Michelle, the conference operator, introduces the ADP Second Quarter Fiscal 2024 Earnings Call and welcomes everyone. Danny Hussain, Vice President of Investor Relations, then takes over and introduces the speakers, Maria Black, President and CEO, and Don McGuire, CFO. Non-GAAP financial measures will be referenced and forward-looking statements will be made. Maria Black then provides a review of the quarter's financial highlights and updates on the company's progress with their strategic priorities.

The company had a strong second quarter with record new business bookings and steady demand in HCM. Retention was high and there was a 2% growth in pays per control. The PEO business also saw growth and a new advertising campaign was launched. The company is focused on leading with best-in-class HCM technology.

ADP Assist, powered by GenAI, is a cross-platform solution that delivers actionable insights and streamlines HR tasks for clients. It integrates with ADP products and uses natural language processing to understand intent and provide valuable insights. ADP has been recognized for product leadership by three major industry analyst rankings. ADP's second strategic priority is to provide unmatched expertise and outsourcing solutions.

In the previous quarter, the company implemented GenAI capabilities through Agent Assist technology, resulting in productivity gains and improved service quality. The company also announced a collaboration with Convera to help manage global payroll and cross-border payments, and launched ADP retirement trust services to support their growing retirement business. The company's scale allows them to partner with other technology providers to provide personalized interactions and deepen client engagement.

In the second quarter, ADP saw strong financial results and progress on strategic priorities. The company's Net Promoter Score reached its highest level ever, thanks to the efforts of its associates. The Employer Services segment saw a revenue increase of 8%, with small business and international business driving growth. New business bookings were at a record high, and retention exceeded expectations. ADP is on track to meet its 4-7% new business bookings growth outlook for the year and has slightly increased its full-year retention outlook.

The company anticipates a decline in full-year retention, but it is better than their previous forecast. ES revenue growth was in line with expectations, but the client funds interest outlook has been revised lower due to prevailing interest rates. The ES margin increased in Q2, but the fiscal 2024 margin outlook has been adjusted. The PEO had 3% revenue growth and signs of stabilization in PEO pays per control growth. PEO new business bookings were strong in Q2 and work site employee growth is expected to gradually ramp up in the second half of fiscal 2024. PEO margin decreased in Q2.

The company's workers' compensation reserve release benefit is expected to be lower this year, leading to a narrowed PEO margin expectation. However, the consolidated revenue growth outlook remains unchanged. The company plans to increase its adjusted EBIT margin and expects a 10% to 12% growth in adjusted EPS for fiscal 2024. The company has received positive recognition for its initiatives and is continuing to see momentum in its various partnerships. One specific initiative mentioned is the setting up of its own trust, which may have an impact on its third-party partners, such as banks and benefit administration companies.

The speaker is pleased to discuss ADP's retirement trust services, which demonstrates the company's scale and benefits clients, banks, and CPAs. Due to the size of their retirement services business, finding third-party trustees has become more difficult, so they have decided to launch in-house trust services. This move allows for better control over costs and data integrity, and is a commitment to their retirement business. The speaker also mentions a lower anticipated decline in ES retention.

Maria Black, CEO of a company, discusses the strong retention rates and improvement in client service scores. She attributes this success to the overall health of the company and the anticipation of lower levels of bankruptcies. However, she also mentions the potential pressure from out of business and bankruptcies in the back half of the year. The company is planning for this pressure and remains optimistic about potential opportunities.

Don McGuire and Danny Hussain responded to a question about the acceleration in their business and the outlook for revenues. They mentioned that there has been stabilization in the financial services and technology sectors and that their bookings for PEO have been strong. However, the pays per control is still providing a drag on their revenue forecast. They clarified that the incremental investment in AI will not have an immediate impact on their revenue and that it will take time to see a return on that investment.

Maria Black and Don are discussing the potential benefits of implementing AI technology at their company. They mention three main areas where AI can have a positive impact: product and innovation, efficiency, and service. They also mention specific tools such as payroll assist and Agent Assist that have already been deployed and are showing promising results. They are excited about the potential for AI to improve both customer satisfaction and internal operations.

The company's focus on Agent Assist and call summarization has resulted in positive feedback from associates, as it has helped save time during calls. This may seem like a small improvement, but with thousands of associates and millions of calls, it has the potential for significant impact. The company is also leveraging generative AI in their sales and distribution processes, with partnerships that go back two decades. This has helped with tasks such as pre-call planning and call summarization for prospecting, and the company is optimistic about the potential for further improvement.

The speaker wraps up the discussion by highlighting the importance of product, service efficiency, and go-to-market strategies. They mention making active investments in digital transformation and incremental investments, which will bring returns in the future. The question is raised about the higher seller expenses in PEO, and it is clarified that there is nothing unusual or fundamentally different about the company's selling expenses in this area.

The speaker discusses how higher sales lead to higher selling expenses and mentions that there are no fundamental differences in the company's go-to-market strategy or competitive landscape. They also mention that the international revenue is not as high as they would like it to be due to different offers and value propositions in different markets.

The speaker discusses the benefits of partnering with Convera for international clients, as it helps manage the complexity and difficulty of paying employees and complying with regulations in small countries around the world. They also mention the strong performance, retention, and customer experience in international markets and express a desire to continue growing in this area.

During a conference call, Maria Black, CEO of the company, mentions that there is a lot of potential for growth in their international market and that partnerships will play a big role in that. She also mentions their excitement about the down market in international and how their pilot programs are teaching them a lot about it. Don McGuire, CFO, adds that the decline in average balances in the previous quarter was due to the payroll tax deferral, but that is now behind them. He expects 2-3% balanced growth for the rest of the year, but notes that the decrease in interest rates may be a slight headwind.

