Q2 2024 Automatic Data Processing Inc Earnings Call

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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 second quarter fiscal 2024 earnings call.

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

Michelle: After the prepared remarks, we will conduct a question answer session instructions will be given at that time.

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

Danyal Hussain: Thank you Michelle and welcome everyone to Adp's second 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 at our Investor Relations website.

Daniel Hussain: At investors about ADP Dot Com, where you will also find the investor presentation that accompanies today's call.

Daniel Hussain: 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 risks. 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.

Daniel Hussain: Now I'll turn it over to Maria.

Maria Black: Thank you Danny and thank you everyone for joining us.

Maria Black: This morning, we reported strong second quarter results included 6% revenue growth and 9% adjusted EPS growth.

I'll begin with a review of the quarter's financial highlights before providing an update on the progress we are making across our strategic priorities.

Maria Black: We delivered solid employer services, new business bookings in the second quarter, reaching a new record bookings volumes for Q2, and keeping us on track for our full year outlook.

Growth was especially robust across our small business portfolio and we also experienced healthy growth in our mid market and international business.

Maria Black: With steady demand in HCM and a healthy new business pipeline at the end of the quarter. We look forward to the important selling season ahead.

Employer services retention was strong in the second quarter, although it declined slightly compared to the prior year. We once again exceeded our expectations as we continue to benefit from a healthy overall business environment and from our very high client satisfaction levels.

Maria Black: Our employer services pays per control growth remained at 2% for the second quarter. The overall labor market remains a resilient and our clients continue to add employees at a moderate pace, which is resulting in a very gradual deceleration in pays per control growth.

Maria Black: Last our PEO revenue growth of 3% for the second quarter was in line with our expectations and we are very pleased to have delivered strong PEO new business bookings that were ahead of our expectation.

Maria Black: Based on continued healthy activity levels, we feel good about our PEO bookings momentum and we look forward to seeing a gradual reacceleration of our PEO business in the second half of this fiscal year.

Maria Black: Moving on to the broader update during the second quarter, we launched a new brand advertising campaign theme the next anything.

Maria Black: The campaign highlights how the world of work is always changing sometimes gradually sometimes suddenly and trusted business solutions must evolve with it the theme aligns with our strategic priorities to give our clients the advantage of our leading technology expertise and scale.

Maria Black: Two we continue to push forward on our first strategic priority to lead with best in class HCM technology.

Maria Black: A key part of that is the rollout of ADP assessed our cross platform solution powered by AI to proactively deliver actionable insights in plain language to enhanced HR productivity aid decision, making and streamline day to day tasks for our clients and their employees.

Maria Black: ADP assessed seamlessly integrates with ADP products across multiple platforms.

Maria Black: Using an intuitive conversational interface it provides valuable and contextual insights, which touched every aspect of HR.

Maria Black: For example in addition to the features that we shared with you last quarter, including our natural language reporting capability in Q2, we integrated natural language search capabilities into our run platform, which allows us to understand intent behind the search term and use gen AI to mine <unk>.

Maria Black: He has deep knowledge base to deliver easy to use and effective content.

Maria Black: <unk> also helps clients validate payrolls and solve common employee challenges across HR payroll time and benefits.

It's a comprehensive experience that is trained on the industry's largest and deepest HCM dataset and our deep knowledge base to surface highly credible and actionable insights so that clients to make smarter decisions.

Maria Black: We are excited about the roadmap ahead for all of our major solution and we expect that to help us build on the recognition we continue to earn in the market.

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 second 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 and answer session. Instructions will be given at that time. I will now turn the conference over to Mr. Daniel Hussain, Vice President, Best Relations. Please go ahead.

Maria Black: In Q2 alone we were pleased to be recognized for product leadership by three major industry analysts rankings.

Maria Black: Everest group named ADP, the highest later at a 27 providers and it's multi country payroll solutions peak matrix report.

Maria Black: Nelson Hall identified ADP as a leader in its payroll services vendor evaluation and assessment tool in all markets.

Danyal Hussain: Thank you, Michelle, and welcome everyone to ADP's second quarter fiscal 2024 earnings call. Participating today are 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-GAAP financial measures that we believe are useful to investors and that exclude the impact of certain items.

Maria Black: And then Tana research named US an exemplary leader across its North American Global and payroll management Buyer's guide for performing the best and meeting overall product and customer experience requirements.

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

Maria Black: We shared last quarter that we were beginning to equip our associates with Gen AI capabilities through our agent assist technology.

Maria Black: In Q2, we expanded our call summarization deployment to a greater portion of our service associates and started to see productivity gains with shorter handle time and improved service quality.

Danyal Hussain: A description of these items, along with a reconciliation of non-GAAP measures to their most comparable GAAP measures, can be found in our earnings release. Today's call will also contain forward-looking statements that refer to future events and involve some risk. We encourage you to review our filings with the FCC 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, Dany, and thank you, everyone, for joining us.

Maria Black: With our global service Associates field and millions of calls annually. We are incredibly excited to test ways to optimize those client interactions.

Maria Black: Our third strategic priority is to benefit our clients through our global scale and we continue to lean into this advantage.

Maria Black: This morning, we reported strong second-quarter results, including 6% revenue growth and 9% adjusted EPS growth. I'll begin with a review of the quarter's financial highlights before providing an update on the progress we are making across our strategic priorities. We delivered solid employer services new business bookings in the second quarter, reaching a new record booking volume for Q2 and keeping us on track for our full year outlook. Growth was especially robust across our small business portfolio, and we also experienced healthy growth in our mid-market and international business. With steady demand for HCM and a healthy new business pipeline at the end of the quarter, we look forward to the important selling season ahead. Employer services retention was strong in the second quarter. Although it declined slightly compared to the prior year, we once again exceeded our expectations as we continue to benefit from a healthy overall business environment and from our very high client satisfaction levels. Our employer services pays-per-control growth remained at 2% for the second quarter.

Maria Black: In Q2, we announced a strategic collaboration with <unk>, a global business to business payments company to help our multi country clients manage the complexity of global payroll and cross border payments through an integrated platform.

Maria Black: By combining <unk> payment solutions with our global payroll expertise, we're enhancing the client experience by minimizing the need to access various banking platform and improving payment accuracy compliance and security.

Maria Black: We also announced the launch of ADP requirement Trust services to support our growing retirement services business.

Maria Black: Standing up our own trust services entity demonstrates our scale and commitment to our retirement clients positioning us on par with financial industry leaders and ahead of HCM competitors that rely on third parties.

This commitment can really matter to financial advisers keeps data within adp's trusted ecosystem and provides a cost and price benefit for ADP and our clients over the long term.

Maria Black: The overall labor market remains resilient, and our clients continue to add employees at a moderate pace, which is resulting in a very gradual deceleration in pays-per-control growth. And last, our PEO revenue growth of 3% for the second quarter was in line with our expectations, and we are very pleased to have delivered strong PEO new business bookings that were ahead of our expectations. Based on continued healthy activity levels, we feel good about our PEO bookings momentum, and we look forward to seeing a gradual reacceleration of our PEO business in the second half of this fiscal year. Moving on to a broader update. During the second quarter, we launched a new brand advertising campaign themed The Next Anything.

Maria Black: Our scale also affords us the opportunity to partner with other leading technology providers in innovative ways and we continue to expand on many of those partnerships to provide our sales implementation and service teams with client specific insight to quickly address market shifts drive more personally.

Maria Black: <unk> interactions and deepen our overall client engagement.

Maria Black: Overall, our second quarter represented strong outcomes on the financial front and with respect to our key strategic priorities.

Speaker Change: Like to thank our associates, who continue to deliver exceptional products and outstanding service to our clients, particularly now as many of them are in the middle of our most hectic time of year completing yearend work.

Maria Black: The campaign highlights how the world of work is always changing, sometimes gradually, sometimes suddenly, and trusted business solutions must evolve with it. The theme aligns with our strategic priorities to give our clients the advantage of our leading technology, expertise, and scale. In Q2, we continue to push forward on our first strategic priority to lead with best-in-class HCM technology. A key part of that is the rollout of ADP Assist, our cross-platform solution powered by Gen-AI that proactively delivers actionable insights in plain language to enhance HR productivity, aid decision-making, and streamline day-to-day tasks for our clients and their employees. ADP Assist seamlessly integrates with ADP products across multiple platforms.

Speaker Change: I'm proud to share that their efforts helped drive our overall net promoter score to its highest level ever in the second quarter. Thank you again for all that you do for ADP and for our clients and now I'll turn it over to dawn.

Dawn: Thank you Maria and good morning, everyone.

Ill provide more color on our results for the quarter as well as our updated fiscal 2024 outlook overall, we reported a strong second quarter with a consolidated revenue growth moderating in line with our expectations and our adjusted EBIT margin coming in slightly better than expected.

Dawn: However, the interest rate backdrop has changed since we last provided our full year outlook, we are likely tweak your outlook, which I will detail.

Speaker Change: I'll start with employer services.

Speaker Change: <unk> segment revenue increased 8% on a reported basis and 7% on an organic constant currency basis coming in slightly ahead of our expectations.

Maria Black: Using an intuitive conversational interface, it provides valuable and contextual insights that touch every aspect of HR. For example, in addition to the features we shared with you last quarter, including our natural language reporting capability, in Q2, we integrated natural language search capabilities into our run platform, which allows it to understand intent behind the search term and use Gen AI to mine ADP's deep knowledge base to deliver easy-to-use and effective content. ADP Assist also helps clients validate payrolls and solve common employee challenges across HR, payroll, time, and benefits.

Speaker Change: As <unk> shared we continue to grow our es, new business bookings, resulting in a record second quarter bookings volume, our small business portfolio of international business provided outsized growth contributions this quarter.

With a steady HCM demand environment and healthy pipelines, we feel on track for our sport to 7% new business bookings growth outlook for the year.

Speaker Change: As mentioned earlier, our Es retention declined slightly in Q2 versus the prior year, but again exceeded our expectations.

Speaker Change: Given our first half retention outperformance, we are increasing our full year retention it looks slightly.

Speaker Change: We anticipate a 40% to 60 basis point decline.

Maria Black: It's a comprehensive experience that is trained on the industry's largest and deepest HCM data set and our deep knowledge base to deliver highly credible and actionable insights so that clients can make smarter decisions. We are excited about the roadmap ahead for all of our major solutions, and we expect it to help us build on the recognition we continue to earn in the market. In Q2 alone, we were pleased to be recognized for product leadership by three major industry analyst rankings. Everest Group named ADP the highest leader out of 27 providers in its multi-country payroll solutions peak matrix report, and Nelson Hall identified ADP as a leader in its payroll services vendor evaluation and assessment tools in all markets.

Speaker Change: Full year retention.

Speaker Change: Which was 10 basis points better than our prior forecast.

Speaker Change: Es pays per control growth of 2% in Q2 was in line with our expectations and we are maintaining our 1% to 2% growth outlook for the full year.

Speaker Change: And client funds interest revenue increased in line with rare expectations in Q2 as a slight decline in our average client funds balance, which we discussed last quarter was more than offset by an increase in our average yield.

Speaker Change: However, we are revising our full year client funds interest don't look lower to reflect the change in prevailing interest rates since our last update.

We now expect fiscal 'twenty four client funds interest revenue of $985 million to $995 million and we expect a net impact from our client funds extended investment strategy of $835 million to $845 million.

Maria Black: And Ventana Research named us an exemplary leader across its North American Global and Payroll Management Buyer's Guide for performing the best in meeting overall product and customer experience requirements. Our second strategic priority is to provide unmatched expertise and outsourcing solutions. We shared last quarter that we were beginning to equip our associates with Gen AI capabilities through our Agent Assist technology. In Q2, we expanded our call summarization deployment to a greater portion of our service associates and started to see productivity gains with shorter handle times and improved service quality. With our global service associates fielding millions of calls annually, we are incredibly excited to test ways to optimize those client interactions.

Speaker Change: Representing a reduction of about $20 million at the midpoint.

Speaker Change: In total there was no change to our fiscal 2004, it yes revenue growth forecast of 7% to 8%.

Speaker Change: Our EES margin increased 170 basis points in Q2.

Speaker Change: Driven by both operating leverage and contribution from client funds interest revenue growth will be.

Speaker Change: Reflecting the impact of the reduced <unk> interest revenue forecast as well as a slight increase in expected Jennie O I's related spend we are tweaking our fiscal 2004, yes margin outlook and now anticipate the lower end of our prior margin range.

Speaker Change: Moving onto the PEO.

Speaker Change: We had 3% revenue growth driven by 2% growth in average worksite employees in the second quarter.

Maria Black: Our third strategic priority is to benefit our clients through our global scale, and we continue to lean into this advantage. In Q2, we announced a strategic collaboration with Convera, a global business-to-business payments company, to help our multi-country clients manage the complexity of global payroll and cross-border payments through an integrated platform. By combining Convera's payment solutions with our global payroll expertise, we're enhancing the client experience by minimizing the need to access various banking platforms and improving payment accuracy, compliance, and security. We also announced the launch of ADP Retirement Trust Services to support our growing retirement services business.

Speaker Change: These metrics were in line with our expectation and we are encouraged to see signs of stabilization in our pea our pays per control growth.

Speaker Change: Maria mentioned.

Speaker Change: New business bookings were very strong in Q2 with continued healthy activity levels. We continue to anticipate a gradual ramp in our worksite employee growth in the back half of fiscal 'twenty four and we are maintaining our full year growth outlook of 2% to 3%.

Speaker Change: <unk> margin decreased 50 basis points in Q2 as.

Speaker Change: As we shared last quarter, we assume this year's workers' compensation reserve release benefit will be lower than last year's benefit and.

Speaker Change: And we are further narrowing our margin expectation to be down to 80 to 100 basis points in fiscal 'twenty four versus our prior expectation of decline of 50 to 100 basis points.

Maria Black: Standing up our own trust services entity demonstrates our scale and commitment to our retirement clients, positioning us on par with financial industry leaders and ahead of HCM competitors that rely on third parties. This commitment can really matter to financial advisors, keeps data within ADP's trusted ecosystem, and provides a cost and price benefit to ADP and our clients over the long term. Our scale also affords us the opportunity to partner with other leading technology providers in innovative ways, and we continue to expand on many of those partnerships to provide our sales implementation and service teams with client-specific insights to quickly address market shifts, drive more personalized interactions, and deepen our overall client engagement. Overall, our second quarter represented strong results on the financial front and with respect to our key strategic priorities.

Speaker Change: Putting it altogether there is no change to our fiscal 'twenty for consolidated revenue growth outlook of 6% to 7%.

Speaker Change: With the two changes to segment margin, we now expect our adjusted EBIT margin to increase by 60% to 70 basis points versus our prior outlook for an increase of 60 to 80 basis points.

We continue to expect an effective tax rate of around 23% and we still anticipate fiscal 'twenty for adjusted EPS growth of 10% to 12% with the middle of that range. The most likely outcome given current assumptions.

Speaker Change: And I will now turn it back to the operator for Q&A.

Speaker Change: Thank you if you wish to ask question. Please press star one one.

Speaker Change: We are aware of the allotted time for questions. Please ask one question with a brief follow up we will take our first question from Mark Marcon with Robert W. Baird. Your line is open.

Maria Black: I'd like to thank our associates who continue to deliver exceptional products and outstanding service to our clients, particularly now, as many of them are in the middle of our most hectic time of year, completing year-end work. I'm proud to share that their efforts helped drive our overall Net Promoter score to its highest level ever in the second quarter. Thank you again for all that you do for ADP and for our clients. Now, I'll turn it over to Don. Thank you, Maria, and good morning, everyone.

