In the first paragraph, the conference operator, Michelle, introduces herself and informs the participants that the call is being recorded. She then hands over the call to Danny Hussain, Vice President of Investor Relations. Danny introduces the participants, Maria Black (President and CEO) and Don McGuire (CFO), and mentions that the earnings materials are available on the SEC and Investor Relations websites. He also mentions that they will be referencing non-GAAP financial measures and that the call will contain forward-looking statements. Maria then thanks everyone for joining and shares the company's strong first quarter results, including revenue and adjusted EPS growth. She also mentions the progress made on the company's three strategic priorities.

The employer services division had a successful first quarter, with record-level volume in new business bookings and a strong performance in small business and compliance solutions. Demand for HCM services remained steady and the retention rate exceeded expectations, with high NPS scores. Growth in pays per control and PEO revenue remained stable, but slightly slower than previous quarters. The company made progress in its strategic priorities, including integrating Gen AI features into products and rolling out ADP Assist for simplified HR work.

ADP has introduced ADP Assist for select Workforce Now clients, with a focus on personalized experiences and deep integrations. They have also launched API Central and acquired Sora to automate people processes and improve the user experience. In addition, they have launched ADP Workforce Now for construction and announced a corporate venture capital fund to stay ahead of HCM innovation.

In addition to organic efforts, ADP Ventures will now invest in and partner with early-stage startups to strengthen their core business and expand into natural adjacencies. They have already made two investments focused on improving lifestyle benefits and simplifying leave management. ADP has also launched new features, such as ADP Assist and Agent Assist, which use AI to improve efficiency and gather real-time client feedback. They plan to continue developing new features to enhance their service and client satisfaction. ADP's third strategic priority is to leverage their global scale, which they have expanded on in Q1.

In August, the company acquired the payroll business of BTR in Sweden, expanding its global footprint and positioning itself for growth in the European market. The company also announced plans to deepen its partnership with Workday to provide enhanced global payroll compliance and HR services. The company has reached milestones in its workforce management and retirement services businesses, with both seeing significant growth. The company expects continued growth in its retirement services business due to regulatory changes and increasing recognition of the importance of retirement planning.

The company is proud of their strong financial results and strategic progress at the start of fiscal 2024. They recognize the efforts of their associates and thank them for their outstanding performance. The Employer Services segment had a solid Q1 with a 9% increase in revenue and a strong growth in new business bookings. The demand environment is stable and the company is on track to meet their 4% to 7% growth guidance. Retention declined slightly, but the company is maintaining their outlook for a 50 basis point to 70 basis point decline for the full year. Pays per control growth was in line with expectations and is expected to continue gradually decelerating in the coming quarters.

In the first quarter, client funds interest revenue increased as expected and our full year outlook has been raised due to a higher average yield. The strengthening of the U.S. dollar had a negative impact on our revenue outlook, but this was offset by strong ES revenue growth and higher client funds revenue. Our ES margin also increased and we have raised our full year outlook for it. In terms of PEO, revenue growth was 3% and average worksite employees grew by 2%. However, pays for control growth was slower than expected, resulting in a slightly lower worksite employee count. As a result, our PEO revenue growth outlook for the full year has been adjusted to 3% to 4%, with a 2% to 3% growth in average worksite employees. PEO margin decreased more than expected in Q1.

The decline in the PEO margin was due to lower workers' compensation reserve release benefit and higher selling expenses. The company expects the margin to continue to decrease in fiscal year 2024, with a modest impact on revenue and margin expansion in the second quarter. However, there will be a slight acceleration in revenue growth in the second half of the year. The company maintains its guidance for fiscal year 2024, with expected revenue growth of 6% to 7% and adjusted EPS growth of 10% to 12%. There will be no change to the effective tax rate of 23%. The first question from the analyst is about the PEO side and the company's outlook for margin and revenue growth.

Maria Black, speaking on behalf of the company, responds to a question about the revised guidance for the first quarter. She explains that the deceleration in PEO pays per control is due to the pressure in the professional services technology sector. This has led to a slower growth in the PEO compared to the broader base. However, the company did see strong bookings in the PEO in the first quarter, although slightly below their expectations. This, coupled with retention and strong bookings, is expected to lead to a reacceleration in the back half of the year.

