Q4 2023 Automatic Data Processing Inc Earnings Call

July 26, 2023

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 fourth quarter fiscal 2023 earnings call.

I'd like to inform you that this conference is being recorded.

The prepared remarks, we will conduct a question answer session and instructions will be given at that time I would now.

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

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

Dissipating today are Maria Black, our president and CEO and Dan Maguire, our CFO earlier. This morning, we released our results for the quarter and full year. Our earnings materials are available on the SEC's website, and our Investor Relations website at investors that AEP Dot Com, where you will also find the investor presentation that accompanies today's call.

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 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 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 I will now turn it over to Maria.

Thank you Danny and thank you everyone for joining us we closed out the year with a strong fourth quarter that included 9% organic constant currency revenue growth 270 basis points of adjusted EBIT margin expansion and 26% adjusted EPS growth.

For our full year fiscal 2023, we delivered 10% organic constant currency revenue growth of 130 basis points of adjusted EBIT margin expansion and 17% adjusted EPS growth representing another strong year for ADP.

I'll start with some highlights from the quarter, our worldwide sales and marketing team delivered exceptional Q4 employer services, new business bookings growth that was well in excess of our expectations with strong double digit overall growth on top of a difficult comparison.

The ACI on demand environment has been healthy despite a gradually slowing macroeconomic backdrop and we have been capitalizing on this study demand.

Our strong bookings results were broad based we had continued strength in our downmarket in employer services HR <unk> offerings. We also had better than expected results in our mid market as well as a great finish from our compliance and international businesses.

<unk> Q4 performance brought our full year employer services bookings growth to 10% compared to our 6% to 9% guidance and our medium term goal of 7% to 8% growth that we laid out at our 2021 Investor day. We are of course thrilled with this result, and excited to keep the momentum going.

<unk>.

Our employer services retention rate was another highlight in Q4 and came in better than we expected for.

For the full year, we delivered a retention rate increase of 10 basis points and are back to our record level of retention rate of 92, 2% all while absorbing the impact of normalization in the down market out of business right.

This strong result was driven by record level of retention rates, specifically in our U S mid market and international businesses and by record level overall client satisfaction across our major businesses in the fourth quarter.

Our employer services pays per control growth was 3% for the quarter as the overall labor market continues to show resilience, bringing the full year pays per control figure to 5%. We have been pleased all year to see such durable labor demand from our clients.

And last while our PEO revenue growth performed in line with our expectations. This quarter. We were pleased to experience a further acceleration in PEO bookings with strong double digit growth in Q4, representing another record level of sales quarter.

Moving on while Don will cover our fiscal 2024 financial outlook I wanted to spend a few minutes sharing our strategic priorities as we look ahead.

Change and increasing complexity, our secular growth drivers for the HCM industry and our breath enables us to address nearly any HCM challenge our clients may face and meet them wherever they may be on their HR journey from startup to enterprise from software only to fully outsourced and from local.

<unk> to global.

We see a tremendous growth opportunity in front of us and while our specific growth initiatives will vary by business. There are three key strategic priorities, which apply across all of ADP that ICF critical to enabling our growth in the years ahead.

Our first strategic priority is to lead with best in class HCM technology put simply our goal is to design develop and deliver the very best and most innovative solutions that will help our clients navigate the full lifecycle of employment from hiring employees to onboarding and training them providing insurer.

For them paying them, and finally payroll taxes, and even setting them up for retirement as much as we offer today, we see an incredible opportunity to improve on our current and next Gen solutions tactically use partnerships and inorganic means to further accelerate our pace of innovation and continues on.

Our industry, leading HCM products, and we expect to have a busy fiscal 2024.

For U S. Small businesses, we are rolling out several product enhancements that will serve our 850000 run clients, including a new tax IV registration service learning management to help with small business employee training and in insurance and sector tool that utilizes AI to help clients manage their.

Our workers' compensation insurance policies and annual audits.

For U S. Midsize businesses served by workforce now our focus is to continue our great momentum in the deployment of our next gen payroll and time engine and to drive our win rates and client satisfaction even higher.

In the U S enterprise space, we expect to nearly finished the migrations of three of our remaining legacy platforms by the end of this fiscal year, representing an important step in our multiyear journey to move our clients to more modern platform.

We are also pleased to have advanced the velocity of our next Gen. HCM implementations and we expect our next Gen HCM sales to contribute in a more meaningful way to our bookings growth in fiscal 2024.

Outside the U S. We intend to scale, our ICM mid market platform in fiscal 2020 for adding at least 1000 clients over the course of the year I am also incredibly excited to share that we will begin offering role outside of the U S. In fiscal 2024 to drive incremental growth.

We plan to launch initially in two countries in Europe and expand its reach from there and we intend to continue growing our Asia Pacific business in part by leveraging our recent acquisition of a strong mid market time product to supplement our existing payroll functionality.

And across a few of our platforms, including workforce now and roll we intend to deploy Gen. AI powered features to help our clients more quickly and easily tackle certain HR transactions.

Our second strategic priority is to provide unmatched expertise and outsourcing to our clients.

We pride ourselves on serving as a true partner to each and every one of our 1 million clients our culture, our clients service applies equally across our entire business from a basic payroll client to a fully outsourced client, where we run part or all of the HR Department, our expertise and partnership approach has been.

Key to Adt's, winning formula for decades, and we will continue to lean into it we expect that to manifest in a few ways in fiscal 2024, we have recently been piloting a number of tools powered by Gen. AI that can help our service and implementation associates deliver an even better client experience.

And we will begin deploying these more broadly in early fiscal 2024, given the significant number of clients, we onboard and interact with every year, we expect to learn quite a bit this year about the longer term benefits, we and our clients might realize from Gen II.

Meanwhile, demand for our HR outsourcing solutions remains very strong and in fiscal 2024, we are focused on reaching new clients and further improving the experience for existing ones.

Our employer services HR <unk> businesses have been performing incredibly well and our focus for fiscal 2020 for us to continue delivering strong bookings and keep client satisfaction and retention at current levels or perhaps even reached new record levels.

And our focus for our PEO business in fiscal 2020 for us to maintain our recent strong bookings momentum by continuing to add to our sales force head count grow our referral partner network and use data and machine learning to identify existing ADP clients, who may be a strong fit for an upgrade.

Our third and final strategic priority is to leverage our global scale for the benefit of our clients our size and scale are unmatched in the industry across the globe, we not only offer a robust platforms and a commitment to industry, leading service and expertise, but we also provide a scaled.

System and a unique on the ground presence in over 30 countries.

This combination positions us to interact routinely with local governments and tax authorities meet stringent certification and data requirements and stay on top of complex and shifting legal requirements.

Globally, we bring together our incredible data an array of partners and integrated solutions and one of the biggest and best business to business sales forces in the world to help our clients and prospects navigate the changing world of work.

In fiscal 2024, we will continue to build on that scale for the benefit of our clients.

Our global platform supports hundreds of the world's largest multinational companies with scaled workforces in over 40 countries and our celerity platform helps us serve thousands more in up to 140 countries.

In fiscal 2024, we expect to expand on both as we add additional countries to global views broad reach and as we potentially make tuck in acquisitions to enhance our native and country footprint.

After establishing an ADP in country presence in five new markets in 2023, we expect to expand further in fiscal 2024.

Our World Class Global scale distribution led by over 8500 sellers is being supported by head count and marketing investment in 2024, and as we've shared with you in the past few quarters. Our sellers will continue to be paired with a best in class sales Tech stack, which we plan to enhance with Gen <unk>.

AI functionality in the coming months.

And our ability to provide data driven insights will continue to grow in fiscal 2020 for ADP starts more clients and paid more people around the world than ever and as we continue growing the number of employees. We serve globally. The power of our insights will likewise continues to increase and benefit our clients.

I am incredibly excited about these three strategic priorities for ADP and the differentiation and growth they will continue to drive.

But before turning it over to Don I wanted to take a moment to recognize our associates for their effort and performance over the course of this year.

Our associates embody our core values like insightful expertise service excellence and being results driven.

In fiscal 2023, ADP was recognized as the world's most admired company by Fortune magazine for the 17th consecutive year signifying the incredibly strong culture, we have and the important role we play in the world.

Additionally, we were recently recognized for the first time as one of the best companies for innovators by fast company, a true Testament to the direction, we are headed and.

We owe these accolades as well as our strong consistent financial performance to the commitment and effort of our 63000 associates that makeup the ADP family with that I'll turn it over to Don.

Thank you Maria and good morning, everyone I'll start by expanding on <unk> comments around our Q4 results and then cover our fiscal 2024 financial book.

Q4 performance was very strong overall driving fiscal 'twenty results at or above our expectations.

As Maria mentioned these results reflected broad based strength in employer services and PEO new business bookings later than anticipated employer services retention and continued healthy employer services pays per control growth, yielding 10% organic constant currency revenue growth for the year and bringing us to $18 billion.

<unk> revenue.

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

This stronger than expected revenue growth was a function of continued outperformance in retention and pays per control growth as well as a better than anticipated contribution from client funds interest.

Our es margin expanded 480 basis points from the fourth quarter, which was broadly in line with our expectations.

For the full year, our Es revenue grew 10% on a reported basis and 11% on an organic constant currency basis, and our es margin expanded 190 basis points.

Growth in client funds interest helped us in a year in which we added a fair amount to our product service and sales head count, which has driven some fairly substantial benefits in sales net promoter score and retention results.

For our PEO revenue increased 4% for the quarter decelerating slightly from Q3 as we anticipated.

Average worksite employees increased 3% on a year over year basis to 722000 and has started to gradually reaccelerate supported by very strong bookings growth in Q4.

Margin contracted 110 basis points in the fourth quarter in language or expectations due in part to higher selling expenses.