Mark S. Marcon: Hey, good morning, and congratulations on all the accolades that you've gotten from the third party.

Mark S. Marcon: Viewers I'm wondering if you can talk a little bit about.

Some of the initiatives.

Mark S. Marcon: Specifically, one that stood out was the was setting up your own trust.

Mark S. Marcon: Can you talk a little bit about the investments there and.

Mark S. Marcon: How we should think about.

Mark S. Marcon: How that would end up on folding and what do you think some of the reactions would be with some of your third party partners like <unk> got bank partnerships and CPA partnerships and obviously.

Don McGuire: I'll provide more color on our results for the quarter, as well as our updated fiscal 2020 outlook. Overall, we reported a strong second quarter, with our consolidated revenue growth moderating in line with our expectations, and our adjusted EBIT margin coming in slightly better than expected. However, the interest rate backdrop has changed since we last provided our full-year outlook, and we are lightly tweaking our outlook, which I'll detail. I'll start with Employer Services.

Mark S. Marcon: Benefit administration partnerships.

Mark S. Marcon: How do you think they'll end up reacting thank you Murray.

Murray: Thank you Mark and good morning.

Speaker Change: The question and appreciate your well wishes on all of our recognition certainly excited to see across the board. The recognition we mentioned during the prepared remarks, but also the continued momentum across all of our initiatives I'm happy to comment on retirement Trust services.

Don McGuire: ES segment revenue increased 8% on a reported basis and 7% on an organic, constant currency basis, coming in slightly ahead of our expectations. As Maria shared, we continue to grow our ES new business bookings, resulting in a record second quarter booking volume. Our small business portfolio and international business provided outsized growth contributions this quarter, and with a steady HCM demand environment and healthy pipelines, we feel on track for our 4-7% new business bookings growth outlook for the year. As mentioned earlier, our ES retention declined slightly in Q2 versus the prior year, but again exceeded our expectations.

Speaker Change: It is really a demonstration of our scale and so when I think about what it means to our clients what it means to the ecosystem that you mentioned bank PPA I think it's all incredibly positive and trust services, our core component of any 401K plan, given the size and scale of our retirement.

Services business, what we found is that the pool of what's known as third party trustees. If you will that are capable of handling a business just of our size is actually becoming shrinking Lee a more difficult. If you will in terms of the number of providers that are able to offer a standalone trust services to a retirement offering of our size.

Don McGuire: Given our first half retention outperformance, we are increasing our full year retention outlook slightly. We now anticipate a 40 to 60 basis point decline in full year retention, which is 10 basis points better than our prior forecast. ES Pay-for-control growth of 2% in Q2 was in line with our expectations, and we are maintaining our one to two percent growth outlook for the full year. Client Funds Interest Revenue Increased in Line with Expectations in Q2. A slight decline in our average client funds balance, which we discussed last quarter, was more than offset by an increase in our average yield.

Speaker Change: So in terms of that we made the decision to launch our in House Trust services. We believe that this is a great value to our clients to the ecosystem.

Speaker Change: That's on par with other industry leaders in the financial services and really a competitive advantage against some of our HCM competitors that continue to leverage. These third party trustees. So for US I think it's a big commitment to the business that we have the retirement business that is which really can matter to financial advisors and as we've said our ppas.

Speaker Change: Some banks are really by taking the trust services in house. The implication is that we have better control over our costs ultimately that yields a better price for our clients about our service.

Don McGuire: However, we are revising our full-year client funds interest outlook lower to reflect the change in prevailing interest rates since our last. We now expect fiscal 24 client funds interest revenue of $985 to $995 million, and we expect a net impact from our client funds extended investment strategy of $835 to $845 million, representing a reduction of about $20 million at the mid. In total, there is no change to our fiscal 24 ES revenue growth forecast. 7-8% Our ES margin increased 170 basis points in Q2, driven by both operating leverage and contributions from client funds interest revenue growth. But reflecting the impact of a reduced client funds interest revenue forecast, as well as a slight increase in expected gen AI related spend, we are tweaking our fiscal 24 ES margin outlook and now anticipate the lower end of our prior margin range. Moving on to the PEO, We had 3% revenue growth driven by 2% growth in average worksite employees in the second quarter.

Speaker Change: You also have the ability to maintain all of the data inside of Adp's ecosystem, which as you know is a big component of how ADP is in terms of data integrity and all of those things. So that's kind of the other retirement trust services in a nutshell mark.

Speaker Change: Terrific.

Mark S. Marcon: Thanks for that and then.

Mark S. Marcon: Noticeable.

Mark S. Marcon: Basically are you.

Mark S. Marcon: Anticipating a lower level.

Mark S. Marcon: Decline in terms of the Es retention, which is coming off a record levels.

Mark S. Marcon: To what extent is that due to our anticipation of lower levels of bankruptcies as opposed to discrete.

Mark S. Marcon: Improvement that you've been seeing in terms of your client service scores.

Speaker Change: So retention is going incredibly well right and we mentioned that in the remarks, our year to date retention has definitely been better than we expected and so I think things are fundamentally really healthy right now one thing to keep in mind I kind of think about the outlook is that we are as you mentioned, we are coming off of some of the other <unk>.

Hi is that we've seen over the last several years and while we believe that from a specifically a downmarket perspective, we're close to being normalized back to fiscal 19 trends. We do also anticipate some pressure in the back half from perhaps out of the business and bankruptcies, having more of a material impact we havent seen it.

Don McGuire: These metrics were in line with our expectations, and we are encouraged to see signs of stabilization in our P.O. pays-per-control growth. As Maria mentioned, our PO new business bookings were very strong in Q2. With continued healthy activity levels, we continue to anticipate a gradual ramp-up in our worksite employee growth in the back half of fiscal 24, and we are maintaining our full year growth outlook of 2 to 3%. P.O. margin decreased 50 basis points in Q2. As we shared last quarter, we assume this year's workers' compensation reserved release benefit will be lower than last year's benefit.

Speaker Change: To date.

Speaker Change: But we certainly want to ensure that we're cognizant of the fact that we believe it's prudent given that we have retention running at such record levels. We believe it's prudent to plan for it in the back half to have some pressure and obviously just like any earmarked retention is always not noisy and so we have some normal variability in conservatism in the back half.

Speaker Change: Just like you I'd like to think that there's opportunity. There I think only time will give us the answer to that but that's kind of how we're thinking about the back half.

Don McGuire: We are further narrowing our PEO margin expectation to be down 80 to 100 basis points in fiscal 24, versus our prior expectation of a decline of 50 to 100 basis points. Putting it all together, there is no change to our fiscal 24 consolidated revenue growth outlook of 6 to 7%. With the two changes to segment margin, we now expect our adjusted EBIT margin to increase by 60 to 70 basis points versus our prior outlook for an increase of 60 to 80 basis points. We continue to expect an effective tax rate of around $23 billion, and we still anticipate fiscal 24 adjusted EPS growth. 10% to 12%, with the middle of that range the most likely outcome given current assumptions.

Speaker Change: Really appreciate that thank you and congratulations.

Speaker Change: Thanks Mark.

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

James E. Faucette: Great. Thank you very much I appreciate all the detail this morning.

James E. Faucette: I wanted to quickly just touch on PEO.

James E. Faucette: You called out a strong acceleration in the business, but it looks like outlook for revenues with J&J.

James E. Faucette: I've mentioned that but I'm just trying to capture how much of that is timing issue versus the concentration you have in professional services and technology, which still seem a little bit soft at least in the employment reports.

Speaker Change: Yes, James Thanks, Thanks for that question.

Operator: Thank you, and I'll now turn it back to the operator for Q&A. Thank you. If you wish to ask a question, please press star 1 1.

Speaker Change: We've been happy to see the stabilization in the.

Speaker Change: And the pace per control in those sectors, the financial services and technology sectors. So although there is still a little bit of noise. There certainly stabilized group you saw in the.

Operator: Please be aware of the allotted time for questions. Please ask one question with a brief follow-up. We'll take our first question from Mark Marcon with Robert W. Baird. Your line is open. Hey, good morning.

Speaker Change: In the prior quarter, so thats positive I do think that as we looked at our sales results are bookings for PEO, but we're very happy with the bookings Maria mentioned that.

Mark S. Marcon: And congratulations on all the accolades that you've gotten from the third-party reviewers. I'm wondering if you can talk a little bit about, you know, some of the initiatives, and specifically, one that stood out was setting up your own trust. Can you talk a little bit about the investment there and, you know, how we should think about how that would end up unfolding? And what do you think some of the reactions would be with, you know, some of your third-party partners? Like you've got bank partnerships and CPA partnerships and, obviously, benefit administration partnerships. How do you think they'll end up reacting?

Speaker Change: Very.

Maria Black: Good I think as we kind of put together the improvement in the pays per control and the improvement in our bookings I think we're going to be heading towards that reacceleration that we've been pointing to over the last couple of quarters in the PEO.

Maria Black: But really just trying to get the impact of those two components. Those very good with those variables is really what's going to help us get that re acceleration going.

Speaker Change: Thanks, James just to clarify just to clarify the pays per control, although its stabilizing if not providing any sort of upside versus our prior forecast. So bookings are going well it takes quite a bit in terms of bookings to really drive a material change to the current year revenue, which you all understand.

Maria Black: Thank you, Maria. Thank you, Marky. Good morning.

Maria Black: Appreciate the question and appreciate your well wishes on all of our recognition. Certainly excited to see across the board the recognition we mentioned during the prepared remarks, but also the continued momentum across all of our initiatives. Happy to comment on retirement trust services. It is really a demonstration of our scale.

Speaker Change: Stand with paid perpetual still providing sequential gradual drag those two are sort of netting out to an in line outlook.

Speaker Change: Got it thanks for that Danny and then quickly on on AI It seems like.

Maria Black: And so when I think about what it means to our clients, what it means to the ecosystem that you mentioned, banks, CPAs, I think it's all incredibly positive. And trust services are a core component of any 401k plan. Given the size and scale of our retirement services business, what we found is that the pool of what's known as third-party trustees, if you will, that are capable of handling a business just of our size is actually becoming shrinkingly more difficult, if you will, in terms of the number of providers that are able to offer standalone trust services to a retirement offering of our size.

Speaker Change: A little bit of incremental investment there.

Speaker Change: Certainly a big focus on on this call but.

Speaker Change: Wondering about how we should think about.

Speaker Change: How you are anticipating a return on that investment and over what kind of timeframe and maybe more qualitatively what kinds of paybacks holders increased.

Speaker Change: Customer satisfaction, our internal operations et cetera. Thanks.

Speaker Change: Yes, I'll start on the AR on the AI side and tell you all the reasons again that I'm. So excited about it and maybe Don can give you a little bit about how we're thinking about the return on investments that we're making so just to remind everyone. How we're thinking about AI in its most simplistic way I think about it really in three buckets, the first of which is <unk>.

Maria Black: So in terms of that, we made the decision to launch our in-house trust services. We believe that this is of great value to our clients, and to the ecosystem. It puts us on par with other industry leaders in the financial services industry and really gives us a competitive advantage against some of our HCM competitors that continue to leverage these third-party trustees. So for us, I think it's a big commitment to the business that we have, the retirement business that is, which really can matter to financial advisors. And as you said, CPAs and banks, really, by taking the trust services in-house, the implication is that we have better control over our costs. Ultimately, that yields a better price for our clients, and a better service. We also have the ability to maintain all of the data inside of ADP's ecosystem, which as you know, is a big component of who ADP is in terms of data integrity and all of those things. So that's kind of the retirement trust services in a nutshell, Mark. Thanks for that!

And innovation, so putting degenerative AI into all of our innovation cycles. So that's everything from product development.

To the features and functionality that I mentioned in the prepared remarks and by the way later. This morning, we're actually issuing a press release that goes through some of our product and innovation colored philosophy and launches of products right. So some of what this press release speaks to is how we're thinking of.

Speaker Change: And our design principles around making things easy smarten human within our product and innovation cycles to really drive things like payroll assessed things like ADP assessed into our into the market in a meaningful way. It's a product that's really kind of the first bucket and as you'll see we're making significant investments there.

Speaker Change: We do have ADP assess now more broadly deployed across the product set and we're seeing meaningful impact as it relates to our client experience on that.

Speaker Change: Second bucket is what I call efficiency and service efficiency and this is really about getting all the same things that we're looking to give our clients to make their jobs easier and more effective and efficient and giving those same tools to our associates and so we have a genesis I'm pleased to say that from an agent assist perspective with <unk>.

Maria Black: And then it was noticeable that you basically are, you know, anticipating a lower level of decline in terms of ES retention, which is coming off of record levels. To what extent is that due to an anticipation of lower levels of bankruptcies as opposed to just the improvement that you've been seeing in terms of your client service? So retention is going incredibly well, right? And we mentioned in the remarks that year-to-date retention has definitely been better than we expected. And so I think things are fundamentally really healthy right now.

Speaker Change: More than doubled the number of associates today theyre engaging in AI tools overall.

Speaker Change: Typically a big piece of that is anchored in agent assist and the things we're doing around call summarization again, I'll, let Don comment on investments and return, but just to kind of give you a flavor of what we're talking about here.

Speaker Change: The feedback we're getting from our associate says there are times, where shaping up well.

Speaker Change: Or two minutes by aiding you know things like call summarization, and while that probably seen minutes skill what I would offer to you is we have thousands of service associates and we also have millions and millions of calls that we take every single year and so we're pretty optimistic and excited about a minute here in a minute.

Maria Black: One thing to keep in mind as we kind of think about the outlook is that we are, as you mentioned, coming off of some of the record highs that we've seen over the last several years. And while we believe that, from a specifically a down market perspective, we're close to being normalized back to fiscal 19 trends. We do also anticipate some pressure in the back half from perhaps going out of business and bankruptcies having more of a material impact, although we haven't seen that to date.

Speaker Change: There and what that means from a AR and the incremental opportunity for us over time right. So we continue to lean into our service efficiency and really getting all of our associates more effective as it relates to their ability to engage with our clients and then last but not least by the way I could go on and on and on all day on this topic, but long.

Speaker Change: But normally it's very very important is how we're thinking about generative AI and our go to market motions and so we have four years I've been at the tip of the spear of sales modernization. We have partnerships that are two decades old well, we've always been leading the way with what it looks like to have a best in class modern.

Maria Black: But we certainly want to ensure that we're cognizant of the fact that, given that we have retention running at such record levels, we believe it's prudent to plan for it in the back half to have some pressure. And obviously, you know, just like any year mark, retention is always noisy. And so we have some normal variability and conservatism in the back half. But just like you, I'd like to think that there's opportunity there. I think only time will give us the answer to that question.

Speaker Change: Distribution and sales force and this is no different for us. So we already have a broad set of our sellers are leveraging tools along the lines of generative AI many of which are through our best in class vendors and partners that we have and we're seeing great impact. There you know things that I used to do Mike.

Maria Black: But that's kind of how we're thinking about the back half. Really appreciate that, Maria. Thank you and congratulations. Thanks, Mark. Thank you. Our next question comes from James Faucette with Morgan Stanley. Your line is open.

Speaker Change: Also at a personal level manually as such as pre call planning by the way things like call Summarization for prospecting now these are big.

James E. Faucette: Great, thank you very much. I appreciate all the detail this morning. I wanted to quickly just touch on PEO. You called out a strong acceleration.

Speaker Change: Items for us as it relates to our go to market motions and we've just started scratching the surface at all and really excited again, just kind of wrap it all up I think it's about product service efficiency in our go to market motions, we are making active investments. Some of those investments are things that we've shifted that we were already working on in digital transformation.

