PEO Business Outlook
Q: PEO acceleration, but revenue outlook hasn't changed; timing issue or sector concentration?
A: Bookings for the Professional Employer Organization (PEO) are very good, with pays per control stabilizing. - These improvements are expected to lead to the reacceleration we've been pointing to over the last couple of quarters. - -

AI Investment and Returns
Q: How are you anticipating return on AI investments and timeframe?
A: We're investing in Artificial Intelligence (AI) across product innovation, efficiency, and go-to-market strategies. - While current investments are modest, we expect to see returns down the road as these tools enhance client experience, associate efficiency, and sales effectiveness. -

ES Margins and Interest Rates
Q: Is lower ES margin guidance due to rate surprises?
A: Float income is a factor in guiding margins; we use market yield curves to estimate returns. - No surprises beyond overall market changes, and we remain cautious given interest rate movements. -

Sales Trends and Competitive Landscape
Q: How are 3Q sales trends and competitive pricing?
A: Demand remains strong; companies are still hiring and investing in HR. - The down market performed well with ~30,000 units onboarded in January alone. - The competitive landscape is unchanged, and we have solid pipelines across all market segments. -

Average Balances and Interest Rate Impact
Q: Impact of payroll tax deferral on balance decline and outlook?
A: The payroll tax deferral caused a prior decline, but that's now behind us. - We expect 2–3% balance growth for the rest of the year, though lower interest rates present a $20 million headwind. -

Pricing Environment
Q: Any changes in price pressure or competitor discounts?
A: We're not seeing changes in the price environment and remain appropriately priced. - We continue to offer premium services with better value, and last year's price increases were well received. -

PEO Selling Expenses
Q: Are higher PEO seller expenses due to increased competition?
A: There's nothing unusual about our selling expenses; higher sales naturally lead to higher selling expenses. - We're not seeing any fundamental changes in the competitive landscape driving these costs. -

International Growth Opportunities
Q: Comment on international value proposition and need for partnerships.
A: International revenue isn't where we'd like it to be, even though we pay 40% of people internationally. - The value proposition differs outside the U.S., but partnerships like Canvera help us manage global treasury functions effectively. -

Monetization of AI Products
Q: Is ADP Assist monetized or enhancing customer satisfaction?
A: ADP Assist aims to make things easier for clients as part of our digital transformation, without additional charges. - While not a monetization effort now, we believe AI investments will yield significant returns through new products and increased sales in the future. -

Pays per Control Guidance
Q: Drivers of second half deceleration in pays per control growth?
A: We maintain a 1–2% growth guidance for the year, building in some conservatism. - Employment demand remains robust but is softening slightly. -

Expansion into Payments and EWA
Q: Opportunities to increase capabilities in payments like EWA?
A: We see tremendous opportunity with offerings like Wisely and Earned Wage Access (EWA). - With 41 million wage earners paid in the U.S. and 10 million active app users, we're exploring partnerships to add value in clients' and employees' daily workflows. -

PEO Trends in Key Verticals
Q: Changes in trends within big PEO verticals?
A: Trends in professional services have stabilized and are no longer contributing to deceleration. -

PEO Bookings and Demand
Q: Is ADP doing anything differently in PEO or is demand changing?
A: Demand remains incredibly strong; we're focused on executing PEO bookings. - This marks the fourth quarter of positive bookings momentum for the PEO. -

EBIT Margin Outperformance
Q: What drove EBIT margin outperformance; is GenAI spend incremental?
A: Modest revenue outperformance contributed to margins. - We have a bit of incremental GenAI spend, slightly higher than previously planned, but not a significant amount. -

Retention Trends and Outlook
Q: Anticipating lower ES retention decline due to fewer bankruptcies or better service?
A: Retention is better than expected. - While we haven't seen increased bankruptcies yet, we're planning for some pressure in the back half as a precaution. -

Float Income Guidance
Q: Explain increase in client short portfolio outlook.
A: We've tweaked our borrowing strategy by spreading borrowing over several days, increasing average short balances. - This is not a change in investment strategy but improves market access. -

ERTC Impact on Demand
Q: Changes in client demand or competition post-ERTC?
A: The accelerated Employee Retention Tax Credit (ERTC) deadline increased processing volume. - Financial impact to us is minimal; we're focused on supporting clients through this transition. -

Implementation Revenue
Q: What percentage of revenue is from internal implementations?
A: Less than 10% of our overall revenue comes from setup fees; it's not a substantial amount. -

Pricing Strategy and Increases
Q: Thoughts on this year's price increases?
A: We'll consider price adjustments in the upcoming budget cycle, weighing factors like inflation. - Last year's increases were well received, and we aim to balance competitiveness with long-term client value. -

Offsetting Interest Rate Headwinds
Q: Initiatives to offset revenue headwinds from declining rates?
A: Declining interest rates may boost economic activity, leading to higher revenues and bookings. - Our strategy includes reinvesting further out on the yield curve at higher rates to offset short-term rate declines. -

PEO Growth Expectations
Q: Expect continued improvement in WSE growth; factors for revenue per WSE?
A: Yes, we expect bookings, stability in pays per control, and favorable retention to drive reacceleration in the back half. - We're monitoring factors like payroll per worksite employee and state unemployment rates. -

Retirement Trust Services
Q: Discuss investment in setting up your own trust.
A: We've launched in-house trust services due to a shrinking pool of capable third-party trustees. - This offers better control over costs, leading to better pricing and service for our clients, and keeps data within ADP's ecosystem. -