For the full year, our <unk> revenue grew 8% and average Worksite employees increased 6% and our margin expanded 60 basis points all in line with our most recent guidance.

I'll now turn to our outlook for fiscal 'twenty four.

While the economic backdrop remains uncertain. We continue to believe we are well positioned to deliver solid overall financial results. While also investing for future growth consistent with the strategic priorities that <unk> laid out.

Our fiscal 'twenty outlook assumes some moderation in economic activity over the course of the year, but nothing dramatic.

Beginning with Es segment revenue, we expect growth of 7% to 8% driven by the following key assumptions.

We expect Es, new business bookings growth of 4% to 7% representing a solid growth after a particularly strong fiscal 'twenty three for now we're assuming a stronger first half and some moderation in second half bookings growth, which we think is prudent given the limited visibility into the macro environment.

For Es retention, we finished fiscal 'twenty three at a record level of 92, 2% consistently outperforming our expectations throughout the year.

We are of course very pleased with this performance as we overcame headwinds from higher down market out of the business levels with strength elsewhere.

With that said, we are contemplating a 50 to 70 basis points as retention decline for fiscal 'twenty for <unk>.

Due in part to an assumption that small business losses will increase slightly from where they are today as well as an assumption for general impact to our other businesses from a slowing economic backdrop.

As we called out three months ago, we see the potential for below normal pays per control growth in fiscal 'twenty, four and our outlook assumes 1% to 2% growth for the year we.

We had a strong Q4, which gives us a solid starting point for growth and a gradual deceleration over the course of the year feels reasonable at this time.

And after price contributed 150 basis points to our Es revenue growth in fiscal 'twenty. Three we are anticipating a smaller contribution in fiscal 'twenty for those still above our recent historical average contribution of around 50 basis points.

And for client funds interest revenue.

The interest rate backdrop has been dynamic these past few months and is important to keep in mind that our client funds interest revenue forecast reflects the current forward yield curve, which will of course evolve as we move through fiscal 'twenty four at this point, we expect our average yield to increase from two 4% in <unk>.

Fiscal 'twenty three to two 8% in fiscal 'twenty four.

We Meanwhile, we expect our average client funds balances to grow 2% to 3% in fiscal 'twenty four.

This is a bit lower than recent trends due primarily to more modest contribution from pace per control growth and an assumption for more moderate wage increases.

Putting those together, we expect our client funds interest revenue to increase from $813 million in fiscal 'twenty three to a range of $955 million to $975 million in fiscal 'twenty four.

Meanwhile, we expect the net impact from our client fund strategy to increase from $730 million in fiscal 'twenty three to a range of $815 million to $835 million in fiscal 'twenty four.

For our Es margin, we expected increase of 130 to 150 basis points, driven by operating leverage and contribution from client funds interest revenue offset by continued investments across our strategic priorities.

Moving onto the PEO segment.

We expect PEO revenue and <unk> revenue, excluding zero margin pass through to grow 3% to 5% in fiscal 'twenty for the primary driver for our PEO revenue growth is our outlook for average worksite employee growth of 3% to 4%.

This represents a gradual reacceleration from the 3% growth.

Going off of in Q4.

<unk> bookings performance has already contributed to accelerating client growth.

So that has so far been offset by slowing pace per control growth.

With continued strong bookings growth.

Our worksite employee growth should gradually reaccelerate as well and.

And as Maria shared demand has been healthy and we remain confident in the long term growth opportunity in PEO.

We expect PEO margin to be down between 20% and 40 basis points in fiscal 'twenty four due to anticipated higher selling expenses as well as year over year headwind from a lower workers compensation reserve release benefit than.

And then we experienced in fiscal 'twenty three.

Adding it all up our consolidated revenue outlook is for 6% to 7% growth in fiscal 'twenty four.

And our adjusted EBIT margin outlook is for expansion of 60 to 80 basis points.

We expect our effective tax rate for fiscal 'twenty four to be around 23% and.

And we expect adjusted EPS growth of 10% to 12% supported by buybacks.

One quick note on cadence.

At this point, we expect total revenue growth to be relatively consistent quarter to quarter.

We expect our adjusted EBIT margin to be down slightly in Q1 on a year over year basis, and then build over the course of the year.

Thank you and I'll now turn it back to the operator for Q&A.

Thank you.

You'd like to ask a question. Please press star one one if your question has been answered and you'd like to remove yourself from the queue.

Please press Star one again, our first question comes from Ramsey El <unk> with Barclays. Your line is open.

Hi, This is Owen on for Ramsey I appreciate you taking our question today.

Just curious more on kind of your PEO.

Revenue guidance I know you called out.

Titan employee growth weighing on on growth there, but.

But.

You expect a double digit kind of bookings growth.

And projects only 3% to 5% growth in PEO revenues for fiscal 'twenty. Four I was just curious if you can provide any more color on that spread.

Any conservatism or are there any other factors to consider there. Thank you.

Hey, Thanks, I'll answer the question.

We had a very very strong sales bookings result in Q4, so we're very happy with that and we've seen the.

Sales Reaccelerate I think as we said in the prepared comments. We are seeing continued growth in clients I think if there's a challenge that.

We're facing a little bit as we're seeing a little bit softer pays per control growth in the PEO than we would've expected but.

Back to what we've been saying for some time, we think the underlying value proposition is very very strong and we look look to that business continue to grow for us.

A big part of our portfolio.

Understood I appreciate that.

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

Okay.

Hi, good morning, Congrats on the strong end to the fiscal year, maybe first question Maria.

The interesting thing about the announcements moving or roll into new international markets, possibly think about maybe what the opportunity there looks like hard much different than the complexity around payroll processing.

On the international markets versus the U S.

And have you included that in the bookings forecast for fiscal 'twenty four.

Yes fair enough. Thanks Ahmad and I appreciate the added congratulations on the quarter and the year, where we're obviously pretty proud over here. So with respect to roll. It is exciting it's been an exciting product for us too.

So rollout no pun intended across the down market here in the U S. We're excited to take it into international as mentioned the initial goal is to put it into a into two countries.

And it is an incremental add for us because it's really initially in today's two countries, we're thinking more kind of the dawn market SMB space.

Which is an area of opportunity for us across many of the markets that we serve but we're also excited about role long term beyond that space and so excited to add to dip into our international space as we continue.

Continue the overall rollout of role in terms of factoring it into the overall bookings.

Not really I think.

By the time, the launch happens as and as we're thinking about the full year for our international business, our full year for new business bookings.

Surprised that that ultimately makes a dense but to us it's really about the long term value that that offer will bring as we seek to expand the addressable market for us into these various places last but not least some odd you mentioned the complexity of being international and I have to tell you.

I spoke to it a little bit in the prepared remarks, there's a lot that goes into being in each one of these countries to your point there is complexity country by country.

Any countries put many of the states that are complex here in the U S to Shane in terms of.

The complexity of that provides and that's everything from government entities.

Legal and tax attorneys, who is the who is the tax authority and how do you get to them. We often think of it as an ecosystem. We think about it as kind of that final mile. If you will and thats the complexity and that's what we've been building over the last couple of decades, and our international business. So it's a lot more than dropping off software at a at a country border and hoping that it.

Works, there's lots of upside for the ecosystem around it again, whether it's tax authorities state of large men things of that nature. So excited to take advantage of the footprint, we've built and put in our products into that footprint as we expand role internationally.

Very helpful. And then maybe just a quick follow up for Don I know you gave you.

You called out that progress.

The bookings upside.

And you cited several specific factors I guess it would be helpful. If you could maybe help us.

Lives, where the upside was.

Relative to the companies our expectations.

Maybe to start of fiscal 'twenty, three and and what Youre carrying forward from what you saw in the fourth quarter into the FY 'twenty four bookings outlook.

Yes, I'll, let Vic thanks for the question I'll start here and I think I'll turn it over to Maria the bookings, but we certainly saw strength across the board.

Once again in our prepared remarks, we call does.

Our tax our tax business and our international business. So they were very strong.

Amongst all the ones that were strong in the Downmarket was also quite strong. So it was really a contribution from across the board in the fourth quarter.

<unk> talked for some time about how the pipelines are healthy and whatnot you have had questions before about times to get signatures zones on deals et cetera.

Things came together in the fourth quarter and we were very very pleased with with the final result.

That's right.

My only add to that comment would be we stepped into the quarter with healthy pipelines with a strong staffing position that was growing tenure I have to tell you when I reflect on all the quarters that I've watched across our sales execution. Generally speaking you have a bunch of businesses that are outperforming and you have a few businesses that are perhaps being carried by those that are outperformed.

What I have to tell you is this was a broad based strength across the entire organization sales implementation service with kind of an all hands on deck execution and Thats really what its all about what I would attribute it to is incredible execution.

Great. Thank you appreciate you taking my questions.

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

Hi, Good morning. Thank you I wanted to follow up on Es bookings here.

February the spring urban market compliance international on the mid market specific when you talk about what's driving that better than expected performance do you think thats driving improved competitive performance versus versus kind of rising tide environment and then just.

Heard your comment on next Gen HCM contributing more in the current fiscal year. The bookings maybe talk about the initiatives and the product development that you think is going to drive that.

Good morning, Brian So I'll I'll comment on both the mid market strength that we've seen and coming in a bit better than expected. It's been solid for quite some time, that's inclusive of our <unk> offerings and as you know we've been speaking to those quite a bit in terms of.

The resonance of that value proposition in the market. So I think that adds to the overall strength that we have in the mid market, which is the various flavors and offers that we have I think the other is that we've made tremendous investments into that business. So we do have our next generation payroll engine.

That the sales force is pretty excited about and we're seeing that in the wins that are coming in.

It's kind of the momentum there I think the other is the amount of product investment and.

