonable assumption to make at this point.

Last quarter, we spoke a bit about price and there is no change to our expectation for price to contribute about 100 to 150 basis points towards Es revenue growth in fiscal 'twenty three our clients understand these price increases and recognize that they reflect our own cost pressures.

And for client funds interest revenue, we now expect higher average rates compared to our prior outlook.

Our clients' funds short portfolio, we will continue to benefit as the federal funds rate increases over the balance of the fiscal year and our new investments in our client extended and loan portfolios are now expected to yield about four 3% between those two drivers. We now expect the average yield on our client funds portfolio to be.

Two 4% in fiscal 'twenty, three which is about 20 basis points higher than our prior outlook.

We continue to expect our client funds balances to grow 4% to 6%.

And putting those together, we now expect our client funds interest revenue to increase to a range of $790 million to $810 million in fiscal 'twenty three.

$70 million from our prior outlook.

Partially offsetting this revenue upside as higher short term borrowing costs associated with our client funds extended strategy with higher expected commercial paper in reverse repo rates over the rest of the year. We now expect the net impact from our client funds extended strategy to be $720 million to $740 million in fiscal <unk>.

Three up $45 million from our prior outlook.

One last factor to consider is our Es revenue outlook is FX headwind, which has unfortunately become a more meaningful drag over the last three months. We are now factoring in an FX headwind closer to 2% for fiscal 'twenty three es revenue up slightly from our prior assumption.

For Es margin, we now expect an increase of 200 to 225 basis points up 25 basis points from our prior outlook.

We continue to expect our margins to benefit from our strong revenue growth outlook, including growth in client funds interest revenue and we're pleased to be able to increase our outlook accordingly.

Moving onto the PEO segment, where we're making very few changes we continue to expect <unk> revenue and <unk> revenue, excluding zero margin pass throughs to grow 10% to 12%. The primary driver for our PEO growth is our outlook for average worksite employee growth of 8% to 10%.

We now expect PEO margin to be flat to up 25 basis points in fiscal 'twenty three narrowing our prior range higher due in part to the strong Q1 margin performance.

Adding it all up we now expect consolidated revenue growth of 8% to 9% in fiscal 'twenty, three and adjusted EBIT margin expansion of 125 to 150 basis points.

We still expect our effective tax rate for fiscal 'twenty three to be about 23% and we now expect adjusted EPS growth of 15% to 17% supported by our steady share repurchases.

And now I'll turn it back to the operator for Q&A.

Thank you if you would like to ask a question. Please press star one one.

In order to keep within our allotted time. Please ask one question with a brief follow up.

For questions.

We will take our first question from Pete Christiansen with Citi. Your line is open.

Thank you good morning, first congrats to Maria looking forward to seeing you touch on the strategic vision here and certainly to Carlos for some.

It's a successful tenure as CEO .

Particularly through some some some.

Some volatile events in the last couple of years for sure.

Just had a question as it relates to booking.

Bookings trends.

Certainly see that.

The outlook has held steady and I know that we're kind of early in the selling season.

If there's any I'm just wondering if you could put any color on any differentiating trends youre seeing at this point of the year.

Maybe perhaps versus.

Over the last year or two maybe attach rates or.

On.

Ancillary modules or or even going to more outsource.

Models.

Any changes in behavior, there and then as it relates to the pricing discussion that we just had.

Do you feel like you have any more room. It seems like your clients are responding well.

Things look good but.

So can you think that there is potentially upside to the pricing strategy sorry.

Alright. Thanks.

Thank you Pete and thank you for the well wishes certainly appreciate that and then as you mentioned look forward to connecting with many of you around strategic vision going forward with respect to bookings and really thinking through year on year changes in behavior I'll comment on that and then I'll turn it over to Don and I can talk about whether or not we have more room.

On price.

But again, just kind of confirm that overall outlook at 6% to 9%. We do feel confident in this outlook when I think about how we plan for the year and we were generally pleased with the results that we saw in the first quarter. In fact, they were actually technically a record from a year on year perspective, but the thing that makes us not necessarily.

Paul that out in that way and really speaking to the continued momentum.

Your question is really about the context of the records that we've had in the past few quarters. Its really been broad based across every sector of the portfolio and as you heard in the prepared remarks. This morning, we had significant strength in our downmarket offerings really pleased to see that across our portfolio of the small business segment segment.

Inclusive of our insurance offering retirement offerings. We also continue to have significant strength in our HR <unk> offerings inclusive of the PEO. So in terms of changing behavior I see that as constant behavior as it relates to <unk>.

Those are businesses that have had continued strength over several quarters and the value proposition both down marketing certainly in today to aerospace.

It's been good I think the the area again, we called out a little bit that we're keeping an eye on is really our international business now the good news with our international business.

It's a it's a small contributor to our overall our bookings, but when we look at what really happened with.

The international space, specifically for this quarter, we don't still actually see a macro impact we see more of an impact the strength that we had coming into or coming off of a record Q4, and so when you think about our upmarket business specifically our international business. There are times that its a bit lumpy.

As we pulled deals forward to accelerate through the fourth quarter and candidly who wouldn't want to have an incredible finished and an incredible fourth quarter, but as it has for for several decades I would say that does sometimes lend itself to some of those businesses meeting.

<unk> continued to add to rebuild the pipeline. So that's really what we think is happening but at the same time.

Sorry.

We're keeping an eye on specifically in Europe , what's happening in the Ukraine whats happening with energy prices. Those are watch items Ross if I just kind of reiterate we don't see any macro overall trends, we don't see changes in behavior. We see this strength continuing in the downmarket and into our HR Island PEO offerings, and we were very very pleased with the results of this.

Quarter end they are.

They are our record results in that.

That respect.

Okay.

Yes, and with respect to the pricing we've been very happy with our ability to execute the price increase and the way we did and as we've said on prior calls.

<unk> for the fact that these are incremental costs for our clients as well then we'd need to be competitive so.

We've made sure that price.

Price increase and pass on the costs, we have in a way that.

Keeps our customers with us for a very very long time, having said that.

We said 100 to 150 basis points and I would tell you that currently we're pushing towards the upper end of that range and the price increase so we've done very well against expectations and executed as I said well across the business of course is there more is there more available good question.

When you look at our client base, particularly with the large clients.

Do have contractual obligations that come to come do from time to time in a number of those are tied to various price indices et cetera, so that limits the ability to.

To do anything beyond some of the pricing indices that driver under Underminer Underlay. If you will the pricing we have but I guess I would say we've been very happy with where we are now in.

We will always look to see if there is an opportunity, but I think that we want to make sure and we will continue to make sure that we do whats best for ADP and in the long term as opposed to being too overzealous. If you will with short term price increases.

Great. Thank you very much great color. Thank you.

Our next question comes from Tien Tsin Huang with Jpmorgan. Your line is open.

Great. Thanks, so much Jim call just want to say again grateful to work with you and.

Sure. The time learn from me from I guess over 40 earnings calls and meetings and stuff. So I appreciate that and of course, congrats to Maria I wanted to just ask if you don't mind.

<unk> hundred percent agree from the release Carlos led the transition from payroll.

HCM.

So.

I know you can't tell us everything what in terms of what's next here, but is it fair to think.

The focus might be.

More so on the employee now in addition to the employer.

In addition to modernization maybe data just maybe some some thoughts there would be great love to hear it. Thank you.

I think that one for you Maria that I'll be sitting on the beach.

Fair enough.

Thank you for.

The chance to comment a little bit obviously early days as it relates to essentially start against the early days as it relates to having conversations around long term strategy I think the first thing I'd like to reiterate I know you've talked about my 26 years here I have spent eight of those as part of the incredible management team that Carlos alluded to earlier.

And that's been a part of the journey that we've been on as it relates to the overall modernization journey. So I think you mentioned the transition from payroll to HCM that is a piece of that modernization, but in my mind, it's more broad based than that it's really been about the decisions. We've made everything from our strategic locations too early days of <unk>.

For migrations to re configuring, our organization to really create a technology organization.

We've been actively modernizing our service organization you hear me speak about that all the time in terms of continuing the.

The monetization of tools, but also making sure that we're taking the work out for our clients, we've been making a transition to the public cloud.

And then one of my favorite topics.

Modern selling approach that we've been embarking upon that really has been going on for many years as we've found it inside sales. If you will 20 years ago through the most recent during the pandemic really focused on digital selling and meeting the buyers in a different way.

So I think all of that is really about our modernization journey and I think as I as I look forward into the next decade. If you will in the next chapter is really about continuing the great work and the foundation that you mentioned that Carlos laid I have a lot of passion around our clients I have a lot of passion around the $40 million.

Workers that they pay and how we can create value for each one of those stakeholders. Both the workers as as you mentioned the other clients employees as well as our clients.

Ultimately for Carlos touched on it I think I mentioned, it as well upfront when I think about client centricity and really solving meaningful things for our clients I think the last decade. In this modernization journey has really been about setting us up to be able to deliver value in a very different way for our clients my goal would be to add to <unk>.

<unk> that journey and in the and make sure that our clients are in love with our products and in love with the experience that they have with ADP and the true evangelists of what it is that we bring and I feel confident and have we been setup to embark on that journey and I look forward to sharing more with it more with you on it as we move forward.

Great No I appreciate the thoughts I will leave it there. Thank you both.

Thank you.

Our next question comes from Kevin Mcveigh with Credit Suisse. Your line is open.

Great. Thanks, so much and my congratulations all around as well.

Carlos I guess why is now the right time, I mean, you've done an amazing job you are still incredibly young just any thoughts as to why transition now.

Actually it's a good question because.

Honestly, it's something that we started we were joking about it yesterday that I started talking about this.

About 12 months after I became CEO and I thought I would try.

Leave 12 months after I became CEO , but for Keith we haven't noticed unlike business junkie right. So I just love.

Businesses are also love.

Kind of the whole idea of like a successful commercial enterprise and you have this.

It's kind of tension.

And this area of succession, where.

Longer you are around the more you know there are some studies out there that show that.

Beyond a certain amount of time is really when Ceos hit their stride, but then theres an equal amount of research that shows you go beyond a certain time you become scale you don't have any new ideas you become enamored with your own ideas and thoughts and so.

Have not written the book on this but I read a lot of books on this.

And my sense was that kind of beyond seven years was.

Was there is diminishing returns based on my quote Unquote research.

And you can see that I made it past that some of that was.

Circumstances, I think made it such because I didn't have any specific goal like I'm not trying to run out the door my the only thing I want to do with it.

Vesting for ADP.

And the best thing in this case now for for Maria and for our Board and so this is a collective decision over I know, it's hard to believe but really over a decade as to what the right timing was who the right person was and how to position them for success and how to position the company for success by the way that also involves we had.

Very meaningful refreshment of our board that I think is something that has to be taken into context, because it's all a package right. It's the right CEO right for the right Board leadership and.

And so I think that bringing the board along I think required.

A little bit more time than I had expected. So that's a long way of saying I don't have any magic answer as to what the right time is what I know for sure is not the right way to do it has nothing to do with my age.

Whether I'm young or a mold or whatnot. It has to be done when it's the right time and the best thing for ADP and I think Thats, what we just did.

That makes a lot of sense the numbers speak for themselves. So I'll leave it there congrats again.

Thank you.

Our next question comes from Kartik Mehta with Northcoast Research Your line is open.

Okay, Carlos just or Maria just your thoughts on the economy obviously.

I look at your results and things look good.

You said, maybe the second half you are just being a little bit more cautious, but as you look at kind of the numbers now and you talked to your customers.

Your thoughts on how the economy looks now and just the outlook over the next six to nine months.

So we obviously don't have.

The market cornered on economic forecasts, we do have a reasonable amount of data, particularly on what I would call. The near term next few quarters I would say.

But when you look at the last 235 years 10 years really as long as I've been doing this.

You have to be really careful about picking economic forecast at face value. So you would have to be careful you have to be prepared for all eventualities and thats why we like to call ourselves an all weather business model because I think we we actually perform I think through a variety obviously better than some than in others.

But.

I guess, that's a way of saying, we're not obsessed with economic forecast because if I had taken economic forecast at face value over the last three or four years. We would have made numerous mistakes and I think all you have to do is go back I don't nobody does this because otherwise there wouldn't be economists wouldn't exist, but if you look at what economists.

