Q1 2024 Automatic Data Processing Inc Earnings Call

Good morning, My name is Michelle and I'll be your conference operator at this time I would like to welcome everyone to Adp's first quarter fiscal 2024 earnings call I'd like to inform you that this conference is being recorded after the prepared remarks, we will.

Duct a question answer session instructions will be given at that time I'll now turn the conference over to Mr. Daniel Hussain Vice President Investor Relations. Please go ahead.

Thank you Michelle and welcome everyone to Adp's first quarter fiscal 2024 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 our earnings materials are available on the Sec's website, and our Investor Relations website at investors ADP Dot Com, where you will also find the investor presentation that accompanies today's call.

During our call, we will reference non-GAAP financial measures, which we believe to be useful to investors and that exclude the impact of certain items. A description of these items along with a reconciliation of non-GAAP measures to the most comparable GAAP measures can be found in our earnings release.

This 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'll now turn it over to Maria.

Thank you Danny and thank you everyone for joining us. This morning, we reported strong first quarter results, including 7% revenue growth and 12% adjusted EPS growth and we made significant progress on the three strategic priorities. We shared with you last quarter. Let me begin by quickly reviewing some of our financial highlights from the <unk>.

First quarter.

We had a solid start to the year in employer services, new business bookings with record level volumes for first quarter, which was supported by a particularly strong September among our best performers were our small business portfolio and our compliance oriented solutions.

Overall demand in HCM has remained steady and we maintained a healthy new business pipeline at the end of the quarter across our business.

Our employer services retention rate once again exceeded our expectations.

Although retention declined slightly versus the prior year, including in our small business portfolio, we continued to see resilience among our clients.

More importantly, our overall NPS scores reached a new all time high positioning us to stay near these historically high retention levels.

Our employer services pays per control growth was 2% for the first quarter as our clients continue to add employees at a pace that is gradually slowing and our PEO revenue growth of 3% in the quarter was relatively stable versus last quarter, reflecting solid PEO bookings performance offset by deceleration.

<unk> CEO pays per control growth.

John will speak to our updated guidance in a moment, but the demand environment for PEO as well as our other outsourcing services remains healthy.

Moving on we made meaningful progress across all three of our strategic priorities that we outlined last quarter. Let me start with an update on some actions. We took in Q1 to lead with best in class HCM technology.

First we began embedding gen AI features into our products in Q1, we integrated Gen AI into role to further enhance its conversational UI and make it even easier for small business owners to quickly obtain customized payroll and HR guidance.

We also began rolling out ADP assessed which delivers insights and recommendations to make complex HR work simple we've.

We've enabled ADP assessed for select workforce now clients beginning with the report assess feature that allows practitioners to easily extract the insights they're looking for we look forward to continuing to build on the live its feature set of ADP assessed to further enhance the experiences of both HR practices.

<unk> and employees.

We also had some exciting product developments beyond AI, our clients tell us they need personalized experiences and deep integrations to help them manage the complexity of running a business today.

To help address this we recently launched a new product called API central which enables businesses to easily and securely connect their ADP workforce data across systems, using pre populated Apis and tools.

Michelle: Good morning, my name is Michelle and I'll be your conference operator. At this time, I would like to welcome everyone to ADP's first quarter fiscal 2024 earnings call. I would like to inform you that this conference is being recorded.

Michelle: After the prepared remarks, we'll conduct a question and session instructors will be given at that time.

This is a feature our clients have increasingly ask for and we have already seen strong uptake.

Danyal Hussain: I'll now turn the conference over to Mr. Daniel Hussain, Vice President Rest Relations. Please go ahead. Thank you, Michelle and welcome everyone to ADP's first quarter fiscal 2024 earnings call. Participating today, our Maria Black, our president and CEO, and Don McGuire, our CFO. Earlier this morning, we released our results for the quarter. Our earnings materials are available on the SEC's website and our Investor Relations website at investors.80p.com, where you will also find the investor presentation that accompanies today's call.

In Q1, we complemented the launch of API central with the acquisition of Sora and intelligent workflow automation and data integration tools.

<unk> unique capabilities will allow our clients to automate people processes by unifying various applications such as HR CRM.

CRM and more creating a smarter and easier to use experience for our clients.

Danyal Hussain: During our call, we will reference non-gap financial measures, which we believe to be useful to investors and that exclude the impact of certain items. A description of these items, along with the reconciliation of non-gap measures, to the most comfortable gap 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 can cause actual results to differ materially from our current expectations.

In Q1, we also launched ADP workforce now for construction, a comprehensive offering designed to help clients with a unique payroll and HCM needs of the construction industry. That's.

This vertical is offering combines tailored workforce now capabilities and reporting with a team of dedicated specialists for the construction industry. While ADP has always served clients across the full spectrum of industries construction stood up to us as a vertical with enough complexity to warrant a more tailored.

Maria Black: I'll now turn it over to Maria. Thank you, Danny, and thank you everyone for joining us. This morning, we reported strong first quarter results, including 7% revenue growth, and 12% adjustment to EPS growth, and we made significant progress on the three strategic priorities we shared with you last quarter. Let me begin by quickly reviewing some of our financial highlights from the first quarter. We had a solid start to the year and employer services, new business bookings, with record-level volumes for first quarter, which was supported by a particularly strong September.

<unk> and we're excited to further strengthen our offering in the mid market.

We also announced the launch of our corporate venture capital Fund earlier this month.

Leading with best in class HCM technology requires that we stay attuned to the frontier of HCM innovation and now in addition to the organic efforts. We are developing an ADP ventures, we will invest in and partner with early stage startups to strengthen our core business and to extend into natural.

Maria Black: Among our best performers were our small business portfolio and our compliance-oriented solutions. Overall demand and HCM has remained steady, and we maintained a healthy new business pipeline at the end of the quarter across our business. Our employer services retention rate once again exceeded our expectations. Although retention declined slightly versus the prior year, including in our small business portfolio, we continued to see resilience among our clients. More importantly, our overall NPS scores reached a new all-time high, positioning us to stay near these historically high retention levels.

Adjacencies.

Two of our early investments focused on improving lifestyle benefits to drive associate engagement and simplifying the incredibly complex lead management process that businesses and their workers have to address we're excited to build on these partnerships and develop new ones.

Overall Q1 was a very busy quarter on the product front with much of the work, we're doing representing seeds of innovation that will position us to continue shaping the future of work.

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

In addition to launching the pilot of ADP access for our clients. We also launched the pilot of our new agent assist embedding AI and the flow of work for ADP associates.

Maria Black: Our employer services pace for control growth was 2% for the first quarter, as our clients continue to add employees at a pace that is gradually slowing. Our PEO revenue growth of 3% in the quarter was relatively scabled versus last quarter, reflecting solid PEO bookings performance offset by deceleration and PEO pace for control growth. Don will speak to our updated guidance in a moment, but the demand environment for PEO, as well as our outsourcing services, remains healthy.

So far we have enabled our call summarization capability to select associates. Thanks.

Thanks to this agent assist feature those service associates no longer need to spend time, writing up the case notes after client calls, which should make our associates more effective and also allow us to quickly aggregate real time client feedback to continuously improve our products we.

Maria Black: Moving on, we made meaningful progress across all three of our strategic priorities that we outlined last quarter. Let me start with an update on some actions we took in Q1 to lead with best in class HCM technology. First, we began embedding Gen AI features into our products. In Q1, we integrated Gen AI into roll to further enhance its conversational UI and make it even easier for small business owners to quickly obtain customized payroll and HR guidance.

We are also piloting agent assessed real time guidance for our associates to help them with support content and guided workflows and to more easily share their accumulated knowledge in a way that is customized to individual client cases.

We are excited to continue working toward additional agent assist features to help our implementation and service associates deliver better faster service and to help our client satisfaction scores continue to reach new record levels.

Our third strategic priority is to benefit our clients through our global scale and in Q1, we expanded on this advantage.

Maria Black: We also began rolling out ADP Assist, which delivers insights and recommendations to make complex HR work simple. We've enabled ADP Assist for select workforce now clients, beginning with a report-assist feature that allows practitioners to easily extract the insights they're looking for. We look forward to continuing to build on the live feature set of ADP Assist to further enhance the experiences of both HR practitioners and employees.

In August we extended our leading global footprint by acquiring the payroll business of VCR, our longtime partner in Sweden.

Acquisitions like this strengthen our multi country payroll ecosystem, while also positioning us to grow our local HCM business in countries with attractive growth prospects.

In Q1, we launched a role in Ireland, representing the beginning of an expansion into the European market, where we believe an AI based payroll app, coupled with our existing on the ground ecosystem will allow us to expand our SMB business outside the U S and.

Maria Black: We also had some exciting product developments beyond AI. Our clients tell us they need personalized experiences and deep integrations to help them manage the complexity of running a business today. To help address this, we recently launched a new product called API Central, which enables businesses to easily and securely connect their ADP workforce data across systems using pre-populated APIs and tools. This is a feature our clients have increasingly asked for, and we have already seen a strong update.

Maria Black: In Q1, we complemented the launch of API Central with the acquisition of Sora, an intelligent workflow automation and data integration tool. Sora's unique capabilities will allow our clients to automate people processes by unifying various applications such as HR, IT, CRM, and more, creating a smarter and easier to use experience for our clients. In Q1, we also launched ADP Workforce Now for Construction, a comprehensive offering designed to help clients with the unique payroll and HBM needs of the construction industry.

And during Q1, we also announced plans to deepen our existing partnership with workday to deliver enhanced global payroll compliance and HR for the many clients we jointly serve around the world.

Partnerships like this reflect our longstanding commitment to provide the personalization and overall experience our clients desire.

Before turning it over to Don I wanted to highlight a couple of milestones in two of our businesses.

Our suite of workforce management solutions, sometimes referred to as time and Labor management reached more than 125000 clients in the first quarter benefiting from a double digit growth rate. These last few years.

Scheduling and precisely tracking time has become more important for employers over recent years in order to meet evolving legislative requirements and we look forward to continuing to invest in our workforce management solution to drive higher client attach rates.

Maria Black: This verticalized offering combines tailored Workforce Now capabilities and reporting with a team of dedicated specialists for the construction industry. While ADP has always served clients across the full spectrum of industries, construction stood up test as a vertical with enough complexity to warrant a more tailored solution, and we're excited to further strengthen our offering in the mid-market.

We also now serve more than 150000 retirement services clients, which is up more than 20% from 125000 clients. We served at the end of fiscal 2022.

We anticipate growth for our retirement services business will remain strong in the years ahead as the provisions of the secure act two dato an additional state mandates continue to phase in and as companies of all sizes continue to recognize the importance of positioning their workers while for their eventual retirement.

Maria Black: We also announced the launch of our corporate venture capital fund earlier this month, leading with best and class HBM technology required that we stay attuned to the frontier of HBM innovation. And now, in addition to the organic efforts we are developing in ADP ventures, we will invest in and partner with early stage startups to strengthen our core business and to extend international adjacencies. Two of our early investments focus on improving lifestyle benefits to drive associated engagement and simplifying the incredibly complex lead management process that businesses and their workers have to address. We're excited to build on these partnerships and develop new ones.

I am proud of our start to fiscal 2024, with both strong financial results and meaningful strategic progress.

Our roadmap for the months ahead is keeping us incredibly busy and with this in mind I'd like to take a moment to recognize our associates across sales service implementation and technology, whose efforts and outstanding performance are positioning us to consistently deliver for our clients and our shareholders. Thank you all.

With that I'll turn it over to Don.

Thank you Maria and good morning, everyone I'll provide some more color on our results for the quarter and update you on our fiscal 'twenty four outlook overall, we had a solid Q1 and are not making changes to our consolidated outlook, but there are some moving pieces I'll cover.

Maria Black: Overall, Q1 was a very busy quarter on the product front, with much of the work we're doing, representing seeds of innovation that will position us to continue shaping the future of work.

Let me start with employer services.

Maria Black: Our second strategic priority is to provide unmatched expertise and outsourcing solutions. In addition to launching the pilot of ADPFS for our clients, we also launched the pilot of our new agent assist, embedding Gen AI in the flow of work for ADP Associates. So far, we have enabled our call summarization capability to select Associates. Thanks to this agent assist feature, those service associates no longer need to spend time writing up case notes after client calls, which should make our associates more effective and also allow us to quickly aggregate real-time client feedback to continuously improve our products.

<unk> segment revenue increased 9% on a reported basis and 8% on an organic constant currency basis.

Maria Black: We are also piloting agent assist real-time guidance for our associates to help them with support content and guided workflows, and to more easily share their accumulated knowledge in a way that's customized to individual client cases. We are excited to continue working toward additional agent assist features to help our implementation and service associates deliver better faster service and to help our client satisfaction scores continue to reach new record levels.

Of our expectations.

As Maria shared Es, new business bookings had a solid start with especially strong growth in September the <unk>.

Land environment stable, our pipelines are healthy and we are on track for a 4% to 7% growth guidance.

Yes retention declined slightly in Q1 versus the prior year, but that was slightly better than we expected.

At this point, we are maintaining our outlook for a 50 to 70 basis point decline in full year retention.

Which continues to embed an expectation for small business losses to increase due to higher auto business rates, but if recent trends continue then we would hope to outperform that range.

Esp's per control growth was in line with our expectation in Q1, it decelerated modestly to 2% and we expect a very gradual deceleration to continue in the coming quarters and are maintaining our outlook for 1% to 2% growth for the full year.

Client funds interest revenue increased in line with our expectation in Q1, but we are raising our full year outlook based on the latest forward yield curve, which result in a modest increase in average yields to two 9% from our prior expectation of two 8%.

Maria Black: Our third strategic priority is to benefit our clients through our global scale, and in Q1, we expanded on this advantage. In August, we extended our leading global footprint by acquiring the payroll business of BCR, our longtime partner in Sweden. Acquisitions like this strengthen our multi-country payroll ecosystem while also positioning us to grow a local HBM business in countries with attracted growth prospects. In Q1, we launched Role in Ireland, representing the beginning of an expansion into the European market where we believe an AI-based payroll app coupled with our existing on-the-ground ecosystem will allow us to expand our SMB business outside the U.S. And during Q1, we also announced plans to deepen our existing partnership with Workday to deliver enhanced global payroll, compliance, and HR for the many clients we jointly serve around the world. Partnerships like this reflect our long-standing commitment to provide the personalization and overall experience our clients desire.

We now expect client funds interest revenue as well as the net impact from client funds extended strategy to be up $35 million.

From our prior outlook.

Meanwhile, the U S dollar strengthened representing a drag relative to our prior fiscal 'twenty for revenue outlook.

In total our strong Q on Es revenue growth combined with higher than expected client funds revenue for the rest of the year effectively offset the adverse FX movement and we're maintaining our fiscal 2000 for Es revenue growth range of 7% to 8%.

Our <unk> margin increased 220 basis points in Q1.

Driven by both operating leverage and contribution from clients' funds interest revenue for the full year, we are raising our fiscal 'twenty outlook to now anticipate an increase of 150 to 170 basis points, which reflects the benefit of higher yields partially offset by higher spend on <unk>.

Maria Black: Before turning it over to Don, I wanted to highlight a couple milestones in two of our businesses. Our suite of workforce management solutions, sometimes referred to as time and labor management, reached more than 125,000 clients in the first quarter, benefiting from a double-digit growth rate these last few years. Scheduling and precisely tracking time has become more important for employers over recent years in order to meet evolving legislative requirements and we look forward to continuing to invest in our workforce management solutions to drive a higher client attach rates.

<unk> projects and usage as well as a small amount of dilution from our recent acquisitions.

Moving onto the PEO.

We had 3% revenue growth driven by 2% growth in average worksite employees in Q1.

As Maria mentioned earlier, our PEO bookings growth was solid but pays per control growth continued to slow and was lower than expected.

Particular for clients in the professional services and Tech industries. This resulted in a slightly softer Q1, worksite employee count than we were anticipating.

Maria Black: We also now serve more than 150,000 retirement services clients which is up more than 20% from the 125,000 clients we served at the end of fiscal 2022. We anticipate growth for our retirement services business will remain strong in the years ahead as the provisions of the Secure Act 2.0 and additional state mandates continue to phase in and as companies of all sizes continue to recognize the importance of positioning their workers well for their eventual retirement.

As a result, we now expect fiscal 2020 for PEO revenue growth of 3% to 4% with growth in average worksite employees of 2% to 3%.

Apio sales pipelines are healthy and we continue to forecast our worksite employee growth gradually ramping in the back half of fiscal 'twenty four.

PEO margin decreased 90 basis points in Q1, which was more than we had planned.

Maria Black: I'm proud of our start to fiscal 2024 with both strong financial results and meaningful strategic progress. Our roadmap for the months ahead is keeping us incredibly busy, and with this in mind, I'd like to take a moment to recognize our associates across sales, service, implementation, and technology, whose efforts and outstanding performance are positioning us to consistently deliver for our clients and our shareholders.

The decline was primarily driven by lower workers' compensation reserve release benefit as well as higher selling expenses.

We now expect PEO margin to be down between 50, and 100 basis points in fiscal 'twenty four with a continued assumption for higher selling expenses as well as year over year headwind from a lower workers compensation reserve release benefit than we experienced in fiscal 'twenty three.

Maria Black: Thank you all.

Don McGuire: With that, I'll turn it over to Don. Thank you, Maria, and good morning, everyone. I'll provide some more color on our results for the quarter and update you on our fiscal 24 outlook.

Putting it all together there is no change to our consolidated outlook, but I would like to share some color on cadence in.

In Q2, our client fund balance growth will lag the impact of the payroll tax deferral that we've had on our average balance for the past two years, which creates some global pressure on our clients' funds balance and will result in more modest margin expansion in Q2 than other quarters. This year as well as a model.

Don McGuire: Overall, we had a solid Q1 and are not making changes to our consolidated outlook, but there are some moving pieces I'll cover. Let me start with employer services. ES segment revenue increased 9% on a reported basis, in 8% on an organic constant currency basis ahead of our expectations. As Maria shared, ES new business bookings had a solid start with a specially strong growth in September. The demand environment is stable, our pipelines are healthy, and we are on track for our 4% to 7% growth guidance.

<unk> revenue impact.

As a result, we expect consolidated revenue growth to moderate before accelerating slightly in the back half and we expect adjusted EBIT margin to be down slightly before ramping in the back half of the year.

This was already contemplated in our guidance at the outset of the year.

Don McGuire: Our ES retention did decline slightly in Q1 versus the prior year, but that was slightly better than we expected. At this point, we are maintaining our outlook for a 50-70 basis point to climb in full-year retention, which continues to embed an expectation for small business losses to increase due to higher out of business rates, but if recent trends continue, then we would hope to outperform that range. ES base for control growth was in line with our expectation in Q1.

So again no change to our consolidated guidance, we continue to forecast fiscal 'twenty for consolidated revenue growth of 6% to 7% with our adjusted EBIT margin expanding by 60 to 80 basis points, we still expect our effective tax rate for fiscal 'twenty four to be around two.

23% and we anticipate adjusted EPS growth of 10% to 12%.

Thank you.

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

Don McGuire: It decelerated modestly to 2%, and we expect this very gradual deceleration to continue in the coming quarters and are maintaining our outlook for 1-2% growth for the full-year. Client fund interest revenue increased in line with our expectation in Q1, but we're raising our full-year outlook based on the latest forward yield curve, which results in a modest increase in average yield to 2.9% from our prior expectation of 2.8%. We now expect client fund interest revenue as well as the net impact from our client fund's extended strategy to be out $35 million from our prior outlook.

Thank you <unk>.

To ask a question. Please press star one one please be aware of the allotted time for questions. Please ask one question with a brief follow up we will take our first question from the line of <unk> with Jefferies. Please go ahead.

Hi, Good morning, Thanks for taking my questions. Maybe first just wanted to double click on the PEO side I think.

The information we gave it helps to understand some of what happened in the revised guidance, but maybe just help us understand what's giving that back half ramp confidence, especially as you expect pays per control in the kind of broader macro that continue to decelerate where should we get the acceleration in the PEO WSI is it purely based on <unk>.

Don McGuire: Meanwhile, the US dollar strengthened, representing a drag relative to our prior fiscal 24 revenue outlook. In total, our strong Q1 ES revenue growth combined with higher than expected client funds revenue for the rest of the year effectively offset the adverse effects movement, and we're maintaining our fiscal 24 ES revenue growth range of 7 to 8%. Our ES market increased 220 basis points in Q1, given by both operating leverage and contribution from client funds interest revenue.

<unk> ramping is it based on an expectation that the base will stabilize maybe just dig into that a little bit further because they're moving in different directions.

You bet.

Good morning, it's modest Maria here.

I'd kind of break down your question with respect to the other PEO call at Doubleclick. So I'll start by commenting on the first quarter.

As mentioned, we did see deceleration in PEO pays per control so as Don mentioned in the opening comments that as a byproduct of what we.

We're seeing in the pressure with respect to as you know that business tends to skew more into professional services technology. The pays per control deceleration is happening at a faster clip than those cohorts than the broader basin. So said differently. The pays per control growth in the PEO is decelerating faster than we expected in <unk>.

Don McGuire: For the full-year, we are raising our fiscal 24 outlook to now anticipate an increase of 150 to 170 basis points, which reflects the benefit of higher yields partially offset by higher spend on Gen. A.I, projects and usage as well as a small amount of delusion from our recent acquisition.

<unk> specifically in those cohorts. So in terms of contribution that is the contribution to the.

Don McGuire: Christians. Moving on to the PEO, we had 3% revenue growth driven by 2% growth in average work-fed employees in Q1. As Maria mentioned earlier, our PEO booking growth was solid, but pace for control growth continued to slow and was lower than expected, particularly for clients in the professional services and tech industries. This resulted in a slightly softer Q1 work-fed employee count than we were anticipated. As a result, we now expect fiscal 2024 PEO revenue growth of 3 to 4%, with growth in average work-fed employees of 2 to 3%.

The deceleration or the the.

The new guide to Worksite employee growth that we're seeing in the first quarter. We did have strong bookings in PEO in the first quarter that said it did come in slightly below where we had hoped for so was still higher than overall employer services. It was a good a good quarter for the PEO and this is now the third quarter in a row.

That we've seen strength in bookings in the PEO and Thats important to note because really the strength in PEO bookings bookings is what ultimately will yield reacceleration that you're asking about in the back half that coupled with kind of what we're seeing in retention. So while retention is stable and stabilizing inside via the PEO. It is.

Don McGuire: Our PEO sales pipelines are healthy, and we continue to forecast their work-fed employee growth gradually ramping in the back half of fiscal 24. PEO margin decreased 90 basis points in Q1, which is more than we had planned, that the client was primarily driven by a lower workers compensation reserve-release benefit as well as higher selling expenses. We now expect PEO margin to be down between 50 and 100 basis points in fiscal 24 with a continued assumption for higher selling expenses, as well as year-over-year headwind from a lower workers compensation reserve-release benefit than we experienced in fiscal 23.

Back to the high growth levels that we saw.

A couple of years ago on the last.

A year or so and as such as those compares continue to lap coupled with.