And innovation that we've done in the mid market, specifically referencing the investments we've made into the workforce now platform with a new UX in many of the things that I've been speaking to and I think the other callout is definitely helps on our new business bookings perspective, when the business on the other side So service.

And NPS, if you will as well as retention are firing on all cylinders and thats exactly the case, so we have record rich.

Retention in our mid market and we have near record NPS results across the mid markets are really really proud of the execution in that entire space and that definitely fuels and feeds the ability for our sellers to get excited about everything that I just mentioned two out to go to market.

Stepping into the question around next Gen HCM.

Did make a reference to that we've talked a lot over the last quarters about this year and what we've been working on is scaling implementation and that's exactly what we've done in that business. So we were able to onboard a lot of the clients that we had on our backlog we've shortened.

<unk> of implementation and we also saw a.

Additions to that backlog. So we saw new sales in the fourth quarter of our next generation HCM platform. So we're really excited about the momentum as we step into 'twenty four and as such we believe that next gen. HCM will be a larger contributor to bookings for us in the upcoming year than it was in 'twenty three but.

We were pleased with what we saw in the fourth quarter and the momentum heading in.

Okay understood and then just on pricing can you comment on where that ended up in fiscal 'twenty, three and what you're assuming in es growth pricing standpoint in fiscal 'twenty four.

Yes, So we were happy with our price increase and retention. So as we've talked many times, we want to make sure that were not.

Getting greedy so we did get about 150 basis points of price in the in the year and we did that with the.

The expansion is seeing a decline in retention or NPS scores and quite frankly, those NPS scores and stayed healthy despite the price increase so as much as price increases can land well they have landed well and we're very happy with how that transpired throughout 'twenty three 'twenty four we do expect to have price increases.

Again, we do not think that we're going to be in the 150 basis point range, we're certainly going to be above our historical average of about 50 basis points, but once again, we will watch closely and make sure of it.

The underlying value proposition for our clients stays in place and.

We'll take some price for sure, but not to the extent that we did in FY2023.

Thank you very much.

Thank you.

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

Hi, Thanks, so much.

Great bookings here I'm, just thinking around the conversion you mentioned implementation cycles I'm just curious if you've seen any change from clients.

And the desire to.

To implement and then similarly, just maybe based on your comments around Nextgen HTM.

We'd love to hear a little bit more around the appetite from your prospects to upgrade now.

At this point in the cycle.

Whats the pitch here given some of the macro uncertainty.

So I think both of your questions I, just want to confirm I'm hearing them. The right way I think they both kind of speak to the general sentiments around the demand environment.

Is that kind of a good way to think about it in terms of larger isn't getting delayed and or what's the appetite.

Two I suppose by HCM in the in the current macro environment.

I'll comment on the general demand environment and feel free to follow up with an additional question. If I didn't cover what what you wanted but the way that I think about demand and I've spoken to are quite a bit over the last couple of quarters demand remains strong.

It is very broad based across the.

The business and so if you think about the down market you still have the strength of small business formations you have the strength of hiring that's happening in the down market and as such you have clients their meeting to make decisions around our HCM offers in that space right. So that's that's definitely a place that we've been winning and we will continue to add.

Lehman as warranted by the demand the mid market as we've talked about that a little bit earlier.

In terms of the overall demand there for the complexity that exists in that market. That's inclusive again of the solution, we have around our HR outsourcing offerings and so that's kind of the mid market. So getting to your question, which is really about the enterprise space and perhaps even the MMC space. It is an area that we continue to watch as it relates to demand cycle.

<unk> decision delays and the main reason is those are really the places that you. As you are aware have additional perhaps signers additional levels of approval or things of that nature, and what I would say, which is consistent with what we've been seeing is that we are back to pre pandemic levels of deal cycles did sure.

During the pandemic and the elongated back to pre pandemic, but it isn't something that we are seeing additional elongation.

Beyond historical averages and so.

To your point, though it is an area that we consistently watch both in the enterprise space as well as in our international business just to kind of see if the demand cycle is if the client appetite to to make.

Buying decisions or implementation decisions.

During this time has changed thus far we're not seeing it in a broad based way, but it is an area that we continue to monitor okay. No. That's great you answered it better than I asked the question. So thanks for that just on the on the <unk>.

Quick follow up just I heard a lot about the sales on the go to market investments that makes sense, just how about RMB growth here in the upcoming year versus fiscal 'twenty three.

Growth be different and also how about the composition can be different in terms of where you are placing your bets on R&D.

That's all I have.

We have a number of projects that we share with you all over the past four quarters.

These projects are well underway.

We want to have a lot of time talking about.

Hi product projects that I guess that would be a placement would anticipate I'll get a question, we'll get a question for that later on in this call given extra topical.

Generally we're continuing our direction with the investments that we've described over the past number of quarters and we continue to make good progress and continue to have good delivery.

Ability to take role to markets in Europe is an example of that health investments and Max.

Development of that technology has increased and by the way that's part of our broader strategy that we've touched on many times is to take some of these developments and make sure that they're global in nature as opposed to only local in nature. So nothing incredibly new just a continuation of the great work and the great projects, we have underway.

Thank you.

Thank you. Our next question comes from Mark Marcon with Baird. Your line is open.

Hey, Good morning, let me add my congratulations, particularly on the strong new bookings.

Maria you went through your three key strategic initiatives all of them.

Sub sections.

Of the various initiatives.

Ones are going to be the most impactful do you think from a from a near term perspective.

Ed.

And then one specific question.

The mid market you mentioned.

Not only deployed.

That played a role but you also talked about the call you mentioned that.

I was wondering if you could elaborate a little bit on that.

Sure and.

And thank you Mark I appreciate the congratulations so I am very.

Very excited about the strategic priorities I outlined during the prepared remarks, I don't know that I would necessarily expecting to have to pick a favorite pillar or.

One that I expect to yield impact faster than another because I think broadly speaking.

They apply across all of ADP and they will.

<unk> a bit as it relates to <unk>.

Each business right and so when I think about some of the product investments that we're making to some of the things the work that we've done and the impact whether it's taking a product like roll internationally, which I mentioned earlier will be short term results, but some of the impact of continuing to to build on the momentum we.

And the mid market with our next generation payroll loans and as an example, where we have an ability to win differently.

<unk> competitive advantages and differentiation there I think that's an area that can have tremendous impact in short order I think the other is.

Don Don did it first which as he mentioned the likes of generative AI and when I think about that.

The Gen AI and applying it broadly across these pillars I think there is opportunity for us in product, that's pretty tremendous whether it's solving real opportunities for our clients to become more efficient we've talked a lot about that whether that's things like job descriptions performance reviews things of that nature, but it also.

Leads me kind of to that second pillar to your point around what will come short term versus long term I think there is opportunity in the short term that will make impact as well as the long term in terms of really applying generative AI across our expertise that we provide to our clients and so when I think about our ability to to make it easier for.

Our clients to engage with us or our associates to engage with our clients. Some of the tools that we have already deployed across various businesses and we will further deploy into our fiscal 'twenty four such as think of it almost as a co pilot agent assist where we're helping our agents be more efficient that's going to yield.

Short term results, if nothing else and client satisfaction and again, we know happy clients lead to a longer stay and clients that leads to more sales.

The wheel if you will so I think there's opportunities across all of our strategic priorities to tap some impact us.

And the sooner than the.

The long term, but I'm equally.

Excited about all of them and certainly we spoke quite a bit about the global piece in terms of the next generation time engine that is being developed in tandem with our next generation payroll engine and those two things are really about time and payroll sitting together in our mid market.

Is all based on the same backbone of technology and so we're very excited to take that more broadly across the mid market. As we continue to take the next generation payroll engine also more broadly cross and I think both of those things.

We will get feathered into the impact of our.

Win rates, if you will and our new business bookings in the mid market throughout the course of 'twenty four.

That's great and then Doug you mentioned.

The margin expectations for the full year and you mentioned that in the first quarter, it's probably going to be a little bit lower than further up over the course of the year, how much lower during the first quarter and what's the driver there and then how should we think about the pacing of the improvement quarter to quarter.

Yes, Mark Thanks for the question.

We're not looking at a big change in the first quarter, but just a couple of the drivers just to be clear one we do have some incremental investment in cost and head count et cetera, but the other big driver in the in the first quarter is it a big borrowing quarter for us in our latter client fund interest strategy, So thats going to.

But a little bit of pressure on the margin for the fourth quarter of sorry for the first quarter and the.

The margin will continue to build over the course of the year and we will we will get the overall improvement that we expected, but more out of the three quarters as opposed to the first.

Great. Thank you.

Thank you. Our next question comes from Eugene ceremony with Moffett Nathanson. Your line is open.

Thank you good morning, guys I wanted to come back to the <unk> you all for a second.

Great to hear about strong bookings in the fourth quarter and going into the new year can.

Can you provide a bit more color on what helped.

Generally this re acceleration in bookings I know you talked in the past about some of the actions.

Taken to generate sales, but would love to hear what.

What's caused the re acceleration in bookings and those initiatives, but I was kind of levers you're pulling now completely pool or is it still work in progress.

Well continue into FY 'twenty four.

Sure Good morning Eugene.

PEO bookings again, we're incredibly pleased with the results in the fourth quarter and the Reacceleration. We also did see the reacceleration in the third quarter. So the back half for the PEO.

It was exactly as you suggested it was a lot of focus for the management team and I'm really excited about how we came together.

Two to execute and in terms of the overall demand trends in long term short term demand.

We remain bullish on the overall value proposition of the PEO and.

The demand that it warrants, it's hard in that business to kind of pin down the demand trends because there are so many variables in the PEO is not as simple as looking at just leads and number of request for proposals that are coming in because as you know not every client has a potential fit so it's a little a little difficult to pin down.