Don McGuire: Business. But it looks like the outlook for revenues is changing. You may have mentioned that, but I'm just trying to capture how much of that is a timing issue versus the concentration you have in professional. Yeah, James, thanks. Thanks for that question.

Speaker Change: Some of it is incremental investments and so I think with that I'll turn it over to Don who can kind of talk about how we're thinking about our incremental investments and Moreover, the return on that.

Don McGuire: We've been happy to see the stabilization in the, in the case for control in those sectors, the financial services and technology sectors. So although there's still a little bit of noise, they're certainly stabilized from what we saw in the prior quarter. So that's a positive thing. I do think that as we looked at our sales results, our bookings for PEO, we were very happy with the bookings. Maria mentioned that it was already very good.

Don: Yes, one of the brands just unwind some of the exciting areas.

Don: We will have for us and some were female changeover required experience better other hopper associates, Oklahoma, So more et cetera, but I would say at this point in time. When we were talking about is some modest investments in general I think it's going to be a little while before we start to see returns from those bankers, we certainly do anticipate turns but in the in your <unk>.

Near term roadmap, which really.

Don: We're reinvesting in these tools et cetera.

Don McGuire: I think as we kind of put that together, the improvement in pay-per-control and the improvement in our bookings, I think we're going to be heading towards that re-acceleration that we've been pointing to over the last couple of quarters in the PEO. But really just trying to get the impact of those two components, those variables, is really what's going to help us get that re-acceleration going. James, just to clarify, the Pace for Control, although it's stabilizing, is not providing any sort of upside versus our prior forecast. So bookings are going well. It takes quite a bit in terms of bookings to really drive a material change in the current year revenue, which you all understand. But with Pace for Control still providing sequential, gradual drag, those two are sort of netting out to an inline outlook. Got it. Thanks for that, Dany.

Don: See those outcomes those financial outcomes Kimberly on the road.

Speaker Change: That's great. Thank you both very much.

Speaker Change: Thank you. Our next question comes from Ramsey El <unk> with Barclays. Your line is open.

Ramsey El: Hi, there and thanks for taking my question this morning.

Ramsey El: You guys called out higher seller expenses is just one component of the margin headwinds in PEO.

Ramsey El: I guess my question is this just the cost to compete and PEO at this point in other words is it is it becoming more expensive to compete in PEO or do you expect expense levels related to selling just sort of abate and a more normalized time period.

Speaker Change: Yes, I don't think there is just to answer the question.

Speaker Change: Nothing really unusual.

Speaker Change: Fundamentally different the photo showing the expenses and how we go to market in the PEO I think certainly as we see higher sales as you know we did a lot of our sales half of our sales.

James E. Faucette: And then quickly on AI. Like, you know, there's a little bit of incremental investment there. I don't have a big focus on this call.

Speaker Change: It will take from internal so some of that's a little bit of our our internal housekeeping. If you will where we only did expenses between business units et cetera.

Maria Black: I'm wondering about how we should think about, how you're anticipating a return on that investment and over what kind of time frame and, maybe more qualitatively, what kinds of paybacks will come, Customer Satisfaction or Internal Operations, etc. Yes, I'll start on the AI side and tell you all the reasons again that I'm so excited about it. Maybe Don can give you a little bit about how we're thinking about the return on the investments that we're making. So just to remind everyone how we're thinking about AI, in its most simplistic way, I think about it in really three buckets, the first of which is product and innovation. So we are putting generative AI into all of our innovation cycles.

Speaker Change: Hydro sale generally translate into higher selling expenses, so really nothing fundamentally different in how we go to market certainly not seeing any fundamental differences in the competitive landscape is driving those expenses.

Speaker Change: Got it Okay and then one follow up for me in the context of the international.

Speaker Change: Launches like rule in Ireland and also I guess the partnership you guys just announced with <unk> can you comment on the international value proposition itself, whether it's sort of largely the same as it is in the U S or are their distinctive products needs partnerships required in these markets that you guys sort of still need to build out to more fully execute on the international opportunity.

Speaker Change: Yes, I'll start with Barry can add here in a second so as you know you look at our revenue.

Speaker Change: International revenue as a percentage of total and it's not where we'd like it to be even though roughly 40% of the visa repay around the world.

Maria Black: So that's everything from product development to the features and functionality that I mentioned in the prepared remarks. And by the way, later this morning, we're actually issuing a press release that goes through some of our product and innovation, call it philosophy, and launches of products, okay. So some of what this press release speaks to is how we're thinking about and our design principles around making things easy, smart, and human within our product and innovation cycles to really drive things like payroll assist, things like ADP assist, into the market in a meaningful way. So product is really kind of the first bucket.

Speaker Change: In international So and the reason for that is that we are fundamentally different offers in the U S. We have things like P. O. We also have money movement services tax services pretty much broadly distributed some of those offers don't have the same value proposition outside of the U S market, So our opportunity there with some.

Is not quite the same perhaps it will be as time goes on tubular services may be available.

Speaker Change: Markets.

Speaker Change: You speak today here are not there in the guidance probably the same.

Speaker Change: With respect to <unk> as a partner.

Speaker Change: Just to speak to that one a little bit we have thousands of <unk>.

Speaker Change: Clients and those thousands of clients with thousands of of <unk>.

Speaker Change: Entities spread across multiple countries around the world.

Speaker Change: And if you think about the complexity and the difficulty of paying your people in some of these small countries and then getting the payments to the various will securities.

Maria Black: And as you'll see, we're making significant investments there. We do have ADP assist now more broadly deployed across the product set, and we're seeing meaningful impact as it relates to our client experience on that. The second bucket is what I call efficiency and service efficiency.

Speaker Change: Riders in those countries, having somebody like <unk>, who can help.

Speaker Change: More European or in large U S multinational manage the treasury function in those small countries around the world without having to set up all the banking et cetera. So someone like <unk> acts as a great partner for us to facilitate those cross border payments and a very.

Maria Black: And this is really about giving all the same things that we're looking to give our clients to make their jobs easier and more effective and efficient. So we're really focused on efficiency and giving those same tools to our associates. And so we have Agent Assist.

Speaker Change: In a compliant way et cetera. So I think that's a very positive for us. So we do have some partners in international and like <unk>, just mentioned, but we still see it as a great opportunity for us to continue to grow that's right. If I may one of the things I think we're done is suggesting is really the opportunity we have.

Maria Black: I'm pleased to say that from an agent assist perspective, we've more than doubled the number of associates today that are engaging in AI tools overall. Specifically, a big piece of that is anchored in agent assist and the things we're doing around call summarization. Again, I'll let Don comment on investments and return, but just to kind of give you a flavor of what we're talking about here. You know that the feedback we're getting from our associates is that there are times we're talking about a minute or two minutes by aiding things like call summarization.

Speaker Change: With international and so when you put it in the context of.

Speaker Change: The business that we have in the U S or there is a tremendous opportunity for us to think more broadly in international partnerships at the one Dan just outlined with conversion is a big piece of that.

Speaker Change: I would also add is that from an international perspective, we did call out the performance specifically in Q2 on international that's by the way in bookings.

Maria Black: And while that probably seems minuscule, what I would offer to you is that we have thousands of service associates, and we also have millions and millions of calls that we take every single year. And so we're pretty optimistic and excited about a minute here and a minute there and what that means from an incremental opportunity for us over time. So we continue to lean into service and really get all of our associates more effective as it relates to their ability to engage with our clients. And then, last but not least, by the way, I could go on and on and on all day about this topic, but last but not least and very, very important is how we're thinking about generative AI in our go-to-market activities.

Speaker Change: On the heels of a solid Q1, what I would offer as well as we have record retention, we have record customer experience and client experience in international. So I think we have a tremendous value proposition in international by the way some of the recognition I cited during the prepared remarks is really about how our best.

Speaker Change: In class our offer is with respect to the international offering we have so that's sad as Don mentioned, we're not satisfied I think theres more opportunity to us they've got scale and grow our beyond payroll offerings, our partnerships, our big piece of that but undoubtedly we're performing and competing very very well internationally.

Speaker Change: Fantastic sounds like good things ahead I appreciate it.

Speaker Change: Oh, you know what let me just comment because he mentioned role in international So I just thought I'd mentioned that really quickly which is we are very excited about.

Maria Black: And so we have, for years, been at the tip of the spear of sales modernization. You know, we have partnerships that are two decades old where we've always been leading the way with what it looks like to have a best-in-class modern distribution in Salesforce. And this is no different for us. We already have a broad set of our sellers leveraging tools along the lines of generative AI, many of which are through our best-in-class vendors and partners that we have.

Speaker Change: The down market and international role is one way that we're getting after that and.

Speaker Change: The pilot programs that we're running are teaching us a lot as we think about the down market and international.

Speaker Change: Okay perfect. Thank you.

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

Bryan C. Keane: Hi, guys congrats on the solid results.

Bryan C. Keane: Don I just wanted to ask about the average balances I know, we were expecting a little bit of a headwind from the payroll tax deferral, maybe you can quantify that.

Bryan C. Keane: As part of the reason for the drop of balances down 2% and then what's the go forward. There. We should expect is there a more of a headwind from the payroll tax deferral for balances and maybe expect a similar decline in the back half of this year.

Maria Black: And we're seeing great impact there. You know, things that I used to do myself at a personal level manually, such as pre-call planning, by the way, things like call summarization for prospecting, you know, these are big items for us as it relates to our go-to-market activities, and we've just started scratching the surface. So all in all, really excited.

Don: No I think you're right to call out the payroll deferrals payroll taxes rollout definitely was behind the.

Maria Black: Again, just to kind of wrap it all up, I think it's about product service efficiency and our go-to-market motions. We are making active investments. Some of those investments are things that we've shifted that we were already working on in the digital transformation. Some of it is incremental.

Speaker Change: The decline quarter to quarter.

Speaker Change: We don't think that's now behind us so that's not going to be there. So we are expecting 2% to 3% balance growth for the balance of the year. So we think that's very positive.

Speaker Change: Big Colorado, So on the whole CLI program is just the fact that since we spoke last five year and 10 year interest rates are down about 80 bps on both of those and so I think that's a little bit of a headwind and that's roughly the $20 million or so that we're calling down the fluid number for the balance of the year, but.

Maria Black: And so I think with that, I'll turn it over to Don, who can kind of talk about how we're thinking about our incremental investments and, moreover, the return on that. Yeah, so I think Maria has just outlined some of the exciting areas that Gen AI will have for us and some of the things that will change, how they'll make the client experience better, how they'll help our associates, how they'll help us sell more, etc. But I would say at this point in time, what we're really talking about is some modest investments in Gen AI.

Speaker Change: Still very optimistic about growth certainly.

Speaker Change: The reason that it's not growing as quickly perhaps as it did last year, we certainly have seen some moderation in wage rate growth and we've talked about even though pays per control are behaving as we expected. They are certainly lower pays per control growth is lower than it was.

Speaker Change: In the back half will be lower in the back half of this year than it was in the back half of last year. So those would be the major.

Speaker Change: A major Influencers if you will.

Don McGuire: I think it's going to be a little while before we start to see returns from those things, but we certainly do anticipate returns. But in the near term, right now, it's really a time for investing in these tools, etc. See those outcomes, those financial outcomes somewhere down there. That's great. Thank you both very much.

Speaker Change: To the to the full balance as we go forward for the back half.

Speaker Change: Got it and is that part of the this.

Speaker Change: The moving of the Es margins to the lower end of the range you've talked about.

James E. Faucette: Thank you. Our next question comes from Ramsey Ellis with Barclays. Your line is open.

Speaker Change: You talked about rates there just what was the surprise from three months ago on rates that maybe.

Ramsey El: Hi there, and thanks for taking my question this morning. You guys called out higher seller expenses as just one component of the margin headwinds in PEO. I guess the question is, is this just the cost to compete in PEO at this point? In other words, is it becoming more expensive to compete in PEO? Or do you expect expense levels related to selling to sort of abate in a more normalized time period? Yeah, I don't think there's just one answer to that question.

Speaker Change: Cause you to push the margins towards the lower end or where you think that lower than that as well.

Speaker Change: The new margin range, that's been registering right I think the flow certainly is a component of us guiding to the middle of our range for sure. So that's a component.

Speaker Change: We don't we don't try to second guess the markets. We use <unk>, we use yield curves that are out there in the market too.

Speaker Change: To estimate what we think our returns are going to be so no real surprises other than seeing what's happening in the.

Speaker Change: And the overall market and then we're taking the taking the forward yield curves and applying those to our balances and that's that.

Don McGuire: There's nothing really unusual or, I think that's fundamentally different about our selling expenses and how we go to market in the P.E.O. I think certainly as we see higher sales, as you know, we get a lot of our sales, half of our sales, give or take, from internal, so some of that's a little bit of our... Our internal housekeeping, if you will, how we allocate expenses between business units, et cetera, but higher sales generally translate into higher selling expenses, so really nothing fundamentally different in how we go to market, certainly not seeing any fundamental I got it.

Speaker Change: That's where we land.

Great. Thanks for taking the questions.

Speaker Change: Yes.

Speaker Change: Thank you. Our next question comes from Scott <unk> with Wolfe Wolfe Research. Your line is open.

Scott: Great. Thanks, Good morning, guys and thank you for taking my questions. Maybe just wanted to start off on some trends that we've seen so far in the selling season. It seems like your <unk>. It was pretty positive on the bookings side, but maybe wondering how sort of traction with <unk> and then also what are you seeing maybe from competitors any changes in pricing go to Mark.

Mark S. Marcon: <unk> strategy and all that would be helpful.

Mark S. Marcon: Yes, good morning, Scott, we feel good about the demand environment overall at this point I think companies are still hiring we saw that this morning actually as well and companies are still investing and their people their talent or investing in HR. I think there are a couple of things I'd highlight to you. The downmarket definitely companies are considering it.

Maria Black: Okay. And then one follow-up question for me, in the context of the international product launches like Rural in Ireland and also, I guess, the partnership you guys just announced with Convera, can you comment on the international value proposition itself, whether it's sort of largely the same as it is in the US? Or are there distinctive products, needs, and partnerships required in these markets that you guys sort of still need to build out to more fully execute on the international opportunity? Yeah, I'll start with what I can add here in a second.

Mark S. Marcon: The higher and they're continuing to buy we have tremendous second quarter results by the way that business has been executing.

Mark S. Marcon: Executing incredibly well.

Mark S. Marcon: Really for for many many quarters and that's our run offering but it's also all the things that are attached to run so think insurance services retirement services all of the Downmarket is doing incredibly well to give you a little bit of a line of sight because it is the 30 <unk> of January.

Mark S. Marcon: We do actually have a tiny bit of visibility specifically to the down market and you asked about trends into the third quarter. What I would offer to you is January looks good I think we're actually on track to onboard something close to like 30000 units in that business alone in the month of January and so that's the that's the size of some companies. If you will so it's pretty incredible.

Maria Black: So, as you know, we look at our revenue, as international revenue as a percentage of the total, and it's not where we'd like it to be, even though roughly 40% of the people we pay around the world are international. So, the reason for that is that we have fundamentally different offers in the US. We have things like PEO, we also have money movement services, and tax services, pretty much broadly distributed. Some of those offers don't have the same value proposition outside of the US market.

Mark S. Marcon: <unk> two.

To see the execution in the down market, we have solid pipelines really across the mid market as well as up market mid market did incredibly well in the second quarter from a competitive standpoint, I think we got a lot of questions around the competitive landscape has shifted in the mid market, but I would offer to you. It is hasn't really shifted its been a <unk>.