Retention continuing to accelerate if you will versus stabilize we will see contributions from retention will say more contributions from bookings and Thats really why we anticipate the other work Worksite employee guide for the year that we'd given.

Great and then actually I had a follow up for you as well on the on the international side I understand the rollout.

The rollout of the product.

Ireland and I'm, just curious how should we think about the expansion.

Beyond the U S. I know ADP already has a presence and it's a meaningful contributor to revenue, but just should we think about international maybe being an offset to some of the slowdown that we're seeing.

Don McGuire: Putting it all together, there is no change to our consolidated outlook, but I would like to share some color on cadence. In Q2, our client fund's balance growth will lack the impact of the payroll tax deferral that we've had in our average balance for the past two years, which creates some grow-over pressure on our client's fund's balance, and will result in more modest ES margin expansion in Q2 than other quarters this year, as well as the modest revenue impact.

In U S revenues, just how should we think about the cadence and impact as you move more international with your core HCM solutions versus just helping U S employers that already had an international presence.

Yes, absolutely so I'll speak to the role which is what I commented on in the opening comments. So we did rollout no pun intended our roll offering.

Don McGuire: As a result, we expect consolidated revenue growth to moderate before accelerating slightly in the back half, and we expect adjusted EBIT margin to be down slightly before ramping in the back half of the year. This was already contemplated in our guidance at the outset of the year. So again, no change to our consolidated guidance. We continue to forecast fiscal 24 consolidated revenue growth of 6 to 7 percent with our adjusted EBIT margin extending by 60 to 80 basis points. We still expect our effective tax rate for fiscal 24 to be around 23 percent, and we anticipated just an EPS growth of 10 to 12 percent.

Into Ireland and it is an exciting bet for us, albeit it's very very early days right. It's actually only been a couple of weeks, but we're excited about it because it's the first of many countries, where we intend on taking this.

Call it very down market offering into.

Our various countries throughout international and it's really about marrying that product with what we see is still potentially greenfield opportunity within our international space.

And really leveraging the ecosystem that we have that's everything from distribution to all the services call. It around the offers in various countries. So we're very excited about that now in terms of the overall <unk> growth.

Growth contributions in the short term of rolling out roll into Ireland, I would say, they're negligible I would say even roll over time. This year I think it would be.

Michelle: Thank you, and I'll now turn it back to Michelle for Q&A. Thank you. If you were to ask a question, please press star 11. Please be aware of the a lot of time for questions. Please ask one question with a brief follow-up.

Not a meaningful contributor to bookings to me I think this is really about a long term investment that we're making across international and what we see as a continued opportunity for us. So you kind of mentioned as this companies that have a presence in Europe that exist in the U S.

Samad Samana: We'll take our first question from the line of Samada Samada with Jeffries. Please go ahead. Hi, good morning. Thanks for paying my questions. Maybe first, just one to double-click on the PO side. I think that the information gave helps to understand some of what happened and the revised guidance, but maybe just help us understand what's giving that back half ramp constant. Patron, especially as you expect page for control in the kind of broader macro and a continue to decelerate, where should we get the acceleration in the PEO WSC?

Samad Samana: Is it purely based on bookings ramping? Is it based on an expectation that the base will stabilize? Maybe just big and fat a little bit further because they're moving in different directions. You bad. So good morning, Samad. It's Maria here. I thought I'd kind of break down your question with respect to the PEO call it double click. So I'll start by commenting on the first quarter. So as mentioned, we did see deceleration in PEO pace for control.

Folks working in our call it in the international and the answer is both that coupled also with a lot of our what I would say best of breed offerings in international So we see growth opportunity really across the board in international and Thats everything from the down market, which we're going after now with this new product offering of role.

So we see it on SMB space, we see it in our best of breed best of breed space and we also see it in our global MMC space. So really excited about the long term.

Growth opportunity that continues to be international and while I'm on international I thought I would just mentioned because it's important to note.

Did have a very strong quarter with respect to international, albeit that quarters, obviously off of a compare Q1 of last year that was a less favorable but it is on the heels of what was a very strong fourth quarter finish finish in international and so all the way around I continue to be incredibly excited and optimistic.

Samad Samana: So as Don mentioned in the opening comments, that is a byproduct of what we're seeing in the pressure with respect to, as you know, that business tends to skew more into a professional services technology. The pace for control deceleration is happening at a faster clip in those cool horse than the broader base. And so said differently, the pace for control growth in the PEO is decelerating[inaudible] seen strength in bookings in the PEO.

Stick about what it is that we can go accomplish and continued to build in our in our international offering.

Great. Thanks, so much for taking my questions.

Thank you. Our next question comes from Bryan Bergin with TD Cowen. Please go ahead.

Hi, good morning, Thank you.

Mary I was hoping if you can comment on just how youre seeing the overall macro situation evolve and maybe how that may affect demand and if you can specifically unpack that within the EES segment, maybe talk about some of the areas that came in better than you expected versus any areas that may have been lighter or downtick versus the prior quarter.

Absolutely good morning, Brian So happy to comment on what we saw in the first quarter with respect to the.

Samad Samana: And that's important to note, because really the strength in PEO booking bookings is what ultimately will yield the re-exceleration that you're asking about in the back cap. That coupled with kind of what we're seeing in retention. So while retention is stable and stabilizing inside the PEO, it isn't back to the high growth levels that we saw call it a couple of years ago in the last year or so. And as such, as those compared continues to laugh, coupled with retention, continuing to accelerate, if you will, versus stabilize. We will see contributions from retention. We'll see more contributions from booking. And that's really why we anticipate the work, work side employee guide for the year that we've given.

The overall performance of bookings, but also the demand so I'll kind of start with the overall performance I mentioned in the opening comments, we did see strength continued strength in our down market. So really excited about that also saw tremendous strength in our compliance solutions offerings. So think of it as all the stuff that has compliance tax things of that name.

So we're pleased with what we saw with respect to our new business bookings those are the two that really outperformed and it's exciting to see because really that entire down market offering and thats everything from our our run offering to retirement services insurance services. We continue to see tremendous strength. There we saw that all of last year and definitely the.

The finished last year and it makes me happy because it's a lot of the places that well good performance makes me happy regardless, but it's a lot of the places where we've been making meaningful investments both in the product as well as the distributions. So excited to see the continued performance there and the outperformance.

Maria Black: Great. Then Maria, I actually had a follow up for you as well on the on the international side, actually, the rollout of rollout of the product into Ireland. And I'm just curious how should we think about the expansion beyond the US and ADP already had to present. And it's a meaningful contributed revenue. But just should we think about international maybe being an offset to some of the slowdown that we're seeing in US revenue.

The overall <unk>.

<unk> do keep us in line with our full year guide so excited too to confirm that again here today in terms of the overall demand environment and I feel like I've been saying this quarter to quarter, but we're not really seeing any major changes in demand demand is still strong demand is still healthy we see that in our bookings results there.

Maria Black: Just actually think about the cadence and impact as you move more international with your core HCM solutions versus just helping US employers that already had an international presence. Yeah, absolutely. So I'll speak to roll, which is what I commented on in the opening comments. So we did rollout, no pun intended, our role offering into into Ireland. And it is an exciting bit for us, albeit it's very, very early days, right? It's actually been a couple weeks, but we're excited about it because it's the first of many countries where we intend on taking this call it very down market offering into our various countries throughout.

All sorts of other indicators that we look at in terms of pipelines.

Upmarket and the mid market.

Certainly in the down market, we're looking at things such as the new appointments and.

Kind of activity excuse me activity measures to really give us a guide on whether demand is strong and I would tell you pipelines are healthy year on year.

And certainly activity is healthy and so we don't see.

A big demand change again this quarter in fact, it's kind of the opposite stepping into.

Maria Black: And it's really about marrying that product with what we see as still potentially green field opportunity within our international space and really leveraging the ecosystem that we have. That's everything from distribution to all the services call it around the offers in various countries. So we're very excited about that now in terms of overall growth contributions in the short term of rolling out roll into Ireland. I would say they're negligible. I would say even roll over time this year.

Into the quarter on the heels of a strong September we feel really good about where our pipeline set year on year, which again is giving us the confidence in the full year guide as always though Brian we continue to keep an eye on the macro we continue to keep an eye on our global space and international and making sure that we're understanding both any macroeconomic.

Changes, coupled with any demand environment that could shift given everything kind of going on in the world. If you will so that's current story on kind of pipeline demand in the quarter.

Maria Black: I think it would be, you know, not a meaningful contributor to bookings to me. I think this is really about a long term investment that we're making across international and what we see as a continued opportunity for us. So you kind of mentioned is this companies that have a presence in Europe that exists in the US with, you know, folks working in or call it international and the answer is this is both that coupled also with a lot of our.

Yes.

A couple of comments on the macro and certainly metro continues to be pretty positive.

Unemployment rates continue to be near decade lows here in United States.

Rental rates around the world continue to be quite low.

The discussion about whether or not we're going to be in a recession.

Mark for recession, so soft landing is pretty much.

Maria Black: But I would say best of breed offerings in international. So we see growth opportunity really across the board and international and that that's everything from the down market, which we're going after now with this new product offering of roll. So we see it in SMB space. We see it in our best of breed best of breed space. And we also see it in our global M and C space. So really excited about the long term growth opportunity that continues to be international.

What is being anticipated.

Interest rates are expected to peak here in the U S. So I think all things considered things are pretty positive I think the one area that.

We've put in our.

Original guidance for the year and that we continue to we continue to look at is our guidance has in fact contemplated a slowing in pays per control growth.

You mentioned that you've talked about that in the PEO business, but we are confident we are still seeing growth, albeit we are seeing growth at a slower pace than we had previously but once again that was fully contemplated in our original guide for the year.

Maria Black: And while I'm on international, I thought I would just mention because it's important to note. So we did have a very strong quarter with respect to international albeit that quarters, obviously off of a compare. Q one of last year that was less favorable, but it is on the heels of what was a very strong fourth quarter finish in international. And so, you know, all the way around that continues to be incredibly excited and optimistic about what it is that we can go accomplish and continues to build interact in our international offering.

Maria Black: Great. Thanks so much for taking my questions. Thank you.

Okay. That's helpful. Thanks, Don.

My follow up on the PEO, so heard yet.

<unk> are a little bit lighter than you expected to start but you're also calling out I think higher selling expenses impacting the PEO margins here year over year. So can you.

Maybe talk about the puts and takes there driving that dynamic.

Specifically on PEO margins I'll, let Stan.

Originally Brian you mentioned bookings were lighter than expected I think our bookings came in.

Bryan Bergin: Our next question comes from Bryan Bergin with TV Cohen. Please go ahead. Hi, good morning. Thank you.

Kingston and pretty good is really as I mentioned, yes, I think I think he is referencing the comment I made around PEO bookings was slightly lighter than expected by the way is still higher than es, which we expect to be the case throughout the balance of the year. So that that's the kind of nuanced.

Maria Black: So, Maria, I was hoping if you can comment on just how you're seeing the overall macro situation evolve and maybe how that may affect demand and if you can specifically unpack that within the ES segment, maybe talk about some of the areas that came better than you expected versus any areas that may have been lighter or down tech versus the part quarter. Absolutely. Good morning, Bryan. So, happy to comment on what we saw in the first quarter with respect to the overall performance of booking but also the demand.

Definitely get there. Another question. There you also have exciting higher selling expenses impacting the PEO margins. So it seems like there's a bit of a disconnect. There I'm just trying to understand that.

So we had planned the year to talked about growth being stronger in the second half book.

Bookings are solid margins in the first half and certainly we have seen some investments and some higher selling expenses and we will see in the first half than we will in the second half.

Maria Black: So, I'll kind of start with the overall performance. I mentioned in the opening comments, we did see strength, continued strength in our down market. It's really excited about that. I also saw tremendous strength in our compliance solutions offering. So, think of it as all the stuff that his compliance tax thinks of that nature. So, we're pleased with what we saw with respect to our new business booking. Those are the two that really outperformed and it's exciting to see because really that entire down market offering and that's everything from our run offering to retirement services, insurance services.

Nothing really surprising a little bit.

A little bit off but certainly were in line with what we expected.

Okay. Thanks.

Thank you. Our next question comes from James Fawcett with Morgan Stanley. Please go ahead.

Great. Thanks, I wanted to ask just a couple of quick follow up questions.

Maria Black: We continue to see tremendous strength there. We saw that all of last year and definitely the finish last year and it makes me happy because it's a lot of the places that, well, good performance makes me happy regardless but it's a lot of the places where we've been making meaningful investments both in the product as well as the distribution. So, excited to see the continued performance there and the outperformance. The overall results do keep us in line with our four-year guide. So, excited to confirm that again here today.

First I think.

The comment was made.

You're still anticipating a bit worse performance in terms of out of business rates on a go forward basis, but to date those have been a little bit better than you had anticipated.

I'll provide some detail as to what Youre seeing.

Why do you think we're seeing better.

Et cetera.

Survival rates and.

Kind of the things you may be looking at as indicators that that could get worse on a go forward basis.

Don McGuire: In terms of the overall demand environment and I feel like I've been saying this quarter to quarter but we're not really seeing any major changes in demand. The demand is still strong, demand is still healthy. We see that in our bookings results. There are all sorts of other indicators that we look at in terms of pipelines in the up market, in the mid market. Certainly in the down market we're looking at things such as the new appointments and kind of activity, excuse me, activity measures to really give us a guide on whether demand is strong and I would tell you pipelines are healthy year-on-year and certainly activity is healthy and so we don't see a big demand change.

Demand continues to be strong and the economy overall and I think thats supporting tends to be this view that we're not going to enter into a recession that test is going to be a soft landing. So I think the strong demand environment, particularly the consumer demand is keeping small business afloat.

So when you also look at what we're seeing in terms of new business formations. There seems to be continued strength in new business formations. So generally I would say that the environment irrespective of the higher interest rates. The environment continues to be favorable for small business and I think thats translating itself into what looks to be lower other business.

Don McGuire: Again, this quarter in fact, you know, kind of the opposite stepping into the quarter on the heels of the strong September, we feel really good about where pipelines sit year-on-year, which again is giving us the other confidence in the full-year guide. As always, though brine, we continue to keep an eye on the macro, we continue to keep an eye on our global space and international and making sure that we're understanding both any macroeconomic changes coupled with any demand environment I could shift, given everything kind of going on in the world, if you will. So that's a current story on kind of pipelines demand on the quarter.

Then contemplated now we have continued as we said in our original guide and as we.

Reiterate or update here today, we have continued to think that we will see a little bit more normalization.

Business. So we would have contemplated that but we think we are getting closer to.

To where we think we're going to plateau kept bottom there. So I think we're very close.

Once again I can just comes back to demand environment. It tends to be supporting the economy more broadly and more generally in small businesses benefiting from that as well.

Don McGuire: Yeah, maybe if I get a couple comments on the macro, certainly the macro continues to be pretty positive. On an unemployment rate, continue to be near decade lows here in the United States. On an unemployment rate around the world, can you do quite low? So, the discussion about whether or not we're going to be in a recession, the odds are now not for recession. So, soft land is pretty much what is being anticipated.

I think if I may I think the only thing I would add is that it's still very early in the year right. So when I think about retention. We did have a record level in fiscal 'twenty. Three we were near that record level of year before we were at that record level the year before that and so we've had this tremendous strength and I think Don spot on in terms of all the reasons from a macro perspective that we've had that.

<unk> in terms of client retention and so as that normalizes. We believe it's still prudent for us to have the retention guide that we have which is really a byproduct of how we plan the year in the back half. So I think I got the court. The question last quarter and saw the answer are proactively this quarter, which is are we are we just being conservative and I think the answer.

Don McGuire: Interest rates are expected to be a key tier in the US, so I think all things considered things are prepositive. I think the one area that we put in our, you know, original guidance for the year and that we continue to, we continue to look at is our guidance had in fact contemplated the slowing and pace. For control growth, we're going to mention that and talked about that in the PEO business, but we are confident we are still seeing growth, albeit we are seeing growth at a solar pace, and we had previously, but once again, that was fully contemplated in our original guide for the year.

To that question is it's still early in the year and so if we do continue to outperform.

Retention in the way that we outperformed in the first quarter, we hope that we will outperform for the full year. It's just early to take away that conservatism sitting here just three three short months into a very long year.

Yes, yes, and then so.

Don McGuire: Okay, that's all, thanks done. My follow up on the PEO. So, so heard you the bookings are a little bit lighter than you expected to start, but you're also calling out, I think, higher selling expenses impacting the PEO margins here, you're aware of your second maybe talk about the puts and take their driving that dynamic. Specifically on PEO margins. Well, no, but I think originally Brian, we mentioned that bookings were lighter than expected.

I wanted to go back to kind of a headline related question.

You saw that you saw.

I understand that you had seen kind of a 25000 sequential improvement and retirement services.

For clients.

You alluded to some state mandates there, particularly around secure <unk>.

Don McGuire: I think our bookings came in. Bookings can in pretty good as well as mentioned. Yeah, I think I think he's referencing the comment I made around PEO bookings. Let's slightly lighter than expected. By the way, it's still higher than ES, which we expect to be the case throughout the balance of the year. So that was that's the kind of nuanced. The question there, you're also citing higher selling expenses impacting the PEO margins.

Can you talk a little bit about what state mandates, you've seen or that may be impacting that business work for how long before we start to see benefit in our retirement services post the new state mandates. So.

Maybe we can help.

Jack headlines and anticipate like how big of an impact.

New requirements may have.

Don McGuire: So it seems like there's a bit of a disconnect there just trying to understand that. Yeah, so we we have planned the year to talk about the growth being stronger in the second half in bookings or sorry margins, then in the first half and certainly we have seen some investment in some higher selling expenses in and we'll see in the first half then we will in the second half, but nothing really surprising. A little bit a little bit off that certainly we're alive before we expected.

Absolutely.

I've spoken quite a bit to retirement services as well as the secure act over the last year or so and I will tell you I was excited to report the new milestone today.

Don McGuire: Okay, thanks.

In part because that business continues to show strength, but also because it's a business that I know is adding tremendous value into the world of work and so it is an exciting time it does come as a byproduct of the offering the investments we've made into the offering and also these state mandates some of which are anchored into the secure act at the federal level.

Don McGuire: Thank you.

James Faucette: Our next question comes from James Fawcett with Morgan Stanley. Please go ahead. Great. Thanks. I wanted to ask just a couple of quick follow up questions. First, I think the comment was made that you're you're still anticipating a bit worse performance in terms of out of business rates on a go forward basis, but today those have been a little bit better than you had anticipated. Okay, if you help provide some detail as to what you're seeing why you think we're seeing better, better, you know, survival rate and kind of the things you may be looking at as indicators that that could get worse on a go forward basis.

Some of which are anchored state by state candidly I could probably spend an hour with you and go state by state in terms of all the various mandates.

We see over the next year or so is the thresholds of companies that need to add.

To comply with the state mandate starts to creep into call. It the further down market if not the micro market and so as all of these states and a lot of them being on the West Coast. If you are looking for headlines tracking states like California as they continue to pull down at what at what level do you need.

To comply with the state mandates and are the secure act the more opportunity we will have to ensure that we're helping our clients solve for this piece to keep them compliant, but again back to doing good in the world. It is also something thats, bringing the value to each one of these.

James Faucette: Yeah, demand continues to be strong in the economy overall, and I think that supporting what tends to be this view that we're not going to enter into a recession that that's just going to be a soft lining. So I think that strong demand environment particularly consumer demand is keeping small business afloat. So when you also look at what we're seeing in terms of new business formations, there seems to be continued strength in new business formation.

Employees that are engaging with these clients so.

I appreciate that color.

Thank you. Our next question comes from Bryan Keane with Deutsche Bank. Your line is open.

Okay.

Hi, guys. Good morning, just wanted to ask about the decline in PEO.

James Faucette: Christians. So generally, I would say that the environment, irrespective of the higher interest rates, the environment continues to be favorable for small business, and I think that's translating itself into what looks to be lower out of business than contemplated. Now, we have continued as we said in our original guide, and as we will reiterate our update here today, we have continued to think that we will see a little bit more normalization in other business, so we'd have contemplated that.

Looking at the employee base of PEO declining versus not necessarily the case it looks like almost the opposite.

In the employer services, so just trying to think about the trends.

And does typically the trend you see in PEO bleed into employer services and why maybe it's been a little bit weaker for pays per control, there and PEO versus employer.

Yes, so just to clarify pays per control in PEO is actually higher we don't give that number but it is actually higher than employer services. So I think the first piece suggest is that.

James Faucette: But we think we are getting closer to where we think we're going to plateau or kept bottom there, so I think we're very close, and once again, I think it just comes back to the demand environment, it tends to be supporting the economy more broadly and more generally, and small businesses benefiting from that as well.

The basis are actually just different right. So if you look at the pace per control across the broader ADP, it's really a reflection of the mix of industries as I mentioned earlier, the PEO tends to skew by design by the way for the offering it's really the offering is the most valuable if you will to the cohorts that we offer to which tends to be more professional <unk>.

Maria Black: Yeah, I think if I may, I think the only thing I would add is that it's still very early in the year, right? So when I think about retention, we did have a record level in fiscal 23, we were near that record level a year before, we were at that record level the year before that, and so we've had this tremendous strength, and I think Don spot on in terms of all the reasons from a macro perspective that we've had that strength in terms of client retention.

<unk> tech oriented companies that want to offer employers are their employees benefits of choice. If you will to be employers of choice and so that skews that base slightly.

Maria Black: And so as that normalizes, we believe it's still prudent for us to have the retention guide that we have, which is really a byproduct of how we plan the year in the back half. So I think I got the question last quarter, and I'll answer proactively this quarter, which is, are we just being conservative, and I think the answer to that question is it's still early in the year. And so if we do continue to outperform retention in the way that we outperform in the first quarter, we hope that we will outperform for the full year. It's just early to take away that conservatism, sitting here just three short months into a very long year.

Differently than the overall than what we're seeing within the PEO base is a delineation between those cohorts and the rest of the base. If you will so we cited in the prepared remarks, but the deceleration that is happening at the PEO is still.

A byproduct of within that base, having professional services intact decelerating at a faster clip than the rest of the base. So to answer your question does a bleed across I think we're already hearing these headlines in the market in terms of.

And we see it within our own ADP Research Institute data with respect to professional services and tech hiring being in a different position than the rest of the market. So I think I would suggest that's already been bleeding across if you look at the last couple of quarters of that by the way that also track BLS data shows the same thing you see it in wages.

Maria Black: Yeah, yeah, and then I want to go back to a kind of a headline related question. You saw that you saw, are you indicated that you had seen kind of a 25,000 sequential improvement in retirement services and for clients, and you alluded to some state mandates there, particularly around secure act 2.0. Can you talk a little bit about what state mandate you've seen, or maybe impacting that business or for how long before we start to see benefit and retirement services post a new state mandate.

And so all of that to suggest I would say the trend we're seeing in the PEO is already in the macro but the basis are slightly different which is why you would feel the impact of it perhaps more significantly in the PEO PPC than you would in the broader PBC that was a mouthful by the way.