Cast 12 months prior and then what actually happened or 20 months prior and what actually happened that's not really the right way to run a business, but it doesn't forum.

Our decisions right in our planning and as you mentioned what happened this year in terms of our fiscal year planning is.

We.

Thought kind of common sense told us that some of these things were going to happen like normalization of down market.

Our retention rate towards hopefully still above pre pandemic levels, but not at the levels. They were when the government was providing so much support for small businesses that you can just see it in the data in terms of the drop in bankruptcies and out of business and so forth. So we expect some normalization there likewise pays per control.

It's not you just don't make numbers up like.

If you assume that you reach kind of quote unquote full employment and that the population and employment.

Okay.

Affordable people or is growing at a certain rate you can kind of back into kind of a normal what you think a normalized pace per control right and then you sprinkle in a little bit maybe theres going to be some economic weakness in the back half and I think what we signaled and what we have in our plan is I think kind of flattish pays per control growth, which.

To me personally is feeling conservative right now based on the field that we have this kind of continued strength into this quarter and that typically doesn't fall off the cliff right away, but maybe that happens in the first quarter of 'twenty for that it becomes flattish I don't know, but I know that right now there are definitely still we.

We got back to what employment was pre pandemic, but the population also grew in the affordable a number of people grew so labor force participation is still below where it was before so there is definitely still room for some employment growth. There. So this could be a very strange slowdown right or if you want.

To call it a recession, where it's I think Danny call that a labour full recession, where it doesn't feel like employment.

The stuff that we look at back background checks job postings et cetera, I mean, if you look at the jolts you look at everything I mean, there is still a lot of we had 260000 jobs created and that was 500000, it wasn't 1 million, but in any other environment that would be like incredibly strong strong number but its clearly.

It's clearly slowing but everything we see is that the labor markets remain again in the time horizon that we have visibility to pretty strong or certainly not as strong as a year ago or when we were in the middle of the of the recovery from the pandemic, but thats really more of the comparisons than than kind of anything under under.

So I think we're just heading back to kind of more normal.

But in an unusual way, where the labor market is it doesn't appear to be the leading the leader in the slowdown it appears to be people spending less on stuff that they spent a lot of during the pandemic if I can be bold.

That might be like exercise bicycles, it might be things like grills like and maybe even unfortunately for our company as close to my heart software right in some some things that that are.

You have these kind of unfortunately, the fluctuation of demand that we've never seen before and so then now how do you predict and forecast how that all kind of lands in the medium to longer term, it's very very hard for any any company to do but specifically for us.

<unk> still strong is one of labor is strong our clients are still looking for tools to employ to hire and to manage that labor and we have this other little weird thing happening to us, which is really fantastic, which is interest rates are rising and the rising in the face I mean typically.

When interest rates are rising the economy is slowing and thats exactly obviously with the intent of the fed is but right now.

Youre kind of at this point, where we're getting the big tailwind from interest rates.

It doesn't feel like that's going to change again in the near term it doesn't mean that rates won't stop increasing but if rates stop increasing like for example, like in the spring of.

23, and they stay there home run for AEP all of you and everybody internally here at ADP made fun of me when I used to talk about how our balances in 2008 were like $15 billion and it had grown to $30 billion, but our client funds interest had been cut almost by two thirds because of interest rates and I used to.

Can you imagine if interest rates go back to where they near back to where they were back then but our balances now are $33 million and growing I think it was nine 5% this quarter wouldn't that be amazing and thats exactly whats happening, so I'm, leaving a little bit of gas in the.

Tank for Maria well actually I can't take credit for that I appreciate.

And how it helped with that but we I think we have some some gas in the tank here with interest rates as well, which again is a little unusual but I don't know if you want to call. It a hedge to our business model, but it's definitely welcome because we are we as you know we always carefully watch our expenses and everything.

<unk> ADP, but it's a much better place to be from an ability to invest in and ability to weather when you have this.

The significant tailwind, which is not a secret I mean, I think Dan laid out the numbers and you can do the math, it's a pretty big tailwind.

Perfect. Thank you Carlos I really appreciate it and good luck with your retirement.

Thank you.

Our next question comes from Jason Kupferberg with Bank of America. Your line is open.

Thanks, guys, Congrats Maria congrats to Carlos as well too.

Two questions first one just picking up on your comments around some of the intelligent.

Self service offerings I think you made mention of the potential for customer service cases to be cut by 30% I was just curious to get a little more color around that what might be the timeline for achieving that goal and is that any kind of rough proxy for how much your customer service costs could be reduced over time. If this is successful.

Paul.

Thank you Jason for the well wishes and I'm actually I'm glad you asked this question because I wanted to make sure there's clarity around that 30% in that 30%. Just so we're all on the same page is really about our clients being able to add to.

Let's say at that time. So this is really about serving up leveraging intelligence artificial intelligence machine learning, it's really starting off the most frequent interactions.

That can be either performed.

In a self service capacity or really performed again through this case management and really taking the work out than necessarily call. It taking the work out of our system is really about getting that 30% to our clients in fairness. It is early days as we measure that and when I say that I'd say that lightly and that we did study that's across our $3 million.

HRS Worksite employees, if I may call them that that in terms of the most frequent cases that gets served up on what that would yield in terms of a return to our clients and thats, where that 30% coming from them, but as we launch this product in more and more <unk>.

Adoption happens, we will be keeping a keen eye on that outcome to ensure that that that number remains true and our hope is to continue to.

We make progress and take more work out of our out of the system for our clients as they navigate the relationship between them and the practitioners and the markers.

Okay, well thanks for the client.

We also have to come up with a clever name for that until it does.

Yes.

That's not at all like do you have any idea.

Thank you guys.

Contest internally as the employees.

I like that idea.

I think so I think.

Just one quick follow up just if nothing had changed and the rate environment. Since the time in the last earnings call would you guys have raised revenue our margin guidance for fiscal 'twenty three.

I think certainly the rates helped us.

But just a couple things to comment on certainly we still were performing well against our internal expectations on margin improvement. So we're still very focused on spend and efficiency of spend et cetera, but I don't think that we would have been.

We wouldn't have finished.

Eager to raise expectations in the absence of interest rates, especially given its so Q1, and we need a little bit of time to see how things progress over the next couple of quarters, Although that's fair but.

I'm pretty sure.

Pretty happy with the results because.

We.

This is just the way our culture. So that everybody is talking about all the positives that we have like interest income and so forth, but we had some we had some headwinds as well like our <unk> is up significantly from relapsed target remember that last year. This quarter I think we're still in the hole Omicron thing I was just starting and we really hadn't opened up.

Most of our buildings I think our salespeople were for sure in the field, but not traveling and spending the way they are now which by the way we were very grateful that we have been back in the field.

So like there are a couple of things like <unk> is the smallest of them. The biggest one is really when you look at our head count numbers, it hasnt come up yet but in.

Our sales forces I think more than fully staffed.

As you probably heard from our our comments six to nine months ago It was difficult.

Get there.

Back then now not only are we fully staffed our turnover is coming down across the board not just in sales, but also across the rest of the organization. So all of a sudden.

If you look at our head count growth for this quarter. It is what I would call a peak and it's the highest ive ever seen since ive been here at ADP that was necessary because there were some catch up which is why I.

Call. It a grow over issue from last year's first quarter, where we are definitely understaffed didnt have enough people and then all of a sudden our revenues actually were outperforming number of clients with outperforming so and you know how important retention is to us are we.

Two to basically stop up across the board implementation service and sale and Thats. When you had that great resignation thing happening at the same time and it was again I don't think most companies go around talking about this but we were trying to hire as fast and as many people as we could at that point. The good news is we were.

Successful I think the better news is that puts us in I think in a good position in terms of stocking and sales, but also in terms of our service and implementation organizations and now with declining turnover.

Again from a plan standpoint, besides planning for pays per control to be critical.

Quote flattish in the second half our head count growth.

<unk> declined the growth of head count declined every quarter for the next four.

For quarter, and I think that I think should help us feel good about this quarter and also about.

The fiscal year. So I think technically dawn is correct by the way to go back to Adp's 10 year history.

So this has been a weird two or three years.

US not raising as we hadn't raised in the quarter.

I don't know what you would have thought of that or what it would have met but I think thats pretty then if maybe you can confirm or tell me I'm wrong, but like we we werent in the habit of changing a lot in the first quarter because it is a how can we think this is a predictable stable business that we know what we're doing and then changing should every every quarters.

Doesn't it doesn't make sense now we have a pandemic that's a different story like we struggled like everyone else to kind of keep a handle on what things were happening how things were happening on the way down and also on the way back back up but this is a this is going to be a much more stable environment I would hope some of you would would welcome.

That but with 10, 11% growth organic and or headwinds from expenses abating here a little bit.

I think we're in pretty good position Hey, Jason the only other thing I would point out is that in addition to interest becoming more favorable.

And contributing to most of the raise as you can calculate on your own FX. Obviously also got worse. So in this parallel universe without higher interest rate, we would perhaps be absorbing that higher FX.

Not changing the outlook.

Makes sense, thanks for all the comments guys.

Our next question comes from Bryan Bergin with Cowen Your line is open.

Hi, guys. Good morning. Thank you first congrats Carlos on your successor and Maria on the promotion.

I wanted to just start with a more specific follow up on the bookings trends and the pipeline can you just give more color on what youre seeing in those forward sales indicators lead volumes sales cycles in recent weeks and really just any discernible changes you've noticed there.

Yes, I think Maria can talk about I think she has actually been looking into a lot of the details around pipelines or the only thing that I would add as color commentary because I was trying to defer to Maria on kind of the big picture in terms of bookings, but since I have been doing this for a long time 44 quarters and then many years kind of watching from I guess a year before that.

As.

Not quite a year, but as president and before that and I really paid close attention to all the stuff and.

Maria mentioned, it but the problem with the with the Crystal ball right now is that when we have to kind of finish we had user how enthusiastic we were and how bullish we were in terms of our finish and whatnot and.

Almost predictably when we have that kind of finish about half of our business.

We count the bookings when we sign a contract and the other half we only count the bookings once the client starts.

And that portion of the business that like by the way that's the way most companies that sell to larger clients book, there Theyre booking which is when you sign a contract that's why it's called bookings.

That has always been an issue when we have this very strong quarter, a very strong finish.

The pull forward stuff has.

<unk> been driving me Crazy forever, because we have very strong incentives in.

What we call accelerators in terms of commissions this over the drive and we want that because we want to get the revenue as quickly as possible, but that sometimes leads to kind of a weaker start the problem here is that on top of that now you have a macroeconomic challenge potentially we definitely have a macroeconomic challenge in Europe .

Luckily, it's not a huge part of our of our bookings so it's hard to differentiate but what I would tell you again back to color the businesses that we count the bookings when they start are mostly the down market businesses. So that would be SBS PEO et cetera, we had double digit bookings growth in those business.

Does that makes me think that it's unlikely that all of the sudden we have an economic.

Whatever challenge or disaster, because why would those businesses still be performing the way they are but I would just again forward looking statement I would say I don't know for sure that that there isn't a problem in terms of the demand or the economy or whatnot, but it doesn't fuel from the first quarter like we can put our finger.

<unk> are something that says Holy cow, we have to put the kind of the red flag or the yellow warning flag up just yet.

Marie if you have comments in terms of a little bit more tangible.

Yes, Thank you Carlos.

<unk> is Ryan and I have been studying deeply the pipeline specifically of these businesses that recognize booking.

The potentially had some of the pull forward into the fourth quarter and Thats, primarily in the in the larger size.

Type of organizations and so in studying the pipeline kind of segment by segment country by country. If you will and deeply it does it does appear that the pipelines are they are the pipelines are continuing to build when I think about deal cycle time right. So you think about all the data points, we are analyzing on a daily basis to really.

Understand the question Youre, asking Brian which is this is an economic and macro is this and what is that and.

And the answer is.

From a pipeline perspective, the pipelines are healthy from a deal cycle time. This goes back to Carlos his commentary. It does appear that we didn't have a lot of pull forward and there were potentially not enough days to pull things into.