Don McGuire: So our opportunity there is not quite the same, perhaps it will be as time goes on, some of those services may be available in other markets, but as we speak today here, they're not there, the value proposition isn't the same. And with respect to Convera as a partner, just to speak to that one a little bit, we have thousands of... Klein, and those thousands of clients have thousands of entities spread across multiple countries around the world. And if you think about the complexity and the difficulty of paying their people in some of these small countries and then getting the payments to the various social security providers in those countries.

Mark S. Marcon: Partitive space for us for a long time, it's an area for us that we're executing very very well we have best in class product, we continue to take friction.

Mark S. Marcon: Wei from our clients make it easy for our clients to engage with US we noticed based on our results in retention, we know thats based on our results and record MTS.

Mark S. Marcon: We had good bookings in the mid market. So I think the mid market is solid and certainly not getting any easier for our clients to be employers in the mid market as it relates to the.

Mark S. Marcon: International Space, I think I covered that already so I won't touch much more on an international but a good Q2 on the heels of a good Q1, and then in our enterprise and upmarket space. This is an area that has.

Mark S. Marcon: Normally I think it's kind of the norm new normal on longer deal cycles that have more individuals involved in the cycle. So we're paying close attention to it and.

Don McGuire: Having somebody like Convera who can help a large European or a large U.S. multinational manage the treasury function in those small countries around the world without having to set up all the banking, etc., etc. So I think that's very positive for us. We do have some partners in international, like Convera, as I just mentioned, but we still see it as a great opportunity for us to continue. That's right.

Mark S. Marcon: And certainly all the things that are happening.

Mark S. Marcon: Across that space, but I would suggest to you that we feel relatively solid about our pipelines and our ability to bring that business in the in the back half.

Speaker Change: Great. That's helpful and just as a follow up for Don just on the float income guidance sorry.

Speaker Change: I noticed a.

Pretty notable increase on your outlook for the clients' short portfolio. So I'm just wondering if you can maybe give a little bit of color on sort of change in geography.

Maria Black: If I may, one of the things I think Don is suggesting is really the opportunity we have with international business. And so when you put it in the context of the business that we have in the US, there is a tremendous opportunity for us to think more broadly about international partnerships, such as the one Don just outlined with Convera, is a big piece of that. What I would also add is that from an international perspective, we did call out the performance specifically in Q2 on internationals. That's, by the way, in booking.

Speaker Change: All of those investments for the balance.

Don: Yes, So maybe let me let me clarify that for you a little bit so really we haven't changed our investment strategy at all we have done is we've tweaked a little bit the way. We're the way we're going to we were borrowing funds in the market.

Don: So what youre seeing is we're actually entering the market a little differently. So instead of borrowing everything we need to on our peak borrowing day, we're simply spreads blowing out over two or three days. So that we can tap the market.

Don: We're in a smoother way if you will and I think if youre looking at the average balances on that on the appendix sheet fits in the in the release, you'll notice that that number has gone up in the short a fair bit but thats. The driver. So it's not a change in our investment strategy at all it's just a change in a bit of a tweak in the way we're actually borrow.

Maria Black: That's on the heels of a solid Q1. What I would offer, as well as record retention, we have record customer experience and client experience in international. So I think we have a tremendous value proposition in international. By the way, some of the recognition I cited during the prepared remarks is really about how best in class our offer is with respect to the international offering we have. So that said, as Don mentioned, we're not satisfied.

Don: <unk> funds in the market when we need a larger announcements.

Don: When we have larger amounts of world.

Speaker Change: Great. Thanks, guys.

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

Maria Black: I think there's more opportunity to scale and grow our beyond payroll offering, and partnerships are a big piece of that. But, undoubtedly, we're performing and competing very, very well internationally. Fantastic.

Bryan C. Bergin: Hi, Good morning. Thank you first question I have is on EBIT margins can you comment on what drove the outperformance versus your view for that to be down I think in <unk> I'm curious if that was an aspect of timing within the year versus better than expected efficiency and I think Don I heard you mentioned some gen AI investments to come is that incremental.

Maria Black: Sounds like good things ahead. I appreciate it. But, you know what?

Maria Black: Let me just comment because you mentioned the role in international. So I just thought I'd mention that really quickly, which is that we are very excited about the downmarket, and the international role is one way that we're getting after that. And, you know, the pilot programs that we're running are teaching us a lot as we think about the downmarket and international. Okay, perfect.

Bryan C. Bergin: Spend versus the prior plan.

Don: So let me start Brian let me start with the first part of your question. So there was a little bit of modest revenue outperformance in the quarter. So I think that was a contributor to the margin and then we had some expense some.

Don: Some expenses, we always had a focus on expenses, there's a few things a little bit of bad debt, a little bit of head count et cetera, and perhaps a little bit of a little bit of timing, but nothing significant to really call out as a contributor.

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

Don: In terms of the Gen. II spend yes, we are spending a little bit more than we said we were going through last quarter. So we do have them.

Don: Incremental spend it's not a huge amount Smith, but I know that lots.

Don McGuire: Hi guys, congrats on the solid results. Don, I just want to ask about average balances. I know we were expecting a little bit of a headwind from the payroll tax deferral. Maybe you can quantify that as part of the reason for the drop in balances down 2%. And then what's the go forward there we should expect? Is there more of a headwind from the payroll tax deferral for balances, and maybe expect a similar decline in the back half of this year? No, I think you were right to call out the payroll tax deferral.

Don: Lots of folks like to measure things and 10 bps. So we're calling it out.

Don: Not an incredible amount, but a little bit more than we had said in the prior quarter.

Okay. Okay, and then just I guess a follow up then on AI and ADP assist here is that a feature you're able to monetize directly or more so kind of an enhancement youre offering for free to drive the <unk> stores.

Don: Higher and I guess understanding you're leaning into these developments.

Don: Are you kind of view.

Don: You'd think about monetization of generic products is this a near term dynamic or more so more so kind of feature and product differentiation.

Don McGuire: That definitely was behind the decline quarter to quarter. We don't think that that's now behind us, so that's not going to be there. So we are expecting two to three percent balance growth for the balance of the year, and we think that's very positive. I think the big call out, though, on the whole CFI program is just the fact that since we spoke last, five-year and 10 year interest rates are down about 80 bps on both of those. And so I think that that's a little bit of a headwind.

Don: Longer term monetization dynamic.

Speaker Change: So Brian ADP assessed is.

Speaker Change: Really the overarching call. It brand if you will that we're leveraging to talk through all of the things that we're putting into our product to make things easier.

Speaker Change: That I think about it is it's really just the next phase of digital transformation for ADP, using new tools and technology. So said differently. Our intention is not to charge it to us to make things easier for our clients to do business that is our commitment to our clients always has been is to make it as easy as possible to process payroll.

Don McGuire: And that's roughly the $20 million or so that we're calling down the float number for the balance of the year, but still very optimistic about growth. Certainly the reason that it's not growing as quickly, perhaps, as it did last year is that we've certainly seen some moderation in wage growth. And we've talked about even though pays for control are behaving as we expected, they are certainly lower. Pays for control growth is lower than. We'll be lower in the back half of this year than we were in the back half of last year.

Speaker Change: How the accurate payrolls and so it's not a monetization effort as it stands it's really about leveraging the new technology to us.

Speaker Change: To step change the digital transformation that we've had underway candidly for many many decades since the dawn of the computing era. So that's kind of how we're thinking about ADP assessed in terms of monetization in general do I believe theres monarch monetization as it relates to <unk> of.

Speaker Change: Of course, I think it's more about the dollar long term rates I think about it the dollars that we're putting in today will yield multiple dollars for us.

Don McGuire: So those would be the major, the major influencers, if you will, to the... Got it. Is that part of the moving of the ES margins to the lower end of the range you talked about? I think you talked about rates there. What was the surprise from three months ago about rates that maybe caused you to push the margins towards the lower end, or where do you think the lower end of the new margin range is? Yes, you're right. You're right. I think the float certainly is a component of us guiding to the middle of our range, for sure. That's because it's a component.

Speaker Change: There is to come so there will be distinct monetization opportunities as we create new products into the market as we think about various.

Speaker Change: Things of that nature, perhaps features and functionality. There will also be gains in sales and retention that will lead to my mind to our investments in.

Speaker Change: That are proven today in Gen AI to drive incremental bookings.

Bookings and retention over the long term so I think its about putting a dollar in today with the belief that it will yield many dollars of margin to come if you will as well as bookings etcetera.

Don McGuire: We don't try to second-guess the markets. We use yield curves that are out there in the market to estimate what we think our returns are going to be. No real surprises other than seeing what's happening in the overall market, and then we're taking the forward yield curves and applying those to our balances. Great, thanks for taking the question. Thank you. Our next question comes from Scott Wurzel with Wolf Research. Your line is open.

Speaker Change: Okay understood. Thank you.

Speaker Change: Yeah.

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

Samad Samana: Hi, good morning, Thanks for taking my questions.

Samad Samana: Maybe on the PEO business I was curious I know you guys called out.

Samad Samana: The bigger verticals inside of the PEO business and that there may be.

Samad Samana: Some more softness there than you'd expected in it technology and professional services any change and the exposure either inside of the PEO business or within the Big protocols are you guys seeing any change in the trends that you saw maybe over the last couple of quarters.

Scott Wurzel: Good morning guys, and thank you for taking my questions. Maybe just wanted to start off on some trends that we've seen so far in the selling season. Seems like through 2Q it was pretty positive on the booking side, but maybe wondering how we've sort of tracked into 3Q and then also what you've seen maybe from competitors, any changes in pricing, go-to-market strategy, and all that would be helpful. Yeah, good morning, Scott.

Samad Samana: The trend in specifically professional services has stabilized and so I think Dan you made the comment earlier, it's no longer contributing to the deceleration.

Samad Samana: So it used to the professional services cohort used to contribute to the acceleration of pays per control than we found ourselves where it was contributing to a deceleration and it's largely stabilized at this time.

Maria Black: We feel good about the demand environment overall at this point. I think companies are still hiring. We saw that this morning, actually, as well.

Maria Black: And companies are still investing in their people, their talent, and in HR. I think there are a couple things that I'd highlight for you. In the down market, definitely, companies are continuing to hire, and they're continuing to buy. We had tremendous second quarter results. By the way, that business has been executing incredibly well, really, for many, many quarters. And that's our core offering. But it's also all the things that are attached to run it.

Speaker Change: Got you and just as you think about the pricing environment.

Speaker Change: I know that we're still not at what the company does the annual price increases, but as you think about maybe for new deals or for new customers that are onboarding, any changing and changing the kind of price pressure or competitive nature of what your competitors are offering in terms of discounts or what ADP is having to operate just as we look ahead of price.

Speaker Change: Price increases how are you thinking about this year's price increase.

Speaker Change: Yeah, we're not really seeing any changes in the in the.

Maria Black: So I think insurance services, retirement services, all of the down market is doing incredibly well. To give you a little bit of a line of sight, because it is the 31st of January, so we do actually have a tiny bit of visibility specifically into the down market. And you asked about trends into the third quarter. What I would offer to you is that January looks good.

Speaker Change: Price environment, the competitive environment, we think we're priced appropriately and we've always acknowledged that were a little bit of a premium to others, but we're happy with that because we think we offer a better service and stability et cetera. So no real changes youre right. It is a little bit related to the budget cycle kicks off here in the next six weeks or so and we will start.

Speaker Change: We've been looking at.

The pricing increases for next year and weighing all the regular factors, which inflation beam, we thought our price increases were very well received last year was that they were in line.

Maria Black: I think we're actually on track to onboard something close to 30,000 units in that business alone in the month of January. And so that's the size of some companies, if you will. So it's pretty incredible to see the execution in the down market. We have solid pipelines, really, across the mid market, as well as off market. The mid market did incredibly well in the second quarter.

Speaker Change: So we'll keep that in mind, but as always we're always interested in the long term value processor with our clients and being competitive in the market. So we're always measured I believe when we think about the price increases that we do and due to our clients.

Speaker Change: Great I appreciate taking my questions.

Maria Black: From a competitive standpoint, I think we get a lot of questions around the competitive landscape. Has it shifted in the mid market? What I would offer to you is that it hasn't really shifted.

Speaker Change: Thank you. Our next question comes from Kevin Mcveigh with UBS. Your line is open.

Kevin Mcveigh: Great. Thanks, so much.

Maria Black: It's been a competitive space for us for a long time. It's an area for us that we're executing very, very well. We have best-in-class products. We continue to take friction away from our clients, making it easy for our clients to engage with us. We know this based on our results in retention. We know this based on our results in record MPS.

Kevin Mcveigh: Thank you talk to kind of implement implementation is a little bit can you remind us maybe what percentage of the revenue is done internally on implementations today.

Kevin Mcveigh: Is that just shifting philosophically.

Kevin Mcveigh: What that can be over the course of time, if I heard that.

Kevin Mcveigh: Maybe I picked it up wrong, but any incremental thoughts on that.

Speaker Change: Yes, maybe Kevin you're a bit soft by the way.

Maria Black: We had good bookings in the mid market. So I think the mid market is solid and certainly not getting any easier for our clients to be employers in the mid market. As it relates to the international space, I think I covered that already.

Speaker Change: Little bit hard to hear but I think the question was what kind of revenue we derived from implementation.

And so it's not a substantial amount of sub 10% of our overall revenue comes from setup.

Maria Black: So I won't touch much more on international, but a good Q2 on the heels of a good Q1. And then in our enterprise and upmarket space, this is an area that normally, I think it's kind of the new normal on longer deal cycles that have more individuals involved in those cycles. So we're paying close attention to it and, certainly, all the things that are happening kind of across that space. But I would suggest to you that we feel relatively solid about our pipelines and our ability to bring in that business in the back half. Great, that's helpful.

Speaker Change: Normally call setup fees.

Speaker Change: So it's not it's not a substantial amount.

Speaker Change: And then D C that down over time does that become less if you outsource that and is there any way to think about the margin impact from that initiative.

Well I mean in Europe. So no I don't think there is a big opportunity. There. We certainly have had conversations we certainly have lots of folks who would like us to outsource our implementation because they think it is a revenue stream for them.

Speaker Change: We like to have that control over the claims from sale through to go live in service not to say that we won't work with third parties to help us from time to time, which we do.

Scott Wurzel: And just to follow up on Don, just on the float income guidance. I sort of noticed a pretty notable increase in your outlook for the client short portfolio. So just wondering if you could maybe give a little bit of color on sort of the changing geography on those investments for the balance of the year. Yeah, so maybe I can clarify that for you a little bit.

Speaker Change: Got.

Speaker Change: It's really it's really not that large a factor certainly theres some money there to be had but it's not been a larger factor in the overall scheme of things, but there's also some interesting accounting of course around implementation of setup fees and deferral over the terms of the contracts. So once again it would take a lot of changes to do anything to make any changes.

Don McGuire: So really, we haven't changed our investment strategy at all. What we have done is we've tweaked a little bit the way we're going to borrow funds from the market day in, day out. So what you're seeing is we're actually entering the market a little bit early. So instead of borrowing everything we need to on a peak borrowing day, we've simply spread the borrowing out over two, three days so that we can top the market in a more smoother way, if you will. And I think if you're looking at the average balances on that, on the appendix sheet that's in the release, you'll notice that that number has gone up quite a fair bit, but that's the driver. So it's not a change in our investment strategy at all. It's just a change in a bit of a tweak in the way we're actually borrowing funds from the market when we need larger amounts. Will be at larger events. Great, thanks guys.