Kind of the the various demand trends.

The specificity outside of the overall belief in the demand environment and theirs.

A normal level of kind of variability as it relates to PEO bookings quarter to quarter, which also makes it hard to kind of spot various trends some of that has to do with the calendar year and some of that has to do with when renewals happen.

Nonetheless, there was a tremendous amount of focus and still remains we remain very focused as a team.

Across all of the leadership too to make sure that we continue to drive the strong growth in bookings in the PEO in 'twenty four.

Got it okay. Thank you.

And then for my follow up probably for Don talked about margin cost a little bit.

Another year of robust margin improvement next year, but obviously youre not going to have as much tailwind in revenue growth as you had this year.

If you kind of do some tobacco belt math it looks like your.

Adjusted Opex will need to grow slower next year than it did this year.

For you to hit your goal. So just hoping maybe you could talk a little bit what are the areas, where you will tempt part next year or may be pulled back, especially if macro conditions.

Yes.

As good as it's going to we expect them to be.

Yes. So thanks for the question, let me start by what won't change so.

What won't change is that we will continue to make sure that we invest in key areas of the business to make sure that we can run it effectively and with the strong bookings we will make sure that we have the people on the ground for implementation to get those deals up and running and generating revenue for us et cetera.

But in the last year, we did have pretty substantial growth over the last couple of years coming out of the pandemic I can't believe we are still talking about the pandemic, but as we came up with the pandemic we.

We did have substantial growth in expenses and service implementation sale et cetera, and while we do continue to expect to see some growth, we're not going to see as much growth in expenses in those areas. So that would be one of the areas that is going to make sure and you hit on it with respect to Opex, we're not going to see the growth in <unk>.

Opex expense that we that we saw in the in the prior year. The other contributor of course, it will continue to contribute.

The yield curve is more favorable than it was a lifetime I spoke to you all.

We will get contribution from <unk>.

Client fund interest next year, but at the same time, it's not going to be to the extent that we did in 2003. So that's also going to help with driving margins higher but once again not the same tailwind.

Two wins that we had in 'twenty three I think those are the main items that are going to.

Help us improve our margins going into going into next year.

Got it very helpful.

Yes.

Thank you. Our next question comes from Scott Wurtzel with Wolfe Research. Your line is open.

Hey, good morning, guys and thanks for taking my questions, maybe Don first on.

The cadence of revenue growth you said it should be relatively stable throughout the year, but.

Wondering if you can maybe sort of parse that out between the S&P.

Any differences, we should think about there.

Yes, sorry, I think revenue growth is going to be revenue growth is going to be pretty consistent throughout the year as we.

Start the year.

As we start that big backlog that we now have as a result of that very very strong.

Fourth quarter bookings result, so we will see consistency there likewise with PEO, it's going to be a bit of a.

A bit of a slower burn is we did have strong sales in Q4. So we did also talk about why.

Lower pays per control growth in the PEO business, so, but I don't think they're really going to be that different I think theyre going to be pretty close if you think about the overall growth.

Consolidated results for the company not not substantially different between the business units, yes, Scott there is a slightly different cadence.

For the two it's not a huge difference for PEO, we do expect an acceleration over the course of the year. So the contribution we get from our bookings and from the improvements in retention we're expecting.

It's really overcoming flowing pays per control that should lead to an accelerating PEO revenue growth.

Yes, we're expecting some deceleration assuming pays per control decelerates and assuming the contribution from client funds interest.

To say gradually over the course of the year you end up with too.

Different looking ramp, but they offset and witnessed us to a very stable revenue growth overall.

Got it that's very helpful. And then maybe just a follow up on on the Gen II topic going back to it.

Obviously, there's a lot to sort of be excited about there, but just kind of wondering the magnitude of investment needed there as that investment essentially all incremental to your investment plans for the year or have you had some maybe put some other projects on the back burner to focus a little more on Gen II.

Yes, and yes, and so <unk>.

Said differently.

The good news is we just went through our strategic plan process and the in the last six months and so we had all of our <unk>.

Priority sequence in all of our investments in incremental investments lined up.

As we marry that to NII, we have a very clear lens on where some projects may get enhanced and where some projects may look different and perhaps get replaced by a new way of thinking about it and so candidly speaking we're going through a lot of these.

Opportunities at this juncture kind of thinking through these bets and there will be incremental investment and there will be other investments that we repurpose.

To go do some of these things in a new way so the answer yourself.

Got it thanks, guys and congrats on the results. Thank.

Thank you.

Thank you. Our next question comes from Peter Christiansen with Citi. Your line is open.

Thank you good morning, I'll also add to the congratulations ratio nice trends.

Maria question on on the international scaling effort here.

Just wondering if you could.

In this context, if you could put some parameters on <unk>.

The investment spend I guess over the next one to two years.

And do you see M&A as an important.

Contributing to the growth algorithm there.

Sure you started with the question on International So is the rest of your question about international or is it just in general.

About international Yes, so we have been over the years been making.

In country decisions on investments I talked a lot about the call.

Call it the feet on the street the final mile of infrastructure that we have to support our international business and so we will continue to do that that's inclusive of each year.

Go into new markets and some of those are organic ways that we go into new markets. Some of those are actually partners that we ultimately end up.

At some point call. It purchasing if you will or acquiring and so the answer is both organic and inorganic that's kind of how we built the business over the last 20 years, and we will continue where warranted.

To think about it both ways and the decision criteria for us is really about speed.

A lot of times, it's our clients that pull us into incremental markets when I think about the.

The five markets that we went into.

This year or the two countries that we're heading into with our with global via their byproduct of clients that are choosing to pay employees in certain markets and as such for US a lot of times the decisions we make on how to get there has a lot to do with speed.

And as such again, we will leverage both organic and inorganic ways to us to get there. So I don't know Don you ran our international business for a very long time I don't know if you want to add anything maybe just to add I think what we've been doing Peter over the last number of years as we have done a number of acquisitions, they've been mostly tuck ins, but we did have three interesting ones over the last year.

We acquired the Italian company that has a good budget payroll budgeting software tools very prominent in the Italian market. We acquired are so extreme like herbal partner in South Africa, and we also bought a very exciting mid market.

Attendance product called secure acts.

Out of Bangalore in India, So and that product is available in India, most of southeast Asia and the Middle East. So I think that's a demonstration of what we've been doing it well.

<unk> been looking at and focused on to continue to make sure we drove that footprint and we do think it continues to be an exciting space for us.

Thanks, that's great that's great color and just as a follow up.

The last slide on on the maturation schedule of clients on investments Super helpful.

We think about.

Intra year investment turnover.

Should that correlate with the seasonal balance levels that we typically see.

Yes, so I think of those as those.

Those investments mature youre going to see those investments reinvested at higher rates than we.

We do expect to see.

Average return go up over the course of the year.

The current reinvestment schedules overnights or reinvesting at 5% extended the loan portfolios are being reinvested at about 4%. We don't expect to see a huge change in the mix. Although the average duration of our investments has shortened a little bit over the last couple of years, but.

You can pretty much look at yields look at the maturity schedule that we provided and then look at the composition of our portfolio across the.

<unk>.

Overnight the extended along pretty much come to.

Our conclusion or come to some numbers on where you think we're going to end up.

Thanks.

One quick one.

How should we think about the duration strategy.

For the next couple of quarters here.

Now that the fed is perhaps kind of like stabilized but.

Or is there an effort to extend duration shorten it.

Any sense there would be helpful. Thank you.

Yes.

A few times.

The answer is we've been very successful with the strategy that we've had for the last 20 years.

We certainly see that there is an opportunity cost of not having everything in short today at the same time, we do believe that.

The yield curve will normalize and the strategy. We've had in place we will come back and be beneficial to us longer term. So you shouldnt expect any significant change in our investment strategy.

Really helpful. Thank you.

Thank you. Our next question comes from James Fawcett with Morgan Stanley . Your line is open.

Thank you very much I wanted to go back quickly on retention I know you've touched on a little bit last year. Your initial outlook called for around 50 minus 15 to minus 25 basis points of retention degradation, but obviously you didn't really play out in Michigan are starting with a more conservative.

Kind of minus seven to minus 50, but I'm, hoping you could speak to how much conservatism is embedded there.

You know what are the drivers that youre seeing as a reason to be a little bit more conservative to start them than maybe you were last year even.

Yes fair its a fair Oster observation James I appreciate it.

<unk>.

When we thought about by the way I wish I knew the answer right. So the question you asked.

Which is how much conservatism is in there and thats all to say and you hit the nail on behalf of acceptance of this year guiding minus 25 to 50, we're stepping into fiscal 'twenty four with a guide of minus 50 to 70 and we hope.

I'll start with we're very happy with where things are we're firing on all cylinders. We had many businesses that have record NPS result record retention results.

Everything is good and so as we step into the year the way that we are modeling.

What you would see in pays per control the way, we're thinking about the potential macroeconomic moderate tempering. If you will specifically in the back half.

Really a byproduct of how we see retention.

Part of what we saw in the fourth quarter that led to the incredible results that we had was that the normalization that we've been seeing in the down market. We did actually see the dawn market bounce a little bit so even while it was down year on year. It came in stronger than we expected and so we do anticipate that we may need to give some of that back which is <unk>.

Why we believe that was prudent to align our retention targets.

Our medium term targets that we gave back in the Investor day of 2021, So I wish I knew the answer to your question in terms of how much conservatism.

Why we are guiding to what we're guiding is really about the economic outlook, whether that's GDP.

Unemployment is still at record lows, we haven't seen unemployment rates the flows into <unk> and so our guess is as good as yours at some level, but we did build in some tempering of the economy in the back half and that's really what what's yielding that guide on the retention.

Great I appreciate the color that's really helpful and makes a lot of sense.

