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All right. I'm Jared Levine. I cover software and business services here at TD Cowen. With us today for a fireside chat, we have the CFO of ADP, Peter Hadley. ADP really needs no introduction. So let's get right into the discussion here. We can open it up for any audience discussions towards the end here. So with that, Peter, thank you for joining us today.

Thank you for having me, Jared.

Let's start with the obligatory question on the demand environment. I guess how would you characterize the current state of the demand environment? Where are you seeing the strengths and weaknesses?

Yes, good question. I think the demand environment is very constructive is the word we use, consistent, not a lot of obvious sort of tailwinds or headwinds, I would say. So it's a pretty stable environment. And by the way, we see that across the board, not just in 1 or 2 segments. It's really -- as you -- I'm sure many of you know, ADP covers all segments from the smallest of small businesses up to the largest of multinationals domestically, internationally.

We have outsourcing offerings. So really, I think demand has been really consistent and stable, I guess, throughout our fiscal year. We're in our fourth quarter at the moment. As you know, that's a large quarter for us in terms of bookings. So I touch wood and say, hopefully, the demand environment certainly holds out for a strong finish, which we are looking forward to. But I think the demand certainly for the type of services we provide and the assistance that we're able to provide to employers and their employees continues unabated, which is great.

Great. Let's touch on that Employer Services bookings there. It was a key focal point of investors following the recent 3Q print. ADP has guided for the year 4% to 7% growth. I guess how is the company feeling about that 4% to 7% guide based on year-to-date performance?

Yes. I mean as we mentioned in our third quarter earnings call back in late April, we reiterated the guide. We've held the guide consistent all year. As I was saying a moment ago, the fourth quarter really is the largest quarter in terms of bookings for us. It's the nature of our cycle, probably to some degree, nature of the incentive systems we have in place for our more than 8,500 sellers. 3 points to some might seem like a wide range going into a quarter. I would say, with respect to bookings, there's still a lot to do. There always is in the fourth quarter.

We feel good. We have -- our team is fully staffed, fully motivated. We have all the incentives and so on in place in the system. Our pipelines we mentioned going into the quarter continue to be healthy. I think the macro environment, like I was saying a moment ago and demand environment continues to be stable, not necessarily a tailwind or an obvious headwind, notwithstanding all the things going on in the world.

So we feel good about our ability to deliver a strong bookings year. Certainly -- where that lands in the range, we will be the wiser, I guess, once the year closes. But a lot still to do, but we have plenty of really talented salespeople with great products in their hands out there doing their very level best to finish the year strongly and give us a great result.

Great. Let's double-click on 4Q specifically. A key question we've gotten is how to think about that dependency on 4Q. Anything you can kind of help us with in terms of thinking about that dependency, whether it's the typical mix of bookings for a year as we think about 4Q and that dependency?

Yes. We don't disclose sort of the quarterly dependencies. All I would say is it's the largest quarter of the year. It's certainly more than 25%, obviously, by definition. So it's a big quarter. We -- obviously, we had a little bit of a shortfall last year in terms of our fourth quarter finishing up, not by a huge dollar amount. Again, it's sort of missing a range, is sort of unexpected with respect to ADP, but there was not a meaningful drop in terms of dollars. It hasn't had any real obvious effect on our revenue growth. I don't think -- but there's still a lot to do, and it is the most important quarter for us.

The third quarter is also an important quarter, the quarter we just finished. We mentioned on our earnings call that we were pleased with the results. It was a solid quarter. And probably the most pleasing thing, I think that we've seen throughout the year is it's really been broad-based contribution across our portfolio. We're not concentrated to the results of 1 or 2 particular segments. So again, we feel good, but more will be revealed at our next earnings call once we do close out the year and hopefully get as many fish in the boat as we can.

Great. One last one on Employer Services bookings, and I'll promise I'll move on here. So last year, you did grow bookings 3%. This year, the company is trending to right around 5% organic constant currency ex float growth, I guess, which is comparable to the prior year performance. I guess based on this, is bookings implied to be accelerating off of that 3%? I think the only difference this year to probably point out was maybe slightly better pricing contribution. I guess can you help us kind of rectify those differences?

Yes. I mean there's a lot of drivers, obviously, in our revenue. The model and the indicators we talk about publicly are certainly the most key ones. But really, there's a lot that goes on. We have a lot of different businesses that include different revenue models. Some of them are not all necessarily tied to bookings when I go to some -- for example, some of our data businesses and B2C offerings and so on, asset type revenues in our retirement services offering.

I would say, again, like I was saying before, the 1 point or so of bookings, again, we certainly would prefer to have it than not have it, but it doesn't necessarily have a meaningful impact on a full year revenue for Employer Services or certainly for ADP. I think I wouldn't necessarily draw any inference on the trends. I think the fact we're still guiding to a range of 4% to 7%. And last year, we finished at 3% probably implies what you're saying that we're expecting a stronger full year result than what we did last year. But again, we'll know more about that in a couple of months.

Great. Let's pivot here to the PEO. So the health insurance enrollment period typically is the primary period for your PEO clients to churn, which for you occurs on July 1. Some of your competitors have cited a drag to retention rates from the outsized health insurance price increases that they have to pass through on to clients. I guess how are you thinking -- feeling about the level of price increases you're passing through for this upcoming enrollment period?

Yes. So just as a reminder for everyone, we operate a fully insured model when it comes to the PEO health insurance program. Not all of our competitors do that. In fact, I don't know that many of them offer a fully insured model. Again, all PEOs are a little bit different. The segment of the markets we look for, we are much more in the white collar, gray collar space from underwriting purposes, both for medical and also for workers' comp.

Others perhaps play a little more in the blue collar space. Some take risk on medical. That can give you a little bit of a boost in terms of bookings and what have you at points in the cycle. It also can come back and bite you at some points in the cycle. And I think some of the repricing maybe that's going on in other companies perhaps maybe an indication of that. I don't know. I'm not inside their 4 walls.

But for us, I think that's strictly a pass-through expense and again, a pass-through of risk to the carriers. So it has some effect, of course, because there's an overall size of wallet that's available to companies. I would say it's -- we think about it in terms of the pricing of the rest of the PEO, if you like, the services, the administrative services, the HR support that we provide in the PEO, tax support and all these other things that we do. It's one factor in our contemplation. I would say it's not the most important factor in pricing of the rest of the services because of the pass-through nature of the medical costs.

Where it is perhaps a little more relevant is on retention. So again, in a high renewal -- high medical renewal environment, that can have some impact -- downward impact on retention. We had -- good news is we had a high renewal environment last year as well, and we also had a slight improvement in our retention. So we saw no degradation in retention last year. We don't give a guide on retention for the PEO. So I don't have a specific comment on it other than to say that on a basis year-to-date, and it's implicit in our revenue numbers for the PEO that we're satisfied with retention.

It's a watch item whenever medical inflation is high, but medical inflation is high no matter how you procure it. And I think our ability to provide Fortune 500 benefits to small and midsized companies on a fully insured model is a winning proposition and one that we have no intent in changing.

Got it. And then this pays per control has moderated this year within the PEO. The company has been increasingly relying on bookings to grow WSEs. The company has been investing in sales and marketing. I think year-to-date, you were right around growth of 15%, following 10% last year. Does this level of investment support an acceleration here in the WSE growth here? And what are those key investments being made in that PEO business?

Yes. I think -- I mean on the WSEs, again, we're guiding to a full year result of 2%. I think we had 2% in each of our 3 quarters to date. So I would say that's a fairly constant environment. I think -- on the pays per control, it's an interesting one, actually, if we just take a little sidebar on that for a moment. It has moderated a bit in the PEO. Again, it's still positive and growing. It's sort of come off a little bit in terms of the amount of contribution through the year, which is a little bit the reverse of Employer Services that's got very slightly stronger, I guess, again, very slightly, but a little bit stronger as we've moved through the quarters.

It's an interesting dynamic, and I just want to take a second on it because I was talking a minute ago about our white collar sort of gray collar emphasis in the PEO. I wouldn't extrapolate a trend on white collar employment to the softening. Where we've actually seen some of the softening has been more in some of the gray collar industries like construction, like leisure and hospitality, like trade and transportation. We've seen, again, relative, continued strength in areas like IT, professional services, financial services, health and so on within the PEO base.

So there is still growth there from a same-store basis. It's definitely a lot less than what it was a handful of years ago, which back to your question, means that -- and again, if you take my comments a minute ago, Jared, on retention in the medical renewal environment, it puts a lot of emphasis back on bookings. And hence, why we are happy to continue to invest heavily in driving bookings growth in the PEO to keep the engine moving.

And whilst we go through what we believe is a cyclical period for the PEO with respect to the employment levels and also the medical inflation costs, again, I don't know how long the cycle will last, but we don't believe it's a structural headwind to the PEO long term. We're happy to continue to invest in trying to drive the growth engine. It does have some adverse impact on the margins. But when I look at the contribution that new business brings from a margin perspective in the PEO, it's an investment worth making.

Got it. And we can't skip the topic of AI either here. ADP has rolled out ADP Assist, your AI chatbot and there's AI agents available on the ADP marketplace. How is the company approaching the monetization of AI functionality?

Yes. We have ADP Assist. We've been talking about that now for a couple of years. I think we have -- the marketplace thing is allowing some third-party agents in a very governed fashion to operate within the ADP ecosystem. And again, we protect that at great effort and interest to ourselves on behalf of our clients and their employees because of the amount of personal, sensitive data we have in our systems that belong to our clients.

So again, allowing third-party agents in through a governed process via our marketplace is how we're dealing with that so far. We also have spoken about in our last earnings call about the deployment, the imminent deployment. There's been some deployment, but I would say it's very much at the beginning stages of our own persona-based agents. So what I mean by persona-based agents is within HR, there's not a single -- it's not just a homogenous space.

There's pure HR, there's HR business partner, there's compensation, there's payroll and a raft of performance management, recruiting and all of these sort of functions within HR. So our technology organization is looking at -- or has been building, I should say, not looking at, is building and deploying some of these persona-based agents into our platforms to assist our clients, the practitioners to be more effective, more efficient in their work and ultimately deliver benefits.

So it's a multipronged approach. There's some of the functionality that's built into the product to help practitioners today to help clients -- sorry, client employees proactively or reactively address questions around their time, their payroll, why as things moved. And some of these persona-based agents is sort of the next level down and sort of the next phase we're entering into now that we believe will benefit our clients dramatically.

And as you mentioned, through the marketplace, clients who want to use other systems that we have a partnership arrangement with the ability for those agents to be deployed into our ecosystem in a governed way is a third method, if you like, of monetizing the opportunity.

And the company has pointed to still being in a net investment position when it comes to AI deployment internally. I guess how far along is the company in terms of deploying AI internally? And where have you seen the most promising results to date there?

Yes. I mean it's a good question. I think we continue to invest, and we also continue to generate results and efficiencies and reward, if you like, from that. And we spoke about that in our third quarter earnings call, we lifted our margin delivery. I think you may ask me a question, so I'll try to hold fire on the -- on interpreting my own words on the margin comment I nodded to in our last earnings call.

But certainly, we're seeing more and more rewards that potentially makes us want to invest -- continue to invest more and more to try to generate more. I think we're still in the early innings, if you like, for AI deployment. So I don't really see it as a heavy drag on margins, but I think we will continue to invest because we're seeing the results, and we're seeing it in a number of ways. But when it comes to margins, I would say the primary driver is making our service and our implementation teams more effective and more efficient.

And the beauty of that is -- it costs us less money to serve. We reduce the cost to serve. We -- in most cases, we're delivering a better client experience and more automated onboarding, for example, for clients in the down market. We're able to deliver better insights to our clients and solving problems, whether it's IRS notifications or other things that come their way in the daily life, if you like, of payroll and HR and time and things like that.

So we're able to do that. We're able to realize economic benefit for ADP through being able to price for that, while at the same time, generating more efficiency in the cost base and certainly influencing the headcount curve in the direction we feel is appropriate for our operations teams.

And do you have a sense on when -- in terms of the time line and when AI might ultimately flip from a net investment to a net benefit here?

Yes, very good question, but very difficult one to answer because, again, there's -- I think there's plenty of untapped opportunities out there that we potentially could invest in. But I would put it this way, in our medium-term guidance that we shared almost 12 months ago at Investor Day, we showed that the contribution to our margins from float is likely to diminish, if you like, or the contribution will become smaller just as our embedded rates in our portfolio catch up, if you like, to the rates that are available in the market.

So no decline expected for sure, but the contribution, if you like, to improvement will become smaller. And as a result of that, to be able to maintain and potentially even look to lift our margin trajectory, we need the outcome you're talking about there. And that's something that we're already starting to see and something that we nodded to on our last earnings call.

Got it. And then in terms of AI, in terms of more of the risk side of things, one thing we have heard from investors is that AI could potentially cannibalize your outsourced service offerings. I guess, how would you respond to this view?

Yes. I definitely don't see a high probability of it cannibalizing. I think it certainly can augment and support those offerings. The economics, if you do believe -- and it's not our thesis, but if you do believe that potentially there is some revenue pressure there, I think that could be well and truly offset by the utilization of AI in the delivery of those services.

But -- and then I know AI is a different and a new and faster accelerating technology, but we've been in these businesses for a long time, and we've been through a number of technology cycles and automation cycles. And if anything, it's just added to the value proposition of HR outsourcing to PEO, some of our managed offerings because it's not purely a cost play. There's a lot more to it than cost play. There's a quality play. There's a risk transfer play involved in these offerings. And I personally believe that AI will actually help augment that and enhance it as opposed to replace it.

Got it. Let's talk on margins here. This has been a key area of investor focus here. With the 3Q print you did detail for FY '27, while still early in the planning process, a focus on continuing that acceleration of margin expansion as you realize productivity benefits from your AI transformation. To clarify, was that comment in relation to implied expansion guided to for 4Q relative to the FY '26 guide or something else there, just to clarify that.

Yes. So no, the intent of those comments was -- so again, we lifted our margin guide quite meaningfully, I think, through this fiscal year, we started at 50 to 70 basis point. We had some pressure in the first part of the year with respect to a large by ADP's historical standards acquisition we did called Workforce Software. There was some pressure at the beginning part of the year on that.

We got past that. We had a first quarter of flat margins as a result really of that acquisition-related contribution, if you like, to the first quarter. We then had 2 quarters where we delivered 80 basis points of margin. We lifted our full year guide to 80 basis points, which I think by -- sorry, to 70 to 80 basis points, which I think if you extrapolate from a first quarter of flat and then 2 quarters of 80 basis points implies some acceleration.

The intent of my comments was to show -- or to inform investors that we see this as not coming from some sort of temporary factor or a onetime benefit that has helped us lift the margins this year and then sort of deviate back, call it, to more of the medium-term guidance range, which was 50 to 70 basis points. So I would say we're at or around maybe potentially a little above depending on where we finish the medium-term guidance range.

And the intent of the comments was to say that we see that more as the go-forward level as opposed to sort of coming back. So hopefully, that makes sense. And where are we getting that from? We're not just squeezing costs and potentially disrupting ourselves with a worsening client experience. We're getting that from some of the efficiencies I was just talking about.

Some of it also is price contribution that we're getting good value, we believe, for what we're delivering to our products through AI to our clients that's helping us maintain our price. Again, we're not really counting on much in the different -- in the way of pays per control growth or same-store employment growth. So it's really top line opportunity and productivity in -- primarily in our service and implementation operations.

Got it. And one more on margins here. As we look at the income statement, what expense line do you see the greatest opportunity for expansion over the medium term here?

Yes. Again, I think it's -- what I was talking about, most of that translates into the OpEx line. So service and implementation is in OpEx. SG&A for us is a little bit of a funny line because S is very different to G&A being sales and marketing. It's an area we continue to invest in and we have invested in for many years. It's part of the fabric at ADP, and we still see plenty of opportunity, notwithstanding our size, plenty of opportunity in this large and growing market.

So I would expect we would continue to invest in things like sales and marketing, in R&D and product and technology. G&A, I think there's efficiency opportunity, but likely that will be a little bit dwarfed by the S part of the SG&A line. So net of it all, the OpEx line is most likely where you would see that. And I think where we have been seeing that through recent times.

Makes sense. ADP has cited for paying 1 in 6 employees in the U.S. for some time now, which suggests you've maintained your market share in payroll. I guess what has prevented the company from expanding its share to, let's say, 1 in 5? And would taking share in payroll be your expectation as we look forward here in the next 5 to 10 years?

Yes. So we pay around 26 million workers. We've disclosed that for some time. Our 26 million workers in the U.S., I think it's 41 million or 42 million, around 42 million globally, so about 15 million, 16 million or so internationally. It's a big jump to go. If you think about 26 million is 1 in 6. To go 1 in 5, I think it's 32 million. So 6 million workers, that's, call it, a 20% grab in market share.

And when you consider the fact we don't really play in the public sector, which is about 25 million, I think, of the roughly 160 million workers out there. Some of it perhaps is just our absolute size and moving a metric like that, that metric is sort of meant more just to be a helpful rule of thumb for people. It's not necessarily an objective of ours to go from whatever we were 1 in 7 to 1 in 6 to 1 in 5, it's not really something we think about too much as a management team.

But gaining market share is certainly something that we spend a lot of time focusing on. And I think we feel like we have done pretty well there in certain segments of our market, particularly like in the down market in the PEO business over time. I think we have some opportunity to drive more market share, and we feel like we're now well placed in an area being the enterprise space where we have probably ceded some market share over the last decade or so, just due to where we were placed.

I think with our product Lyric and the way it's performing, it will take some time to bed in, in terms of sales cycles and implementation cycles for enterprise companies for it to bed into the numbers and the results. But we feel good about our opportunity to continue to grow share domestically and internationally, and it's certainly something we're focused on.

Great. And it feels like messaging across public company here has been no change in the competitive environment in recent years. It remains highly competitive. Investors tend to struggle with this just due to the certain private vendors like Rippling or Gusto getting to notable private scale and still growing at rapid rates here, while you've seen some deceleration in organic ex float growth rates across the public comps. What do you attribute this to? Is this more so just you're competing against better public competitors or certain private competitors? I guess what drives that consistency there while you've seen such a notable growth and emergence of certain private vendors?

Yes. I think the competitive environment, what's the best way to put it? I would say it's not that it doesn't change. Of course, there is changes. Some companies come in, some companies go out, companies are either maybe moving their focus from their core segment to try to identify growth opportunities in new segments. So it definitely moves. I think what we would say is that is it meaningfully more competitive now than what it was 2, 5, 10 years ago, I would say not necessarily.

What I would definitely say is we don't see any unnatural behavior or people doing unnatural things just to try to drive share. I think the net of it all is we believe at least that it's a growing market, so there is room for opportunity for all. I think some of the companies, again, some people may be more familiar with the details of some of the private companies than others, but certainly, there's not as much public disclosure.

So hard for me to comment on those companies. But there is still -- and you mentioned Rippling, for example, more of a mid-market or the lower end of the mid-market competitor for us. We see them a little bit, not a huge amount, but we do see them around formidable company by the looks of things. There is still opportunity, I think, for all of the named companies, whether they're public or private, like the likes of Rippling to grow. There is still. And I know it raises a few eyebrows from time to time as to how can this still be the case.

But the reality is there is still a meaningful size opportunity, putting the growth in the market opportunity aside in these regional local players, whether they're CPAs or mom and pop shops, those sort of things. They still -- they may not have as much share as they did 5 years ago, but they still have enough meaningful share. I think there is opportunity to grow.

And our focus is really not so much on what all these other companies are doing. We certainly pay attention to the competitive landscape. But our real focus is on improving our client experience, improving our retention. I think we've done that really successfully, being out there with the best products in the market and winning business, and that will hopefully take care of itself in terms of winning share.

Makes sense. And we've also gotten the question before on the risk to float revenue from the adoption of faster and lower cost instant payment methods such as stablecoins. Is this a legitimate risk over time as we think about your float revenue?

I would say we don't see any of that now. The demand -- we do offer the ability for client employees to receive some or all of their net pay as they choose in a digital currency, a stablecoin, for example. Again, that's a conversion done sort of what we would call post-payroll, if you're getting into the payroll sort of geeky payroll process sort of towards the tail end. But again, they're somewhat seamless to the client employee that would receive stablecoin in their Coinbase account or whatever exchange they work with.

But not really. I mean faster payments, real-time payments have been around for close to a decade. There are some advantages of those. We use some of those in our money movement operation. There are also some disadvantages, particularly to small, midsized businesses around the finality of payments, the cost of the transactions. No tax authority to my knowledge in this country or any country that we operate in and move money in will accept anything other than fiat currency at the moment.

So nothing on the horizon that's obvious. And our float balances, not just the revenue from the rate side of it, but the balances coming from both wage growth and volume growth in the employee base to me shows that the value proposition is as strong or stronger than it's ever been as opposed to sort of being at risk.

Understood. And the company is guiding Employer Services retention to decline right around 10 basis points at the midpoint of the range this year. Is it just an increase in out-of-business losses in the down market driving this expected decline?

No, I would say it's not that. It's nothing specifically. It's -- we've said sort of through our first 3 quarters, then we raised our guide to flat to 20 basis points, hence, your midpoint comment in our last earnings call. It's just -- 10 basis points for us is a relatively small number in the context of the size of our Employer Services base and churn. So we just -- it's hard to get very precise down to these levels in terms of what may happen.

But it's less about macro environment or structural things. It could -- we just see from time to time, and we're perhaps a little bit prudent on our retention guidance as we've shown over the last few years. But things can happen. Clients can downgrade from a service level to a lower service level that impacts retention. Of course, we have a revenue retention rate. A company can be acquired by another company and therefore, need to move their provider to the parent company.

So there's just things that can happen that might move the needle around 10 or 20 basis points, but there's nothing structural, and I certainly would not attribute our guide, whether -- at whatever point it is, flat, 20 basis points or anywhere in between down to things like out-of-business rates or macro or the war or oil prices or anything like that. To me, it's more just -- we're trying to be prudent and cautious and not get ahead of ourselves on where retention will land. But it's been a very strong and stable metric for us for a number of years, and I think this year will be no different.

Great. Let's wrap it here. Thank you for joining us today.

Excellent. Thank you, Jared. Thank you, everyone.

All right. Terrific. Let's get going. Thanks, everybody, for joining. My name is Tien-Tsin Huang. I follow the payments processors and IT services names at JPMorgan. And I was just telling Maria here that covering ADP all this time, I feel like it's an obligatory name to talk about tech and for me, at least for ADP. So thanks for being here with us, Maria.

Thank you for having me.

No, of course, it does mean a lot to me seriously. So Maria Black, President and CEO of ADP. We have a lot to talk about. A lot of the questions are going to be familiar to you, but I did want to hit all the big topics that are out there, if that's okay.

Sure.

But let's just kick it off the usual question around the macro state of the macro you see so much in terms of working with small business, enterprise, of course, powering all these employees. What are you seeing? Any changes? Any -- where are you encouraged where might you be a little bit more careful?

Yes. Fair enough. As many of you know, we do have a front row seat to the macro environment in terms of what's happening with respect to labor, wages, things of that nature. But that said, we actually are not in the predictive modeling. We're simply reporting on really what it is that we see inside of our business, but also the research that we do with the National Employment Report in conjunction with the Stanford Digital Economy Lab, et cetera. So a couple of things that we see. I think we see a generally stable environment. We've been talking quite a bit about that this year. Specifically as it relates to our results, we're guiding to a 1%, roughly 1% pays per control growth. So for those of you that aren't familiar with pays per control, it's the measure of how many pays are per company at ADP. So think of it almost as a same-store growth type of measure. So we see that relatively stable and somewhat flat. We were pleased to see an uptick in the second quarter and third quarter, which allowed us to ultimately raise that guide back up to that roughly 1%.

But in the context of prior years, I think it's somewhat muted still in terms of the overall stability of the environment. We do also do the national employment report this morning, we also reported the weekly numbers. So the weekly number is 42,250. So as of last fall, we started the National Employment Report Pulse or what we lovingly refer to as the NERP and the NERP actually showed this week a little bit of a strength, if you will. So there's some pockets of strength. The April report was 109,000. So I think the general semantics there are relatively stable, still somewhat a low higher, low fire type of environment. I think one of the questions I get all the time, as you look at the monthly data, in addition to what we do weekly every month as we report the monthly number, we double-click by industry, by segment, et cetera. So one of the questions I get all the time is what's happening with respect to IT sector. So the IT sector is still actually adding jobs.

If you were to look at the last quarter, it was 11,000 in February. From a March perspective, it was 16,000 and then 4,000 I think, in April, something along those lines. But ultimately, it's still adding. So I think there are some sectors that are growing, some sectors that aren't and have a little bit more pressure from a growth perspective. We see some of that in the trade, hospitality, things of that nature. But all that to say, I think our lens is that it's a relatively muted environment. It's relatively stable. There's certainly a lot happening in the world of work that is the conversation of the day and we have that front row seat. We were pleased to see the results on the bookings side that kind of speak to how we think about the demand as it relates to kind of what's happening in the world of employment. I'm sure we'll get to that.

Good. No, thanks for sharing the tippet on IT. There hope after all. It's really, really important. So yes, we'll dig in on a lot of that, Maria. But I wanted to just kick it off, right? I wrote this down. You framed this as a defining moment for HCM. You called that on the call, so that caught my attention. Can you elaborate on what you mean by this and how you're positioning ADP to win that moment?

Yes, absolutely. It is a defining moment for human capital management. I just mentioned it, the topic of the day is work and what is happening to work, what's happening to labor, what's happening to jobs, tasks within jobs. Getting this moment right for our industry is an imperative. And we are built for this as it relates to kind of ADP, not just what we do, the lens that we have, the work that we do, the data and all the structural advantages that allow us to really position ourselves in this defining moment for HCM. So why is it a defining moment? While AI is absolutely getting infused into the world and certainly into the world of work. And as jobs continue to shift, perhaps converge as tasks are starting to change within the scope of a given job, everything is becoming more complex, not less complex. And the need, by the way, to still manage human labor is greater than it's ever been. And the complexity of that is greater than it's ever been. And again, that's kind of what ADP is built for. We are that workforce infrastructure.

So that's a big piece of it. So said differently, as AI gets infused into work, we don't see the need to manage people and payroll and the very functions of HCM to go away, we actually see them becoming even more important. And we feel that every day. You can feel it, by the way, even in the regulations. So if you think about the complexity of processing payroll, you do have to get it right, not just good enough, not 90%, but actually 100% accurate 100% of the time. And that involves not just the efficiency of a calculation, although that is arguably pretty complex, too, because it has all sorts of regulations and an ecosystem, too, as it oftentimes are even in conflict with one another. But as AI is emerging, all of that complexity and new regulations and new interest by whether it's data privacy, data lodgment or it's the regulators that sometimes sit at odds with each other at the federal and state level, just even in the EU this summer, the EU Pay Transparency Act, is coming into play. So all of this is the complication really within payroll and getting it right is an imperative.

It's not a nice to have, and there's no really room for creative outflow. I think that brings me kind of to the last piece, which is what I often refer to as the final mile of getting payroll done, which is the connection to all of these regulators, carriers, brokers, banking institutions, whether in terms of who ADP is and ultimately how we show up in that moment, all of those connections across literally tens of thousands of entities that we communicate with to get that payroll 100% accurate, not just anyone can actually plug into a bank or move money. This is all the stuff that we know in payments land, and that's who we are. And so for -- in terms of HCM and getting it right, I would say ADP is well positioned within that, but this is a moment that is more complex, not less complex, the need to manage people doesn't go away. And candidly, where there's complexity, ADP thrives and we're really built for this moment.

Yes. And there's no tolerance for errors to the client and has to be fully compliant, right?

It has to be fully compliant.

You do. And I think thinking about the quarter, Maria, and I was thinking about rereading it, preparing for this discussion and thinking about the KPIs that came through, I mean, so much of it really refuted some of the AI concerns because pricing was net positive, right? Retention was net positive. You talked about CSAT scores being up as well, which is sort of counter to all the fear that might be out there. That's natural. But what do you think is structurally different now for retention and pricing to be better?

Yes. So again, if you kind of zoom out for a minute and again, think about everything we just discussed with respect to HCM and this defining moment, and everything becoming more complex, there's a tremendous amount of value and opportunity that's created. We believe in value-based pricing, we always have. And we believe in all the investments that we're making are going to create things like productivity, things like efficiency, and that is creating inherent value for our clients. And that is the commitment that we have. By the way, that is our business model. We see that show up in bookings. We see that show up in client satisfaction scores. We see that show up in retention, and we see that show up in kind of the structural return, if you will, in the execution that we're on.

And we were really pleased in the second quarter -- or sorry, third quarter to have an opportunity to share some of the things that we're seeing in terms of the KPIs, whether that's the results and the momentum that we feel in the bookings where it's the results and retention or even the guidance on the margin side as we continue to push efficiency into our business, and we're sharing that with the clients. And our clients are feeling that value equation. And so it does feel structural. What I will also say is leading up until this moment, we also made tremendous investments into our products, into our services. And now we're doing all of that again with AI, and it's going to yield those same returns. And so it's early days as it relates to really being able to discern the AI efficiencies that we're gaining, but we were pleased to share in some of that in the last call with respect to the digital transformation in our down market. But I think it's just the beginning of that conversation and the results that will prove themselves to be structural for us.

Sure, sure. Because I've always thought, Maria, that from a pricing standpoint that that's always been a hallmark for ADP as long as I followed it. Because of the complexity and the investments, we're able to pass through some of that cost back to the user. But the natural question from some investors now is that will that change with AI? Will that lower the barriers of entry to competitors to offer some of these ancillary services that you do price for? Maybe more will be done in-house. What's your response to that?

Yes. It's a great question. And the question around price is one that we think deeply about. I think the way we've always approached it is really along the lines of our design principles, which is about putting the client at the center. And so staying close to what the clients at that center would have as an expectation for price. Again, we believe in transparent value-based pricing. We always have. I spent a lot of time in the field with our clients just this past quarter, we had our large enterprise meeting just in March, February before that, we had our big international meeting. We just completed our mid-market meeting. And what I hear from the clients is continue to bring value. And if you need to take price for that value, sign us up all day long. And so sharing in that efficiency with our clients, that's exactly what we are on that journey.

We were pleased and we're guiding to 130 basis points of price this year, kind of up a bit from 100. That's what you're referring to with the KPIs. And it's because we're bringing value. And so from our lens, changing our pricing model for something that hasn't happened or doesn't exist yet doesn't seem to make a whole lot of sense to confuse the market, confuse our clients. But in the end, to us, it's really about continuing to drive the value and the commitment of what it is that we do into our clients and ultimately sharing in that journey with them. That's kind of where we fit in. That's how we think about it. That doesn't mean we haven't studied all of these things, but we find them more confusing to the market today than necessarily helpful.

In terms of this comment of others being able to do the things that we do, we are doing all of those things. We're infusing AI into very fabric of our products, our services, how we think about our business, how we deliver these values to ultimately take price. And so where there's efficiency from AI, we're already embarked upon that journey, and we will feel that as well. And to me, it's really not about the speed and how fast and the efficient and the productivity. In terms of what sets us apart is really, again, that final mile that you can't really do with AI and the domain expertise to ultimately create all of these efficiency tools, you can't do without our data set and the structural advantages that we have.

Yes. I mean, the proof is in the fact that the pricing is net up and retention is up, right?

That's right.

That's the best combo for ADP. Just staying with one last point here on pricing and thinking about AI and some of the tools that you're starting to externalize. Do you -- should we expect that ADP will monetize those distinctly? Or is that going to be part of your normal pricing cadence?