Speaker Change: Bottom line financials in the near term.

Speaker Change: Helpful. Thank you.

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

Thanks, So much good results here I just wanted to dig in on the on your prior comments I know people ask on PEO and the healthy activity there.

Speaker Change: And the confidence in the acceleration is ADP doing anything differently or as industry demand.

Speaker Change: Changing I understand it's not doesn't sound like if there was just a cost or pricing change there. So just want to make sure I understood them.

Speaker Change: Yes, good morning, and thank you.

Speaker Change: Happy to talk about PEO bookings I think as mentioned in the prepared remarks, we're very pleased with our PEO bookings. This is really it's the fourth quarter that we've seen positive PEO bookings momentum.

Speaker Change: The Q2, specifically exceeded our expectations.

Speaker Change: Most of the pressure that we felt in the PEO has been a byproduct of kind of the pressure on pays per control and having to overcome that which is why then you focus on bookings has been so paramount process certainly we deliver that in the second quarter in terms of from a demand perspective I speak about the PEO all the time as you know I think the demand.

Bryan C. Bergin: Thank you. The next question comes from Bryan Bergin with T.D. Cohen.

He has to be incredibly strong I wouldn't suggest that there's anything unnatural that we are doing outside of a tremendous amount of focus across the enterprise to ensure that we're executing on the <unk>.

Don McGuire: Your line is open. Hi, good morning. Thank you. The first question is on EBIT margin. Can you comment on what drove the outperformance versus your view for that to be down, I think, in 2Q? I'm curious if that was an aspect of timing within the year versus better than expected efficiency.

Speaker Change: Bookings side, but in terms of anything unnatural or demand changing I think the value proposition as I always say, it's stronger than it's ever been I think clients in that space are looking towards to ADP to help them.

Don McGuire: And I think, Don, I heard you mention some Gen AI investments to come. Is that an incremental spend versus the prior plan? So yeah, let me start, Bryan. Let me start with the first part of your question.

Speaker Change: From a PEO value proposition, so everything from payroll to benefits too.

Speaker Change: Navigating the complexity of being business and having the ability to execute on our co employment relationships I would say the value proposition is as strong as it's ever been I think it remains strong the demand is there.

Don McGuire: So there was a little bit of modest revenue outperformance in the quarter, so I think that was a contributor to the margin. And then we had some expenses, you know, we always have a focus on expenses. There are a few things, a little bit of bad debt, a little bit of headcount, etc. And, you know, perhaps a little bit of timing, but nothing significant to really call out as a contributor.

Speaker Change: The organization is focused on PEO bookings as an execution a lever for us and I'm pleased to say that we did just that in Q2 and we've really had this marks the fourth quarter of positive bookings momentum from the PEO.

Don McGuire: In terms of JNAI spend, yes, we are spending a little bit more than we said we were going to last quarter, so we do have a little bit of incremental spend. It's not a huge amount, but I know that lots of folks like to measure things in 10 bps, so we are calling it out. Not an incredible amount, but a little bit more than we had said in the previous... Okay, okay.

Speaker Change: Yes, that's great. Thank you Brian.

Speaker Change: Thank you. Our next question comes from Jason Kupferberg with Bank of America. Your line is open.

Speaker Change: Hi, This is Caroline on for Jason Thanks for taking Hi. This is Kelly on for Jason. Thanks for taking our question. So pays per control growth has been 2% quarterly through the first half, but the guide for full year.

Maria Black: And then just, I guess, a follow-up on Gen AI and ADP assist here. Is that a feature you're able to monetize directly, or more so, kind of an enhancement you're offering for free to drive the CSAT stores higher? And I guess understanding you're leaning into these developments, do you kind of view, you know, you think about the monetization of Gen AI products, is this a near-term dynamic, or more so more so kind of feature and product differentiation that's a longer-term monetization dynamic? So Bryan, ADP Assist is really the overarching, call it a brand, if you will, that we're leveraging to talk through, you know, all the things that we're putting into our product to make things easier.

Kelly: 24 is still 1% to 2%. So what are the drivers of the second half deceleration or do you think that the high end has become more likely.

Kelly: Caroline Thanks for the question.

Kelly: We said, we would go to 1% to 2% for the year and we certainly have that 1%, 2% range still in the back half, we're not really anticipating any any slowdown in pays per control, but we certainly haven't built in so perhaps we're a little bit conservative there but.

Kelly: As we sit here today demand.

Kelly: Equipment demand continues to be robust, although still declining somewhat but.

Maria Black: The way that I think about it is that it's really just the next phase of digital transformation for ADP using new tools and technology. So said differently, our intention is not to charge, but to make things easier for our clients to do business. That is our commitment to our clients, always has been, to make it as easy as possible to process payroll, to have accurate payrolls. And so it's not a monetization effort, as it stands; it's really about just leveraging new technology to step change the digital transformation that we've had underway, candidly, for many, many decades since the dawn of the computing era. So that's kind of how we're thinking about ADP Assist. In terms of monetization in general, do I believe there is monetization as it relates to Gen AI?

Kelly: I think we're confident that in the back half, we're going to be declining a little bit, but still coming in on that 1%, 2% range for the for the year.

Speaker Change: Not much not really much more to say there other than <unk>.

Speaker Change: Employment demand labor markets continue to be maybe a bit softer than they were but as we saw this morning.

Speaker Change: Your report hirings still out there still good growth so not a lot of extra color I don't think that around pays per control.

Speaker Change: Okay, great. Thank you.

Speaker Change: Thank you. Our next question comes from Dan <unk> with Mizuho. Your line is open.

Don McGuire: Hey, guys great results here.

Don McGuire: Just a strategic question obviously.

If you look over the next 12 to 18 months interest rates are coming down there is a big debate out there.

Don McGuire: The ability to offset some of those headwinds in terms of revenue can you talk about maybe some idiosyncratic.

Don McGuire: Initiatives that you could do to offset.

Don McGuire: The headwind from declining interest rates. Thank you so much.

Speaker Change: Well I think Thats I think thats really a macro question I guess I guess, the macro answer to that would be that if interest rates start to decline we will see.

Maria Black: Of course. I think it's more about the dollar in the long term, right? So I think about it, you know, the dollars that we're putting in today will yield multiple dollars for us in years to come. So there will be distinct monetization opportunities as we create new products for the market, as we think about various things of that nature, perhaps features and functionality. There will also be gains in sales and retention that will lead, in my mind, to investments that are proven today in Gen AI to drive incremental bookings and retention over the long term. So I think it's about putting a dollar in today with the belief that it will yield many dollars of margin to come, if you will, as well as bookings, etc. Okay, I understand.

Speaker Change: Offsetting increase just in economic activity.

Speaker Change: If we see that increase in economic activity, we should see revenue go up we should see bookings opportunities go up et cetera. So I think that if interest rates come down.

And there's lots of debate, whether its two cuts report cuts et cetera, who knows but if they do come down.

Speaker Change: Should certainly avoid the the recession nobody's asked about a recession on the call today. So thank you.

Speaker Change: Thank the consensus is that.

Speaker Change: So it is not going to be a recession. So certainly any of the pools suggested to you.

Speaker Change: Economy is healthy with three 3% GDP growth in the last report so.

Speaker Change: If rates come down the economy should remain healthy.

Speaker Change: The economy should help to continue.

Speaker Change: Continue to contribute to our growth.

Speaker Change: And then I'll just add also our model.

Speaker Change: You know involves reinvesting further out in the yield curve and as you know, we're still reinvesting at higher <unk>.

Maria Black: Thank you. Thank you. Our next question comes from Samad Samana with Jeffrey's. Your line is open. Hi, good morning.

Speaker Change: Rates than what's embedded in the securities that are rolling off so even if we do start to see short term interest rates fall next year, which is obviously consensus at this point.

Samad Samana: Thanks for taking my questions. Maybe on the PEO business, I was curious. I know you guys called out some of the bigger verticals inside of the PEO business and that there's maybe some, some more softness there than you'd expected in technology and professional services. Any change in exposure either inside the PEO business or within the big verticals? Are you guys seeing any change in the trends that you saw maybe over the last couple quarters? The trend in specifically professional services has stabilized. And so I think Danny made the comment earlier; it's no longer contributing to the deceleration. So the professional services cohort used to contribute to the acceleration of the pace for control, but then we found ourselves where it was contributing to a deceleration, and it's largely stabilized at this time. Gotcha.

Speaker Change: A lot of that will be offset by the <unk>.

Speaker Change: The reinvestments that we have further out in the yield curve and so it's too early to be talking specifically about the interest rate outlook for next year, but we would just recommend you keep that in mind. That's fair I think if you look at our Reinvestments were current reinvestments are still at 4% which is higher than.

Speaker Change: Our average yield today, so there still are opportunities or float is expected to continue to grow over the next 12 to 24 months.

Speaker Change: Certainly it's going to grow more slowly than we would've expected at the end of last quarter, but theres still still upside from float which is perhaps not as much upside.

Speaker Change: Great Great results again, thank you so much.

Speaker Change: Thank you. Our next question comes from Pete Christiansen with Citi. Your line is open.

Thank you good morning.

Peter Corwin Christiansen: Two questions.

Maria Black: And just as you think about the pricing environment, I know that we're still not at the time when the company does the annual price increases. But as you think about maybe for new deals or for new customers that are onboarding, any changing the kind of price pressure or competitive nature of what your competitors are offering in terms of discounts or what ADP is having to offer. And just as we look ahead to price increases, how are you thinking about this year's? Yeah, we're not really seeing any changes Samad that in the price environment, the competitive environment, we think we're priced appropriately. And we've always acknowledged that we're a little bit more premium than others. But we're happy with that because we think we offer a better service. Stability, etc. So, no real changes. You're right; it is a little bit early.

Peter Corwin Christiansen: Now that we fully lap ERP see I'm just curious if you've noticed any changes in client demands are competitive tactics.

Peter Corwin Christiansen: Particularly in a down market.

Peter Corwin Christiansen: Yeah.

Speaker Change: Yes, good morning ph D E RCC.

Speaker Change: As you know and I think what Youre referencing is the new deadline that was pulled forward five quarters actually so that definitely and actually as it stands it potentially today I think we're still waiting for the final kind of execution. If you will of that new deadline, but arguably we're having to execute on behalf of <unk>.

Speaker Change: Clients with us with today in mind, and so theres a tremendous amount of volume.

Speaker Change: That we are pushing through on behalf of our clients and it has put pressure into the system, which is hard to Boston witnessed by the way as it relates to the.

Don McGuire: The budget cycle kicks off here in the next six, eight weeks or so, and we'll certainly be looking at the pricing increases for next year. And, you know, weighing all the regular factors, what inflation is, we thought our price increases were very well received last year; we thought they were in line. So we'll keep that in mind.

Speaker Change: They're very clients that are supposed to be helped by this and the challenges that they're facing trying to navigate it. So we're doing everything we can in our power to out to help and processes claims in terms of financial impact for us as it relates to ERP see it isn't a financial impact to US I think it's very de minimis as it relates to our overall.

Speaker Change: Revenue as it relates to our overall incremental we really from a standpoint of what we're looking toward its about supporting our clients and so I think some of our competitors have used it more has a a business and our revenue than than ups as it relates to how we're thinking about it but undoubtedly the advancement of this deadline for today is has not been ideal for really anyone engaged.

Samad Samana: But, as always, we're always interested in long-term value brought to our clients and being competitive in the market. So we're always measured, I believe, when we think about the price increases that we do hand out to our clients. Great, I appreciate anyone's questions. Thank you. The next question comes from Kevin McVeigh with UBS. Your line is open. Yeah, I'll maybe call Kevin. You're a bit soft, by the way, but you're a little bit hard to hear.

Speaker Change: And it.

Speaker Change: That's helpful and then I am curious.

Speaker Change: The combination of HCM and <unk>.

Speaker Change: Payments functionality.

Speaker Change: It's certainly been a scene AWS, obviously, a big big portion.

Kevin Mcveigh: But I think the question was, what kind of revenue we derive from implementation. It's not as substantial as sub-10% of our overall revenue comes from what we internally call set-up fees, so it's not as much. Thank you for watching. We'll see you next time.

Speaker Change: That in and then cross border do you see opportunities to to increase.

Speaker Change: Penetration there to add more capabilities ICU partnership M&A further into payments.

Don McGuire: Bye. Well, I mean, so no, I don't think there's a big opportunity there. We certainly have had conversations. We certainly have lots of folks who would like us to outsource our implementation because they think it's a revenue stream for them. You know, we like to have that control over the client from sale through to go live in service. Not to say that we won't work with third parties to help us from time to time, which we do. But it's really not that large a factor.

Speaker Change: Thinking, perhaps even like disbursements those sorts of thing. Thank you.

From a strategic standpoint, Pete what I would offer is continuing to solve for our clients and employees and how they engage with us if you imagine across.

Speaker Change: ADP, we paid $41 million wage earners in the U S. That's $25 million I think last time, we talked about our wisely offering what we disclosed was that we had won five cardholders or something like that though so just kind of give you the opportunity to scale that we believe there's tremendous opportunity to.

Don McGuire: Certainly, there's some money there to be had, but it's not that large a factor in the overall scheme of things. There's also some interesting accounting, of course, around implementation and setup fees and the deferral over the terms of the contract. So once again, it would take a lot of changes to do anything, make any changes to the bottom line financials in the near term. Thank you. Our next question comes from Tianzhen Huang with J.P. Morgan. Your line is open. Thanks so much.

Speaker Change: To increase how we're engaging with our clients whether that's through the likes of wisely, it's through the likes of AWS as you're suggesting or any other type of payments and things that we can do to make it easier for our clients and employees to move through the world of work right and so the way I think about it and the partnerships that we're actively.

Speaker Change: I'll turn in the market talking to in thinking about or any anywhere we can add value in our clients and to employee licence low so as they move through their day and they clock in through Adp's mobile App, which by the way we have 10 million user.

Tianzhen Huang: Good results here. Just wanted to dig in on your prior comments. I know a lot of people asked around PEO and the healthy activity there, and the confidence in the acceleration. Is ADP doing anything differently? Or is industry demand changing? I understand it doesn't sound like if there's a cost or pricing change there. So just want to make sure I understood that. Thanks. Yeah, good morning.

Speaker Change: Users that are actively.

Speaker Change: Using our ADP mobile apps as they're engaging with ADP are there opportunities for us to insert value there whether that's things like AWS is things like payments, it's things like financial wellness apps like the companion App. We have through wisely. These are all top of mind for us as we go through our strategic.

Maria Black: And thank you. I am happy to talk about PEO bookings. I think, as mentioned in the prepared remarks, we're very pleased with our PEO bookings. This really is the fourth quarter that we've seen positive PEO booking momentum, and Q2 specifically exceeded our expectations. You know, most of the pressure that we felt in the PEO was a byproduct of the pressure on Pace for Control and having to overcome that, which is why the focus on bookings has been so paramount for us. And certainly, we will deliver that in the second quarter.

Speaker Change: Discussions and as we think about partnerships in the future for ADP.

Speaker Change: Thank you so much super helpful.

Speaker Change: Thank you we have time for one last question and that question comes from Ashish <unk> with RBC capital markets. Your line is open.

ashish: Thanks for taking my question. So just a multipart question on PEO and following up on some of the commentary earlier on solid bookings and.