I want to turn quickly also to M&A you mentioned in the prepared remarks also mentioned as part of it was some of your strategic initiatives. What are you seeing in terms of overall valuation levels.

Kinds of things would you be targeting in terms of geography.

Or product capabilities. Thanks, a lot.

Yes, James So in terms of what we're targeting what we're talking about because theres always things kicking around of course, but we want to make sure that anything that we do acquire either fits well in the core and gives us additional capability or it's something that really exceeds some functionality that they believe that we currently have so that we're not stack.

On more and more product on top of what we already have the other area of course is to make sure that we do things that are natural adjacencies are very strong adjacencies to what we already do so that they fit well and then thirdly of course is making sure that we can sell these things and run these things in a recurring model. So that we can sell them the way we sell everything else we sell to.

<unk> and operate them and expect to get revenue anticipation and good model.

From what we buy so I think those are the things we think about.

I think we're hearing a lot around valuations.

Coming down in the press certainly little bit of a dearth of activity. If you will in the M&A space These days, but.

We do have lots of conversations about acquisitions and whatnot I still think of course, everybody is looking to get a premium what they have and we're trying to make sure that if we're going to buy something we're paying the right price but.

We don't actually get to the point that many of these conversations given the conditions that I stated at the front at the outset to actually have a view on.

Overall valuations in the market.

<unk>.

Likely get to talking about valuation and a very very few number of cases.

Remembering of course, very very few of the opportunities we get even get to that conversation. So I don't think I can say.

General view, but.

We are focused on what we would have to pay and how.

How things would fit into ADP.

That's great I appreciate it.

Thank you our last question comes from Kartik Mehta with Northcoast Research. Your line is open.

Okay.

Don you, obviously talked a lot about the PEO and it seems the demand has really picked up but I'm wondering are you seeing any of your customers may be taking a little bit of a breather now pointing to sign up for the PEO because of the uncertainty in the economy.

That being maybe more expensive product.

The the PEO has a tremendous value proposition I think we always refer to ADP as an all weather company I would say the most durable of our all weather businesses is the PEO and a lot of that has to do with the ability to flex that value proposition in a downturn pretty quickly. So if you think about clients.

That are growing.

Enjoy the PEO because thats a quick go to market.

On the downside if you will as clients are.

<unk> trying to work through economic headwinds the PEO serves as a place that has a clear return on investment has a total cost of ownership thats very.

Again, very clear and so I think it's a it's a business that not to suggest that it's.

Not impacted by a downturn, but it's in a business that kind of works in both what I would say is our sales force, we are able to pivot that narrative and value proposition as warranted I don't believe that has happened so to answer the question our clients at this point hesitant.

To purchase something such as the PEO thats, so comprehensive because of the macroeconomic challenges.

Challenges in my view would be no.

Thats substantiated by the records record results that we had in the PEO bookings in the quarter. We also saw that strength in bookings in the third quarter.

So I think that value proposition is holding firm and I think it's a business that should there should the economic wins.

Ever ever come to life that we've been expecting for so long, it's a business that can pivot pretty quickly and the demand for the offer remains.

And then just a follow up Don you talked about obviously pays per control and retention and maybe retention moderating as the year goes through.

For pays per control would you anticipate that to get to flat by the end of the year or are you anticipating that that could potentially go negative and that's how you built the guidance.

No. We're certainly not anticipating as you go negative we do think it's going to go to somewhere neighborhood of 1% to 2%, which is a little bit less in our hip.

Historical average however, just want to make sure that everybody understands we're exiting the year pretty healthily. So.

Sure figure we're off to a pretty good start, but we do have we do expect that we're going to see a bit of a decline over the next three or four quarters and once again, we're aligning ourselves to the best we can with unemployment forecast et cetera, Hey, Kartik, if you're asking specifically about where we're exiting fiscal 'twenty four.

Yes, the pay per control is effectively decelerating from this kind of 3% range to something flatter.

Okay perfect. Thanks, Dan I appreciate it.

Thank you. This concludes our question and answer portion for today I'm pleased to hand, the program over to Maria Black for closing remarks.

Thank you and thank you everyone for joining today as you heard Dan and I and the entire leadership team were incredibly pleased with fiscal 'twenty three specifically at the fourth quarter and the finished so I'll kind of end, where I started which is I want to take the opportunity to once again, thank the associates that create that the performance is.

An unbelievable.

Magical thing to add to watch it all comes together and deliver what we just delivered and so my gratitude and I celebrate each and every one of them I also want to thank all of the stakeholders, including all of you who listened today appreciate the support we're certainly excited for for fiscal 'twenty four shares for that.

Thank you for your participation. This concludes the program and you may now disconnect everyone have a great day.

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[music].

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 fourth quarter fiscal 2023 earnings call.

I'd like to inform you that this conference is being recorded.

After prepared remarks, we will conduct a question and answer session and instructions will be given at that time I.

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

Thank you Michelle and welcome everyone to Adp's fourth quarter fiscal 2023 earnings call participating today are Maria Black, our president and CEO and Dan Maguire, Our CFO earlier. This morning, we released our results for the quarter and full year. Our earnings materials are available on the SEC website, and our Investor Relations website at Investor.

That AEP 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 the most comparable GAAP measures can be found in our earnings release.

Thank you Daphne and thank you everyone for joining us we closed out the year with a strong fourth quarter that included 9% organic constant currency revenue growth 270 basis points of adjusted EBIT margin expansion and 26% adjusted EPS growth.

The ACI on demand environment has been healthy despite a gradually slowing macroeconomic backdrop and we have been capitalizing on this study demand are.

Our strong bookings results were broad based we had continued strength in our downmarket in employer services HR <unk> offerings. We also had better than expected results in our mid market as well as the great finish from our compliance and international businesses.

Yes.

Our employer services retention rate was another highlight in Q4 and came in better than we expected.

Moving on while Don will cover our fiscal 2024 financial outlook I wanted to spend a few minutes sharing our strategic priorities as we look ahead.

<unk> to global we see a tremendous growth opportunity in front of us and while our specific growth initiatives will vary by business. There are three key strategic priorities, which apply across all of ADP that ICF critical to enabling our growth in the years ahead.

The first strategic priority is to lead with best in class HCM technology put simply our goal is to design develop and deliver the very best and most innovative solutions that will help our clients navigate the full lifecycle of employment from hiring employees to onboarding and training them providing <unk>.

<unk> for them paying them and filing payroll taxes, and even setting them up for retirement as much as we offer today, we see an incredible opportunity to improve on our current and next Gen solutions tactically used partnerships and inorganic means to further accelerate our pace of innovation and continues.

Our industry, leading HCM products, and we expect to have a busy fiscal 2024.

Chris compensation insurance policies and annual audits.

For U S. Midsized businesses served by workforce now our focus is to continue our great momentum in the deployment of our next gen payroll and time and Jen and to drive our win rates and client satisfaction even higher.

And across a few of our platforms, including workforce now and roll we intend to deploy Gen. AI powered features to help our clients more quickly and easily tackle certain HR transactions.

Our second strategic priority is to provide unmatched expertise and outsourcing to our clients, we pride ourselves on serving as a true partner to each and every one of our 1 million clients.

Our culture of client service applies equally across our entire business from a basic payroll client to a fully outsourced client, where we run part or all of the HR Department.

Our expertise and partnership approach has been key to Adp's, winning formula for decades, and we will continue to lean into it we expect that to manifest in a few ways in fiscal 2024, we have recently been piloting a number of tools powered by Gen. AI that can help our service and implementation associates.

Deliver an even better client experience and we will begin deploying these more broadly in early fiscal 2024, given the significant number of clients, we onboard and interact with every year, we expect to learn quite a bit this year about the longer term benefits, we and our clients might realize from Gen II.

Meanwhile, demand for our HR outsourcing solutions remains very strong and in fiscal 2024, we are focused on reaching new clients and further improving the experience for existing ones.

Our employer services HRS businesses have been performing incredibly well and our focus for fiscal 2020 for us to continue delivering strong bookings and keep client satisfaction and retention at current levels or perhaps even reached new record levels.

System and a unique on the ground presence in over 30 countries.

In fiscal 2024, we will continue to build on that scale for the benefit of our clients.

<unk> broad reach and as we potentially make tuck in acquisitions to enhance our native and country footprint.

After establishing an ADP in country presence in five new markets in 2023, we expect to expand further in fiscal 2024.

AI functionality in the coming months.

And our ability to provide data driven insights will continue to grow in fiscal 2020 for ADT starts more clients and paid more people around the world than ever and as we continue growing the number of employees. We serve globally. The power of our insight will likewise continues to increase and benefit our clients.

I am incredibly excited about these three strategic priorities for ADP and the differentiation and growth they will continue to drive but before turning it over to Don I wanted to take a moment to recognize our associates for their effort and performance over the course of this year.

Our associates embody our core values like insightful expertise service excellence and being results driven.

Additionally, we were recently recognized for the first time as one of the best companies for innovators by fast company, a true Testament to the direction. We are headed and we owe these accolades as well as our strong consistent financial performance to the commitment and effort of our 63000 associates.

That makeup the ADP family with that I'll turn it over to Don.

Thank you Maria and good morning, everyone I'll start by expanding on the comments around our Q4 results and then cover our fiscal 2024 financial book.

Q4 performance was very strong overall driving fiscal 'twenty three results at or above our expectations.

Maria mentioned these results reflected broad based strength in employer services and PEO, new business bookings later than anticipated employer services retention and continued healthy employer services pays per control growth, yielding 10% organic constant currency revenue growth for the year and bringing us to $18 billion in <unk>.

Revenue.

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

Our es margin expanded 480 basis points from the fourth quarter, which was broadly in line with our expectations.