No that was helpful. Thanks for that clarification and then the other question I. Just had is the strength you saw in the Es new bookings.

Maria Black: So maybe we can help track headlines and anticipate like how big of an impact any new requirements may have. Absolutely, so I think I've spoken quite a bit to retirement services as well as the secure act over the last year or so, and I will tell you, I was excited to report the new milestone today in part because that business continues to show strength, but also because it's a business that I know is adding tremendous value into the world of work.

Especially in September and the way the pipeline looks but youre not changing the total outlook of 4% to seven just trying to figure out.

Do you feel like you guys are maybe trending if things hold trending above the guidance range for bookings given the strength you saw in September and the pipeline and for SMB strength in the quarter.

Maria Black: And so it is an exciting time. It does come as a byproduct of the offering, the investments we've made into the offering, and also these state mandates, some of which are anchored into the secure act at the federal level, some of which are anchored state by state. Candidly, I could probably spend an hour with you and go state by state in terms of all the various mandates. What we see over the next year or so is the threshold of companies that need to comply with the state mandate starts to creep into, call it the further down market if not the micro market.

Yeah, what I would offer is that I am incredibly pleased with our results in the first quarter, especially on the heels of what was an incredible finished last year and so the pattern that we saw in the first quarter on the strength in the September is not a typical of the pattern. We see in the first quarter on the heels of an.

<unk> strong fourth quarter, and so I am excited about the <unk> first quarter results and excited about the strength in September but the excitement is actually less about call. It the the finish in September and more about what we see on the year on year demand environment, what we see in activity, what we see stepping into this next quarter and that does give us <unk>.

Maria Black: And so as all these states, a lot of them being on the west coast, if you're looking for headlines, tracking states like California, as they continue to pull down at what level do you need to comply with the state mandate and or the secure act, the more opportunity we will have to ensure that we're helping our clients solve for this piece of compliance. But again, back to doing good in the world, it's also something that's bringing the value to each one of these employees that are engaging with these clients. I appreciate that color. Thank you.

<unk> into our full year guide at that four to seven what I would also offer though is it's a long year and when you think about where the skewing. If you will or the contribution of new business bookings happens for us on a full year basis. It is in that third and fourth quarter are much larger than the first and second quarter.

So we believe it's prudent to given the line of sight that we have today, just a quarter end.

But we feel confident in the guide we're excited about four months, we're excited about how we're stepping into the quarter. The second quarter that is but we also still have an entire year ahead of us.

Bryan Keane: Our next question comes from Bryan Keane with Deutsche Bank. Your line is open. Hi guys.

Got it thanks for taking the questions.

You bet. Thank you.

Thank you. Our next question comes from Ramsey El <unk> with Barclays. Please go ahead.

Bryan Keane: Good morning. Just wanted to ask about the decline in PEO. Looking at the employee base of PEO declining versus not necessarily the case looks like almost the opposite in the employer services. So just trying to think about the trends and does typically the trend you see in PEO bleed into employer services and why maybe it's been a little bit weaker for pace control there in PEO versus employer. Yeah. So just to clarify, pace for control in PEO is actually higher.

Hi, Thanks for taking my question.

Would you give us your latest thoughts on the competitive environment in PEO and how that sort of evolving over time I think there's so much slower than historical growth across the industry are there any signs that the market is.

And with providers or is there any competitive are related to <unk> performance.

I would suggest.

That the PEO ASO.

Conversation, if you will our PEO HR outsourcing offerings.

Continues I don't know that Theres anything new to report Ramsey I think from my vantage point, it's always been a very competitive environment. We all have slightly different from one another I think we've talked a lot about <unk> today and the way that it's skewed to professional services and Tech I think you have others.

Bryan Keane: We don't give that number, but it is actually higher than employer services. So I think the first piece to suggest is that the bases are actually just different. Right. If you look at the pace for control across the broader ADP, it's really a reflection of a mix of industries. As I mentioned earlier, the PEO tends to skew by design, by the way, for the offering. It's really offering is the most valuable, if you will, to the cohorts that we offer to, which tends to be more professional services, tech oriented companies that want to offer employers or their employees benefits of choice, if you will, to be employers of choice.

Bryan Keane: And so that skews that base slightly differently than the overall. And what we're seeing within the PEO base is a delineation between those cohorts and the rest of the base, if you will. So we cited it in a prepared remarks, but the deceleration that is happening at the PEO is still a byproduct of within that base having professional services and tech decelerating at a faster clip than the rest of the base.

That's skewed to different types of industry. If you also have other PEO that perhaps are a bit more downmarket, we tend to skew a little bit more upmarket than some and so I think all the PEO looks slightly different I think we all know our models are also not identical in terms of how we actually go to market.

Whether it's through the strength that we have and the competitive advantage of being able to have adp's client base contribute about 50% of those upgrades.

So I think how we go to market our models never mind the models of <unk>.

Fully insured to self insured et cetera, I think similar trends are within the ASO offerings are some refer to them as the <unk> offerings and so I think within there you also have various models in various go to markets in terms of the some competitors, perhaps perhaps have some flexibility or more movements between <unk>.

Bryan Keane: So to answer your question, does it bleed across? I think, you know, we're already hearing these headlines in the market in terms of, and we see it within our own ADP research institute data with respect to professional services and tech hiring, being in a different position than the rest of the market. So I think I would suggest that's already been bleeding across. If you look at the last couple quarters of that, by the way, that also track the BLS data shows the same thing.

ASO and PEO than I think we've cited in the past and so I think all of that to suggest I think the competitive environment is about the same and remains I think I am optimistic and expect growth in both our PEO bookings as well as our <unk> and ASO offerings throughout the <unk>.

Bryan Keane: You see it in wages and so all of that to suggest, I would say the trend we're seeing in the PEO is already in the macro, but the bases are slightly different, which is why you would feel the impact of it, perhaps more significantly in the PEO PPC than you would in the broader PPC. That was a mouthful, by the way. No, that was helpful though. Thanks for that clarification. And then the other question I just had is the strength you saw in the ES new bookings, especially in September and the way the pipeline looks, but you're not changing the total outlook of 4 to 7.

<unk> of this year and so I think we remain very very excited and optimistic about the growth of.

Those all of our HR outsourcing offerings, both in this year as well as the long term.

Okay.

So up for me can I ask you to revisit the comments you.

You made about higher selling expenses and <unk>, what does that mean exactly and also just I wanted to make sure I understood that Don mentioned that those there are some expectations guys may continue, but theyre still in essence sort of a nonrecurring.

Step up in expenses, it's not a permanent step up in expenses in the segment.

Yes, we saw higher selling expenses in Q1 for the PEO and we expect to see higher selling expenses.

Bryan Keane: And just trying to figure out, you know, do you feel like you guys are maybe trending if things hold trending above the guidance range for bookings, given the strength you saw in September and the pipeline and for SMB strength in the quarter. Yeah, but I would offer is that I'm incredibly pleased with the results in the first quarter, especially on the heels of what was an incredible finish last year. And so the pattern that we saw in the first quarter and the strength in September is not a typical of the pattern we see in the first quarter on the heels of an incredibly strong fourth quarter.

Year over year in the first half, but we do think that that's going to settle down.

Into the second half so we're not looking at the kind of growth that we saw last year I think we've commented quite extensively on the.

Many many salespeople we've added into the business last year and had great success allowed us to finish the year. The way we did so those folks are in place. So we are continuing to add some sellers, we will add bill most of those sellers in the first half and it is important also I think called out here than what we're seeing with <unk>.

Bryan Keane: And so I am excited about the the first quarter results. I am excited about the strength in September, but the excitement is actually less about call it the definition September and more about what we see on the year on year demand environment, what we see in activity, what we see stepping into this next quarter and that does give us confidence into our full year guide at that 4 to 7. What I would also offer though is it's a long year and when you think about where the skewing, if you will, or the contribution of new business bookings happens for us on a full year basis.

Our sellers is that we are getting much better retention within the subtle community. So we are hoping and expecting to benefit from the improved tenure.

Should see from the selling organization as we go through the balance of this year.

I got it so is head count related primarily that makes a lot of sense. Thanks. So much I think its a timing thing I think thats the us.

Got it.

Thank you. Our next question comes from Jason Kupferberg with Bank of America. Please go ahead.

Bryan Keane: It is in that third and fourth quarter are much larger than the first and second quarter. And so we believe it's prudence given the line of sight that we have today just a quarter in. But we feel confident in the guide, we're excited about performance, we're excited about how we're stepping into the quarter, the second quarter that is, but we also still have an entire year ahead of us.

Good morning, guys just stay on PEO for a second.

And maybe if we can just refresh a little bit here I'm, just thinking back to the analyst day two years ago. We thought it was a medium term, 10% to 12% grower now it's two to three at the moment.

There was definitely some post COVID-19 normalization, but maybe just.

Marie if you want to take us back to the dynamics in terms of just how the business has evolved from your perspective and is there a potential path back to double digit growth for this business. If the macro is a little bit more cooperative.

Ramsey El: Thank you for taking the questions. Thank you.

Ramsey El: Our next question comes from Ramsey, Ellis out with Barclays. Please go ahead. Hi, thanks for taking my question.

Ramsey El: Could you give us your latest thoughts on the competitive environment and PEO and have that sort of evolving over time? I think there's somewhat slower than historical growth across the industry. Are there any signs that the market is saturated with providers? Is there any competitive overlay to PEO performance? I would suggest that the PEO ASO conversation, if you will, or PEO HR outsourcing offerings kind of continues. I don't know that there's anything new to report Ramsey.

Yeah.

Yeah. So.

I'll, let don kind of speak to the medium term targets and kind of the path back, but I think from my vantage point and I said it earlier today, but step one is the continued reacceleration of bookings and so this is the third quarter that we're pleased and we did have a solid.

Contribution of PEO bookings to their overall bookings picture in this quarter that was the case last quarter. It was the case the quarter before and I think the reason that I go to that it's not just because it's the piece that will accelerate the growth in pass us back to what our long term goals and medium term targets are for that business I think it's also because of.

Ramsey El: I think from my vantage point, it's always been a very competitive environment. We all have slightly different PEOs from one another. I think we talked a lot about ours today and the way that it skews to professional services and tech. I think you have others that skew to different types of industry. If you also have other PEOs that perhaps are a bit more down market, we tend to skew a little bit more upmarket than some.

Ramsey El: And so I think all the PEOs look slightly different. I think we all know our models are also not identical in terms of how we actually go to market, whether it's through the strengths that we have in the competitive advantage of being able to have 80 PEOs client-based, contribute about 50% of those upgrades. So I think how we go to market our models, never mind the models of fully insured to self-insured, etc.

It speaks to the demand environment speaks to the value proposition and the strength of that offering thats still exists in the market and so I think that's a big piece of it I think step two is the continued acceleration reacceleration of retention. So I mentioned that retention has been stable and as we accelerate retention.

Into that growth that also will contribute to obviously the revenue and then last but not least Jason you mentioned it the macro headwinds and I think I talked about the last couple of quarters, how thats been the post pandemic.

Call it nuances that impacted that business I think we talked a lot about the renewal over the last couple of quarters now we're seeing these trends in PBC My view would be that all of the post pandemic waves that had been call it flowing through the PEO and all the variables.

Ramsey El: I think similar trends are within the ASO offerings or some referred to them as HRO offerings. And so I think within there, you also have various models and various go-to markets in terms of the, you know, some competitors perhaps have some flexibility or more movements between ASO and PEOs. And I think we've cited in the past. And so I think all that to suggest, I think the competitive environment is about the same and remains.

That make up that model.

We're still seeing some of those case in point being really call. It the reversion of what we saw.

Several quarters ago, which was when professional services intact with in a massive hiring boom now we're seeing the opposite of that right. So I think we still have some of these waves kind of shuffling through or.

Ramsey El: I think I am optimistic and expect growth in both our PEO bookings as well as our HRO and ASO offerings throughout the balance of this year. And so I think we remain very, very excited and optimistic about the growth of those, all of our HR outsourcing offerings both in this year as well as the long term. Got it. Okay.

Whether or <unk>.

Going through flowing through the PEO and if.

If and when the macro changes with respect to that that certainly will help reaccelerate that business as well so in terms of the.

The path back ill, let Dan kind of speak to the other medium term targets, yes, I think <unk> covered it very comprehensively there I would say that when we established the midterm targets I think a lot of things have changed since then certainly the inflation environment.

Don McGuire: And a follow-up for me, could I ask you to revisit those comments that you made about higher selling expenses in PEO? What does that mean exactly? And also just I wanted to make sure I understood that Don mentioned that those, there's some expectations those may continue, but, but there's still an essence sort of a non-recurring, you know, step up and expenses. It's not a permanent step up in, you know, in expenses and the segment.

We've seen in particular, and where you just mentioned professional services and technology, we saw incredible growth in <unk>.

Those sector in those segments and growth to be all of what we thought we are what we have predicted this midterm targets or spoken to I think now we're seeing some diversion, we do though continue to be incredibly positive about that business. We think it definitely has a place and.

Don McGuire: Yeah, we saw higher selling expenses in Q1 for the PEO and we expect to see higher selling expenses year over year in the first half. But we do think that that's going to settle down into the second half. So we're not looking at the kind of growth that we saw last year. I think we commented quite extensively on the many, many sales people we added into the business last year and had great success and allowed us to finish the year the way we did.

We think that we will make our way back but as I also said, it's a little bit early too.

<unk> forecast when we think we're going to get back to some of those midterm target growth areas that we had.

Discussed.

Understood. That's good color just a follow up on flu yield it looks like it was actually ticked down slightly quarter over quarter during Q1.

Don McGuire: So those folks are in place. So we are continuing to add some sellers. We will add the most of those sellers in the first half. And it's important just also, I think, call out here that what we are seeing with our sellers is that we are getting much better retention within the seller community. So we are hoping and expecting to benefit from the improved tenure that we should see from the selling organization as we go to the balance of this. Thank you. I got it. It's head count related primarily. That makes a lot of sense. Thanks so much. Yeah, I think it's a timing thing. I think that's the, uh, got it. Thank you.

At a higher rate environment, but just curious what the callouts might be there.

Hey, Jason Thats as it relates to the mix between short term and extended and long. So in Q4, we were a little more levered to overnight.

Partly because of.

Debt ceiling issue, we had so we deliberately skewed shorter duration, but in a typical Q1.

Generally have a lower short portfolio and so there is seasonality in the average balance wouldn't read much into it year over year numbers that much more relevant metric.

Thanks, guys.

Jason Kupferberg: Our next question comes from Jason Kupferberg with Bank of America. Please go ahead. Good morning, guys. Um, just staying on PEO for a second. And maybe if we can just refresh a little bit here, I'm just thinking back to the analyst day two years ago, we thought it was a medium term 10 to 12 percent grower. Now it's two to three at the moment.

Thank you.

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

Hey, good morning, forgive me for asking another clarification on the PEO side, just with the slight.

Slight softness in the bookings also.

Related to the PFS and tech sector and also with the Pittsburgh control within PEO is that more of a health care participation issue or just labor weakness in those sectors.

Maria Black: Um, there was definitely some post-COVID normalization, but maybe just, you know, Maria, if you want to take us back through the dynamics in terms of just how the business has evolved from your perspective, and, and is there a potential path back to double digit growth for this business, if the macro is a little bit more cooperative. Yeah, so, um, I'll let's all kind of speak to the medium term targets and kind of the path back, but I think, you know, from my advantage, and I said it earlier today, but step one is the continued re-exceleration of bookings.

I really apologize you actually bleeped out during the first part of your question would you mind just repeating yes, there was a word missing so.

I, probably didn't ask it very well just just wanted to make sure the bookings softness on the PEO side was that also in the professional services.

And tech sectors, and then also just on the basic controls the labor weakness or health care participation.

Maria Black: And so this is the third quarter that we're pleased and we did have a solid, uh, you know, contribution of PEO bookings through the overall booking picture in this quarter. That was the case last quarter, it was the case the quarter before. And I think the reason that I go to that, it's not just because it's, it's the piece that will accelerate the growth and pass us back to what our long term goals and medium term targets are with, with four.

Yes, listen so I'm glad you're asking this question actually because I just wanted to reiterate.

We were very pleased with our PEO bookings and so there wasn't softness there was strength in growth in the in the PEO.

Quarter bookings in terms of how we skew the year. It was slightly lighter than we had positioned our planning which is why it contributes the way that it does to the overall works unemployed growth, but again the worksite employee deceleration is really about the PTC story and so I just wanted to reiterate we were actually very pleased with.

Maria Black: That business, I think it's also because it speaks to the demand environment, it speaks to the value proposition and the strength of that offering that still exists in the market. And so I think that's a big piece of it. I think step two is the continued acceleration re-exceleration of retention. So I mentioned that retention has been stable. And as we accelerate retention back into that growth, that also will contribute to obviously the revenue.

The quarter from a bookings perspective in terms of the industries I think it's a mix I think we continue to see.

The PEO execute with respect to the industries that we target which tend to be in to those categories.

Maria Black: And the last but not least, Jason, you mentioned it, you know, the macro headwinds, and I think I talked about the last couple quarters, how that's been the post-pandemic, call it nuances, that impact of that business. I think we talked a lot about the renewal over the last couple quarters. Now we're seeing these trends in PPC. My view would be that all of the post-pandemic waves that have been, call it flowing through the PEO and all the variables that make up that model are, we're still seeing some of those cases.

As it relates to <unk>.

Comment around kind of within the PEO.

Okay.

Deceleration that is happening faster than professional services and technology.

The broader base of the PEO again, I don't want to give kind of the numbers of what that is but it isn't like the entire base of sitting in professional services. It's just that subset if you will.

The base and it is really again kind of triangulates to the the macro that we're seeing and.

Maria Black: At some point, being really, call it the reversion of what we saw several quarters ago, which was when professional services and tech was in a massive hiring boom. Now we're seeing the opposite of that, right? So I think we still have some of these waves kind of shuffling through, or whether or going through, flowing through the PEO. And if, and when the macro changes with respect to that, that certainly will help re-excelerate that business as well.

The same type of data is coming out of the ADP Research Institute out of the BLS and it's really about hiring so it's less about call. It lay offs and Thats really where the professional services and tech industries were doing massive hiring call. It a year ago six quarters ago, It's really a lack of <unk>.

Hiring that's happening in those in those businesses that I answer that question.

Got it thanks.

Thank you and just on the participation piece of it.

Don McGuire: So in terms of the path back, I'll let Don kind of speak to the medium term targets. Yeah, I think Maria covered it very, very comprehensively there. I would say that when we establish the midterm targets, I think a lot of things have changed since then, certainly the inflation environments, and that we've seen in particular, and we just mentioned professional services and technology, we saw incredible growth in those segments and growth beyond what we thought we, or what we have predicted in the midterm targets, or spoken to.

Pay per control wouldn't be impacted by participation rate.

The reported revenue would be so to the extent workers are taking plans cheaper plans or fewer plan, maybe a little bit of that you do see it in the revenue per WSB, but the WCS themselves would you be impacted.

Thank you Jamie I didn't ask it well thats perfect. That's what I was looking for.

We get questions around pricing as well that's why I was asking you about the participation side of things.

Don McGuire: I think now we're seeing some reversion. We do, though, continue to be incredibly positive about that business. We think it definitely has a place, and we think that we will make our way back, but as Maria also said, it's a little bit early to forecast when we think we're going to get back to some of those midterm target growth areas that we had discussed.

If there's a difference there it sounds like it isn't on the.

International Front, just my quick follow up just I think Sweden.

On the call out in terms of acquisition wise, Sweden important to own them.

As familiar with with some of the specific countries that you're targeting and I'm curious if this is just part of May.

Jason Kupferberg: Under said, that's, that's good color.

Don McGuire: Just to follow up on float yield, it looks like it was actually a tick down slightly quarter over quarter hearing Q1, you know, amid a higher rate environment, but just curious what the call outs might be there. Hey Jason, that just relates to the mix between short term and extended in long. So in Q4 we were a little more levered to overnight. Partly because of this debt ceiling issue, we had to we deliberately skewed shorter duration, but in a typical Q1, we would generally have a lower short portfolio. And so there is even a holiday in the average balance, which would be much into it. The year over here number is the much more relevant metric.

Maybe a broader plan to.

Aggregate international payroll.

Absolutely so listen I have to take this question because I think you may know that I'm actually I was born in and partially raised in Sweden. So I thought it was prudent to.

Jason Kupferberg: Thanks, guys.

To make it the very first country that I announced.

I'm actually completely kitting and this was obviously well in motion before my time, but it sounds like it might be closer to Sweden EUR.

Tianjin Huang: Thank you.

And for US It is an exciting time for US we have had this partnership with BTR for quite some time for us to be able to acquire the payroll business of BTR.

It's exciting because the nordics are growing and this does give us a physical footprint into Sweden, which allows us to expand further into the nordics and really take advantage of the growth trajectory of those economies.

Tianjin Huang: Our next question comes from Tianjin Huang with JP Morgan. Your line is open. Hi, good morning. Forgive me and ask another clarification on the PEOs. Just with the site was the site's office and the bookings also related to the PS and tech sectors and also with the pace for control within PEO. Is that more of a healthcare participation issue or just labor weakness in those sectors? I really apologize. You actually bleeped out during the first part of your question.

Obviously payroll, but also in the beyond payroll opportunities that we will have in years to come so really excited about the acquisition not just because it's near and Dear to my heart, but Moreover, because the nordics represent growth and it's exciting to think about us having a physical presence there.

Tianjin Huang: Would you mind just repeating, yeah, the word missing. Oh, no, no, I probably didn't ask you very well. Just just wanted to make sure the booking softness on the PEOs that was that also in the professional services and tech sectors. And then also just on the pace for control with the labor weakness or healthcare participation. Yeah, listen, so I'm glad you're asking this question actually because I just want to reiterate, we were very pleased with our PEO bookings.

Okay.

Thank you.

Thank you. Our next question comes from Dave Hogan with Evercore ISI Your line.

Thank you good morning, you called out strengths and yes bookings, particularly in the small business market with Ron could you provide some texture into the bookings trends you saw in mid market with workforce now in the upmarket with enterprise.

Tianjin Huang: And so there wasn't softness. There was strength and growth in the PEO quarter bookings in terms of how we skewed the year. It was slightly lighter than we had positioned our planning, which is why it contributes the way that it does to the overall work site employee growth. But again, the work site employee deceleration is really about the PPC story. And so I just want to reiterate, we were actually very pleased with the quarter from a PEO bookings perspective.

And any any insights you have into international bookings in the quarter would also be appreciated.

Absolutely so.

So yes, we did have great strength in the down market is kind of moving moving on up in the mid market.

Certainly we have continued solid demand in the mid market. That's inclusive of our workforce now platform is also inclusive of our HR outsourcing offerings I spoke a bit about the ASO models <unk> models earlier.

That mid market also support is supported by the PEO. So we do see continued demand from the mid market I think the way I always think about it it's not getting any easier for companies in that mid market to navigate being an employer today and so we expect continued strong mid market growth I think in the upmarket.