The speaker discusses the reasons for slower growth and lower wage growth in the current year compared to the previous year. They mention that this will affect the overall balance in the second half of the year. The speaker also discusses how market trends and yield curves are used to estimate returns. In response to a question about the selling season, the speaker mentions that the second quarter was positive for bookings, but they are unsure about the third quarter and any changes in pricing or strategies from competitors.

The speaker is optimistic about the demand for their company's services, citing strong results in the second quarter and a positive outlook for January. They mention a focus on the down market and solid pipelines in the mid-market and off-market. They also address competition in the mid-market, stating that their company is executing well and has best-in-class products. Overall, they are pleased with their company's performance and anticipate continued success.

The speaker discusses the current state of the mid-market and international space, noting that it has not become any easier for clients to be employers in the mid-market. They also mention a strong Q2 in the international space and feel confident about their pipelines in the enterprise and upmarket space despite longer deal cycles. The follow-up question is about the increase in float income guidance, which the speaker clarifies is due to a change in the way they borrow funds in the market. This change does not affect their investment strategy.

In the paragraph, Don McGuire responds to a question about the company's EBIT margin and explains that the outperformance was due to a modest revenue increase and some expenses, including bad debt and headcount. He also mentions that the company is spending a bit more on GenAI than previously planned. When asked about the new ADP Assist feature, McGuire clarifies that it is not a direct source of revenue, but rather an enhancement offered to improve customer satisfaction.

Maria Black, ADP's Chief Digital and Marketing Officer, explains that the company's new ADP Assist brand is not meant to be a monetization effort, but rather a way to leverage new technology for digital transformation. She also believes that there will be monetization opportunities in the long term through GenAI products, which will lead to investments and increased sales and retention for the company.

During a conference call, Samad Samana from Jefferies asks about the PEO business and if there have been any changes in trends or exposure within the big verticals. Maria Black responds that the trend in professional services has stabilized and is no longer contributing to a deceleration. Samad also asks about the pricing environment and if there have been any changes in competitive pressure or discounts. Don McGuire responds that there have been no changes and that ADP is priced appropriately, offering better service and stability.

The company is preparing for the budget cycle and considering pricing increases for next year. They aim to maintain competitiveness and value for their clients. They receive a small percentage of revenue from internal implementations and have had discussions about outsourcing this process. It is not expected to have a significant impact on margins.

The speaker discusses the company's control over clients from sale-through to go live in service, and mentions that they occasionally work with third parties. They also mention the accounting around implementation and setup fees and how it affects the bottom-line financials. The next question is about PEO bookings and the speaker mentions that they have seen positive momentum in the fourth quarter and exceeded expectations in the second quarter. They attribute the pressure in the PEO to the pressure on pays per control and the focus on bookings. The demand for PEO remains strong.

The speaker discusses the company's strong focus on executing PEO bookings and the value proposition of their services. They believe that the demand for their services remains strong and the organization is dedicated to increasing PEO bookings. The company has seen positive momentum in PEO bookings for four consecutive quarters. In response to a question about pays per control growth, the company states that they are not anticipating any slowdown in the back half of the year, but they have a conservative estimate of 1-2% growth.

The speaker discusses the current state of employment demand, noting that it is still robust but declining slightly. They express confidence that the decline will not greatly affect the company's growth, which is expected to remain in the 1-2% range for the year. They also mention that while labor markets are softer, there is still good growth in hiring. In response to a question about offsetting the headwind of declining interest rates, the speaker suggests that a healthy economy should help to maintain the company's growth.

The speaker, Danny Hussain, mentions that their company's model involves reinvesting further out in the yield curve, which will offset any potential decrease in short-term interest rates next year. Another speaker, Don McGuire, adds that their current reinvestments are still at 4%, higher than their average yield, and their float is expected to continue growing. The next question is about any changes in client demands or competitive tactics since the ERTC deadline has been pulled forward. Maria Black explains that they are currently executing on behalf of their clients with today in mind, as the new deadline is potentially today.

The company is processing a large volume of claims for their clients, putting pressure on the system and causing challenges for clients. The financial impact of this is minimal for the company, as their focus is on supporting their clients rather than using it for revenue. The company sees opportunities to increase penetration and add more capabilities in HCM and payments, possibly through partnerships or M&A. They currently pay 41 million wage earners in the US and have 1.5 cardholders for their Wisely offering.

The speaker discusses the potential for increased engagement with clients through ADP's various services, such as Wisely and EWA. They mention partnerships and opportunities to add value for clients and employees throughout their day, including through ADP's mobile app. The speaker also addresses questions about PEO and notes solid bookings and moderating headwinds, with expectations for continued improvement in WSC growth throughout the year.

The speaker responds to a question about revenue per WSC and explains that they expect a re-acceleration in the back half due to booking contribution, stable pays per control, and favorable retention. They also mention other factors such as payroll per works on employee and State unemployment rates, which are still uncertain. The speaker concludes by thanking the participants and ending the call.

The speaker ended their prepared remarks by thanking all the associates, partners, and stakeholders who contributed to a solid Q2 and first half for ADP. They expressed excitement for the back half of the year and the potential for growth in both fiscal and calendar 2024, which marks the company's 75th anniversary. The speaker looks forward to celebrating with everyone as they enter the next 75 years. The program has now ended.

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