Retention within the PEO is stable but not at the high growth levels seen in previous years. As retention continues to accelerate and comparisons become more difficult, contributions from bookings are expected to increase. The international rollout of the company's core HCM solutions, starting with Ireland, is seen as a potential offset to the slowdown in U.S. revenue. This is part of the company's strategy to expand internationally and leverage its existing ecosystem for distribution and services.

The overall growth contributions of rolling out Roll into Ireland are currently negligible, but it is seen as a long-term investment for the company's international expansion. The company sees growth opportunities in both the SMB and MNC markets, and had a strong quarter in international. The management remains optimistic about the company's international offering. The caller also asked about the macro situation and its potential impact on demand.

Maria Black discusses the performance of bookings and demand in the first quarter, highlighting strength in the down market and compliance solutions. She also mentions continued investments in these areas and confirms that the results are in line with the full year guide. She notes that overall demand remains strong and healthy in all market segments.

The company is looking at new appointments and activity measures to gauge demand, and they are confident in their pipeline and the full year guide. They are also keeping an eye on macroeconomic factors and the global space, but overall the macro outlook is positive. The only area of concern is a potential slowdown in pays per control growth, but this was already factored into their original guidance for the year.

During a conference call, a question was asked about the performance of the Professional Employer Organization (PEO) segment. Maria Black and Don McGuire clarified that while PEO bookings were slightly lighter than expected, they were still higher than the Employment Services (ES) segment. They also mentioned that higher selling expenses were impacting the PEO margins, but this was in line with their expectations for the first half of the year. Another question was asked about the anticipated out of business rates, and the response was that they are still expecting some decline but it has been better than expected so far.

Don McGuire and Maria Black discuss the strong demand environment and new business formations that are supporting the economy and benefiting small businesses. They anticipate a plateau or decrease in out of business rates, but retention rates have remained at record levels. The strong demand and macroeconomic factors are cited as reasons for this strength.

The company believes it is still wise to maintain their retention guide, as it is still early in the year and they have outperformed in the first quarter. They have seen a 25,000 sequential improvement in retirement services, which is partly due to state mandates, particularly the SECURE Act. The company is excited about the growth in this business and believes it adds value to the world of work.

The speaker discusses the various state mandates that companies must comply with and how this will create more opportunities for ADP to help clients stay compliant. They also mention the decline in PEO and explain that this is due to a different mix of industries, as PEO is designed to cater to a specific type of client.

The paragraph discusses the value of the company's offering to professional services and tech-oriented companies. The PEO base is experiencing a deceleration due to these industries slowing down, which is reflected in the company's data and the broader market. The company's ES new bookings were strong in September and the pipeline looks good, but the overall guidance for bookings remains at 4% to 7%. The company may be trending above this range due to the strength in September and in the SMB sector.

The speaker is pleased with the first quarter results and sees strength in the demand environment. They are confident in their full year guidance of 4-7% growth, but acknowledge that the contribution of new business bookings is typically higher in the third and fourth quarter. They are cautious about the competitive environment in PEO and believe it is prudent to only give guidance for one quarter. They also mention slower growth in the industry and the potential for saturation or competition affecting PEO performance.

Maria Black discusses the competitive environment of PEO ASO offerings and how each PEO has its own unique model and go-to-market strategy. She also mentions the growth potential for PEO bookings and HRO and ASO offerings in the future. Ramsey El-Assal asks for clarification on the higher selling expenses in PEO.

The speaker is seeking clarification on the expected expenses for the PEO segment, which are expected to be higher in the first half of the year but may settle down in the second half. This is due to the addition of new salespeople in the previous year and a focus on retaining current employees. The PEO segment has seen slower growth compared to previous projections, likely due to post-COVID normalization. The speaker asks for a refresh on the dynamics of the business.

Maria Black and Don discuss the potential for the business to return to double-digit growth if the macro environment becomes more favorable. Maria believes that the first step is to reaccelerate bookings, which has been happening for the past three quarters. The second step is to reaccelerate retention, and the third step is to overcome the macro headwinds that have been impacting the business, such as the post-pandemic hiring patterns. Maria also mentions that the recent trend of decreased hiring in professional services and tech is a factor in the business's performance.