The answer is both. I think the first part I would say is everything I just said around transparent value-based pricing. We will continue to monetize it through our natural recurring revenue model. So that's about more bookings, clients staying longer, happier clients leads to referrals. It's a very happy ecosystem, if you will. That is absolutely a piece of it. That said, there are opportunities. We talk a lot about AI. A lot of the questions tend to be about disruption and risk and all these other things. AI is a tremendous opportunity for us from a growth perspective. And so as things do become more efficient and automated, there are opportunities for things that we do potentially specifically inside of one business today that we can extend the reach across multiple businesses.

So I think there's unlock that can happen from a monetization. How we price for that, I think long term will be somewhat determined. But I think there are new revenue lines that could come in. And by the way, we've seen some of this. We've seen some of this work that we've done with our big data set as we've taken that data set and created tools for our clients around benchmarking and analytics. I think, again, that journey will continue to evolve and drive growth. We also monetize the data set with taking friction out of, call it, mundane processes such as employment verification. And so I think we're just scratching the surface on how to ultimately monetize data, which data is really the backbone of the AI. And so I think there's as much growth opportunity as there is efficiency and productivity opportunity.

Okay. Good. No, I appreciate that answer. So let's talk about another important metric I know that you care a lot about, which is new sales. I think most recent quarter, you framed it as solid and stuck with the full year guide, which still has a pretty wide range. So I get this question a lot, so I'll ask you. Just what would drive you to land on the lower end versus the higher end of that? How much is macro versus some of the specific forces that you're pushing to get to that?

Sure. So it is that season. We are in the final few weeks here, final stretch of the fourth quarter. We were pleased with the bookings from a year-to-date perspective. We had good momentum, solid. I think using your word in Q1, Q2, we built on that momentum in Q3, and we were pleased we were pleased because it was broad-based. I think we had a couple of shout-outs in the third quarter to some places that I think are back to structural advantages that I really point to just how broad the results of ADP are, but also the advantaged pieces of our business. One was international. It was great to see. It's a lumpy type of market for us.

It was really great to see the progress in the third quarter in international, although it always kind of remains a watch area for us for all the obvious reasons. In addition to that, Compliance Solutions was a callout for us. Compliance Solutions is that business that performs that final mile. So again, a business that's performing very well in the context of what's happening right now. We also talked about retirement services and insurance services. These are the beyond payroll offers in our down market, and those are having really fantastic results. But it was broad-based. The employer services, HR outsourcing did well in the third quarter. So what we're looking at is stepping into this fourth quarter with good momentum, solid pipeline.

So pipelines are really about the mid-market and upmarket, down market, we're measuring activity volumes, all lead volumes, things of that nature. And all of that feels good. I think we feel good about our sellers and their ecosystem. We've made tremendous investments into our sales force, both in headcount, tools and technology. Just a year ago, we talked a lot at the Investor Day about what we call the Zone, which is a proprietary platform that we built inside of ADP to ingest AI into the sales motion into that go-to-market motion, the easiest way to think about that is serving up the right lead to the right seller at the right time with the right offer to drive a better outcome from a sales productivity, a lot of knowledge, learning, made investments into technology, made investments into the ecosystem of partners that help distribute our offers, that's bank channels, broker channels, SIs, CPAs, things of that nature.

So again, when I think about everything that we've lined up to step into this fourth quarter, why the wide range, I think the first thing I would say is I'm not sure how wide it is. 1 percentage point is actually roughly $21 million. So if you imagine 8,500 sellers with the backdrop I just described at the ready to go get it done this fourth quarter, that's exactly what they're doing. That's how we feel about it. The difference literally could come down to less than a handful of deals, right, in terms of the difference between 4, 5, 6 or 7. So we kept the range wide. It felt prudent to do that given everything that is happening in the world and just kind of the sensitivity of that 1%. But rest assured, everybody is at the ready and out there, myself included.

No, good. No, I'm sure that's the case. So fingers crossed, so no surprises. But I had to ask, and I think I asked it on the main earnings call, too, Maria, I'll ask it here again. Just the competitive intensity that's out there and the balance of trade sort of phrasing we've used in the past, how does that feel? And I'm asking because you have some private players that are out there talking about big growth rates and some success they've had in growing ARR. And of course, we track all of your peers as well, some of which aren't in the public limelight anymore. Have you observed any change? What are you paying more attention to? What should we be paying more attention to competitively?

Yes, it's a great question. I think I answered it similarly on the call that day, which is we like competition. Competition is fuel for innovation. It keeps us nimble. It keeps us on our toes. It keeps us learning from each other. It is an incredibly competitive space. The one thing that's very unique to ADP is that we are the one competitor that spans all of the segments, the full spectrum from the very small company on Main Street to the very largest employer with 1 million employees on a worldwide scale. So we do have a lens across all of the competitive set. And it is highly competitive. Is it more or less pressure today than it was a year ago? I think it's -- perhaps there are certain competitors that are operating slightly different from how they were operating a year ago. Some of that is because some have gone private, some have gone public, some have merged, rebranded, whatever these things are, but it is a highly competitive.

I don't know that I see anything really unusual there. This time of year, many operate kind of on our sequence from closing out the fiscal year or coming close to it here in this quarter. So there's always a lot of promos and incentives. From a balance of trade, we do well. We continue -- just like you, we're looking at every single one of them. There's always an opportunity to get better. And there are several competitors that we are deeply studying how they go to market, how they think about certain things, how we solve for it. Sometimes we solve something through a marketplace partnership and eventually realize, gosh, we should have that as core functionality. So I think we all learn from each other. It keeps us all innovative, and it keeps the sport fun. I think it is how I said it on the earnings call. It's a highly competitive space, and we like to win.

Lyric, it is something that's new that I would put in the category of TAM expanding for you, but going after some newer spaces that you previously were in. So what's the progress report on Lyric?

The progress report on Lyric is fantastic. I'm so glad you mentioned it. It's one of my favorite topics. We're really pleased with what we're seeing with respect to the results in terms of the new sales to date and moreover, the pipelines and also the conversation in the market. The one thing that's unique about Lyric outside of the fact that it's the most modern platform for enterprise clients that exist today, and it's most modern because it's the newest, but it's also how it's architected. And this concept of being able to have a product for a CHRO or really for a company that's architected at the employee level that allows for the worker to actually move between teams, what we call dynamic teams -- so I said workers able to have multiple reporting managers, multiple reporting managers actually contribute to their performance management, things of that nature.

That's becoming even more common and more imperative with the advent of AI. So as jobs -- and we study the world of work very deeply in conjunction with the Stanford Digital Economy Lab. And our belief is that jobs are not being disrupted at the end-to-end level. They're actually being disrupted at the task level. So if the world of work in the future is a collection of tasks as opposed to a collection of jobs, a product like Lyric is meeting that moment in the most modern way because it allows a task to be assigned to the workers that has that skill and utility. And that is what the new world looks like, and that's what leaders are turning to. You hear this directly from our clients. I mentioned all the events that I've been to. That's not to show up all the places I've traveled, but rather the conversations we're having with our clients.

They're leaning on ADP to be that trusted source to help them navigate this defining moment for HCM. But specifically, as it relates to the enterprise clients and the MNC clients, we're the only offer out there. So you take Lyric, which is that TAM expander into the upmarket enterprise HR space for ADP, you marry it to global payroll, which we're uniquely positioned to do across 140 countries. You add in global time and the product and acquisition that we did almost 2 years ago called Workforce Software and then global service. We're the only ones who have that. It for sure has changed the conversation with our clients. They're leaning on us to navigate this time with the most modern platform in that space, which is Lyric at the foundation.

Good. Good. No, you speak with a lot of excitement around it. So I'm glad I asked. Look, I think the more progress you show on that, I do think there's a lot of focus on that and interest in it. So thanks for going through that. Maybe let's pivot a little bit on the -- to the product side and think about the road map there and what you're excited about. I know we get questions on ADP Assist. So where does that fit on the road map? What else would you highlight above and below that?

Sure. So I'll start by just reiterating what I said, which is we spent the last decade or 2 investing tremendously into having modern platforms across each one of our segments. Really proud of the work we've done. The results that we're seeing are a byproduct of those investments, whether it's the client satisfaction, the retention, the bookings, things of that nature. And so enter ADP Assist, which is the overarching framework for our ADP AI offers inside of our platforms. What I would suggest to you is that we're just getting started, but we're pretty excited about what we see. And so we have ADP Assist deployed across our platforms in each one of the HCM domain phylums, if you will. So if you think about the domain expertise that we have in HCM across payroll, time, benefits, HR, tax, again, I could go on and on, but each one of these really garners this ability for us to infuse AI, take our data, our structured advantage data of doing this for 77 years and infuse AI into the very fabric of our products and our services.

And what we were pleased to share in the third quarter were some specific stats around how we're actually changing the flow of work as it relates to how payroll gets processed. So if you take, as an example, ADP Assist for payroll, this ability to reconfigure how work actually happens or how the function of payroll flows and shaving off for those that are using it 30 minutes per payroll cycle. These are -- I know this is a financial conference, but if this was a payroll conference, like the crowd would go wild right now with excitement because these are meaningful impactful ways that we are changing the workflows, and we're making it easier to do work.

And similarly, we have an ADP Assist search capability that's meaningfully changing how you can actually get to the information, the level of speed that you're able to actually process payroll, get the information you need to do changes in that workflow. So I could go on and on. What I would tell you is we are really excited about what we see. Some of the things that I see across ADP Assist, I've been in this business. We're coming up on 30 years. And I have to tell you that these were business plans and dreams that I had many years ago, but it is changing the flow of work for our clients. It's making things more efficient, and we're just getting started.

So what are some of the proof points that you would think that, hey, we'll show you this over the next 2 to 3 quarters to really show that it's being adopted. Is there anything that we can track or that you're.

Yes. I mean I think some of the things we cited in the third quarter, we're going to continue to try to bring these proof points. One of the ones that stood out to us was this efficiency, specifically in the down market as it relates to the digital transformation that we've been running in the implementation. I think I actually have probably talked about that on stage the last few years that I've been here. And I have to tell you, there was a time that I thought that it was 30% that we could do digital onboarding using the likes of OCR and machine learning and other types of digital transformation tools.

That kind of with the early phases of generative AI, you felt that kind of moved to 60% to 70%. I will tell you today, we have line of sight of being able to almost entirely automate that. We cited some of those results in the third quarter in terms of the efficiency gain in that business. And those are the type of proof points I would look toward in terms of whether it's raising up our margin profile or specific callouts by business or time, right? So it's always about kind of the chunks of this stuff leading to big results, and that's what happens when you have well over 1 million clients.

Okay. Yes. there's obviously a lot of data and touch points there. So now we're going to keep asking about it. So let's -- we've got 7 minutes left. There's some other subjects we should definitely hit. PEO is one, of course, you know it very, very well, Maria. So we've been saying it's still great solid growth, but not industry-leading. You are the biggest player out there. So everyone is paying attention to what you're seeing there. And Brandon does a great job now covering the PEO group in our space. But is there something you're doing to stimulate growth, assuming there is some secular demand there given the higher cost of health care? And it feels like it should resonate really well in this environment. Would you agree with that?

It does resonate very, very well in this environment. There is secular growth. The demand is there. Value proposition is stronger than it's ever been. If you dial back to the entire conversation that we've had today about it only getting more complex as AI is being infused into the very nature of work and how work gets done. If you're a small to medium-sized company, this is the best way possible to help you navigate all of that complexity and inclusive of all of the regulatory requirements in this PEO model where you share in that responsibility in that co-employment piece. That's a big piece. And certainly, with the rising health care costs, the demand for alternate ways to satisfy that need to compete for talent such as through a PEO. So the secular demand is there. We were pleased with our results as it relates to bookings within the PEO.

In terms of the overall growth rates versus others, I think the reminder I always give is we're not all structured the same. We're very specific in terms of who we target for a PEO offer within ADP. So as you know, about 50% of our new clients in the PEO come from the existing ADP base. Going back to kind of the tools that we have for our sellers of that PEO offer to the right client at the right time is to say that not every single client that sits inside of ADP, although a lot more than we have addressed today, there's tremendous TAM even inside our own house or TAM expansion inside our own house but not everyone is a fit for the PEO. It kind of takes that perfect profile. We tend to skew somewhat white collar kind of into the somewhat blue collar, but we don't necessarily address all the same spaces that some of the other PEOs. We could if we wanted to.

The answer is we don't. We believe that the model that we have with a fully insured program on the health side and how we think about workers' compensation risk is what's allowed us to maintain the durability of the PEO that we run over all these decades that we've run it. I think for us, it's continued focus on the bookings, which is exactly what we have. We have all the incentives aligned, the demand is there. And at some level, the PEO has just have that pressure of an even more muted pace per control growth in those industries that we address. And so some of it is patience as we wait for that. We're squarely focused on continuing to accelerate bookings and of course, keeping as many of the clients as possible through what is arguably a very strange time and pressurized time as it relates to health care.

Yes. Okay. That's good. So obviously a focus, but there's so much going on in small business. Maybe staying with small business. Last year, we talked about the RUN Clover partnership, and we demoed it in your offices and then there's been a lot of -- there's been some management change, of course, at Fiserv since. Has your enthusiasm around RUN Clover changed at all? What's the latest with the partnership?

My -- the only thing that's changed is my enthusiasm only continues to grow. We're really pleased with the partnership. We've accomplished a lot since we initially came together and started talking about the partnership, inclusive of the demos. But the demos are real now. And so back in October, we put Clover into the RUN platform. In December, we put CashFlow Central -- did I say that the right way? We put RUN into the Clover platform, and we put CashFlow Central into the ADP platform in December. So we're broadly now deployed against each other is what they call the back book. We have the sales motion aligned. The teams are executing incredibly well together, but it's still early days as it relates to a meaningful impact across the volume that either Fiserv has or we have.

But do we believe that this ecosystem approach to solving for that entrepreneur, for that small business as they're navigating if we have the ability to serve up more things for them to do, whether they're inside of ADP Payroll or the converse inside of the Clover platform, that can only benefit us. The embedded strategy in general is part and parcel of a broader strategy across ADP. So we believe in embedded inside ecosystems, not just the one that is about Fiserv, but certainly other systems, whether be it banks or other places that we have the ability to serve up to make it easier for that small business. So excited for sure and excited because the opportunity is still in front of us.

Okay. Good. I will ask Mike about it this afternoon. Glad to hear it. On the -- maybe a couple of minutes left. Let's do capital allocation, I suppose. So thinking -- last quarter, you did step up your buyback a little bit, Maria. So we did notice that. Should we consider that a signal of more interest in buying back shares as opposed to doing M&A?

Yes. I think we stepped it up, and we were excited to leverage that piece of our shareholder return, and we stepped it up through the end of '26 is kind of what we referenced as well as kind of nodding to how we think about it heading into '27. Our broader capital allocation strategy is sharing with our shareholders. That's one way to do it is in share buybacks. The other is the dividend. We're very, very proud of being dividend king back in November. We announced the 51st year of dividend. And so again, that's another big piece in terms of the commitment we have to shareholder return. We're always thinking about acquisitions where always thinking about what makes sense for us within the strategic direction of HCM and adjacencies around it.

We do acquisitions in terms of tuck-ins. I think the most recent one we did was in Mexico. We acquired a company called PEI. So we're always looking at whether it's tuck-ins or it's the big acquisition of Workforce Software structurally, that was the largest acquisition we ever did almost 2 years ago at this point of $1.2 billion. And again, I already mentioned just how well that fit into our strategy and how that's changing the conversation in that enterprise and MNC space. So we're always looking. We're always opportunistic as well as thinking about how it fits in our strategy. And in conjunction with that, we're also very committed to our shareholders and making sure that we're delivering on those commitments through things like share buybacks as well as dividend.

Yes. No, it is a staple for ADP. So 30 seconds left, thinking about -- and we talked about a lot of things, Maria. So thank you again for the for his time. And I know the company has been through a lot of different tech cycles, macro cycles. There's always a question of certainty versus uncertainty. Given all of that, where are you more confident in terms of sort of the bets that you're making as we go into the next 12 months?

We are very confident. I think the one thing we haven't talked about today, although I think it's implicit and inherent in some of the commentary I've made is this concept of trust. So we've been doing this for 77 years. We have the data set. The data set is what's infusing our product and innovation cycle, but clients are leaning on ADP to help chauffeur them through this strange time as undoubtedly, the world of work is continuing. I call it a defining moment. Human capital management is having a defining moment, and they trust ADP just like they've trusted ADP through every innovation cycle and technology cycle. And by the way, economic cycle to be the ones to help them navigate.

Yes. Perfect. Can't cheat trust. So that's the most important thing. Maria, thank you for the time.

Thank you.

I appreciate you being here.

Thank you.

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 Third Quarter Fiscal 2026 Earnings Call.

I would like to inform you that this conference is being recorded. [Operator Instructions].

I will now turn the conference over to Matt Keating, Vice President, Investor Relations. Please go ahead.

Thank you, Michelle, and welcome everyone to ADP's Third Quarter Fiscal 2026 Earnings Call. Participating today are Maria Black, our President and CEO; and Peter Hadley, 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 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 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 SEC 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, Matt. This morning, we reported another strong quarter of results with revenue growth, margin expansion and EPS growth all coming in ahead of our expectations and reflecting the significant progress we are making across our strategic priorities at a pivotal time for our industry.

Before we get into the details of our performance, I want to share a few thoughts on why this is a defining moment for human capital management and why I am so excited to be leading ADP in the AI era. HCM is about helping companies manage the workforce infrastructure that makes business possible, whether you're a Fortune 500 company or a small local business, that has always been our driving mission and it has never been more critical than it is today.

As AI adoption continues, businesses will only face greater workforce complexity. AI is redefining the very nature of work and how we collaborate while increasing regulatory interest around privacy and data protection. And fortunately, that's exactly where ADP thrives. We execute with precision when it matters most. In terms of rapid chain and disruption, businesses need the compliance, accuracy and trust that ADP delivers at sale. Through economic cycles, shifting labor trends and waves of technological transformation, we have confidently met every moment by investing in R&D, evolving [indiscernible] our clients and raising the bar for what HCM can deliver. ADP was the first in HCM to deliver automation, move to the cloud, provide a mobile app and create an online marketplace, we believe it's our job to lead the industry in innovation. And now we're doing it again with AI. For us, success means leading the way in a trusted service-driven and AI-powered HCM and setting the industry standard for accuracy, compliance and partnership around the world.

Our performance this quarter shows how we're executing on that. Before I discuss our strategic progress, I'd like to review some key highlights from our results. We delivered solid Employer Services new business bookings growth in the third quarter. Results were particularly strong in international and compliance solutions. Our insurance and retirement services offerings also continue to contribute to growth in our small business portfolio. Both our employer services retention rate and our overall client satisfaction levels reached new record highs for a third quarter.

This strong performance is the result of continued progress across our 3 strategic business priorities. I'll start with what we are doing to lead with best-in-class HCM technology. AI makes HCM more important, and we believe it unlocks tremendous value and opportunity for our industry that plays out in 2 ways. First, while AI excels at prediction and efficiency, it can't execute critical high stakes HCM functions with a level of accuracy and consistency required. Because at the end of the day, payroll isn't a software function, a commitment to the people who showed up and did the work and there is no room for error.

Second, AI has added new layers of complexity for our clients as they manage their payroll, workforce management and regulatory compliance. These functions are rapidly evolving. And now more than ever, [indiscernible] will need a trusted HCM partner who can decode the puzzle and reliably deliver its critical services. I also want to be direct about something analysts and investors are rightly focused on. AI is changing both work and the workforce. And with our business grounded in all aspects of payroll and beyond, we are working on answers every single day.

Our research with the Stanford Digital Economy lab shows that AI is reshaping work at the task level. While this could lead to job displacement in certain task areas, we expect other new job categories to be created in this tech confirmation. What we know for navigating through economic cycles and labor market shifts and the data we've gained along the way is that even as workforces change, the work of managing them, paying them accurately and keeping compliant doesn't go away.

AI is shifting how work gets done, but that doesn't eliminate the need to manage it and managing a workforce through disruption [indiscernible] HCM more complex. We are not immune to shifting employment trends, but we are built for the world they represent. What differentiates ADP's approach is that our AI is built in the very core of how we orchestrate, govern and execute HR and pay processes, grounded in regulatory logic, operational data and decades of expertise. This goes far beyond chatbots or surface layer automation that can enhance the user experience. It's about delivering real-world outcomes where accuracy and auditability are nonnegotiable.

For example, in January, we launched ADP Assist agents that apply advanced intelligence to real workforce challenges for us payroll and HR. These persona-based agents think, plan and act with you an oversight, they are designed to handle routine tasks so people can focus on high-value strategic work that requires judgment expertise, creativity and connection. And since that launch, we've already seen meaningful results. Our ADP assist payroll agents have saved an average of 30 minutes per payroll. Our ADP assist tax registration agents have helped businesses maintain compliance and avoid penalties and interest on late tax filings. Our Smart Actions search has reduced clicks and time spent by around 80% for common HR actions. And those are just a few examples. We are continuing to accelerate this work, roll out new ADP assist agents and look for more opportunities to make work easier.

ADP Lyric HCM is also saving time and effort for our clients. One senior HR leader at a supply chain firm shared that the AI tools within Lyric have significantly reduced the number of steps in the recruiting process from 23 down to just 8 by providing advanced candidate in size. Another client, a global holding company used [ Lyric ] to replace more than a dozen disparate systems, which enabled a 71% leaner payroll operations model and that's just the beginning. In March, we further expanded our GenTech AI ecosystem through the ADP Marketplace, our industry-leading open platform where clients connect to ADP solutions with third-party applications across the HR and workforce technology landscape.

We launched a dedicated space within marketplace for carefully selected AI agent from our partner companies that give HR teams intelligent support across the employee life cycle and all agents are aligned with ADP's principles on safe and responsible AI. Our approach is also earning external recognition. ADP was ranked #1 in HR on Fast Company's most innovative companies list, and run powered by ADP held its position as a top-ranked small business product by G2 for the second consecutive year.

I want to congratulate our entire team on these well-deserved achievements. Our second strategic priority is to provide clients with unmatched expertise and outsourcing solutions. I'll speak to 3 structural advantages that together position ADP to deliver on this priority and lead the HCM industry through its AI transformation. The first advantage is our data AI is only as good as the data it's built on, and ADP has the industry's strongest workhorse data foundation built over nearly 77 years.

We pay 1 in 6 workers in the U.S. and moved $3.3 trillion in the U.S. in fiscal '25. We capture payroll, HR and compliance on for more than 1.1 million clients and 42 million workers globally across roles, industries and geographies, giving us incredible insights into the workforce and its emerging trends.

This advantage will continue to compound for our data and AI capabilities over time and will further widen the gap between ADP and our competitors. The second advantage is our domain expertise. Every ADP assist agent is grounded in our unmatched institutional knowledge from decades of hands-on experience with companies of all sizes. Our deep understanding of HR processes, workflows, exceptions and regulatory nuances is built into the very architecture of our products, services and systems. Our service model delivers human expertise and guidance alongside high-impact technology, pairing AI-driven efficiency with expert judgment and automation with accountability.

And as AI drives regulatory change and fragmentation, we have a true structural advantage. Let's consider the current landscape. So far this year, more than 200 HR-related compliance laws have been enacted in the U.S., including several governing the use of AI. This June, the EU transparency directive will take effect and employers continue to face increasingly complex and sometimes conflicting requirements across local, state and federal jurisdictions on issues ranging from pay transparency to lead policies. But as I mentioned before, this is exactly where we thrive. Since AI entered the mainstream, ADP has operationalized an accelerating wave of changes. And when the regulatory environment accelerates as it is now, our clients will coalesce around the partner they trust to get it right, a fact that has shown up in our consistently strong retention.

This has earned expertise the kind that comes from pioneering an industry and leading the way through disruption. We are also focused on using AI to sharpen our expertise. We have continued to scale the deployment of additional [indiscernible] AI capabilities across service operations through the zone, our proprietary end-to-end solution that transforms our client-facing teams engage, serve and support clients across the full life cycle. As of March, 20% of the total service population was on the own platform, and we expect to reach over 40% by the end of fiscal '26.

Several high-volume service teams, including SBS and Wisely are operating at full utilization, which means GenAI-enabled workflows are becoming embedded in our standard service operations and helping our teams create value through a more seamless experience for our clients. The third advantage is the trust in our brand, Clients have relied on ADP for the most essential HCM processes for decades because we consistently deliver through change and complexity. In the age of AI, trust is more important than ever, and we are deepening trust every day through our commitment to ethical and responsible AI development.

Finally, we remain focused on our third strategic priority, benefiting our clients with our global scale. ADP supports clients across [ 130 ] countries and 67,000 ADP associates deliver compliant HCM solutions, local expertise and trusted relationships to more than 1.1 million clients every day. We connect directly to tens of thousands of government entities, tax authorities, regulatory bodies and banking institutions globally. Our final mile ecosystem is extremely difficult to replicate and becomes even more important as the regulatory landscape becomes more complicated and fragmented by country, state, city, town and municipality.

Large businesses already recognize how hard it is to get this right. We just recently secured several new enterprise clients, including one of which has tasked us to deliver a 30 current payroll transformation. These clients trust ADP for these complex processes because we understand what's required in each country, we have the infrastructure, and we can flex to support their exact needs.

AI is changing work and the workforce. We know there will be new regulations, new workforce models and new risks. AP is purpose built for this challenge. We bring together the regulatory discipline, data integrity, process intelligence and human guidance required to productively incorporate AI into [indiscernible] critical HCM. That's why the world's leading organizations choose ADP as their partner for a rapidly changing world of work.

I would like to take a moment to thank all our associates worldwide for their exceptional service and performance as we continue to advance our strategic priorities in the age of AI. Every result we report every client we serve and every innovation we launch starts with them. We said at the top of the call that this is a defining moment for HCM. I believe that deeply, and we know just as deeply that ADP is strongly positioned to capture the opportunity ahead.

And now I'll turn the call over to Peter.

Thank you, Maria, and good morning, everyone. I will start by providing some more color on our third quarter results, and we'll then update our fiscal 2026 outlook. This morning, we reported strong third quarter results that included 7% revenue growth, 80 basis points of adjusted EBIT margin expansion and 10% adjusted EPS growth. These results were all ahead of our expectations, and we are adjusting our full year guidance to reflect this performance as well as making a few other changes, which I'll detail. One thing worth noting before I get into the numbers. The margin expansion we achieved reflects disciplined investment. We are funding our AI transformation across our products, internal tools and service delivery while continuing to deliver on our financial commitments. This discipline is intentional, and it shows up in the results. I will focus on our Employer Services segment first, where I'll cover both our results and our updated outlook.

ES segment revenue in Q3 increased 7% on a reported basis and 5% on an organic constant currency basis with favorable FX contributing close to 2 points of revenue growth. As Maria shared, ES new business bookings were solid in the third quarter, and our pipelines were healthy at quarter end with ongoing macro uncertainty and given the typical importance of our fourth quarter, a range of new business bookings outcomes remains possible. Accordingly, we are maintaining our 4% to 7% full year growth guidance.

Driven by our strong ES retention performance in Q3, we are improving our guidance range by 10 basis points and now forecast ES retention to be flat to down 20 basis points for the year. ES [ pays ] per control growth remained at 1% for the third quarter and our updated outlook calls for about 1% growth in fiscal 2026.

Client funds interest revenue increased by more than we anticipated in Q3, driven by 9% growth in our average client funds balances. We are increasing our full year average client funds balances growth forecast to about 6% and are continuing to expect an average yield of approximately 3.4% for the year. As a result of our revised expectation for balances growth, we are increasing the midpoint of our fiscal 2026. Client funds interest revenue forecast by $25 million to a range of $1.34 billion to $1.35 billion. We are also raising the midpoint of the expected net impact from our extended investment strategy forecast by $25 million to a range of $1.3 billion to $1.31 billion.

We also now expect overall ES revenue growth of 6% to 7% for the fiscal year. Our ES margins increased by 130 basis points in Q3, driven by operational productivity improvements that we are realizing across our business as well as the contribution from cline fund interest revenue growth. The investments that we are making in AI, in service tools and in product innovation are yielding meaningful productivity improvements in our business, allowing us to reduce our cost to serve, while at the same time, enhancing our clients' experience. As an example, our continued investment in our RAM platform, along with the AI-powered tools that were deployed to support our more than 900,000 small business clients have enabled an 8% year-over-year reduction in client contacts in fiscal Q3, our busiest quarter of the year.

These outcomes help us drive faster margin expansion and a better client experience, as shown by our continued record client satisfaction and retention results. The good news is that while these outcomes are becoming more meaningful and are now starting to manifest more noticeably in our financial results, we believe that the opportunity in front of us is substantial.

We are only in the very early innings in terms of what this can yield in terms of a superior client experience as well as business growth and financial benefits for ADP. Turning now to the Total PEO revenue increased 7% in the third quarter, with PEO revenue excluding zero-margin pass-throughs, growing 5%.

Stronger PEO new business bookings growth helped offset some continued softening in PEO pays per control growth in the quarter keeping growth in average worksite employees at 2% for Q3. We continue to forecast fiscal 2026 average worksite employee growth of about 2%. We also saw continued strong growth in gross payrolls as well as higher Sui revenues, both of which contributed to the uptick in peer revenue growth in the quarter. Following the strong revenue performance in Q3, we are increasing our full year revenue growth guidance to 6% to 7% and raising our PO revenue, excluding zero-margin pass-throughs, growth outlook to 4% to 5%.

[ ES ] Margins decreased 120 basis points in Q3, driven mainly by 0 margin pass-through growth, higher SUI costs and higher selling expenses. Putting it all together, we are increasing our fiscal 2026 consolidated revenue growth outlook to 6% to 7%, and raising our adjusted EBIT margin expansion forecast to 70, 80 basis points. Our full year effective tax rate burden of around 23% is unchanged. And finally, we are increasing our fiscal 2026 adjusted EPS growth forecast to 10% to 11%, which continues to be supported by share repurchases.

As we look ahead to fiscal 2027, I also wanted to share a few early thoughts. First, we were pleased to increase our adjusted EBIT margin expansion guidance in fiscal 2026. While it is still early in our planning process for fiscal '27, we remain very focused on continuing this acceleration when it comes to margin expansion as we realize further productivity benefits from our AI transformation. Second, as a result of our laddering strategy, we remain positioned for continued tailwinds from our client funds portfolio as anticipated reinvestment rates remain above the average yield of our maturing securities driving overall yields expected on the portfolio above fiscal 2026 levels.

And finally, you will have noticed a meaningful increase in our share repurchase activity during this fiscal year to date. We expect to continue share repurchases at or above these elevated levels across the balance of this year and throughout fiscal 2027, absent major changes in the market backdrop. I would like to emphasize that this elevated buying is in addition to our long-standing commitment to growing our dividend and to the levels of investments that we are making and will continue to make in our business to best position us for success in the future.

We remain laser-focused on driving growth in our new business bookings and maintaining strong client satisfaction and retention levels while at the same time investing in our products, our people and our AI capabilities to deliver sustainable revenue growth, margin expansion and shareholder returns over time. Thank you. And I'll now turn it back to the operator for Q&A.

[Operator Instructions] Our first question comes from Bryan Bergin with TD Cowen.

This is actually Jared Levine on for Bryan today. I wanted to start in terms of the implied 4Q guidance. I know you're not guiding FY '27 at this time, but anything to call out in terms of using that implied 4Q revenue growth rate as we think about FY '27 growth year? .

Thank you for the question. Yes. Look, I mean, we guide to a range of outcomes. So the guidance that we've increased our revenue guidance. We're very happy with that increased our margin guidance and our EPS guidance. I think there's still a lot to do in the fourth quarter with respect to bookings, with respect to retention in the PEO. So we're not really going to be more precise than the ranges we shared, but we feel confident with respect to our trajectory going into the fourth quarter and exiting the fiscal year. Probably the one thing I would note would be we benefited by a little over 1.5 points of FX in the third quarter in ES segment I'm talking about.