Into the first quarter and we have again, what does that really mean in the macro it's really returning to more pre pandemic level. So these are not concerning deal cycle times. These are actually more normal deal cycle times the ones that we saw pre pandemic, what I'm, referring to there is really no there used to be a time that it does take a lot of time to move.

Larger deals through the system because so many individuals are involved whether that's on the contracting side the legal side. During the pandemic. There was a deal acceleration that happened in a lot of that had to do with some inflationary that's no longer the case, we see that every day in terms of the world is back at work.

That that also has a tendency.

It's a slow down if you will the deal cycle time again back to pre pandemic levels. So nothing that is alarming and so I think this is really about our pipeline normalization of the pipeline is strong it's healthy the demand is there.

Fight with all the big companies are reporting and the news we are seeing incredible strength amongst our client base, we're seeing demand for HCM. There is 6% pays per control growth. So as Carlos mentioned earlier the jobs are there our clients are growing our product offering offerings fit right into that sweet spot that everybody.

Is still trying to solve for and our pipelines are healthy so at this juncture.

Yes.

For a broad based trend that we can see besides the watch areas. We've called out I think the only comment I would make I alluded to it earlier is please remember.

That when a quarter ago, we gave the guidance for the 6% to 9% the way that we've thought about the your first and foremost the first quarter is the lightest quarter for us from a pure dollar perspective. So it's the the smaller contributor from a dollar perspective on the full year.

The way that we planned the year, which we talked about on the 6% to 9% bookings guidance that we gave a quarter ago was really assuming some elements of a slowdown in the back half specifically in the fourth quarter. So it's really about this quarter I E. The current one that brand, which is the second quarter in the third quarter and so in looking.

Yes.

Where we stand today, we feel confident in the six to nine in terms of how we plan for it we didn't assume a massive there's a severe recession, but we definitely have assumptions in there that we feel confident at this point that we can execute against and one of the if I can just add like one of the beauties of our business model is that.

Bookings are for sure an incredibly important thing, especially kind of over the longer term, but I hope its obvious that from a revenue standpoint again with visibility only for the next two to three quarters. We have it's really about converting prior sales which were incredibly strong prior bookings when you saw what our.

Bookings results were for the fourth quarter and for the for the for the year. So that's the stuff that now turns into revenue in those businesses, where we recognize a booking at the site at the time, we sign a contract so that.

Just I know, it's obvious but just a reminder, because the business. This business doesn't we're not selling widgets, where if you stopped selling widgets like all of a sudden you're back to zero next quarter like the.

I think we have a solid revenue plan.

I think reflects a Maria said.

What I think was already a pretty.

Conservative number in terms of bookings growth, particularly in the back half of the year. So we may have other issues like FX on the negative side client funds interest may help even more may help less but I don't think.

The bookings issue is a fiscal 'twenty three.

Focus item in terms of impact on revenue.

Okay, Alright, thank you for all that detail I appreciate that.

Follow up on retention then.

It seems like it's fair to say you beat your plan in <unk>, but what do you attribute that <unk> success to was it more a function of a slower rate of SMB out of business losses or do you think you also did better on the controllable factors.

It's really I think it's the controllable factors I think are the most satisfying part of the whole story because the story is kind of playing out a little bit the way, we expected which is small businesses.

In the process of kind of normalizing, but really by the way positive ironically in our international business, which might not be so ironic because.

The challenge is economically they're probably getting convincing people that they should stay put I don't want to say that it's not all great execution, because we have a great leader in international and we have to form a great leader of international here, which is done mcgwire. So there's a lot of great things that have happened in that business that are probably powering some underlying improvement in retention, but some of it is probably.

Inertia as a result of what's happening in the economic environment, there, but the most satisfying part of the whole story here is what's happening in the mid market.

Where I think some fundamental improvements that we made pre pandemic.

Remember all of the pain in terms of the migrations and then the improvements in product the UX experience improvements all of those things. It just seems like it's ratcheted up.

Quote unquote the potential the maximum potential retention, if you will for our mid market business, which was a record this quarter as well clearly.

Down market the pace of normalization of Downmarket has some impact but the big story I think this quarter was really the mid market and our international businesses helped a lot on the retention side, Hey, Brian ill just confirm the downmarket didn't really contribute to the outperformance versus our expectations for the mid market with clearly the bigger piece.

Okay. Thank you very much.

Our next question comes from Samad Samana with Jefferies. Your line is open.

Hi, good morning, Thanks for taking my questions guys.

Congrats that given so far as well.

Quick question.

Think about that transitioning.

The workforce now base to the new UX and the progress there and tapping that market. How should we think about maybe that that would translate into the monetary benefits is that more of a benefit in gross margin for a lower a lower cost to serve our guests.

<unk> work or higher retention all of the above just maybe map.

Kind of economic outcome is from from moving over to the new UX for ADP.

I have a lot of time for our new UX I cant post about it enough and the majority of that reason is all of the above.

We expect it to impact.

Our client satisfaction and retention our ability to download more solid more in terms of teasing out the specific results difficult, but the answer to your question is all of the above.

Gotcha and then maybe.

One for Dan any thoughts on Boston unit are changing duration with with rates where they are.

I think if I look back historically at the presentation.

Yields currently are higher than they've been at kind of any time, so even with the long end of the portfolio looks like any any view on changing duration I know you guys aren't what they are.

It says, but I'm curious if there's if that's worth locking in for a longer duration.

Yes, I'm going to start on this but something tells me Carlos will be able to resist hollowing out for whatever I have to say here. So I guess I would say that the.

The latter any strategy that was implemented number of years ago is to deliver great returns.

I think everyone can see the temptation of changing the duration and trying to trying to benefit more from short term rates.

Rates will either normalize or they may even come down again at some point in the future. So.

This latter ing strategy, that's been deployed over the number of years has served us very well and we expect it will continue to serve us well.

Not to say that this question doesn't come up from time to time, and we discuss it but every time that we look at it.

Youre really either you're making a bet for today as opposed to a best for down the road and given the positive experience. We've had it doesn't really behoove us to make any substantial changes to our policy in a program that has been doing very very well Carlos I'm sure.

Have nothing to add.

Other than.

I, obviously pick the right time to retire very well very well set and because I think that encapsulates.

Lots of other things, where we focus more on the longer term and the medium term rather than because again if rates do normalize as you said.

Going to be very grateful that we that our extended portfolio that we took advantage of these quote unquote higher rates that will help us for two or three in some cases five years down the road. So it's the right we're not a financial services company, we're not a bank.

And that's not that's not the kind of bets that we're trying to make sure. This is just happens to be a nice little windfall as a result of a business model that we have that allows us to kind of manage float income at a very very large scale and anyway, well well said.

I think we all appreciate.

Institutional continuity as the transition occurs.

Have a great day.

Our next.

Question comes from Mark Marcon with Baird. Your line is open.

Good morning.

Carlos Ratchet relations on a great tenure.

The CEO , but everything that you did prior to that.

Maria.

Look forward to working with you and getting to know you even more.

Over the coming years.

I'm wondering can you talk a little bit about.

How you're set up for this.

Current fall selling season.

Certainly <unk> got a number of big product improvements, which ones could we end up seeing like.

Being incremental in terms of ppm.

And.

And just how strong do you think the sales momentum could be how are you thinking about your <unk>.

Marketing efforts, particularly with all the improvements that you've got in place.

Yeah.

Mark and similarly, I look forward to spending more time, together and as I appreciated the time, thus far that we spent together getting to know each other so in terms of selling season, we do feel I think Carlos mentioned I think the first call out I would make and I ask specifically about product and contributions to <unk>, but I think it's important to go back to the.

And the discussion that Carlos had around head count.

I've been I've spent.

Some of last year last fiscal year speaking about a flattish head count growth as it related to sale, we committed to I'll say double digit growth heading into the quarter and I'm pleased to report as Carlos alluded to that we are ahead of those plans and so what that means is that we have more quota carriers and the system as we head into selling season.

Gently more than we expected than significantly more than last selling season and that in and of itself is the biggest contributor that we have to our overall results as we think about the productivity of more people in the system and as Carlos mentioned with tenure of those associates picking up the increase in productivity.

Three of our sellers as they lap the 10 year band.

That's the that's the biggest variable.

We do have a lot of amazing things as it relates to product in the system certainly the new user experiencing broad based across all of the products gives the sellers an extra.

Our stuff in there our momentum as we head into the end of year as it relates to demos things of that nature and I mentioned some of the other products such as the voice of the employee that and our intelligence self service, which both service up through our mid market. So that mid market value proposition is continuing to grow the.

The other is the strength that we are seeing in that PEO and the <unk> are comprehensive and.

And managed services business businesses as it relates to customers that are continuing to face the complexity by the way whether they are up market in the mid market, where even downmarket meeting more of those tools to navigate the complexity of being an employer and so we see tremendous strength there and so we are we are.

Making good progress on our Nextgen very pleased to see specifically in our next gen payroll.

That's resonating in the mid market with workforce now and as we continue to incur.

Increase the addressable area that we are able to add to target with those offerings.

Undoubtedly it will yield as you suggested greater sales greater PETN as well as some of these enhanced features and products that are served up through our existing platforms that I've mentioned before.

That's great and then with regards to the Nextgen payroll can you give us an update in terms of what percentage of.

The new workforce now clients are now.

Getting next Gen payroll.

Yes, so we are.

We committed to.

And I've been talking about kind of that 50% of our overall mid market and workforce now.

Since then we continue to make progress on that.

So we're not entirely at the entire market that workforce now starts today, but each and every day actually in every release, we continue to clear.

Clear the path for more and more opportunities to be able to participate and that nextgen offering which is truly the game changer for ADP as it relates to the innovation there.

That's terrific.

Carlos in terms of sports analogies, maybe Don shula might be appropriate.

<unk> track record.

Amazon I appreciate that because I joke around with people that I used to actually watch television sports a long time ago, but there was like about a 20 year period.

I have no idea, what's going on but I do know Don Shula, and I know the goose egg defense I think they were probably saying whatever the hell they were no names.

No named Deepak.

Sorry, not any different.

Screwed it up I was trying to prove that I actually knew something about support.

And I blew it so but I appreciate that's greatly appreciate it you are a class Act yourself Mark. Thank you.

Thanks Charles.

Okay.

We have time for one more question and it comes from David <unk> with Evercore ISI. Your line is open.

Thank you good morning, and congratulations Carlos and Maria Carlos All the best to you in the.

Next chapter.

Don a question for you on pays per control growth.

6%, clearly well above the 2% to 3% guide, but as you noted contemplated can you walk us through the sequencing of kind of pays per control in terms of what's embedded in the quarterly.

Thought processes, we go through FY 'twenty three.

Yes. So I think we were we were happy with 6% growth in the first quarter.

And once again you go back to Carlos his earlier comments a few had believed all the economic forecasts you might not have been expecting to see that stronger growth.

And pays per control, but we do continue to see the pays per control growth moderating down in the first half of this year and as we shared as I shared in the prior to the prepared comments, we have virtually zero pays per control growth in the back half of the year. So.

We do expect that we should given the strength of the first quarter.

The first half should be a little bit better I think we've reflected that in some of our guidance here already.

And as we go through the next the next few months, we will be in a position to better decide whether we think we're going to be.

Bullish or bearish on what's going to happen in the back half and quite frankly.

I'd say, we don't like to be very bullish about what's going to happen based on the first quarter's results, but I think we did that we would kind of look a little bit foolish given all the predictions are not storm clouds that people are talking about it so.

So 6% first quarter slowing for the for the first half and then essentially very little growth if any in the back half is what we're looking at and I think the simple math is again, rather than getting into individual quarters, because that talk about triangulate.

It's very hard to pin down that exact number but I think ballpark six for the first half zero for the second half gets you the two to three.

You have for the full year I mean, that's probably the right obviously the way we laid it out with slightly different than that but that's.

Close enough I think for what you are trying to accomplish I think.

I appreciate that insight just as a quick follow up looking at slides.

Guidance is zero.

The 25 basis point increase for the full year can you walk us through how big the Workers' compensation reserve adjustment was in.

In the September quarter, and how you expect that to trend through the year.

Sure I mean, I can give you the specific numbers, you'll see them youll see them later in the queue anyway. So.

We had a $14 million positive adjustment in the first quarter and that compares to a $10 million positive adjustment in the first quarter of last year, so not that significant 4 million give or take.

