The operator, Michelle, welcomes everyone to ADP's Third Quarter Fiscal 2024 Earnings Call and informs them that the call is being recorded. Danny Hussain, Vice President of Investor Relations, introduces the participants and provides information on where to find the earnings materials and investor presentation. He also mentions the use of non-GAAP financial measures and forward-looking statements. Maria Black, President and CEO, reports strong revenue and earnings growth for the third quarter, attributing it to progress in strategic priorities and a stable labor market and HCM business environment.

In the third quarter, ADP had solid new business bookings growth and maintained momentum in their small business portfolio. They also had strong bookings results in their midmarket, enterprise, and international businesses. Retention was very strong, exceeding expectations and reaching a new record level. ADP's overall retention is benefiting from investments in key platforms and a commitment to delivering exceptional client experience. Employer Services pays per control growth was steady at 2%. ADP is focused on pushing forward with their three strategic priorities of leading with the best HCM technology, unmatched service and expertise, and broader scale to deliver the best experience for all who engage with ADP.

ADP is investing with a purpose to understand and provide value to a diverse range of personas, including small business owners, HR professionals, executives, employees, and gig workers. They are focused on their strategic priorities, including leading with best-in-class HCM technology, providing expertise in outsourcing, and utilizing their global scale to benefit clients. In Q3, they made progress on these priorities, including rolling out ADP Assist and piloting a new feature that allows small business clients to issue commands for HR actions using GenAI. They also extended GenAI capabilities to service associates and started using it for implementation processes.

In the third quarter, ADP continued to differentiate itself as a leader in HCM through its ADP marketplace and responsible AI principles. They also reached 1 million paid employees on their I-HCM platform and expanded their global presence. As they approach their 75th anniversary, ADP remains focused on delivering value to both current and new clients. Some notable new client wins in Q3 include a Boutique Donut Shop referred by a CPA partner, who chose ADP for their strong platform, services, and relationships.

ADP's sales team went above and beyond to help a first-time small business owner set up their business correctly, including obtaining necessary licenses and insurance. In the U.S. midmarket, a multistate rehabilitation center switched to ADP from a previous HCM provider due to our superior integrations. A large luxury resort also chose ADP for its exceptional client service and expanded their services after a seamless implementation. In the international business, a leading airline expanded ADP's services to 18 additional countries to improve global payroll strategy. Lastly, ADP's HRO team helped a design firm in New York establish an HR infrastructure to attract and retain top talent.

In the sixth paragraph of the article, the focus is on the success of the company's PEO offering and how it has attracted clients with its comprehensive support and benefits strategy. The CEO thanks the associates for their hard work and announces that the company's consolidated revenue growth and adjusted EBIT margin exceeded expectations. The article also mentions updates to the company's outlook for the fiscal year, including changes due to an improved interest rate backdrop. The ES segment saw 8% growth in revenue and a strong quarter in new business bookings across all client segments.

The company has a tough comparison in Q4 due to last year's strong finish, but they are confident in meeting their new business bookings growth outlook. Employee services retention exceeded expectations and the company has increased their full-year retention outlook. They expect steady growth in employee services and client funds interest revenue. The company is revising their full-year outlook for client funds interest and expects to come in towards the higher end of their revenue growth forecast. The employee services margin increased in Q3 and the company is raising their fiscal '24 margin outlook. In the PEO, there was 5% revenue growth driven by 3% growth in average work site employees.

The company's results in Q3 were in line with expectations, with a slight deceleration in pays per control growth. The company anticipates soft pays per control growth for the rest of the year and expects work-site employee growth to remain steady. The PEO margin decreased due to a lower workers' compensation reserve release benefit. The company has updated their outlook for fiscal '24, with a minimal release benefit and a revised expectation for PEO margin decline. However, there is no change to the consolidated revenue growth and adjusted EBIT margin is expected to increase. The company also anticipates below normal pays per control growth in fiscal '25, with more impact on the PEO segment due to its direct revenue sensitivity to work-site employees.

ADP plans to share their assumptions and formal guidance in a few months. They will continue to invest in GenAI and expect gradual benefits and productivity growth. Interest rates may provide a tailwind, but it depends on the yield curve. The company is focused on maintaining momentum in new business and client satisfaction. During Q&A, they were asked about trends in the PEO open enrollment season and mentioned stability in insurance price inflation and potential for increased attached rates.

The speaker discusses the company's open enrollment season and mentions that it's too early to make a call on retention for the full year. However, there has been a slight improvement in PEO retention and the company expects further improvement for the full year. The speaker then hands it over to Don, who thanks Maria for her answer and asks about the drivers of client retention, which has been surprising to the upside. Maria explains that the company is pleased with the overall retention results, which have been driven by investments in product and record client satisfaction. She also mentions that there may still be variability in the down market, but the company expects it to normalize further.