We're expecting that to moderate a little in the fourth quarter, so a little bit less benefit from FX on the revenue side, should help the margin profile a little bit because whilst it's a revenue tailwind. It's a little bit of a headwind from a margin perspective. So that's really, I guess, the only specific point I would call out with respect to being different to Q3, but we feel confident with our guide and our exit point.

Understood. And then good to hear about the record 3Q Employer Services retention rate. Can you dig into if that was broad-based or specific any areas and kind of where you still see areas for opportunity to improve that retention rate?

Yes. Jared, it's Maria. And equally as pleased with the with the result in retention. It exceeded our expectations and we raised the full year guide as a result of that, and we feel that overall, it was broad-based strength. The notable improvements that we saw across international compliance, enterprise, small business, really saw strength in return and services. It actually hit a new quarterly record for us.

So it was broad-based strength. We're really pleased with what we're seeing. I think it's a direct reflection of the investments we've made into product, the investments we've made into service and how we engage with our clients, some of the things that we discussed during the prepared remarks. So really pleased with the result in retention.

Our next question comes from Mark Marcon with Baird.

Congratulations on the strong results. I'm wondering if you can talk a little bit about the bookings. You didn't change the forecast range for the year, and it's still relatively wide with 1 quarter to go. Can you just discuss a little bit about what you're seeing with regards to the bookings in the third quarter and year-to-date? And specifically, any areas that you're seeing really good results in, in terms of the various segments? And also, to what extent can you give some commentary in terms of whether or not you're still seeing kind of a 50-50 mix in terms of bookings as it relates to upsells versus brand new logos? And then I've got a follow-up.

Okay. Thanks, Mark, and good to hear from you. Happy to comment on the overall demand environment and bookings. So first and foremost, we were very pleased with what we saw with respect to bookings in the third quarter. We built on the momentum that we had the first couple of quarters, the first half of the year.

So pleased with where we sit heading into the fourth quarter. But as always, we have a lot to get done in the fourth quarter. I'll get back to that. I think the strength that we saw specifically in the third quarter was anchored in some of the areas that I mentioned, international. That's a highlight for us. Obviously, there's a lot happening in the world. So pleased to see the strength in international. Excited to see the strength in compliance. I think that speaks directly to some of the commentary I made around the infrastructure and Final Mile and the connectivity that we have.

That business is the business that connects a lot of these things to the infrastructure of how payroll actually gets done in the world. also saw strength across our small business portfolio in the additional, call it, beyond payroll offerings of insurance and retirement services, which again speaks to kind of the strength that we're seeing in the down market. So overall, really pleased with the third quarter with respect to the overall performance. I would say, as we head into the fourth quarter, there's always a lot to get done.

We left the range relatively wide, as you mentioned. I think all of those options are outcomes for us. The sensitivity of it, if you will, is around $20 million, $21 million per percent. So if you imagine, 8,500 sellers, which is about what we have that are at the ready with all the right products, a stable backdrop from a demand perspective, all the right incentives, everybody is excited to execute about throughout the fourth quarter with good solid pipelines, but we have a lot to get done as we always do at this time. To answer your question around the 50-50, it's exactly the same. So it's about 50% that comes from new logos and 50% that comes from anything, call it, beyond payroll or additional business. So that's the -- that's what we have as a backdrop, and we're pretty excited with what we need to get done in the fourth quarter.

That's excellent color, Maria. And then with regards to the financials, One, you mentioned how AI is taking you more efficient. And I couldn't help but notice that the R&D or the program costs were relatively flattish despite the nice increase in terms of revenue. And I'm wondering if you can talk a little bit about some of the efficiencies that you're gaining across the board from AI and particularly in terms of new product development and the tools that you might be employing there, both in terms of reduced expenses, but also speeding up the development process.

Thank you, Mark. Yes, look, I think the R&D cost line, just to be clear, has obviously the usual accounting treatment. So again, there's capitalization, there's amortization and so on and so forth. "I'm not sure what you're looking at, but at least quarter-to-quarter or sequentially then one may not move that much. We have a continued investment. We also allocate within priorities. So we've certainly pivoted more of our spending in R&D towards AI initiatives, be it on the product side to benefit our clients as well as on the efficiency side.

So there's a range of different things. Some of the expense also is carried in operations where where we're spending and investing to deploy the zone, our proprietary service built on Salesforce technology that's rolling out AI infused and certainly helping. And then we have other examples [indiscernible] I'll give you one example that in addition to what we mentioned in our prior remarks. So in India, it's also year-end in India at March 31.

We actually had a reduction. We do a lot of work for our clients, validating tax advantage sort of allowances and the receipts. We actually deployed AI this year for the first time, reduced the core volumes by 35% in the year-end process, also reduced the labor by 35%. That was deployed against that sort of manual but very necessary compliance efforts. So it's really a broad-based thing. We certainly have pointed our investment dollars in the direction of AI as well as the usual spend that we like to do to bring best-in-class products to market.

And I wouldn't necessarily be too much into the sequential nature of the R&D program cost line in the P&L. Some of that can be accounting and some of that can be reallocation of dollars either within R&D or between R&D and operating costs.

Our next question comes from Jacob Smit with Guggenheim Securities.

Can you provide an update on your traction in the quarter? And just in general, with [indiscernible] unique architecture compared to with standard across legacy HCM platforms. Are we seeing Lyric open up new use cases or customer segments that weren't really serviceable before? And also on a related note, we've heard from enterprise customers that Lyric is being deployed in some cases as the best-of-breed payroll and compliance layer Lyric alongside, these existing HCM platforms. Can you just talk about how prevalent that buying motion might be whether that's expanding the addressable market beyond pure displacements?

Yes. Thanks, Jacob. I appreciate the questions around Lyric. As always, we are incredibly excited about the momentum of Lyric. We didn't call it out in the bookings commentary, but certainly pleased with what we've seen in terms of the pipeline build and the execution on Lyric, call it, year-to-date, had a couple of examples, obviously, in the prepared remarks on the impact of AI within Lyric and some of the things that we're solving for, for clients.

So to address the traction, I would tell you, our clients are equally as excited. We're excited. You see this front and center just this quarter. We had our annual rethink event, which is our enterprise customers on a global scale, getting together to really talk about how they're solving for things like global payroll global time. We also had our meeting of the minds meeting just a couple of weeks ago in Orlando, which is about 2,000 of our Enterprise lines in the U.S. getting together. And I will tell you that Lyric is, for sure, gaining the momentum and attention of analysts clients is the architecture. You mentioned the architecture. It does create new use cases. The way that we have it deployed with the ability to be position management base as well as traditional base does create an architecture that's incredibly flexible, it's dynamic.

That's why it's resonating both with the analysts and the clients, not just because it's modern and new and have AI in the side, but very core the engine and how it's architected allows for the flexibility and dynamic way to manage work and how work happens today, and that's start what I am busy talking about with our clients, which is how do we solve for this new future work, how do we lean into how they're actually running and operating these businesses and Lyric does that it fits squarely into that.

So it is opening up new dialogue, new conversations with our clients, I suppose, new addressable use cases to use your language. I think in addition to that, as you [indiscernible] our global time story, which really came about through the Workforce software acquisitions. So you think about Global time, global payroll as well as global HR. There is this ability to plug these things, call it all together as we go to market in addition to, by the way, having global service, and that's unique for ADP. So again, it's changing the conversation with those clients who are looking to us to solve for this new world of work that we find ourselves in.

So we're really excited about where Lyric is taking us both from a narrative perspective, and a pipeline perspective, but also from an addressable market perspective. And there are use cases where we can deploy Lyric in new and unique ways, that are gaining traction and more to come on that probably as we head into '27, but really excited to the places that it's taking us and it's definitely changing the conversation in the market.

And just a quick follow-up, too. As Lyric bookings ramp in the large enterprise, how are you thinking about scaling implementation capacity over time, whether that's investing internally or potentially working with system integrated partners in the future?

Yes. Jacob, I'm so glad you asked because I left out that part, which is an important piece. The answer to the question is both. So we are scaling internally. But we also have this ability to go to market with system integrators in a more meaningful way than we have in the past. So we've had relationships, both with mid-tier system integrators as well as call it, the more global system integrators.

Certainly, we've learned a lot from the acquisition of Workforce Software as they've been partnered deeply with many system integrators, think the likes of Accenture, and we also have relationships with others, be it UI, KPMG, et cetera. But we're really excited to continue to build out, especially as it relates to this marriage between global payroll and global time and our ability to put that together with the systems integrator that's also working with that client to solve in real time for the future of work. So a big piece of our strategy, really excited to see where it leads us.

Our next question comes from Dan Dolev with Mizuho.

Maria. I think Peter, great results. Congrats, well deserved. I wanted to ask about, I know there was a question about AI and R&D, but more about -- I think your competitor mentioned that there was some difficulty selling software modules. I just want to see from your perspective how this looks? I think last time we talked about it, there was no problem whatsoever. Just wanted to sort of check the box on this one.

Yes, it's a great question. I'm not sure who entirely you're referring to. But certainly from our end, based on our pipelines and our results and again, spending times with our clients, both at the rethink event as well as our meeting of the minds event.

I would tell you that software is alive and well, especially core function type of companies, and that's exactly where HCM fits in. Again, not knowing the nature of the type of company that you're referencing. That's not the case of our vantage point as it relates to HCM. Again, the way we see it is we see the future of work as one that is AI infused and AI really powering workforce, but that doesn't take away the need to actually manage this year orchestration of paying people and keeping them compliant.

And so while it's reshaping the work really at the task level, and that's the research we were doing with Stanford that we see the need to ultimately manage work is actually becoming more complex, not less complex. I would say HCM is very different than that. And obviously, the value of getting all of those things right is actually increasing. So the more complex it's becoming the more valuable it is for us to do exactly what we're doing.

I think the other part is in line with that, it's really about having the highest levels of standards, ethics, the need for accuracy, security, and also this idea of auditability because in the world of HCM, be it payroll and the ecosystem that defines payroll or the rest of the HR benefits and all the ecosystems and connectivity that we have to -- whether it's government entities or carriers, the room for error and big or just good enough like it doesn't exist. Payroll needs to be 100% accurate, 100% of the time. And so that's a big differentiator, I think, specifically for HCM, which kind of leads me to I guess, the last point, which is that we were kind of built for this, right? So if you think about us in the 77 years, we've been doing this for our clients navigating through economic cycles, transformation cycles the world of work and all of the stuff is making things more complex.

And we have the background, the trust, the data, the deep domain expertise in our products and services, but also the expert people to help our clients through this. I have to tell you, when I was at the meeting of the minds, and I know it's the case for one of our events this week as well in the mid-market. We're celebrating clients that have 50 years of tenure with ADP.

And I think that's a direct reflection of, as I said on the prepared remarks, like earned expertise, clients are turning to us at this pivotal time to help them navigate this. I'd say HCM is alive and well, definitely a core function and not something that can be replicated easily by any of these new entrants, if you will.

Well, we agree. Congrats.

Our next question comes from Tien-Tsin Huang with JPMorgan.

Just thinking about the outlook revision up and the good results here. Can we go through quickly the attribution of what's driving the change the outlook? It seems like it's higher balances, some improvement in retention is the majority of it? Did I catch that? I just wanted to make sure I covered the -- we covered that.

Yes. Thanks, Tien-Tsin, for the question. Yes, we're very pleased to increase the outlook. I think part of that is obviously the strong performance that we've delivered in Q3. The balance growth, we've increased our balance growth there. We see solid sort of underlying revenue growth opportunity in both PEO and and in Employer Services exiting Q3 going into Q4.

Some of that is retention. As you mentioned, some of that is the pace per control lift in terms of our guide that we made for Employer Services. And another piece I just wanted to mention is price. So the last couple of quarters, we've been talking about looking our goal to achieve around 100 basis points of contribution from price, I'm pleased that our outlook actually is reflected a little increase in that. So expecting more like 130 basis points from price.

And I think that is positive, not only obviously for our financials, but when I compare that with our client satisfaction scores and our retention scores, both at record levels. Our offering is resonating the tools, the products that we're deploying resonating, and there -- where we're able to achieve value for that through our pricing. So there's a number of levers, all more or less working in the same direction, as I mentioned in one of the earlier questions. The only thing that we see softening a little bit going into Q4 is the contribution from FX, which was a little larger than we contemplated for Q3.

We're not conflating the same level of contribution from FX to our revenues in the fourth quarter.

Okay. Perfect. We're going through that, and then the pricing is definitely emerging that you're able to see more value. Maybe just my somewhat related to that, just thinking about competition and bookings. I think Mark asked about it well. But any change in competitive intensity? I know there's a lot of focus here on some of the starts and maybe some of the more AI native or digital native companies. Any change there, Maria, that you're seeing? I know your bookings is reaffirmed, which is great. We'd love to get a little more on what's going on in the ground.

Yes. So it's a great question. I certainly understand the nature of it. I think with respect to any new type of entrants and [indiscernible] and in term of anything that would have entered the market in the last, I don't know, a quarter or 2.

I wouldn't say we're seeing anything new and exciting there that's increasing levels of pressure or competition. I would say it's always competitive, especially, by the way, in the back half of the year. So certainly, Q3 represents a big bookings quarter for us. Q4 represents a big bookings quarter for us. And since we kind of set the tone in the market for HCM, it's always competitive this time of year. And there are lots of very formidable competitors out there. But I wouldn't say that there's anything to call out that's changed.

Certainly, there's some noise with certain companies that are potentially, I don't know, going public, some were going private [indiscernible] emerging. There's always some of that. There's always incentives being put in the market. By the way, we're putting incentives in the market. But I would say the to me, as somebody who's had a front row seat to the competitive landscape for decades, I would tell you, it feels pretty normal, if you will.

It's highly competitive. We show up well. We show up well with good products, good service, incredible distribution, an incredible ecosystem around us and that distribution accountants brokers SIs and certainly, the investments we're making. So I would say -- and I could go through each one of the markets, but I would say it's relatively competitive, which is exactly the type of sport we like to play.

Our next question comes from Scott Wurtzel with Wolf Research.

Just one for me. The commentary, I think, on ADP assist. It was great to hear, but I think more broadly now that you've had some of these products and AI features in the market for some time now. What is sort of the overall feedback that you've been hearing from clients regarding these products? And is there anything potentially more on the AI front from a product perspective that clients are looking for?

So I'll start, and certainly, Peter, if you have anything to add. I would tell you, Scott, that the feedback is incredible. I cited a couple of examples. I probably could have gone on for 30 more off the top of my head. In terms of use cases, the impact that it's making. I think it speaks volumes. You see it in the client satisfaction. You see it in the retention, and you also see it now in our efficiency and our results.

And so I think there's a lot to be said for the work that we've done over the last 3 years. I think we were quick to organize. We've been able to infuse AI throughout the entire organization, whether it's on the go-to-market motion, it's in the product, it's really across the entire enterprise, how we build the products.

So I think feedback from the clients is meaningful when they start seeing the impact of workflows being changed and then becoming either more efficient or saving time. And so I think it's also, though, exactly what they would expect of us. And the good news is, I think we're only just scratching the surface. So as we continue down the road map of the ADP assist overarching umbrella across each one of the HCM film, and we continue to change workflows continue to build more efficiency into how we service our clients or how they're being experts at our clients are able to engage in the work that they're doing. We're pretty excited about the feedback thus far, but there's there's a lot more where it's coming from and a lot more that we can bring to the clients, and we look forward to doing that throughout the coming years.

Our next question comes from Jason Kupferberg with Wells Fargo.

So obviously, still a lot of debate in the market about how AI could impact seat-based revenue models. I think ADP has said in the past, a 1% change in pace per control impacts ES revenue by about 25 bps. So can we infer from that, that only about 25% of the ES business, excluding float is priced on a per employee per month basis? Or is there more nuance to it. And then just on the PEO side, I think the revenues are more tied to client head count there. But maybe if you can clarify all that with some numbers, that would be really helpful.

Thanks for the question, Jason. No, on the employee services side, we have a higher propensity or proportion, if you like, of our revenue that you see this than 25%. So in the down market, it's actually lower than that or about 80% of our revenues are base fee. We have other revenue models in the downmarket in Retirement Services, for example, Insurance Services is more of a commission model on our -- on insurance premiums that we sell. We have asset-based revenues as well as participant-based revenue in the down market.

In the mid-market and the upmarket, though, we were much more, if you like -- we're much more seat-based models. We do have the revenue streams, implementation and project services and so on that we are much more attributed to the seat-based model. In saying that, we feel like there's -- it's a value-based price approach that we've always taken. So again, the value we confer is not necessarily linear with the number of employees the client has. We're providing compliance. We're providing people getting paid a good experience being moved. So again, I think we have opportunities should the need to araise, we're not seeing need arising in the data at the moment with respect to pivoting the model in whatever way would make sense for us and our clients, should that be the case.

I would say it's more indirectly an employee-based model or a seat-based model. The predominant billing model we have in the PEO is the percentage of payroll. So obviously, the number of employees can influence the percentage of payroll that so can wage levels, wage inflation, obviously, some of the pass-through revenues, like taxes and workers' comp and things like that. So really, I would say the PEO model probably is less directly exposed to to the seat-based pricing mechanism than maybe the mid-market and upmarket of the ES space.

Okay. So that's good color. And I wanted to just come back on bookings. I know we're reiterating the guide here. It feels like the tone qualitatively all year has been consistently just wanted to get your take on relative confidence in kind of the lower end versus the higher end of the 4% to 7%. I know it can kind of come down to the wire during the last quarter of the fiscal year, but just how you're feeling about that with 2 months to go?

[indiscernible] You would have guided differently, but I think all of those options are on the table, if you will. But we feel good about pipelines. We feel good about the incentives. We feel good about the sellers, the ecosystem, the products, the backdrop, HCM backdrop seems stable. So I think we're excited to see how this fiscal year ends, but we're certainly at the ready and executing against it. .

Our next question comes from Ramsey El-Assal with Cantor Fitzgerald.

Congratulations on some solid results today. The PEO segment margins came in a little bit below our model. And you mentioned a few drivers. I think one of them was higher selling expenses. What does that mean exactly in this context? Is it like concessions to new clients or higher incentive for your sales staff? Just trying to figure out sort of what that is and what it implies.

Thanks for the question, Ramsey. Yes, there was probably 3 things that went on in the PO with respect to margins this quarter. One of them is higher selling expenses. I'll get to that. The other is the SUI revenues came in stronger than we were expecting, and we were pleased to see that given what it represents in terms of wage base and so on, but it comes at a lower margin. The third piece, which is maybe less noticeable as we had positive -- some positive reserve releases in the workers' comp reserves for indemnity, less positive than the same time last year, which produced a little bit of margin drag in the in the PEO. But back to the selling expenses, the real reason why the selling expenses were higher was, we had a really strong quarter in terms of sales. So again, that creates -- there's a variable cost model with respect to selling, and we had a strong quarter, as Maria alluded to earlier with respect to PO sales, so that brought additional selling expenses -- the pays petrol, as I mentioned in my prepared remarks, continued to soften a little bit in PO. It was solid in ES, softened a little bit in the PEO.

That is a margin revenue that sort of goes away. So when you put the combination of the higher sales, which generate higher selling expense with the with the pace per control situation, you see a little bit of erosion in the margin net -- on a net base in addition to the SUI and in addition to the workers' comp reserve releases being slightly lower this year than what they were last year.

Got it. I have a follow-up. I mean international has been a bread spot in the business for quite some time. Is there a way to accelerate that strategy? This is something you've commented on in the past, but maybe via M&A. Could you kind of press the gas pit a little bit on international to bolster further?

Yes, great question. It's certainly something we look at. We do quite a bit of small, I guess, small deals, but quite a bit of M&A. We've acquired a number of our partners in our [ Silego ] network over the years, including some more recent ones in Mexico, in the Nordic countries. We have that piece. We also have workforce software, which was, as Maria talking about earlier, is a global time offering, not just at the [indiscernible] offering, albeit it was a U.S. company, but it had presence in places like Canada, the U.K., Australia and so on and the product hunts in many occasions across the world beyond on where that company had presence. Is there more opportunity to do M&A.

Yes, I believe so. I think it's a question of finding the right fit, and we have people that are studying the market, and we obviously have contacts with many companies out there. And as and when we find one that would be additive to our model and accretive to our opportunity, ADP, we will certainly look to pursue that, but nothing to nothing to [indiscernible] or announced on the call.

Our next question comes from Dan Jester with BMO Capital Markets.

Maybe a 2-parter on ADP Assist. So your first one is, I don't know if you shared this in the prepared remarks. Have you made any comments about sort of uptake repeat usage, engagement levels with the customers that have access to it. And then the second part of the question is you commented about the payroll agent saving a lot of time, smart actions saving a lot of time. As you roll more of these out, how do you view out sharing some of the value from the time savings that these agents are providing? Maybe this ties to Peter's [indiscernible] about price but sort of any comments on that would be very helpful.

Sure. Thanks, Dan. Really excited about the progress we're making across the ADP Assist portfolio and innovations, if you will. And I think we are seeing that uptake in terms of clients, and we're definitely seeing -- I think you asked about repeat clients. I would tell you, as often is the case in many of these AI tools that we will engage in. Once they get started, they get, call it, hooked on continuing to process improve and engage with these tools. And so you definitely see those that, engagement like the smart actions and the Smart Search come back time and time again and kind of pick up where they leave off and continue to work and that's exactly what would be expected of these tools, and I think they're bringing the intended value.

And certainly, our clients are looking to us to continue to innovate across each one of these films of the HCM domain to make the workflows easier and to make things better for them and better for us. And that's really how we think about it. I think it's showing up well in things like retention and bookings and efficiency. Peter cited some stuff around the places that we have these tools deployed internally at ADP and what it's yielding in terms of efficiency in our small business and wisely, and we will continue to see that. And certainly, we see that at the client side as well. In terms of how we think about it from a price perspective, I think Peter made the comments earlier in terms of our value-based pricing, I think that's what we're always solving for.

So we're not really looking at this as a discrete usage type of fee at a piece by piece level. We really look at it as core in the fabric of how we operate and how we deploy our products to our clients. And I think it shows up in things like margin and efficiency. I think it shows up in bookings. I think it shows up in retention, and that's kind of the way we think about sharing this opportunity with our clients. I don't know if you have anything to add there, Peter.

No, I think it's important to recognize, like the -- in everything we do in this area, we're looking at where is the value and how should that be attributed. So again, whether this is through specific pricing, whether that's through general pricing base, whether it's through revenue share models, we have -- Maria was talking about in the prepared remarks the market, this agent program that we've just launched as well as our own internal efficiency and cost savings. For us, it's less about, I guess, how do we specifically price, that's certainly important. But ultimately, what is the value created, what is the appropriate allocation of that between ourselves and our clients and monetizing that, taking advantage and monetizing that for mutual benefit. That's really what we think about it. And there's probably a laundry list, I guess, of different scenarios, which we don't have time to go through today in terms of how we do that. But I think you can rest assured that we feel strongly about capturing the value that we're conferring through pricing and other mechanics as well as, obviously, what I was talking about on the efficiency side, that is certainly a bottom line savings that go to our EBIT numbers as well as likely will be fueling our further and future investments in this area. That's really helpful.

And then just as a follow-up, actually, is on the marketplace. And maybe just philosophically, maybe give us an update on sort of partner versus build it yourself for these third-party agents and ultimately, are you ambivalent whether a customer uses your build agents or a third-party agents? Or how should we think about that evolving over time?

It's a great question, Dana. And I would start by saying we are not ambivalent. The way we think about it is always putting the client first. So it's really about the client and how do we solve for them and make their world easier that's what led us to be verse to launch an ADP Marketplace. It is the largest HCM marketplace. We have over 800 integrated solutions across the globe actually as well. So we've expanded the footprint in the last year or so. internationally, and it's really about providing those clients the choice and the ability oftentimes to connect their systems and their views on their workforce, their views on things like compliance, their views on whether it's time.

So it's not an ambivalent, it's really quite the opposite. It's really about putting the client first and extending our capabilities to meet the clients' needs and demands. And that's exactly what the marketplace does. What I was excited to share during today's call was also our approach with respect to doing that in a secure and ethical data way in this new world of AI. And so we have AI agent kind of partitioned off inside of our ADP marketplace to make sure that they're operating the right way for our clients in conjunction with us, and that's really exciting as we think about, again, clients that are navigating all of these things across the HCM landscape to do the right thing for their employees and their workforces and how we can show up there and make that work for them as an imperative piece to our strategy.

Thank you. This concludes our question-and-answer portion for today. I'm pleased to hand the program over to Maria Black for closing remarks.

Thanks, Michelle, and thank you, everyone, again, for your interest and for joining us. As you probably heard throughout the call today, I believe deeply in the world of work. I believe everything that it represents all the beauty and human connection and what work means to people. And I also believe that this is a defining moment for our industry for human capital management. The leaders need to lead at this time and need to lead in this world of work, and that's exactly what the leader is doing. That is what we are doing. That is how we show up today for our insight is how we show up today for our stakeholders with our results. So I'll end with where I ended the prepared remarks, which is that every single result, every single award, every single client, that's an extension of us and our culture that we serve and every innovation that we're bringing to the market it starts with our ADP peers and our ADP associates. And I couldn't be more proud and grateful to represent us today. So thanks for the time. .

Thank you for your participation. You may now disconnect. Everyone, have a great day.

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 2026 Earnings Call. I would like to inform you that this conference is being recorded. [Operator Instructions]

I will now turn the conference over to Matt Keating, Vice President, Investor Relations. Please go ahead.

Thank you, Michelle, and welcome, everyone, to ADP's Second Quarter Fiscal 2026 Earnings Call. Participating today are Maria Black, our President and CEO; and Peter Hadley, 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, 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 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 SEC 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, Matt, and thank you, everyone, for joining us. This morning, we reported strong second quarter results that included 6% revenue growth, 80 basis points of adjusted EBIT margin expansion and 11% adjusted EPS growth. We achieved these financial results while also making meaningful progress across our strategic priorities. Before discussing this strategic progress, I will briefly review some additional highlights from our results. We delivered solid Employer Services new business bookings growth in the second quarter. We enjoyed broad-based strength with the fastest growth in our international U.S. enterprise and compliance businesses. .

Our small business portfolio and mid-market business also contributed to the growth in the quarter. With good momentum and healthy pipelines, we are focused on driving continued new business bookings growth in the second half of our fiscal year. Our employer services retention rate matched our expectations with a modest decline in the second quarter. We continue to benefit from a stable overall business environment and very high levels of client satisfaction. In fact, our overall client satisfaction results represented the single best quarter in ADP history. Employer Services pays per control growth rounded up to 1% for the second quarter representing modestly higher year-on-year growth compared to the first quarter. And last, our PEO revenue increased 6% in the quarter, helped by growth in 0-margin pass-throughs and solid new business bookings growth. Our 2% growth in average worksite employees included a moderation and PO, pays per control growth. Peter will share our updated outlook in a few minutes, but we believe the demand environment for our PEO and other outsourcing services also remains healthy. We are proud of our strong second quarter financial results and excited by the progress we continue to make across our 3 strategic business priorities. I will start with what we are doing to lead with best-in-class HCM technology. We are very pleased with the strong traction our Workforce, now NextGen and ADP Lyric HCM platforms continue to experience Workforce. Now Next Gen is being embraced by our mid-market clients for its always-on payroll processing capabilities, generative AI functionality and expedited implementation time lines.

We reached a milestone in the second quarter with our first sale to Ian with more than 1,000 employees. The client, a logistics company in the Midwest, selected Workforce Now Next Gen based on the strength of its underlying technology and the breadth of its integrated solution, which included payroll HR benefits administration time and attendance and learning. Workforce Now NextGen is a great example of how we build products to solve real-world challenges, HR teams face each day and we do so by combining our Next Gen platforms investments in AI and automation and robust compliance expertise to support our clients' wide-ranging needs.

In the enterprise space, [indiscernible] new business bookings once again exceeded our expectations in the second quarter, and its new business pipeline continued to expand at a rapid pace. Underscoring Lyric strong reception in the market, more than 70% of its new business bookings and overall pipeline related to new logos as it continues to fare favorably against our competitors.

Organizations are turning to [indiscernible] for its flexibility to enter and human-centric design that enhances the employee, manager and practitioner experience, Among our many Lyric new business wins in the second quarter were 2 companies with more than 20,000 employees, which represents 2 of our largest clients sold on the platform to date.

Earlier this month, Lyric was named a winner in the 2026 Big Innovation Awards presented by Business Intelligence Group earning recognition for driving transformative impact in the HCM industry. In addition to building our own best-in-class solutions, we strive to enhance our HCM offerings through acquisitions that complement our business. Our October 2024 acquisition of Workforce Software is a great example. During the second quarter, we launched the ADP Workforce Suite, our integrated workforce management solution across our leading payroll and HCM platforms. Clients now have the opportunity to offer their employees around the world, a unified time, pay and HR experience with best-in-class workforce management tools at their fingertips. We are already seeing benefits from our integrated approach, winning several deals in the second quarter that included the ADP Workforce suite. We also partner with others to accelerate innovation.

In December, we successfully embedded Fiserv, Cash flow Central and integrated accounts payables and receivables management solution into run in order to help our small business clients better manage their cash flow. The run powered by ADP platform brings payroll, contractor payments, bill pay and invoicing together in 1 clear connected experience. With payroll and payments in sync, our clients can do more and less time and steer their business forward confidently. AI remains central to our technology strategy, and we are moving full speed ahead to leverage it in attracting, serving and retaining our clients.

We continue to scale the usage and capabilities of our client-facing AI, including the launch of new ADP Assist, payroll, HR analytics and agents that apply advanced intelligence to real workforce challenges, built on ADP's comprehensive global data platform, these new persona-based agents help organizations manage people streamline processes and make informed decisions that support people at work.

For example, ADP assist tax registration agents can proactively identify when clients have missing or incomplete tax IDs and guide them through every step of the registration process. Additionally, our ADP assist HR agents can create key talent actions instantly such as initiating a promotion simply by the user typing what they want to do. The system delivers real-time answers and guided next steps, reducing time spent navigating HR workflows.

And our AI solutions are designed with a human-centric approach that enhances the value and meaningful connection we all derive from our work. Unlike generic AI saloons ADP's approach combines proprietary workforce insights with advanced automation to solve real workforce challenges while maintaining the security, governance and compliance standard companies trust. Our second strategic priority is to provide clients with unmatched expertise and outsourcing solutions. Success here requires us to carefully consider the breadth of our solutions and to continually evolve to best meet client needs.

To this end, we were excited to introduce our first pooled employer plan or PAP, within our Retirement Services business during the second quarter. [indiscernible] is a single 401(k) plan that less unrelated employers participate together with a pooled plan provider acting as plan sponsor named fiduciary and plan administrator. This arrangement shifts most of the compliance filing and oversight burdens from employers to the pooled plan provider. Our save for retirement, pooled employer plan brings together scale, integration and fiduciary support, allowing employers to offer robust retirement plan benefits without adding administrative burden. Clients gain scale-driven cost savings, reduced administrative work and lower fiduciary risk.

Finally, we are focused on executing on our third strategic priority, benefiting our clients with our global scale. We serve more than 70,000 clients outside of the United States where we pay more than 16 million wage earners across more than 140 countries. Our mix of global solutions includes both in-country and multinational offerings. During the second quarter, we won the business of a large European bank with more than 75,000 employees. This win demonstrates the power of our brand built by having associates on the ground for decades in most of our international markets. We also recently enhanced our global payroll platform through more intuitive dashboards with clear messaging and easier navigation, all of which reduce manual tasks and enhance the overall user experience.