Maria Black: In terms of from a demand perspective, you know, I speak about the PEO all the time. As you know, I think the demand continues to be incredibly strong. I wouldn't suggest that there's anything unnatural that we are doing outside of a tremendous amount of focus across the enterprise to ensure that we're executing on the PEO booking side. But in terms of anything unnatural or demand changing, I think the value proposition, as I always say, it's stronger than it's ever been. I think clients in that space are looking toward ADP to help them from a PEO value proposition. So everything from payroll to benefits to navigating the complexity of being a business and having the ability to execute on a co-employment relationship.

ashish: Martin anything PPC, sorry people control headwinds.

ashish: We look at the WMC growth.

To see a sequential improvement there better than what we saw last year and just given the commentary is it fair for us towards.

And that we should continue to see that improve as we go through the year and then on revenue per WSB.

ashish: I was wondering if you could comment on it looks like pricing trends are positive, but if you could comment on any other puts and takes participation anything else that could help drive better revenue.

Speaker Change: But it looks at in place. Thanks.

Speaker Change: So the answer to your question is yes, we do expect that the bookings contribution coupled with a.

Speaker Change: A bit of stability on the pays per control side coupled with.

Tianzhen Huang: So I would say the value proposition is as strong as it's ever been. I think it remains strong. The demand is there. The organization is focused on PEO bookings as an execution lever for us.

Speaker Change: Our retention.

Speaker Change: Getting more favorable in the back half all of those things should lead to the Reacceleration that Don mentioned earlier that we've been pointing to in the back half I think in terms of other componentry within the PEO you mentioned a few of them. There is payroll per worksite employee, there's workers' compensation and state unemployment.

Maria Black: And I'm pleased to see that we did just that in Q2. And we've really had, you know, this marks the fourth quarter of positive bookings momentum from the PEO. Yeah, that's great.

Speaker Change: Some of these things are things that we're still waiting to really see the outcomes I'll give you. An example, one of those in state unemployment.

In terms of obviously, we sit here today forecasting what that looks like most of those rates are issued throughout this quarter and so while we have some line of sight.

Maria Black: Thank you. Thank you. Our next question comes from Jason Kupferberg with Bank of America. Your line is open. Hi, this is Caroline for Jason. Thanks for taking me. Hi, this is Caroline on behalf of Jason.

Speaker Change: And we.

We don't know entirely what the out of the state unemployment outcome, we do expect that it creates a little bit of a rates are going down year on year again this year, but again.

Jason Kupferberg: Thanks for taking our question. Pace for Control Growth has been 2% quarterly through the first half, but the guide for full year 24 is still 1 to 2%. So what are the drivers of the second half deceleration?

Speaker Change: Only time will tell sometimes the states as an example make very strange decisions.

Speaker Change: That arent always in line with what's happening from a broader labor and unemployment perspective, so all that to say I think I I don't know that I could sit here today and give you any componentry that that seems strange or out of the norm I think they are all things we're watching as we look toward the reacceleration in the PEO in the back half.

Don McGuire: Or do you think that the high end has become more likely? Caroline, thanks for the question. We said we would go to one to 2% for the year. And we certainly have that one to 2% range still in the back half. We're not really anticipating any, any slowdown and pace for control, but we certainly have it built in. So perhaps we're a little bit conservative there.

That's very helpful color congrats on the solid results.

Speaker Change: Thank you.

Speaker Change: Thank you I'd like to turn the call back over to Maria Black for any closing remarks.

Maria Black: Yeah, So really quickly I think I'll end with how I ended my prepared remarks, which is a huge shout out to all of the associates and the entire ecosystem.

Don McGuire: But as we sit here today, demand, the employment demand, continues to be robust, although still declining somewhat. But I think we're confident that in the back half, we're going to be declining a little bit but still coming in on that one to 2% range for the year. Not much, not really much more to say there other than that employment, demand, and labor markets continue to be maybe a bit softer than they were, but as we saw this morning in our NER report, hiring's still out there, still good growth, so not a lot of extra color I don't think to add around pay for workers. Okay, great.

Maria Black: The ADP. So that's ADP associates partners channels are all of the stakeholders that really contributed to what was a good solid Q2, but also a good solid first half I'm really excited about the back half and what we'll accomplish not just in fiscal 'twenty four but Moreover in calendar 2024 at the <unk>.

Maria Black: And it's an exciting year for ADP. This year is the year that we actually round, our 70 <unk> anniversary and when I think about who this company is over the last seven decades in 75 years I cant see I can't wait to see what we're going to do in the next 75. So look forward to sharing in that celebration with all of you as we head into 2020.

Speaker Change: Together thank you.

Don McGuire: Thank you. Thank you. Our next question comes from Dan Dolew with Mizzouho. Your line is open.

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

Dan Dolew: Hey guys, great results here. You know, just a strategic question, obviously, if you look over the next 12 to 18 months, interest rates are coming down. There is a big debate out there on, you know, the ability to offset some of those headwinds in terms of revenue. Can you talk about maybe some idiosyncratic initiatives that you could do to offset the headwind from declining interest rates? Thank you so much.

Speaker Change: [music].

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Don McGuire: I think that's a really macro question; I guess the macro answer would be that if interest rates start to decline, we'll see an offsetting increase just in economic activity. And if we see that increase in economic activity, we should see revenue go up, we should see booking opportunities go up, etc. So I think that if interest rates come down, And, you know, there's lots of debates about whether it's two cuts or four cuts, et cetera. Who knows?

Speaker Change: Okay.

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Don McGuire: But if they do come down, we should certainly avoid a recession. Nobody's asked about a recession on the call today, so thank you. I think the consensus is that there's not going to be a recession.

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Okay.

Don McGuire: So certainly, any of the polls suggest that the economy is healthy, with three point three percent GDP growth in the last report. If rates come down, the economy should remain healthy, and a healthy economy should help continue to contribute to our growth. Again, I'll just add that our model, you know, involves reinvesting further out in the yield curve. And as you know, we're still reinvesting at higher rates than what's embedded in the securities that are rolling off. So even if we do start to see short-term interest rates fall next year, which is obviously consensus at this point, a lot of that will be offset by the reinvestments that we have further out in the yield curve. And so it's too early to be talking specifically about the interest rate outlook for next year, but we would just recommend you keep that in mind. That's fine.

Don McGuire: I think if you look at our reinvestments, our current reinvestments are still at 4%, which is higher than our average yield today. So there are still opportunities. Our float is expected to continue to grow over the next 12 to 24 months. Certainly, it's going to go more slowly than we would have expected at the end of last quarter, but they're still still upside from float, which is perhaps not as bad. Great, great results again. Thank you so much.

Peter Corwin Christiansen: Thank you. Our next question comes from Pete Christiansen with Citi. Your line is open. Thank you. Good morning.

Maria Black: Two questions. Now that we've fully mastered ERTC, I'm just curious if you've noticed any changes in client demands or competitive tactics, particularly the guy on Mark. Yeah, good morning, Pete, the ERCC, as you know, and I think what you're referencing is the new deadline that was pulled forward, five quarters, actually. So the deadline, as it stands, is potentially today. I think we're still waiting for the final kind of execution, if you will, of that new deadline.

Speaker Change: [music].

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Maria Black: But arguably, we're having to execute on behalf of our clients with today in mind. And so there's a tremendous amount of volume that we are pushing through on behalf of our clients. And it has put pressure on the system, which is hard to watch and witness, by the way, as it relates to the very clients that are supposed to be helped by this and the challenges that they're facing trying to navigate it. So we're doing everything we can in our power to help and process these claims. In terms of the financial impact for us, as it relates to ERCC, it isn't a financial impact for us.

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Maria Black: I think it's very de minimis as it relates to our overall revenue, as it relates to our overall incremental revenue. We really, you know, from a standpoint of what we're looking toward, it's about supporting our clients. And so I think some of our competitors have used it more as a business and a revenue stream than we do as it relates to how we think about it. But undoubtedly, the advancement of this deadline to today has not been ideal for anyone really engaged in it. That's helpful. And then I'm curious, you know, about the combination of HCI.

Speaker Change: Okay.

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Maria Black: Payments functionality. It's certainly been a theme. EWA is obviously a big, big portion of that, and now it is cross-border. Do you see opportunities to increase it? penetration there to add more capabilities through partnership M&A further into payments, and I'm thinking, perhaps, Burschmann. From a strategic standpoint, Pete, what I would recommend is continuing to solve for our clients and employees and how they engage with us. If you imagine that across ADP, we pay 41 million wage earners in the US, that's 25 million.

Speaker Change: Okay.

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Maria Black: I think last time we talked about our wisely offering, what we disclosed was that we had 1.5 cardholders or something like that. To just kind of give you the scale of it, we believe there's a tremendous opportunity to increase how we're engaging with our clients, whether that's through the likes of Wisely, it's through the likes of EWA, as you're suggesting, or it's any other type of payment and things that we can do to make it easier for our clients and employees to move through the world of work. The way I think about it and the partnerships that we're actively out there in the market talking to and thinking about are anywhere we can add value in our clients' and employees' lives and flow. As they move through their day, they clock in through ADP's mobile app, which, by the way, we have 10 million users that are actively using our ADP mobile app.

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Maria Black: As they're engaging with ADP, are there opportunities for us to insert value there, whether that's things like EWA, things like payments, things like financial and wellness apps, like the companion app we have through Wisely? These are all top of mind for us as we go through our strategic discussions and as we think about partnerships in the future for ADP. Thank you so much.

Speaker Change: Okay.

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Maria Black: Super helpful. Thank you. We have time for one last question, and that question comes from Ashish Sabadra with RBC Capital Markets. Your line is open.

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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 second quarter fiscal 2024 earnings call.

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

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

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

Danyal Hussain: Thank you Michelle and welcome everyone to Adp's second quarter fiscal 2024 earnings call participating today are Maria block, 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 at our Investor Relations website.

Danyal Hussain: At investors up ADP Dot Com, where you will also find the investor presentation that accompanies today's call.

Danyal Hussain: 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.

Danyal Hussain: 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.

Ashish Sabadra: Thanks for taking my question. So just a multi-part question on PEU and following up on some of the commentary over here on solid bookings and moderating PPC, sorry, paper control headwinds. As we look at WSC growth, we continue to see sequential improvement there, better than what we saw last year. And, just given the commentary, is it fair for us to assume that we should continue to see that improvement as we go through the year? And then on revenue per WSC, I was wondering if you could comment on, looks like pricing trends are positive, but if you could comment on any other puts and takes, participation, anything else that could help drive better revenue per work at employee. Thanks.

Danyal Hussain: Now I'll turn it over to Maria.

Maria: Thank you Danny and thank you everyone for joining us.

This morning, we reported strong second quarter results, including 6% revenue growth and 9% adjusted EPS growth.

Maria: I'll begin with a review of the quarter's financial highlights before providing an update on the progress we are making across our strategic priorities.

Maria: We delivered solid employer services, new business bookings in the second quarter, reaching a new record bookings volume for Q2, and keeping us on track for our full year outlook.

Growth was especially robust across our small business portfolio and we also experienced healthy growth in our mid market and international business.

Maria: With steady demand in HCM and a healthy new business pipeline at the end of the quarter. We look forward to the important selling season ahead.

Maria: Employer services retention was strong in the second quarter, although it declined slightly compared to the prior year. We once again exceeded our expectations as we continue to benefit from a healthy overall business environment and from our very high client satisfaction levels.

Maria Black: So the answer to your question is yes, we do expect that the booking contribution coupled with a bit of stability on the pays for control side coupled with retention getting more favorable in the back half, all of those things should lead to the reacceleration that Don mentioned earlier that we've been pointing to in the back half. I think in terms of other components within the PEO, you mentioned a few of them, there's, you know, payroll per work on the employee, there's workers compensation, there's state unemployment, you know, some of these things are things that we're still waiting to really see the outcomes. I'll give you an example.

Our employer services pays per control growth remained at 2% for the second quarter. The overall labor market remains a resilient and our clients continue to add employees at a moderate pace, which is resulting in a very gradual deceleration in pays per control growth and last our PEO revenue growth of 3% for the <unk>.

Maria: Second quarter was in line with our expectation and we are very pleased to have delivered strong PEO new business bookings that were ahead of our expectations.

Based on continued healthy activity levels, we feel good about our PEO bookings momentum and we look forward to seeing a gradual reacceleration of our PEO business in the second half of this fiscal year.

Maria Black: One of those is state unemployment. In terms of obviously, we sit here today forecasting what that looks like. Most of those rates are issued throughout this quarter. And so while we have some line of sight, you know, in the end, we don't entirely know the state unemployment outcome, we do expect that it creates a little bit of a rate is going down year on year again this year. But again, you know, only time will tell. Sometimes the states, for example, make very strange decisions that aren't always in line with what's happening from a broader labor and unemployment perspective.

Maria: Moving on to the broader update during the second quarter, we launched a new brand advertising campaign theme the next anything.

Maria: The campaign highlights how the world of work is always changing sometimes gradually sometimes suddenly and trusted business solutions must evolve with it the theme aligns with our strategic priorities to give our clients the advantage of our leading technology expertise and scale in.

Maria: In Q2, we continued to push forward on our first strategic priority to lead with best in class HCM technology.

Maria Black: So all that to say, I don't know that I could sit here today and give you any componentry that seems strange or out of the norm. I think they're all things we're watching as we look toward the reacceleration, the PEO in the back half. That's a very helpful color.

Maria: A key part of that is the rollout of ADP assessed our cross platform solution powered by Gen. AI that proactively delivers actionable insights in plain language to enhanced HR productivity aid decision, making and streamline day to day tasks for our clients and their employees.

Maria: ADP assessed seamlessly integrates with ADP products across multiple platforms.

Maria Black: Congratulations on the solid achievement. Thank you. Thank you. I'd like to turn the call back over to Maria Black for any closing remarks. Yeah, so really quickly, I think I'll end with how I ended my prepared remarks, which is a huge shout out to all of the associates and the entire ecosystem across ADP. So that's ADP employees, partners, channels, all of the stakeholders that really contributed to what was a good, solid Q2, but also a good, solid first half. I'm really excited about the back half and what we'll accomplish, not just in fiscal 24, but moreover, in calendar 2024. It's a time, and it's an exciting year for ADP. This year is the year that we actually round our 75th anniversary.

Maria: Using an intuitive conversational interface it provides valuable and contextual insights, which touch every aspect of HR.

Maria: For example in addition to the features that we shared with you last quarter, including our natural language reporting capability in Q2, we integrated natural language search capabilities into our run platform, which allows us to understand the intent behind the search term and use Gen AI to mine ADP.

Maria: His deep knowledge base to deliver easy to use and effective content.

Maria: <unk> also helps clients validate payrolls and solve common employee challenges across HR payroll time and benefit us.

Maria: As a comprehensive experience that is trained on the industry's largest and deepest HCM dataset and our deep knowledge base to surface highly credible and actionable insights so that clients can make smarter decisions.

Maria Black: And when I think about who this company is, over the last seven decades and 75 years, I can't see, I can't wait to see what we're going to do in the next 75. So I look forward to sharing in that celebration with all of you as we head into 2024 together. Thank you. Thank you for your participation. This does conclude the program, and you may now disconnect.

We are excited about the roadmap ahead for all of our major solution and we expect that to help us build on the recognition we continue to earn in the market in Q2 alone. We were pleased to be recognized for product leadership by three major industry analysts ranking.

Operator: Everyone have a great day. ??? ??? ??? ??? ??? ??? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? At this time I would like to welcome everyone to ADP's second quarter fiscal 2024 earnings call. I would like to inform you that this conference is being recorded. After the prepared remarks, we will conduct the question and answer session. Instructions will be given at that time. I will now turn the conference over to Mr. Daniel Hussain, Vice President, Best Relations. Please go ahead.