So that's the those are the raw numbers, we do it we do not expect to see is as good.

Reserve release in this fiscal year as we saw last year.

There are still several quarters to go through and the actuarial so let us know what those numbers are but we are contemplating.

The same level of reserve adjustment of recovery as we did in FY 'twenty two the only the other color commentary that I would add is I think the PEO again, if you look at last year. Its obviously, we've seen as expected some some deceleration, but I would call it 12%.

Employee growth still pretty pretty strong.

That obviously requires investment right in terms of service implementation expense et cetera, and so I would say that the <unk> is one of those places where we were really adding a lot in terms of expense and resources from a place where we were not where we needed to be call. It last year's first quarter so that.

That's the poster child I think for this kind of go over expense situation that we have the good news I think as we are we're staffed again turnover is improving across the board in terms of all parts of ADP and I'm talking to other Ceos I think this is happening kind of across things or just kind of settling down that helps a lot because improvements in <unk>.

Many are helped a lot in terms of.

Productivity and just getting getting the work done.

Understood all the best again Carlos.

Thank you.

This concludes our question and answer portion for today I'm pleased to hand, the program over to Carlos Rodriguez for closing remarks.

Well, what can I say, another disappointing quarter, where no one asked about the dividend.

So let me just say that.

If the board is obviously don't want to get ahead of the board, but if the board approved a dividend increase in November this will be our 48 year of.

Increasing dividends, which I think is there.

It's pretty early.

Group out there and if you look at our payout ratio and you assume the board will want to stay on the same payout ratio you can do the math in terms of what's going to happen.

With our dividend.

I think people really way underestimate.

I hope this doesn't become an environment where for the next 10 years people were very focused on dividends because that has its own negative implications, but if you look at over 50 years or 70 years of 100 years dividends matter right and compounding growth of dividends matters a lot if you look.

At Adp's return had been a little math since we went public.

I was bragging about this being one of the most successful commercial enterprises in history and.

Again, and all of you have seen HP <unk> calculators, you do that math.

It's pretty important driver of overall returns.

So I'm incredibly proud of that Maria gets to be the person who will preside over the celebration.

Again forward looking statements when we get there.

Reaching 50 years, which will make us a dividend king and I think there's only like less than 15 companies that have accomplished that and some pretty incredible incredible names. So that's the only thing I wanted to talk about was the dividend and the one last comment I have is what I've always said and I'll state again incredibly grateful grateful to my team.

I'm grateful to Maria I'm grateful to the board.

Right.

People, who really get all the work done other people on the front lines here at ADP, the 60000 associates that make.

Everything happened for us, there's something that Henry <unk> put in the water that has created this culture. Our can do culture of delivering consistent results not just from a financial standpoint before our clients I think it's just.

<unk> to what we do.

Our DNA and I'm, so proud of our associates in terms of what I've seen them do throughout my career here at ADP, but particularly over the last three years, which were unbelievably challenging and I know many other companies and many other employees of other companies step up to the plate.

So I know that we're not we're not unique but I only know what I know and I only know that people I know and Theyre great people doing great things every day for our clients and that doing that is what has delivered the results that you guys enjoy as investors so never forget that.

It all starts with our associates I. Thank you for listening. This is my last earnings call.

After 44 of them and.

As I said I won the Super Bowl and.

And I like the I like the analogy to the Dolphins Im not sure that I had a perfect season ever.

Plenty of mistakes.

Learn from them and made myself and ADP, a better and stronger company, but I definitely feel like I have one of those Super Bowl rings on so I may have to I may have to go buy something a little bit bigger in terms of jewelry store I can I can brag about it but thanks again for listening to me all these years, putting up with me and.

I said to our to our leaders into our associates.

I remain their servant leader, a remainder serving leader now moving on to becoming a shareholder and also to a director. Thank you very much.

Thank you for participating in today's program you may now disconnect everyone have a great day.

The conference will begin shortly.

So raise your hand during Q&A you can dial one one.

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Good morning, My name is Michelle and I'll be your conference operator at this time I would like to walk him everyone's to Avp's first quarter 2000 twenty-three earnings call I would like to inform you that this conference is being recorded.

After the speaker's presentation there'll be a question and answer session instructions will be given at that time.

Oh now turn the conference over to Mister Daniels Hussein Vice President Best Relations. Please go ahead.

Thank you Michelle and welcome everyone to Adp's first quarter fiscal 2023 earnings call for.

Participating today are Carlos Rodriguez R CEO Maria Black, our president and Don Mcguire are CFO .

Earlier. This morning, we released our results for the quarter our earnings materials are available on the SEC website, and our Investor Relations website at investors out ADP Dot Com, where you will also find the investor presentation that accompanies today's call.

During our call, we will reference non-GAAP financial measures, which we believe to be useful to investors and that exclude the impact of certain items. A description of these items along with the reconciliation of non-GAAP measures to the 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 and with that let me turn it over to Carlos.

Thank you Danny and thanks, everybody for joining the call as you saw this morning, and the news we have a little bit more excitement than normal, but I promise you that an hour and a half from now we'll go back to our boring selves, because we do have a business to run.

But before I talk about the quarter I thought it was appropriate to just share a few thoughts given the transition.

From me to Maria as our new CEO .

As as you know I'm going to continue his exact chair, but obviously that's going to be a role primarily to supporting Maria and also helping the board and not really involved in day to day operations. So it definitely can be my last earnings call, which is.

It's hard to it's hard to say cause it's been 44 earnings calls for me.

But it's really been an incredible ride.

Obviously, I could think a lot of people.

One person in particular that I do on a call out as John Jones, who are going to remain are leading independent director and combination of John and less Brian before and more incredible.

Incredible mentors to me incredibly helpful in providing advice and guidance on behalf of the board and and I also I'm proud to call them friends and I also want to thank.

Gary Butler wind back my predecessors, who gave them the opportunity to be here today and also helped me a lot in terms of making needed a person I am in the leader that I am today.

I'm proud of a couple of things I will just mention a few one of them is I'm proud of our growth we.

Dumbledore revenues over the last 10 or 11 years and today is you know we we reached an important milestone of 1 million clients. So I appreciate.

I wish I could say that it was anything other than a coincidence, but however, it happened.

Great thing to have happen here on my last earnings call. We made it through a lot of challenges.

Economic we went through.

What I would call financial repression in terms of interest rates.

Which fortunately now we have.

A little bit of the opposite situation, which will talk about today.

So there are many Q. He's I think there were three Tvs over my 10 year.

And then the final straw that almost broke the camel's back with interest rates, even on a 10 year going I think it was like under half a percent.

And the pandemic.

Which was really kind of felt incredible to see happen. We also made it through a pandemic that hopefully only happens every hundred years.

And we had.

Dissident shareholders that also had some opinions about how to run ADP that we had to deal with.

I'm also proud of our associates and proud of they've always said about their commitment to our clients and the ADP. There is something that my predecessors in the culture have around our clients interest fee, which is really remarkable in our associates always step up to the plate and deliver in a business that again.

We don't get a lot of credit and I know that we're not.

Quite up there in terms of the list of first responders and.

And people, who who save lives, but we do keep the economy going and we do I think to make sure that commerce worldwide.

Operates.

Smoothly. So our associates are the ones, who get that done and I'm proud of them.

President most proud of is Maria she is.

Now and tested she's prepared she's been through a very thoughtful and long succession process and she's going to be the wood of network is only to 700 CEO of ADP and I know that she's the right person starting from the ground up.

I wish I could have sucked that because that's what makes it special is play special we love to bring in talent from the outside but we have some incredible people that grow up in no displaced understand this place and know how to make it continue to harm the way it's been humming for more than 70 years. Most importantly, see not only knows our industry, but she knows.

Our clients needs deeply and takes great interest in that and that is going to serve as well as well as for growth orientation, which I think is going to be very important for adp's fewer.

Future last thing I'll say is that I recently told.

Our team at a at a senior meeting that I tried I strive to be what I learned about many many years ago something called a servant leader.

And I tried to be that way to my team and to my organization here at ADP, but I want you to know that I tried to be that also to all of you and to our shareholders as much as I tried to be that way for our clients and our associates.

It's been truly an honor.

Of a lifetime to serve Aep's CEO and.

We are kind of a company that likes to fly under the radar, we kind of like it that way. So I know that nobody's going to write any books about us or you may not even write any articles about us today, but this is one of the most successful commercial enterprises and history. All I have to do is go back and look at the track record. Most people don't do that they don't go back and look at the 10 year <unk>.

20 year and in our case the 50 year company went public in 1961 I encourage you to look at our history, our results and our <unk> and compare it to some of the greatest.

Investors and investments of all time, and I think you'll see the ADP ranks right up at the at the top.

Anybody who knows me knows how much I love sports and how what a sports nut I am.

So I was trying to think of an analogy and.

Feel like not only did I joined the championship team, but I won the superbowl being here at ADP, It's really been an incredible incredible right, but right now it's time to pass the torch.

It's always great to have change, especially in a company like ADP because I know you can rely on a consistent predictable results, but we also have to continue to grow.

For decades to come and the only way to do that is to bring in fresh thinking and to have changed and that's exactly what we're doing with Maria So before I talk about the quarter and the results I'm going to turn it over to Maria and let her say a few things.

Thank you Carlos.

You mentioned the servant leadership and I have to say that you are truly the embodiment of servant leadership you have always kept our Northstar trail, which is putting our clients and our associates first and I knew I speak on behalf of all of our stakeholders are associate our shareholders. The communities, we serve and the million clients now we have the honor of serving and thank.

Thank you for everything that you've done over the decade, Maggie served as our Celo's Hell My sincere. Thank you to your car less I'm truly humbled and grateful for this opportunity and certainly for the confidence Carlos that you've given me and that the board has given me an interested me withdrawal I am genuinely thrilled to lead.

You mentioned that in its trail I did start from the ground up I started with this company 26 years ago, that's all I needed these products and offerings door to door.

This ability to add to really see our clients from the frontline.

Given me a vision and a true understanding of the client Centricity that you mentioned that we are in body as a company and selling 26 years go door to door at certain enrolls all across ADP in sales and service implementation operations, including our Pel and Sps.

I'm really really proud of the role that we play in our clients lives and how they trust us so really help them succeed in our <unk> journey for the last 73 years, we've had an amazing legacy in our culture and our culture, it's really anchored in innovation and is anchored in developing and providing technology and solutions that.

Help address our clients needs, but also help address the needs of their workers incredibly proud to be a part of that journey as we continue with the modernization that we've been undergoing over the last few years.

Of course as you mentioned none of this is possible without that 60000 dedicated associates that we have that are at the center of absolutely everything and that we deliver.

Committed to continuing to empowered they're great talent, which time and time again has reshaped the HTM industry through a relentless focus on again solving our clients needs and protecting their future needs.

I'm also grounded by our history and our own beginning as a small business out of Paterson, New Jersey founded by Henry Top man simply wanted to help help local businesses, then and now I know and I feel deeply that this core value continues to add to define us as a company so with that.

You again, Carlos and thank you to the board and now I will thank you in advance to all of our stakeholders and your confidence as we continue to download an ADP is incredibly strong results oriented foundation, we continue to drive product innovation, leading technology and more than anything we continue to deliver the consistent.

Value creation that were known for as the leader in the eighth Salmond, Australia. So with that I think it's appropriate to ask to turn it over to the results of the sport.

Thanks, Maria speaking of consistent value creation, let me start talking a little about the results here. So that we can get to the to the questions. We got off to a really strong start in fiscal 2023 with strong results that reflected the momentum we've been building for several quarters now and.

Q, when we delivered 10% revenue growth and 11% on our organic constant currency basis.

It was driven by strength and a number of our businesses and on top of that we delivered 30 basis points of adjusted EBIT margin expansion as a revenue outperformance helped us overcome elevated expense grow over from last year's first quarter as well as continued investments in the business, which we had anticipated and communicated to you last quarter.

We delivered 13% adjusted EPS growth in the quarter and we remain well positioned as we move ahead for the rest of the year Ah cover a few highlights for the quarter before I turn it back over to Maria.

<unk> business bookings.

We showed continued momentum through Q1 with demand strongest and our downmarket offering like run and our retirement services businesses and we also continue to see strong traction and our PEO solution.