The investments we are making in our international business are being noticed as we were recognized recently in the HRM Asia Readers Choice Awards, winning 2 goals in 2025 for best HR Tech outsourcing and payroll solution. Overall, our second quarter represented strong outcomes on the financial front and with respect to our key strategic priorities, I'd like to take a minute 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 here on work. Their consistent effort over decades has established our company's trusted corporate reputation, and I am proud to announce that ADP was recognized earlier this month by Fortune Magazine as one of the world's most admired companies in 2026. This marks ADP's 20th year on this annual ranking, and I would like to congratulate all 8 peers on this well-earned accomplishment and thank them again for all that they do for ADP and for our clients.

And now I will turn the call over to Peter.

Thank you, Maria, and good morning, everyone. I will start by providing some more color on our second quarter results and then update our fiscal 2026 outlook. Overall, we reported a strong second quarter with our consolidated revenue growth adjusted EBIT margin and adjusted EPS growth, all coming in slightly ahead of our expectations. Let me focus on our Employer Services segment first, and I will cover both our results and our updated outlook. ES segment revenue in Q2 increased 6% on a reported basis and 5% on an organic constant currency basis, with FX contributing about 1 point of revenue growth in the quarter. As Maria shared, ES new business bookings were solid and broad-based in the second quarter.

With continued healthy pipelines, we are maintaining our 4% to 7% new business bookings growth guidance for fiscal 2026. The Yes, retention was in line with our forecast, declining modestly versus the prior year. We are keeping our outlook of a 10 to 30 basis point decline in full year retention unchanged. ES Pays per control growth improved slightly, rounding up to 1% for the second quarter, and we continue to forecast about flat pace per control growth for the full year. Client funds interest revenue increased slightly more than we anticipated in Q2, helped mainly by higher average client funds balance growth. We have increased our forecast for average client funds balance growth to 4% to 5% in fiscal 2026, and we continue to expect an average yield of approximately 3.4%.

Accordingly, we are increasing our full year client funds interest revenue forecast for $10 million to a range of $1.31 billion to $1.33 billion. We are also raising our expected net impact from our extended investment strategy by $10 million to a range of $1.27 billion to $1.29 billion.

On an overall basis, we are also increasing our ES revenue growth outlook to about 6% for the full year. ES margins increased by 50 basis points in Q2, driven by both operating leverage and the contribution from client funds interest revenue growth. Turning now to the PEO. Overall, PEO revenue growth in the second quarter was 6%, while PEO revenue growth, excluding zero-margin pass-throughs, was 3% in the quarter. PEO new business bookings growth was solid in Q2 but did come in slightly below our expectations. This impact, along with some further moderation in PEO pays per control growth weighed on our average worksite employee growth in the quarter. Accordingly, we are now expecting average worksite employee growth of about 2% in fiscal 2026. We continue to expect fiscal 2026 PEO revenue growth of 5% to 7% and PEO revenue, excluding 0 margin pass-throughs to grow by 3% to 5%. PEO margins decreased 70 basis points in Q2, driven mainly by 0 margin pass-through growth and higher selling expenses.

As we highlighted on our Q1 conference call, we do expect positive contribution to overall ADP margins this year from our other segment as a result of our client funds extended investment strategy. This margin contribution is being driven by growth in our corporate extended interest income, while at the same time, our short-term financing costs are decreasing. We saw this in the second quarter, and we expect this dynamic to continue across the balance of the fiscal year. Putting it all together, we are increasing our fiscal 2026 consolidated revenue outlook to about 6% growth, and we are maintaining our forecast for adjusted EBIT margin expansion of 50 to 70 basis points.

We continue to expect our effective tax rate to be around 23% for the year. And we are also raising our fiscal 2026 adjusted EPS growth forecast to 9% to 10%, supported by share repurchases. Earlier this month, our Board authorized the purchase of $6 billion of our common stock, which replaced in its entirety our 2022 authorization of $5 billion. This new authorization along with our recent 10% dividend increase signals our continued commitment to driving shareholder value and to returning excess cash to our shareholders, which remains a key pillar of our capital allocation strategy.

Finally, a quick note on our anticipated adjusted EBIT margin cadence in the second half of the year. As we mentioned last quarter, we continue to expect a bit of a ramp in the back half of the year for margin expansion. And we currently expect to deliver more of this margin expansion in Q4 than in Q3. And I'll now turn it back to the operator for Q&A.

[Operator Instructions]

And our first question comes from Mark Marcon with Baird.

Lots of significant positives in the quarter. Maria, I'm wondering if you could talk a little bit about the international opportunity, and congratulations on that win. Where do you see ADP currently in terms of addressing that strategic pillar. And what do you think the runway is like? And how do you compare the profitability of the international operations relative to the U.S.? And then I've got a follow-up on PEO.

Sure. Mark, thank you for the question. As you know, international is an entire strategic priority for us. So we have 3 strategic priorities, one of which is candidly dedicated to exactly what you just suggested, which is the opportunity we have in our global space. So how are we doing? How are we faring? Perhaps I can comment on that, and Peter can touch on the impact of that business from a margin perspective to kind of address the second part of your question, how we are faring is very well. I think the strength that we see in our offering is just getting started. I was excited to see the rebound in bookings, specifically this quarter after a tiny bit of a softer first quarter on the heels of a very incredible fourth quarter. So we do know that the international space and those opportunities. They're big. They're complex.

They're broad. They often involve lots of different stakeholders, countries, decision-makers. So how do we show up? We show up well I think the thing that was a highlight for me with respect to this quarter was the 75,000 employee European bank that we cited, but it wasn't just the fact that we had that win, which was tremendous execution by the team. It was also how that win came about, which was a direct reflection of the offering that we have in conjunction with our existing platforms, married to now the workforce suite that we launched. And so that was a key contributor to that win. And I think we continue to make progress in our offerings, in our investments, whether that's through the products, through acquisitions. So we show up well from a product perspective. I mentioned during the prepared remarks how we show up in terms of kind of this balance of ADP associates on the ground in country. That's unique, that's differentiated. So I think in general, and I apologize, I don't know what's happening to my voice. We're very proud of the offers that we have, how we show up in the international space. We continue to execute well from a bookings perspective. And as it relates to the future, I think it's bright for us. And I'll let Peter kind of comment on the margin piece.

Yes, Mark, on the profitability side, the international business is a little bit lower margin than some of the domestic businesses, which I think is is to be understood. I think the retention rates, though, are very, very high. So if you take -- if you look at it from a lifetime value sort of contribution, if you like, to value very much comparable with any of the businesses we have in the U.S. So we're very happy to continue investing in that business. It does drive margin. It's an important contributed to our margin evolution, but it is a little bit lower on the margin as is the enterprise business in the U.S. relative to, call it, the downmarket, mid-market but over a lifetime value of a client, given the very high retention rates, we believe we achieved very similar levels of ultimate value from growing in international as we do in some of the maybe higher margins, sorry, domestic market businesses.

That's great. It seems like a great long-term opportunity. I was wondering on a separate note, can you just talk a little bit more about the CEO and the WSE growth, it has been slowing for a while across the entire space. And Maria, I know you know the PEO space better than anybody. What do you think is contributing to that slower growth? And how do you think about the long-term outlook on the PEO just in terms of WSEs because it seemed to me like we still have a long way to go in terms of penetration in multiple states that aren't as well developed as some of the core states.

Yes, Mark, I'll take that. Maria may want to chime in. But I think we still agree with you. I think we still have tremendous opportunity in the PEO. We've spoken about what we believe is the addressable market opportunity. And we are -- whilst we are clearly the largest PEO, we still think there's plenty of room to grow in that space. And as you know, around half of our PEO bookings come from our own client base.

So get plenty of opportunity there. What's going on at the moment. I mentioned in my prepared remarks, we had solid bookings. Maria also mentioned, we had solid bookings in the PO this quarter. They were a little less than we were expecting, but not a huge difference, but it does contribute when we're sort of dealing with relatively small movements, basis point movements in things like [indiscernible]. We also saw a little bit contrary, again, very small margins here in terms of basis point moves, but we did see a little bit of softening in the PEO pays per control metric in the quarter. We saw a little bit of strengthening. Again, I don't want to overemphasize it, but it's just tens of basis points, but a little bit of softening in the PEO pays per control metric.

By the way, it came in at exactly the same level as the ES metric. I think I mentioned last quarter, the PEO was -- as it typically does, we're sitting a little ahead of the S. It's not always the case, but it's typically the case this quarter that happened to come in together. So just doing the math and looking at sort of where we were in Q1 and where we are now, we felt the lower end of the range was more appropriate.

And hence, we've sort of adjusted our guide. But we're still very bullish on the opportunity. We continue to invest in distribution. We're investing in our product capabilities within Workforce. Now specific to the PEO and certainly feel that there's a tremendous opportunity in front of us with respect to the PEO.

Our next question comes from Tien-Tsin Huang with JPMorgan.

Just a follow-up more [indiscernible] PEO. I'm just curious if you're doing anything differently to spur growth versus plan at the beginning of the year is a lot of talk about health care costs being higher and perhaps SMBs are looking to trade down. Curious if you're seeing any of that if you're responding to it.

Sure. Happy to comment on that. And the general value proposition of the PEO as Mark mentioned, and you know as well, I'm incredibly close to this business, certainly been watching that value proposition over decades. And I can confidently say it's as strong as it's ever been. The complexity of the employer in that space, dealing with whether it's, as you mentioned, health care and the complexity of offering those type of things to your employees. It's very difficult. The PEO fits into that value proposition for those employers. I think the other piece is just the basics of co-employment and what employers are looking to do in that shared liability.

So what are we doing to respond to what is arguably an increasingly complex landscape for those small- to medium-sized businesses. We're investing. So we're investing in our sellers. We're investing in their ecosystem. We talked a lot at Investor Day about the tools that we're developing to serve up the right leads to the right sellers at the right time. As Peter mentioned, a big piece of our value proposition inside of ADP is that ability to mine our own base, and we're getting smarter about that. And so investments into tools, technology to figure out who the exact right fit is for that PEO investment into things such as sales incentive head count. So I can tell you from a go-to-market perspective, not a shortage of focus. The team is laser-focused and building on the healthy pipelines, the momentum. We see that certainly in the solid results in PEO bookings in the second quarter. But we also see it when we look into the healthy activities, RFPs, things of that nature. There's a lot of lot of motion in that space, and we're definitely positioned to take advantage of it.

Great [indiscernible] confidence there. Very important. Just on the margin cadence, Peter, I think you talked about this last quarter about it being more back half weighted. It looked like 2Q was a little bit better than what we had modeled, including the higher float from the higher balances. So 3Q to 4Q. Any callouts in terms of debt function change? And have you changed your investment approach given the higher flow? It sounds like maybe you're investing a little bit more or maybe I just reading it. .

Yes. Yes, Tien-Tsin. The second quarter, I think, came in a little higher than we were anticipating as well. We were pleased with that from a margin perspective. The margin cadence point is sort of really 2 things. As I said, we are expecting continued margin delivery in the second half, a little higher than the first half. The main driver of second half versus first half is we still had in Q1, as you remember, the fourth quarter before the anniversary of the Workforce software acquisition. So we had some acquisition-related drag in the first quarter. Second quarter came in strongly. We're expecting good results in both Q3 and Q4.

The main difference, I think, in Q3 versus Q4 is a little bit of timing of expenses, but that sort of happens from time to time. I wouldn't overemphasize that. The other piece though is the float portfolio, which I think is where you're going. So the float portfolio in Q3 being calendar Q1 is our highest balance period, where we -- bonus season, we have tax rate, tax limits resetting. So we have more float basically in Q1, which results in more overnight balances. And this year versus last year, as you know, we had a 75 basis point reduction in Fed funds between the same period last year and this year. So that creates a little bit of margin pressure in Q3 over Q3 last year relative, we don't really have that in Q4. So we're expecting a little bit more of this. The underlying margin expansion continues, I think, a really good momentum, but that float element as well as a little bit some timing of expenses, we're expecting Q3 not to be quite as strong as the fourth quarter.

Our next question comes from Scott Wurtzel with Wolf Research.

Just wondering if you can talk a little bit more about the overall bookings environment. Just wondering how -- if you can characterize how growth in book sort of trending in 2Q relative to 1Q and even in the context, if we go back to sort of the end of last year and some of the slowdown that we saw maybe on sales cycles, wondering how all of that is sort of trending now relative to 6 to 9 months ago? .

Yes. Sure, Scott. So I think with respect to overall environment, as mentioned during the prepared remarks, the environment is stable. I will tell you that from a new business perspective, we were really pleased with the solid performance in Q2. I think the thing that stands out to me the most with respect to Q2 is that it was broad-based. And so every single business contributed to that growth narrative. Some of the highlights we mentioned during the prepared remarks, certainly, we saw in the enterprise space, just how Lyric is resonating. It's really an incredible story for us.

So really excited about the momentum in the enterprise space. Excited to see that across appliance solutions as well. I think within the small business portfolio, we continue to see strength in retirement services in insurance and mid-market also contributed to the growth. And as mentioned earlier, we had good PEO bookings, although that's not in the employer services number. So I think just broadly speaking, the quarter felt solid, and we were excited about the broad-based results that really were reflected in that. I think with respect to kind of intra-quarter type of stuff, I don't know that there's a lot to glean from kind of what happened to 3 months. I think what I would rest on is that we feel solid about the performance. It was broad-based and that the pipelines are healthy as we step into the back half. But as always, we have a lot to get done in the back half.

That makes sense. And then just a follow-up. I hate to ask the question on AI impacts on hiring. But just in the context of even over the last 24, 48 hours, seeing some incremental announcements enterprises around layoffs and siting AI. I'm just wondering if you have any updated views on that topic and impacts that AI could be having on the broader labor market.

Yes. Thanks, Scott. I'll take that one. We've seen the headlines too. I think more of the headlines I've seen actually have been more about sort of corporate realignment following a big hiring period post pandemic. But in terms of the data we look at, we look at it obviously very closely. We look at it by industry about 10 or 12 industry groups. We're not really seeing anything discernible there.

I mean you look at the labor market situation, certainly, there's the hiring levels are muted job openings are relatively muted. We've been talking about that now for some quarters on this call. What we've also been talking about though and what we still continue to see is continuing reductions in the level of overall layoffs going on in the job market and certainly lower layoffs and our -- across the industry groups, we see a lot of consistency, if you like, in terms of where they're going and sort of areas that potentially you may think of as being more subject to being at risk with AI. We're not actually seeing it in those industry verticals. So things like financial services, things like professional services, tech and so on, we're actually seeing reasonably healthy growth. So it's hard to say, but the day of the empirical data does not really point to that happening at this point in time. the future obviously is yet to be determined.

Our next question comes from Bryan Bergin with TD Cowen.

I wanted to follow up on the international ES and compare that to U.S. So summary, I sense the incremental international focus here in your commentary, the investments you've been making there. Can you just give us a sense on how that's translating to potentially relative revenue and bookings growth of that international ES base relative to US ES?

Yes. I'll take the revenue point, Brian, and then Maria may want to comment more generally. But in terms of the revenue mix, it's not really changing. I mean, again, with the international space, the bookings that we're talking about and for example, the 75,000 employee European bank. Those things take quite some time to come through to revenue generation, their large sort of enterprise implementation projects. So in terms of bookings performance, whether it's this quarter or in recent quarters, versus having an influence, if you like, on the overall mix, not really it's -- the mix has sort of been consistent for for some time. I think the international business, as Maria said earlier, is certainly making good contributions, and we see a great growth opportunity there, but that's more over the medium and longer term than necessarily short-term influencing the revenue mix.

Yes. I think, Brian, if I may just add from a bookings perspective, the focus across the entire enterprise space inclusive of the large multinationals. So if you think of that global enterprise space kind of as large companies that are incredibly complex, that are driving large transformations Undoubtedly, the performance we saw specifically in the second quarter with respect to the enterprise space in International or Lyric and our global payroll offers were a larger contributor to the bookings narrative and perhaps in previous. But again, both of those spaces can be a bit lumpy. So to Peter's point, I think it's relatively consistent. We have high hopes and lots of investment and focus as we continue to uniquely put together global payroll, Global time, global HR and global service into a unique offer in the market.

Okay. That's helpful. And my follow-up on ES PPC. So can you just comment on the pickup here. I'm curious if that was broad-based or there were select contributors of that performance across certain client sizes. And as you just thought about the full year, still roughly a flat outlook. I know last quarter you said you're rounding down to 0 here, you're accounting up to 1. But just curious how you thought about the second half, just given that pickup of trend.

Yes, it's a good question, Brian. I think in terms of, like I was saying earlier, I think from an industry group contribution, very consistent also across the segments, our segments of the small market. small business market, the mid-market and the enterprise space. What we do not really see is what the wider economy is seeing, which is set out in the down market. Again, our base has tend to prove proved to be more resilient, if you like, I think, over the years with respect to hiring than the wider small business segment.

So it's really a pretty broad-based contribution, whether it's from industry groups, whether it's from the segment sizes. In terms of the outlook, we had quite a lot of discussion about it. It's not an easy 1 to predict because we're really talking about -- we're very confident, I think, that we will continue to see growth. It's a question of, is that growth just above or just below the 0.5% mark. So we decided not to adjust our guidance. I think we need to to see a little bit more, as I've sort of mentioned, we're talking about the tens of basis points above or 1 or 2 sort of below the 0.5 point mark. So it's very consistent. You can extrapolate, I think, sort of the the ADP NER and the BLS apply your usual sort of ADP factor to that, and that's exactly what we're seeing. So I think the back half, we'll see where it comes in and where it rounds to. But at the moment, it certainly looks very much like it's in and around what we have seen in the first and second quarters.

Our next question comes from Ramsey Elisa with Cantor Fitzgerald.

I wanted to follow-up on Tien-Tsin's question before on margin I mean, there seems to be a few more moving parts in terms of the flow-through in the second half. And given Q4 is typically a lower margin quarter for you guys. I just was wondering if you could speak to your confidence level about getting to where you need to get to deeper in the year? And just also whether there are any sort of underappreciated levers you might have access to to help things along.

Rami, yes, thanks for the question. I think it's really what I did say to Tien-Tsin, we delivered 80 basis points this quarter. We're not guiding sort of by quarters, obviously, but we're expecting sort of similar strong underlying margin contribution across the remaining 2 quarters. There is that dynamic on the short portfolio, which you can pretty easily, I think, extrapolate from our from our filings and our press release, we give the sort of the rates by quarter and the balances by -- between the portfolios in our press release.

So there is clearly about a 75 basis point reduction on the yield of that short portfolio in Q3 versus last year. The other 2 portfolios continue as they are. So -- and more importantly, I think the in terms of the true underlying margin expansion from revenue growth and diligent cost management. That continues and they also obviously continue, particularly cost management continues to be a lever for us. So I think we are -- we reiterated our range. We do that confidently in terms of our margin expansion range, and we don't necessarily anticipate any headwinds in the in the back half of the year, absent the sort of the dynamics I've already spoken about with respect to margin expansion.

Okay. Got it. And a quick follow-up for me. Could you comment on the pricing environment right now? How does it feel in terms of your ability to deploy pricing? And maybe what contribution are you expecting from that in your numbers?

Sure. No, I think the environment, again, is very consistent with what it has been. We feel similarly confident with respect to our ability to price. Our pricing across our 1.1 million clients, we don't just have a date in the year where we apply a price increase across the base.

It's feathered in. So we're halfway through the year already. I think our pricing has been very thoughtful as always and generally well received as these things go. And again, we're not expecting any anything to deviate from what we've said before, which is around 100 basis points of contribution from price in in fiscal '26, which is a little lower, not a huge amount of difference, but a little lower than what we had in fiscal '25 and a little higher than sort of what we were doing pre-pandemic, which was more in the 0.5 point range.

Our next question comes from Ashish Sabadra with RBC Capital Markets.

You talked about a lower revenue per client. I was just wondering if you have seen anything on that front in terms of the number of products that are opted by your clients?

Ashish, I apologize, we missed the first word, who spoke about a lower revenue per client? .

[indiscernible] that talked about a lower revenue per client. So I was wondering if you have seen anything on that front or in terms of like just the number of products that are adopted by your clients?

Yes. No, fair enough. I'm happy to comment on that with respect to, I believe the reference that they made was at point of sale, lower attach rates, perhaps is the way that we would think about it or a a lower number of employees. We haven't seen any of those trends. We monitor that closely, especially this time of year as we're looking at tremendous volumes, and we haven't seen anything that would lead us to believe that there's a lower revenue per client or per client employee, if you will.

No. And just to follow on to that, some of our strongest bookings performers have actually been our retirement and insurance services in that down market space. So if anything, I think we're perhaps seeing the reverse of what you're referring to. .

That's very helpful color. And maybe just another follow-up question on PEO. When we think about the bookings came in modestly below expectation? Are there any particular regions or verticals where you have seen any particular softness or in terms of, again, attach rate or employee penetration? Have you seen any color on those fronts?

I would say with respect to the strongest fit across the PEO markets, whether that's some of the states that have more concentration of PEOs, they continue to perform well in terms of those markets. But again, the performance is broad-based, if you will, across various industries. Certainly, the usual suspects of industries continue to fare well in terms of the strongest fits across PEO, whether that's the likes of property management, professional services, we kind of fit into that white collar end of the PEO, maybe perhaps slightly blue collars.

So I think all of that feels normal as it relates to the overall offer. I think the other piece that I heard a question in there and perhaps you weren't referring to it, but I'll take the moment just comment on it because it is such a big contributor to the value proposition of the PEO which is the health benefits piece and what are we seeing with respect to participation at the client employee level. And what I would tell you is participation across health insurance and health offers across our PEO are healthy and remain strong, which, to me, is a direct reflection of the strength of the value proposition of that offer in the market.

And congrats on strong momentum in employee services.

Our next question comes from Kartik Mehta with Northcoast Research.

Maybe just on PEO. In the last 12 months, have you seen a change in the type of client that is asking for PO in terms of are the clients larger or smaller or the type of industry? Any noticeable difference?

No, no noticeable difference. I think the momentum across what is our strongest fit, if you will. So the PEOs that we look -- or the PEO opportunities that we look to bring into our PEO remains really consistent. I think that's a big piece of the strength of ADP and ADP TotalSource and our offer is that we're incredibly guardrailed as well as strategic in terms of the clients that we target inside of the ADP base, who we want to be in that PEO.

And I would say that it's largely consistent across the last couple of decades, both with respect to size as well as respect to industry. Over time, we have pulled up a little bit in average size over the last couple of decades. Part of that is the PEO does have our best-in-class offer in the mid-market. So if you imagine the PEO sitting on Workforce Now, that stretches it into a little bit perhaps beyond just the small businesses. But again, that's relatively consistent over the decades we've been in the business.

And Peter, just a question on AI. I know you talked a little bit about AI and maybe impact of employment for your clients. I'm wondering for ADP, I think you've implemented AI. I think you've had success on the sales side. Just a 2-part question. Has that changed the number of people that may be salespeople you need or made them more productive, so changes and maybe the number of hires. And is the success of allowing you to increase investment or 1 leading you to increase investment in that?

Thanks for the question, Kartik. In terms of the headcount, no, we have not sort of taken a different approach to our headcount. We remain committed to growing sales head count we have seen over decades the contribution that, that can make. What it has done to your point is it's enabled our sellers to be more -- both more efficient and I think also more effective. I would still say we're in the relatively early innings in terms of taking dividends, if you like, from these investments and and really seeing sort of the lift we expect to get from this over the coming years. But it's less about, okay, a shift change in how we approach investing in the sales force or sort of where we expect sales to come from really it's a way that we are looking to make our salespeople more effective, more efficient and ultimately deliver more wins. But I think you should expect us to continue to invest in both head count and tools, be the AI and also other tools. We've spoken about the zone, which obviously is AI infused but it's also a platform our sellers use. All of those things, we will continue to invest in to maximize our opportunity to be successful on the sales front.

Our next question comes from Dan Jester with BMO Capital Markets.

So maybe on Lyric, it sounded like you sold a couple of quite large deals this quarter that you mentioned in the prepared remarks. Maybe can you share a little bit of color about how maybe you won those deals or how they came together. And as you think about the larger part of the opportunity in the enterprise for Lyric, do you have critical mass now in terms of reference customers? And are deals like this, should we be seeing more frequently? Or maybe just any more color about the upmarket momentum [indiscernible].

No. Thank you, Dan. I'm so glad you asked. This is 1 of my favorite stories coming out of Q2 is the strength that we see in [indiscernible] new business bookings, really excited about those 2 specific deals as they do represent 2 of the largest. Do we anticipate and want to see more of them? Of course, we do. That's everything that we've been building towards. So that is part of our goal and our expectation. I think the part that, again, also was a standout is that when you look across the pipeline, you look across the wins with Lyric, 70% of those are new logos. That's a direct correlation to how this product is resonating with CHROs, with the market at large. It's being cited, not just the awards we're winning but by the buyers. So how do these deals come together. They come together because CHROs today are looking for flexibility and their products.

They're looking for dynamic tools. They're looking for products that have AI built in the fabric and in the core, not after and attached. So it is an AI-centric human-centric platform that we built with really that worker at the center. That's unique. It's different. That's how these deals are coming together. That's how the pipeline is coming together.

So you probably hear it in my voice, but yes, we're very excited to see this, and we are building critical mass. Now again, I think Peter mentioned earlier on the international, same thing on these deals. These are large deals. They will take some time to onboard to get to huge revenue contribution, but definitely material bookings contribution from Lyric at this time.

Okay. That's great. And then -- maybe just to go back to your prepared remarks on the customer feedback, it sounds like extremely strong, some of the highest you've seen I guess I'd love you to compare and contrast that with sort of the retention commentary that it just kind of came in line with your expectations. So if your customers really love the product and retention is coming in line, about sort of what's impacting the market in terms of exogenous factors from the macro or the competitive environment sort of anything you'd share on retention [indiscernible]

Yes, sure. So I'll start with the client satisfaction because it's another highlight. It was a record quarter. It's a record first 6 months. I hope we always have a record because that means that the efforts that we have to improve the experience that our clients have engaging with us, the investments we're making in those tools Peter mentioned the zone.

That's true for sales. We're also investing tremendously into AI tools for our internal associates as well as into our products to make our clients more productive and our practitioners, whether it's ours or our clients in the HCM field, be able to navigate this space even better. So the investments into product, the investments into the tools I'd like to believe that NPS improvements that we continue to make. And by the way, they're broad-based. I think that's the other piece that stands out to me from a structural perspective. So really excited about that. And as mentioned, it is a direct connection to retention. We do have strength in retention.

That said, it was in line with our expectation, and that expectation is really how we set out the plan for the year. And Peter can comment on this as well. But we do anticipate this year a bit of a moderation. So it's hard to believe that it's 6 years later, and I'm still sitting here talking about pre-pandemic out of business rates. Are we back to fiscal '19 or not? And I would tell you, we're almost there, but we are planning for even in the back half of the year, a bit of moderation as it relates to things like out of business. We did see a tiny bit of that contribute to the slight decline, if you will, in in the second quarter. It's right in line with how we're planning, but it's not a byproduct necessarily of the tremendous efforts that we continue to make on client satisfaction and more a byproduct of how we really structured the plan for this. I don't know if you have anything to add to that, Peter.

Yes. No, I think that's well said. I mean the -- again, our reported retention rate last year [indiscernible] in the U.S. was 92.1%. So you can do the math, obviously, on a [indiscernible] plus business, but 10 to 30 basis points is actually a pretty small movement, if you like, that we are anticipating.

As we said, we -- our second quarter came in more or less where we were expecting. The first quarter was slightly better than what we were expecting. We'll see where the back half goes. It's more a back half story, particularly Q3 is the most definitive period. So I think we are we are just anticipating to your point a little bit maybe more on the macro side.

But again, very small margins, a very small uptick in as Maria said, or normalization of out of business levels in the small business segment. But all of this is very much on the margins, given we're only talking about 10 to 30 basis points against the very high retention rate to start with in a very large business.

Our next question comes from Bryan Keane with Citi.

Just had a follow-up on PEO, Peter, maybe you could help me understand the first quarter revenue ex pass-throughs grew at 6% this quarter at 3%. That's a pretty big move for bigger move than usual, we see between first and second quarter or just in the cadence of quarters is the 300 basis point delta there, maybe you could help us some of the drivers there. It sounds like maybe some of that is the softer bookings, but I didn't know if there's other things at play there.

Yes, Brian. So if you take the routing, it's actually a little less. We had some rounding up and down and what have you. But still, it is a bit of a differential. There's a few factors there, one is the slightly softer worksite employees we were talking about earlier, which came from -- again, from a solid but slightly below our expectations, bookings performance some moderation in pace per control. The second factor is, you may recall, Q2 last year, we had a bunch of pull forward in SUI revenues that we would not -- last year, we were anticipating in the third quarter, we pulled forward just due to the way the processing calendar worked into the second quarter.

We did not have that this year. So there was a bit of a grow over challenge or challenging compare, if you like, from a revenue growth perspective as a result of that. And then the third factor we saw was which, again, all going in the same direction, hence, the the differential that you're referring to was wage growth. We saw a little bit less wage growth in the PEO in the second quarter. Again, this happens from time to time. I wouldn't necessarily grow a trend that employers in that space are looking to put through lower wage increases. If anything, the third quarter is more a quarter where -- our third quarter being this current first calendar quarter is more when you see sort of wage rate changes, if you like, for worksite employees. But just due to movements in the base clients moving out, other clients moving in and the timing of that, we saw a little bit less in terms of the payroll base or the wage growth levels in the PEO. So a bit of a step off from Q1. I would acknowledge that. I think though we are still positive with respect to the outlook for the year, and that's why I reiterated if you like, by the fact we did not change our guidance either with or without 0 margin pass-throughs.

Yes, I was going to ask about the guidance. I think you did reiterate the 3% to 5% ex the pass-throughs. Should we be on the lower end of the range more just given the trends or not necessarily for the back half of the year?

Yes, I would say not necessarily, but we don't guide on the quarters, obviously, but there's a lot to be done again this we're in sort of prime selling season now. Retention is a little bit more of the fourth quarter, please. So much more of a back half story than front half. So it's hard to sort of give clear guidance, I guess, as to where in the range we think we will finish.

We are confident about being to land in the range. But I would say at the moment, the range is there because all possibilities still exist and will depend on largely bookings and pays per control and to some degree, retention.

Our next question comes from Dan Dolev with Mizuho.

Really nice results. I think Maria, you mentioned in the beginning, you're very proud of the cash flow Central partnership [indiscernible]. Can you maybe discuss a little bit of sort of the contribution, when should that become really material? And then I have a follow-up quick question.

Yes. Thanks, Dan. I appreciate the question. And the the nice comments about the quarter. I am really excited about our continued journey of the strategy of embedded offerings. So we've spent a lot of time talking about embedding run into other offerings. I think now I'm incredibly excited to talk about Fiserv's Cash flow Central being embedded into run. What this allows for is a small business owner to really leverage run powered by ADP as a one-stop shop platform where they have the ability to run payroll.

They have the ability to do bill-pay, APAR, they have the ability to pay contractors. They have the ability to pretty much pay everyone in 1 single platform. We believe in this ecosystem approach anytime you can come together with other technology to make it easier for a small business owner to navigate the work that they need to do is something that we're incredibly interested in and it's part and parcel to the embedded strategy, whether it's putting run into other ecosystems or leveraging other best-in-class offerings into our platforms. So really excited about it.

That said, though, we did just complete that integration in December. And so there's not a lot of contribution yet with respect to revenue and/or bookings. So that opportunity is largely in front of us, which also makes me incredibly excited as we continue down the journey of Embedded.