Maria: Everest group named ADP, the highest later at a 27 providers and it's multi country payroll solutions peak matrix report.

Maria: Nelson Hall identified ADP as a leader in its payroll services vendor evaluation and assessment tool in all markets.

Danyal Hussain: Thank you, Michelle, and welcome everyone to ADP's second quarter fiscal 2024 earnings call. Participating today are 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-GAAP financial measures that we believe are useful to investors and that exclude the impact of certain items.

Maria: And then Tana research named US an exemplary leader across its North American Global and payroll management Buyer's guide for performing the best and meeting overall product and customer experience requirements.

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

Maria: We shared last quarter that we were beginning to equip our associates with Gen AI capabilities through our agent assist technology in.

Danyal Hussain: A description of these items, along with a reconciliation of non-GAAP measures to their most comparable GAAP measures, can be found in our earnings release. Today's call will also contain forward-looking statements that refer to future events and involve some risk. We encourage you to review our filings with the FCC 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.

Maria: In Q2, we expanded our call summarization deployment to a greater portion of our service associates and started to see productivity gains with shorter handle time and improved service quality with.

With our global service Associates fielding millions of calls annually. We are incredibly excited to test ways to optimize those client interactions.

Maria Black: Thank you, Dany, and thank you, everyone, for joining us. This morning, we reported strong second quarter results, including 6% revenue growth and 9% adjusted EPF growth. I'll begin with a review of the quarter's financial highlights before providing an update on the progress we are making across our strategic priorities. We delivered solid employer services new business bookings in the second quarter, reaching a new record booking volume for Q2 and keeping us on track for our full year outlook. Growth was especially robust across our small business portfolio, and we also experienced healthy growth in our mid-market and international business. With steady demand in HCM and a healthy new business pipeline at the end of the quarter, we look forward to the important selling season ahead. Employer services retention was strong in the second quarter. Although it declined slightly compared to the prior year, we once again exceeded our expectations as we continue to benefit from a healthy overall business environment and from our very high client satisfaction levels. Our employer services pays for control growth remained at 2% for the second quarter.

Maria: Our third strategic priority is to benefit our clients through our global scale and we continue to lean into this advantage.

Maria: In Q2, we announced a strategic collaboration with <unk>, a global business to business payments company to help our multi country clients manage the complexity of global payroll and cross border payment through an integrated platform.

Maria: Combining <unk> payment solution with our global payroll expertise, we're enhancing the client experience by minimizing the need to access various banking platform and improving payment accuracy compliance and security.

Maria: We also announced the launch of ADP retirement Trust services to support our growing retirement services business.

Maria: Standing up our own trust services entity demonstrates our scale and commitment to our retirement clients positioning us on par with financial industry leaders and ahead of HCM competitors that rely on third parties.

Maria: This commitment can really matter to financial advisors keep the data within Adp's trusted ecosystem and provides a cost and price benefit for ADP and our clients over the long term.

Maria Black: The overall labor market remains resilient, and our clients continue to add employees at a moderate pace, which is resulting in a very gradual deceleration and pays for control growth. And last, our PEO revenue growth of 3% for the second quarter was in line with our expectations, and we are very pleased to have delivered strong PEO new business bookings that were ahead of our expectations. Based on continued healthy activity levels, we feel good about our PEO bookings momentum, and we look forward to seeing a gradual re-acceleration of our PEO business in the second half of this fiscal year. Moving on to a broader update. During the second quarter, we launched a new brand advertising campaign themed The Next Anything.

Maria: Our scale also affords us the opportunity to partner with other leading technology providers in innovative ways and we continue to expand on many of those partnerships to provide our sales implementation and service teams with client specific insight to quickly address market shifts drive more personally.

Maria: <unk> interactions and deepen our overall client engagement.

Maria: Overall, our second quarter represented strong outcomes on the financial front and with respect to our key strategic priorities.

Maria: To thank our associates, who continue to deliver exceptional products and outstanding service to our clients, particularly now as many of them are in the middle of our most hectic time of year completing yearend work.

Maria Black: The campaign highlights how the world of work is always changing, sometimes gradually, sometimes suddenly, and trusted business solutions must evolve with it. The theme aligns with our strategic priorities to give our clients the advantage of our leading technology, expertise, and scale. In Q2, we continue to push forward on our first strategic priority to lead with best-in-class HCM technology. A key part of that is the rollout of ADP Assist, our cross-platform solution powered by Gen-AI that proactively delivers actionable insights in plain language to enhance HR productivity, aid decision-making, and streamline day-to-day tasks for our clients and their employees. ADP Assist seamlessly integrates with ADP products across multiple platforms.

I'm proud to share that their effort helped drive our overall net promoter score to its highest level ever in the second quarter. Thank you again for all that you do for ADP and for our clients and now I'll turn it over to Don.

Don McGuire: Thank you Maria and good morning, everyone.

Don McGuire: I'll provide more color on our results for the quarter as well as our updated fiscal 2024 outlook overall, we reported a strong second quarter with a consolidated revenue growth moderating in line with our expectations and our adjusted EBIT margin coming in slightly better than expected.

Don McGuire: However, the interest rate backdrop has changed since we last provided our full year outlook and we are lightly tweaking our outlook, which I will detail.

Don McGuire: I'll start with employer services.

Don McGuire: <unk> segment revenue increased 8% on a reported basis and 7% on an organic constant currency basis coming in slightly ahead of our expectations.

Maria Black: Using an intuitive conversational interface, it provides valuable and contextual insights that touch every aspect of HR. For example, in addition to the features we shared with you last quarter, including our natural language reporting capability, in Q2, we integrated natural language search capabilities into our run platform, which allows it to understand intent behind the search term and use Gen AI to mine ADP's deep knowledge base to deliver easy-to-use and effective content. ADP Assist also helps clients validate payrolls and solve common employee challenges across HR, payroll, time, and benefits.

Don McGuire: As Maria shared we continue to grow our es, new business bookings, resulting in a record second quarter bookings volume, our small business portfolio of international business provided outsized growth contributions this quarter and with a steady HCM demand environment and healthy pipelines, we feel on track for our support of <unk>.

Don McGuire: <unk> percent, new business bookings growth outlook for the year.

Don McGuire: As mentioned earlier, our Es retention declined slightly in Q2 versus the prior year, but again exceeded our expectations.

Given our first half retention outperformance, we are increasing our full year retention it looks slightly we now anticipate.

Maria Black: It's a comprehensive experience that is trained on the industry's largest and deepest HCM data set and our deep knowledge base to deliver highly credible and actionable insights so that clients can make smarter decisions. We are excited about the roadmap ahead for all of our major solutions, and we expect it to help us build on the recognition we continue to earn in the market. In Q2 alone, we were pleased to be recognized for product leadership by three major industry analyst rankings. Everest Group named ADP the highest leader out of 27 providers in its multi-country payroll solutions peak matrix report, and Nelson Hall identified ADP as a leader in its payroll services vendor evaluation and assessment tools in all markets.

Don McGuire: Eight a 40 to 60 basis point decline in our full year retention, which was 10 basis points better than our prior forecast.

Don McGuire: <unk> pays per control growth of 2% in Q2 was in line with our expectations and we are maintaining our 1% to 2% growth outlook for the full year.

Don McGuire: In client funds interest revenue increased in line with our expectations in Q2.

Don McGuire: The slight decline in our average client funds balance, which we discussed last quarter was more than offset by an increase in our average yield.

Don McGuire: However, we are revising our full year client funds interest don't look lower to reflect the change in prevailing interest rates since our last update.

Don McGuire: Now expect fiscal 'twenty four client funds interest revenue of $985 million to $995 million and we expect a net impact from our client funds extended investment strategy of $835 million to $845 million.

Maria Black: And Ventana Research named us an exemplary leader across its North American Global and Payroll Management Buyer's Guide for performing the best in meeting overall product and customer experience requirements. Our second strategic priority is to provide unmatched expertise and outsourcing solutions. We shared last quarter that we were beginning to equip our associates with Gen AI capabilities through our agent assist technology. In Q2, we expanded our call summarization deployment to a greater portion of our service associates and started to see productivity gains with shorter handle times and improved service quality. With our global service associates fielding millions of calls annually, we are incredibly excited to test ways to optimize those client interactions. Our third strategic priority is to benefit our clients through our global scale, and we continue to lean into this advantage.

Don McGuire: Representing a reduction of about $20 million at the midpoint.

Don McGuire: In total there was no change to our fiscal 2004, yes revenue growth forecast of 7% to 8%.

Don McGuire: Our es margin increased 170 basis points in Q2, driven by both operating leverage and contribution from client funds interest revenue growth.

Don McGuire: We're reflecting the impact of a reduced quite funds interest revenue forecast as well as a slight increase in expected <unk> related spend we are tweaking our fiscal 2000 for Es margin outlook and now anticipate the lower end of our prior margin range.

Don McGuire: Moving onto the PEO.

Don McGuire: We had 3% revenue growth driven by 2% growth in average worksite employees in the second quarter.

Don McGuire: These metrics were in line with our expectation and we are encouraged to see signs of stabilization in our PEO pays per control growth.

Maria Black: In Q2, we announced a strategic collaboration with Convera, a global business-to-business payments company, to help our multi-country clients manage the complexity of global payroll and cross-border payments through an integrated platform. By combining Convera's payment solutions with our global payroll expertise, we're enhancing the client experience by minimizing the need to access various banking platforms and improving payment accuracy, compliance, and security.

Don McGuire: As Maria mentioned, our PEO, new business bookings were very strong in Q2 with continued healthy activity levels. We continue to anticipate a gradual ramp in our worksite employee growth in the back half of fiscal 'twenty four and we are maintaining our full year growth outlook of 2% to 3%.

Don McGuire: <unk> margin decreased 50 basis points from Q2.

Don McGuire: As we shared last quarter, we assume this year's workers' compensation reserve release benefit will be lower than last year's benefit and we are further narrowing our PEO margin expectation to be down 80 to 100 basis points in fiscal 'twenty four versus our prior expectation of decline of 50 to 100 basis points.

Maria Black: We also announced the launch of ADP Retirement Trust Services to support our growing retirement services business. Having our own trust services entity demonstrates our scale and commitment to our retirement clients, positioning us on par with financial industry leaders and ahead of HCM competitors that rely on third parties. This commitment can really matter to financial advisors, keeps data within ADP's trusted ecosystem, and provides a cost and price benefit to ADP and our clients over the long term. Our scale also affords us the opportunity to partner with other leading technology providers in innovative ways. And we continue to expand on many of those partnerships to provide our sales implementation and service teams with client-specific insights to quickly address market shifts, drive more personalized interactions, and deepen our overall client engagement.

Don McGuire: Putting it all together there is no change to our fiscal 'twenty for consolidated revenue growth outlook of 6% to 7%.

Don McGuire: With the two changes to segment margin, we now expect our adjusted EBIT margin to increase by 60% to 70 basis points versus our prior outlook for an increase of 60 to 80 basis points.

We continue to expect an effective tax rate of around 23% and we still anticipate fiscal 'twenty for adjusted EPS growth of 10% to 12% with the middle of that range. The most likely outcome given current assumptions.

Speaker Change: And I will now turn it back to the operator for Q&A.

Don McGuire: Thank you if you wish to ask question. Please press star one one.

Maria Black: Overall, our second quarter represented strong outcomes on the financial front and with respect to our key strategic priorities. I'd like to thank our associates who continue to deliver exceptional products and outstanding service to our clients, particularly now, as many of them are in the middle of our most hectic time of year, completing year-end work. I'm proud to share that their efforts helped drive our overall Net Promoter Score to its highest level ever in the second quarter. Thank you again for all that you do for ADP and for our clients. And now I'll turn it over to Don. Thank you, Maria, and good morning, everyone.

Don McGuire: We are aware of the allotted time for questions. Please ask one question with a brief follow up we will take our first question from Mark Marcon with Robert W. Baird. Your line is open.

Don McGuire: Okay.

Mark S. Marcon: Good morning, and congratulations on all the accolades that you've gotten from the third party.

Mark S. Marcon: Viewers I'm wondering if you can talk a little bit about.

Mark S. Marcon: Some of the initiatives.

Mark S. Marcon: Specifically, one that stood out was the was setting up your own trust.

Mark S. Marcon: Can you talk a little bit about the investments there.

How we should think about.

Mark S. Marcon: How that would end up on folding in what do you think some of the reactions would be with some of your third party partners like <unk> got bank partnerships and CPA partnerships and obviously.

Don McGuire: I'll provide more color on our results for the quarter, as well as our updated fiscal 2020 outlook. Overall, we reported a strong second quarter, with our consolidated revenue growth moderating in line with our expectations, and our adjusted EBIT margin coming in slightly better than expected. However, the interest rate backdrop has changed since we last provided our full-year outlook, and we are lightly tweaking our outlook, which I'll detail. I'll start with Employer Services.

Mark S. Marcon: Benefit administration partnerships.

How do you think they'll end up reacting thank you Murray.

Thank you Mark and good morning.

Speaker Change: Great question and I appreciate your.

Speaker Change: Youre well wishes on all of our recognition certainly excited to see across the board. The recognition we mentioned during the prepared remarks, but also the continued momentum across all of our initiatives.

Don McGuire: ES segment revenue increased 8% on a reported basis and 7% on an organic, constant currency basis, coming in slightly ahead of our expectations. As Maria shared, we continue to grow our ES new business bookings, resulting in a record second quarter booking volume. Our small business portfolio and international business provided outsized growth contributions this quarter, and with a steady HCM demand environment and healthy pipelines, we feel on track for our 4-7% new business bookings growth outlook for the year. As mentioned earlier, our ES retention declined slightly in Q2 versus the prior year, but again exceeded our expectations.

Speaker Change: <unk> to comment on retirement Trust services.

Speaker Change: Is really a demonstration of our scale and so when I think about what it means to our clients what it means to the ecosystem that you mentioned bank PPA I think it's all incredibly positive and trust services, our core component of any 401K plan, given the size and scale of our retirement server.

Speaker Change: <unk> business, what we found is that the pool of what's known as third party trustees. If you will that are capable of handling a business just of our size is actually becoming shrinking Lee more difficult. If you will in terms of the number of providers that are able to offer a standalone trust services to a retirement offering of our size.

Don McGuire: Given our first half retention outperformance, we are increasing our full year retention outlook slightly. We now anticipate a 40 to 60 basis point decline in our full-year retention, which is 10 basis points better than our prior forecast. ES Payable for control growth of 2% in Q2 was in line with our expectations, and we are maintaining our one to two percent growth outlook for the full year. Additionally, Client Funds Interest Revenue increased in line with our expectations in Q2. A slight decline in our average client funds balance, which we discussed last quarter, was more than offset by an increase in our average yield. However, we are revising our full-year client funds interest outlook lower to reflect the change in prevailing interest rates since our last. We now expect fiscal 24 client funds interest revenue of $985 to $995 million, and we expect a net impact from our client funds extended investment strategy of $835 to $845 million, representing a reduction of about $20 million at the mid. In total, there is no change to our fiscal 24 ES revenue growth forecast. 7 to 8 percent.

Speaker Change: So in terms of that we made the decision to launch our in House Trust services. We believe that this is a great value to our clients to the ecosystem.

Speaker Change: Puts us on par with other industry leaders in the financial services and really a competitive advantage against some of our HCM competitors that continue to leverage. These third party trustees. So for US I think it's a big commitment to the business that we have the retirement business that is which really can matter to financial advisors and as I said TBA.