At the same time bookings growth in our international business started a bit softer than we had hoped we're continuing to watch the demand environment in international markets as clients and prospects. There are dealing with a number of uncertainties. As you know we are keeping an eye on the macroeconomic environment as well, but overall demand remains strong in our pipeline look salt.

We'll share further updates on what we're seeing with bookings as we progress through the year.

R. Es retention was very strong with new with a new overall Q1 record level led by great performance and our mid market. We accomplished this year over year improvement. Despite further normalization in small businesses out of business rates in the quarter.

We assume we will continue to experience normalization and out of business rates towards pre pandemic levels of the year progresses, but we are clearly very pleased with the Q1 results and that we're better than expected.

Are basically control metric with 6% for the quarter in line with our expectations are strong hiring that our clients have conducted these past few quarters is carried through strong paste or control growth this quarter.

We continue to expect acceleration inpatient control growth later this year and we've seen sequential employment growth begin to slow, but within the national employment report and in public data.

<unk> said job postings and are the leading indicators within our client base suggest that at the very least in the short term demand for labor will remain solid.

And moving onto our PEO, we saw a modest acceleration an average works are employed growth averaging works unemployed growth rate.

Which was anticipated, but the 12% growth was slightly ahead of our expectations for the quarter and we're very pleased with that growth.

Demand for both our PEO and our <unk> our offerings remains high as the value proposition for a fully outsource model continues to resonate in the market.

And in fact, our H R. O businesses combined now to serve over 3 million works on employees out of the $40 million total workers paid by ADP.

Q will not only provided a strong start to fiscal 2023, but also represented a major milestone in our company history as well as I mentioned earlier, we crossed the $1 million client mark during the quarter, what an incredible accomplishment.

We accomplish this by driving improvement and growth on a consistent basis through decades of different employment cycle business environments and technology shifts.

It's a proud moment.

That was made possible only because of a relentless focus on meeting the needs of our clients as Maria mentioned, both by delivering exceptional service and providing leading HCM technology.

An underpinning all of this is the dedication of our associates, who ultimately make ADP company. It is today.

As we look ahead, we recognize the need to remain agile and this unique and dynamic economic environment and.

And it is certainly our hope that inflation normalizes soon without significant harm to the global economy.

But if macroeconomic conditions instead proved more challenging than we'd all like we believe are stable business model should allow us to maintain our focus on innovation and our steady approach to investment positioning us to continue driving long term sustainable growth for many years to come.

And it's for that reason.

While I am incredibly excited to have reached 1 million clients I'm, even more excited about the opportunities ahead for ADP and I will now turn it over to our new CEO Maria.

Carlos.

Mentioned earlier I am also proud of the collective efforts of our associates that made this achievement possible one of the beauties of having a million client and directly serving 3 million worksite employees and our <unk> as I said is that we have unparalleled insight into the needs of the HR Department and we are putting that insight to work and.

To share that in September we buy the top HR product at the annual HR Tech conference for the eighth year in a row. This time for a new offering we're calling intelligence self service.

HR departments today devote a significant amount of time to addressing questions from their workers to help better manage this volume a corker and practitioner interaction intelligent self service users predictive analytics to help proactively address communist <expletive> afore workers needs to contact our HR leaders.

Not only does this solution ultimately improve the experience for the worker, but it further enables the practitioner to focus on more strategic items, which is a key objective for our clients there.

There are a few different components to intelligence self service.

The first is something we're calling accident cards, which you can think of is probably not pro active nuch as a T mobile app that appear in the flow of work. So that workers are alerted and encouraged to act when there's something they need to address such such as a missed timelines or time part approval another.

Component of the offering is our virtual assistant Chatbot, which was previously available to our clients HR practitioners, but is now for the first time being expanded to workers as well in order to address their requests are questions and.

And the third piece is case management, which helps with more complex problems that require HR systems. That's feature presents a streamlined way to create manage and track workers interactions with our HR Act burnt a quickly get to the right expert based on the workers need.

Intelligent and self service is designed to create a better HR experience and reduce work and we believe we are designing a solution that can reduce our clients case volume by 30% or more which of course would be an incredibly value add win for everyone.

We have already rolled out some of these components are in and are in pilot for others, but the feedback so far has been very positive.

I also want to get a quick Q1 update on our new user experience as a reminder, our new user experience represented a significant enhancement, we've been making to our scaled strategic platform using new design principles to make them, even more intuitive and more personal so our users can easily leverage.

Our solutions to the full list last year, we moved clients on Ron <unk>, Nexgen, HTM as well as the ADP mobile app over to the new user experience and later in the year. We also move 20000 workforce now clients to the Navy lax.

Enhancing workforce now is especially important given how integral the platform is to so many of our businesses and I'm pleased to know sure. We've taken that 20000 clients last year to over 80000 through the end of Q1, which essentially all a workforce now clients on this new enhanced experience.

Among other user experience initiatives, we've relaunched the ADP, Brian mobile App with our New you Act with managers and HR practitioners of small businesses running payroll and HR. While on the go. This app is a powerful tool for them and the relaunch has been a resounding success.

You can see the App and the review this for yourself, but it's doing phenomenally well with $4 90 stars on several thousand reviews, representing meaningful improvement from the experience it is replacing.

These are exactly the types of outcomes, we had hoped to achieve with this user experience work and we are very excited about continuing to roll out more solutions within our key platforms.

From our voice of employee offering we mentioned last quarter to our new intelligent self service capability to our UX deployment into our ongoing next gen rollout our product teams are busy and our clients are excited about the continued innovation at ADP and our overall modernization journey.

We look forward to continuing to develop ways to provide more value to our clients and prospects in this dynamic HCM and economic environment. It's ultimately deliver on our bookings growth goals for this year and beyond and with that over to dawn.

Thank you Maria and good morning, everyone.

Our first quarter represented a strong start to the year with 10% revenue growth on reported basis, and 11% growth under organic constant currency basis are EBIT margin was up 30 basis points coming in above our expectations as strong overall revenue growth and growing clients find interest revenue contribution as well as favorable.

Workers compensation reserve adjustments and or PEO overcame inflation related cost pressures and higher than typical year over year headcount growth.

Bust revenue in margin performance combined to drive 13% adjusted EPS growth for the quarter supported by our ongoing return of cash to our investors via share repurchases.

And our employer services segment revenue in the quarter increased 9% on reported and 11% on an organic constant currency basis key drivers to this growth we're strong bookings and retention performance. We've delivered in recent quarters as well as solving contributions from price and pays for control.

And of course client funds interest, which mostly benefits to Es segment grew nicely in Q1, with 39% growth driven by a healthy 9% balanced growth and 40 basis point improvement in average yield <unk>.

Partially offsetting that was FX, which was a slightly bigger headwind than we anticipated R. Es margin increase of 50 basis points was higher than planned primarily as a result of that strong revenue growth.

For our PEO revenue in the quarter group, 13% average Worksite employees increased 12% on a year over year basis to 704000 is bookings in same store pays both continued to perform well, though at the same store pays contributed less than it did in recent quarters as we <unk>.

Affected.

Peel margin increased 80 basis points in the quarter due primarily to revenue growth and favorable workers compensation reserve adjustments.

Let me now turn to our updated outlook for fiscal 2003, I think overall, you'll find it very study outlook compared to our prior guidance with upside due in part to higher interest rates.

But again, the beginning with the Es segment revenues, we now expect growth of 7% to 8% driven by the following key assumptions.

First we continue to expect Es, new business bookings to grow.

Between six and 9% as.

As Carlos covered we see a stable overall demand environment at this time, but it's still early in the year and with a wide range of outcomes and we will continue to watch for impact from a potentially slowing global economy as we progressed from here.

For <unk> retention, we were happy to deliver another strong quarter, but we believe it's prudent to anticipate further normalization of small business out of business rates as we move through physical twenty-three as such at this time, we're leaving our outlook unchanged at down 25 to 50 basis points.

Meanwhile, we will look to maintain are strongly tension levels and or other business units.

For pays for control, we had healthy 6% growth in Q1 in line with expectations and we continued to anticipate a return to a more typical 2% to 3% growth rate for the full year as employment growth moderates.

As we discussed last quarter Rp's for control growth outlook assumes a deceleration and growth in Q2 and very little growth in the second half of fiscal twenty-three.

This could of course proved to be other too conservative or bullish depending on how macroeconomic factors develop but it still feels like a reasonable assumption to make at this point.

Last quarter, we spoke a bit about price and there was no changed our expectation for price to contribute about 100 to 150 basis points towards Es revenue growth and physical twenty-three our clients understand these price increases and recognize that they reflect our own cost pressures.

And for clients funds interest revenue, we now expect higher average rates compared to our prior outlook.

Our clients funds shrimp portfolio will continue to benefit as a federal funds rate increases over the balance of the fiscal year and our new investments and our client extended in long portfolios are now expected to yield about 4.3% between those two drivers. We now expect the average yields on our client funds portfolio to.

B, 2.4% in fiscal twenty-three, which is about 20 basis points higher than our prior outlook.

We continue to expect our client funds balances to grow 4% to 6%.

And putting those together, we now expect our client funds interest revenue to increase to a range of 790 $810 million in fiscal 2003.

$70 million from our prior outlook.

Partially offsetting this revenue upside is higher short term borrowing costs associated with our client funds extended strategy with higher expected commercial paper in reverse repo rates over the rest of the year. We now expect the net impact from our client funds extended strategy to be 722 $740 million in fiscal two.

23.

$45 million from our prior outlook.

Well the last factor to consider is R. Es iOS revenue outlook as FX headwind, which has unfortunately become a more meaningful drag over the last three months. We're now factoring in an FX headwind closer to 2% for fiscal 2000, <unk> revenue up slightly from our prior assumption.

For Es margin, we now expect an increase of 200 to 225 basis points up 25 basis points from our prior outlook.

We continue to expect our margins to benefit from our strong revenue growth outlook, including growth in client funds interest revenue and we're pleased to be able to increase our outlook accordingly.

Moving on to the PEO segment, where we're making very few changes we continue to expect P or revenue and Peel revenue, excluding zero margin pass throughs to grow 10% to 12%. The primary driver for appeal growth outlook for average worksite employee growth of 8% to 10%.

We now expect Po' margin to be flat to up 25 basis points in fiscal twenty-three narrowing our prior range higher due in part to the strong Q1 margin performance.

Adding it all up we now expect consolidated revenue growth of 8% to 9% in fiscal twenty-three and adjusted EBIT margin expansion of 125 to 150 basis points, we still have to expect our effective tax rate for fiscal 2003 to be about 23% and we now expects adjusted EPS.

Growth.

15% to 17% supported by our steady share repurchases and.

And now I'll turn it back to the operator for Q&A.

Thank you if you would like to ask a question. Please press star one one.

In order to keep within are a lot of time. Please ask one question with a brief follow.

One moment for questions.

We will take our first question from Pete.

With city your line is open.

Oh. Thank you good morning, first congrats to Maria looking forward to seeing you or touch on strategic vision hearing certain listen to Carlos.

So successful tenures CEO .

Particularly through some some some some volatile events in the last couple of years for sure.

Just had a question.

As it relates to bookings.

Bookings trends.

Certainly see that the outlook is held steady and I know that we're kind of early in the selling season, but if there's any I'm. Just wondering if you could put any color on any differentiating trends you are seeing at this point of the year.

Maybe perhaps versus.

The last year or two maybe attach rates or.

On on on.

Since hillary modules or or even going to more outsource.

Models.

Any changes in behavior, there and then as it relates to the the pricing discussion.

We just had.

You feel like you have any more room it seems like your coins responding well.

Things look good but.

Do you still do you think that there's potentially upside to the pricing strategy.

Sorry.

Thank you peace and thank you for the well wishes certainly appreciate them and as you mentioned look forward sealer connecting with many of you around strategic vision going forward with respect to add bookings and really thinking three little year on year changes in behavior I'll comment on that and then I'll turn it over to add Dom that can talk about whether or not we have more room.

On price.

But again, just kind of confirm the overall outlook at 69%, we do feel confident in this outlook when I think about how we planned for the year and we were are generally pleased with the results that we saw in the first quarter. In fact, they were actually technically a record from a year on year perspective, but the thing that makes us not necessarily.