Tianjin Huang: In terms of the industries, I think it's a mix. I think we continue to see the PEO execute with respect to the industries that we target, which tend to be into those categories. As it relates to this comment around kind of within the PEO, the deceleration that is happening faster in professional services and technology versus the broader base of the PEO. Again, I don't want to give kind of the numbers of what that is, but it isn't like the entire base is sitting in professional services.

I asked about the enterprise space one of the Callouts, we made last quarter was about the strength that we saw in our next generation.

HCM offering and we did see that strength continue into this quarter, which we think is fantastic. We also see strength in the pipelines in that space year on year.

So excited about what we're hearing from our clients the sentiments around the offerings that we have in the in the enterprise space and then I think I touched a little bit on international earlier.

Tianjin Huang: It's just that subset, if you will, of the base. And it is really, you know, again, kind of triangulates to the macro that we're seeing. And the same type of data is coming out of ADP research institute out of the BLS. And it's really about hiring. So it's less about call it layoffs and it's really where the professional services and tech industries were doing massive hiring. Call it, you know, a year ago, six quarters ago, it's really a lack of hiring that's happening in those businesses.

But our international business did grow nicely in the first quarter again, it was the benefit of a little bit of an easier compare year on year, but we also had as I mentioned, a really strong finish and a strong fiscal 'twenty three and our international business.

Again, what I measure is partly the result, but as I think about the look forward, it's really about pipelines and what I would say our international pipelines year on year.

I have a fair amount higher than they did a year ago, which gives us the strength to.

Tianjin Huang: Did I answer that question? Yeah. Not just that, you know. Attention, just on the participation piece of it, the pace for control wouldn't be impacted by a participation rate, but the reported revenue would be. So to the extent workers are taking plans, cheaper plans or fewer plans, there's a little bit of that. You do see it in the revenue per WIC, but the WIC then sells wouldn't be impacted. Thank you, Danny. I didn't ask it. Well, that's perfect. That's what I was looking for.

So really feel good about our international.

Bookings to remain healthy through fiscal 'twenty four.

Thanks for that just as a quick follow up.

John you called out part of the 90 basis point margin decline in PEO being traced to a difficult comparison on workers' compensation reserve adjustments year ago can you quantify for us how large those work.

We think through the margin comparisons for Q2, Q3, and Q4 of FY 'twenty four and PEO.

Maria Black: So on the, you know, we get questions around pricing as well, as well as asking about the participation side of things and if there's a different stare sounds like it isn't on the international front, just my quick follow up just I think Sweden was the call out in terms of X was acquisition wise Sweden important to own just I'm not as familiar with with some of the specific countries and that you're targeting and I'm curious if this is just part of a maybe a broader plan to. Acrogate international payroll.

Yes, so as you know we've had very favorable reserve releases over the last.

A number of years.

Recall that last year in the K you would assume.

<unk> ability there so just to be clear we are still seeing favorable reserve releases, but we are not seeing we didnt see the reserve release, we expected reduced Q1 to Q1.

Prior year, so the numbers will be in the queue.

But it's.

It's about $6 $2 million less.

Maria Black: Absolutely, so listen, I have to take this question because I think you may know that I'm actually I was born and and partially raised in Sweden, so I thought it was prudent to make it the very first country that I announced. I'm actually completely kidding. This was obviously well in motion before my time, but I it sounds like I might be closer to Sweden than you are. And for us, it is an exciting time for us.

Then it was in the prior year or so that's that's the quantification of it and if you kind of translate that into into the margin its about $60 to $90 60 bps of a 90 bps decline comes from.

The lower reserve release now once again, we think that.

We're going to continue to see reserve releases and were.

Maria Black: We have had this partnership with BC. We are for quite some time for us to be able to acquire the payroll business of BTR is exciting because the Nordics are growing and this does give us a physical footprint into Sweden, which allows us to expand further into the Nordics and really take advantage of the growth trajectory of those economies. So this is obviously payroll, but also in the beyond payroll opportunities that we will have in years to come, so really excited about that position, not just because it's near and dear to my heart, but moreover because the Nordics represent growth, and it's exciting to think about us having a physical presence there. Thank you.

Favorable as the actuaries get back to us and let us know what's happening, but we're not seeing any underlying changes or large changes.

To be any less optimistic about seeing continued releases in the reserve Hey, David sorry, just to clarify it was a $6 million benefit in Q1, which is about 8 million less than the prior year.

Got it thank you very much.

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

Hey, good morning, Thanks for taking my question.

Okay.

Got to see a lot of your new solutions, particularly focused on.

The AI assistant solutions Maria I'm wondering if you could talk a little bit about your philosophy with regards to.

Maria Black: Our next question comes from David Hogan with Evercries side. So you're laughing. Thank you.

Which solutions you would charge additional four.

How are you thinking about monetization.

David Togut: Good morning. You called out strength and yes, bookings particularly in the small business market with run. Could you provide some texture into the bookings trends you saw in mid market with workforce now and then up market with enterprise. And any any insights you have into international bookings in the quarter would also be appreciated. Absolutely. So yes, we did have great strength in the down market kind of moving moving on off in the mid market.

And then I've got a follow up in terms of process improvement.

Sure Good morning, Mark.

I'm pretty excited about all of our new solutions that you would have seen at HR Tech.

So I think I'll take a minute to kind of think or talk through how im thinking about <unk> in general and then I'll tell you how I'm thinking about monetization because I think it will make more sense on the other side, but when I think about Gen. AI I think it will impact everything so the answer is it's going to be everywhere impacting everything that.

David Togut: Certainly we have continued solid demand in the mid market that's inclusive of our workforce now. Platform is also inclusive of our HR outsourcing offerings. I spoke a bit about the ASO models, HRO models earlier in that mid market also support is supported by the PEO. So we do see continued demand from the mid market. I think the way I always think about it. It's not getting any easier for companies in that mid market to navigate being an employer today.

That we do across the entire client lifecycle. So it's about how we develop products.

That's everything from develop our co pilot types of tools that everyone's talking about it's about how gen II will be embedded into our products. It's about how we go to market in modern solar stuff that I've spoken about for years in how we actually have the ability now leveraging gen AI to actually acquire clients and then the most obvious thing how we serve them how we.

David Togut: And so we expect continued strong mid market growth. I think in the up market since we asked about the enterprise space, you know, one of the call outs we made last quarter was about the strength that we saw in our next generation. HVM offering and we did see that strength continue into this quarter, which we think is fantastic. We also see strength in the pipelines in that space here on here. So excited about what we're hearing from our clients, the sentiments around the offerings that we have in the in the enterprise space.

Implement them, how we become more productive and make our clients more productive as we serve our clients and so when I think about Gen AI and I think most most everyone is probably like endesa things like whether it's software or the Internet I think my answer to you is it will be in everything that we do it in the fabric of <unk>.

We become and so in terms of the monetization side I think it's less about.

Charging a pass on a per feature so lets say some of the things I talked about today, which probably doesn't sound that exciting like report writing or if you look at the.

David Togut: And then I think I touched a little bit on international earlier. But our international business did grow nicely in the first quarter. Again, it was the benefit of a little bit of an easier compare year on year. But we also had, as I mentioned, a really strong finish and a strong fiscal 23 in our international business. Again, what I measure is partly the result. But as I think about the look forward, it's really about pipelines.

David Togut: And what I would say are international pipelines here on here have a fair amount higher than they did a year ago, which gives us the strength to really feel good about our international bookings to remain healthy through fiscal 24. Thanks for that. Just as a quick follow-up, Don, you called out part of the 90 basis point margin decline at PEO being traced to a difficult comparison on workers' compensation reserve adjustments year ago.

Earnings release document Youll see in there a job description that's pulled in the screenshot showing role. So these things probably don't sound that exciting, but theyre pretty exciting because they are the seeds of innovation as I used earlier to really show what how Jenny I will interact with everything that we do kind of in the fabric. So said differently Mark.

I don't think.

We're going to be charging.

Partly to get Gen. AI job description written Origen AI report written I think it's really about continuing our innovation journey to a to do all the things we've always done which is really about becoming more productive it's about solving.

Things for our clients and making them more productive and I think that to me the fruits of that labor really end up in new business bookings and they end up and retention and so that's not to suggest that there may not be things, but I don't think it is really to me about.

David Togut: Can you quantify for us how large those were as we think through the margin comparisons for Q2, Q3, and Q4 of FY24 and PEO? Yeah, so as you know, we had a very favorable reserve release releases over the last number of years, and certainly called that last year in the K, you would have seen the favorability there. So just to be clear, we are still seeing favorable reserve releases, but we are not seeing the reserve release of the extent that we did Q1 to Q1 of the prior year.

50, <unk> Pep them here and there to me, it's really about the innovation journey we've been on.

This just allows us to do it at a faster clip and I'm I'm really optimistic and excited about the things that we're seeing in terms of other things that we're measuring we actually have.

The entire organization rallied to engage in these tools, we actually have some some goals that we put out there in terms of by the end of the year, how many of our associates.

Set across sales and implementation and service and technology that are engaging with these tools right now thats sitting at already above 10% of our base of associates that have the ability to touch. These tools are already playing with them I would tell you our entire sales organization, they're chomping at the bit because the digital sales.

David Togut: So the numbers will be in the queue, but it's about $6.2 million less than it was in the prior year, so that's the quantification of it, and if you kind of translate that into the margin, it's about 60 to 90 bits of the 90 bit decline comes from the lower reserve release. Now, once again, we think that we're going to continue to see reserve releases, and we're favorable as the actuaries get back to us and let us know what's happening, but we're not seeing any underlying changes or log changes.

Inside sales, where we've deployed a lot of these modern tools over years have an ability to become that much more productive engaging new prospects or new sales. So as you can probably tell like literally could go on and on and on but I think my answer to you is it will be everywhere across the entire climb.

David Togut: It would lead us to be any less optimistic about seeing continued releases in the reserve. Sorry, just to clarify, it was a $6 million benefit in Q1, which is about $8 million less than the prior year. Got it. Thank you very much. Thank you.

Lifecycle that we have and I'm very optimistic about.

The long term implications of this on all the major metrics that make up this great business model.

That's terrific with regards to this.

Productivity enhancement, particularly when we think about.

Mark Marcon: Our next question comes from Mark Marcon with Beard. Your line is open. Good morning, and thanks for taking my question. At HR Tech, we've got to see a lot of your new solutions, particularly focused on the AI assisted solutions.

Service implementation.

A longer term perspective.

Could you describe how much more efficient you think your service personnel could become.

How much efficiency you could end up gaining there.

Mark Marcon: Marie, I'm wondering if you can talk a little bit about your philosophy with regards to, you know, which solutions you would charge additional for, how are you thinking about monetization, and then I've got to follow up in terms of process improvement. Sure. Good morning, Mark. I'm pretty excited about all of our new solutions that you would have seen at HR Tech. So I think I'll take a minute to kind of think or talk through how I'm thinking about Gen AI in general, and then I'll tell you how I'm thinking about monetization because I think I'll make more sense on the other side.

And the implications from continuous margin improvement as you continue to grow along that journey I know, it's early days, but just how are you thinking about yeah listen market. It is early days right and thats not for a lack of scoping out right. So we have had it because it's not as though we haven't had all of these.

Business cases over many years on how to become more productive and we have had in machine learning and regular AI in our house for a long time and this does give us a step change to that innovation, but it's still too early I think to sit on an earnings call and commit.

Mark Marcon: But you know, when I think about Gen AI, I think it will impact everything. So the answer is it's going to be everywhere impacting everything that we do across the entire client life cycle. So it's about how we develop products, that's everything from developer, co-pilot types, the tools that everyone's talking about. It's about how Gen AI will be embedded into our product. It's about how we go to market and modern sellers stuff that I've spoken about for years and how we actually have the ability now leveraging Gen AI to actually acquire clients.

Numbers, but thats not for a lack of.

Internally, having scoping and line of sight to what we believe are pretty exciting goals for us to go Chase and again some of those goals have existed for a long time, but now we have technology that I'm hopeful that we can actually finally cracked the code on some of these really big enhancements that we see but.

Productivity is a big piece of it I know I talked today about agent assist and this idea of call summarization again, it probably doesn't sound that exciting but for someone who used to.

Mark Marcon: And then the most obvious thing how we serve them, how we implement them, how we become more productive and make our clients more productive as we serve our clients. And so when I think about Gen AI, and I think most everyone is probably likened into things like whether it's software or the internet. I think my answer to you is it will be in everything that we do and in the fabric of who we become.

On the other side of that you see whether its a prospect call or a client call get summarized and recapped into a very quick format. That's usable these are.

Hours and minutes of time, even on the seller side, we actually are launching something called rapid pre call planning and I think about the hours I used to spend 27 years ago researching a company.

Mark Marcon: And so in terms of the monetization side, I think it's less about charging a pepum on a per feature. So let's say some of the things I talked about today, which probably doesn't sound that exciting like report writing or if you look at the earnings release document, you'll see in there a job description that's pulled in the screenshot showing roles. So these things probably don't sound that exciting, but they're pretty exciting because they are the seeds of innovation as I used to earlier to really show what how Gen AI will interact with everything that we do kind of in the fabric.

To get myself ready to go in and have a conversation with the prospect that brings value, enabling our sellers to have all of that productivity. So I think it's again, it's too early to give you exact.

Hundreds of millions of dollars of types of quantification, but arguably we are actively looking kind of case by case and really picking the ones that we believe sequentially will be the most accretive to drive the most amount of productivity the most amount of value back to our shareholders, but candidly the most.

Mark Marcon: So said differently Mark, like I don't think we're going to be charging separately to get Gen AI job description written or a Gen AI report written. And I think it's really about continuing our innovation journey to do all the things we've always done, which is really about becoming more productive. It's about solving things for our clients and making them more productive. And I think that to me, the fruits of that labor really end up in new business bookings and they end up in retention.

Amount of value to our clients.

Terrific. Thank you.

Thank you we have time for one more question and that question comes from Scott <unk> with Wolfe Research. Your line is open.

Great. Good morning, guys. Thanks for squeezing me in here just on the launch of the construction vertical software I'm. Just wondering is this sort of part of a bigger shift to develop more vertical specific solutions for your clients understand construction, maybe a more complex vertical but wondering if there is more of a.

Mark Marcon: And so that's not to suggest that there may not be things, but I don't think it's really to me about 50 cents pepum here and there to me. It's really about the innovation journey we've been on. This just allows us to do it at a faster clip and I'm really optimistic and excited about the things that we're seeing in terms of other things that we're measuring. We actually have the entire organization rally to engage in these tools.

Vertical specific strategy that could develop beyond the construction vertical.

So I like what Youre, what youre, suggesting and I think the answer to that could be yes, and I think when I think about back to selling 27 years ago I used to sell construction companies and the complexity that they have has always existed and candidly a lot of the features and functionality that we.

Mark Marcon: We actually have some some goals that we put out there in terms of by the end of the year, how many of our associates that sit across sales and implementation and service and technology that are engaging with these tools. Right now, that's sitting at already above 10% of our base of associates that have the ability to touch these tools are already playing with them. I will tell you our entire sales organization are chomping up the bit because the digital sales are inside sales where we deployed a lot of these modern tools over years.

And are now pulling together to make it an actual solution for that vertical existed many years ago and that's everything from things like job casting obviously compliance and reporting think about certified compliance type of reports for payroll things of that nature, and so it's really about pulling it together and marrying it.

With a service organization that can support the complexity of that vertical I think that to me is the big change. So we did add some features but a lot of these things, we we've had and we pulled them together and we're marrying it with the ecosystem of a dedicated service org that can actually really help the construction industry in this vertical.

Mark Marcon: Have an ability to become that much more productive engaging our new prospects and new sales. So as you can probably tell, like I literally could go on and on and on, but I think my answer to you is it will be everywhere across the entire client life cycle that we have. And I'm very optimistic about the long term implications of this on all the major metrics that make up this great business model.

Solve the complexity of being in that industry. So I think what I would offer is that.

It's an exciting time for the construction industry, specifically for our workforce now clients and I see that's just to say as you suggested at the beginning of other places that we could pull together our existing tact with a dedicated type of service model and solve real challenges in the business for various verticals.

Mark Marcon: That's terrific.

Mark Marcon: And with regards to this, the productivity enhancement, I mean, particularly when we think about service and implementation, from a longer term perspective, can you can you describe how much more efficient you think your service personnel could become and how much efficiency you could end up gaining there and the implications from, you know, continuous margin improvement as you continue to go along that journey. I know it's early days, but just how are you thinking about that?

Got it that's helpful and just a quick follow up just wondering if you can give an update on sort of nextgen.

Gen payroll attach rates and how we're sort of trending there relative to expectations.

So nexgen.

Payroll that was the question both okay, just making sure I heard it right. So I think I touch base really quickly on next Gen HCM and I think I nodded too.

Mark Marcon: Yeah, listen Mark, it is early days, right? And that's not for a lack of scoping it, right? So we have had because it's not as though we haven't had all of these business cases over many years on how to become more productive. We've had machine learning and regular AI in our house for a long time. And this does give us a step change to that innovation, but it's still too early. I think to sit on an earning screen and call and commit numbers, but that's not for lack of internally having scoping and line of sight to what we believe are pretty exciting goals for us to go chase.

The excitement that we have that we continue to see the strength in the nextgen.

HCM offering into Q1, so we had a strong fourth quarter.

What I would suggest is that we actually brought in more next gen. HCM in the first quarter than we saw all of last fiscal year, but again one quarter. These things can sometimes be lumpy, but I think for me, it's really about the sentiment and so we we recently had an analyst day, we had a handful of our clients up on stage that.

Mark Marcon: And again, some of those goals have existed for a long time, but now we have technology that I'm hopeful that we can actually finally crack the code on some of these really big enhancements that we see, but certainly productivity is a big piece of it. I know I talked today about agent assist and this idea of call summarization. Again, it probably doesn't sound that exciting, but for someone who used to sit on the other side of that and you see whether it's a prospect call or a client call gets summarized and recapped into a very quick format that's usable.

With us the impact the platform is making for them and as you would remember we spent a lot of our discussions over the last year talking about scaling implementation onboarding. The backlogs. So it's pretty exciting to see some of that backlog that's no longer backlog onstage speaking to the value proposition and thats supported by continued strength, which means our seller.

Are excited to continue to sell the next Gen HCM offerings. So I think that's all very very positive.

Similarly, we have.

Continued.

Focus in the next Gen payroll and so what I would offer there as we continue to make headway. So as you know it's not deployed across the entire mid market. We continue to make headway to add to solve where more complex features things of that nature that will pull it further into the upmarket of the mid market, but as you know that next.

Mark Marcon: These are hours and minutes of time, even on the seller side, we actually are launching something called rapid pre-call planning. And I think about the hours I used to spend 27 years ago researching a company to get myself ready to go in and have a conversation with a prospect that brings value, enabling our sellers to have all of that productivity. So I think it's, again, it's too early to give you exactly hundreds and millions of dollars of types of quantifications, but arguably we are actively looking kind of case by case.

<unk> payroll engine is also what's attached to the role offer.

The other exciting part about that engine as it is the thing that's taking us into the SMB space internationally. So feel really excited about the roadmap for that offering.

The contributions that its making into the mid market today, but also into the long term.

Mark Marcon: And really picking the ones that we believe sequentially will be the most accreted to drive the most amount of productivity, the most amounts of value back to our shareholders, but candidly the most amount of value to our clients.

Growth of the company internationally.

Awesome I appreciate the color. Thank you.

<unk>.

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.

Mark Marcon: Terrific. Thank you.

Mark Marcon: We have time for one more question. And that question comes from Scott Wurzel with Wolf Research. Your line is open. Great. Good morning, guys. And thanks for squeezing me in here.

Yes, so thank you Michelle.

Listen it's hard for me not to sit here and reflect on a year ago and so I was driving in this morning, and feeling candidly a bit nostalgic because it's exactly one year ago to Carlos and I sat here and announced.

Scott Wurtzel: Just on the launch of the construction vertical software, I'm just wondering is this sort of part of a bigger shift to develop more vertical specific HCM solutions for your clients? I understand construction may be a more complex vertical, but wondering if there is more vertical specific strategy that could develop beyond the construction vertical. Thanks. So I like what you're what you're suggesting. And I think the answer to that could be yes.

The transition of me becoming.

This amazing company and so I'm incredibly nostalgic and proud today I'm proud of our first quarter results I'm really proud of the execution of the team both with respect to the results, but also with everything that you heard in terms of the progress we are making on a a very cohesive and <unk>.

Scott Wurtzel: And I think when I think about back to selling 27 years ago, I used to sell construction companies and the complexity that they have has always existed. And candidly, a lot of the features and functionality that we have and are now pulling together to make it an actual solution for that vertical existed many years ago. And that's everything from things like job costing, obviously compliance and reporting, think about certified compliance type of reports for payroll, things of that nature.

Strong strategic outline and priorities, but mostly what I would offer is that I remain incredibly humbled by the.

Over 60000 associates that I had.

<unk> had an opportunity to engage with over the last year, who continue to make this company everything that it is an absolutely amazing and I just wanted to.

To say that I would like to thank each and every one of them for inspiring me every day, so with that that is the conclusion of our call and.

Scott Wurtzel: And so it's really about pulling it together and marrying it with a service organization that can support the complexity of that vertical. I think that to me is the big change. So we did add some features, but a lot of these things we we've had and we pulled them together and we're marrying it with the ecosystem of a dedicated service org that can actually really help the construction industry and this vertical saw the complexity of being in that industry.

So we need again.

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

Okay.

Okay.

Scott Wurtzel: So I think what I would offer is that it's an exciting time for the construction industry, specifically for our workforce now clients. And I see that it's just as you suggested at the beginning of other places that we could pull together our existing tech with a dedicated type of service model and solve real challenges in the business for various verticals.

Yes.

Okay.

Scott Wurtzel: Thank you. Got it. That's helpful.

Yes.

Okay.

Okay.

Scott Wurtzel: And just a quick follow up. Just wondering if you can give an update on sort of next gen HCM and next gen payroll attach rates and how we're sort of trending their relative to expectations. So next gen payroll, that's that was the question, both okay, just making sure I've heard it right. So I think I touched faith really quickly on next gen HCM. And I think I nodded to the excitement that we have that we continue to see the strength in the next gen HCM offering into Q1.

Hmm.

Yeah.

Yes.

Okay.

Okay.

Scott Wurtzel: So we had a strong fourth quarter. What I would suggest is that we actually brought in more next gen HCM in the first quarter than we saw all of last fiscal year. But again, you know, one quarter of these things can sometimes be lumpy. But I think for me, it's really about the sentiment. And so we we recently had an analyst say we had a handful of our clients up on stage that, you know, shared with us the impact the platform is making for them.

Scott Wurtzel: And as you would remember, we spent a lot of our discussions over the last year talking about scaling implementation on boarding the backlog. So it's pretty exciting to see some of that backlog that's no longer backlog on stage, speaking to the value proposition. And that's supported by continued strength, which means our sellers are excited to continue to sell the next gen HCM offering. So I think that's all very, very positive. Similarly, we have, you know, continued focus in the next gen payroll.