Speaker Change: Some banks really by taking the trust services in house. The implication is that we have better control over our cost ultimately that yields a better price for our clients about our service. We also have the ability to maintain all of the data inside of Adp's ecosystem, which as you know is a big component of how ADP is in terms of data integrity.

Speaker Change: And all of those things so that's kind of the retirement trust services in a nutshell mark.

Speaker Change: Terrific.

Speaker Change: Thanks for that and then Chris.

Speaker Change: Noticeable.

Speaker Change: Basically we are.

Chris: Anticipating a lower level.

Chris: Decline in terms of the Es retention, which is coming off of record levels.

Don McGuire: Our ES margin increased 170 basis points in Q2, driven by both operating leverage and contributions from client funds' interest revenue growth. But reflecting the impact of a reduced client funds' interest revenue forecast, as well as a slight increase in expected gen AI related spend, we are tweaking our fiscal 24 ES margin outlook and now anticipate the lower end of our prior margin range. Moving on to the PEOs, we had 3% revenue growth driven by 2% growth in average worksite employees in the second quarter. These metrics were in line with our expectations, and we are encouraged to see signs of stabilization in our P.O. pays-per-control group. As Maria mentioned, our P.O. new business bookings were very strong in Q2.

To what extent is that due to our anticipation of lower levels of bankruptcies as opposed to just see.

Chris: Improvement that you've been seeing in terms of your client service scores.

Chris: So retention is going incredibly well right and we mentioned that in the remarks year to date retention has definitely been better than we expected and so I think things are fundamentally really healthy right now one thing to keep in mind as kind of think about the outlook is that we are as you mentioned, we are coming off of some of the other <unk>.

Chris: Hi is that we've seen over the last several years and while we believe that from a specifically a down market perspective, we're close to being normalized back to fiscal 19 trends. We do also anticipate some pressure in the back half from perhaps out of the business and bankruptcies, having more of a material impact we havent seen it.

Don McGuire: With continued healthy activity levels, we continue to anticipate a gradual ramp in our worksite employee growth in the back half of fiscal 24, and we are maintaining our full year growth outlook of 2 to 3 percent. P.O. margin decreased 50 basis points in Q2. As we shared last quarter, we assume this year's workers' compensation reserve release benefit will be lower than last year's benefit.

To date.

Chris: But we certainly want to ensure that we're cognizant of the fact that we believe it's prudent given that we have retention running at such record levels. We believe it's prudent to us to.

Chris: So planned for it in the back half to have some pressure and obviously just like any earmarked retention is always not noisy and so we have some normal variability in conservatism in the back half just like you I'd like to think that there is opportunity. There I think only time will give us the answer to that but that's kind of how we're thinking about the back half.

Don McGuire: We are further narrowing our P.E.O. margin expectation to be down 80 to 100 basis points in Fiscal 24 versus our prior expectation of a decline of 50 to 100 basis points. Putting it all together, there is no change to our fiscal 24 consolidated revenue growth outlook of 6-7%. With the two changes to segment margin, we now expect our adjusted EBIT margin to increase by 60 to 70 basis points versus our prior outlook for an increase of 60 to 80 basis points. We continue to expect an effective tax rate of around $23 billion. And we still anticipate fiscal 24 adjusted EPS growth of 10% to 12%, with the middle of that range the most likely outcome given current assumptions.

Really appreciate that Maria Thank you and congratulations.

Speaker Change: Thanks Mark.

Speaker Change: Thank you. Our next question comes from James Faucette with Morgan Stanley. Your line is open.

James E. Faucette: Great. Thank you very much I appreciate all the detail this morning.

James E. Faucette: I wanted to quickly just touch on PEO called.

James E. Faucette: Called out a strong acceleration in the business, but it looks like outlook for revenues with J&J. You may have mentioned that but I'm just trying to capture how much of that is timing issue versus the concentration you have in professional services and technology, which still seem a little bit soft at least through the end.

James E. Faucette: Employment reports.

Speaker Change: Yes, James Thanks, Thanks for that question.

Operator: Thank you, and I'll now turn it back to the operator for Q&A. Thank you. If you wish to ask a question, please press star 11.

Speaker Change: We've been happy to see the stabilization in the <unk>.

Speaker Change: In the pays per control in those sectors, the financial services and technology sectors. So although there is still a little bit of noise. There certainly stabilized group we saw in the.

Operator: Please be aware there's a lot of time for questions. Please ask one question with a brief follow-up. We'll take our first question from Mark Marcon with Robert W. Baird. Your line is open. Hey, good morning.

Speaker Change: In the prior quarter, so that's positive.

Do think that as we looked at our sales results our bookings for PEO, but we're very happy with the bookings Maria mentioned that.

Mark S. Marcon: And congratulations on all the accolades that you've gotten from the third-party reviewers. I'm wondering if you can talk a little bit about, you know, some of the initiatives, and specifically, one that stood out was setting up your own trust. Can you talk a little bit about the investment there and, you know, how we should think about how that would end up unfolding? And what do you think some of the reactions would be with, you know, some of your third-party partners? Like you've got bank partnerships and CPA partnerships and, obviously, benefit administration partnerships. How do you think they'll end up reacting?

Speaker Change: Already very good I think as we kind of put together the improvement in the pays per control and the improvement in our bookings I think we're going to be heading towards that reacceleration that we've reporting to over the last couple of quarters in the PEO.

Speaker Change: But really just trying to get the impact of those two components those variables of those variables is really what's going to help us get that reacceleration growing.

Speaker Change: Thanks, James I want to clarify just to clarify.

Speaker Change: The pays per control, although its stabilizing if not providing any sort of upside versus our prior forecast. So bookings are going well it takes quite a bit in terms of bookings to really drive a material change to the current year revenue, which you all understand with a potential to providing sequential grab.

Maria Black: Thank you, Maria. Thank you, Mark, and good morning. I appreciate the question and appreciate your well wishes on all of our recognition. Certainly excited to see across the board the recognition we mentioned during the prepared remarks but also the continued momentum across all of our initiatives. I'm happy to comment on retirement trust services. It is really a demonstration of our scale, and so when I think about what it means to our clients, what it means to the ecosystem that you mentioned, banks, CPAs, I think it's all incredibly positive, and trust services are a core component of any 401k plan. Given the size and scale of our retirement services business, what we found is that the pool of what's known as third-party trustees, if you will, that are capable of handling a business just of our size is actually becoming shrinkingly more difficult, if you will, in terms of the number of providers that are able to offer standalone trust services to a retirement offering of our size.

Speaker Change: It will drag those two are sort of netting out to an in line outlook.

Got it thanks for that Danny and then quickly on on AI It seems like.

Speaker Change: A little bit of incremental investment there.

Speaker Change: Certainly a big focus on this call but.

Speaker Change: Wondering about how we should think about the.

Speaker Change: How you are anticipating a return on that investment and over what kind of timeframe and maybe more qualitatively what kinds of paybacks holders increased.

Speaker Change: Customer satisfaction, our internal operations et cetera. Thanks.

Speaker Change: Yes, I'll start on the on the AI side and tell you all the reasons again that I'm. So excited about it and maybe Don can give you a little bit about how we're thinking about the return on investments that we're making so just to remind everyone. How we're thinking about AI in its most simplistic way I think about it really in three buckets, the first of which is Prada.

Maria Black: So in terms of that, we made the decision to launch our in-house trust services. We believe that this is of great value to our clients, and to the ecosystem. It puts us on par with other industry leaders in the financial services industry and really gives us a competitive advantage against some of our HCM competitors that continue to leverage these third-party trustees. So for us, I think it's a big commitment to the business that we have, the retirement business, that is, which really can matter to financial advisors and, as you said, CPAs and banks. Really, by taking the trust services in-house, the implication is that we have better control over our costs. Ultimately, that yields a better price for our clients, and a better service. We also have the ability to maintain all of the data inside of ADP's ecosystem, which, as you know, is a big component of who ADP is in terms of data integrity and all of those things. So that's kind of the retirement trust services in a nutshell, Mark. Thanks for that!

Speaker Change: And innovation, so putting degenerative AI into all of our innovation cycles. So that's everything from product development to the features and functionality that I mentioned in the prepared remarks and by the way later. This morning, we're actually issuing a press release that goes through some of our product and innovation.

Speaker Change: Colored philosophy and launches of products right. So some of what this press release speaks to is how we're thinking about and our design principles around making things easy smarten human within our product and innovation cycles to really drive things like payroll assessed things like ADP assessed into.

Speaker Change: And to the market in a meaningful way. So the product is really kind of the first bucket and as Youll see were making significant investments. There. We do have ADP assess now more broadly deployed across the product set and we're seeing meaningful.

Maria Black: And then it was noticeable that you basically are, you know, anticipating a lower level of decline in terms of ES retention, which is coming off of record levels. To what extent is that due to an anticipation of lower levels of bankruptcies as opposed to just the improvement that you've been seeing in terms of your client service? So retention is going incredibly well, right? And we mentioned in the remarks that year-to-date retention has definitely been better than we expected. And so I think things are fundamentally really healthy right now.

Speaker Change: <unk> as it relates to our client experience on that the second bucket is what I call efficiency and service efficiency and this is really about getting all the same things that we're looking to give our clients to make their jobs easier and more effective and efficient and giving those same tools to our associates and so we have agenesis.

Speaker Change: I am pleased to say that from an agent assist perspective, we've more than doubled the number of associates today theyre engaging in AI tools overall ASP.

Maria Black: One thing to keep in mind as we kind of think about the outlook is that we are, as you mentioned, coming off of some of the record highs that we've seen over the last several years. And while we believe that, from a specifically a down market perspective, we're close to being normalized back to fiscal 19 trends. We do also anticipate some pressure in the back half from perhaps going out of business and bankruptcies having more of a material impact, although we haven't seen that to date.

Speaker Change: Specifically, a big piece of that is anchored in agent assist and the things we're doing around call summarization again, I'll, let Don comment on investments and return, but just to kind of give you a flavor of what we're talking about here.

Don McGuire: The feedback we're getting from our associates as their times, we're saving up a minute or two minutes by aiding things like call summarization, and while that probably seen minuscule what I would offer to you is we have thousands of service associates and we also have millions and millions of calls that we take every single year.

Maria Black: But we certainly want to ensure that we're cognizant of the fact that, given that we have retention running at such record levels, we believe it's prudent to plan for it in the back half to have some pressure. And obviously, you know, just like any year mark, retention is always noisy. And so we have some normal variability and conservatism in the back half. But just like you, I'd like to think that there's opportunity there. I think only time will give us the answer to that question.

Don McGuire: And so we're pretty optimistic and excited about a minute here in a minute there and what that means from a and.

Don McGuire: And the incremental opportunity for us over time right. So we continue to lean into our service efficiency and really getting all of our associates more effective as it relates to their ability to engage with our clients and then last but not least by the way I could go on and on and on all day on this topic, but last but not least very very important is how.

Maria Black: But that's kind of how we're thinking about the back half. Really appreciate that, Maria. Thank you and congratulations. Thanks, Mark. Thank you. Our next question comes from James Faucette with Morgan Stanley. Your line is open.

Don McGuire: We're thinking about generative AI and our go to market motions and so we have four years I've been at the tip of the spear of sales modernization. We have partnerships that are two decades old where we've always been leading the way with what it looks like to have a best in class modern distribution and sales force.

James E. Faucette: Great, thank you very much. I appreciate all the detail this morning. I wanted to quickly just touch on PEO. You called out a strong acceleration.

Don McGuire: And this is no different for us so we already have a broad set of our sellers.

Don McGuire: Business, but it looks like the outlook for revenues is changing. You may have mentioned that, but I'm just trying to capture how much of that is a timing issue versus the concentration you have in professional services. Technology, which still seemed a little bit soft, at least. Yeah, James, thanks. Thanks for that question.

Don McGuire: <unk> tools, along the lines of generative AI, many of which are through our best in class vendors and partners that we have and we're seeing great impact there things that I used to do myself.

Don McGuire: We've been happy to see the stabilization in the, in the case for control in those sectors, the financial services and technology sectors. So although there's still a bit of noise, they're certainly stabilized from what we saw in the prior quarter. So that's a positive. I do think that as we look at our sales results, our bookings for PEO, we're very happy with the bookings. Maria mentioned that it was already very good.

Don McGuire: I think as we kind of put together the improvement in the pay-per-control and the improvement in our bookings, I think we're going to be heading towards that re-acceleration that we've been pointing to over the last couple of quarters in the PEO. But really just trying to get the impact of those two components, those variables, is really what's going to help us get that re-acceleration going. James, just to clarify, the Pace for Control, although it's stabilizing, it's not providing any sort of upside versus our prior forecast, so bookings are going well. But it takes quite a bit in terms of bookings to really drive a material change to the current year revenue, which you all understand. With Pace for Control still providing sequential, gradual drag, those two are sort of netting out to an inline outlook. Got it. Thanks for that, Dany.

James E. Faucette: And then quickly on AI. Like, you know, there's a little bit of incremental investment there. I don't have a big focus on this call.

Maria Black: I'm wondering about how we should think about, how you're anticipating a return on that investment and over what kind of time frame and, maybe more qualitatively, what kinds of paybacks will come, Customer Satisfaction or Internal Operations, etc. Yes, I'll start on the AI side and tell you all the reasons again that I'm so excited about it. Maybe Don can give you a little bit about how we're thinking about the return on the investments that we're making. So just to remind everyone how we're thinking about AI, in its most simplistic way, I think about it in really three buckets, the first of which is product and innovation. So putting generative AI into all of our innovation cycles, so that's everything from product development to the features and functionality that I mentioned in the prepared remarks.

Maria Black: And by the way, later this morning, we're actually issuing a press release that goes through some of our product and innovation, call it philosophy, and launches of products, okay. So some of what this press release speaks to is how we're thinking about and our design principles around making things easy, smart, and human within our product and innovation cycles to really drive things like payroll assist, things like ADP assist, into the market in a meaningful way. So product is really kind of the first bucket.

Maria Black: And as you'll see, we're making significant investments there. We do have ADP assist now more broadly deployed across the product set, and we're seeing meaningful impact as it relates to our client experience on that. The second bucket is what I call efficiency and service efficiency.

Maria Black: And this is really about giving all the same things that we're looking to give our clients to make their jobs easier and more effective and efficient, and giving those same tools to our associates. And so we have agent assist. I'm pleased to say that from an agent assist perspective, we've more than doubled the number of associates today that are engaging in AI tools overall. Specifically, a big piece of that is anchored in agent assist and the things we're doing around call summarization. Again, I'll let Don comment on investments and return, but just to kind of give you a flavor of what we're talking about here, you know that the feedback we're getting from our associates is that there are times we're shaving off a minute or two minutes by aiding things like call summarization.

Maria Black: And while that probably seems like minuscule, what I would offer to you is we have thousands of service associates, and we also have millions and millions of calls that we take every single year. And so we're pretty optimistic and excited about a minute here and a minute there, and what that means as an incremental opportunity for us over time. So we continue to lean into service efficiency and really get all of our associates more effective as it relates to their ability to engage with our clients. And then, last but not least, by the way, I could go on and on and on all day about this topic, but last but not least and very, very important is how we're thinking about generative AI in our go-to-market activities.

Maria Black: And so we have for years been at the tip of the spear of sales modernization. You know, we have partnerships that are two decades old where we've always been leading the way with what it looks like to have a best-in-class modern distribution in Salesforce, and this is no different for us. We already have a broad set of our sellers leveraging tools along the lines of generative AI, many of which are through our best-in-class vendors and partners that we have, and we're seeing great impact there. You know, things that I used to do myself.