Paul that out in that way and really speaking to the continued momentum.

To your question is really about the context of the records that we've had in the past few quarters, it's really been broad based across every state of the portfolio and as you heard in the prepared remarks. This morning, we had significant strength and are down market offerings really pleased to see that across our Ah run portfolio. The small business segment segment.

Inclusive of our insurance offerings retirement offerings. We also continue have significant strength and our HR of offerings inclusive of the PEO. So in terms of changing behavior I see that a constant behavior as it relates to those those are businesses that I've had continued strength over several quarters and the value of <unk>.

A physician.

Marketing certainly in today to our other space.

It has been good I think the the area again that we call that a little bit that we're keeping an eye on it's really our international business now the good news with our international business.

It's a it's a small contributor to our overall our bookings, but when we look at what really happened with.

The international space, specifically for this quarter, we don't still actually see a macro impact we see more of an impact.

The strength that we had coming into our coming off of a record Q4, and so when you think about our upmarket business, specifically or international business.

Times that it's a bit lumpy as we pulled deals forward to accelerate through the fourth quarter and candidly who wouldn't want to have an incredible finish and an incredible fourth quarter, but as it had for for several decades, I would say that sometimes lend itself to some of those businesses meeting advocate continue to add to rebuild the pipeline.

So that's really what we think is happening but at the same time, we're very we're.

We're keeping an eye on specifically in Europe , what's happening in the Ukraine, what's happening with the energy crisis. Those are watch items for us by just to kind of reiterate we don't see any macro overall trends, we don't see changes in behavior, we see the strength continuing in the down market and into our HR Allen PEO offerings, and we were very very pleased with the results of this.

Quarter and they are they are record results in that.

That respect.

Okay.

And with respect to the pricing we've been very happy with our ability to execute the price increase in the way we did and.

As we've said on prior calls we were mindful of the fact that these are incremental costs for our clients as well then we'd need to be competitive. So we made sure that we've price increase in past all the costs, we have in a way that.

Keeps our customers with us for a very very long time, having said that we.

We said 100 150 basis points and I will tell you that currently we're pushing towards the upper end of that range and the price increase so we've done very well against expectations and executed as I said well across the business of course is there more as or more available. Good question. If we look at our.

Client base, particularly with the large clients.

We do have contractual obligations that come to to come do from time to time and number of those are tied to various price indices et cetera, so that limits the ability to to.

Do anything beyond some of the pricing indices that driver under Underminer Underlay, if you will be.

Pricing, we have but I guess I would say we've been very happy with where we are now and.

Will always look to see if there is an opportunity, but I think that we want to make sure. We will continue to make sure that we do what's best for ADP and in the long term as opposed to the too overzealous. If you will with short term price increases.

Great. Thank you very much gray color. Thank you.

Our next question comes from Guang.

<unk> with J P. Morgan your line is open.

Okay, great. Thanks, so much and call us when I say again grateful to work with you and.

The time and learn from your from I guess over 40 on these calls and meetings and stuff. So I appreciate that and of course, congrats to Maria I wanted to just ask if you don't mind.

100% agree from the release Carlos let the transition from payroll.

To HTM.

So.

I know you can't tell us everything with terms of what's next year, but is it fair to think.

The focus might be.

More so than the employee now in addition to the employer.

In addition to modernization maybe data just maybe some some thoughts that would be great to hear thank you.

I think that one for you Maria given that I'll be sitting on the beach [laughter] fair enough.

Thank you for for the chance to comment a little bit obviously early days as it relates to.

Essentially start against the early days as it relates to having conversations around long term strategy I think the first thing I'd like to reiterate I know I talked about my 26 years here I have fun eight of those as part of the incredible management team that Carlos alluded to earlier and that's been a part of the journey that we've been on as it relates to the overall.

<unk> journey. So I think you mentioned the transition from payroll to HCN that as a piece of that modernization, but in my mind that.

More broad based than that it's really been about the decisions. We've made everything from our strategic locations too early days of platform migration to re configuring our organization to really create a technology organization. We've been actively modernizing our service organization you hear me speak about that all the time in terms of.

Continuing the the modernization of tools, but also making sure that we're taking the worked out for our clients, we've been making a transition to the public cloud and.

And then one of my favorite topics as the modern Sullying approach that we've been embarking upon that really has been going on for many years as we found it inside sales Lucky well 20 years ago to the the most recent during the pandemic really focused on digital selling and meeting the buyers in a different way.

So I think all of that is really about our modernization journey and I think as I as I looked forward into the next decade at the well in the next chapter it is really about continuing the great work and the foundation that you mentioned that Carlos Layed I have a lot of passion around our clients I have a lot of passion around the 40 million.

Workers that they pay and how we can create value for each one of those stakeholders. Both the workers as as you mentioned the other clients employees as well as our clients in my Ultimate goal Carlos touched on it I think I mentioned as well upfront when I think about client centricity and really solving meaningful things for.

Clients I think the last decade, and this modernization journey has really been about setting us up to be able to deliver value in a very different way for our clients. My goal would be to add to continue that journey in Indiana and make sure that our clients are in love with our products and in love with the experienced that they have with ADP and that.

True of Angelus of what it is that we brain and I feel confident and how we've been setup Sheila embarked on that journey and I look forward to ask to sharing more with it more with you on it as we move forward.

Alright, I appreciate the thoughts I'll leave it there. Thank you both.

Thank you.

Our next question comes from Kevin Mcvey with Credit Suisse. Your line is open.

Great. Thanks, so much and and my congratulations all around as well Hey.

Carlos Wise.

<unk> now the right time.

You've done amazing job you are still incredibly young just any thoughts as to why transition now.

Actually it's a it's a good question because.

Honestly, it's something that we started we were joking about it yesterday that.

I started talking about this.

About 12 months after I became CEO .

That I was trying to leave 12 months after I became to you but for the.

In case, you haven't noticed unlike a business junkie right. So I just love.

Business I also love.

Kind of the whole idea of like a successful commercial enterprise and you have this.

This kind of tension in in this in this area of succession, where the longer you are around the more you know there's a some studies out there that show that.

Beyond a certain amount of time is really when Ceos hit their stride, but then there's an equal amount of research that shows you go beyond a certain time you become scale you don't have any new ideas you become enamored with your own ideas and thoughts and so I have not written the book on this but I read a lot of books on this and.

My sense was that kind of beyond seven years was.

Was there was diminishing returns based on my quote Unquote research and you can see that I made a pact that some of that was circumstances.

Circumstances, I think made as such because I didn't have any specific goal like I'm not trying to run out the door. My the only thing I Wanna do is the best thing for ADP.

And the best thing in this case now for for Maria and for our Board and so this is a collective decision over I know, it's hard to believe but really over a decade as to what the right timing was who the right person was and how to position them for success and how to position the company for success by the way that also involves we had.

Very meaningful refreshment of our board that I think is something that has to be taken into context, because it's all a package right. It's the right CEO the right for the right Board leadership.

And so I think that bringing the board along I think required.

A little bit more time than I had expected so that's a long way of saying.

Have any magic answers to what the right time is what I know for sure is not the right way to do it has nothing to do with my age and whether I'm young or a mold or whatnot. It has to be done when it's the right time and that's the best thing for ADP and I think that's what we just did.

That makes a lotta sense the numbers speak for themselves.

Congrats again.

Thank you.

Our next question comes from Karthik Madder with North Coast Research. Your line is open.

Carlos.

Just your thoughts on the economy, obviously I.

I look at the results and things look good.

You said, maybe the second half, you're just being a little bit more cautious, but because you look at the numbers now and you talk to your customers.

Your thoughts on how the economy looks now and just the outlook for the next six to nine months.

So we obviously don't have.

The market cornered on economic forecasts and we do have a reasonable amount of data, particularly on what I would call. The near term next few quarters I would say.

But when you look at the last 235 years 10 years really as long as I've been doing this.

You have to be really careful about taking economic forecasts at.

At face value. So you would have to be careful you have to be prepared for all eventuality and that's why we like to call ourselves in all weather business model, because I think we we actually perform I think through a variety obviously veterans some than than others.

But.

I guess, that's a way of saying, we're not obsessed with economic forecast because if I had taken economic forecast.

At face value over the last three or four years.

Would have made numerous mistakes and I think I would have to do is go back I know nobody does this because otherwise there wouldn't be economists wouldn't exist, but if you look at what the economists forecast 12 months prior and then what actually happened or 20 months prior what actually happened that's not really the right way to run a business, but it doesn't forum.

Decisions right in our planning and as you mentioned, what what happened this year in terms of our fiscal year planning as.

As we.

Thought kind of commonsense told us that some of these things were going to happen like normally.

Normalization of down market.

Retention rate towards hopefully still above pre pandemic levels, but not at the level of the world. When the government was providing so much support for small businesses that.

Could just see it in the data in terms of the drop in bankruptcies in out of business and so forth. So we expect to some normalization there likewise pays for control.

It's not you just don't make number's up like we if you assume that you reach kind of quote unquote full employment and that the population and employment.

Okay.

The global Peebler is growing at a certain rate you can kind of back into kind of a normal you think a normalized pay for control right and then you sprinkle in a little bit maybe there's going to be some economic weakness in the back half and I think what we've signaled and what we have in our plan is I think kind of flattish pays for control growth, which.

To me personally is feeling conservative right now based on the the feel that we have this kind of continued strength into this quarter and that typically doesn't fall off the cliff right away, but maybe that happens in the first quarter of 2004 that it becomes flattish I don't know, but I know that right now there are definitely still we.

We got back to what employment was pre.

Pre pandemic, but the population also grew and the <unk> number of people group. So labor force participation is still below.

Where it was before so there is definitely still room for some employment growth. There. So this could be a very strange slowdown right or if you want to call. It a recession, where it's I think Danny call that a labour full recession, where.

It doesn't feel like employment at least the stuff that we look at the background checks job postings et cetera, I mean, if you look at the jolts you look at everything I mean, there are still a lot of.

260000 jobs created and that wasn't 500000 or more than a million dollars, but in any other environment that would be like an incredibly strong strong number but it's clearly is clearly slowing but everything we see is that the labour markets remain again, and the time horizon that we have visibility too pretty.

Strong or it's really not as strong as a year ago or when we were in the middle of the of the recovery from the pandemic, but that's really more of the comparisons and then kind of anything under underlying so I think we're just heading back to kind of more normal.

Right, but in an unusual way, where the labor market. It doesn't appear to be the leading the leader in the slowdown it appears to be people spending less on staff that they spent a lot of during the pandemic if I can be bold.

That might be like exercise bicycles, it might be things like grills like and maybe even unfortunately for our company is close to my heart software right and some some things that that are.

That you have these kind of unfortunately, the fluctuation of demand that we've never seen before and so then now how do you predict and forecast how about all kind of lands in the medium to longer term, it's very very hard for any any company to do but specifically for US labor is still strong and one of labor strong our clients are still looking for.

[noise] tools to employ to hire and to manage that labor and we have this other little weird thing happening to us, which is really fantastic, which is interest rates are rising and the rising in the face I mean typically.

When interest rates are rising the economy.

Is slowing and that's exactly obviously with the intent of the furtive, but right now you're kind of at this point, we're we're getting this big tailwind from interest rates.

And.

It doesn't feel like that's going to change again in the near term doesn't mean that race won't stop increasing but if rates stop increasing like for example, like in the spring of.

23 and.

And they say, they're home run free all of you and everybody internally here that if you make fun of me when I used to talk about how our balances in 2008 were like $15 billion and they had grown to $30 billion, but our clients funds interest had been cut almost by two thirds because of interest rates and I used to say can you imagine a inch.

Triste rates go back to where they near back to where they were back then but our balances now are 33 million and growing I think it was 95% this quarter wouldn't that be amazing and that's exactly what's happening so I'm, leaving a little bit of gas in the tank for Maria well ask.

I can't take credit for that I appreciate.

Chairman, how health with that but.

But we I think we have some some gas in the tank here with interest rates as well, which again is a little.

Unusual, but I don't know if you want to call it a hedge to our business model, but it's definitely welcome because we are we as you know we always carefully watch our expenses and everything in ADP, but it's a much better place to be from.

The ability to invest in an ability to weather when you have this.