During the earnings call, the CEO and CFO discussed the impact of macro changes on their business and the potential for reacceleration in certain segments. They also mentioned changes in the inflation environment and their positive outlook for the future, but noted that it is too early to predict when they will reach their mid-term growth targets. The CFO also provided an explanation for the slight decrease in float yield in Q1, citing a shift in the mix of short and extended investments.

Tien-Tsin Huang asks for clarification on the slight softness in bookings for the PEO side. Maria Black explains that there was actually strength and growth in PEO bookings, but the worksite employee deceleration is due to the PPC story. The PEO has been successful in targeting industries like professional services and technology, but the deceleration is happening faster in those sectors compared to the rest of the PEO base.

The speaker discusses the current hiring trends in professional services and tech industries, noting a lack of hiring compared to previous years. They also mention that the participation rate may impact reported revenue, but not the number of workers enrolled in plans. The speaker then mentions an acquisition in Sweden, explaining that it is part of a broader plan to aggregate international payroll. The speaker also jokes about their personal connection to Sweden.

The speaker discusses the recent acquisition of BTR and how it gives the company a physical presence in Sweden and allows for expansion into the growing Nordic market. They also mention the strength in ES bookings, particularly in the small business market with RUN, and solid demand in the mid-market with Workforce Now and HR outsourcing offerings. They expect continued strong growth in the mid-market due to the increasing complexity of being an employer.

The speaker discusses the strength of their next-generation HCM offering in the enterprise space and mentions a strong finish in international business for the first quarter. They also mention a decline in PEO margin due to difficult comparisons on workers' compensation reserve adjustments from the previous year. The speaker quantifies this decline to be about $6.2 million less than the previous year. They express confidence in their international bookings remaining healthy in fiscal year 2024.

The speaker discusses the impact of Gen AI on the company's solutions and their philosophy on monetization. They believe that Gen AI will impact all aspects of the company's operations and will be integrated into all stages of the client life cycle. They also mention the use of developer co-pilot tools.

The speaker discusses how Gen AI will be integrated into their products and how it will impact their go-to-market strategy. They believe that Gen AI will be embedded into everything they do and will not be charged separately for specific features. Instead, the focus is on innovation and improving productivity for clients, which will result in new business and retention.

The speaker is optimistic about the progress they are seeing with new tools and goals being implemented throughout the organization. They have set goals for the end of the year and are already seeing positive results with 10% of their associates using the tools. The sales organization is also seeing increased productivity with the use of these tools. It is still early days, but they have been scoping out ways to become more efficient for years and have been using machine learning and AI for a while.

The company is experiencing a step change in innovation, but it is too early to commit to specific numbers. They have exciting goals and new technology that could lead to big enhancements. Productivity is a major focus, with new tools like Agent Assist and rapid pre-call planning. The company is actively looking for opportunities to drive productivity and value for shareholders and clients. The construction vertical software has recently been launched.

Maria Black responds to a question about whether ADP's development of a specific solution for the construction vertical is part of a bigger shift towards developing more vertical-specific HCM solutions. She confirms that this is the case and explains that many of the features and functionality for the construction industry have existed for years, but are now being pulled together and supported by a dedicated service organization. She also mentions that this approach could be applied to other verticals in the future. In terms of Next Gen HCM and Next Gen Payroll, she does not provide specific numbers but mentions that they are seeing positive trends and attach rates.

Maria Black and Scott Wurtzel discuss the strength and growth of the Next Gen HCM and Next Gen Payroll offerings in the first quarter. They note that more Next Gen HCM was brought in during this quarter than the previous fiscal year and that clients have shared positive feedback on the platform's impact. Black also mentions the continued focus on Next Gen Payroll, which is being used to expand into the SMB space internationally. Overall, both Black and Wurtzel are excited about the potential of these offerings for the company's long-term growth.

The speaker, Maria Black, reflects on the past year and expresses pride in the company's first quarter results and progress on strategic priorities. She also thanks the company's associates for inspiring her and concludes the call.

This summary was generated with AI and may contain some inaccuracies.