Scott Wurtzel: And so what I would offer there as we continue to make headway. So as you know, it's not deployed across the entire mid market. We continue to make headway to solve for more complex features, things of that nature that will pull it further into the up market of the mid market. But as you know, that next gen payroll engine is also what's attached to the role offer. So the other exciting part about that engine is it is the thing that's taking us into the SMB space internationally. So feel really excited about the road map for that offering and the contributions that it's making into the mid market today, but also into the long term growth of the company internationally. Awesome.

Michelle: Appreciate the color. Thank you.

Maria Black: This concludes our question and answer portion for today.

[music].

Maria Black: I'm pleased to hand the program over to Maria Black for closing remarks. Yeah. So thank you, Michelle. And listen, it's hard for me not to sit here and reflect on a year ago. And so I was driving in this morning and feeling candidly a bit nostalgic because it's exactly one year ago that Carlos and I sat here and announced. The transition of me becoming CEO of this amazing company. And so I'm incredibly nostalgic and proud today.

Maria Black: I'm proud of our first quarter results. I'm really proud of the execution of the team, both with respect to the results, but also with everything that you heard in terms of the progress we are making on a very cohesive and strong strategic outline and priorities. But mostly what I would offer is that I remain incredibly humbled by the over 60,000 associates that I've had an opportunity to engage with over the last year who continue to make this company. Everything that it is and absolutely amazing. And I just wanted to say that I'd like to thank each and every one of them for inspiring me every day.

Michelle: So with that, that is the conclusion of our call. And that's what we need again. Thank you for your participation. This doesn't include the program and you may now disconnect.

Michelle: Everyone, have a great day.

[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 first quarter fiscal 2024 earnings call I would like to inform you that this conference is being recorded.

After the prepared remarks, we will conduct a question answer session and instructions will be given at that time I will now turn the conference over to Mr. Daniel Hussain Vice President Investor Relations. Please go ahead.

Thank you Michelle and welcome everyone to Adp's first quarter fiscal 2024 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. Our earnings materials are available on the Sec's website, and our Investor Relations website at investors ADP.

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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.

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'll now turn it over to Maria.

Thank you Danny and thank you everyone for joining us. This morning, we reported strong first quarter results, including 7% revenue growth and 12% adjusted EPS growth and we made significant progress on the three strategic priorities. We shared with you last quarter. Let me begin by quickly reviewing some of our financial highlights from the.

First quarter.

We had a solid start to the year in employer services, new business bookings with record level volumes for first quarter, which was supported by a particularly strong September among our best performers were our small business portfolio and our compliance oriented solutions.

Overall demand in HCM has remained steady and we maintained a healthy new business pipeline at the end of the quarter across our business.

Our employer services retention rate once again exceeded our expectations.

Although retention declined slightly versus the prior year, including in our small business portfolio, we continued to see resilience among our clients.

More importantly, our overall NPS scores reached a new all time high positioning us to stay near these historically high retention levels.

Our employer services pays per control growth was 2% for the first quarter as our clients continue to add employees at a pace that is gradually slowing in our PEO revenue growth of 3% in the quarter was relatively stable versus last quarter, reflecting solid PEO bookings performance offset by deceleration in.

PEO pays per control growth.

John will speak to our updated guidance in a moment, but the demand environment for PEO as well as our other outsourcing services remains healthy.

Moving on we made meaningful progress across all three of our strategic priorities that we outlined last quarter. Let me start with an update on some actions. We took in Q1 to lead with best in class HCM technology.

First we began embedding gen AI features into our products in Q1, we integrated Gen AI into role to further enhance its conversational UI and make it even easier for small business owners, so quickly obtain customized payroll and HR guidance.

We also began rolling out ADP assessed which delivers insights and recommendations to make complex HR work simple.

We've enabled the ADP assessed for select workforce now clients beginning with the report assess feature that allows practitioners to easily extract the insights they're looking for we look forward to continuing to build on the live its feature set of ADP assessed to further enhance the experiences of both HR practice.

<unk> and employees.

We also had some exciting product developments beyond AI, our clients tell us they need personalized experiences and deep integrations to help them manage the complexity of running a business today.

To help address this we recently launched a new product called API central which enables businesses to easily and securely connect their ADP workforce data across systems, using pre populated Apis and tools.

Michelle: My name is Michelle and I'll be your conference operator. At this time, I would like to welcome everyone to ADP's first quarter of fiscal 2024 earnings call. I would like to inform you that this conference is name recorded. After the prepared remarks, we'll conduct the question and session. Instructors will be given at that time. I'll announce in the conference over to Mr. Daniel Hussain, Vice President Vest Relations. Please go ahead. Thank you, Michelle.

Michelle: And welcome everyone to ADP's first quarter of fiscal 2024 earnings call. Participating today, I'm Maria Black, our president and CEO, and Don McGuire, our CFO. Earlier this morning, we released our results for the quarter. Our earnings materials are available on the SEC's website and our investor relations website at investors.adp.com, where you will also find the investor presentation that accompanies today's call. During our call, we will reference non-gap financial measures, which we believe to be useful to investors and that exclude the impact of certain items.

This is a feature our clients have increasingly ask for and we have already seen strong uptake.

In Q1, we complemented the launch of API central with the acquisition of Sora and intelligent workflow automation and data integrations will sort of unique capabilities will allow our clients to automate people processes by unifying various applications such as HR CRM.

And more creating a smarter and easier to use experience for our clients.

Michelle: A description of these items, along with the reconciliation of non-gap measures, to the most comfortable gap 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 can cause actual results to differ materially from our current expectations. I'll now turn it over to Maria.

In Q1, we also launched ADP workforce now for construction, a comprehensive offering designed to help clients with a unique payroll and HCM needs of the construction industry. This vertical life offering combines tailored workforce now capabilities and reporting with a team of dedicated specialist.

For the construction industry, while ADP has always served clients across the full spectrum of industries construction stood up to us as a vertical with enough complexity to warrant a more tailored solution and we're excited to further strengthen our offering in the mid market.

Michelle: Thank you, Danny, and thank you everyone for joining us. This morning, we reported strong first quarter results, including 7% revenue growth and 12% adjusted EPS growth. And we made significant progress on the three strategic priorities we shared with you last quarter. Let me begin by quickly reviewing some of our financial highlights from the first quarter. We had a solid start to the year in employer services and new business bookings with record-level volumes for first quarter, which was supported by a particularly strong September.

We also announced the launch of our corporate venture capital Fund earlier this month, leading with best in class HCM technology requires that we stay attuned to the frontier of HCM innovation and now in addition to the organic efforts. We are developing an ADP ventures, we will invest in and partner with.

With early stage startups to strengthen our core business and to extend into natural adjacencies.

Michelle: Among our best performers were our small business portfolio and our compliance-oriented solutions. Overall demand in HCM has remained steady and we maintained a healthy new business pipeline at the end of quarter across our business. Our employer services retention rate once again exceeded our expectations. Although retention declined slightly versus the prior year, including in our small business portfolio, we continued to see resilience among our clients. More importantly, our overall NPS course reached a new all-time high, positioning us to stay near these historically high retention levels.

Two of our early investments focused on improving lifestyle benefits to drive associate engagement and simplifying the incredibly complex leave management process that businesses and their workers have to address we're excited to build on these partnerships and develop new ones.

Overall Q1 was a very busy quarter on the product front with much of the work, we're doing representing seeds of innovation that will position us to continue shaping the future of work.

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

In addition to launching the pilot of ADP access for our clients. We also launched the pilot of our new agent assist embedding AI and the flow of work for ADP associates.

Michelle: Our employer services pace for control growth was 2% for the first quarter, as our clients continued to add employees at a pace that is gradually slowing, and our PEO revenue growth of 3% in a quarter was relatively scabled versus last quarter, reflecting solid PEO booking performance, offset by deceleration and PEO pace for control growth. Don will speak to our updated guidance in a moment, but the demand environment for PEO as well as our other outsourcing services remains healthy.

So far we have enabled our call summarization capability to select associates. Thanks.

Thanks to this agent assist feature those service associates no longer needs to spend time, writing up case notes after client calls, which should make our associates more effected and also allow us to quickly aggregate real time client feedback to continuously improve our products we.

Michelle: Moving on, we made meaningful progress across all three of our strategic priorities that we outlined last quarter. Let me start with an update on some actions we took in Q1 to lead with best-in-class HCM technology. First, we began embedding GNI features into our products. In Q1, we integrated GNI into role to further enhance its conversational UI and make it even easier for small business owners to quickly obtain customized payroll and HR guidance.

We are also piloting agent assessed real time guidance for our associates to help them with support content and guided workflows and to more easily share their accumulated knowledge in a way that is customized to individual client cases.

We are excited to continue working toward additional agent assist features to help our implementation and service associates deliver better faster service and to help our client satisfaction scores continue to reach new record levels.

Our third strategic priority is to benefit our clients through our global scale and in Q1, we expanded on this advantage in.

Michelle: We also began rolling out ADP assist, which delivers insights and recommendations to make complex HR work simple. We've enabled ADP assist for select workforce now clients, beginning with a report assist feature that allows practitioners to easily extract the insights they're looking for. We look forward to continuing to build on the live feature set of ADP to further enhance the experiences of both HR practitioners and employees. We also had some exciting product developments beyond AI.

In August we extended our leading global footprint by acquiring the payroll business of VCR, our longtime partner in Sweden.

Acquisitions like this strengthen our multi country payroll ecosystem, while also positioning us to grow our local HCM business in countries with attractive growth prospects in.

In Q1, we launched a role in Ireland, representing the beginning of an expansion into the European market, where we believe an AI based payroll app, coupled with our existing on the ground ecosystem will allow us to expand our SMB business outside the U S.

Michelle: Our clients tell us they need personalized experiences and deep integrations to help them manage the complexity of running a business today. To help address this, we recently launched a new product called API Central, which enables businesses to easily and securely connect their ADP workforce data across systems using pre-populated APIs and tools. This is a feature our clients have increasingly asked for and we have already seen a strong update. In Q1, we complemented the launch of API Central with the acquisition of Sora, an intelligent workflow automation and data integration tool.

And during Q1, we also announced plans to deepen our existing partnership with workday to deliver enhanced global payroll compliance and HR for the many clients we jointly serve around the world.

Partnerships like this reflect our longstanding commitment to provide the personalization and overall experience our clients desire.

Before turning it over to Don I wanted to highlight a couple of milestones in two of our businesses.

Our suite of workforce management solutions, sometimes referred to as time and Labor management reached more than 125000 clients in the first quarter benefiting from a double digit growth rate. These last few years.

Michelle: Sora's unique capabilities will allow our clients to automate people processes by unifying various applications such as HR, IT, CRM and more, creating a smarter and easier to use experience for our clients. In Q1, we also launched ADP Workforce Now for Construction, a comprehensive offering designed to help clients with a unique payroll and HBM needs of the construction industry. This verticalized offering combines tailored Workforce Now capabilities and reporting with a team of dedicated specialists for the construction industry.

Scheduling and precisely tracking time has become more important for employers over recent years in order to meet evolving legislative requirements and we look forward to continuing to invest in our workforce management solution to drive a higher client attach rates.

We also now serve more than 150000 retirement services clients, which is up more than 20% from 125000 clients. We served at the end of fiscal 2022.

Michelle: While ADP has always served clients across the full spectrum of industries, construction stood out as a vertical with enough complexity to warrant a more tailored solution and we're excited to further strengthen our offering in market. We also announced the launch of our corporate venture capital fund earlier this month, leading with best-in-class HBM technology required that we stay attuned to the frontier of HBM innovation. And now, in addition to the organic efforts we are developing in ADP ventures, we will invest in and partner with early stage startups to strengthen our core business and to extend international adjacency.

We anticipate growth for our retirement services business will remain strong in the years ahead as the provisions of the secure act two dato an additional state mandates continue to phase in and as companies of all sizes continue to recognize the importance of positioning our workers while for their eventual retirement.

I am proud of our start to fiscal 2024 with both strong financial results and meaningful strategic progress our roadmap for the months ahead is keeping us incredibly busy and with this in mind I'd like to take a moment to recognize our associates across sales service implementation and technology.

His efforts and outstanding performance are positioning us to consistently deliver for our clients and our shareholders. Thank you all with that I'll turn it over to Don.

Michelle: Two of our early investments focus on improving lifestyle benefits to drive associate engagement in simplifying the incredibly complex lead management process that businesses and their workers have to address. We're excited to build on these partnerships and develop new ones. Overall, Q1 was a very busy quarter on the product front with much of the work we're doing, representing seeds of innovation that will position us to continue shaping the future of work. Our second strategic priority is to provide unmatched expertise and outsourcing solutions.

Thank you Maria and good morning, everyone I'll provide some more color on our results for the quarter and update you on our fiscal 'twenty four outlook overall, we had a solid Q1 and are not making changes to our consolidated outlook, but there are some moving pieces I'll cover let.

Let me start with employer services.

<unk> segment revenue increased 9% on a reported basis and 8% on an organic constant currency basis ahead of our expectations.

Michelle: In addition to launching the pilot of ADPSS for our clients, we also launched the pilot of our new agent assist, embedding Gen AI in the flow of work for ADPS associates. So far, we have enabled our call summarization capability to select associates. Thanks to this agent assist feature, those service associates no longer need to spend time writing up case notes after client calls, which should make our associates more effective and also allow us to quickly aggregate real-time client feedback to continuously improve our products.

As Maria shared Es, new business bookings had a solid start with especially strong growth in September.

The demand environment is stable our pipelines are healthy and we are on track for a 4% to 7% growth guidance.

Our es retention declined slightly in Q1 versus the prior year, but that was slightly better than we expected.

At this point, we are maintaining our outlook for a 50 to 70 basis point decline in full year retention, which continues to embed an expectation for small business losses to increase due to higher auto business rates, but if recent trends continue then we would hope to outperform that range.

Michelle: We are also piloting agent assist real-time guidance for our associates to help them with support content and guided workflows and to more easily share their accumulated knowledge in a way that's customized to individual client cases. We are excited to continue working toward additional agent assist features to help our implementation and service associates deliver better faster service and to help our client satisfaction scores continue to reach new record levels. Our third strategic priority is to benefit our clients through our global scale and in Q1, we expanded on this advantage.

ESP for controlled growth was in line with our expectation in Q1, it decelerated modestly to 2% and we expect there is very gradual deceleration to continue in the coming quarters and are maintaining our outlook for 1% to 2% growth for the full year.

Client funds interest revenue increased in line with our expectation in Q1, but we are raising our full year outlook based on the latest forward yield curve, which result in a modest increase in average yields to two 9% from our prior expectation of two 8%.

Michelle: In August, we extended our leading global footprint by acquiring the payroll business of BCR, our long-time partner in Sweden. Acquisitions like this strengthen our multi-country payroll ecosystem while also positioning us to grow a local HBM business in countries with attracted growth prospects. In Q1, we launched Role in Ireland, representing the beginning of an expansion into the European market where we believe an AI-based payroll app coupled with our existing on-the-ground ecosystem will allow us to expand our SMB business outside the U.S. During Q1, we also announced plans to deepen our existing partnership with Workday to deliver enhanced global payroll, compliance and HR for the many clients we jointly serve around the world.

We now expect client funds interest revenue as well as the net impact from client funds extended strategy to be up $35 million from our prior outlook.

Meanwhile, the U S dollar strengthened representing a drag relative to our prior fiscal 'twenty for revenue outlook.

In total our strong Q1, es revenue growth combined with higher than expected <unk> revenue for the rest of the year effectively offset the adverse FX movement and we're maintaining our fiscal 2000 for Es revenue growth range of 7% to 8%.

Our EBIT margin increased 220 basis points in Q1, driven by both operating leverage and contribution from client funds interest revenue for the full year, we are raising our fiscal 'twenty outlook to now anticipate an increase of 150 to 170 basis points, which.

Michelle: Partnerships like this reflect our long-standing commitment to provide the personalization and overall experience our clients desire. Before turning it over to Don, I wanted to highlight a couple milestones in two of our businesses. Our suite of workforce management solutions sometimes refer to as time and labor management reached more than 125,000 clients in the first quarter, benefiting from a double-digit growth rate these last few years. Scheduling and precisely tracking time has become more important for employers over recent years in order to meet evolving legislative requirements and we look forward to continuing to invest in our workforce management solutions to drive a higher client attach rate.

Reflects the benefit of higher yields partially offset by higher spend on gen AI projects and usage as well as a small amount of dilution from our recent acquisitions.

Moving onto the PEO we.

We had 3% revenue growth driven by 2% growth in average worksite employees in Q1.

As Maria mentioned earlier, our PEO bookings growth was solid but pays per control growth continued to slow and was lower than expected, particularly for clients in the professional services and Tech industries. This resulted in a slightly softer Q1, worksite employee count and we were anticipating.

Michelle: We also now serve more than 150,000 retirement services clients, which is up more than 20% from 125,000 clients we served at the end of fiscal 2022. We anticipate growth for our retirement services business will remain strong in the years ahead as the provisions of the Secure Act 2.0 and additional state mandates continue to phase in and as companies of all sizes continue to recognize the importance of positioning their workers well for their eventual retirement.

As a result, we now expect fiscal 2020 for PEO revenue growth of 3% to 4% with growth in average worksite employees of 2% to 3%.

<unk> sales pipelines are healthy and we continue to forecast our worksite employee growth gradually ramping in the back half of fiscal 'twenty four.

PEO margin decreased 90 basis points in Q1, which was more than we had planned.

Michelle: I'm proud of our start to fiscal 2024 with both strong financial results and meaningful strategic progress. Our roadmap for the months ahead is keeping us incredibly busy and with this in mind, I'd like to take a moment to recognize our associates across sales, service, implementation, and technology, whose efforts and outstanding performance are positioning us to consistently deliver for our clients and our shareholders. Thank you all. With that, I'll turn it over to Don.

The decline was primarily driven by lower workers' compensation reserve release benefit as well as higher selling expenses.

Now expect PEO margin to be down between 50, and 100 basis points in fiscal 'twenty four with a continued assumption for higher selling expenses as well as year over year headwind from a lower workers compensation reserve release benefit than we experienced in fiscal 'twenty three.

Putting it all together there is no change to our consolidated outlook, but I would like to share some color on cadence in.

Michelle: Thank you, Maria. Good morning, everyone. I'll provide some more color on our results for the quarter and update you on our fiscal 24 outlook. Overall, we had a solid Q1 and are not making changes to our consolidated outlook, but there are some moving pieces I'll cover. Let me start with employer services. ES statement revenue increased 9% on a reported basis in 8% on an organic constant currency basis ahead of our expectations.

In Q2, our client fund balance growth will lag the impact of the payroll tax deferral that we've had on our average balance for the past two years, which creates some global pressure on our clients' funds balance and will result in more modest margin expansion in Q2 than other quarters. This year as well as a model.

Revenue impact.

As a result, we expect consolidated revenue growth to moderate before accelerating slightly in the back half and we expect adjusted EBIT margin to be down slightly before ramping in the back half of the year.

Michelle: As Maria shared, ES new business bookings had a solid start with a specially strong growth in September. The demand environment is stable. Our pipelines are healthy and we are on track for our 4% to 7% growth guidance. Our ES retention did decline slightly in Q1 versus the prior year, but that was slightly better than we expected. At this point, we are maintaining our outlook for a 50 to 70 basis point decline in full-year retention, which continues to embed an expectation for small business losses to increase due to higher out of business rates.

This was already contemplated in our guidance at the outset of the year.

So again no change to our consolidated guidance, we continue to forecast fiscal 'twenty for consolidated revenue growth of 6% to 7% with our adjusted EBIT margin expanding by 60 to 80 basis points, we still expect our effective tax rate for fiscal 'twenty four to be around two.

Michelle: But if recent trends continue, then we would hope to outperform that range. ES base for controlled growth was in line with our expectation in Q1. It decelerated modestly to 2%, and we expect this very gradual deceleration to continue in the coming quarters, and are maintaining our outlook for 1 to 2% growth for the full year. Client fund interest revenue increased in line with our expectation in Q1, but we're raising our full year outlook based on the latest forward yield curve, which results in a modest increase in average yield to 2.9% from our prior expectation of 2.8%.

93% and we anticipate adjusted EPS growth of 10% to 12%.

Thank you.

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

Thank you.

To ask a question. Please press star one one please be aware of the allotted time for questions. Please ask one question with a brief follow up we will take our first question from the lot of modern <unk> with Jefferies. Please go ahead.

Hi, Good morning, Thanks for taking my questions. Maybe first just wanted to double click on the PEO side I think that.

Information gave helps to understand some of what happened in the revised guidance, but maybe just help us understand what's giving that back half ramp confidence, especially as you expect pays per control in the kind of broader macro that continue to decelerate where should we get the acceleration in the PEO WSI is it purely based on bookings.

Michelle: We now expect client funds interest revenue as well as the net impact from our client funds extended strategy to be out $35 million from our prior outlook. Meanwhile, the US dollar strengthened, representing a drag relative to our prior fiscal 24 revenue outlook. In total, our strong Q1 ES revenue growth combined with higher than expected client funds revenue for the rest of the year effectively offset the adverse effects movement, and we're maintaining our fiscal 24 ES revenue growth range of 7 to 8%.

Ramping is it based on an expectation that the base will stabilize maybe just dig into that a little bit further because they're moving in different directions.

You bet. So good morning, its modest Maria here.

Kind of break down your question with respect to the PEO call at Doubleclick. So I'll start by commenting on the first quarter. So.

So as mentioned, we did see deceleration in PEO pays per control so as Don mentioned in the opening comments that as a byproduct.

Michelle: R.E.S. Marcon increased 220 basis points in Q1, driven by both operating leverage and contribution from client's funds interest revenue. For the full year, we are raising our fiscal 24 outlook to now anticipate an increase of 150 to 170 basis points, which reflects the benefit of higher yields partially offset by higher spent on Gen AI projects and usage as well as a small amount of delusion from our recent acquisitions. Moving on to the PEO, we had 3% revenue growth driven by 2% growth in average works that employees in Q1.

What we're seeing in the pressure with respect to as you know that business tends to skew.

More into professional services technology, the pace per control deceleration is happening at a faster clip than those cohorts than the broader basin. So said differently. The pays per control growth in the PEO is decelerating faster than we expected and faster specifically in those cohorts. So in terms of contributions that is the contribution.

The deceleration or the the new guide to Worksite employee growth that we're seeing in the first quarter. We did have strong bookings in PEO in the first quarter that said it did come in slightly below where we had hoped for so was still higher than overall employer services. It was a good a good quarter for the PEO and this is.

Michelle: As Maria mentioned earlier, our PEO bookings growth was solid, but pace for control growth continued to slow and was lower than expected, particularly for clients in the professional services and tech industries. This resulted in a slightly softer Q1 works that employee count and we were anticipating. As a result, we now expect fiscal 2024 PEO revenue growth of 3 to 4%, with growth in average works that employees of 2 to 3%. Our PEO sales pipelines are healthy and we continue to forecast their works that employee growth gradually ramping in the back half of fiscal 24.

Now the third quarter in a row.