Great. And I do have like a little bit of a longer-term question. I think one of the key concerns, obviously, not ours, is sort of the long-term terminal value in sort of an AI-driven white collar job killing world, like software engineers, et cetera? Like I'm sure you guys are very -- I mean you've been around for decades. ADP has been around for decades. Like is there like -- are you guys working I'm sure internally about sort of the more like the 3- to 5-year outlook? How can ADP add value or how changing kind of the framework, if the AI thing does reduce long-term jobs? Just maybe some long-term comments would be great. .

Yes, absolutely. I'm happy to start. And then Peter, if you want to chime in kind of from a terminal value and things of that nature and things we may or may not be modeling. But I think maybe I'll start with the things that I think every day about, which is the -- some level like the beauty of this business, when I think about what it is that we do, which, as we've talked about at Investor Day, and we continue to see each and every day, what we do is not discretionary.

What we do is an imperative, paying people on time and accurately. It's not just a brand promise, it's candidly how the whole world goes around. So I think deeply about what does that look like in the future? You said it well, which is ADP has navigated many of these innovation cycles. We've been around for 76 years. If you think about how payroll was processed, 76 years ago to where it's processed today, a lot has changed. Work has changed, workflow has changed. I spent the last week over in the -- at the World Economic Forum. And as I walked up and down the promenade, this concept of AI changing workflow and augmenting the workplace as it automates tasks that is real, and that is happening, and we see that.

We see that in our business. We see that in our clients' business, but we also see that it has to be still anchored to, call it, human centricity, the world of work is a human place. What we do is probably the most emotional part of humanity, which is connecting people to their purpose connecting people to their work. By the way, the way to test that is if you ever want to really upset somebody, get their payroll wrong or get something with respect to benefits wrong. And so what we do will continue to evolve. And I think we're right there with it. That's why we're really excited about the work that we're doing across each of the domain disciplines of HCM with respect to AI.

I talked about it in the prepared remarks, having ADP assist agents and payroll in tax, in benefits and in all of these different areas will continue to change how work happens, whether that's for us or our practitioners. But at the end of it, -- the other thing I think a lot about, whether it's this last week during the snowstorm or perhaps the 23rd of December, when one of the largest global clients in the world had a challenge with payroll on their end.

Do I see a world where a bunch of humanoid are going to be sleeping in offices to get payroll done and navigating things to ensure that people get paid accurately and on time without people involved. Candidly, I can't see it. So I think workflow is changing. Yes, are we prepared to continue to innovate in that space. That is exactly what we're doing, but I also believe what we're doing and what many companies do outside of ADP is anchored in humans. And so only time will tell truly what the future holds, but we are navigating this innovation cycle at a rapid clip, no different than all the other ones that ADP has has navigated.

This concludes our question-and-answer portion for today. I'm pleased to hand the program over to Maria Black for closing remarks.

Well, funny enough, I think those probably serve as a pretty good closing remarks. I will only add 1 piece, which is exactly where I started, which is thanking our associates because it is our associates that are innovating. It is our associates that are showing up for our clients, whether that's at the holidays to get things done or it's weathering snowstorms to get things done. .

I'm really proud of the work that we're doing. It's a direct reflection of how we get recognized by companies like Fortune for 20 years in a row as a most admired companies. I am in all of the ADP spirits and how human the work that we do and how it shows up, and I'm really proud of that. And I just want to -- one can acknowledge our associates and thank everyone for their interest.

Thank you for your participation. This does conclude the program. You may now disconnect. Everyone, have a great day.

We're running about 8 minutes late right now, so we want to go right into the next one without -- trying to get back on track as best as we can. Thank you. Oh, they put up a chair faster than I expected.

So thank you very much to everybody for joining us today. I'm here at the Nasdaq Morgan Stanley Conference. Very pleased to have the senior management from ADP, Maria Black, CEO. Nice to see you.

Nice to see you.

And Peter Hadley, CFO.

So maybe I'll start, Maria, and we'll just kick things off really quickly and start at 30,000 feet. ADP, you guys hosted an Investor Day back in June. Can you highlight for the audience kind of the key messages from that event?

You bet. And happy to be here. Thank you again for having us. Great to be back in London, and great to be back at the Nasdaq Conference. So it seems like a lifetime ago but it was just June 12, we had the opportunity to host an Investor Day in Chelsea, New York at our innovation lab. It was a great opportunity for us to showcase the breadth and depth and strength of ADP.

So I'll frame it up kind of in three buckets. I think the first thing that we really emphasized is the scale and dependability of exactly who ADP is. So as you know, we are a company -- we're 76 years old, very proud of that. We've been through many economic cycles and innovation cycles. Our scale is broad and it is deep. We serve clients in human capital management from one employee all the way to the likes of companies that are processing a million paychecks on a given pay date and also across the world. So we serve 140 countries.

So we've been through a lot as we've navigated the world of work and really set in motion this industry. And the scale that, that affords, the ability to lean into that in this type of a time and also certainly weather a lot of innovation cycles, economic cycles is certainly a strength of ADPs. So we were highlighting the scale of who we are. We were also highlighting the scale of the market opportunity, $180 billion of TAM that we are chasing. And with $20 billion or so, which was our reported number last year at the end of the fiscal year, we see a tremendous runway still ahead of us in this incredibly dynamic shifting world of work. So that was kind of the first piece that we emphasized.

I think the second piece was appropriate given we were in our innovation lab in Chelsea, New York. We do have labs all across the world that are building our products and innovating and building our next-gen solutions and offers. And so we had a chance to showcase a lot of this, emphasizing certainly the best-in-class platforms we do have across the entire breadth that I just shared in terms of from the very small businesses to the mid-market, to the beyond payroll offers of HR outsourcing to, ultimately, the enterprise space and then the complex global multinational space.

So we have new offers and new platforms in each one of these areas. And we had a chance to share that with our analysts and our investors at our innovation lab that actually helped build a lot of this. So I think the vibe of innovation was all around us, and we were really proud to share the journey we've been on. Meaningful steps we took last year. We launched ADP Lyric as an offer. We also have expanded the reach of our Workforce Now and Next Gen. And again, these are meaningful steps for us in our innovation journey.

I think the last piece I'll comment on because it's how it all comes together in terms of being able to chase this incredible $180 billion TAM with these best-in-class innovative products, it really comes down to distribution. So we had a chance to share a lot of the work that we've been doing specifically in the ecosystem of distribution. So again, because we're meeting all sorts of clients across many of these various places and segments, the key is being able to, at every single turn, have a modern sales force meeting a modern buyer with modern leadership. We make tremendous investments into our distribution. That's inclusive of that organization, which is 8,500 sellers that meet our clients.

But it's also about the ecosystem around them. We distribute through channels in the down market. That looks like CPAs, banks, ecosystems through embedded payroll. In the mid-market, we're meeting clients with brokers and some system integrators that takes us into the enterprise space. All of those things are how we invest into our distribution, inclusive of a best-in-class tech stack. So we had a chance to showcase the innovative work we've done and what we call the Zone, which is where our seller athletes show up to live in the Zone and execute the great opportunity that we have at hand and the market that we represent as the leader with these best-in-class products that we've been innovating for many, many decades.

And we're very proud to share all of that. I could go on and on, but I know we're a bit behind and short for time. So I'll stop there. But it was a tremendous day, one of my highlights as CEO over the last 3 years.

Yes, for sure. And I think from the investment community perspective, there was a lot that was definitely eye-opening from that day and some of the things that I want to dig into from that as well as things that have transpired since that time.

A few things, and we'll hit on some key ones, but one thing I know that has been top of mind for investors is just from a macro perspective. And ADP is now sharing its latest data on the employment market through its new NER Pulse publication. Can you talk about what you're seeing in the labor market today and maybe what your expectations are? And how concerned are you that AI may be reducing overall employment levels?

Sure. It is topic du jour. We spent some time in Germany last week, Scotland earlier as well as obviously been doing a lot of meetings, and it seems to be the question of the entire market, that is our investors. And so I think it's an appropriate discussion.

And maybe perhaps I can start and comment on the work that we are doing with respect to the ADP Research and the National Employment Report that we do monthly, coupled now with this new national employment pulse. And maybe, Peter, you can talk about what we're seeing inside of our base because while they're similar in that structurally the data starting point is from the same information, which is ADP's 42 million wage earners that we pay across the world, the data is really based upon these 26 million wage earners in the U.S. and the subset in there of 14 million wage earners that we have an ability to track, call it, over time even as they jump around from job to job because we pay 1/6 wage earners.

So that's kind of the foundation and starting point. Peter will speak to what we see in our base. But with respect to the research that we put out to the world of work through the ADP Research Group in partnership with Stanford Institute, it is about giving the world of work and employers, bankers, the capital markets, the government the information that we believe belongs to the world in terms of what is happening. And that 26 million wage earners, Stanford Institute kind of takes that and extrapolates that out to represent the broader market to really get this understanding of what's happening.

Last week was the week of the monthly report. So it did suggest that there was a minus 32,000 jobs. It's a very complex environment. That's why everyone is asking this question. You really have to double click, triple click, look underneath that to see what's happening. And what's neat about the monthly report is it does just that. So for those of you that are interested, I'd highly encourage you to go on to the site and look. And what you'd see is there are some implications. And the down market seems to be moderating a bit, small business on the macro side seems to be moderating a bit, wages are actually holding strong. So while I think there was 10 bps movement in wage growth, it's still really elevated. So you have to kind of look underneath sectors and industries. There seems to be some pressure in leisure and hospitality.

Again, the question is, is that AI? Or is that potentially just mean reversion of growth that's happened before? And that is the question, how much of this is potentially disintermediated. Stanford has done some research using some of our data. And I think they've seen some early, early indications of certain age cohorts and potentially certain jobs, think customer service, software development, where there might seem to be some early signs with respect to AI.

What I would suggest to you is it's still very much early days. And when we look at across broadly speaking, is it really about AI and, call it, the disintermediation of roles and jobs? Or is it that coupled with other things that are still washing through such as the mean reversion post the great resignation and the great stay. And I think while that's the macro story that we contribute to, and now we're even producing a National Employment Report Pulse, the NER Pulse weekly, it comes out today so that all of you can follow along in the arc of employment. So if things were to start to broadly change, I think we'd be the first to start seeing it.

But as it relates to ADP specifically, our results and our base and the measure that we utilize called pays per control, which is our same-store measure, maybe, Peter, you can comment on what we're kind of seeing at ADP.

Yes, absolutely. Thank you, Maria. Within our base, so our base is the starting point, if you like, as Maria alluded to, for the National Employment Report. But there is much extrapolation that our economists and the Stanford economists do on that in order to get to that macro view. What we see in our base, and we've seen this over many years, not a recent phenomenon, is our base tends to be more resilient with respect to maintaining and growing employment levels than what you see in the wider numbers, whether they're from the ADP Research Institute or the BLS or whoever.

So what we're seeing at the moment is actually, conversely to maybe some of the headlines, is sort of multiyear lows in terms of layoffs of workers within our client base. We're also seeing relatively muted but still growing employment. So we adjusted our guidance to the lower end of our range being about flat. But certainly, we're in a position where we're rounding down, if you like, to that 0 same-store metric type organic employment growth on our clients' books.

And you may wonder, okay, why has the base performed a little differently to the macro economy? Because as Maria said, we do have 26 million workers, 1 in 6 U.S. paid workers paid by ADP. I think it's due particularly probably in the down market in the small business segment. Companies who invest in our solutions, our services, be it payroll, be it time and attendance, HR, workers' comp, medical benefits, retirement planning solutions, and this is more an anecdotal comment, but I think proved to be more resilient than the line average of companies that may start up. And they may start up, see how they do for 3 months, 6 months, 9 months and perhaps either don't continue or adjust their expectations before they make the type of investments that we're talking about.

So we do typically see -- and I think it's important when you're looking at ADP against the macro data to understand a little bit, I think, that bridge. We continue to expect a fairly stable environment in terms of relatively low hiring compared to previous years, also relatively low layoffs at least for the time being and, as Maria was saying, continued resilient wage growth, which is important for us. It's a driver of both our client fund interest revenue as well as our PEO revenue, which we bill on a percentage of payroll basis.

Got it. So that's a little bit of the macro commentary. I want to take that to talk for a minute about some of the specific objectives that you've set for the business for this year. And let's start on HCM, human capital management. Can you comment a little bit on the state of demand in HCM across your various business segments? And love to hear what kind of is inspiring the confidence in the ability that you're targeting to deliver on the 4% to 7% ES new bookings growth outlook for this year.

Sure. Happy to comment on demand. So I think broadly speaking, demand feels stable. The pipelines feel healthy. When I speak to pipelines, it does kind of vary with respect to small business all the way to enterprise. And the small business, it's less about pipelines, it's more about activity, number of appointments, the general energy that's happening in the marketplace. And I think that feels largely stable with respect to what we've seen over the last year. It doesn't feel like anything's changed.

And certainly in the mid-market and upmarket, you get into being able to actually watch pipelines. And again, pipelines are healthy, I'd argue that perhaps year-on-year healthier. I think, overall, it feels like a very stable situation on the demand front.

So what gives us that confidence to accelerate to 4% to 7% guidance that we have for bookings this year, some of it is, broadly speaking, demand feels solid, pipelines feel healthy. What I would offer to you is we feel really confident in our innovation journey and the products that we have and how they're resonating in the marketplace. I spoke to some of them earlier, these best-in-class platforms.

We had an incredible launch of our Lyric products, but we also had the Workforce Software acquisition last year that's now being married to our Lyric offer. And as we take that reach and extend it into our global space, we have this ability to have global payroll, global time, global HR and global service. That's unique to ADP. That's a competitive, differentiated offer that we feel really confident in.

And so if you think about all of that -- by the way, we haven't even talked about overarching AI as we're infusing AI into each one of these best-in-class offerings. And so we feel great about our products. We feel great about our distribution. I spoke to that already. We have an incredible sales force and ecosystem that is excited to overall execute on this opportunity at hand. And I think last but not least, we did see acceleration in the first quarter.

And so I think all of those things kind of married together in a, broadly speaking, solid environment with healthy pipelines, an incredible product offering, the best HCM distribution that exists and the momentum of seeing some acceleration in the first quarter, I think, broadly speaking, we feel very confident in our ability to get to that 4% to 7% target.

Got it. So let's also talk about PEO. It's another area where you're looking for at least a medium-term acceleration. And you've set an objective there of 6% to 8%, which is a little bit above the 5% to 7% you're looking at for fiscal year '26.

Can you talk about why PEO growth, you're expecting it to be a bit slower this year and how you're thinking about accelerating that over the next few years? And I guess, is your PEO experiencing any impact from the continued rapid increase in health care costs?

Yes. Do you want to take the first part? And I'm happy to talk about insurance.

Yes, I think in terms of the current year guide, I mean, I think for the most part, we're well and truly still within the medium-term guide. I think the employment outlook is obviously a little bit more uncertainty over a period of 12 months than our sort of status quo type assumption on our midterm financial objectives range. But we reported 7% growth in the PEO for the first quarter revenues. I think the employment situation stands up well.

The PEO, for those who are not familiar, also is a little bit narrow in terms of industry verticals that we cover in the PEO than what we do in Employer Services, tends to perform and is performing a little better from a same-store employment growth metric perspective than what Employer Services is. So we'll see where the rest of the year takes us. The PEO is very much a back end of the fiscal year type seasonality to it in terms of both bookings and retention. So I think we have some time to go, but we're feeling good about the revenue profile of the PEO.

In terms of any impact that we see from the health care environment, of course, right? It's a tricky time in the United States. It has been for a long time as we navigate health insurance and the implications, specifically to the workers but, moreover, to the employers as they are the ones that effectuate the offer of health care to their employees. We've been for decades now solving this for the target market of the PEO.

So those small to medium-sized businesses that are trying to navigate all of this complexity, the PEO is an incredible offer to help them do just that and, through the PEO, the ability to offer the Fortune 500 style of benefits in terms of number of plans, offers and multi-states and things that are very difficult for a small business to go and get on their own, they're able to get that through a PEO.

The way that we go about that is a bit unique in our industry, specifically as it relates to health insurance. We are in a fully insured environment. So what that means is we will feel all of these things as it relates to the health care inflation, as will our clients. But it will all be done in a fully insured model, which is a little bit more guardrail-ed to the ups and downs of this environment. That's not to suggest that we're immune. I think for us, where it shows up is more impact potentially on bookings and retention than it is necessarily on margin for those that have a different construct.

So we feel really solid about the way that we've been executing in kind of these times. They're not new times. It's been a difficult market in the U.S. for quite some time, but specifically the last 2 years on the heels of the pandemic as I think everybody made up for lost time with respect to health insurance type of services. And as such, it's been difficult health care inflations year-on-year. Our team has executed very well against that as it relates to both on the bookings side and the growth side of things as well as on retention side.

So we feel these things. I think we feel them indirectly. And through the great services that we offer, we help our clients navigate it. And oftentimes, that's inclusive of guiding them toward a place where whatever this increase may be, can be consumed and affordable to that employer.

Got it. So those were a couple of areas where we've had investors express questions just like, hey, what's behind the expectation for driving acceleration?

On the other hand, I want to touch on retention because this is an area where you've continually outperformed. There had been some expectation for normalization post-COVID. But to the extent we don't see an uptick in SMB bankruptcies, which has kind of been the underlying assumption, could that retention outlook proved to be conservative again for you?

Yes. And you used the word again. I think it's an appropriate word. It's proved to be conservative the last couple of years. We've outperformed. I think post pandemic, we're still not all the way normalized. We're almost normalized to where we were with out of business and bankruptcies pre-pandemic. But we're still not all the way normalized, which sometimes you wonder if perhaps the improvements are just structural. And I think that's the magical question.

But I think for us, as we think about kind of the outlook, we believe in our retention guide. We did see some moderation in the first quarter, specifically in SMB. We did still outperform our expectations from a retention. And so our goal is, of course, to continue to lean into all of the things that create retention upticks, which comes back to product innovation, innovations into making it easier for our clients to do business with us.

We are laser-focused on their experience. We do the measure of Net Promoter Score and so we're constantly talking about these record NPS results. We saw another record for a first quarter this past quarter. And the reason that this is so significant is it comes back to making these improvements structural. And so Net Promoter Score is a direct corollary to retention. And so as we think about the outlook, we believe the outlook is prudent. But at the same time, every effort on our end is to continue to structurally make improvements so that, ultimately, we outperform.

I would just -- sorry, just to quickly add to that. Our third fiscal quarter or the first calendar quarter of the year is sort of the biggest period for switching. So I think we'll see where we get through the next quarter in terms of the guide. But as Maria said, I think we believe in the retention guide at this point.

Got it. And here in the last few minutes, to wrap up, I want to go back to kind of where we started in the Investor Day back in June. In those presentations, it sounded like you've seen some pretty good adoption of some of your AI features in your products.

How are you planning to monetize your AI investments? And when should we anticipate showing AI-driven productivity gains, margin expansion, increased revenue? Like what should we be tracking as investors?

Yes. So I'll quickly comment because I know we're up on time here, and I'll let Peter talk about the monetization. We're really pleased. So we're sitting here 3-odd some years after kind of ChatGPT came about and really consumed every discussion and platform and strategic agenda. And so as we've infused AI into our product development, into our products, into our service implementation, into our go-to-market motion, that is what we showcased at Investor Day as we're consuming it in and absorbing it into, candidly, the fabric of who ADP is and everything that we do.

And we're really excited about the meaningful impact that we're making in our clients' workflow journeys, into their experience, into our go-to-market motion and productivity, which then begs the most important question which is, when will the returns come?

Well, I think the returns are already coming. I mean, in terms of monetization, there's sort of two ways to think about it. There is potentially add-on services or increased functionality that could result in an incremental revenue stream or a new line item on the invoice.

But I think, more predominantly, what we're doing, at least what we're working on at the moment is removing friction from existing elements of the process, services we've been providing to clients for many, many years. So the way I think about that is more about value-based pricing as opposed to, okay, now we're going to charge a little more because we have a better, more efficient process driven by AI, for example, to help resolve anomalies that come up in payroll processes than the previous sort of tools and services we used to use pre-AI in order to essentially surface the same thing.

So there is definitely value creation there because there is less investigative work that the practitioner needs to do in order to solve challenges. How we monetize that, I think we take a long-term view and certainly make sure we don't get out ahead of ourselves and over our skis on price increases. But to try to price for the value that we are creating, helps us retain our clients for longer, gives us the ability to sell more services to them over time. So it's a bit of a two-pronged approach.

Well, that's great. Maria, Peter, thank you so much for joining us today.

Thank you. Great to be here. Thank you very much.

Thank you, James. Thank you.

Appreciate it.

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 First Quarter 2026 Earnings Call. I would like to inform you that this conference is being recorded. [Operator Instructions]

I will now turn the conference over to Matt Keating, Vice President, Investor Relations. Please go ahead.

Thank you, Michelle, and welcome everyone to ADP's First Quarter Fiscal 2026 Earnings Call. Participating today are Maria Black, our President and CEO; and Peter Hadley, our CFO. Earlier this morning, we released our financial 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 also find the investor presentation that accompanies today's call. .

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 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 SEC 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, Matt, and thank you, everyone, for joining us. This morning, we reported solid first quarter results that included 7% revenue growth and 7% adjusted EPS growth. We achieved these financial results while also making meaningful progress across our strategic priorities. I will briefly review some additional highlights from our results before discussing our strategic progress. .

We delivered solid Employer Services new business bookings with growth accelerating from our fourth quarter last year, resulting in a record sales volume for our first quarter. Growth was healthy in our small business portfolio, which includes our retirement and insurance services businesses. We were also happy to see growth reaccelerate in our Employer Services HR Outsourcing Business after a softer finish to last year. Overall, HCM demand remained relatively stable, and we experienced specific strength in ADP Lyric HCM.

Our Employer Services retention rate continued to exceed our expectations and only declined slightly. Our overall client satisfaction score reached a new all-time high for a first quarter, reflecting improvements in each of our business units. Employer Services pays per control growth continued to moderate and rounded down to 0% for the first quarter with clients remaining cautious around adding head count in the current environment.

And last, our PEO revenue growth of 7% exceeded our expectations, helped by growth in 0-margin pass-throughs and higher wages. We are proud of our first quarter financial results and excited by the progress made across our 3 strategic business priorities. I will start with what we are doing to lead with best-in-class HCM technology. In the small business space, we continue to scale our embedded payroll solution. Embedded payroll saves small business owners time by bringing payroll directly into the software platforms they are already using to run their businesses. We are pleased with our early embedded payroll sales collaboration and look forward to adding more partners over time to further extend the reach of our small business distribution network.

We also continue to add functionality to our existing small business offerings. For example, earlier this month, we launched a benefits recommendation tool designed to help guide small business clients on the most suitable benefits options. Today, these recommendations cover group health and individual coverage health reimbursement arrangement or ICRA, and they will expand in the future to include our PEO.

Our insurance services business also recently launched a digital option that enables small businesses to purchase ICRA plans directly on our run platform through our partner, Sach. This opens up more choice for employees by allowing every team member to pick the plan that is right for them, health, dental, vision, all in one place. In the mid-market, we accelerated the deployment of Workforce Now NextGen. We reached an important milestone in the first quarter with more than 80% of our new mid-market clients in the 50 to 150 employee space were sold on this next-gen version of Workforce Now.

Moving forward, we will continue to extend the solution to larger mid-market prospects to enable them to also benefit from its modern tech stack and enhanced functionality. In the enterprise space, ADP Lyric HCM continues to experience strong momentum. Lyric's new business bookings exceeded our expectations for the first quarter and its new business pipeline continues to grow. Among the many enterprise clients that started on Lyric during the first quarter was a large travel management company. This client selected Lyric for its AI-driven automation and flexible architecture. They are using ADP for payroll HR time, benefits and talent in both the U.S. and Canada.

Highlighting its positive reception in the market, Lyric was recently recognized by HR executive as a top HR product of 2025 and honored at the HR Tech Conference in September. With respect to our Workforce software acquisition, we continue to make meaningful progress. By unifying workforce management, HR and payroll, we help our clients to gain better visibility, simplify their operations and lower overall costs. Our differentiated approach helped us win the time and attendance business of an existing payroll client in the student transportation business with thousands of employees.

And just this morning, we announced the acquisition of Pequity, an innovative compensation management software provider. This acquisition will broaden ADP's capabilities to support the complex compensation planning needs of our clients who are looking for insight-driven compensation solutions that help them make informed pay decisions. Underscoring our commitment to leading with best-in-class HCM technology, we also continue to advance our AI initiatives. We deliver purpose-built AI to solve real-world problems for HR teams. Our latest enhancements to ADP Assist use the power of generative AI to analyze and resolve things like payroll anomalies by automatically identifying inconsistencies or deviations in the data, analytics requests that can take days to fulfill and routine compliance tasks, which pull teams away from strategic work.

Utilization of ADP Assist is also increasing with more than 5.5 million client conversations over the last year. This helps reduce the need for clients to contact us as their questions are answered proactively within our products. As we look ahead, our vision for ADP Assist includes simple agents to handle everyday tasks advanced agents to execute multistep processes, autonomous agents to go further managing workflows from start to finish, being sure to keep humans in the loop where it matters.

What makes our approach different from others is the scale of the data we use to power our agents and how we train them to work together. A single action sets off the right follow-ups for employees, managers and HR practitioners. It is in these connections where the real value is produced. We have an opportunity to use AI, not just to speed up the client workflows, but rather fundamentally shift how work gets done. It's the difference between using AI to do things better and faster than before and using AI to do things better and faster than anyone else.

Our new AI capabilities empower our associates to deliver on our second strategic priority, providing clients with unmatched expertise and outsourcing solutions. These internal AI tools provide our sales, implementation and service teams with client-specific insights to address market shifts, resolve unique challenges and ultimately deepen client engagement. Additionally, all of our developers are now equipped with coding copilot tools that are leading to measurable productivity gains. We also continue to expand our use of digital implementation for both small business and PEO clients. These AI initiatives create additional time for our associates to engage in higher value-added activities that support our clients' growth.

Finally, we continue to execute on our third strategic priority benefiting our clients with our global scale. We bring value to our clients through our unmatched footprint in over 140 countries and continue to add to our global capabilities. During the first quarter, we also went live with our first global view client in Costa Rica, where we now serve 1 of the world's largest employers. Further underscoring the quality of our global products, ADP was recently positioned as a leader in multi-country payroll by Nelson Hall in its payroll reimagined 2025 meet and as an overall leader in multi-country payroll solutions by Everest in its 2025 peak matrix.

We remain confident in our ability to advance our strategic goals drive our competitive differentiation and deliver strong financial results. And with that, I would like to take a moment to recognize our associates whose efforts and outstanding performance help us consistently deliver for our clients and maintain our record high client satisfaction levels.

Thank you all. And now I'll turn the call over to Peter.

Thank you, Maria, and good morning, everyone. I will start by providing some more color on our first quarter results and then update our fiscal 2026 outlook.

Let me begin with our Employer Services results and outlook. ES segment revenue increased 7% on a reported basis and 5% on an organic constant currency basis in the first quarter. As Maria shared, ES new business bookings were solid to start the year with a relatively stable demand drop and continued healthy pipelines, we are maintaining our 4% to 7% full year growth guidance. ES retention declined slightly in Q1 versus the prior year, but still came in better than we anticipated. We are continuing to forecast a 10 to 30 basis point decline in full year retention. ES pays per control growth rounded down to 0% for the first quarter coming in slightly below our expectations. We are now forecasting pays per control to remain about flat for the full year.

Client funds interest revenue increased more than we anticipated in Q1, helped by stronger average client funds balance growth. While the yield curve has declined marginally since our last update, this impact is more than offset by our stronger client funds balance growth. We are now forecasting average client funds balances to grow 3% to 4% in fiscal '26, and we are continuing to expect an average yield of approximately 3.4%. Accordingly, we are increasing our full year forecast for client funds interest revenue by $10 million to a range of $1.30 billion to $1.32 billion. We are also increasing our expected net impact from our extended investment strategy by $10 million to a range of $1.26 billion to $1.28 billion.

Overall, we are maintaining our full year ES revenue growth forecast of 5% to 6%. Our ES margin decreased 50 basis points in Q1, reflecting integration and acquisition-related costs associated with the Workforce Software acquisition, which closed last October.

Moving on to the PEO. Revenue growth of 7% represented a solid start to the year with average worksite employee growth of 2% in the quarter. We saw continued growth in PEO new business bookings. However, PEO pays per control growth moderated in the quarter. As a result, we are continuing to expect fiscal 2026 PEO revenue growth of 5% to 7% and average worksite employee growth of 2% to 3%. PEO margin decreased 140 basis points in Q1, mainly driven by higher selling expenses, the timing of state unemployment insurance costs, 0 margin pass-through revenue growth and some onetime costs connected with the retroactive change in the deadline for filing certain employee retention tax credit claims.

Putting it all together, we are maintaining our fiscal 2026 consolidated revenue outlook for 5% to 6% growth and our forecast for adjusted EBIT margin expansion of 50 to 70 basis points. We continue to expect our effective tax rate to be around 23% for the year. We also continue to forecast fiscal 2026 adjusted EPS growth of 8% to 10%, supported by share repurchases.

I would also like to add a quick reminder of how we reflect the impact of our client funds investment strategy in our segment reporting. The results of our client funds interest revenue are reflected in our Employer Services segment. while corporate extended interest income, which represents the interest generated from the portfolio on the days that we borrow as well as the related short-term financing costs are both recorded in our other segment. Accordingly, from a segment geography perspective, some of the benefit we expect to receive from our overall client funds investment strategy in fiscal 2026 is recorded in our Employer Services segment, while the balance of this overall benefit is recorded in our other segment. This dynamic played out in our first quarter, and we expect it to continue throughout the rest of our fiscal year.

Thank you, and I'll now turn it back to the operator for Q&A.

[Operator Instructions] Our first question comes from Samad Samana with Jefferies.

Maria, I'll start with you. It sounds like the booking side is going well, both in Employer Services and PEO. And I thought it would be helpful if maybe you can update us on what the backdrop looks like in terms of deal cycles just looks like? And then how are you thinking about just time to close? And if there's been any change in what you're seeing in deal time lines, particularly with larger customers? And then I have one follow-up for Peter.

Sure. Samad, and thank you for the question. So overall, we feel okay about the HCM demand backdrop. I think we referred to it as relatively stable, and that's exactly what I would suggest that it is it really doesn't feel like a lot has changed as it relates to the dynamic of the demand backdrop. We called out a bit of pipeline aging throughout fiscal '25. We saw that kind of continue into Q1. So we're really back to kind of those pre-pandemic. I used to call it, I suppose the new normal or the old normal. I think it's just kind of normal.

So I think it felt largely the same as it did as we finished up the year. in terms of really across the board, whether it's in the down market, where we're measuring things like new appointments or it's an upmarket that you asked about Samad with respect to deal cycles, I would say we haven't observed any meaningful changes in Q1.

Great. And then, Peter, as I think about the guidance, and I appreciate the color on the individual pieces and how you tend to maintaining it, and I know it's still early in the fiscal year, but particularly on Employer Services, if I think about some of the underlying pieces, it feels like there is a little bit of a downtick, whether that's pays per control, whether that's retention. So how do you get confidence in the range and maybe just as we think about shorter term into the next fiscal quarter, how should we think about maybe where that should track and if there's any onetime things, I think maybe there is 1 less processing day last fiscal -- last year this time last year. So just maybe help us think of the guidance.