For the full year, our Es revenue grew 10% on a reported basis and 11% on an organic constant currency basis, and our es margin expanded 190 basis points.

Both in client funds interest helped us in a year in which we added a fair amount to our product service and sales head count, which has driven some fairly substantial benefits in sales net promoter score and retention results.

For our PEO revenue increased 4% for the quarter decelerating slightly from Q3 as we anticipated.

Average worksite employees increased 3% on a year over year basis to 722000 and has started to gradually reaccelerate supported by very strong bookings growth in Q4.

Low margin contracted 110 basis points in the fourth quarter in language or expectations due in part to higher selling expenses.

For the full year, our <unk> revenue grew 8% and average Worksite employees increased 6% and our margin expanded 60 basis points all in line with our most recent guidance.

I'll now turn to our outlook for fiscal 'twenty four.

Our fiscal 'twenty outlook assumes some moderation in economic activity over the course of the year, but nothing dramatic.

Beginning with Es segment revenue, we expect growth of 7% to 8% driven by the following key assumptions.

For Es retention, we finished fiscal 'twenty three at a record level of 92, 2% consistently outperforming our expectations throughout the year. We are of course very pleased with this performance as we overcame headwinds from higher down market out of the business levels with strength elsewhere.

Sure.

With that said, we are contemplating a 50 to 70 basis points as retention decline for fiscal 'twenty for.

As we called out three months ago, we see the potential for below normal pays per control growth in fiscal 'twenty, four and our outlook assumes 1% to 2% growth for the year.

We had a strong Q4, which gives us a solid starting point for growth and a gradual deceleration over the course of the year feels reasonable at this time.

And for client funds interest revenue.

At this point, we expect our average yield to increase from two 4% in fiscal 'twenty three to two 8% in fiscal 'twenty four.

Meanwhile, we expect our average client funds balances to grow 2% to 3% in fiscal 'twenty. Four this is a bit lower than recent trends due primarily to more modest contribution from pace per control growth in an assumption for more moderate wage increases.

Putting those together, we expect our client funds interest revenue to increase from $813 million in fiscal 'twenty three to a range of $955 million to $975 million in fiscal 'twenty four.

Meanwhile, we expect the net impact from our client fund strategy to increase from $730 million in fiscal 'twenty three to a range of $815 million to $835 million in fiscal 'twenty four.

For our Es margin, we expect an increase of 130 to 150 basis points, driven by operating leverage and contribution from client funds interest revenue offset by continued investments across our strategic priorities.

Moving onto the PEO segment.

We expect PEO revenue and <unk> revenue, excluding zero margin pass through to grow 3% to 5% in fiscal 'twenty for the primary driver for our <unk>.

Revenue growth is our outlook for average worksite employee growth of 3% to 4%.

This represents a gradual reacceleration from the 3% growth we're stepping off of in Q4 <unk>.

Strong bookings performance has already contributed to accelerating client growth.

It has so far been offset by slowing pace per control growth.

With continued strong bookings growth.

Our worksite employee growth should gradually reaccelerate as well and as Maria shared demand has been healthy and we remain confident in the long term growth opportunity in PEO.

We expect PEO margin to be down between 20% and 40 basis points in fiscal 'twenty for <unk>.

Due to anticipated higher selling expenses as well as year over year headwind from a lower workers compensation reserve release benefit.

Then we experienced in fiscal 'twenty three.

Adding it all up our consolidated revenue outlook is for 6% to 7% growth in fiscal 'twenty four.

And our adjusted EBIT margin outlook is for expansion of 60 to 80 basis points.

We expect our effective tax rate for fiscal 'twenty four to be around 23% and.

And we expect adjusted EPS growth of 10% to 12% supported by buybacks.

One quick note on cadence.

At this point, we expect total revenue growth to be relatively consistent quarter to quarter.

We expect our adjusted EBIT margin to be down slightly in Q1 on a year over year basis, and then build over the course of the year.

Thank you and I'll now turn it back to the operator for Q&A.

Thank you.

You'd like to ask a question. Please press star one one if your question has been answered and you'd like to remove yourself from the queue. Please press star one again, our first question comes from Ramsey El <unk> with Barclays. Your line is open.

Hi, This is Owen on for Ramsey I appreciate you taking our question today.

Just curious more on kind of your PEO.

Revenue guidance I know you called out Worksite employee growth weighing on on growth there but.

But.

You expect a double digit kind of bookings growth.

And projects only 3% to 5% growth in PEO revenues for fiscal 'twenty. Four I was just curious if you can provide any more color on that spread fits any conservatism or are there any other factors to consider there. Thank you.

Alright, Thanks, I'll answer the question.

We had a very very strong sales bookings result in Q4, so we're very happy with that and we've seen the.

Sales Reaccelerate and I think as we said in the prepared comments. We are seeing continued growth in clients I think if there is a challenge that we're.

We're facing a little bit as we're seeing a little bit softer pays per control growth in the PEO than we would've expected but.

Back to what we've been saying for some time, we think the underlying value proposition is very very strong and we look at look to that business continue to grow for us and we.

A big part of our portfolio.

Understood I appreciate that.

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

Okay.

Hi, good morning, Congrats on the strong end to the fiscal year, maybe first question Maria.

Interesting about the announcement of moving a roll into new international markets, possibly think about maybe what the opportunity there looks like hard much different than the complexity around payroll processing.

On the international markets versus the U S.

And have you included that in the bookings forecast for fiscal 'twenty four.

Yes fair enough, Thanks Ahmad and I appreciate the congratulations on the quarter and the year were obviously pretty proud over here. So with respect to roll. It is exciting it's been an exciting product for us too.

So rollout no pun intended across the down market here in the U S. We're excited to take it into international as mentioned the initial goal is to put it into a into two countries.

And it is an incremental add for us because it's really initially into these two countries, we're thinking more kind of the dawn market SMB space.

Continued overall rollout overall in terms of factoring it into the overall bookings.

Not really I think.

By the time, the launch happens and as we're thinking about the full year for our international business, our full year for new business bookings.

Surprised if it ultimately makes a dense but to us it's really about the long term value that that offer will bring as we seek to expand the addressable market for us into these various places last but not least some odd you mentioned the complexity of being international and I have to tell you.

I spoke to it a little bit in the prepared remarks, there's a lot that goes into being in each one of these countries to your point there is complexity country by country.

Any countries put many of the states that are complex here in the U S to Shane in terms of.

The complexity that provides and thats everything from government entities.

Very helpful. And then maybe just a quick follow up for Don I know you gave you.

You called out that progress.

The bookings upside and you cited several specific factors I guess it'd be helpful. If you could maybe help us dimensionalize.

Where the upside was.

Relative to the company and our expectations.

At the start of fiscal 2003, and and what Youre carrying forward from from what you saw in the fourth quarter into the FY 'twenty four bookings outlook.

Yes, so I'll, let Vic thanks for the question I'll start here and I think all of them reentered the bookings, but we certainly saw strength across the board.

Once again in the prepared remarks, we call date.

Our tax our tax business and our international business. So they were very strong.

Amongst all the ones that were strong in the Downmarket was also quite strong. So it was really a contribution from across the board in the fourth quarter.

<unk> talked for some time about how the pipelines are healthy and whatnot and we've had questions before about times to get signatures zones on deals et cetera.

Things came together in the fourth quarter and we were very very pleased with with the final result.

That's right.

Great. Thank you appreciate you taking my questions.

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

Hi, Good morning. Thank you I wanted to follow up on Es bookings here. So you cited several areas of strength urban market compliance international on the mid market. Specifically can you talk about what's driving that better than expected performance do you think thats driving improved competitive performance versus versus kind of rising tide environment and then.

I heard your comment on next Gen HCM contributing more in the current fiscal year. The bookings maybe talk about the initiatives and the product development that you think is going to drive that.

Good morning, Brian So I'll I'll comment on both the mid market strength that we've seen and coming in a bit better than <unk>.

I expect that it's been solid for quite some time, that's inclusive of our <unk> offerings and as you know we've been speaking to those quite a bit in terms of.

That sales force is pretty excited about and we're seeing that in the wins that are coming in.

It's kind of the momentum there I think the other is the amount of product investment and.

And innovation that we've done in the mid market, specifically referencing the investments we've made into the workforce now platform with the new UX in many of the things that I've been speaking to and I think the other callout is definitely helps on our new business bookings perspective, when the business on the other side So service App.

And <unk>.

And PFS, if you will as well as retention are firing on all cylinders and thats exactly the case, we have record.

Retention in our mid market and we have near record NPS results across the mid market. So really really proud of the execution in that entire space and that definitely fuels and feeds the ability for our sellers to get excited about everything that I just mentioned two out to go to market.

Stepping into the question around next Gen HCM.

<unk> of implementation and we also saw.

Additions to that backlog. So we saw new sales in the fourth quarter of that next generation <unk>.

<unk> platform. So we're really excited about the momentum as we step into 'twenty four and as such we believe that next gen. HCM will be a larger contributor to bookings for us in the upcoming year than it was in 'twenty three but we were pleased with what we saw in the fourth quarter and the momentum heading in.

Okay understood and then just on pricing can you comment on where that ended up in fiscal 'twenty, three and what you're assuming in es growth pricing standpoint in fiscal 'twenty four.

Yes, So we were happy with our price increase and retention. So as we've talked many times, we want to make sure that were not.

Getting <unk>. So we did get about 150 basis points of price in the in the year and we did that with <unk>.

The expansion is seeing a decline in retention or NPS scores and quite frankly, those NPS scores stayed healthy despite the price increase so as much as price increases can land well they have landed well and we're very happy with how that how that transpired throughout 'twenty three 'twenty four we do expect to have price increases.

We'll take some price for sure, but not to the extent that we did in FY2023.