We've seen strength in bookings in the PEO and Thats important to note because really the strength in PEO bookings bookings is what ultimately will yield reacceleration that you're asking about in the back half that coupled with kind of what we're seeing in retention. So while retention is stable and stabilizing inside via the PEO.

Back to the high growth levels that we saw call. It a couple of years ago in the last year or so and as such as those compares continue to lap coupled with.

Michelle: PEO margin decreased 90 basis points in Q1, which is more than we had planned, that a client was primarily driven by a lower workers compensation reserve-released benefit as well as higher selling expenses. We now expect PEO margin to be down between 50 and 100 basis points in fiscal 24 with a continued assumption for higher selling expenses as well as your over-year headwind from a lower workers compensation reserve-released benefit than we experienced in fiscal 23.

Retention continuing to accelerate if you will versus stabilize we will see contributions from retention, we will see more contribution from bookings and Thats really why we anticipate the work Worksite employee guide for the year that we've given.

Great and then Maria.

Had a follow up for you as well on the on the international side.

The rollout of <unk>.

The rollout of the product.

Ireland and I'm, just curious how should we think about the expansion.

On the U S. ADP already has a presence and it's a meaningful contributor to revenue, but just should we think about international maybe being an offset to some of the slowdown that we're seeing.

Michelle: Putting it all together, there is no change to our consolidated outlook, but I would like to share some color on cadence. In Q2, our client fund's balance growth will lack the impact of the payroll tax deferral that we've had in our average balance for the past two years, which creates some rover pressure on our client's funds balance, and will result in more modest ES margin expansion in Q2 than other quarters this year as well as the modest revenue impact.

In U S revenues, just how should we think about the cadence and impact as you move more international with your core HCM solutions versus just helping U S employers that already had an international presence.

Yes, absolutely so I'll speak to the role which is what I commented on in the opening comments. So we did rollout no pun intended our roll offering.

Michelle: As a result, we expect consolidated revenue growth to moderate before accelerating slightly in the back half, and we expect adjusted EBIT margin to be down slightly before ramping in the back half of the year. This was already contemplated in our guidance at the outset of the year. So again, no change to our consolidated guidance. We continue to forecast fiscal 24 consolidated revenue growth of 6 to 7 percent with our adjusted EBIT margin expanding by 60 to 80 basis points.

Into Ireland and it is an exciting for us, albeit it's very very early days right. It's actually been a couple of weeks, but we're excited about it because it's the first of many countries, where we intend on taking this.

Call it very down market offering into.

Our various countries throughout international and it's really about marrying that product with what we see is still potentially greenfield opportunity within our international space.

And really leveraging the ecosystem that we have that's everything from distribution to all the services call it around.

Michelle: We still expect our effective tax rate for fiscal 24 to be around 23 percent, and we anticipated just an EPS growth of 10 to 12 percent. Thank you, and I'll now turn it back to Michelle for Q&A. Thank you. If you were to ask a question, please press star 11. Please be aware of the lot of time for questions. Please ask one question with a brief follow-up.

The offers in various countries. So we're very excited about that now in terms of the overall <unk> growth contributions in the short term of rolling out roll into Ireland, I would say, they're negligible I would say even roll over time. This year I think it would be.

Not a meaningful contributor to bookings to me I think this is really about a long term investment that we're making across international and what we see as a continued opportunity for us. So you kind of mentioned as this companies that have a presence in Europe that exist in the U S.

Samad Samana: We will take our first question from the line of Samada Samana with Jeffries. Please go ahead. Hi, good morning, thanks for taking my questions. Maybe first just wanted to double click on the PEO side. I think that the information gave helps to understand some of what happened and the revised guidance, but maybe just help us understand what's giving that back half ramp confidence, especially as you expect page for control in the kind of broader macro to continue to decelerate.

Folks working in our call it in the international and the answer is both that coupled also with a lot of our what I would say best of breed offerings in international So we see growth opportunity really across the board in international and Thats everything from the down market, which we're going after now with this new product offering of role.

Samad Samana: Where should we get the acceleration in the PEO WSCs? Is it purely based on bookings ramping? Is it based on an expectation that the base will stabilize? Maybe just big and fat a little bit further because they're moving in different directions. So good morning, Smod, it's Maria here. I thought I'd kind of break down your question with respect to the PEO call it double click. So I'll start by commenting on the first quarter.

So we see it on the SMB space, we see it in our best of breed.

<unk> space and we also see it in our global MMC space. So really excited about the long term.

Opportunity that continues to be international and while I'm on international I thought I would just mentioned because it's important to note. We did have a very strong quarter with respect to international, albeit that quarters, obviously off of a compare Q1 of last year that was less favorable but it is on the heels of what was a very strong fourth quarter finish.

Samad Samana: So as mentioned, we did see deceleration in PEO pace for control. So as Don mentioned in the opening comments, that is a byproduct of what we're seeing in the pressure with respect to, as you know, that business tends to skew more into professional services technology, the pace for control deceleration is happening at a faster clip in those cool horts than the broader base. And so said differently, the pace for control growth in the PEO is decelerating faster than we expected and faster, specifically in those cohorts.

Finish in international and so all the way around I continue to be incredibly excited and optimistic about what it is that we can go accomplish and continued to build in our in our international offerings.

Great. Thanks, so much for taking my questions.

Thank you. Our next question comes from Bryan Bergin with TV Cowen. Please go ahead.

Samad Samana: So in terms of contributions, that is the contributions to the deceleration or the new guys who works on employee growth that we're seeing in the first quarter, we did have strong bookings in PEO in the first quarter that said it did come in slightly below where we had hoped for. So it was still higher than overall employer services. It was a good a good quarter for the PEO and now the third quarter in a row that we've seen strength in bookings in the PEO.

Hi, good morning, Thank you.

I was hoping if you can comment on just how youre seeing the overall macro situation evolve and maybe how that may affect demand and if you can specifically unpack that within the Es segment, maybe talk about some of the areas that came in better than you expected versus any errors that may have been lighter or downtick versus the prior quarter.

Absolutely good morning, Brian So happy to comment on what we saw in the first quarter with respect to the.

Samad Samana: And that's important to note because really the strength in PEO booking bookings is what ultimately will yield the re acceleration that you're asking about in the back cap. That coupled with kind of what we're seeing in retention. So while retention is stable and stabilizing inside via the PEO, it isn't back to the high growth levels that we saw call it a couple years ago in the last year or so. And as such, as those compare continues to lap coupled with retention continuing to accelerate, if you will, versus stabilized, we will see contributions from retention.

The overall performance of bookings, but also the demand so I'll kind of start with the overall performance I mentioned in the opening comments, we did see strength continued strength in our down market. So really excited about that also saw tremendous strength in our compliance solutions offerings. So think of it as all the stuff that has compliance tax things of that name.

So we're pleased with what we saw with respect to our new business bookings those are the two that really outperformed and it's exciting to see because really that entire down market offering and thats everything from our our run offering to retirement services insurance services. We continue to see tremendous strength. There we saw that all of last year and definitely the.

Samad Samana: We'll see more contributions from booking and that's really why we anticipate the work, work side employee guide for the year that we've given. Great. Then Maria actually had a follow up for you as well on the on the international side. I've seen the roll out of roll out of the product into Ireland. And I'm just curious, how should we think about the expansion beyond the US and ADP already at the present.

The finished last year and it makes me happy because it's a lot of the places that well good performance makes me happy regardless, but it has a lot of the places where we've been making meaningful investments both in the product as well as the distributions. So excited to see the continued performance there and the outperformance.

The overall <unk>.

<unk> do keep us in line with our full year guide so excited too.

Samad Samana: And it's a meaningful contributor revenue. But just should we think about international maybe being an offset to some of the slow down that we're seeing in US revenue. Just actually think about the cadence and impact as you move more international with your core HCM solutions. First is just helping US employers that already had an international presence. Yeah, absolutely. So I'll speak to you to roll, which is what I commented on in the opening comments.

To confirm that again here today in terms of the overall demand environment and I feel like I've been saying this quarter to quarter, but we're not really seeing any major changes in demand demand is still strong demand is still healthy we see that in our bookings results. They're all sorts of other indicators that we look at in terms of pipelines.

In the upmarket in the mid market.

Samad Samana: So we did roll out, no pun intended, our role offering into Ireland. And it is an exciting bit for us, albeit it's very, very early days, right? It's actually at least in a couple weeks, but we're excited about it because it's the first of many countries where we intend on taking this. Call it very down market offering into our various countries throughout international, and it's really about marrying that product. But what we see is still potentially Greenfield opportunity within our international space and really leveraging the ecosystem that we have.

Certainly in the down market, we're looking at things such as the new appointments and.

Samad Samana: That's everything from distribution to all the services called it around. The offers in various countries. So we're very excited about that. Now in terms of overall growth contributions in the short term of rolling out roll into Ireland, I would say they're negligible. I would say even roll over time this year. I think it would be, you know, not a meaningful contributor to bookings. To me, I think this is really about a long term investment that we're making across international and what we see as a continued opportunity for us.

Kind of activity excuse me activity measures to really give us a guide on whether demand is strong and I would tell you pipelines are healthy year on year.

And certainly activity is healthy and so we don't see.

A big demand change again this quarter in fact, it's kind of the opposite stepping into.

Into the quarter on the heels of a strong September we feel really good about where our pipeline set year on year, which again is giving us the confidence in the full year guide as always though Brian we continue to keep an eye on the macro we continue to keep an eye on our global space and international and making sure that we're understanding both any macroeconomic.

Changes, coupled with any demand environment that could shift given everything's kind of going on in the world. If you will so that's current story on kind of pipeline demand in the quarter.

Maybe if I can add a couple of comments on the macro and certainly Mexico continues to be pretty positive.

Unemployment rates continue to be near decade lows here in United States.

Samad Samana: So you kind of mentioned, is this companies that have a presence in Europe that exist in the US with folks working in or call it in international. The answer is this is both that coupled also with a lot of our, but I would say best of breed offerings in international. So we see growth opportunity really across the board and international and that's everything from the down market, which we're going after now with this new product offering of roll.

Unemployment rates around the world continue to be quite low.

The discussion about whether or not we're going to be in a recession.

Samad Samana: So we see it on SMB space. We see it in our best of breed space. And we also see it in our global MNC space. So really excited about the long term growth opportunity that continues to be international. And while I'm on international, I thought I would just mention because it's important to note, we did have a very strong quarter with respect to international albeit that quarter is obviously off of a compare, Q1 of last year that was less favorable, but it is on the heels of what was a very strong fourth quarter finish in international.

Mark for recession.

The soft landing is pretty much what is being anticipated.

Rates are expected to peak here in the U S. So I think all things considered things are pretty positive I think the one area that we've.

We've put in our <unk>.

Original guidance for the year and that we continue to we continue to look at is our guidance has in fact contemplated a slowing in pays per control growth. I believe you mentioned that you've talked about that in the PEO business, but we are confident we are still seeing growth, albeit we are seeing growth in a slower pace than we had previously but once again that was fully <unk>.

Contemplated in our original guide for the year.

Okay. That's helpful. Thanks, Don.

My follow up on the PEO so.

The bookings are a little bit lighter than you expected to start but you're also calling out I think higher selling expenses impacting the PEO margins year over year.

Samad Samana: And so all the way around, I continue to be incredibly excited and optimistic about what it is that we can go accomplish and continue to build interact in our international offering. Great, thanks so much for taking my questions. Thank you.

Maybe talk about the puts and takes that are driving that dynamic.

Specifically on PEO margins of lepton.

I think originally Brian you mentioned bookings were lighter than expected I think our bookings came in.

Maria Black: Our next question comes from Brian Bergen with TV Cohen. Please go ahead. Hi, good morning. Thank you. So, Maria, I was hoping if you can comment on just how you're seeing the overall macro situation evolve and maybe how that may affect demand. And if you can specifically unpack that within the ES segment, maybe talk about some of the areas that came in better than you expected versus any areas that may have been lighter or down tech versus the current quarter.

Bookings came in pretty good is really as I mentioned, yes, I think I think he is referencing the comment I made around PEO bookings was slightly lighter than expected by the way is still higher than es, which we expect to be the case throughout the balance of the year. So that that's the kind of nuanced.

Definitely get there for the question. There you also have exciting higher selling expenses impacting the PEO margins. So it seems like there's a bit of a disconnect. There I'm just trying to understand that.

Yes, so we had planned the year to talks about growth being stronger in the second half.

Maria Black: Absolutely. Good morning, Brian. So happy to comment on what we saw in the first quarter with respect to the overall performance of booking but also the demand. So I kind of start with the overall performance I mentioned in the opening comments. We did see strength, continued strength in our down market. It's really excited about that. I also saw tremendous strength in our compliance solutions offering. So think of it as all the stuff that hits the blinds, tax, things of that nature.

Kings or certainly the margins than in the first half and certainly we have seen some investments and some higher selling expenses and we will see in the first half than we will in the second half, but nothing really surprising a little bit.

A little bit off but certainly were in line with what we expected.

Okay. Thanks.

Maria Black: So we're pleased with what we saw with respect to our new business booking, those are the two that really outperformed. And it's exciting to see because really that entire down market offering and that's everything from our run offering to retirement services, insurance services. We continue to see tremendous strength there. We saw that all of last year and definitely the the finish last year. And it makes me happy because it's a lot of the places that well good performance makes me happy regardless.

Thank you. Our next question comes from James Fawcett with Morgan Stanley. Please go ahead.

Great. Thanks, I wanted to ask just a couple of quick follow up questions.

First I think.

The comment was made.

You're still anticipating a bit worse performance in terms of.

Out of business rates on a go forward basis, but to date those have been a little bit better than you had anticipated can you help.

Maria Black: But it's a lot of the places where we've been making meaningful investments both in the product as well as the distribution. So excited to see the continued performance there and the outperformance. The overall results do keep us in line with our four-year guide. So excited to confirm that again here today. In terms of the overall demand environment, and I feel like I've been saying this quarter to quarter, but we're not really seeing any major changes in demand.

Some detail as to what Youre seeing.

Why do you think we're seeing better.

Better.

Survival rates.

And.

Kind of the things you may be looking at as indicators that that could get worse on a go forward basis.

Demand continues to be strong and the economy overall, I think thats supporting tends to be this view that we're not going to enter into a recession that test is going to be a soft landing. So I think the strong demand.

Maria Black: Demand is still strong. Demand is still healthy. We see that in our bookings results. There are all sorts of other indicators that we look at in terms of pipelines in the up market and the mid market. Certainly in the down market, we're looking at things such as the new appointments and kind of activity, excuse me activity measures to really give us a guide on whether demand is strong. And I would tell you, pipelines are healthy year on year and certainly activity is healthy.

Demand environment, particularly the consumer demand is keeping small business afloat.

So when you also look at what we're seeing in terms of new business formation, which seems to be continued strength in new business formations. So generally I would say that the environment irrespective of higher interest rates. The environment continues to be favorable for small business and I think thats translating itself into what looks to be lower.

Maria Black: And so we don't see a big demand change. Again, this quarter, in fact, the opposite stepping into the quarter on the heels of the strong September, we feel really good about where pipelines sit year on year, which again is giving us the other confidence in the full-year guide. As always, though, Brian, we continue to keep an eye on the macro. We continue to keep an eye on our global space and international and making sure that we're understanding both any macroeconomic changes coupled with any demand environment I could shift, given everything kind of going on in the world, if you will.

<unk> then.

It's important to note. We have continued as we said in our original guide and those we will.

Reiterate or update here today, we have continued to think that we will see a little bit more normalization.

Business. So we have contemplated that but we think we are getting closer to.

To where we think we're going to plateau kept bottom there. So I think we're very close.

Once again I can you just comes back to demand environment. It tends to be supporting the economy more broadly and more generally in small businesses benefiting from that as well.

Maria Black: So that's this current story on kind of pipelines demand in the quarter. Yeah, David. In fact, I've got a couple comments on the macro. Certainly, the macro continues to be pretty positive. Unemployment rates continue to be near decade lows here in the United States. Unemployment rates around the world, can you do quite low. The discussion about whether or not we're going to be in a recession. The odds are now not for recession.

Yes, I think if I may I think the only thing I would add is that it's still very early in the year right. So when I think about retention. We did have a record level in fiscal 'twenty. Three we were near that record level of year before we were at that record level the year before that and so we've had this tremendous strength and I think Don spot on in terms of all the reasons from a macro perspective that we've had that.

Maria Black: So soft land is pretty much what is being anticipated. It's just great to expect to keep here in the US. So I think all things can consider things are pretty positive. I think the one area that we put in our, you know, original guidance for the year and that we continue to we continue to look at is our guidance had in fact contemplated the slowing and pace for control growth. Maria mentioned that and talked about that in the PEO business, but we are confident we are still seeing growth.

<unk> in terms of client retention.

So as that normalizes, we believe it's still prudent for us to have the retention guide that we have which is really a byproduct of how we planned the year in the back half. So I think I got the core of the question last quarter and saw the answer are proactively this quarter, which is are we are we just being conservative and I think the answer to that question is it's still early in the year end.

So if we do continue to outperform.

Retention in the way that we outperformed in the first quarter, we hope that we will outperform for the full year. It's just early to take away that conservatism sitting here just three three short months into a very long year.

Maria Black: We are seeing growth at a solar pace. And we had previously once again, that was fully contemplated in our original guide for the year. Okay, that's all thanks done. My follow up on the PEO. So so heard you the bookings are a little bit lighter than you expected to start, but you're also calling out, I think, higher selling expenses impacting the PEO margins here, your viewers can maybe talk about the puts and takes their driving that dynamic.

Yes, yes, and then so.

Maria Black: Specifically on PEO margins, I'll let on. Well, but I think originally Brian you mentioned that bookings were lighter than expected. I think they're bookings and a bookings and then pretty good as Maria mentioned. Yeah, I think I think he's referencing the comment I made around PEO bookings with slightly lighter than expected. By the way, it's still higher than ES, which we expect to be the case throughout the balance of the year.

Maria Black: So that was that's the kind of nuance. So the question there, you're also citing higher selling expenses impacting the PEO margins. So it seems like there's a bit of a disconnect there just trying to understand that. Yeah, so we planned the year to talk about the growth being stronger in the second half in bookings or sorry, margins that in the first half and certainly we have seen some investment in some higher selling expenses and will see in the first half then we will in the second half, but nothing really surprising. A little bit a little bit off, but certainly we're alive before we expected. Okay, thanks. Thank you.

I wanted to go back to kind of a headline related question.

You saw that you saw.

<unk> indicated that you had seen kind of a 25000 sequential improvement and retirement services.

For clients.

You alluded to some state mandates there, particularly around <unk>.

Can you talk a little bit about what state mandates.

Or that may be impacting that business work for how long before we start to see benefit in retirement services post the new state mandates. So.

Maybe we can help.

Headlines and anticipate like how big of an impact.

<unk> requirements may have.

Absolutely. So I think I've spoken quite a bit to retirement services as well as the secure act over the last year or so and I will tell you.

I was excited to report the new milestone today in part because that business continues to show strength, but also because it's a business that I know is adding tremendous value into the world of work and so it is an exciting time it does come as a byproduct of the offering the investments we've made into the offering and also these state mandates.

Some of which are anchored into the secure act at the federal level.

Bryan Bergin: Our next question comes from James faucet with Morgan Stanley. Please go ahead. Great. Thanks. I wanted to ask just a couple of quick follow up questions. First, I think the comment was made that you're you're anticipating a bit worse performance in terms of out of business rates on a go forward basis, but today those have been a little bit better than you had anticipated. If you help provide some detail as to what you're seeing why you think we're seeing better, you know, survival rates and kind of the things you may be looking at as indicators that that could get worse on a go forward basis.

Some of which are anchored state by state candidly I could probably spend an hour with you and go state by state in terms of all the various mandates.

What we see over the next year or so is the thresholds of companies that need to.

To comply with the state mandate starts to creep into call. It the further down market if not the micro market and so as all of these states and a lot of them being on the West Coast. If you are looking for headlines tracking states like California as they continue to pull down at what at what level do you need.

To comply with the state mandates and are the secure act the more opportunity we will have.

To ensure that we're helping our clients solve for this piece to keep them compliant, but again back to doing good in the world. It's also something that's bringing the value to each one of these.

Bryan Bergin: Yeah, demand continues to be strong in the economy overall, and I think that supporting what tends to be this view that we're not going to enter into a recession, that that's just going to be a soft landing. So I think that strong demand environment, particularly consumer demand is keeping small business afloat. So when you also look at what we're seeing in terms of new business formations, there seems to be continued strength in new business formation.

Employees that are engaging with these clients though.

Great appreciate that color.

Thank you. Our next question comes from Bryan Keane with Deutsche Bank. Your line is open.

Okay.

Hi, guys. Good morning, just wanted to ask about the decline in PEO.

Bryan Bergin: Christians. So generally, I would say that the environment irrespective of the higher interest rates, the environment continues to be favorable for small business, and I think that's translating itself into what looks to be lower out of business than contemplated. Now, we have continued as we said in our original guide, and as we will reiterate our update here today, we have continued to think that we will see a little bit more normalization in other business.

Looking at the employee base of PEO declining versus not necessarily the case it looks like almost the opposite.

In the employer services, so just trying to think about the trends.

And does typically the trend you see A&P will bleed into employer services and why maybe it's been a little bit weaker for pays per control, there and PEO versus employer.

Bryan Bergin: So we have contemplated that. But we think we are getting closer to where we think we're going to plateau or kept bottom there. So I think we're very close. And once again, I think it just comes back to the demand environment. It tends to be supporting the economy more broadly and more generally and small businesses benefiting from that as well. Yeah, I think if I may, I think the only thing I would add is that it's still very early in the year, right?

Yes, so just to clarify pays per control in PEO is actually higher we don't give that number but it was actually higher than employer services. So I think the first piece.

Just is that.

The basis are actually just different right. So if you look at the pace per control across the broader ADP, it's really a reflection of a mix of industries as I mentioned earlier, the PEO tends to skew by design by the way for the offering it's really the offering is the most valuable if you will to the cohorts that we offer to which tends to be more professional.

Bryan Bergin: So when I think about retention, we did have a record level in fiscal 23. We were near that record level year before we were at that record level the year before that. And so we've had this tremendous strength, and I think Don spot on in terms of all the reasons from a macro perspective that we've had that strength in terms of client retention. And so as that normalizes, we believe it's still prudent for us to have the retention guide that we have, which is really a byproduct of how we plan the year in the back half.

<unk> tech oriented companies that want to offer employers are their employees benefits of choice. If you will to be employers of choice and so that skews that base slightly.

Differently than the overall than what we're seeing within the PEO base is a delineation between those cohorts and the rest of the base. If you will so we cited in the prepared remarks, but the deceleration that is happening at the PEO is still.

Bryan Bergin: So I think I got the court, the question last quarter, and I'll answer proactively this quarter, which is, you know, are we, are we just being conservative? And I think the answer to that question is it's still early in the year. And so if we do continue to outperform retention in the way that we outperform in the first quarter, we hope that we will outperform for the full year. It's just early to take away that conservative sitting here just three short months into a very long year.