Yes. Sure, Samad. So I think there are a number of things. None of them are individually particularly significant, they're going in different directions. So as you pointed out, we have lowered our pays per control guidance to the lower end of that range. So again, we're talking about 10s of basis points of movement there. There's obviously some revenue and margin attached to that. Conversely, we have a relatively small uplift in our client fund interest revenue driven by the balances. Again, that's sort of a counteract. We also have a little bit of favorability on FX and sort of 1 or 2 other things. So like I definitely feel very confident, I think, with respect to the guidance we have shared there.

In terms of the quarterly cadence, we actually had 1 extra processing day in Q2 last year. We also had some SUI revenue in the PEO pulled into Q2 last year. So we have to grow over that in the second quarter. There may be not a material difference, I would say, absent the anniversary of the Workforce Software acquisition at the end of this quarter. So when you take that out and go back to sort of an organic constant currency type level, not a material difference, maybe a slight downtick in the revenue growth rate for the quarter, just growing over that extra processing day in the ES and a little bit of that SUI revenue pull forward that we're -- at this point, we're not anticipating in Q2.

But in terms of the full year and in terms of employer services, I think the movements are relatively small and somewhat offsetting each other. So again, we feel just as comfortable with the ranges what we were 3 months ago when we issued our initial guidance.

Our next question comes from Mark Marcon with Baird.

And congratulations on the -- on what sounds like pretty good start from a sales perspective. Maria, you went through a number of different areas on -- in terms of new bookings. What area was the most surprising from your perspective? And in addition to that, can you just describe a little bit more about what you're doing on the embedded side like how widespread is that on the lower end of the market in terms of percentage of sales? And does that have any impact with regards to the economics of the business?

Yes. Thank you. And thank you, Mark, as always, for the congrats on the good start. And we feel exactly that way. So I wouldn't say it surprised us, but it certainly pleased us to see that growth did accelerate in the first quarter. And I called out some of the highlights within our small business space. We saw specific highlights within retirement services, insurance. We were really pleased to see that the Employer Services HR Outsourcing business, as we talked a lot about last quarter, a lot of those big complex deals that have big transformations. We are excited to see those cross the finish line. and certainly continue to build the pipeline there.

And then we were pleased also to see the continued interest and demand for Lyric HCM. So I wouldn't say that it surprised us. I think it pleases us to see the quarter kind of evolved that way. That said though, as everybody knows, we still have the bulk of the year ahead of us as it relates to execution kind of broadly across each one of those areas.

To speak to embedded payroll specifically, it is still very much early days. I think you know we're very committed to our partnership that we have specifically with Pfizer. We're also really excited about continuing to make progress on the embedded offering in general and other partnerships. So it is a big piece of our growth agenda and growth strategy within the down market. That said though, we just rolled out the opportunity across the back book, if you will, of our partner just in October. So the bulk of, call it, the bookings contribution from Embedded is really ahead of us. It really doesn't contribute thus far in the numbers through the first quarter.

And so we're excited about the sales collaboration and the progress we've made to integrate and scale the offering. We're also really excited to put cash flow central inside of the run offer towards the tail end of this year, if you will. So again, definitely a part of the strategic agenda hasn't really contributed much to the sales results thus far. The bulk of that contribution is ahead of us.

Great. And then for a follow-up, just you mentioned in terms of majors NextGen basically comprising 80% of the new sales in the core area within majors. Can you talk a little bit about what you're seeing in terms of the utilization of NextGen with the clients? To what extent is the client satisfaction rate going up what does that make you feel from a retention perspective as that continues? And any sort of impact from a profitability perspective?

Yes, great question, and it is exciting. It's incredibly exciting to finally see the NextGen making progress at the levels that we reflected. So 80% across that core space of the mid-market. Obviously, our goal is to extend the reach throughout this fiscal year to broadly cover the mid-market. And part of that excitement is anchored entirely in what you just suggested, which is that we are seeing faster time to implementation. We are seeing better implementation satisfaction. We are seeing upticks in overall satisfaction.

So as the mid-market has been making these investments into the products and the platforms and we've been able to simplify really the experience for the clients but also that experience our associates to service our clients. whether that's why they're onboarding them or while they are servicing them, it's definitely making an impact, and that's exactly the journey we've been on, and it's greatly contributed over time as NextGen has been scaling in the mid-market, who those record-level NPS results that we've been talking about in the mid-market. And certainly, we've talked a lot about the mid-market retention over the last few years. And we're confident that the product investments we're making, specifically NextGen are driving a sustainable improvement in client satisfaction broadly across the mid-market.

And I think just on the profitability piece, Mark, at the end there, we're also anticipating that this will lift our productivity. Certainly, we observed, as Maria said, not just more smooth implementations, but easier implementations, the ability for more digital onboarding as well as the number of client contacts for next-gen clients is meaningfully lower than on the current gen solutions. So certainly, a profitability opportunity there as we roll it out further across the mid-market base. .

Our next question comes from Jason Kupferberg with Wells Fargo Securities.

This is Kathy Chan on for Jason. Just a quick question from me and maybe a follow-up. So I mean, obviously, you guys talked about U.S. GPC coming in flat for the quarter, maybe a little bit below expectations. -- and now you guys are expecting the full year guide to be flat. I guess just diving a little bit deeper, what drove that weakness? And what gives you guys confidence that it won't maybe even decelerate or be down through F '26?

Yes, I'll take that one. So I think we're talking about relatively small movements here, tens of basis points of movement. We were at a 0 to 1 range. We're just really guiding now to the lower end of that range. So it's not a -- I would say it's not a huge shift. Where we draw our guide from our projection from and our confidence, I guess, is just with our own data. I mean, we -- obviously, we look at a lot of external reports. We have our own national employment report on this sort of stuff. But really, we're looking at the hiring in our own base the patterns that we see.

And I think we feel confident that just given the magnitudes involved that, that is the right guide for now and in terms of revenues and margins, again, not a meaningfully different sort of point from our initial guide, albeit the rounding, obviously has moved to the low end of the range from call it the midpoint, which I think in the previous earnings call, I think we did suggest that at that point, the midpoint felt more likely. Now we have moved a number of call it, tens of basis points more towards the lower end of that range.

We also said in the prepared remarks that we're rounding down to 0% at this point. And we expect that likely will continue through the balance of the fiscal year unless things change meaningfully in the macro environment.

Okay. That's helpful. And then just on margins. I think you guys did around flat margins for the quarter and then you're maintaining the 50 to 70 basis points expansion for the full year. I guess, how are you expecting the rest of the year to shape up in terms of expenses and the margin dynamic there just so we have that model correctly.

Yes, sure. So we're actually quite happy not that we're shooting for a flat, but we were quite happy with sort of beat our expectations. We alluded to the fact we're expecting some margin decline, mostly due to the fourth quarter of the Workforce Software acquisitions, so the acquisition-related expenses, some integration costs there. So we actually felt -- we actually ended up a little better than what we expected in the first quarter. That certainly helps. That anniversaries actually anniversaried about 2 weeks ago. So that drag is element is behind us. .

The rest of the year, we feel pretty good about where the range is. We have a little bit of ramp in the second part of the year, which we are contemplating. And again, some of that is due to some efficiencies that we're driving in the business, some of the effects of some of our GenAI investments, but you should expect us to -- again, when you adjust for the Workforce Software acquisition in the first quarter to see something similar in terms of the net result in the second quarter and then a little bit of a ramp in the back half of the year.

Our next question comes from Kartik Mehta with Northcoast Research.

Yes. Peter, I wanted to start off with you. I think when you originally gave guidance for you yet, at least for FY '26, we anticipated that pricing would be about 100 basis point benefit, a little bit lower than what it had been a little bit after COVID, little bit higher than pre-COVID. And I'm wondering if your expectations are still the same, considering the environment has changed a little bit, at least economic environment.

Yes, absolutely. No change at all actually in our price expectations. We've not seen anything in the first quarter that makes us feel like that needs to change. We do expect, as you said, Kartik, we're going to come in a little lower than where we were last year on price. Again, our philosophy has not changed in terms of sort of the long-term value proposition prices piece of that, an important piece of that, but not the only piece of it.

So -- and in terms of, call it, receptivity in the market and the client base, we feel like our price assumptions are appropriate and not expecting any necessarily anything meaningfully more or less than what we communicated last quarter.

Perfect. And just a follow-up, Maria, you talked about at Analyst Day AI rollout, especially for the sales force. And how that was helping them become a little bit more productive. And I'm wondering where you are in that rollout, maybe I'm not sure if you can give a percentage of the salespeople that are able to use the AI or what the plans are for kind of full rollout of that program.

Yes. Great question. And I love this topic and love speaking about our sales force in our distribution and the investments that we make in them in their ecosystem and specifically their technology. We talked a lot about at Investor Day what we call the zone, which is ADP's tool that we are rolling out across the sellers, leveraging generative AI to make them more productive. And so that's everything we've talked about in terms of sales modernization over the last year or so. with respect to call summarization, pre-call planning, coaching, things of that nature. I believe at Investor Day, we cited that it was deployed across, I think, roughly 40% of our sellers. That has increased, Kartik. I don't know that I want to be in a position where every quarter we're giving you the update, but it's definitely north of that at this time.

We actually just had all of our sales leadership together across ADP at a meeting. And I have to tell you, I had a chance to see the preview of what's coming with respect to kind of the next iteration of generative AI inside of these tools. And it is it is unbelievable. If somebody used to do this job or the sales job for a living, although I still do. I have to tell you that this stuff is way ahead of its time. It's ahead of a lot of the tools and technology vendors that we even leverage we're helping guide their road map, and it is going to be a game changer.

And I think the most meaningful thing that I would say is sitting in that room with all of those sales leaders is their willingness to engage in these tools to help change the workflow of how our sellers actually go-to-market and engage and prospects and close and sell and even past the implementation. And I think that's exactly the types of responsible leaders that we have that are willing to train these tools and make them useful and have those tools impact their sellers' productivity because that's really the end goal.

So I don't want to unveil all those things to you right here on the earnings call. I really look forward to the data we get to show these things to you. live, but they're pretty incredible. And as you can tell, I'm always bullish on the investments we're making into our distribution. As you know, it's a big competitive differentiation for us here at ADP.

Our next question comes from Bryan Bergin with Cowen.

This is actually Jared Levine on for Bryan today. To start here on the POPs, I just want to confirm that actually came in line with your expectations for 1Q. And I guess what drives the confidence that you can accelerate that growth to hit the midpoint of the guide?

Yes. Jared, it's Peter. I came in, yes, broadly in line with our expectations, maybe 10 basis points or so above actually. So we were happy with where the first quarter came in with respect to WSE. Our confidence that we do have a little bit of a ramp, but again, not meaningfully different percentages. But if you're talking at 10 or 20 basis points, a little bit of a ramp in the second half of the year, which is really a bookings-driven assumption. We're not anticipating in the same way we spoke about with yes, we're not anticipating any ramp through the year in the PEO pays per control metric. So really, it's a bookings-driven assumption, and we are investing in the team, we feel the team is very well placed to deliver on that objective. .

Great. And then in terms of the PEO July 1 enrollment, Perry, can you talk about your performance there? Did you win is any change in participation rates, enrollment rates or any kind of buydown behavior?

Yes. Happy to take that. You're absolutely right. We just finished the enrollment period, proud of how the team executed through the cycle. I think there's no secret out there that health benefits are topical and on employers' minds. So continue to see the value proposition of the PEO and specifically how we structure our PEO win out there in the market and really help employers navigate these changing times.

I will tell you, health benefits are and remain the norm for all of the higher wage industries that our PEO targets. Those participation rates that we've seen, they're actually the highest for us that they have been the highest levels, if you will, for the last 4 years or so. So we have seen actually a bit of a participation uptick. That's great to see because it does substantiate that we're selling to the right industries and those industries do value benefits as part of their offering to drive their overall employment -- or employer value proposition. So I think our PEO fits squarely into how difficult it is for employers to navigate and that size today out there?

Our next question comes from Ashish Sabadra with RBC Capital Markets.

This is David Paige on for Ashish. I was wondering if you could just provide a little color on the acquisition that you made in the quarter, why it was needed and the benefits and maybe financial profile, if you had one.

Yes. So perhaps I'll start, if my voice here holds up, I'm so glad you asked. We're really excited. As you know, here at ADP one of our strategic priorities is to lead with best-in-class HCM technology. And that's exactly what this acquisition brings for us. And so we're focused on bringing the best products and services to our clients. And while we've currently had offerings within this space, this is above and beyond what we've currently been offering, and we're really excited to fold this technology into our existing offering.

I think this acquisition is a great approach of how we're thinking about innovation, how we're thinking about the value proposition to our clients. companies certainly need innovative compensation management software. That's exactly what this is. And so we're really excited to bring it into our portfolio and into our various platforms for both existing and prospective clients. So again, really excited about it, excited to announce it. And certainly, I'll take the opportunity just to welcome all of the associates of Pequity into ADP. Really excited about the work that we'll do together.

And then, Peter, if you want to talk about the financials about?

Yes, absolutely. The -- David, it's a small company today. So the financial profile is not meaningful in the context of ADP for this fiscal year. We're excited, as Maria said, about the opportunities for the product. it's an acquisition, a strategic acquisition. But in terms of the financials, not really noticeable in the context of ADP and has been contemplated in the outlook that we've reaffirmed today. So that's all I would have to say on the financial side of it. .

Our next question comes from Daniel Jester with BMO Capital Markets.

Great. Appreciate all the color on the demand environment so far. Maybe I'll just tackle it from a little bit of a different angle. Anything that you'd call out with regards to the difference between sort of the U.S. and international markets? I know last fiscal year, there's maybe a little bit of choppiness on the international side, but just wondering kind of what you're seeing in that mix.

Yes, sure. Thanks, Daniel. And choppy is one word. I think we like lumpy better than choppy, and that's not atypical for international for us. It's generally these are large complex deals. They do have a bit of a lumpy pattern to them. And certainly, while we did see a little bit of a softer quarter with international in the third quarter, we also saw incredible strength in the fourth quarter with international. So international this quarter, Q1 of fiscal '26 were again a bit softer for us, but that's mainly, again, back to kind of the lumpy nature of it. It's not a typical on the heels of what was an incredible finish.

The pipeline is solid. They're executing well, and they continue to remain laser-focused on executing throughout this fiscal year so that they can reaccelerate that growth for the finish.

Great. And then maybe to go back to an earlier topic of conversation on the Workforce Now NextGen. For the 20% of new bookings to choose not to take it. Is there any commonalities in terms of why that is or friction that you're seeing? And should the expectation be for that segment of the market at some point this fiscal year, that gets to 100%? Or how should we be thinking about that?

It is a fantastic question, one that I like to ask myself very often. The real answer is I don't know that we will get to 100% at the end of this fiscal, because there are clients in that space. Certainly, the mid-market is a space that does a lot of acquisitions, things that at nature adds locations. So clients will always want to ensure they have kind of one offering, if you will. So the bulk of that 20% are clients that are or call it, knockouts and some capacity. The most common knockout is a client that's adding a location or adding a company to their existing portfolio. So that's kind of where it stands. .

Our next question comes from Tien-Tsin Huang with JPMorgan.

Just a couple of questions. One, on the PEO side, thinking about WSEs and how that's tracking and your benchmarking versus your peers. How would you to rate your performance there. I'm curious if we're seeing some pretty wide variance in where that's coming out. So it does feel like ADP is doing well from a share side, but just wanted to hear your impressions of that.

Yes. So I think overall, we feel really positive about the momentum in our PEO. We did see PEO bookings growth continue through the first quarter. Although listen, it moderate a little bit based on kind of the finish that PEO had in the fourth quarter. So there was a tiny bit of moderation, but it's still the growth continued through the first quarter. We actually were just down all of us last week down meeting with our PEO business and spending time with their leadership and their management. And they're squarely focused both on bookings, they're focused on driving retention, which improved slightly last year, and we continue to see slight improvement. And that is really what is going to drive that WSE growth.

I would say in the context of others, I think we're winning. We have a winning hand structurally. We have a winning leadership team, really impressed with how they're aligned towards execution and how focused they are specifically on growth and WSE growth. So I don't know, Peter, if you have any comments with respect to RWCs and versus the others. But I think certainly, we feel as though we have a winning hand in the context of the other PEOs.

Yes. No, I would just say Tien-Tsin, I think you know this, everyone has a slightly different accounting convention for many of these things in the PEO landscape. So in terms of what we measure and how we measure our business, as Maria said, I think we're really happy. I answered the question earlier. The first quarter was slightly ahead, but not meaningfully, but slightly ahead as opposed to the alternative, which is always good, so slightly ahead of our expectations on WSEs. And as we both said, we expect -- we have a winning team there, and -- we are expecting more booking success through the year that will drive the number up a little bit, but not markedly, we're still squarely in the 2% to 3% range.

Okay. Good. I'm glad to hear it. Just my quick follow-up. I had to ask you here for you, Maria. It's nice to see you at the Fiserv Customer Conference, the reporting results right now as well and stock is down quite a bit because through quite a bit of change, cultural shift. So just the commitment on -- obviously, our view being at the event shows the commitment, but could this alter some of the maybe the targets that you're expecting from the partnership, given they're going through some restructuring there? And I don't know how much insight you have on that, but I thought I'd ask you on the call. .

Yes. No, I appreciate the question, and thank you. Listen, it was an honor to be there. I think it's almost exactly 1 month through the day that I was on stage with the CEO of Fiserv. We are very committed to this partnership. We're very committed to the sales collaboration, sitting up on that stage and looking out into a sea of analysts, but also potential clients, partnerships, banks. What I have to tell you is what we are doing with Fiserv and other embedded partners by serving up run in the platforms that they live and operate as a game changer. And we see that, by the way, we also see it inside of our own ecosystem of distribution.

One of my favorite examples that I heard this quarter was a CPA that we've worked closely with for years, and our downmarket bring us a client of theirs that is currently leveraging Clover, and we have the ability to put again, ADP inside of that Clover relationship with that client, and it made things much easier for the small business, which is the entire goal but also much easier for the CPA. So we're serving the ecosystem as well. And giving that client and the CPA, the ability to kind of see their end-to-end cash flow.

And so that's really exciting. I have to tell you the work that we've done from a technical perspective is great from a sales collaboration is great. From a marketing perspective, is great. There's no shortage of commitment to it. That said, though, we did just roll it out across the back book. I mentioned that a bit earlier, I think when Mark was asking about it. And so the bulk of the opportunity is still in front of us. It's very much early innings for us, but there's no lack of commitment.

Our next question comes from Kevin McVeigh with UBS.

I know you talked about the impact of the 1 processing day. Can you just remind us of what that sensitivity is in terms of what the impact is Q1 to Q2?

Yes, I don't have the number to hand, Kevin, but it's not a big number. I've got Matt, I'm looking at Matt here around $10 million.

It's a modest path Kevin, small number. small number, it's not going to be you'll see it a little bit but not much.

When I was talking about it earlier, I'm talking about in terms of the revenue growth rate, I think the main driver in terms of the second quarter revenue growth rate is versus first quarter is the fall off of the acquisition -- the anniversary, I should say, the acquisition effect. We might be talking 10-ish basis points something like that for the processing day, but I don't recall the exact number, but it's not a meaningful number. It's just something you may observe in the growth rate cadence from Q1 to Q2. .

That's very helpful. And then can you just remind us because it was great to see that the increase in the float on both the client funds and the extended strategy. But obviously, the balances are pretty meaningfully different in terms of the principal, right? Just remind us why -- because both went up about $10 million. Is that just purely the difference in rate or timing? It's just -- it's a pretty interesting phenomena.

Yes. So our yield expectations essentially haven't moved. Yes, there's slight moves within the 3.4%. But we did have a marginal adjustment, if you like, to the forward curves back in late July when we produce our initial guidance to when we produced this reaffirmation now, but it's really a balance driven thing. So we saw, as you'll see, I think, in the reporting we did for the first quarter, we saw very strong balance growth in the first quarter. A lot of that is driven by continued strength in wage growth. we have contemplated both in the client fund interest in the some moderation to wage growth in the rest of the year, which is why we're guiding to 3% to 4% as opposed to the 7% that we delivered in the first quarter. But the $10 million is really coming from the balances from the denominator, not so much from the movement in yields. .

Our next question comes from Dan Dolev with Mizuho.

Sorry, and I was on a different call. So apologies if the question was asked. Can you maybe touch again on that pays per control, lower pays per control, that would be helpful. We're getting a lot of questions about it. And apologies if that was addressed. .

That's okay. Dan, I'll take that. Again, we've you could say we've narrowed our range to the low end of the range. So again, we're talking about probably tens of basis points of movement in our projection on the full year, not meaningful amounts of revenue, not meaningful amounts of margin. it's there, but it's not particularly meaningful. Really, it's come from the data we see in our own client base in terms of hiring levels. I should add to that in the context. We're also seeing very low levels of layoffs in the base.

So it's a very static situation. It felt like a move to the lower end of the range we previously quoted is appropriate just given where the macro is that were to change. Obviously, our assumptions may evolve through the fiscal year, but right now, I don't think it's a big surprise that hiring is tight. And as such, we've just narrowed our expectation within the range that we previously guided towards the low end.

Got it. And hopefully, I'm not redundant at again because I should be on the entire call. But on these recent announcements, whether it's Amazon or whatever, is that changing the calculus or it's already included in your expectations?

Not really. I mean these things they make news, obviously, they're headline worthy, but we have a really large base, 1.1 million clients and 26 million workers paid in the U.S. We pay Amazon, in fact, and that's a small fraction of very small fraction of the number of workers we pay for Amazon. So these things are contemplated in our guidance. Again, what we're seeing in the wider macro data is certainly reduced hiring levels, but also, as I said a moment ago, very much reduced layoff levels to sort of lows we haven't seen in a number of years. So the whole hiring situation is relatively static and we believe contemplated in our guidance. .

Our next question comes from James Faucette with Morgan Stanley.

It's Mike Infante on for James. Maria, it'd be great to get your perspective on the stable coin topic potentially being used as a mechanism to pay employees. We can obviously sort of debate the magnitude of adoption. But how do you think about your intention to support that as a rail? And how do you think about some of the regulatory compliance or tax constraints that would have to be cleared in the interim.

Yes, it's a great question. We think about it a lot. We think about it from exactly what you're suggesting, which is from a regulatory perspective. So I think that's the big piece that we are keeping a keen eye on is with respect to the regulatory environment. And ultimately, once that clears how ultimately we will be able to support our clients as they navigate that as an offer in terms of a payment should that happen.

So I think those are the questions that we are keeping a keen eye on both in Washington as well as kind of through the banking environment. But certainly, as it relates to the banking side from our end in terms of real time and rails, we are preparing ourselves for all possibilities as these things evolve. And from a strategic perspective, that's an imperative for us to always make sure that we are in a position to support how client employees want to get paid. And certainly, if things evolve we'll be at the ready to do it.

We have time for 1 more question. And that question comes from Zachary Gunn with FT Partners.

I just want to go back to last quarter, there's some commentary around the full year guide, assuming a continued moderation in the macro. I recognize is tightening the range on pays per control more around basis points. But I just wanted to see if that -- if the guide still has some level of moderation baked in or if we've seen the macro move towards those expectations?

I think -- I mean, I think we have seen a little bit of that. The main metric I'm talking about is pays per control. So again, we said we expected to -- well, sorry, we rounded down to 0% in the first quarter, which was a little lower expectations. So I think we have seen some of that flow through. But again, I would say, consistent with what I've been answering some of the earlier questions, I don't think these are material moves away from where we really envisage things. You can obviously see that our guide has been reaffirmed. And hopefully, you can tell that we feel confident about our ability to deliver on that guide, particularly when it comes to revenues impacted by things like pays per control. We have our float income going a little bit in the opposite direction.

So I think we have the macro contemplated. Of course, things can change outside of our control. But that maybe none of us are aware of yet, but that's not our base case assumption. I think our base case assumption really is very similar to what we said 3 months ago. We're just sort of refining at the margins a little bit some of the metrics like client fund interest and like pays per control, call it, either within or very close to edges of the range as we previously shared.

Thank you. I'd now like to turn the call back over to Maria Black for closing remarks.

Thanks, Michelle, and thank you to everyone this morning. for your interest. I have to say the last few weeks have been a time that I've been thinking deeply about all of our stakeholders, all of our investors, our analysts, the community or associates. And I've been thinking a lot about who ADP is in our fabric and at our core.

And I want to take a minute to really thank our associates for their undying commitment to our clients. It's really it's really incredible to watch our values-driven culture come to life. One of those values-driven culture attributes is, as a company, we provide insightful expertise. So with that, I want to take a minute to genuinely thank and acknowledge ADP Research and the team over there who has been tirelessly and diligently innovating and executing over the past several weeks to bring to life a weekly estimate of the ADP employment, National Employment Report, known as the NER Pulse that was made available to all of our stakeholders at the same time yesterday.

So this weekly measure is going to bring to life really the mission that they've had at ADP Research all along, which is about making the future work more productive through data-driven discovery. I have to say that we really mean it when we say that we're always designing for people here at ADP, it's in the fabric of who we are, and I'm incredibly proud to be ADP Red.

Thank you for your participation. This does conclude the program. You may now disconnect. Everyone, have a great day.

Tech conference. I'm Bryan Keane. I cover the payments processors and IT services here at Citi. And so we're excited to have a fireside chat with ADP. And Peter Hadley, the CFO, is here to help us understand the latest and greatest over at ADP. So I'll run through a bunch of questions. And if anybody has a question in the audience, just feel free to raise your hand, we'll bring a mic around. So with that, Peter, thanks for coming.

Thank you, Bryan. Good to be here.

I think I wanted to kick it off and ask the obvious question, just thinking about ADP, having such a great look at the macro environment. How would you characterize the macro and I'm thinking about pays per control, wage growth, bankruptcies and the overall spending environment?

Yes. No, it's an interesting question and never more topical, honestly, than literally right now. And a bunch of noise you may have -- some of you may have seen around -- even from the Fed around our data. Our numbers came out this morning. I'm sure everyone has seen it a little bit lower, I think, than what the market was expecting. I don't see those numbers nor does Maria or our Board even, certainly not our IR team until they come out. So we all get them at the same time that you do. But I would say not a huge surprise for us. I think the macro has been really following a trend of -- depends how you look at it.

On the short term, there's quite a lot of volatility from day-to-day, week-to-week, whatever. But I think if you take like a 6-month view, 12-month view, it's a fairly consistent trend of a gradual slowing -- continued -- sorry, continued gradual slowing. And we've been talking about that, calling that out in our numbers, in our guidance and so on. The underlying, I think, fundamentals are still quite good. We're still seeing employment growth. Wage growth, in particular, continues to be strong. It certainly surpassed our expectations in fiscal '25 for us, both in our PEO business, which generates a good chunk of its revenues based off of the payroll levels of the PEO clients as well as in our client fund balances, which grew beyond our expectations to a really healthy level. So I think wage growth is still there.

I think in terms of the employment numbers, there's not a -- the number of additions has certainly slowed as has the number of sort of layoffs or voluntary departures. So the market, I think, is relatively quiet in that respect, which might sound counterintuitive to all the headlines we read. But I think it's -- we're seeing a gradual slowing. It's not particularly moving at a pace that is surprising us either positively or negatively. It's sort of there. But for us, I think the most important underlying fundamental is the demand environment and the demand environment continues to be strong. Sales cycles have elongated. We may talk about that, Bryan, in your questions. But certainly, the demand environment for our services and what ADP offers, we believe, continues to be strong.

How about new business starts and bankruptcies? Any changes in those 2 metrics?

Not a lot. On the new business formations number, actually, they've been pretty healthy in recent months and quarters. So that's, again, another positive sign, if you like, to the economy. It's funny that these days, each day delivers a metric and one day it will disappoint. The next one you receive is sort of positive. But certainly, new business formations continues to be pretty healthy. Bankruptcies have been edging up a little bit, but more or less back to levels that we were used to, probably not even quite there yet, but towards levels at least that we were used to prior to the COVID period.

So again, it's -- there's a lot of healthy underlying fundamentals. There's also a lot of, I think, I don't know, indecision perhaps or stagnation around decision-making just given potential whatever policy or economic things that are going on out there and companies perhaps are waiting to see what happens. But I think underlying consumption now perhaps is the confidence index might be softening a little bit, but there's positives and there are negatives. And again, I think in terms of bankruptcies and business -- new business formations, that remains pretty healthy as does really the underlying fundamentals of the U.S. economy, albeit continued on a continued slowing trajectory.

I wanted to ask, ADP being the largest player in the HCM market and just kind of thinking high level here, given your size, how can the company reach that 6% to 7% midterm revenue growth that you guys have outlined, I think, in the Analyst Day. And that would be above kind of industry average growth of kind of mid-single digits. I mean, slightly above. But just thinking of your size, how do you guys able to grow above kind of industry growth rates?

Yes. I mean we are a big company, obviously, as everyone here, I think, knows, we have a lot of benefits from being a large company. I think the great thing for us, though, is whilst we are the largest player, we believe, at least in the HCM industry, we have tons of room to grow, we think. We size our market opportunity, and we did this at Investor Day a couple of months ago at $180 billion. Obviously, we are a little over 10%, maybe 11% of that number based on our last reported revenue numbers. So we have tons of room to grow. We've also been over our decades, at least of our history, the largest player in the HCM industry, and we've had a record, I think, of growing faster than what we see at least as industry growth rates.

So we have lots of opportunities. We can point fingers at many areas. I would say, in the down market, we continue to be really successful, I think, in adding clients to our offerings, be they new clients, be they in our client count growth, you may have seen that reported in our 10-K, continues to be really, really healthy in that space, notwithstanding the fact we have over 900,000 clients. We have additional offerings where -- which are really successful, but they still have relatively low penetration like retirement services, our insurance offering, our PEO. I think we sized that too in Investor Day in terms of the market opportunity. We see plenty of room for growth.

And then in the enterprise and global space, in particular, where I think on the domestic enterprise space, at least, we've perhaps not performed as well as we would have liked over the last decade or so. We have our offering Lyric now out in the market about 12 months, coming up to about 12 months, getting a lot of great traction there. Enterprise, in particular, takes time. It's a slower segment in terms of moving the needle just due to the size of the companies, the size and length of the sales cycles, the length of the implementation cycles, the change rates and what have you. But over -- taking a sort of a medium to longer-term view, we think there's tremendous opportunity there.

And then putting that together with our global opportunity, we've done very well in global payroll. We've been somewhat nascent in global HR, and we have a little bit of global time, but not a great deal. So between Lyric, our Workforce Software acquisition and our global -- continued strengthening of our global payroll opportunities, we don't feel at all bound by -- or constrained, if you like, by our size nor do we feel constrained to market growth rates because we see there's a lot more opportunity out there than what we've tapped today, notwithstanding the success the company has had for 76 years and our size.

Yes. I was going to ask about some of the history, just thinking high level again on the top line. I know previous Analyst Days, I think 2 Analyst Days ago, the target for revenue was kind of 7% to 8%. I think the most recent one we've been talking about 6% to 7% for revenue. And then you guided fiscal year '26 revenue growth of 5% to 6%. So just these are slight moderations. Can you help us understand how much of that is just economically driven or maybe some maturity in the market?

Yes, I would say it's very much more macro-driven than maturity in the market. So if I go from Investor Day, November 2021 to Investor Day June 2025, I would say, exclusively, they were very different times. Obviously, we were coming out of a pandemic. There was a difficult period, but with tailwinds coming out and there was some getting back to normal, so to speak, or whatever the phrase we used a few years ago collectively in society around exiting that pandemic. Now we're in a bit more of a slowing economy with a little bit more headwinds, I would say, than tailwinds, but not -- again, not dramatically. It's sort of a gradual slowing. So that was really predominantly the difference, if you like, between the November '21 and the June 2025 objectives.