Thank you very much.

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

Hi, Thanks, so much with the great bookings here I'm just thinking around the conversion you mentioned implementation cycles I'm just curious if you've seen any change from clients.

The desire to.

To implement and then similarly, just maybe based on your comments there on Nextgen HCM.

To hear a little bit more around the appetite from your prospects to upgrade now at this point in the cycle.

What's the pitch here given some of the macro uncertainty.

So I think both of your questions I, just want to confirm I'm hearing them. The right way I think they both kind of speak to the general sentiments around the demand environment.

Is that kind of a good way to think about it in terms of getting delayed and or what's the appetite to.

I suppose by HCM in the in the current macro environment and so I'll comment on the general demand environment and feel free to follow up with an additional question. If I didn't cover what what you wanted but the way that I think about demand and I've spoken to it quite a bit over the last couple of quarter as demand remained strong and that is very broad.

<unk> across the.

The business and so if you think about the down market you still have the strength of small business formation. So you have the strength of hiring that's happening in the down market and as such we have clients their meeting to make decisions around our HCM offers in that space right. So that's that's definitely a place that we've been winning and will continue to.

Lena and as warranted by the demand the mid market as we've talked about that a little bit earlier.

In terms of the overall demand there for the complexity that exists in that market. That's inclusive again of the solution, we have around our HR outsourcing offerings and so that's kind of the mid market. So getting to your question, which is really about the enterprise space and perhaps even the the MMC space. It is an area that we continue to watch as it relates to the demand side.

<unk> decision delays and the main reason is those are really the places that you. As you are aware have additional perhaps signers additional levels of approval things of that nature, and what I would say, which is consistent with what we've been seeing is that we are back to pre pandemic levels. So deal cycles did show.

<unk> during the pandemic and the elongated back to pre pandemic, but it isn't something that we're seeing additional elongation.

Beyond historical averages and so.

To your point, though it is an area that we consistently watch both in the enterprise space as well as in our international business just to kind of see if the demand cycle is at the clients' appetite to make.

Buying decisions or implementation decisions.

Quick follow up just I heard a lot about the sales on the go to market investments that makes sense, just how about RMB growth here in the upcoming year versus fiscal 'twenty three.

Growth be different and also how about the composition will be different in terms of where you are placing your bets on R&D. Thanks.

That's all I have.

We have a number of projects that we share with which you all over the past quarter.

These projects are well underway.

We also have a lot of time talking about.

Hi product projects that I guess that would be a placement would anticipate I'll get a question, we'll get a question for that later on in this call given extra topical but generally we're continuing our direction with the investments that we've described.

Over the past number of quarters, and we continue to make good progress and continue to have good delivery.

Ability to take role to markets in Europe is an example of that health investments and Max.

Thank you.

Thank you. Our next question comes from Mark Marcon with Baird. Your line is open.

Hey, Good morning, let me add my congratulations, particularly on the strong new bookings.

Maria you want.

Through your three key strategic initiatives all the sub sections.

Of.

The various initiatives.

Which ones are going to be the most impactful do you think from a from a near term perspective.

And then one specific question.

Within the mid market you mentioned.

Not only deployed.

Payroll, but you also talked about the <unk> budget and I was wondering if you could elaborate a little bit on that.

Sure.

Thank you Mark I appreciate the congratulations so I am.

Very excited about the strategic priorities I outlined during the prepared remarks, I don't know that I would necessarily expect to have to pick a favorite pillar or.

One that I expect to yield impact faster.

Then another because I think broadly speaking.

They apply across all of ADP and they will.

<unk> a bit as it relates to.

Have in the mid market with our next generation payroll loans and as an example, where we have an ability to win differently.

We see competitive advantages and differentiation there I think that's an area that can have tremendous impact in short order I think the other is.

Don Don did it first which as he mentioned the likes of generative AI and when I think about that.

The Gen AI and applying it broadly across these pillars I think there is opportunity for us and products.

That's pretty tremendous whether it's solving real opportunities for our clients to become more efficient we've talked a lot about that whether that's things like job descriptions performance reviews things of that nature, but it also leaves me kind of to that second pillar to your point around what will come short term versus long term I think there is opportunity in the short term.

That will make impact as well as the long term in terms of really applying generative AI across our expertise that we provide to our clients and so when I think about our ability to to make it easier for our clients to engage with us or our associates to engage with our clients. Some of the tools that we have already deployed across <unk>.

Various businesses and we will further deploy into a fifth.

Fiscal 'twenty four such as think of it almost as a co pilot agent assist where we're helping our agents be more efficient that's going to yield short term results, if nothing else and client satisfaction and again, we know happy clients lead to a longer stay and clients that leads to more sales in the wheel if you will.

I think there's opportunities across all of our strategic priorities to tap some impact us.

And the sooner than the.

The long term, but I'm equally excited about all of them and certainly we spoke quite a bit about the global piece in terms of the next generation time engine that is being done.

Developed in tandem with our next generation payroll engine and those two things are really about time and payroll sitting together in our mid market.

It is all based on the same backbone of technology and so we're very.

Cited two to take that more broadly across the mid market as we continue to take the next generation payroll engine also more broadly cross and I think both of those things well.

We will get feathered into the impact of our <unk>.

Win rates, if you will and our new business bookings in the mid market throughout the course of 'twenty four.

That's great and then Doug you mentioned.

Yes, Mark Thanks for the question.

We're not looking at a big change in the first quarter, but just a couple of the drivers just to be clear one we do have some incremental investment costs and head count et cetera, but the other big driver in the in the first quarter is it a big borrowing quarter for us in our ladder client fund interest strategy, so thats going to.

But a little bit of pressure on the margin for the fourth quarter of sorry for the first quarter and the.

The margin will continue to build over the course of the year and we will we will get the overall improvement that we expected, but more out of the three quarters as opposed to the first.

Great. Thank you.

Thank you. Our next question comes from Eugene <unk> with Moffett Nathanson. Your line is open.

Thank you good morning, guys I wanted to come back to the <unk> all for a second so great to hear about strong bookings in the fourth quarter and going into the new year can.

Can you provide a bit more color on what helped.

Generate this reacceleration in bookings I know you've talked in the past Maria about some of the actions you guys have.

Taken to generate sales would love to hear what whats caused the re acceleration in bookings and are those initiatives, but I was kind of levers you're pulling now completely pool.

It's still work in progress and we will.

Into FY 'twenty four.

Sure Good morning Eugene.

PEO bookings again, we're incredibly pleased with the results in the fourth quarter and the Reacceleration. We also did see the reacceleration in the third quarter. So the back half for the PEO.

Exactly as you suggested it was a lot of focus for the management team and I'm really excited about how we came together.

To execute and in terms of the overall demand trends in long term short term demand.

Main bullish on the overall value proposition of the PEO and.

Kind of the the various demand trends.

The specificity outside of the overall belief in the demand environment and theirs.

Nonetheless, there was a tremendous amount of focus and still remains we remain very focused as a team.

Across all of the leadership too to make sure that we continue to drive the strong growth in bookings in the PEO in 'twenty four.

Got it okay. Thank you and then for my follow up probably for Don talked about margin cost a little bit for you.

Expect another year of robust margin improvement next year, but.

Youre not going to have as much tailwind in revenue growth as you had this year.

And if you've got to do some tobacco belt math it looks like your.

Adjusted Opex will need to grow slower next year than it did this year.

For you to hit your goals. So just hoping maybe you can talk a little bit what are the areas, where you will tempt part next year or may be pulled back, especially if macro conditions.

Got it.

As good as.

We expect them to be.

Yes. So thanks for the question, let me start by what won't change so.

But in the last year, we did have pretty substantial growth in over the last couple of years coming out of the pandemic I can't believe we are still talking about the pandemic, but as we came out of the pandemic we.

Opex expense that we.

We saw in the in the prior year.

They're contributor of course, it will continue to contribute.

The yield curve is more favorable than it was a lifetime I spoke to you all.

We will get contribution from.

Two wins that we had in 2003. So I think those are the main items that are going to help us improve our margins going into going into next year.

Got it very helpful.

Yes.

Thank you. Our next question comes from Scott Wurtzel with Wolfe Research. Your line is open.

Hey, good morning, guys and thanks for taking my questions. Maybe first on the cadence of revenue growth, maybe you said it should be relatively stable throughout the year, but.

I'm wondering if you can maybe sort of parse that out between the S&P and if theres any differences, we should think about there.

Yes, so I think revenue growth is going to be revenue growth is going to be pretty consistent throughout the year as we start.

As we start that big backlog that we now have as a result of that very very strong.

Fourth quarter bookings result, so we will see consistency there likewise with PEO, it's going to be a bit of a.

A bit of a slower burn is we did have strong sales in Q4.

So we did also talk about why.

The lower pays per control growth.

In the PEO business, so, but I don't think they are really going to be that different I think theyre going to be pretty close if you think about the overall growth.

Consolidated results for the company not not substantially different between the business units, yes, Scott there is a slightly different cadence.

For the two it's not a huge difference for PEO, we do expect an acceleration over the course of the year.

Contribution we get from our booking.

The improvements in retention, we're expecting gradually overcoming flowing pays per control that should lead to an accelerating PEO revenue growth.

Yes, we're expecting some deceleration assuming pays per control decelerates and assuming the contribution from client funds interest sort to say gradually over the course of the year you end up with too.

Different looking ramp, but they offset and witnessed us to a very stable revenue growth overall.

Got it that's very helpful. And then maybe just a follow up on on the Gen II topic going back to it obviously.

Obviously, there's a lot to sort of be excited about there, but just kind of wondering the magnitude of investment needed there as that investment essentially all incremental to your investment plans for the year or have you had to maybe put some other projects on the back burner to focus a little more on Gen III.