A byproduct of within that base, having professional services intact decelerating at a faster clip than the rest of the base. So to answer your question does a bleed across I think we're already hearing these headlines in the market in terms of.

And we see it within our own ADP Research Institute data with respect to professional services and tech hiring being in a different position than the rest of the market. So I think I would suggest that's already been bleeding across if you look at the last couple of quarters of that by the way that also track BLS data shows the same thing you see it in wages.

Bryan Bergin: Yeah, yeah. And then I want to go back to kind of a headline related question. You saw that you saw or you indicated that you had seen kind of a 25,000 sequential improvement in retirement services and. For clients, you alluded to some state mandates there, particularly around secure act 2.0. Can you talk a little bit about what state mandate you've seen or that may be impacting that business or for how long before we start to see benefit and retirement services post a new state mandate.

And so all of that to suggest I would say the trend we're seeing in the PEO is already in the macro but the basis are slightly different which is why you would feel the impact of it perhaps more significantly in the PEO PBC than you would in the broader PBC that was a mouthful by the way.

No that was helpful. Bill Thanks for the clarification and then the other question I. Just had is the strength you saw in the Es new bookings.

Bryan Bergin: So maybe we can help track headlines and anticipate like how big of an impact any new requirements may have. Absolutely. So I think I've spoken quite a bit to retirement services as well as the secure act over the last year or so. And I will tell you I was excited to report the new milestone today in part because that business continues to show strength, but also because it's a business that I know is adding tremendous value into the world of work.

Especially in September and the way the pipeline looks but youre not changing the total outlook of 4% to seven just trying to figure out.

Do you feel like you guys are maybe trending if things hold trending above the guidance range for bookings given the strength you saw in September and the pipeline and for SMB strength in the quarter.

Bryan Bergin: And so it is an exciting time. It does come as a byproduct of the offering the investments we've made into the offering and also these state mandates that some of which are anchored into the secure act at the federal level. Some of which are anchored state by state candidly. I could probably spend an hour with you and go state by state in terms of all the various mandates. What we see over the next year or so is the threshold of companies that need to comply with the state mandate starts to creep into call it the further down market, if not the micro market.

Yeah, what I would offer is that I am incredibly pleased with our results in the first quarter, especially on the heels of what was an incredible finished last year and so the pattern that we saw in the first quarter on the strength in the September is not a typical of the pattern. We see in the first quarter on the heels of an.

Bryan Bergin: And so as all these states, you know, a lot of them being on the west coast, if you're looking for headlines, tracking states like California, as they continue to pull down at what level do you need to comply with the state mandates and or the secure act, the more opportunity we will have to ensure that we're helping our clients solve for this piece, keep them compliant. But again, back to doing good in the world, it's also something that's bringing the value to each one of these employees that are engaging with these clients. I appreciate that color. Thank you.

<unk> strong fourth quarter, and so I am excited about the first quarter results and excited about the strength in September but the excitement is actually less about call. It. The the finished in September and more about what we see on the year on year demand environment, what we see in activity, what we see stepping into this next quarter and that does give us.

<unk> into our full year guide at that four to seven what I would also offer though is it's a long year and when you think about where the skewing. If you will or the contribution of new business bookings happens for us on a full year basis. It is in that third and fourth quarter are much larger than the first and second quarter.

So we believe it's prudent to given the line of sight that we have today, just a quarter end.

But we feel confident in the guide we're excited about four months, we're excited about how we're stepping into the quarter. The second quarter that is but we also still have an entire year ahead of us.

James Faucette: Our next question comes from Bryan Keane with Deutsche Bank. Your line is open. Hi guys. Good morning. I just want to ask about the decline in PEO, looking at the employee base of PEO declining versus not necessarily the case looks like almost the opposite in the employer services. So just trying to think about the trends and does typically the trend you see in PEO bleed into employer services and why maybe it's been a little bit weaker for pace control there in PEO versus employer.

Got it thanks for taking the questions.

You bet. Thank you.

Thank you. Our next question comes from Ramsey El <unk> with Barclays. Please go ahead.

Hi, Thanks for taking my question.

Would you give us your latest thoughts on the competitive environment in PEO and how that sort of evolving over time I think there is so much slower than historical growth across the industry are there any signs that the market is.

And with providers or is there any competitive overlay to performance.

I'd like to suggest.

The PEO ASO.

Conversation, if you will our PEO HR outsourcing offerings.

James Faucette: Yeah, so just to clarify, pace for control in PEO is actually higher. We don't give that number, but it is actually higher than employer services. So I think the first piece to suggest is that the bases are actually just different, right? If you look at the pace for control across the broader ADP, it's really a reflection of a mix of industries. As I mentioned earlier, the PEO tends to skew by design, by the way, for the offering.

Continues I don't know that Theres anything new to report Ramsey I think from my vantage point, it's always been a very competitive environment. We all have slightly different from one another I think we talked a lot about <unk> today and the way that it's skewed to professional services and Tech I think you have others.

That skew to different types of industry. As you also have other PEO that perhaps are a bit more down market, we tend to skew a little bit more upmarket than some and so I think all the PEO looks slightly different I think we all know our models are also not identical in terms of how we actually go to market.

James Faucette: It's really the offering is the most valuable, if you will, to the cohorts that we offer to, which tends to be more professional services, tech oriented companies that want to offer employers or their employees benefits of choice, if you will, to be employers of choice. And so that skews that base slightly differently than the overall. And what we're seeing within the PEO base is a delineation between those cohorts and the rest of the base, if you will.

Whether it's through the strength that we have and the competitive advantage of being able to have adp's client base contribute about 50% of those upgrades.

So I think how we go to market our models never mind the models of it.

Fully insured to self insured et cetera, I think similar trends are within the ASO offerings are some refer to them as <unk> offerings and so I think within there you also have various models in various go to market in terms of the some competitors, perhaps perhaps have some flexibility or more movements between <unk>.

James Faucette: So we cited it in the prepared remarks, but the deceleration that is happening at the PEO is still a byproduct of within that base having professional services and tech decelerating at a faster clip than the rest of the base. So it's to answer your question, does it bleed across? I think, you know, we're already hearing these headlines in the market in terms of, and we see it within our own ADP research institute data with respect to professional services and tech hiring, being in a different position than the rest of the market.

ASO and PEO than I think we cited in the past and so I think all of that to suggest I think the competitive environment is about the same and remains I think I am optimistic and expect growth in both our PEO bookings as well as our <unk> and ASO offerings throughout the <unk>.

James Faucette: So I think I would suggest that it's already been bleeding across. If you look at the last couple quarters of that, by the way, that also tracks BLS data shows the same thing. You see it in wages. And so all of that to suggest, I would say the trend we're seeing in the PEO is already in the macro, but the bases are slightly different, which is why you would feel it the impact of it, perhaps more significantly in the PEO PPC than you would in the broader PPC.

<unk> of this year and so I think we remain very very excited and optimistic about the growth of.

Those all of our HR outsourcing offerings, both in this year as well as the long term.

Okay.

Oh up for me can I ask you to revisit the comments you.

You made about higher selling expenses and <unk>, what does that mean exactly and also just I wanted to make sure I understood that Don mentioned that those there are some expectations does may continue, but theyre still in essence sort of a nonrecurring.

James Faucette: That was a mouthful, by the way. No, that was helpful, though. Thanks for that clarification. And then the other question I just had is the strength you saw in the ES new bookings, especially in September and the way the pipeline looks, but you're not changing the total outlook of four to seven. And just trying to figure out, you know, do you feel like you guys are maybe trending if things hold trending above the guidance range for bookings given the strength you saw in September and the pipeline and for SMB strength in the quarter.

Step up in expenses, it's not a permanent step up in expenses in the segment.

Yes, we saw higher selling expenses in Q1 for the PEO and we expect to see higher selling expenses.

Year over year in the first half, but we do think that that's going to settle down.

The second half so we're not looking at the kind of growth that we saw last year I think we've commented quite extensively on the many many salespeople we've added into the business last year and had great success allowed us to finish the year. The way we did so those folks are in place. So we are continuing to add some sellers we will.

James Faucette: Yeah, but I would offer is that I'm incredibly pleased with the results in the first quarter, especially on the heels of what was an incredible finish last year. And so the pattern that we saw in the first quarter and the strength in September, it's not a typical of the pattern we see in the first quarter on the heels of an incredibly strong fourth quarter. And so I am excited about the other first quarter results.

As though most of those sellers in the first half.

It is important also I think called out here than what we're seeing with our sellers is that we are getting much better.

James Faucette: I am excited about the strength in September, but the excitement is actually less about call it the finishing September and more about what we see on the year on year demand environment, what we see in activity, what we see stepping into this next quarter. And that does give us confidence into our full year guide at that four to seven. What I would also offer, though, is it's a long year. And when you think about where the skewing, if you will, or the contribution of new business bookings happens for us on a full year basis, it is in that third and fourth quarter are much call it larger than the first and second quarter.

Tension within the.

Community. So we are hoping and expecting to benefit from the improved tenure that we should see from the selling organization as we go through the balance of this year.

Got it just head count related primarily that makes a lot of sense. Thanks. So much I think its a timing thing I think thats the us.

Got it.

Thank you. Our next question comes from Jason Kupferberg with Bank of America. Please go ahead.

Good morning, guys, just staying on PEO for a second.

James Faucette: And so we believe it's proven to give them the line of sight that we have today just a quarter in, but we feel confident in the guide. We're excited about four months, we're excited about how we're stepping into the quarter, the second quarter that is, but we also still have an entire year ahead of us. Thank you for taking the questions. Thank you.

And maybe if we can just refresh a little bit here I'm, just thinking back to the analyst day two years ago. We thought it was a medium term, 10% to 12% grower now it's two to three at the moment.

There was definitely some post COVID-19 normalization, but maybe just.

Marie if you want to take us back to the dynamics in terms of just how the business has evolved from your perspective and is there a potential path back to double digit growth for this business. If the macro is a little bit more cooperative.

Bryan Keane: Our next question comes from Ramsey, Ellis out with Barclays. Please go ahead. Hi, thanks for taking my question. Could you give us your latest thoughts on the competitive environment and PEO and have that sort of evolving over time? I think there's somewhat slower than historical growth across the industry. Are there any signs that the market is saturated with providers, or is there any competitive overlay to PEO performance? I would suggest that the PEO ASO conversation, if you will, or PEO HR outsourcing offerings kind of continues.

Yeah. So.

I'll, let don kind of speak to the medium term targets and kind of the path back, but I think from my vantage point and I said it earlier today, but step one is the continued re acceleration of bookings and so this is the third quarter that we're pleased and we did have a solid.

Contribution of PEO bookings to the overall bookings picture in this quarter that was the case last quarter. It was the case the quarter before and I think the reason that I go to that it's not just because it's the piece that will accelerate the growth in pass us back to what our long term goals and medium term targets are for that business I think it's also because it.

Bryan Keane: I don't know that there's anything new to report Ramsey. I think from my vantage point, it's always been a very competitive environment. We all have slightly different PEOs from one another. I think we talked a lot about ours today and the way that it skews to professional services and tech. I think you have others that skew to different types of industries. You also have other PEOs that perhaps are a bit more down market.

Speaks to the demand environment speaks to the value proposition and the strength of that offering thats still exists in the market and so I think that's a big piece of it I think step two is the continued acceleration reacceleration of retention. So I mentioned that retention has been stable and as we can.

Bryan Keane: We tend to skew a little bit more up market than some. I think all the PEOs look slightly different. I think we all know our models are also not identical in terms of how we actually go to market, whether it's through the strengths that we have in the competitive advantage of being able to have 80-piece client-based, contribute about 50% of those upgrades. I think how we go to market are models. Never mind the models of fully insured to self-insured, etc.

We accelerate retention back into that growth that also will contribute to obviously the revenue and then last but not least Jason you mentioned it the macro headwinds and I think I talked about the last couple of quarters, how thats been the post pandemic.

Call it nuances that impacted that business I think we talked a lot about the renewal over the last couple of quarters now we're seeing these trends in PBC My view would be that all of the post pandemic waves that had been call it flowing through the PEO and all the variables.

Bryan Keane: I think similar trends are within the ASO offerings or some referred to them as HRO offerings. I think within there you also have various models and various go-to markets in terms of some competitors perhaps have some flexibility or more movements between ASO and PEOs. I think we've cited in the past. I think all that to suggest. I think the competitive environment is about the same and remains. I think I am optimistic and expect growth in both our PEO bookings as well as our HRO and ASO offerings throughout the balance of this year and so I think we remain very, very excited and optimistic about the growth of all of our HRO outsourcing offerings both in this year as well as the long term.

That make up that model.

We're still seeing some of those case in point being really call. It the reversion of what we saw.

Several quarters ago, which was when professional services intact with in a massive hiring boom now we're seeing the opposite of that right. So I think we still have some of these waves kind of shoveling through or.

Whether or <unk>.

Going through flowing through the PEO and.

If and when the macro changes with respect to that that certainly will help reaccelerate that business as well so in terms of the.

The path back ill, let Dan kind of speak to the other medium term targets, yes, I think you covered it very comprehensively there I would say that when we established the midterm targets I think a lot of things have changed since then certainly the inflation environment.

Bryan Keane: Got it. Okay. And a follow-up for me. Could I ask you to revisit those comments that you made about higher selling expenses in PEO? What does that mean exactly? And also just I wanted to make sure I understood that Don mentioned that there's some expectations those may continue but but there's still an essence sort of a non-recurring step up and expenses. It's not a permanent step up in expenses in the segment.

We've seen in particular, and where you just mentioned professional services and technology, we saw incredible growth in <unk>.

Those sector in those segments and growth to be all of what we thought we are what we have predicted as midterm targets or spoken to I think now we're seeing some diversion, we do though continue to be incredibly positive about that business. We think it definitely has a place and we.

Bryan Keane: Yeah. We saw higher selling expenses in Q1 for the PEO and we expect to see higher selling expenses year over year in the first half but we do think that that's going to settle down into the second half. So we're not looking at the kind of growth that we saw last year. I think we commented quite extensively on the many, many salespeople we added into the business last year and had great success and allowed us to finish the year the way we did.

We think that we will make our way back but as we also said, it's a little bit early too.

Forecast when we think we're going to get back to some of those midterm target growth areas that we have to do.

Scott.

Understood. That's good color just a follow up on yield.

Yield it looks like it was actually ticked down slightly quarter over quarter during Q1.

Bryan Keane: So those folks are in place. So we are continuing to add some sellers. We will add the most of those sellers in the first half and it's important just also I think call out here that what we are seeing with our sellers is that we are getting much better retention within the seller community so we are hoping and expecting to benefit from the improved tenure that we should see from the selling organization as we go to the balance of the I got it. It's a head count related primarily. That makes a lot of sense. Thanks so much. Yeah, I think it's a timing thing. I think that's the, uh, got it. Thank you.

At a higher rate environment, but just curious what the callouts might be there.

Hey, Jason that just relates to the mix between short term and extended and long. So in Q4, we were a little more levered to overnight.

Partly because the debt ceiling issue we had.

Deliberately skewed shorter duration, but in a typical Q1 <unk>.

Generally have a lower short portfolio and so there is seasonality in the average balance wouldn't read much into it year over year numbers that much more relevant metric.

Thanks, guys.

Ramsey El: Our next question comes from Jason Kupferberg with Bank of America. Please go ahead. Good morning, guys. Um, just staying on PEO for a second. And maybe if we can just refresh a little bit here, I'm just thinking back to the analyst day two years ago, we thought it was a medium term 10 to 12 percent grower. Now it's two to three at the moment. Um, there was definitely some post-COVID normalization, but maybe just, you know, Maria, if you want to take us back through the dynamics in terms of just how the business has evolved from your perspective, and, and is there a potential path back to double digit growth for this business, if the macro is a little bit more cooperative.

Thank you.

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

Hey, good morning, forgive me for asking another clarification on the PEO side, just with the sites.

Slight softness in the bookings also.

Related to the PFS and tech sector and also with the pace for control within PEO or is that more of a health care participation issue.

Labour weakness in those sectors.

I really apologize you actually bleeped out during the first part of your question would you mind just repeating yes, there was a word missing so.

I, probably didn't ask it very well just just wanted to make sure the bookings softness on the PEO side was that also in the professional services.

Ramsey El: Yeah, so I'll let's on kind of speak to the medium term targets and kind of the path back, but I think, you know, from my vantage point, and I said it earlier today, but step one is the continued re-exceleration of bookings. And so this is the third quarter that we're pleased and we did have a solid, you know, contribution of PEO bookings to the overall booking picture in this quarter. That was the case last quarter, it was the case the quarter before.

And tech sectors, and then also just on the basic control was the labor weakness or health care participation.

Yes, listen so I'm glad you're asking this question actually because I just wanted to reiterate.

We were very pleased with our PEO bookings and so there wasn't softness there was strength in growth in the in the PEO.

Ramsey El: And I think the reason that I go to that is not just because it's the piece that will accelerate the growth and pass us back to what our long term goals and medium term targets are with for that business. I think it's also because it speaks to the demand environment. It speaks to the value proposition and the strength of that offering that still exists in the market. And so I think that's a big piece of it.

Quarter bookings in terms of how we skew the year. It was slightly lighter than we had positioned our planning which is why it contributes the way that it does to the overall worksite employee growth, but again the worksite employee deceleration is really about the PTC story and so I just wanted to reiterate we were actually very pleased with.

Ramsey El: I think step two is the continued acceleration re-exceleration of retention. So I mentioned that retention has been stable. And as we re-excelerate retention back into that growth, that also will contribute to obviously the revenue. And then last but not least, Jason, you mentioned it, you know, the macro headwinds. And I think I talked about the last couple of quarters, how that's been the post-pandemic, call it nuance of that impact of that business.

The quarter from our PEO bookings perspective in terms of the industries I think it's a mix I think we continue to see.

The PEO execute with respect to the industries that we target which tend to be in to those categories.

As it relates to <unk>.

Comment around kind of within the PEO.

Okay.

Deceleration that is happening faster than professional services and technology.

Ramsey El: I think we talked a lot about the renewal over the last couple quarters. Now we're seeing these trends in PPC. My view would be that all of the post-pandemic waves that have been called it flowing through the PEO and all the variables that make up that model are we're still seeing some of those case in point being really call it the reversion of what we saw several quarters ago, which was when professional services and tech was in a massive hiring boom, now we're seeing the opposite of that, right?

The broader base of the PEO again, I don't want to give kind of the numbers of what that is but it isn't like the entire base of sitting in professional services. It's just that subset if you will.

The base and it is really again kind of triangulates to the the macro that we're seeing and.

The same type of data is coming out of the ADP Research Institute out of the BLS and it's really about hiring so it's less about call. It lay offs and Thats really where the professional services and tech industries were doing massive hiring call. It a year ago six quarters ago, It's really a lack of <unk>.

Ramsey El: So I think we still have some of these waves kind of shuffling through or whether or going through flowing through the PEO. And if and when the macro changes with respect to that, that certainly will help re-excelerate that business as well. So in terms of the path back, I'll let Dawn kind of speak to the medium term targets. Yeah, I think Maria covered it very, very comprehensively there. I would say that when we establish the midterm targets, I think a lot of things have changed since then, certainly the inflation environments.

Hiring that's happening in those in those businesses that I answer that question.

Got it thanks.

Thank you and just on the participation piece of it.

Pays per control wouldn't be impacted by participation rate.

The reported revenue would be so to the extent workers are taking plans cheaper plans or fewer planned move a little bit of that you do see it in the revenue per WSB, but the WCS themselves would you be impacted.

Ramsey El: And that we've seen in particular and read just mentioned professional services and technology. We saw incredible growth in those sector, in those segments and growth beyond what we thought we, or what we predicted in the midterm targets or spoken to. But now we're seeing some reversion. We do, though, continue to be incredibly positive about that business. We think it definitely has a place, and we think that we will make our way back.

Thank you Jamie I didn't ask it well thats perfect. That's what I was looking for.

We get questions around pricing as well that's why I was asking you about the participation side of things.

If there's a difference there it sounds like it is on the.

International Front, just my quick follow up just I think Sweden was.

Ramsey El: But as Maria also said, it's a little bit early to forecast when we think we're going to get back to some of those midterm target growth areas that we had discussed. Under said, that's, that's good color. Just to follow up on flute yield, it looks like it was actually a tick down slightly quarter over quarter, hearing Q1, you know, amid a higher rate environment, but just curious what the callouts might be there.

On the call out in terms of acquisition wise, Sweden important to own.

It's familiar with with some of the specific countries that you're targeting and I'm curious if this is just part of the.

Maybe a broader plan to.

Aggregate international payroll.

Absolutely so listen I have to take this question because I think you may know that I'm actually I was born in and partially raised in Sweden. So I thought it was prudent.

Ramsey El: Hey Jason, that just relates to the mix between short term and extended in long. So in Q4, we were a little more levered to overnight. Partly because of this death ceiling issue, we had to we deliberately skewed shorter duration, but in a typical Q1, we would generally have a lower short portfolio. And so there is even a holiday in the average balance would read much into it. The year over here number is the much more relevant metric. Thanks, guys. Thank you.

To make it the very first country that I announced.

I'm actually completely kitting. This was obviously well in motion before my time.

It sounds like it might be closer to Sweden and EUR.

And for US It is an exciting time for US we have had this partnership with BTR for quite some time for us to be able to acquire the payroll business of BTR.

It's exciting because the nordics are growing and this does give us a physical footprint into Sweden, which allows us to expand further into the nordics and really take advantage of the growth trajectory of those economies.

Jason Kupferberg: Our next question comes from Tianjin Huang with JP Morgan. Your line is open. Hi, good morning. Forgive me asking how their clarification on the PEOs. Just with the site was the site's office and the bookings also related to the PS and tech sectors and also with the pace for control within PEO. Is that more of a healthcare participation issue or just labor weakness in those sectors? I really apologize. You actually bleeped out during the first part of your question.

Obviously payroll, but also in the beyond payroll opportunities that we will have in years to come so really excited about the acquisition not just because it's near and Dear to my heart, but Moreover, because the nordics represent growth and it's exciting to think about us having a physical presence there.

Jason Kupferberg: Would you mind just repeating, yeah, they're worth missing. Oh, no, no, I probably didn't ask you very well. Just just wanted to make sure the booking softness on the PEOs that was that also in the professional services and tech sectors. And then also just on the pace for control with the labor weakness or healthcare participation. Yeah, listen, so I'm glad you're asking this question actually because I just want to reiterate we were very pleased with our PEO bookings.

Got it.

Thank you.

Thank you. Our next question comes from Dave Hogan with Evercore ISI Your line.

Thank you. Good morning, you called out strengthened yes bookings, particularly in the small business market with Ron could you provide some texture into the bookings trends you saw in mid market with workforce now in the upmarket with enterprise.

Jason Kupferberg: And so there wasn't softness. There was strength and growth in the PEO quarter bookings in terms of how we skewed the year. It was slightly lighter than we had positioned our planning, which is why it contributes the way that it does to the overall work site employee growth. But again, the work site employee deceleration is really about the PPC story. And so I just want to reiterate, we were actually very pleased with the quarter from a PEO bookings perspective.