Again, we don't feel any more constrained by sort of the market or the competitive environment now than what we did then. If anything, I think we probably feel better about our relative competitive positioning now based on what I was just saying moments ago around the enterprise space. I think our PEO is really coming into its own. And when you look at what's been going on with medical inflation and the way some of our competitors in that space take more risk onto their own books and what that can be a short-term opportunity for them. But over time, we don't believe in that model. And so I think we're coming into our own there. We're continuing to find new channels, be it embedded payroll and so on in the down market. We feel strongly.

In terms of the current year guidance versus the midterm, I wouldn't personally draw a lot of conclusions from that. I think the midterm is just -- is a 3- to 4-year type of view on average. I think we said at the time at Investor Day that some years could be a little above, some years could be a little below. I think there is some conservatism, I think, justified conservatism around we don't necessarily know how the macro environment will play out this year. We're not assuming major changes, but there could be some changes, whereas our midterm is a little bit more of a steady-state type scenario. But we are very committed. The most important thing, I think, is we're very committed to delivering the medium-term objectives we gave at Investor Day. We'd very much like to hit those numbers this year. I think if we perform at the higher end of our current year guidance ranges, we will be more there or thereabouts on all of those medium-term guides. And ideally, over the medium term, we'll do what we did last medium term, which has come in at the top end of all the key metrics.

Great. I want to ask about -- and you mentioned the enterprise capabilities, and those have meaningfully enhanced with the launch of Lyric and the acquisition of Workforce Software. When do you expect those to have a more meaningful impact on the revenue growth?

Yes. I mean they're already having a meaningful impact on our growth. In terms of the absolute size of the company, we're a large company, it takes time for it to bed in. But certainly, if I look at -- if I decompose our sources of growth as we do that when analyzing our performance and setting our objectives, it is playing an important role already in the sources of our bookings growth. And obviously, retention is sky high being a new product and also being in that enterprise space as long as we are able to deliver, which we have a good track record of doing that those clients tend to hang around quite a lot longer than the line average at our company level or our employer services level retention statistics would imply.

So I think in terms of moving the needle on our $20-plus billion of revenue, it will take some time. As I was saying before, the sales cycles take a little longer in that space just due to the complexity of the deals. As we go international, that adds a little more. The implementation cycles are longer than what we're used to in the down market and the mid-market. Again, this is not new information for us, not new learnings. We've been in this space for a long time. It's just -- it takes time for it to feed through and move the needle on $20-plus billion of revenue. But in terms of our the importance of it to our -- to the growth that we're expecting and have been experiencing over the last year or so, it's already an important contributor, if that makes sense.

Yes. Yes, definitely. One of ADP's greatest assets I always think about is its distribution ecosystem. Can you provide color on the ecosystem and specifically the new embedded payroll channel?

Sure. Yes. I mean it's one of the great strengths of ADP for -- since we began, I think. And we have 10,000-plus sellers. We have a huge amount of territory coverage. We are -- I won't be able to do it justice in a chat like this, but just the degree of infrastructure behind the ability to source, onboard, train sellers and also retain particularly the ones we want to retain. It's a huge machine. It's really a great asset of the company.

The other thing about it is we continue to be innovative. So whether it's adding new channels, embedded payroll is just another channel, one we're excited about, but we've been working channels for years, be they in the downmarket accountants, banks, brokers, brokers in the mid-market, ERP players in the mid-market and the upmarket systems integrators. It's an important channel. It's another sort of initiative to continue to enhance that distribution capability that we have as is some of the tools, including AI and our tool, The Zone that we spoke about, which is a combination of Salesforce technology, salesforce.com technology as well as our own -- some of our own proprietary tools and AI that we are enabling our sellers to really become more efficient, but hopefully, more than efficient, being more effective, be more knowledgeable when they go to the sale, pulling insights, identifying the propensity for certain buyers to be interested in our solutions, which solution? Are they -- for example, are they a 50-person company that's just added employees in a couple of different states. Maybe they're going to be an opportunity for our PEO business, do they have benefits or not. It's really about making the sales force, I guess, more effective through intelligence and so on and then just broadening our reach through distribution.

So yes, I would concur, I think, with the line in your question, like it is a huge asset for ADP and one that we find -- we feel really differentiates us from our competition. It's also to add that many sellers and sellers are on a relative basis are expensive. They're an active resource more so than maybe some of the other resources in a business like ours. So just being able to have the balance sheet and the size, financial capability and capacity to continue to maintain and grow that investment, I think, is also an advantage that we have.

I know ES new bookings get a lot of attention, came in just slightly below expectations in fiscal year '25. What gives you the kind of the confidence that the growth will accelerate in fiscal year '26?

Yes. Yes, good question. We -- the number did come in a little lower, but we were -- again, we were very -- still very pleased, I should say, to deliver $2.1 billion in new business bookings for Employer Services. It was 3% growth. We are confident. A number of the things are around sort of what I was just saying around additional capabilities we're adding to our sales force. We're not just investing in tools and not just investing in channels, we're also investing in the sales force headcount itself.

So we continue to grow our sales force headcount as well as sort of the capabilities and the maturing, if you like, the continued maturing of some of our newer products like Lyric, like Workforce Software, those -- the amount of work that's going on in integrating those solutions, not just the 2 of them together, but with our global payroll, with our Workforce now offering, we're in a better place than we were a year ago with respect to that. So those things help us.

I think the other thing that gives us some confidence, and again, we don't have full control over the macro, but is when we see within the number, how the different businesses are performing and there's no clear structural challenge in any sort of segment. We spoke about this on our earnings call, I think, like we've had -- in our third quarter earnings call, we spoke about how international -- our international bookings have been affected that we had a better performance in international in the fourth quarter, which is sort of the typical biggest period for many of our businesses, but international in particular. So that was encouraging.

It was not, okay, we don't have a structural issue. Is international going to be difficult for a few years. Time will tell, but we don't feel like that's the case because we've seen sort of some challenging quarters and we've seen some strong quarters. We saw the same, albeit the order was a little bit reversed in our in our HRO -- ES/HRO offerings where we had a very strong first half of the year, sort of softened a little bit in the back half. The PEO, which we don't report the numbers, but the bookings we commented, we're really pleased with the PEO bookings in FY '25, particularly in the fourth quarter. So we don't feel that there's anything at the moment at least that is structural. There's certainly the continued gradual slowing, which is a little bit of a headwind, but we feel we can overcome that through the investments we're making both in distribution itself as well as the products and services that our sellers are out there selling to our prospects and our clients.

What's the typical growth rate you guys grow the sales force every year? And what is it going to be this year?

Yes. So we grow around half or maybe slightly above half of sort of the bookings growth we're anticipating is headcount growth and the difference effectively comes from what we call sales force productivity, which is driven by a number of the things I was talking about, the effectiveness of channels, the tools, the products themselves and offerings. So our formula, we don't necessarily give the exact numbers, but you could think about it as around half or maybe slightly more than half of our sales growth we expect to be able to deliver through additions to the sales force headcount growth and the difference coming from sales force productivity.

Yes. Can you talk a little bit about how the bookings number, employee services hits the revenue and organic growth number? I know we all look at the bookings number so heavily, but it only has a minor impact on the organic growth of the company.

Yes. I mean it certainly -- it has an impact. It's -- as I know I've spoken to some of you about this, it's not the easiest one to model. We appreciate that. It's very important to the revenue number. It's the lever, again, when I think about our revenue model itself, it's the lever that moves the needle the most because retention, we can talk about retention, if you like, but retention is very high. Obviously, that's not necessarily guaranteed. We have to do a lot of work to maintain that. But we don't see a lot of movement there, pays per control and other things, price and what have you, also are smaller levers in terms of moving the needle.

So it is really important, but it's challenging to model because, I guess, our diversity and where the bookings are coming from, we obviously try to give color on that. We don't report the numbers, but we try to give color on where the bookings are coming from. So -- but again, like bookings in the downmarket space might start literally within hours or days, perhaps a couple of weeks, depending on the client's desire and need from when the booking is made, whereas go to the other end of the spectrum, a 22-country multi-country payroll and perhaps these days, Lyric HCM system of record, that could take 3 years to roll out. Now again, it doesn't take 3 years to get the first dollar of revenue, but it progressively builds. So it really depends on the segment mix, if you like, of the bookings as to how it flows through.

But for ADP, the way we run the company internally and with our sales force is a booking ultimately is only a booking once it becomes revenue generating. So again, like we could sell a deal, for example, in the enterprise space. And if that deal did not go live 12 months later, then the booking that we may have taken gets reversed. Obviously, if we don't think it's going to go live, we wouldn't book it to begin with. But sometimes circumstances changes with clients. So ultimately, every dollar that you see in terms of what we report in bookings makes its way into revenue. It's a question of when, which segment it's coming from, but it certainly all flows through. But I think people have -- and we try to give as much color as we can to help with the modeling. But you may see as our -- as we continue to strengthen in the enterprise space, the conversion rates may have to shift a little bit just due to the sales and -- well, not the sales, but the implementation.

Yes, because international, those deals take a little longer to close and implementation, I assume is a little longer than the U.S.

Yes, yes. And the bookings don't get recognized until the sale is closed, obviously, but the implementation cycle can certainly impact the timing to revenue.

Yes. I did want to ask about client retention. I know it improved 10 basis points to 92.1% in fiscal year '25. Even that's a high number, obviously, as you said. Is there room to grow there? Or is that pretty a stable number? And what was driving kind of the improvement to begin with?

Yes. I mean I think there's -- we always think there's room to grow. I mean if you look at structurally, one thing that can impact the aggregated number, obviously, is the mix. So if we're growing -- and we have grown, as you all know, I think, very strongly in the down market. The down market structurally has a lower retention rate because of the ease of change, I guess, for smaller businesses versus enterprise clients is easier. Their bankruptcy rates are obviously a little higher in the down market and so on.

So the mix can play a part, if you like, in the aggregated number. For me, what -- in terms of how we run the business, we're very much focusing on the total is important, but certainly, the trends by segment, by business unit is important. And we believe that we have opportunity in pretty much all of our businesses, I think, to improve retention. Whether that will manifest in the total in a meaningful number is hard to say. We have had steady improvement over recent years, I think, as you're aware, we think that, that -- we don't think we're at a ceiling. In terms of our guidance, again, that's -- and we've gotten a lot of questions on that. We don't necessarily have an insight that tells us retention is going to -- a specific insight, I should say, that retention may decline this year.

We're coming -- our guidance is predicated around continued macro slowing and our experience with macro slowing is that those bankruptcy rates that you were talking about earlier do tend to rise as macro slow. And again, we know that we've said the same thing for the last couple of years, and this has not manifested. We've been happy about being wrong on that one. We'd be happy to be wrong again this year. But we don't think we're at a ceiling.

And in terms of what's driving it, many things, I think, but the most important thing, I think, is our focus and attention on delivering for our clients at all the time and in every way we can. And whether that's through great service, through great products, it's all of those things. But we have really an extremely strong focus on that. Maria, in particular, comes not that Carlos did not. Of course, he did, but Maria, in particular, comes from very much the commercial side of the organization from sales, from client service and operations. And I can tell you that the culture and the attention to delivering for our clients has never been stronger in the almost 24 years I've been at the company.

So we will continue to control that to the best extent we can and deliver, control what we can control. The macro will do what it does, but -- and we'll see how that manifests on our retention. But I don't feel like we're at a ceiling to answer the first part of your question again, in any way. I think we have opportunity, but I would caution just given our size and also the mix, I wouldn't necessarily expect it to go from 92.1% to 96% overnight. It's not -- it doesn't move like that, but gradual improvement is our objective.

You mentioned PEO and the strength in PEO bookings you saw towards in that fourth quarter. What would it take to get back to that double-digit growth rates in PEO?

Yes, it's a good question. I think first and foremost, we are happy with how the PEO is going. Of course, we would rather be the 10%, 12%, 14%, whatever it was, rates of a few years ago than sort of where we're thinking we are now, even where we delivered in '25, which was, I think, was really good. There's a couple of things. The primary one is sort of the same-store sales metric. We are at similar levels with our PEO slightly above, but not meaningfully above, very similar to sort of what we do report for Employer Services, and that's quite different. We're talking 400-ish, maybe even a little more basis points lower than where that number was 4%, 5% lower than where that number was a number of years ago when we were driving those type of growth rates. So that's probably the main driver.

I think we had some execution challenges a couple of years ago. We've made a number of changes, including in leadership in the PEO as well as, again, some focus on the product and just our -- the way we're addressing our clients that is certainly helping us. So continued bookings strength and growing that bookings number is an important lever. The other one, I think, sort of depends how you look at it, but medical inflation, I guess, helps the headline revenue number in the context of the 0 margin pass-through stuff as we pass through, again, we don't take any medical underwriting risk on our books. So that flows through.

It also has a bit of an impact on retention. Our retention has not been declining. I think we spoke about a moderate improvement in retention in '25 over '24. But certainly -- and by the way, this is not a base case assumption of ours that medical inflation is going to ebb meaningfully in any time too soon. It doesn't necessarily feel like the underlying dynamics are going that way. But that -- if that were to happen, and we're able to take advantage of that, if you like, with some sort of noticeable for us, improvement in the retention rate, while at the same time, pays per control were returning to levels they were and then lifting our growth rates perhaps to or at least in the direction of those numbers is certainly possible. Like I said before, I think our market opportunity there, we have around 750,000 worksite employees. I think we sized the market at around $4.5 million, $5 million. And I think the PEO space, I'm trying to phone a friend here, but I think is maybe 30%, 40%, if you like, of that $4 million to $5 million number.

So I think there's plenty of room for the business to grow and the offer to take effect. We're very good at mining our own existing ES client base for PEO client candidates, which is not cannibalization of our revenue. We get good revenue uplift from doing that. Certainly, it's all possible, but the biggest thing that we could benefit from in terms of lifting our growth rate up from the levels we're talking about would be a return to employment growth. But again, it's not our base case assumption, not just this fiscal year, but it's not our base case assumption in our medium-term guide, as you can tell from the 6% to 8% we were talking about in the medium term.

Yes. I got to ask you the popular question on rate cut potential. So 25 to 100 basis point rate cut, how do we think about that impact to the model?

Yes. So I mean our current year guidance contemplated the -- I think it was around 100 basis points that the market had baked in when we were pulling our forward curve. So we don't come up with our own prediction of rates. We just use the forward curves that exist at the time when we give guidance. So if there is 100 basis points over our fiscal year, which, again, we're in the first quarter at the moment, then that should have no impact, if you like, on us being able to deliver our current year guidance with respect to client funds interest.

For us, we have more interest rate exposure, if you like, to the -- a little further out on the curve than Fed funds. If you look at Fed funds, I don't have the numbers to hand, but they're in our 10-K filings, what a 25 basis point move is in short-term rates only is single-digit millions of dollars. And again, we have contemplated, I think we actually explicitly said that in our prepared remarks for our last earnings call. So 100 basis point move in Fed funds, all else being equal, shouldn't have any impact on our numbers. And again, our exposure is a little further down the curve than Fed funds when you look at sort of our client short and our borrowing numbers, there's somewhat of a close natural hedge there. So I'm not -- we're not concerned about that. Should that happen. If anything, that might actually be a net tailwind to ADP if it does sort of help the broader economic environment should that happen.

But in terms of our client fund interest, no, not expecting that -- those rate cuts, if they materialize to have an adverse effect on the numbers that we've been talking about for the year. We're much more -- again, our model for those who follow it is much more -- the best thing you can do to look at sort of where ADP is heading in CFI, at least in the sort of this year and the next couple of years is each fourth quarter, we produce in our earnings materials, we produce a schedule, maturity schedule, which shows the dollars maturing and the embedded rates. That's the biggest driver, not so much changes in absolute rates even because if we look this fiscal year, we have $7-plus billion maturing at an embedded yield of 1.5%. So you can apply your rate. And again, they're not invested at Fed funds. They're invested typically over durations out to 10 years. So that's what moves the needle much more for us is sort of those yields from, call it, 2 to 7, 8 years is more what moves the needle for us and moves relative to our maturity stack than just the growth in the balances themselves.

We got about 60 seconds, so I'm going to do what every analyst always tries to do, which is cram in 2 questions, long questions that you're going to try to answer in 60 seconds. The first one, just there's been tremendous margin expansion at ADP over the last 5 years. How much more is there left? And any key drivers you can point out in 30 seconds? And then I got another one.

Yes. I think more than 5 years, I think we've been -- we had a great track record with margin expansion. We expect that to continue. Again, we gave our guide many things. Again, growing the company is the most important thing in terms of delivering margin expansion. That's what I would say. We have plenty of opportunity, I think, with AI and other initiatives we have to make -- to improve our productivity. It's important for us. We continue to invest, but growing the company is the most important thing for us in terms of margins.

And then I'll leave you with this. You've been a couple of months at -- in your CFO seat here at ADP. What surprised you the most?

Good thing is I've been at the company for, like I said earlier, more than -- a little over a couple of decades. So not a huge number of surprises. The transition was very well managed by the Board, Maria and Don, my predecessor. So not a huge number of surprises, just excited about the opportunity in front of us and plenty to do, plenty to execute on, but really looking forward to it.

Great. With that, Peter, thanks so much for being here.

Thank you, Bryan. Appreciate it. Thank you, everybody.

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 Fourth Quarter Fiscal 2025 Earnings Call. I would like to inform you that this conference is being recorded. [Operator Instructions]. I will now turn the conference over to Matt Keating, Vice President, Investor Relations. Please go ahead.

Thank you, Michelle, and welcome everyone to ADP's Fourth Quarter Fiscal 2025 Earnings Call. Participating today are Maria Black, our President and CEO, and Peter Hadley, 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 also find the investor presentation that accompanies today's call.

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 are 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. I'll now turn it over to Maria.

Thank you, Matt, and thank you, everyone, for joining us. We closed out fiscal '25 with a strong fourth quarter that included 8% revenue growth, 40 basis points of adjusted EBIT margin expansion and 8% adjusted EPS growth. For the full year, we delivered 7% revenue growth, 50 basis points of adjusted EBIT margin expansion and 9% adjusted EPS growth. We achieved these financial results while also making significant strides across our strategic priorities. I will briefly review some additional highlights from our results before discussing this strategic progress.

We delivered approximately $21 billion in Employer Services, new business bookings in fiscal '25, representing [ 3% growth ]. While this was below our expectations, we were able to produce another year of growth, notwithstanding the incertainty and the macro backdrop in the second half of fiscal '25. Taking a closer look, our small business suite in our domestic enterprise offerings solid bookings growth in fiscal '25. We did experience a softer finish in our Employer Services HR Outsourcing business, where the uncertain macro backdrop appeared to impact client decision-making. And while our international bookings improved during the fourth quarter, it was not enough to offset the softness from earlier in the fiscal year.

Importantly, our pipelines remain healthy, and we are laser-focused on accelerating Employer Services, new business bookings growth and fiscal '26. We were very pleased that our Employer Services retention exceeded our expectations once again. increasing 10 basis points to 92.1% for the year and approaching a record high of 92.2%. Our strong retention stands apart from our company-wide client satisfaction scores reaching new record high for the year. These impressive results were broad-based and are a testament to the product investments we are making to improve the client experience. Employer Services [ pay per ] control increased 1%, both Q4 and fiscal '25. Our clients continue to hire, albeit at a slightly slower pace as we move through the year.

Finally, our PEO new business bookings growth accelerated in the fourth quarter and for the full year, contributing to fiscal 2025 PEO revenue growth of 7% at the high end of our expectations. And our fiscal '25 accomplishments extends far beyond our strong financial results. We drove meaningful momentum across all three of our strategic priorities. Leading with best-in-class HCM technology, providing unmatched expertise and outsourcing and benefiting our clients with our global [indiscernible].

First, it's been a great year for innovation at ADP. Since its launch, ADP Lyric HCM has continued to gain momentum in the market. Our number of clients sold increased by more than 50% in fiscal '25 with new logos representing the majority of our new Lyric sales and we secure these clients from a diverse set of [indiscernible]. Our number of live clients also doubled compared to the prior year and our pipeline has continued to grow. On the AI front, we continued the rollout of ADP Assist which provides the latest AI driven capabilities into our products, and we're seeing fantastic engagement from our clients with millions of interactions in fiscal '25. To further build on our unmatched expertise, we have also deployed these tools across ADP to thousands of our associates, driving efficiencies in our sales, service and technology functions.

By coupling our decades of experience with our significant data insights and AI investments, we are simplifying work for our associates and elevating the end-to-end client experience. Finally, we continue to benefit our clients with our global scale. In fiscal '25, we enhanced our unmatched global payroll capabilities by expanding our offer in markets with exciting growth opportunities like Japan and Saudi Arabia and by acquiring payroll business like PEI in Mexico. In addition, we expanded our embedded payroll offering to enhance our small business distribution ecosystem. We also acquired Workforce Software in fiscal '25, which meaningfully enhanced our capabilities in the time and attendance space, allowing us to serve the broader workforce management needs of our clients.

Now as we look to fiscal '26, we are excited to make even more progress across our strategic priorities as we advance several company-wide initiatives. The AI landscape is evolving fast, and we are making sure that we stay ahead. Our vast data set is key to this. We benefit from the largest HCM data set with over 1.1 million clients and 42 million workers paid. This data allows us to expand our offering from simple agents to autonomous agents and our broad and granular data set puts us in a strong position to deliver smarter and more tailored HCM agents that will be truly differentiated in the market. To accomplish this, we have invested in establishing our own proprietary rules to help scale our agent development in a compliant, explainable, observable and secure manner. We have already rolled out a few role-based agents and client adoption and sentiment have been strong. We will also continue to harness AI [indiscernible] to drive operational efficiency, reduce service friction and deliver even greater value for our clients as we expand ADP Assist into our products and throughout our organization. By extending the reach of our next-gen solutions, we build on the momentum, Lyric and Next-Gen Payroll are experiencing.

Finally, our acquisition of Workforce Software and the maturity of Lyric are serving as catalyst evolution of our global offering. We believe we have an opportunity to deliver a differentiated product and client experience that wins in the global multinational market. The success we achieved in our fiscal '25 financial results and across our strategic priorities is a testament to the extraordinary efforts of our 67,000 dedicated associates around the world, and I want to take a moment to thank our associates for their commitment to our clients to each other and to the world of work.

As I look ahead, I am energized by the opportunities in front of us. We operate in a dynamic market. It's large. It's growing. It is always growing and we are ready for what's next. We have decades of HCM experience and track record of leading innovation. We have a leading go-to-market and distribution strategy and the ability to support clients of all sizes, be it a one employee small business on Main Street or the largest enterprise with more than 1 million employees, and we have an established reputation for dependability. We understand the mission-critical importance of helping our clients meet the HCM needs of their employees.

At ADP, we are always designing for people. They are at the center of every decision we make, and as we move forward, we will continue to focus on people to leverage our unparalleled data insights and innovative technology and to build a world of work that is smarter, easier and more human. We are very excited about that future. And now I'll turn the call over to Peter.

Thank you, Maria, and good morning, everyone. I will start by expanding on Maria's comments on our Q4 and fiscal 2025 results before covering our fiscal 2026 financial outlook. Our Q4 performance was strong, and this helped to drive both fiscal 2025 revenue and earnings growth to the high end of our expectations. The strength was broad-based, with revenue growth in both Employer Services and the PEO coming in at the top end of our full year guidance ranges.

The end result was full year revenue growth of 7%, bringing fiscal 2025 revenue to $20.6 billion. For Employer Services, revenue in the quarter increased 8% on a reported basis and 6% on an organic constant currency basis. ES margins expanded 50 basis points in Q4, exceeding our expectations. For the full year, ES revenue grew 7% on a reported basis and 6% on an organic constant currency basis, while ES margins expanded 100 basis points.

For the PEO, revenue grew 7% in the fourth quarter. During the quarter, average worksite employee growth increased 3% to 760,000, driven by strong new business bookings and stable pays per control growth. PEO margins contracted 20 basis points in the quarter, mainly as a result of higher zero-margin pass-through benefits revenues as well as an increase in state unemployment insurance costs. For full year fiscal '25 PEO revenues grew 7%. Average worksite employees is 3% and PEO margins contracted by 60 basis points.

I will now share our outlook for fiscal 2026. While the macro backdrop remains uncertain, we believe that we are well positioned to deliver solid financial results while continuing to invest for future growth and make additional meaningful progress on our strategic priorities. Our fiscal 2026 outlook assumes a continued slight moderation in the macroeconomic environment. Please note that we will no longer be providing point margin forecast for our ES and PEO segments as we do not manage our business to drive a particular segment margin results. We will continue to share our actual margin results by segment to quarter, and we will also look to provide directional segment margin commentary as a project.

Beginning with the ES segment. We expect revenue growth of 5% to 6%, driven by the following key assumptions. We expect ES new business bookings to grow by 4% to 7% as we expect growth to accelerate from our fiscal 2025 result based on continued investments that we are making in both sales force head count and tools as well as the continuing maturity of several key strategic offerings, such as Lyric, Workforce Software and Embedded Payroll. For ES retention, we forecast a 10 to 30 basis point decline from the 92.1% result for fiscal 2025. We are encouraged by our continued retention achievements and our record client satisfaction scores. However, we think it is prudent to expect some retention pressure from a continued moderate slowing in the macroeconomic environment and the potential for some increase in small business out of business levels.

As we mentioned on our prior earnings call, we see the potential for below normal U.S. pays per control growth in fiscal 2026 and our outlook assumes 0% to 1% growth for the year. This view is consistent with the trends that we are seeing of a continued graduation in U.S. private sector payroll growth. Also expect FX to transition from a slight headwind to ES revenue growth in fiscal 2025 to a modest tailwind in fiscal 2026. And for client funds interest revenue, the interest rate backdrop remains dynamic, and it is important to remember that our client funds interest revenue forecast reflects the current forward yield curve, which is likely to evolve as we move through fiscal 2026.

At this moment, we expect that our average yield will increase from 3.2% in fiscal '25 to 3.4% in fiscal 2026, which contemplates the market's expectations for short-term interest rates to decrease by around 100 basis points during the fiscal year. We also expect that our average client funds balances will grow 2% to 3% in fiscal 2026. Putting all this together, we expect that our client funds interest revenue will increase $1.19 billion in fiscal 2025 to a range of $1.29 billion to $1.31 billion in fiscal 2026. Meanwhile, we expect that the net impact from our client fund strategy will increase from $1.07 billion in fiscal 2025 to a range of $1.25 billion to $1.27 billion in fiscal 2026. We expect ES margins to expand in fiscal 2026 driven the continued growth of client funds interest revenues, partially offset by the growth investments we are making in support of our strategic priorities.

Moving on now to the PEO segment. We expect PEO revenues to grow 5% to 7%, and PEO revenues, excluding zero-margin pass-throughs to grow 3% to 5% in fiscal 2026. Our growth outlook also assumes average worksite employee growth of 2% to 3%. We are anticipating continued healthy PEO [indiscernible] bookings growth and higher retention to be partially offset by a modest decline in PEO pays per control growth. We expect PEO margins to decrease in fiscal 2026 and with zero margin pass-through growing faster than overall PEO revenues. Adding it all up, our consolidated revenue outlook is for 5% to 6% growth in fiscal 2026, and we expect adjusted EBIT margin expansion of 50 to 70 basis points.

We expect that our effective tax rate will be around 23%, and we expect fiscal 2026 adjusted earnings per share growth of 8% to 10% supported by continued share repurchases. A quick note on our margin cadence. Due to the impact of the Workforce Software acquisition and the timing of some other investments we are expecting some contraction in our adjusted EBIT margin on a year-over-year basis in the first quarter before margins ramp over the remainder of fiscal 2026. Thank you, and I'll now turn it back to the operator for Q&A.

[Operator Instructions] Our first question comes from Bryan Bergin with TD Cowen.

I want to start with demand here and maybe just dig into the areas of the ES Signs underperformance versus the plan. It sounded like HRO and international. Can you share more thoughts on the HRO softness just despite the efficiency proposition there. I'm curious on that. And is that mid-market softness specifically?

Happy to help kind of unpack $2.1 billion in bookings that we had on the 3% growth and the attribution. So as mentioned, we all look to growth in the small business suite that's elusive by the way, of our insurance offering, our retirement services offering. We saw strength in the domestic enterprise suite. When you think about that, that's the strength we've seen in Lyric, that's Workforce Software, that's the strength that we see in our Compliance Solutions offerings, employment packs, things of that nature. The softness that we spoke to was in international but specifically to your question since you were asking about HRO, just kind of double-click on that.

The domestic HRO business is a combination of the upper end of the mid-market, if you will, as well as, call it, the lower end of the enterprise space. Product-wise, those are two offerings, named Comprehensive Services and a Comprehensive Outsourcing Solutions. And those are oftentimes very, very large opportunities for us. They're complex. They have long sales cycles. They often involve lots of departments, lots of decision-makers think HR transformations, if you will. And we did see some strength in that area in the first half of last year. We saw it moderate in the third quarter, but we had a significant pipeline heading into the fourth quarter, but we just didn't see the decisions being made in fourth quarter.

Now the good news is because you asked about activities and how that pipeline is faring. These are still active deals. These aren't deals that said no and said a different answer such as a competitor. These are just delayed decisions that didn't happen in the fourth quarter. So the pipeline remains strong. It is up year-on-year, and ultimately, the activity and the healthiness of that pipeline remains as we head into fiscal '26.

Okay. That's helpful. And I guess just a follow-up on broader bookings. Just can we double-click on the confidence in reaccelerating off that 3%? I heard product maturity as part of it. Are there also some specific kind of go-to-market or pricing initiatives that you're implementing? And can you just comment on how July performed? Just curious if it was any better than June exit?

Yes. Fair enough. So product maturity is absolutely part of it. We're really pleased and optimistic and confident in the decisions that we've made as it relates to the investments we made into product that's organic builds. That's all the Next-gen offerings that you would have seen at Investor Day. In addition to that, it's things like the acquisition. So we feel confident in the Next-gen offerings as they gain momentum combined with things like the Workforce Software acquisition heading into '26. So that's definitely a piece of our confidence as it relates to the booking guides heading into the year.

In addition to that, as you know, Brian, we've made tremendous investments into our sellers. That's everything from head count to the ecosystem around them, that's banks, CPA, that's broadening the distribution ecosystem with partnerships. As an example, in Embedded Payroll, so those investments, we also feel very confident heading into the year. In addition to that, we also make a lot of investments into our seller technology and the modern stack that our sellers use to be efficient in gaining productivity each and every year. We've been on that journey for quite some time. We showcased a lot of that, specifically at Investor Day, things like the Zone, which is our proprietary, if you will, portal for our sellers to engage with things like generative AI to serve up the right lead at the right time to the right seller. So I think the combination of all our investments, coupled with, by the way, incredible service, setting out record NPS results. I think all that makes for a solid seller environment heading into the year.

I think in terms of pricing, there's always pricing activity that happens. I wouldn't say that there's anything different happening across the ecosystems, run promos, the others run promos. That's kind of on par. I think pricing and the demand holds there? And then I think you asked me one more thing.

Just July.

July, yes, July, it is July 30th. I think it's too early to comment on July. I think the biggest comment I would say is the one I said earlier, which is that pipeline activity remains strong. It's healthy, it's engaged, it's up year-on-year, and that gives us confidence heading into the quarter as well as the year.

Our next question comes from Ramsey El-Assal with Barclays.

I wanted to ask about the pricing contribution in fiscal '26 whether it's more analogous to what we've seen maybe historically or whether it remains a little bit elevated just given inflation is also a little bit elevated?

And I had a second question, I'll just throw it in here. It was just on the better-than-anticipated retention result this quarter, whether there was any particular call-outs or drivers or reasons why you saw the outperformance?