Yes, and yes, and so <unk>.

Said differently.

The good news is we just went through our strategic planning process in the in the last six months and so we had all of our <unk>.

Priority sequence in all of our investments in incremental investments lined up.

Opportunities at this juncture kind of thinking through these bets and there will be incremental investment and there will be other investments that we repurpose.

To go do some of these things in a new way. So the answer is both.

Got it thanks, guys and congrats on the results. Thank you.

Yes.

Thank you. Our next question comes from Peter Christiansen with Citi. Your line is open.

Thank you good morning, I'll also add to the congratulations ratio nice trends.

Maria question on on the international.

Scaling effort here I was just wondering if you could and.

In this context, if you could put some parameters on <unk>.

<unk> investment spend I guess over the next one to two years and do you see M&A as an important.

Contributing to the growth algorithm yeah.

Sure you started with the question on International So is the rest of your question about international or is it just in general.

About international Yes, so we have been over the years been making.

In country decisions on investments I talked a lot about the call.

Call it the feet on the street the final mile of infrastructure that we have to support our international business and so we will continue to do that that's inclusive of each year.

Go into new markets and some of those are organic ways that we go into new markets. Some of those are actually partners that we ultimately end up.

To think about it both ways and the decision criteria for us is really about speed.

A lot of times, it's our clients that pull us into incremental markets when I think about the.

The five markets that we went into.

This year or the two countries that we're heading into with our with global via their byproduct of clients that are choosing to pay employees in certain markets and as such for US a lot of times. The decision we make on how to get there has a lot to do with speed.

And as such again, we will leverage both organic and inorganic ways to get there. So I don't know Don you ran our international business for a very long time I don't know if you want to add anything maybe just to add I think what we've been doing Peter over the last number of years as we have done a number of acquisitions, they've been mostly tuck ins, but we did have three interesting ones over the last year.

Acquired the Italian company that has a good budget payroll budgeting software tools very prominent in the Italian market. We acquired are so extreme mikes a local partner in South Africa, and we also bought a very exciting mid market time and attendance product called secure acts in.

Out of Bangalore in India, So and that product is available in India, most of southeast Asia and the Middle East. So I think thats a demonstration of what we've been doing it well.

Been looking at and focused on to continue to make sure we drove that footprint and we do think it continues to be an exciting space for us.

Thanks, that's great that's great color and just as a follow up.

Last slide on the maturation schedule of clients on investments Super helpful.

As we think about.

Intra year investment turnover.

Should that correlate with the <unk>.

Seasonal balance levels that we typically see.

Yes, so I think as those as those.

Those investments mature youre going to see those investments reinvested at higher rates than we.

We do expect to see.

Our average return go up over the course of the year.

The current reinvestment schedules overnights or reinvesting at 5%.

Extended the loan portfolios are being reinvested at about 4%, we don't expect to see a huge change in the mix. Although the average duration of our investments has shortened a little bit over the last couple of years, but.

You can pretty much look at yields look at the maturity.

A maturity schedule that we provided and then look at the composition of our portfolio where cros.

<unk>.

Overnight the extended along pretty much come to.

Our conclusion or come to some numbers on where you think we're going to end up.

Thanks.

Just one quick one.

How should we think about the duration strategy I.

I guess for the next couple of quarters here.

Now that the fed is perhaps kind of stabilized but.

Or is there an effort to extend duration shortening.

There would be helpful. Thank you.

Yes.

A few times.

The answer is we've been very successful with the strategy that we've had for the last 20 years.

We certainly see that there is an opportunity cost.

Having everything in short today at the same time, we do believe that.

The yield curve will normalize and the strategy. We've had in place we will come back and be beneficial to us longer term. So you shouldnt expect any significant change in our investment strategy.

Really helpful. Thank you.

Thank you. Our next question comes from James Fawcett with Morgan Stanley . Your line is open.

Kind of minus 7% minus 50, but I'm, hoping you could speak to how much conservatism is embedded there.

What are the drivers that youre seeing as a reason to be a little bit more conservative to start them than maybe you were last year even.

Yes fair its a fair Oster observation James I appreciate it.

<unk>.

When we thought about by the way I wish I knew the answer right. So the question you asked.

Which is how much conservatism is in there and thats all to say and you hit the nail on behalf of acceptance of this year guiding minus 25% to 50, we're stepping into fiscal 'twenty four with a guide of minus 50 to 70 and we hope.

I'll start with we're very happy with where things are we're firing on all cylinders. We had many businesses that have record NPS result record retention results.

Everything is good and so as we step into the year the way that we are modeling.

What you would see in pays per control the way, we're thinking about the potential macroeconomic moderate tempering.

Tempering, if you will specifically in the back half.

It's really a byproduct of how we see retention part of what we saw in the fourth quarter that led to the incredible results that we had was that the normalization that we've been seeing in the down market.

Actually see the dawn market bounce a little bit so even.

While it was down year on year. It came in stronger than we expected and so we do anticipate that we may need to give some of that back which is why we believe it was prudent to align our retention targets.

To our medium term targets that we gave back in the Investor day of 2021, So I wish I knew the answer to your question in terms of how much conservatism.

Why we are guiding to what we're guiding is really about the economic outlook, whether that's GDP.

Unemployment is still at record lows, we haven't seen unemployment rates the flows <unk> and so our guess is as good as yours at some level, but we did build in some time.

Tempering of the economy in the back half and that's really what's what's yielding that guide on the retention.

Great I appreciate the color that's really helpful and makes a lot of sense.

I wanted to turn quickly also.

M&A you mentioned in the prepared remarks also mentioned as part of at least some of your strategic initiatives. What are you seeing in terms of overall valuation levels and what kinds of things would you be targeting in terms of geography.

Product capabilities, Thanks, a lot.

Yes, James So in terms of what we're targeting we're talking about because theres always things kicking around of course, but we want to make sure that anything that we do acquire either fits well in the core.

And it gives us additional capability or it's something that really exceeds some functionality that they believe that we currently have so that we're not stacking on more and more product on top of what we already have the other area of course is to make sure that we do things that are natural adjacencies are very strong adjacencies to what we already do so that they fit well.

And then thirdly of course is making sure that we can sell these things and run these things in a recurring model. So that we can sell them. The way we sell everything else, we sell today and operate them and expect to get revenue anticipation and good model from from what we buy so I think those are the things we think about.

We're hearing a lot around valuations.

Coming down in the press certainly little bit of a dearth of activity. If you will in the M&A space These days, but.

We don't actually get to the point that many of these conversations given the conditions that I stated at the front at the outset to actually have a view on.

Overall valuations in the market.

<unk>.

Likely get to talking about valuation and a very very few number of cases.

Remembering of course, very very few of the opportunities we get even get to that conversation. So I don't think I can say.

General view, but.

We are focused on what we would have to pay in dollars.

How things would fit into ATP.

That's great I appreciate it.

Thank you our last question comes from Kartik Mehta with Northcoast Research. Your line is open.

Okay.

You, obviously talked a lot about the PEO and it seems the demand has really picked up but I'm wondering are you seeing any of you.

Customers may be taking a little bit of a breather now pointing to sign up for the PEO because of the uncertainty in the economy and that being maybe more expensive product.

The the PEO has a tremendous value proposition I think we always refer to ADP as an all weather company I would say the most durable of our all weather.

<unk> is the PEO in a lot of that has to do with the ability to flex that value proposition in a downturn pretty quickly. So if you think about clients that are growing they enjoy the PEO because thats a quick go to market on the downside. If you will as clients are potentially trying to.

Worked through economic headwinds the PEO serves as a place that has a clear return on investment has a total cost of ownership thats very.

Again, very clear and so I think it's a business that not to suggest that it's not.

Purchase something such as the PEO thats, so comprehensive because of the macroeconomic challenges.

<unk> in my view would be no I think thats substantiated by the records record results that we had in the PEO bookings in the quarter. We also saw that strength in bookings in the third quarter.

So I think that value proposition is holding firm and I think it's a business that should there should the economic wins.

Ever ever come to life that we've been expecting for so long, it's a business that can pivot pretty quickly and the demand for the offer remains.

And then just a follow up Don you talked about obviously pays per control on retention and maybe retention moderating as the year goes through.

<unk> pays per control would you anticipate that to get to flat by the end of the year or are you anticipating that that could potentially go negative and thats. How you built the guidance.

No. We're certainly not anticipating as you go negative we do think it's going to go to somewhere neighborhood, 1% to 2%, which is a little bit less than our.

Historical average however, just want to make sure that everybody understands we're exiting the year pretty healthily. So.

Sure figure we're off to a pretty good start, but we do have we do expect that we're going to see a bit of decline over the next three or four quarters and once again, we're aligning ourselves to the best we can with unemployment forecast et cetera, Hey, Kartik, if you're asking specifically about where we're exiting fiscal 'twenty four.

Yes, the pays per control is effectively decelerating from this kind of 3% range to something flutter.

Okay perfect. Thanks, Dan I appreciate it.

Thank you. This concludes our question and answer portion for today I'm pleased to hand, the program over to Maria Black for closing remarks.

Thank you and thank you everyone for joining today as you've heard Dan and I have the entire leadership team were incredibly pleased with fiscal 'twenty three specifically the fourth quarter and the finished so I'll kind of end, where I started which is I want to take the opportunity to once again. Thank the associates that create this performance it is.

Unbelievable.

<unk> thing to add to watch it all comes together and deliver what we just delivered and so my gratitude and I celebrate each and every one of them I also want to thank all of the stakeholders, including all of you who listened today appreciate the support we're certainly excited for for fiscal 'twenty, four or so shares for that.

Thank you for your participation. This concludes the program and you may now disconnect everyone have a great day.

Q4 2023 Automatic Data Processing Inc Earnings Call

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