Significant tailwind, which is not a secret I mean, I think done laid out the numbers and you can do the math.

Pretty big tailwind.

Perfect. Thank you Carlos I really appreciate it and good luck with your retirement.

Our next question comes from Jason Kupferberg with Bank of America. Your line is open.

Thanks, guys, Congrats Maria congrats to Carlos as well too.

Two questions. The first one just maria picking up on your comments around some of the intelligent.

Self service offering to I think you made mention of the potential for customer service cases to be cut by 30% I was just curious if you are a little more color around that what might be the timeline for achieving that call and is that any kind of rough proxy for how much your customer service costs could be reduced over time. If this is successful.

Paul.

Thank you Jason for the well wishes and I'm actually I'm glad you asked this question is because I wanted to make sure there's clarity around that 30% in that 30% just just so we're on the same page is really about our clients being able to.

That time. So this is really about serving up.

Leveraging intelligence artificial intelligence machine learning, it's really serving up the most frequent interactions.

That can be either performed.

In a sub service capacity or really performed again through this case management and really taking the work out then necessarily call. It taking the work out of our system is really about giving that 30% to our clients and fairness. It is early days as we measure this in and.

And when I say that I would say that lately and that we did study that's across our 3 million HRS Worksite employees, if I may call them that that in terms of the most frequent cases that get served up and what that would yield in terms of a return to our clients and that's where that 30% come from but as we launched this product and more and more.

Adoption happens, we will be keeping a TNI on that outcome to ensure that that that number remains true and our hope is to continue to make progress and take more work out of out of the system for our clients as they navigate the relationship between them at the practitioners and the markers.

Okay, well thanks for the client.

We also have to come up with a clever name for that intelligent answer.

That's not at all like do you have any idea.

I figured I mean, I have a contest internally as the employees.

I liked that idea.

I think so I think so.

Just one quick follow up.

If nothing had changed in the right environment since the time of the last earnings call would you guys have raised revenue our margin guidance for fiscal 2003.

I think it's certainly the rates helped us.

But just a couple things so to comment on certainly we still will performing well against our internal expectations on margin improvement. So we're still very focused on spends an efficiency of spend et cetera, but I don't think that we would have been.

It is.

We wouldn't have finished.

You are to raise expectations in the absence of interest rates, especially given so Q1, and we need to look at a time to see how things progress over the next couple of quarters, Although that's fair but.

Im pretty.

Pretty happy with the with the results because.

We.

<unk>. This is just the way our culture is everybody's talking about all the positive that we have like interest income and so forth, but we had some we have some headwinds as well like our teenie is up significantly from her last target remember that last year this quarter.

Think we were still on the whole armour, prompting I was just starting and we really had an opened up most of our buildings I think our salespeople were for sure in the field, but not traveling and spending the way they are now which by the way we were very grateful that we have them back in the field.

So like.

There are a couple of things like <unk> is the smallest of the biggest one is really when you look at our headcount numbers it hasn't come up yet, but in our sales forces I think more than fully staffed.

As you've probably heard from our our comments six to nine months ago It was difficult to.

To get there.

Back then now not only are we fully staffed that our turnovers coming down across the board and not just in sales, but also across the rest of the organization. So all of a sudden.

If you look at our headcount growth.

For this quarter. It is what I would call a peek in at the highest I've ever seen since I've been here at ADP that was unnecessary because there was some catch up which is why I called it a grover issue from last year's first quarter, where we are definitely understaffed didn't have enough people and then all of a sudden our revenues actually were outperform.

Humming number of clients was outperforming so and you know how important attention is to us so we.

Set to basically stop up across the board implementation service and sale and that's when you had that great resignation thing happening at the same time and it was again.

Again, I don't think most companies go around talking about this but we were trying to hire as fast and as many people as we could at that point. The good news is we were successful I think the better news is that puts us in I think in a good position in terms of staffing in sales, but also in terms of our service and implementation organizations and now with declining turnover.

It again from a plan standpoint, besides planning for peace for control to be quote.

Quote unquote flattish in the second half our headcount growth.

Declined the growth of head count declines every quarter for the next four four quarters and I think that.

I think should help us feel good about this quarter and also about.

The fiscal year, So I think technically Donna is correct by the way to go back to Adp's 10 year history.

This has been a weird two or three years like us not raising because we hadn't raised in the quarter.

Again, I don't know what you would have thought of that or what it would've met but I think that's pretty bank, maybe you can confirm or tell me I'm wrong, but like we we weren't in the habit of changing a lot in the first quarter. Because this is a how can we think this is a predictable stable business and that we know what we're doing and then changing should every every quarter.

It doesn't it doesn't make sense now we have a pandemic that's a different story like we struggled like everyone else to kind of keep a handle on what things were happening how things were happening on the way down and also on the way back back up but this is a this is going to be a much more stable environment I would hope some of you would would work.

From that but with 10, 11% growth organic.

And our headwinds from expensive debating here a little bit.

I think we're in pretty good.

<unk> and the only other thing I would point out is that in addition to interest becoming more favorable and contributing to most of the raise is you can calculate on your own FX. Obviously also got worse, though in this parallel universe without a higher interest rate, we would perhaps be absorbing that higher FX.

And not changing the outlook.

Makes sense, thanks for all the comments guys.

Our next question comes from Brian Bergen with Cohen your lines open.

Hi, guys. Good morning. Thank you first congrats to call us on your successor in Maria on the promotion.

I wanted to just start with a more specific follow up on the bookings trends in the pipeline can can you just give more color on what you're seeing in in those forward sales indicators lead volumes sales cycles in recent weeks and really just any discernible changes you've noticed there.

Yes, I think Maria can talk about I think she has actually been looking into a lot of the details around pipeline. This over the only thing that I would add is color commentary for those trying to differ.

Defer to Murray on kind of the big picture in terms of bookings, but.

Since I've been doing this for a long time 44 quarters, and then many years kind of watching from I guess a year before that.

Not quite a year, but as president and then before that.

I really pay close attention to all this stuff and.

Maria mentioned it but.

The problem with the with the Crystal ball right now is that when we have to kind of finish we had you saw how enthusiastic we were in hell.

We were in terms of our finish and whatnot and.

Almost predictably when we have that kind of finish about half of our business.

We count the bookings when we sign a contract and the other half we only counter bookings once the client starts.

In that portion of the business that like by the way that's the way most companies that sell to larger clients book, they're they're booking which is when you sign a contract that's why it's called bookings.

That has always been an issue when we have this very strong quarter of very strong finish.

The pull forward stuff has.

Been driving me Crazy forever, because we have very strong incentives.

And when we call accelerators in terms of commissions and so forth of drive and we want that because we want to get the revenue as quickly as possible, but sometimes leads to kind of a weaker start the problem. Here then on top of that now you have a macroeconomic challenge potentially we definitely have a macroeconomic challenge in Europe .

Luckily that's not a huge part of our of our bookings so it's hard to differentiate but what I would tell you again back to color the businesses that we count the bookings when they start are mostly the download market businesses. So that would be Sps PEO et cetera, we had double digit bookings growth in those bills.

Mrs that makes me think that it's.

It's unlikely that all of the sudden that we have an economic.

Whatever challenge or disaster, because why would those businesses still be performing the way they are but I would just again forward looking statements I would say I don't know for sure that that there isn't a problem in terms of demand or the economy or whatnot, but it doesn't fuel from the first quarter like we could put our finger.

<unk> on something that says Holy Cow, we have to put the kind of the the red flag of the yellow a warning flag up just yet.

If you have comments in terms of a little bit more tangible.

Yeah. Thank you Carla.

He's hiding Carlos is Ryan and I've been studying deeply the pipeline specifically of these businesses that recognize booking.

Essentially had some of the pull forward into into the fourth quarter and that's primarily in the in the larger size.

Organizations, so and studying the pipeline and a segment by segment country by country. If you will.

And deeply it does it does appear that the the pipelines are they are the pipelines are continuing to build when I think about deals cycle time right. So you think about all the data points. We are analysing on a daily basis to really understand the question you are asking Brian which is is this an economic and macro is this what is this.

The answer is.

From a pipeline perspective, the pipelines are healthy from a deal cycle time. This goes back to Carlos is commentary. It does appear that we did have a lot of pull forward and there were potentially not enough days to pull things into the.

Into the first quarter and we have again, what does that really mean in the macro it's really returning some more pre pandemic levels. So these are not concerning the whole cycle times. These are actually more normal deal cycle times the ones that we saw pre pandemic, what I'm, referring to the area's really needs to be a time that it does take a lot of time to move.

Larger deals through the system because so many individuals are involved whether that's on the contracting side the legal side. During the pandemic. There was a deal accelerations that happened and that a lot of that has to do with the the stationary that's no longer the case, we see that every day in terms of the world is back at work and with that that also has a tendency to.

To slow down if you will the deals cycle time again back to pre pandemic levels. So nothing that's alarm and so I think this is really about a pipeline normalization the pipeline as strong as healthy the demand is there.

Fight with all the big companies are reporting the news we are seeing incredible strength amongst our client base, we're seeing demand for HCN. There is 6% paid for control gross though as Carlos mentioned earlier. The jobs are there are clients are growing our products and offers offerings that right into that sweet spot that every.

Buddy is still trying to solve for and our pipelines are healthy. So at this juncture there really isn't a macro broad based trend that we can see besides the watch area as we pulled out I think the only comment I would make I alluded to it earlier.

Please remember that when a quarter ago, we gave the guidance for the 6% to 9% the way that we thought about the first and foremost the first quarter is the legacy quarter for us from a pure dollar perspective.

The smaller contributor from one dollar perspective on the full year the way that we plan to the year, which we talked about on the 6% to 9% bookings guidance that we gave a quarter ago was really assuming some elements of a slowdown in the back half specifically in the fourth quarter.

Really about this quarter and you get the current lineup Redwood does the second quarter in the third quarter.

So in looking at.

Where we stand today, we feel confident in the six to nine in terms of how we plan for it we didn't as soon a massive and the severe recession, but we definitely have.

Assumptions in there that we feel confident at this point that we can execute against and one of the very just add like one of the beauties of our business model is that.

Bookings for sure an incredibly important thing, especially kind of over the longer term, but I mean, I hope it's obvious that from a revenue standpoint again with visibility only for the next two to three quarters. We have it's really about converting prior sales which were incredibly strong prior bookings you saw it.

Bookings results were for the fourth quarter and for the for the for the year.

So that's the stuff that now turns into revenue.

Businesses, where we recognize that booking at the side at the time, we sign.

Contract so that.

I know, it's obvious but just a reminder, because the business business doesn't we're not selling widgets wherever you stopped selling widgets like all of a sudden you're back to zero next quarter like the I think we have a solid revenue plan.

That I think reflects of Maria said, what I, what I think was already a pretty.

Conservative number in terms of bookings growth, particularly in the back half.

Of the year. So we may have other issues like effects on the negative side client's interest may help even more may help less but I don't think the the bookings issued as a physical twenty-three.

Focus item in terms of impact on revenue.

Okay, Alright, thank you for all that detail appreciate that.

Follow up on our attention then.

It seems like it's fair to say you'd be you're planning <unk>. What do you attribute that one Q success to was it more a function of a slower rate of that's M be out of business courses or do you think you also did better on the controllable factors.

It's really I think it's <unk>.

Controllable factors I think are the most satisfying part of the whole story because the story is kind of playing out a little bit the way, we expected which is small businesses.

In the process of kind of normalizing, but really.

By the way positive ironically in our international business, which might not be so ironic because.

The challenge is economically there are probably.

Convincing people that they should stay put I don't want to say that it's not all great execution cause we have a great leader and international and we have the former great leader of international here, which is done mcgwire. So there's a lot of great things that have happened in that business that are probably towering some underlying improvement and retention, but some of it is probably inertia as a result of what's happening in the economic.

Moments there, but the most satisfying part of the whole story here is what's happening in the mid market.

Where I think some fundamental improvements that we made pre pandemic.

Remember all the pain in terms of the migrations and then the improvements in product the UX experience improvements all of those things. It just seems like it's ratcheted up the quote unquote to potential the maximum potential retention. If you will for a mid market business, which was a record this quarter as well clearly.

The down market the.