The company is confident in its retention and expects to see strong revenue growth due to this and the positive impact of client funds interest. The demand for ES new business bookings is also strong, with notable growth in the down market and retirement services.

The speaker discusses the company's recent success and strong performance in various areas, including retirement services, mid-market, and international. They attribute this success to investments and strong execution. The speaker also notes that there have been no changes in the demand environment and the company's overall hiring and labor demand is strong. They specifically highlight the mid-market as a driving force for high NPS scores and retention rates.

Maria Black, speaking on a call, addresses investor concerns about market saturation in the HCM space. She believes there is still plenty of growth potential and points to the success of new business bookings and the ability to upsell to existing clients. She also notes that only 50% of new business comes from upgrades, indicating further potential within the existing client base.

The organization is focused on targeting the right clients and utilizing generative AI to increase upselling and attach rates. The market still has a lot of potential for growth and the company is expanding internationally, particularly in Southeast Asia. Saturation is not a concern for future growth.

Don McGuire, during a recent conference call, discussed fiscal '25 and the potential for margin pressure due to GenAI investments. However, he clarified that this does not necessarily mean a decline in margins, but rather a slower growth. He also mentioned potential tailwinds from the yield curve. In regards to the PEO segment, there has been stabilization and growth in professional services, but technology and information remain choppy.

Don McGuire discusses trends in the PEO, noting that bookings softened in Q3 but were strong in Q2. In terms of PPC growth, there was a deceleration in Q1 due to the technology and professional services sector, but it stabilized in Q2. Despite headwinds in PPC, worksite employee growth accelerated in Q3 due to successful bookings. There were no surprises in Q3 and pricing remains stable. Maria Black adds that there are no significant changes in pricing for new renewals or deals.

The speaker expresses a cautious and measured approach to pricing for ADP, taking into consideration different segments and contracts. They also monitor the pricing in the HCM space and have not seen any unusual competition. The current price increase has been well-received, but they will continue to carefully consider the value equation and customer satisfaction in future pricing decisions.

ADP is investing in GenAI to improve both expense and sales efficiency. The goal is to improve service and seller productivity, increase client satisfaction and retention, and create a virtuous cycle. These investments will take time to fully realize their results, but ADP is already seeing positive outcomes, such as call summarization.

The speaker discusses the impact of shaving off a minute per call on efficiency and customer experience, and how it will lead to significant improvements over time. They also mention that ES for the full year is expected to be at the higher end of the range due to factors such as booking strength, better retention, and float benefit. However, they state that there won't be much of an impact on price or revenue in the fourth quarter, and that the impact of higher CFI will be muted as the year comes to an end.

In the paragraph, Maria Black, a spokesperson for a company, discusses the progress and potential growth opportunities in the international market. She mentions the company's strong infrastructure and presence in 40 countries, as well as their success in multinational growth. She also touches on the potential impact of their next-generation payroll engine on future bookings.

The speaker believes that the demand for their services, along with their on-the-ground strategy, will lead to a strong fourth quarter and growth in the following year. They are focusing on expanding in the Asia-Pacific region and recently acquired a company in Sweden. They have a vast ecosystem and a clear competitive advantage. The speaker also mentions positive feedback from clients at a recent event. The deployment of next-gen payroll may also serve as a catalyst for growth in new markets.

Maria Black discusses the company's plans for next-gen payroll and their intention to continue driving it in various international markets. She also mentions the competitive landscape in the mid-market, stating that it is a highly competitive space but the company has seen success due to their strong distribution and execution, investments in their product set, and strong retention.

During a conference call, an analyst from Bank of America asks about the company's pricing strategy in light of ongoing inflation. The company's representative, Don McGuire, responds by emphasizing the importance of offering good value to customers over a long period of time and keeping them as clients. He also mentions that the company is aware of its competitors' pricing strategies and will continue to evaluate its own pricing. However, he does not reveal any specific plans as the company is still in the planning stage. Another analyst from Northcoast Research also asks a question before the call ends.

Maria Black, a representative from ADP, discusses the company's success in the mid-market and their competition. She states that their success is coming from various sources and they remain focused on all competitors, including those who have been talking about them. She also mentions their investments in product, distribution, and digital transformation as key factors in their success. When asked about the PEO business, she remains bullish and states that the fundamentals of the business are strong, despite any recent challenges.

The value proposition for ADP remains strong and there has been no change in demand from the business. 50% of clients come from the existing base, indicating its resonance. The fundamentals of the business are strong. There is no additional information to add. Looking ahead to the next fiscal year, the pace per control may continue to be under pressure due to the labor market, but there will be investments in GenAI and a tailwind from interest rates. ADP remains focused on bookings, client retention, and client experience. There were no further questions and the call was turned back over to Maria Black for closing remarks.

The speaker thanks everyone for joining the program and expresses appreciation for their questions and interest. They look forward to speaking with everyone again soon and the conclusion of the year. The operator then ends the call and wishes everyone a great day.

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