And any any insights you have into international bookings in the quarter would also be appreciated.

Absolutely so.

So yes, we did have great strength in the down market is kind of moving moving on up in the mid market.

Certainly we have continued solid demand in the mid market. That's inclusive of our workforce now platform is also inclusive of our HR outsourcing offerings I spoke a bit about the ASO models <unk> models earlier.

That mid market also support is supported by the PEO. So we do see continued demand from the mid market I think the way I always think about it it's not getting any easier for companies in that mid market to navigate being an employer today and so we expect continued strong mid market growth I think in the upmarket.

Jason Kupferberg: In terms of the industries, I think it's a mix. I think we continue to see the PEO execute with respect to the industry that we target, which tend to be into those categories. As it relates to this comment around kind of within the PEO, the deceleration that is happening faster in professional services and technology versus the broader base of the PEO. Again, I don't want to give kind of the numbers of what that is, but it isn't like the entire base is sitting in professional services.

I asked about the enterprise space one of the Callouts, we made last quarter was about the strength that we saw in our next generation.

HCM offering and we did see that strength continue into this quarter, which we think is fantastic. We also see strength in the pipelines in that space year on year.

So excited about what we're hearing from our clients the sentiments around the offerings that we have in the in the enterprise space and then I think I touched a little bit on international earlier.

Jason Kupferberg: It's just that subset, if you will, of the base. And it is really, you know, again, kind of triangulates to the macro that we're seeing. And the same type of data is coming out of ADP research institute out of the BLS. And it's really about hiring. So it's less about call it layoffs. And it's really where the professional services and tech industries were doing massive hiring. Call it, you know, a year ago, six quarters ago, it's really a lack of hiring that's happening in those businesses.

But our international business did grow nicely in the first quarter again, it was the benefit of a little bit of an easier compare year on year, but we also had as I mentioned, a really strong finish and a strong fiscal 'twenty three and our international business.

Again, what I measure is partly the result, but as I think about the look forward, it's really about pipelines and what I would say our international pipelines year on year.

I have a fair amount higher than they did a year ago, which gives us the strength to.

Jason Kupferberg: Did I answer that question? Not just that. Attention, just on the participation piece of it, the pace for control wouldn't be impacted by participation rate, but the reported revenue would be. So to the extent workers are taking plans, cheaper plans or fewer plans, then a little bit of that, you do see it in the revenue per WIC, but the WIC themselves wouldn't be impacted. Thank you, Danny. I didn't ask it. Well, that's perfect.

So really feel good about our international.

Bookings to remain healthy through fiscal 'twenty four.

Thanks for that just as a quick follow up.

John you called out part of the 90 basis point margin decline in PEO being traced to a difficult comparison on workers' compensation reserve adjustments year ago can you quantify for us how large those were.

We think through the margin comparisons for Q2, Q3, and Q4 of FY 'twenty four and PEO.

Jason Kupferberg: That's what I was looking for. On the, you know, we have questions around pricing as well. That's why I was asking about the participation side of things and if there's a different stare sounds like it isn't on the international front, just my quick follow up, just I think Sweden was the call out in terms of ex acquisition, why Sweden important to own just I'm not it's familiar with with some of the specific countries and that you're targeting and I'm curious if this is just part of a maybe a broader plan to aggregate international payroll.

Yes, so as you know we've had very favorable reserve releases over the last.

A number of years.

Recall that last year, you indicated you would assume.

Ability there so just to be clear, we are still seeing favorable reserve releases, but we are not seeing.

We didn't see the reserve release to the extent that we did Q1 to Q1 of the prior year. So the numbers will be in the Q, but it's about $6 $2 million less.

Jason Kupferberg: Absolutely, so listen, I have to take this question because I think you may know that I'm actually I was born and and partially raised in Sweden, so I thought it was prudent to make it the very first country that I announced. I'm actually completely kidding. This was obviously well in motion before my time, but it sounds like I might be closer to Sweden than you are. And for us, it is an exciting time for us.

It was in the prior year or so that's that's the quantification of it and if you can kind of translate that into into the margin. It's about 60% to 90 560 bps of a 90 bps decline comes from.

The lower reserve release now once again, we think that we're going to continue to see reserve releases and were.

Jason Kupferberg: We have had this partnership with BTR for quite some time for us to be able to acquire the payroll business of BTR is exciting because the Nordics are growing and this does give us a physical footprint into Sweden, which allows us to expand further into the Nordics and really take advantage of the growth trajectory of those economies. So this is obviously payroll, but also in the beyond payroll opportunities that we will have in years to come.

Favorable as the actuaries get back to us and let us know what's happening, but we're not seeing any underlying changes or large changes that would lead us to be any less optimistic about seeing continued releases in the reserve Hey, David sorry, just to clarify it was a $6 million benefit in Q1, which was about 8 million less than the prior year.

Got it thank you very much.

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

Jason Kupferberg: So really excited about that position, not just because it's near and dear to my heart, but more over because I'm not sure if I'm going to be able to do that. Because the Nordics represent growth and it's exciting to think about us having a physical presence there. Thank you.

Hey, good morning, Thanks for taking my question.

Okay.

You got to see a lot of your new solutions, particularly focused on.

The AI assistant solutions Maria I'm wondering if you could talk a little bit about your philosophy with regards to.

Tianjin Huang: Our next question comes from David Togut with Evercourt ISI. So you're laughing. Thank you. Good morning. You call that strength and yes, bookings, particularly in the small business market with run. Could you provide some texture into the bookings trends you saw in mid market with workforce now and then up market with enterprise and any insights you have into international bookings in the quarter would also be appreciated. Absolutely. So yes, we did have great strengths in the down market, kind of moving moving on off in the mid market.

Which solutions you would charge additional four.

How are you thinking about monetization and then I've got a follow up in terms of process improvement.

Sure Good morning, Mark.

I'm pretty excited about all of our new solutions that you would've seen at HR Tech.

So I think I'll take a minute to kind of think or talk through thinking about gen. AI in general and then I will tell you how I'm thinking about monetization because I think they'll make more sense on the other side, but when I think about gen. II I think it will impact everything so the answer is it's going to be everywhere impacting everything that.

Tianjin Huang: Certainly, we have continued solid demand in the mid market. That's inclusive of our workforce now. Platform is also inclusive of our HR outsourcing offerings. I spoke a bit about the ASO models, HRO models earlier in that mid market also supported by the PEO. So we do see continued demand from the mid market. I think the way we think about it, it's not getting any easier for companies in that mid market to navigate being an employer today.

That we do across the entire client lifecycle. So it's about how we develop products.

That's everything from develop our co pilot types of tools that everyone's talking about it's about how gen II will be embedded into our products. It's about how we go to market in modern solar stuff that I've spoken about for years in how we actually have the ability now leveraging gen AI to actually acquire clients and then the most obvious being how we serve them how we.

Tianjin Huang: And so we expect continued strong mid market growth. I think in the up market, since you asked about the enterprise space, you know, one of the call outs we made last quarter was about the strengths that we saw in our next generation. HVM offering and we did see that strength continue into this quarter, which we think is fantastic. We also see strength in the pipelines in that space year on here. So excited about what we're hearing from our clients, the sentiments around the offerings that we have in the in the enterprise space.

Implement them, how we become more productive and make our clients more productive as we serve our clients and so when I think about Gen AI and I think most most everyone is probably like endesa things like whether it's software or the Internet I think my answer to you is it will be in everything that we do it in the fabric of <unk>.

We become and so in terms of the monetization side I think it's less about.

Charging a pass on a per feature so lets say some of the things I talked about today, which probably doesn't sound that exciting like report writing or if you look at the.

Tianjin Huang: And then I think I touched a little bit on international earlier, but our international business did grow nicely in the first quarter. Again, it was the benefit of a little bit of an easier compare year on year. But we also had, as I mentioned, a really strong finish and a strong fiscal 23 in our international business. You know, again, what I measure is partly the results, but as I think about the look forward, it's really about pipelines.

Earnings release document Youll see in there a job description that's pulled in the screenshot showing role. So these things probably don't sound that exciting, but theyre pretty exciting because they are the seeds of innovation as I used earlier to really show what how Jenny I will interact with everything that we do kind of in the fabric So said differently.

Tianjin Huang: And what I would say are international pipelines here on here, have a fair amount higher than they did a year ago, which gives us the strength to really feel good about our international bookings to remain healthy through fiscal 24. Thanks for that. Just as a quick follow-up, Don, you called out part of the 90 basis point margin decline at PEO being traced to a difficult comparison on workers' compensation reserve adjustments year ago.

Like I don't think.

We're going to be charging.

Or at least to get Gen. AI job description written orogen AI report written I think it's really about continuing our innovation journey too.

To do all the things, we've always done which is really about becoming more productive it's about solving.

Things for our clients and making them more productive and I think that to me the fruits of that labor really end up in new business bookings and they end up in retention and so that's not to suggest that there may not be things, but I don't think it is really to me about.

Tianjin Huang: Can you quantify for us how large those were as we think through the margin comparisons for Q2, Q3, and Q4 of FY24 and PEO? Yeah, so as you know, we had a very favorable reserve releases over the last number of years and certainly called that last year in the K you would have seen the favorability there. So just to be clear, we are still seeing favorable reserve releases, but we are not seeing the reserve release of the extent that we did Q1-Q1 of the prior year.

50, <unk> Pep them here and there to me, it's really about the innovation journey. We've been on this just allows us to do it at a faster clip and I'm really optimistic and excited about the things that we're seeing in terms of other things that we're measuring we actually are.

The entire organization rallied to engage in these tools, we actually have some some goals that we put out there in terms of by the end of the year, how many of our associates.

Set across sales and implementation and service and technology that are engaging with a tools right now thats sitting at already above 10% of our base of associates that have the ability to touch. These tools are already playing with it and I would tell you our entire sales organization, they're chomping at the bit because the digital sales are.

Tianjin Huang: So the numbers will be in the queue, but it's about $6.2 million less than it was in the past year. So that's that's the quantification of it. And if you kind of translate that into into the margin, it's about 60 of the 90 bits of the 90 bit decline comes from the the lower reserve release. Now, once again, we think that we're going to continue to see reserve releases and we're favorable as the actuaries get back to us and let us know what's happening, but we're not seeing any underlying changes or large changes.

Inside sales, where we've deployed a lot of these modern tools over years have an ability to to become that much more productive engaging our new prospects or new sales. So as you can probably tell like literally could go on and on and on but I think my answer to you is it will be everywhere across the entire client.

Tianjin Huang: It would lead us to be any less optimistic about seeing continued releases in the reserve. Hey, David, sorry, just to clarify, it was a $6 million benefit in Q1, which is about 8 million less than the prior year. Got it. Thank you very much.

Lifecycle that we have and I'm very optimistic about the.

The long term implications of this on all the major metrics that make up this great business model.

That's terrific with regards to this.

Activity enhanced, particularly when we think about.

David Togut: Thank you. Our next question comes from Mark Marcon with Baird. Your line is open. Good morning and thanks for taking my question. At HR Tech, we've got to see a lot of your your new solutions, particularly focused on, you know, the AI assisted solutions. Marie, I'm wondering if you can talk a little bit about your philosophy with regards to, you know, which solutions you would charge additional for. How are you thinking about monetization and then I've got to follow up in terms of process improvement.

Service implementation.

Longer term perspective can you describe how much more efficient you think.

Your service personnel could become.

How much efficiency you could end up gaining there.

And the implications from continuous margin improvement as you continue to grow along that journey I know, it's early days, but just how are you thinking about yeah listen market. It is early days right and thats not for a lack of scoping at right. So we have had it because it's not as though we haven't had all of these.

David Togut: Sure. Good morning, Mark. I'm pretty excited about all of our new solutions that you would have seen at HR Tech. So I think I'll take a minute to kind of think or talk through how I'm thinking about Gen AI in general, and then I'll tell you how I'm thinking about monetization because I think I'll make more sense on the other side. But, you know, when I think about Gen AI, I think it will impact everything.

Business cases over many years on how to become more productive and we have had in machine learning and regular AI in our house for a long time and this does give us a step change to that innovation, but it's still too early I think to sit on an earnings call and commit.

David Togut: So the answer is it's going to be everywhere impacting everything that we do across the entire client life cycle. So it's about how we develop products. That's everything from developer copilot types of tools that everyone's talking about. It's about how Gen AI will be embedded into our product. It's about how we go to market and modern seller stuff that I've spoken about for years and how we actually have the ability now leveraging Gen AI to actually acquire clients.

Number is but thats not for a lack of.

Internally, having scoping and line of sight to what we believe are pretty exciting both for us to go chase and again some of those goals that existed for a long time, but now we have technology that I'm hopeful that we can actually finally cracked the code on some of these really big enhancements that we see but.

David Togut: And then the most obvious thing how we serve them, how we implement them, how we become more productive and make our clients more productive as we serve our clients. And so when I think about Gen AI and I think most most everyone is probably likened into things like whether it's software or the internet. I think my answer to you is it will be in everything that we do and in the fabric of the who we become.

Productivity is a big piece of it I know I talk today about agent assist and this idea of call summarization again, it probably doesn't sound that exciting but for someone who used to do.

On the other side of that you see whether its a prospect call or a client call get summarized and recapped into a very quick format. That's usable these are.

Hours and minutes of time, even on the seller side.

Our launching something called rapid pre call planning and I think about the hours I used to spend 27 years ago researching a company.

David Togut: And so in terms of the monetization side, you know, I think it's less about, you know, charging a pepum on a per feature. So let's say, you know, some of the things I talked about today, which probably doesn't sound that exciting like report writing or if you look at the earnings release document, you'll see in there a job description that's pulled in the screenshot showing roles. So these things probably don't found that exciting, but they're pretty exciting because they are the seeds of innovation as I used to earlier to really show what how Gen AI will interact with in everything that we do kind of in the fabric.

To get myself ready to go in and have a conversation with a prospect that brings value, enabling our sellers to have all of that productivity. So I think it's again, it's too early to give you exact.

Hundreds of millions of dollars of types of quantification, but arguably we are actively looking kind of case by case and really picking the ones that we believe sequentially will be the most accretive to drive the most amount of productivity the most amount of value back to our shareholders, but candidly the most.

David Togut: So said differently, Mark, like I don't think we're going to be charging separately to get Gen AI job description written or a Gen AI report written. And I think it's really about continuing our innovation journey to do all the things we've always done, which is really about becoming more productive. It's about solving things for our clients and making them more productive. And I think that to me, the fruits of that labor really end up in new business bookings and they end up in retention.

The amount of value to our clients.

Terrific. Thank you.

Thank you we have time for one more question and that question comes from Scott <unk> with Wolfe Research. Your line is open.

Great. Good morning, guys. Thanks for squeezing me in here just on the launch of the construction vertical software I'm. Just wondering is this sort of part of a bigger shift to develop more vertical specific solutions for your clients understand construction, maybe a more complex vertical but wondering if there is more of a.

David Togut: And so that's not to suggest that there may not be things, but I don't think it's really to me about 50 cents pepum here and there to me. It's really about the innovation journey we've been on. This just allows us to do it at a faster clip. And I'm really optimistic and excited about the things that we're seeing in terms of other things that we're measuring. We actually have the entire organization rally to engage in these tools.

Vertical specific strategy that could develop beyond the construction vertical.

So I like what Youre, what youre, suggesting and I think the answer to that could be yes, and I think when I think about that.

Back to selling 27 years ago I used to sell construction companies and the complexity that they have has always existed and candidly a lot of the features and functionality that we have and are now pulling together to make it an actual solution for that vertical existed many years ago and that's everything from things like job casting obviously.

David Togut: We actually have some some goals that we put out there in terms of by the end of the year, how many of our associates that set across sales and implementation and service and technology that are engaging with these tools. Right now that's sitting at already above 10% of our base of associates that have the ability to touch these tools are already playing with them. I will tell you our entire sales organization are chomping at the bit because the digital sales are inside sales where we deployed a lot of these modern tools over years.

Compliance and reporting think about certified compliance type of reports for payroll things of that nature, and so it's really about pulling it together and marrying it with a service organization that can support the complexity of that vertical I think that to me is the big change. So we did add some features but a lot of these things.

David Togut: We have an ability to become that much more productive engaging our new prospects and new sales. So as you can probably tell like I literally could go on and on and on, but I think my answer to you is it will be everywhere across the entire client life cycle that we have and I'm very optimistic about the long term implications of this on all the major metrics that make up this great business model.

We we've had and we pulled them together and we're marrying it with the ecosystem of a dedicated service org that can actually really help the construction industry in this vertical solve the complexity of being in that industry. So I think what I would offer is that.

It's an exciting time for the construction industry, specifically for our workforce now clients and I see that's just to say as you suggested at the beginning of other places that we could pull together our existing tact with a dedicated type of service model and solve real challenges in the business for various verticals.

David Togut: That's terrific. And with regards to this, the productivity enhancement, I mean, particularly when we think about service and implementation. From a longer term perspective, can you can you describe how much more efficient you think your service personnel could become and how much efficiency you could end up gaining there and the implications from, you know, continuous margin improvement as you continue to go along that journey. I know it's early days, but just how are you thinking about that?

Got it that's helpful and just a quick follow up.

Wondering if you can give an update on sort of next gen. Next gen payroll attach rates and how we're sort of trending there relative to expectations.

So nexgen.

Yeah.

Payroll that was the question both okay, just making sure I heard it right. So I think I touch base really quickly on next Gen HCM and I think I nodded too.

David Togut: Yeah, listen, Mark, it is early days, right? And that's not for a lack of scoping it, right? So we have had it because it's not as though we haven't had all of these business cases over many years on how to become more productive. We've had machine learning and regular AI in our house for a long time. And this does give us a step change to that innovation, but it's still too early.

The excitement that we have that we continue to see the strength in the nextgen.

HCM offering into Q1, so we had a strong fourth quarter.

What I would suggest is that we actually brought in more next gen. HCM in the first quarter than we saw all of last fiscal year, but again one quarter. These things can sometimes be lumpy, but I think for me, it's really about the sentiment and so we we recently had an analyst day, we had a handful of our clients up on stage that.

David Togut: I think to sit on a bit of an early-school and commit numbers, but that's not for lack of internally having scoping and line of sight to what we believe are pretty exciting goals for us to go chase. And again, some of those goals have existed for a long time, but now we have technology that I'm hopeful that we can actually finally crack the code on some of these really big enhancements that we see, but certainly productivity is a big piece of it.

With us the impact the platform is making for them and as you would remember we spent a lot of our discussions over the last year talking about scaling implementation onboarding. The backlog. So it's pretty exciting to see some of that backlog that's no longer backlog onstage speaking to the value proposition and that's supported by continued strength, which means our seller.

David Togut: I know what I talked today about agent assists in this idea. Of call summarization. Again, it probably doesn't sound that exciting, but for someone who used to sit on the other side of that, and you see whether it's a prospect call or a client call gets summarized and recapped into a very quick format that's usable. These are hours and minutes of time. Even on the seller side, we actually are launching some of the called rapid pre-call planning.

Are excited to continue to sell the next Gen HCM offerings. So I think that's all very very positive.

Similarly, we have.

Continued.

Focus in the next Gen payroll and so what I would offer there as we continue to make headway. So as you know it's not deployed across the entire mid market. We continue to make headway to add to solve for more complex features things of that nature that will pull it further into the upmarket of the mid market, but as you know that next.

David Togut: And I think about the hours I used to spend 27 years ago. Researching a company to get myself ready to go in and have a conversation with a prospect that brings value and enabling our sellers to have all of that productivity. So I think it's, again, it's too early to give you exact hundreds and millions of dollars of types of quantifications, but arguably we are actively looking kind of case by case.

<unk> payroll engine is also what's attached to the role offer.

The other exciting part about that engine as it is the thing thats, taking us into the SMB space internationally. So feel really excited about the roadmap for that offering.

David Togut: And really picking the ones that we believe sequentially will be the most accreted to drive the most amount of productivity, the most amounts of value back to our shareholders, but candidly, the most amount of value to our clients. Perfect. Thank you.

The contributions that its making into the mid market today, but also into the long term.

Growth of the company internationally.

Awesome I appreciate the color. Thank you.

Yes.

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

Mark Marcon: We have time for one more question. And that question comes from Scott, we're deal with wolf research. Your line is open. Great. Good morning, guys. And thanks for squeezing me in here. Just on the launch of the construction vertical software, I'm just wondering is this sort of part of a bigger shift to develop more vertical specific HCM solutions for your clients. Understand, you know, construction may be a more complex vertical, but wondering if there is more vertical specific strategy that could develop beyond the construction vertical.

Yes, so thank.

Michelle.

Listen it's hard for me not to sit here and reflect on a year ago and so I was driving in this morning, and feeling candidly a bit nostalgic because it is exactly one year ago to Carlos and I sat here and announced.

Mark Marcon: Thanks. So I like what you're what you're suggesting and I think the answer to that could be yes. And I think when I think about back to selling 27 years ago, I used to sell construction companies and the complexity that they have has always existed and candidly a lot of the features and functionality that we have and are now pulling together to make it an actual solution for that vertical existed many years ago.

The transition of me becoming.

This amazing company and so I'm incredibly nostalgic and proud today I'm proud of our first quarter results I'm really proud of the execution of the team both with respect to the results, but also with everything that you heard in terms of the progress we are making on a a very cohesive and.

Strong strategic outline and priorities, but mostly what I would offer is that I remain incredibly humbled by the.

Over 60000 associates that I haven't.

<unk> had an opportunity to engage with over the last year, who continues to make this company everything that it is an absolutely amazing and I just wanted to.

Mark Marcon: And that's everything from things like job costing, obviously compliance and reporting think about certified compliance type of reports for payroll things of that nature. And so it's it's really about pulling it together and marrying it with a service organization that can support the complexity of that vertical. I think that to me is a big change. So we did add some features, but a lot of these things we we've had and we pulled them together and we're marrying it with the ecosystem of a dedicated service org that can actually really help the construction industry and this vertical saw the complexity of being in that industry.

To say that I would like to thank each and every one of them for inspiring me every day, so with that that is the conclusion of our call and.

So we need again.

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

Mark Marcon: So I think what I would offer is that it's an exciting time for the construction industry, specifically for our workforce now clients. And I see that just as you suggested at the beginning of other places that we could pull together our existing tech with a dedicated type of service model and solve real challenges in the business for various articles. Scott Wurtzel, David Togut, Jason Kupferberg, David Togut, Jason Kupferberg, David Togut David Togut, Jason Kupferberg, David Togut, Jason Kupferberg, David Togut, Jason Kupferberg, David Togut, Jason Kupferberg, David Togut, Jason Kupferberg, David Togut, Jason Kupferberg, David Togut, Jason Kupferberg, David Togut, Jason Kupferberg, David Togut, Jason Kupferberg, David Togut, Jason Kupferberg, David Togut David Togut, Jason Kupferberg, David Togut, Jason Kupferberg, David Togut[inaudible] Thank you for your participation. This doesn't include the program and you may now disconnect. Everyone have a great day.