The piece of normalization of Downmarket has some impact but the big story I think this quarter was really the mid market and our international businesses helped a lot on the potential side.

And I'll just confirm the down market didn't really contribute to the outperformance vs. Our expectations for the mid market with clearly the bigger piece.

Okay. Thank you very much.

Our next question comes from <unk> with Jeffrey Your line is open.

Hi, good morning, and thanks for taking my questions at all that's congrats that have been given so far as well maybe just a a question what do you think about the transitioning.

The workforce base to the new U X and the progress there.

The AD market, how should we think about maybe that would that would translate into the monetary benefits is that more of a benefiting gross margin for a lower and lower cost to serve or just lots of background work or higher retention all of the above just pop up maybe map what.

Kind of economic outcome is from.

I'm moving over to the new U X for ADP.

I have a lot of time for our new you ask I can't boast about it enough and the majority of that reason is all of the above we expect it to impact.

Our clients satisfaction and retention our ability to download more solid more.

Arms of teasing out the specific results difficult, but the answer to your question is all of the above.

Gotcha and then maybe.

One for done any thoughts on boxing in our changing duration with with rates where they are.

I think if I look back historically at the presentation.

<unk> currently are higher than they've been at kind of any time, but even with the long in the portfolio looks like any a view on changing duration I know you guys what.

What they make said, but I'm curious if there's if that's worth locking it in for a longer duration.

I'm going to start on this but something tells me Carlos will be able to resist following up or whatever I have to say here. So I guess I would say that the the latter strategy that was implemented number of years ago as delivered great returns and while I think everyone can see the temptation of changing the duration and trying to.

Trying to benefit more from short term rates.

Rates will either normalize or they may even come down again at some point in the future. So.

This laddering strategy that's been deployed over the number of years has served us very well and we expect it will continue to serve us well and.

Not to say that this question doesn't come up from time to time, and we discuss it but every time that we look at it we are really either you are making it back for today as opposed to a best for down the road and given the positive experience. We've had it doesn't really behoove us to make any substantial changes to a policy and.

A program that has been doing very very well Carlos I'm sure.

Have nothing to add.

Other than.

Obviously pick the right time to retire very well very well said.

I think that encapsulates.

Lots of other things, where we focus more on the longer term and the medium term rather than because again if rates to normalize as you said.

We're going to be very grateful that we that are in our extended portfolio that we took advantage of these quote unquote higher rates that will help us for two three in some cases five years down the road. So it's the right we're not a financial services company, we're not a bank.

And that's not that's.

That's not the kind of best that we're trying to make sure. This is just happens to be a nice little windfall as a result of a business model that we have that allows us to kind of manage.

Floating come at a very very large scale and anyway, well well said.

I think we all appreciate.

Two small continuity as the transmission records [laughter] have a great day.

Thank you.

Our next question comes from Mark Mark <unk> with Bird your line is open.

Good morning, and Carlos Congratulations on a great time here.

Not just to see you go but everything that you did prior to that.

Maria.

Look forward to working with you and getting to know you even more.

The coming years.

I'm wondering can you talk a little bit about how.

How you set up for this this current fall selling season.

Certainly got a number of big product improvements, which ones could we ended up seeing like.

Incremental in terms of PETN and.

And just how strong do you think the sales momentum could be how are you thinking about.

Your marketing efforts, particularly with all the improvements that you've got in place.

Yeah, Thanks, Mark and similarly, I look forward to spending more time together and is appreciated the time, thus far that we've spent together getting to know each other so.

Terms of selling season, we do feel I think Carlos mentioned I think the first call that I would make and I ask specifically about product and contributions to PETN, but I think it's important to go back to the end of discussion that Carlos had around head counts.

Then I spent.

Some of last year last fiscal year speaking about a slap ish headcount growth is it related to sale, we committed to single digit ground cutting into the quarter and I'm pleased to report is Carlos alluded to that we are ahead of those plans and so what that means is that we have more quota carriers and the system as we head into selling sees a.

Gently more than we expected significantly more than last selling these and then that in and of itself is the biggest contributor that we have to our overall results. If we think about the productivity of more people in the system and as Carlos also mentioned with tenure of those associates picking up the increase in productivity.

Have any of our sellers as the last of the town near fan. So I think that's the that's the biggest variable.

We do have a lot of amazing things as it relates to products of the system certainly the new use are experiencing broad based across all of the products gives the sellers and extra.

A step in their momentum as they head into the end of year as it relates to download things of that nature I mentioned some of the other products such as the voice of the employee that and our intelligence of service, which both service up through our mid market to that mid market value proposition is continuing to grow.

The other is the strength that we are seeing it in that PEO and the HRS of our comprehensive.

And managed services business businesses.

As it relates to customers that are continuing to face the complexity by the way whether they are up market in the mid market.

Even downmarket needing more of those tools to add to navigate the complexity of being an employer and so we see tremendous strength there and so we are we're making good progress on our next gen very pleased to see specifically on our next gen payroll, how that's resonating in the mid market with workforce now and as we continued to Ah.

Increase the addressable area that we are able to add to target with those offerings.

Mildly it will yield as you suggested greater sales greater PETN as well as some of these enhanced features and products that are served up through our existing platforms that I've mentioned before.

That's great and then with regards to the next chunk payroll can you give us an update in terms of what percentage of the the new workforce smell clients are are now.

Getting next Gen payroll.

Yeah. So we are we committed to.

And I've been talking about kind of that 60% of our overall mid market a workforce now clients that we continue to make progress on that so.

So we're not entirely at the entire market that work. This now starts today, but each and every day actually and every release we continue to.

Clear the path for more and more opportunities to be able to participate in that next gen offering which is truly the game changer for ADT as it relates to the the intonation there.

That's terrific.

In terms of sports analogies, maybe Don Shula might be appropriate great track record.

Yep.

Amazon I appreciate that because I joke around with people that I used to actually watch television sports a long time ago, but there was like about a 20 year period, where I have no idea, what's going on but I do know Don Shula and I knew the Goose egg defense I think they were called to say whatever the hell. They were I've no names no names.

<unk>.

Not a decent video I screwed it up I was trying to prove that I actually knew something about sports.

And I blew it so but I appreciate that greatly appreciate it you are you're a class Act yourself Mark. Thank you.

Alright so.

We have time for one more question and it comes from David Toga with Evercore ISI. Your line is open.

Thank you good morning, and congratulations Carlos and Maria Carlos All the best to you and.

Next chapter.

Got a question for you on page for control growth.

6%, clearly well above the 2% to 3% guide, but as you noted contemplated can you walk us through the sequencing of kind of pays per control in terms of what's embedded in the quarterly.

Thought process as we go through FY 2003.

Yeah. So I think we were we were happy with 6% growth in the first quarter.

And once again you go back to Carlos is earlier comments. If you had believed all the economic forecasts you might not have been expecting to see that stronger growth and and Facebook control, but.

We do continue to see the tasteful control growth moderating down in the first half of this year and as we shared as I shared in the prior to the prepared comments, we are virtually zero pays for control growth in the back half of the year. So.

We do expect that.

We should given the strength of the first quarter.

The first half should be a little bit better I think we've reflected that in some of our guidance here already.

And as we go through the next the next few months, we will be in a position to better decide whether we think we are going to be.

Bullish or bearish on what's going to happen in the back half and quite frankly.

I think we don't like to be very bullish about what's going to happen based on the first quarter's results, but I think we.

We did that we would kind of look a little bit foolish given all the predictions are not storm clouds. If people are are talking about so so so 6% first quarter slowing for the for the first half and then essentially very little growth if any in the back half is what we're looking at and I think the simple math is again.

Rather than getting an individual quarters, because that talk about trying to light.

It's very hard to pin down that exact number but I think ballpark six for the first half zero for the second half gets you a two to three that.

You have for the full year I mean, that's probably the right.

Obviously, the way we laid it out with a slightly different than that but that's.

Close enough I think for what you're trying to accomplish anything.

I appreciate that insight just as a quick follow up looking at slides six under the PEO margin footnote.

No margin up 80 basis points year over year, which obviously is well above your previous guidance for the full year and still well above your upgraded guidance.

So.

25 basis point increase for the full year.

Can you walk us through how big the workers compensation reserve adjustment was in.

In the September quarter, and how you expect that the trend through the year.

Sure I mean, I could give you the specific numbers, you'll see them see them later in the queue anyway. So.

We had a $14 million positive adjustment in the first quarter and that compares to a $10 million positive adjustment in the first quarter of last year, so not that significant $4 million give or take.

So that's the those are the raw numbers.

We do we do not expect to see is is good.

Reserve release in this fiscal year as we saw last year.

There are still several quarters to go through and the actuarial let us know what those numbers are but we are contemplating the the same level of.

Reserve adjustment to recovery as we did in in FY two.

22, the only other color commentary that I would add is I think the PEO again, if you look at last year. It's obviously, we've seen as expected some some deceleration, but I would call 12%.

Funemployed growth, so pretty pretty strong.

That obviously requires investment right in terms of service implementation expense et cetera, and so I would say that the <unk> is one of those places where we were really adding a lot in terms of expense and resources from a place where we were not where we needed to be call at last year's first quarter. So that.

That's the poster child I think for this kind of Grover expense situation that we have good news I think as we are where staff again turnover is improving across the board in terms of all parts of ADP talking to other CEO has I think this is happening kind of across things or just kind of settling down that helps a lot because improvements in.

Tenure help a lot in terms of.

Productivity and just getting getting the work done.

Understood all the best again Carlos.

Thank you.

This concludes that question and answer portion for today I am pleased to hand, the program over to call Us Rodriguez for closing remarks.

Well, what can I say, another disappointing quarter, where no one asked about the dividend.

So let me just say that.

If the board is obviously don't Wanna get ahead of the board, but if the board approves a dividend increase in November this will be our 48 year.

Of increasing dividends, which I think is.

Is it pretty elite group.

Group out there and if you look at our pay.

Payout ratio and you assume the board will want to stay in the same payout ratios you can do the math in terms of what's going to happen.

With our dividend.

I think people really way underestimate.

I hope this doesn't become an environment.

Or for the next 10 years people were very focused on dividends cause that has its own negative implications, but if you look at over 50 years or 70 years or 100 years.

Dividends matter right in compounding growth of dividends matters a lot. If you look at Adp's return.

Mac since we went public.

Which is why I was bragging about this being one of the most successful commercial enterprises and history and.

Again, and all of you have the same HP 12 C calculators to do that math.

It's pretty important driver of overall returns.

So I'm incredibly proud of that Maria gets to be the person who will preside over the celebration.

Again forward looking statements when when we get there.

Reaching 50 years, which will make us a dividend king and I think there's only like less than 15 companies.

That have accomplished that in some pretty incredible incredible remains so that's the only thing I wanted to talk about was the dividend and the one last comment I have is what I have always said and I'll say it again incredibly grateful and Greg into my team I'm Grateful to Maria I'm Grateful to the board, but the people who really get all the work done.

People on the front lines here at ADP, the 60000 associates that make.

Everything happened for US there is something that Henry put in the water that has created this culture a can do culture of delivering consistent results not just from financial standpoint, before our clients I think it's just fundamental to what we do.

Towards DNA.

And I'm, so proud of our associates in terms of what I've seen them do throughout my career here at ADP, but particularly over the last three years, which were unbelievably challenging and I know many other companies and many other employees of other companies stepped up to the plate.

So I know that we're not we're not unique but I don't really know what I know and I only know the people I know and they're great people.

Doing great things every day for our clients and that doing that is what has delivered the results that you guys enjoy as investors. So never forget that it all starts with our associates.

Thank you for listening. This is my last earnings call.

After 44 of them and like I said I won the superbowl and.

And I liked the I like the analogy to the Dolphins I'm not sure that I had a perfect season ever made.

Plenty of mistakes.

Learn from them and made myself, an ADT, a better and stronger company, but I definitely feel like I have one of those Super Bowl rings on so I may have to I may have to go buy something a little bit bigger in terms of jewelry. So I can I can brag about it but thanks again for listening to me all these years, putting up with me and.

I said to our to our leaders into our associates.

I remain their servant leader Ah remainder serving leader now moving on to becoming a shareholder and also to a director. Thank you very much.

Thank you for participating in today's program you may now disconnect everyone have a great day.