Yes. Thanks, Ramsey. Thank you for the question. Just with respect to pricing, if you're talking about the historical norm sort of the 50 basis points we used to talk about, I guess, sort of pre-pandemic and the post-pandemic inflation period. Our pricing assumptions for '26 are more consistent with the near term. So in that 100 or so basis point range, that's our expectation. It's -- we have a slight moderation factored into our plan for '26 versus '25. But we're more in the camp, if you like, of recent pricing trends versus sort of the pre-pandemic pre-inflationary environment increase in terms of our pricing.

And in terms of the retention performance, we were really pleased with retention and the way that came in, in the fourth quarter. There's no real specific call-outs. We were certainly pleased on the small business side that we did not see some of the potential small business out of business lift that we have been sort of cautioning, I guess, our guide around. But really, the performance was very much broad-based across the company, and we saw some great retention results across all of the segments as well as in our international space.

Our next question comes from Mark Marcon with Robert W. Baird.

With regards to Workforce Software getting integrated more fully. What are you seeing in terms of just the early results from Workforce Software? I know that they're still selling independently. And to what extent do you think you will end up getting a lift on the upper enterprise side once it's fully integrated with Lyric?

Sure. Mark, we are incredibly excited about Workforce Software and the journey that we've been on with respect to integration. We did see Workforce Software to contribute to bookings. We did see the contribution of the overall environment as it related to going through kind of the pipelines on both sides and the overlap and seeing how the narrative started to evolve for us. Internationally specific in these large, complex, multinational opportunities. And I will tell you that the receptivity amongst both client base as well as our independent opportunities as well as the shared ones has been above our expectations. And so we remain incredibly bullish on the acquisition we made as we continue that journey of integration. We do expect that it will contribute significantly to our growth narrative specifically in our MNC international space this year as well as the coming years.

Yes. And just to add on to that, I would say, Mark, you're correct. The team is continuing to sell Workforce Software on a stand-alone basis, and that was always part of the plan, and we expect that will continue. But in terms of selling with ADP products like Lyric, like GlobalView, for example, that's already happening. That's not a future event. Obviously, we have to continues this in the future, but it's not something that has not yet arrived yet. We've already seen traction in FY '25 with respect to sort of call it, co-selling with ADP products. So we're already well and truly off to the races, I think, with respect to Workforce Software being part of the integrated suite from a selling perspective.

Great. And then I demoed Workforce Now Next Gen at [indiscernible]. And I thought it was pretty impressive. And I'm wondering to what extent are you selling the Next Gen product now relative to the old Workforce Now? And what sort of lift would you expect to see there from some of those improvements?

Yes. First and foremost, thank you. I'm glad you were at [indiscernible]. I'm glad you have the opportunity to take a look at the Workforce Now Next Gen, as we showcase it there for the exact design, which is continuing to expand the reach of that offer. So I think we've been loosely talking about it being deployed across the core market throughout fiscal '25, we continue to expand beyond the core market, and that is the plan for '26. And that was the purpose, if you will, of the -- somewhat of an unveil at the [indiscernible] Conference. So that's the intent -- is part of the confidence that we have in the 4% to 7% bookings acceleration, if you will, as you think about heading into the year and being able to deploy the Next Gen Workforce Now to a broader set of the mid-market clients. We're really excited to see that product mature. We're seeing great wins. We're seeing great takeaways. We are definitely seeing it make an impact in the market, and happy to hear that it shows well.

Yes. And also just from a downstream perspective, the client satisfaction scores with respect to Next Gen payroll with Workforce Now are really, really robust and continuing to improve. And I was talking out operations leader, the other day, the implementation experience is getting better and better. And also from a client user perspective, the number of contacts that clients on Next Gen have to make to ADP in order to solve their needs -- significantly reduced versus sort of the current gen model. So in terms of what it will bring us in terms of bookings, as Maria outlined, but downstream, also really excited about the potential impacts of expanding that offering more widely across the client base.

Our next question comes from Samad Samana with Jefferies.

Maybe first, just curious, if you think about where the quarter stick out, how does that maybe compare to what you were thinking at the time of the Analyst Day? And did it surprise you relative to what you were expecting at that time? And then I have a follow-up question as well.

Yes. Samad, thanks for the question. Are you referring to bookings or just more generally. I think we were very happy with how the quarter...

Yes, i was thinking about bookings. Right, just in terms of like how you were thinking about bookings at the time and maybe I'm just trying to figure out if there is a trend line change. And I know that, again, the pipeline tends to be very good. But I'm just kind of curious, basically, if there's some change that happened in the last couple of weeks of the quarter? Just as -- I know you guys aren't really commenting on July, but just as we think about the trend line from there, just what did you experience over that kind of a couple of week period?

Yes. So I would say in terms of Investor Day, we were very much focused on the medium term. So what are we going to do over the 3- to 4-year period, it wasn't driven by particular quarters or even in particularly individual fiscal years. What I would say with respect to bookings, and I think -- it's been said on this call before. Our fourth quarter is our largest quarter of the year for bookings. Within the fourth quarter, the June month, is the largest month of the quarter and literally within the month of June, the last week or two is the biggest period of the year. So to be candid with you, we weren't necessarily thinking of what the result would or wouldn't be with respect to the numbers we framed for our medium-term guidance.

Certainly, we were anticipating a little stronger finish than what we ended up with. I think Maria has outlined the reasons for that. But I wouldn't really draw a trend line or certainly a linkage between the medium-term guide that we put forward this quarter. And certainly, I would not take from this quarter result, extrapolate any trend in terms of where we think our medium-term objective is we're still very much committed to the numbers that we spoke to at Investor Day.

Obviously, within a full year, we have to give guidance. The macro backdrop still remains uncertain. I think there's potentially a little bit more volatility, either positive or negative that could happen during the year versus what we're anticipating to be the case over the longer period. So that's how I would think about it. But no real discernible linkage, I would say, between how we finished FY '25 and sort of the medium-term objectives that we shared 6 or 8 weeks ago.

Great. And then Maria, Lyric has done really, really well over the last year and you guys have increasingly talked about it. I'm just curious, the product itself, I think, has been a big part of that. Help us think about distribution, though? And how much better is the sales organization and selling and then how are you thinking about indirect distribution there? And maybe, I guess, sorry to make it a multipart question, but just should it be a bigger component of bookings in fiscal '26?

Yes, it's a great question. And you are absolutely correct. We are incredibly excited about Lyric. It's strong reception in the market, the contribution to bookings -- by the way, in '24, also the contribution of bookings in '25, as I cited. Lyric did enjoy robust sales growth, if you will, in '25, and we certainly anticipate that only grow into '26 and beyond.

In terms of the direct distribution, today, it is because in that enterprise space in the domestic space. We are expanding that into the global footprint, as we think about the offer of Lyric kind of in the MNC space going forward. That is through our sellers and our seller ecosystem. But even in our upper end of the market. I know we talked a lot about channels in the down market. We talk about CPAs and banks in the mid-market, we talk about brokers. But even in the upper end of the market, we do already distribute and partner with whether it's big, large organizations that are driving other types of transformation. So we have partnerships with some of the big ERP players.

In addition to that, you have partnerships with a lot of the system integrators. And is there an opportunity as we continue to build and scale the offering to continue to evolve our distribution mechanism? I think the answer to that is absolutely. Too early, I think, at this juncture to say what the impact of that would be in '26. But certainly, our goal is to continue to evolve the distribution and uptake of Lyric and it is definitely resonating. I will tell you, we've been ourselves just somewhat blown away by the receptivity in the market. It is the most modern HCM tech platform that's out there. It's flexible, it's adaptable. I think you had an opportunity many of you to see it at Investor Day, and it's definitely something that is being talked about, and we're happy to see the wins. We see them against some of the most formidable competition. I see, again, the receptivity in the market exceeding our expectations. So excited to continue to lean into it.

Our next question comes from Tien-Tsin Huang with JPMorgan.

Just building on that last answer. Just the confidence in overall bookings accelerating in fiscal '26. Just how much is driven by head count investments that you put into place versus higher sell-through attached new products, that kind of thing versus '25?

Yes. Fair enough, Tien-Tsin. First and foremost, I would say our sales from new opportunities versus the beyond payroll, if you will, remains at 50-50. That is our plan. That's kind of held steady as long as I can remember. So I would say that is our expectation for next year. So we're not over rotating away from kind of that. In addition, we're not over-rotating on sales headcount. I think several years ago on the heels of the great resignation, we leaned into head count quite a bit, and we needed to because we had, just like every other company is seeing an uptick in attrition.

But as attrition has a beta, the big strength in the seller productivity is really the lift we're getting from tenure. But we are still making head count investments. They will look largely in line with what we did in '25 and what we did in '24, which is kind of that mid-single digit, if you will. So it's an investment in head count, it's an investment in everything I talked about earlier around the sellers in terms of their ecosystem. And then it's also this bit of a natural uplift that we get from increasing the tenure of all of our sellers, which is fantastic.

Terrific. Just and then quickly on retention, still very high, impressive. Just I know it's reasonable to assume some decline from that high this year. But is the -- is the 10 to 30 assuming more on the voluntary versus involuntary attrition? I'm just trying to understand if there's anything more specific that you're paying attention to as you go into the new fiscal year?

Yes. I mean I'd say nothing particularly specific, Tien-Tsin. I think it's probably a little more on the involuntary. But again, the macro environment, we have to see how it plays out. We were positively surprised, so to speak, I guess, in '25 and '24. We're hoping that will be the case also in '26, but we feel sort of the prudent responsible position at the moment, just given the trends we do observe in most of those trends that we're observing, obviously, we listen to what the economists and what the external sources are saying, but we see a lot and draw a lot of our conclusions from our own data.

Now again, our data on retention is strong, but there are signs that we feel we should be prudent, but I would certainly not point to upticks in voluntary client attrition is again, all the indicators on that, be it client satisfaction and just the trends we've been observing are very [indiscernible]. So I would point that more to being a macro assumption that we hope does not materialize.

Our next question comes from Kartik Mehta with Northcoast Research.

Maria just thoughts on for [indiscernible] right now, they're in a delay. At what point does delay become cancellation? Or what signs have you seen that give you any concern at all. It seems like you don't have any concerns, but it seems like things progress and delays can become cancellations?

Sure. We're looking at all of that. So maybe a way for me to answer the question, Kartik, is to just kind of unpack how we think about pipelines and activity in general. So if you think about the various segments, and I'll start at the small end, in the small business, it's really not about pipelines. Many of those opportunities we're able to literally onboard in hours, if you will. And so we're looking more at activity measures, right? And that's everything from leads coming in, call it, how many appointments sellers are on opportunities that are being generated. And so we're looking at the activities, specifically, what I would say across the small business portfolio across even the core end of the mid-market. That's a very active, healthy activity that's happening out there, and we don't see any moderation in kind of the -- activity out there, right?

And so in the PEO space, specifically, we're looking at things like RFPs, requests for proposals, that is, we're looking at asks for benefit underwriting, lots of different measures that we look at to, again, assess whether or not the activity levels have changed. And the answers there is they continue to remain healthy. The upper end of the mid-market heading into the enterprise and international, that's really where we're looking at pipeline. Oftentimes, these sales cycles are months, sometimes, if not years. so you can really see kind of the pipeline activity. There is some pipeline aging that's happening. That's not necessarily new news. I think we've talked about on previous calls that were kind of back to the new normal or the old normal pre-pandemic where you have a lot of decision-makers and the deals are moving through the motions more in line with how they used to move through the motions, and that's definitely what we see. We do see the pipeline has aged a bit, but it's still active. The opportunities are healthy and there's -- when I say active, there's side logs back and forth, and so -- and year-on-year, it is up. So what I would say is all across, whether it's new appointments that are being done out in the field in the down market, RFPs that are being requested in the PEO or in the enterprise base and international space, the pipelines are continuing to grow and new opportunities are entering and the ones that are in there are healthy. All signs point to a broad-based healthy pipeline and activity backdrop heading into the year.

And then just, Peter, on the PPC, the difference between ES and PEO. If you're seeing any difference or if it's still kind of holding steady, both about the same?

Yes. It's -- they're both holding relatively steady. Again, we've seen this gradual moderation through FY '25 and also over the last couple of years. What I would say is the two numbers are quite similar, I would say. What we have seen in recent couple of quarters, I think it is the PEO is actually gone a little above, if you like, the ES segment, which has been traditionally where a PEO is [indiscernible] traditionally had higher PPC in the PEO than what we have had in the ES.

As you'll remember, that flipped for a number of quarters, not in a meaningful way, but it had flipped. It was something we noticed because it's not typically the case. So I would say that dynamic between the two is returned to normal. There is a little bit higher PPC growth in the PEO, we're experiencing what we're seeing in the ES. But the numbers are really quite similar and the trends are also pretty similar. So I would say in terms of our guide next year on ES, PEO is not too far away from that, let's put it like that.

Our next question comes from Scott Wurtzel with Wolfe Research.

Just wanted to ask on the PEO guidance and sort of the widening gap between reported revenue growth and revenue growth ex pass-throughs, I'm just wondering if you can talk about what's driving those higher expected contribution from zero margin pass-through revenue for fiscal '26 versus '25?

Yes, Scott. So probably two things. In terms of the zero-margin pass-throughs, we're expecting those to continue strongly health insurance inflation, really, the cost of health insurance is sort of driving the benefits pass-through revenue, obviously. In terms of the non zero-margin pass-through. What we are assuming in our outlook is -- and we saw a little bit of this in the fourth quarter. We'll see whether that actually materializes. It is some moderation in wage growth. So we've -- we've had experience in both the PEO and as well also in our client fund balances through '25. We've experienced really strong and benefited from strong wage growth levels.

Like I said, we saw that come off a little bit in the fourth quarter. And again, really based on a macro assumption primarily, we're assuming some that, that will continue, but not at the same rate that it was in '25. So that has a little bit of an, call it, a dampening effect on the non-pass-through revenues. The other piece on the PEO that we also saw -- now this is low-margin revenue, but in '25, we saw elevated state unemployment insurance rates that came out in the January period. We're not expecting the same thing again. So again, that doesn't have much of an effect on our margin. But from a revenue perspective, that we're expecting that to be a little lower in '26 than what we saw in '25.

That's helpful. And then just as a follow-up on the Embedded Payroll side and particularly around the Clover partnership. Just wondering if you can kind of update us where you are sort of on the integration and getting that into market as well as sort of what you're expecting from the Clover partnership and other Embedded Payroll offerings for fiscal '26 in terms of contribution to bookings?

We are very pleased with things and how they are progressing with specifically the Fiserv partnership or Clover as you mentioned, I would tell you, we are partnered across every aspect of our business and each of our groups. So our respective sales, product, executive teams. We've been working incredibly hard together and also incredibly well together. As you are aware, back in May was when we put -- we put the run offer inside of Clover, but it's only deployed to a subset of Fiserv or Clover's, what they call their back book or their client base. And so we're really excited as we head into this quarter and specifically '26 to have a further broader deployment across the back book there.

In addition to that, we are also working this year to put the Cash Flow Central inside of the RUN offer, which also will put the small business ecosystem together for our mutual clients. So what I would tell you is we would expect bookings contribution based on this relationship. I think it's all in front of us still. So I think this is a big year for us as we head into this opportunity. But that said, they're also -- from a $2.1 billion in bookings, it is in that down market, and it will contribute significantly to the downmarket ecosystem. But in terms of a discernible uptick based on this relationship, I think that's probably too early to see that at this juncture, but really excited about the partnership really excited about how it's progressing and the opportunity is largely in front of us.

Our next question comes from James Faucette with Morgan Stanley.

Appreciate all the details here. Wanted to ask Maria, you just emphasized your range of partnerships, et cetera, and I think it creates a lot of opportunity. Just wondering how that's impacting your kind of sales channel management and forecasting. Just are you seeing improvement? Does it become more reliable? Or does it become more difficult? Just trying to think through how expanded use of partnerships can impact your visibility?

So thank you for the question, James. I think you know, I'm very bullish on partnerships as a way to accelerate, whether it's candidly, all three of our strategic priorities, which is to have the best technology the most robust offering and the most and biggest largest global scale. So I think we have partnerships that sits squarely into each one of our segments, to advance the strategic priorities. And all of this is, in my mind, what it means to be a modern company to ensure that you're really good at what you're good at and leveraging others to extend your reach, whether it's through distribution or it's just to solve client opportunities. And that's exactly what we do, and that's exactly what we've been doing.

What I will tell you is we are also very thoughtful about how we partner. And so when I say we partnered as an example on the Embedded Payroll at all of the levels of the organization, whether it's the executive levels or it's the seller level. A lot of this is about perfecting the model so that we do not change, call it, fundamentally visibility into our business or at some level like how we actually go to market. So what I would tell you is we have not seen an inability for us to have a view on results or pipelines or activity levels by virtue of our partnership. I think if anything, it's extending and expanding our visibility because we have more eyes and set opportunities.

So if you imagine in the upper end of the enterprise or MNC space as we're partnering with SIs. We have more visibility into all of the things a client is trying to actually accomplish, which at times is all about HCM, but sometimes and HCM transformation might just be a subset of a larger project. I think in the down market, CPAs and banks, they have full visibility to those clients. and certainly, these partnerships and how we're structuring them as we expand the reach of our ecosystem, such as Embedded Payroll, we're very thoughtful to make sure that we're not dis-intermediating anything that is the way that we do business as ADP.

Yes, I can confirm that. There's no adverse effect on our ability to forecast really the partners really enhance our opportunity and help us to deliver -- in no way does that sort of impede or make it more difficult or more easy for that matter to get our forecasting on point.

That's really useful color and insight into how that's developing. I wanted to touch on one of those partnerships, and that's Wisely and [indiscernible] access. I don't think we've gotten much of an update on that product in quite some time. How is that attached trending? And I think more specifically, you introduced a fee-free earn wage access program with Daily Pay a few years ago. And I know it's a small product in totality, but just curious to hear how [indiscernible] among RUN clients has evolved over the last 12, 18 months?

Yes. What I would say is, you're right, it is a small part. We are pleased with the Wisely member count that we have. I don't know that we're in a position to provide any more specifics around that offer than I think what we've talked about it is attaching. It is attaching, I guess, for specific use cases for certain clients. And some of those are on the smaller side at the member count standpoint, i.e., an employee actually making choices for some of these things and some of it is at the aggregate in certain types of industries, it seems to be a significant interest in this way.

I think actually, we produced in our ADP Research Institute Today At Work report that came out just this past few weeks. And in that report, it talks about the frequency by which everything from generations to segmented clients, i.e., by size, once it get paid. And so it is kind of interesting to track these trends, and I encourage you to take a look at it, James, in terms of what type of employee it is that wants to be paid, whether it's biweekly, which by the way, is the bulk of the United States as an example, is paid by weekly or twice a month.

But in terms of this daily element or this ability to get paid, call it, on-demand or early wage access, you can kind of see some of those trend lines in there. And so I think, again, clients that have workers that categorically fall in there. This offer is a fantastic solution. We're very pleased with what we have, and I think that's probably the best color I can give you.

Our next question comes from Ashish Sabadra with RBC Capital Markets.

This is David Paige on for Ashish. Maria, Peter, I was wondering if you could just detail what the AI contribution is to margins, either on the upside or is investing that still needs to go on to get the AI products through and up and running? Any color there would be helpful.

Yes, sure, David. So we are -- and we've sort of said this relatively consistently, I think, the last few quarters also at Investor Day. So the situation has not changed. We are seeing meaningful productivity improvements and opportunities. We have businesses, for example, in our downmarket and also our mid-market, you'll see next week when we release our 10-K, our unit -- client unit counts continue to grow at a very healthy and consistent clip with what they have been growing in previous years, yet we are able to actually see some operational head count reduction in those in those businesses as a result of generative AI and some of the other like-minded tools and things that we're deploying in those spaces. So it is real. We're not quantifying the amount of that, but it is certainly real and we are enjoying those benefits.

But again, as we've said in the past, we are deploying AI in a very thoughtful, governed way. So we are reaping benefits from where we have deployed, but we're also investing in further deployment of additional types of tools and additional other parts of the company. So we still remain in a net investment position. It's not a big, meaningful number. I think of it in the tens of millions of dollars, not hundreds of millions of dollars between the investment that we're making in deploying and bringing new generative AI capabilities to the organization versus call it, the productivity opportunities for one of a better word that they're already reaping from deployments that have been made over the last couple of years. So likely that will continue certainly through this fiscal year and that investment position.

But overall, we're very happy with the traction that we have seen from the deployments we've made, and we continue to be very focused and committed to continuing to deploy generative AI, both for efficiency and productivity reasons, but also for client user experience in our platforms, in our technology organizations and various places across the enterprise, either on the front end or on the back end.

And just a quick follow-up. I'm assuming the answer is no, but any pushback in the international markets from working with an American company or the evolving tariff situation that's going out there any puts and takes to share?

Yes. Your assumption is correct. The answer is no. What I would tell you in terms of our global clients, many of them are in that mid-market and upmarket. Many of these clients have been with us for years and new opportunities take several years. As you know, we have -- while we're a U.S.-based company, we serve our clients very much on the ground across many of these 140 countries. And so I think we have this mix of a global company but also incredibly local in terms of how we execute. So no, we have not seen any pushback with respect to decisions as a result of that.

Our next question comes from Dan Dolev with Mizuho Group.

I have two quick questions. So going back to mid-market software bookings, can you maybe elaborate a little bit how it did this year versus your initial expectations? And then I have a quick follow-up.

Yes. So in terms of mid-market software, as you know, the mid-market software that we have Workforce Now is deployed across the mid-market opportunities, call it tuck only. It's also deployed across our PEO. We haven't talked to PEO bookings yet, saw the quick plug because that team was very busy all of '25 and laser focused on reaccelerating bookings, and that's exactly what we did inclusive of Q4. So it's my shout-out to the all hands on deck execution there. But that workforce now also serves the mid-market there. The mid-market is also inclusive of our employer services, the comprehensive services HRO offer there. And so from a market standpoint, maybe [indiscernible] way to think about how that product is faring as you'll see it when we look at -- Peter has mentioned that. But when you look at the 10-K and you look at the client count there, you will see kind of an in-line healthy contribution as it related to the client count growth, specifically on Workforce Now. And so I think that's probably the best bellwether to take a look at the mid-market.

Yes. I mean just to add. So again, Maria just mentioned, we had strong PEO bookings. We were pleased with that she mentioned earlier in the prepared remarks. We had a strong first half but a softer finish on the ES HRO. I would say the tech offer for one of the description of our HCM sort of service offering, we call it for our mid-market was at more or less somewhere between the two relatively evenly between the two. So we were satisfied with how that performed in fiscal '25. And certainly, as we were talking earlier to one of the earlier questions, we are -- we see a lot of positivity in front of us particularly as we're able to expand the reach of the Next Gen payroll capabilities with workforce now in the mid-market going into '26.

Got it. And then just as a quick follow-up. You've had a big merger, your competitor acquired, took a page out of your book and acquired Pay Corp. Can you maybe talk a little bit about the competitive landscape that you're seeing right now following that merger?

Yes. So following the merger, I -- what I would offer is I don't think a whole lot has changed. I think we've talked about in the past, we compete very well against both of those competitors on a, call it, stand-alone basis. I would say in a combined set, we haven't seen anything change in the competitive landscape. As I always say, it's always been a very petite environment, specifically kind of in that mid-market. And we fare incredibly well. We see that in our retention rates. We see that in our service offering. We see that in client count growth -- we are really confident in the evolution and maturing of our Workforce Now Next Gen that serves that space. So I think you got a good story in that space, and we haven't seen anything changed specifically on the heels of that acquisition or merger, if you will.

And we have time for one last question. And that question comes from Daniel Jester with BMO Capital Markets.

Great I just wanted to follow up with Peter on a question earlier on the margin front. I appreciate kind of AI is still in the net investment position. If you think about maybe some of the other puts and takes on margin, it looks like maybe you're maybe lapping some of the investments and integration of Workforce Software in the forward year. You have a little bit of FX volatility. So any sort of other things you'd call out with regards to the margin guidance that we should be considering?

And just with regards to the seasonality, you talked about how margin is going to ramp throughout the year. Maybe what are the drivers of that?

Yes, sure, Dan. So in terms of the lapping of the Workforce Software position, I would say our investing in the product and the integration of that product with Lyric with Workforce Now with our Global Payroll offerings, we'll continue right through the fiscal year and we're not giving any comments beyond that, but I would probably be to beyond that. There's a huge opportunity, we think, there, and that's something that we're committed to and we intend to see right through to delivering best-in-class integrated offerings across that upper mid-market enterprise and global space.

What we're lapping is the amortization and the interest expense and so on that we took out with the bond that we used to pay for that. And that as you know, that's in the October period. In terms of other drivers, we have a bit of a tailwind from a revenue perspective with FX. That's actually a bit of a margin contraction item because the margin that, that FX comes on at is lower than the line average, to you have Employer Services and also of the company as a whole. So that's a little bit more of a negative factor, if you like, from a margin percentage perspective, but it delivers us some more revenue and some really, the margin story, I think, is we -- and I called it out in our prepared remarks, we have strong balances, client fund balances that are delivering through our laddering strategy, increasing client fund interest. We have productivity improvements, like I was talking about in terms of some of the initiatives in AI initiatives we've put through parts of the company. But we continue to invest meaningfully just in Workforce Software, but also in our other strategic -- key strategic offers. Like Lyric, Maria said, we had a great sales year. We were very happy with that. It means now we have a lot of backlog, and we have operational resources that we're on-boarding in order to get that backlog implemented and get those clients to revenue generating.

So we're investing in Lyric. We're investing in Workforce Software, as I said before, generative AI. And we're also cognizant, as we said at Investor Day, to balance that with margin expansion, so healthy returns for our shareholders. So that's really the margin mix unpacked.

This concludes our question-and-answer portion for today. I'm pleased to hand the program over to Maria Black for closing remarks.

Thank you, Michelle, and thank you again, everyone, for joining this morning and for your interest. I have the opportunity earlier to thank our associates. I'd like to do that once again and also to all of our stakeholders out there that support us and our journey. We had a solid 2025, and it couldn't be done without our associates, our clients, our analysts, our investors, I'm incredibly grateful for the support, and I'm also incredibly optimistic for our future as we head into '26 and beyond. Thank you very much.

Thank you for your participation. You may now disconnect. Everyone, have a great day.

Good morning, everyone. Welcome, and thank you for joining ADP's 2025 Investor Day. We really appreciate your interest in our company. I'm Matt Keating, ADP's VP of Investor Relations.

And before we get started, I just have a few reminders. First, this event is being webcast and all materials can be found on our investors website at investors.adp.com. And of course, we will be making forward-looking statements today that refer to future events and involve some risk. We encourage you to refer to the Form 10-K filed with the SEC for more information on these risk factors that could cause actual results to differ materially from our current expectations. We'll also be referring to non-GAAP measures today, and you can find in our filings with the SEC, a reconciliation of these non-GAAP measures to their most comparable GAAP measures.

Now for the fun part. We have a great agenda planned for this morning. We'll begin with our President and CEO, Maria Black, who will talk about where EP has come from and more importantly, where we are headed. Sreeni Kutam, our President of Global Product & Innovation, will then talk about how we're infusing AI into our organization. and driving innovation to deliver the best possible products and experiences for our clients. Then David Foskett, our President of Global Sales, will talk about our distribution and how we leverage it as a competitive advantage.

After David, we'll switch gears to our business units where Joe DeSilva, our EVP of North America and Chief of Operations, will cover our largest growth opportunities for our Employer Services segment in North America. Following Joe, we'll have Virginia Magliulo, our Executive Vice President of Employer Services International speak about our significant international opportunity and in particular, highlight our meaningful opportunity to expand beyond payroll outside the United States.

We'll then take a short -- we'll then have Brian Michaud, our Executive Vice President of Smart Compliance and HR outsourcing talk about our meaningful opportunity in the HR outsourcing space. We'll then take a short break before we'll have Peter Hadley, our Corporate Treasurer and incoming CFO, provide a look at our financial framework and outline our medium-term objectives. Following this financial update, we'll host a Q&A session. And after that concludes, we'll break off for lunch and product demos.

It is now my pleasure to turn the stage over to our President and CEO, Maria Black. Maria?

Thank you, Matt, and good morning, everyone. I am so excited to be here.

As Matt said, I'm Maria Black, President and CEO of ADP, and we are incredibly grateful to have you with us this morning and for your support and your interest in our company. Today, we're going to do a deep dive of ADP. We're going to talk about where ADP has been, and we're going to talk to you about our journey ahead. And we're going to talk to you about how we are differentiated from every other HCM provider out there. Today's message is about scale. It is about dependability and it is about innovation, the qualities that have driven ADP's durable revenue growth and the qualities that have allowed us to extend our HCM leadership.

ADP, we are the world's largest HCM provider with more than $19 billion in fiscal 2024. We serve 1.1 million clients, including 80% of the Fortune 500. We pay more than 42 million wage earners, our clients' employees in over 140 countries. We moved more than $3.1 trillion in client funds in the United States each and every year.

Scale is more important than ever in the HCM industry. The landscape around us is getting increasingly complex and the needs of our clients are wide ranging and evolving. And of course, there is the promise of artificial intelligence. ADP, we are big, but we are also broad. We support clients' every single HCM need. This includes HR, payroll time, benefits, HR outsourcing, talent, compliance and retirement. Our products and our services, they span the entire life cycle of employment from hire to retire. And along the way, we have the opportunity at ADP to gain significant insight into the world of work.

We are also the only HCM provider that supports clients of every single size, whether you're one employee small business on main street or you're the largest enterprise with more than 1 million employees that you pay on payday, ADP, we are prepared to meet our clients' needs.

So we've built over the last 50-some-odd years, a global network that serves our clients in 140 countries. Our global reach is unparalleled and deep, and we see meaningful opportunities to leverage our strength in Global Payroll and increase our revenue streams outside of the United States. We're focused on deploying our HR and workforce management solutions all across our international markets to support our global and multinational clients.

Our scale, ADP scale, it significantly differentiates us in the market. We're the only HCM provider that can support every single HCM need, serve all of the client sizes and consistently execute for our global and multinational clients. The diversification of our business, it's what's allowed us to consistently deliver durable growth and we're really proud to have and deliver a strong revenue growth and overall financial performance over all macroeconomic cycles.

We're also very, very fortunate to operate in such an attractive market. The HCM total addressable market exceeds $180 billion globally including payroll, HR, benefits, talent, HR outsourcing, analytics and workforce management. It's really great to operate in such a large market, but it's even better to be operating in one that is growing, and we continue to expect that the HCM market will continue to grow in the mid-single digits across our medium-term forecast. And as the world of work continues to evolve, we believe the HCM's market durable growth positions ADP for our continued growth in the years to come and hopefully the decades to come.

We are the world's largest HCM provider but we're also only scratching the surface of our opportunity. While our revenue has increased substantially over the last decade, our share of addressable market has remained largely the same. We see significant growth and runway for growth across all of the HCM categories that we address, and we're really excited about what lies ahead for ADP.

We're very confident in our future, and this stems from the mission-critical nature of what it is that we do in the HCM industry. The HCM industry is mission-critical because it manages a company's most valuable asset, it's workforce. And paying employees is not optional. It's not discretionary. Employees need to be paid on time and accurately every time. Effective HCM solutions, they help with streamlining HR processes, improving efficiency and providing data-driven insights to help clients in their decision-making to help maximize their employee potential.

And the HCM industry, it's also always changing, continuously changing the relationship between the employee and the employer and new work models that have continued to evolve. And of course, there's the regulatory and the compliance landscape that is definitely continuing to shift. Our deep understanding of this and our deep appreciation of these industry characteristics have allowed ADP to thrive for decades and that also will continue to position us for success.

We appreciate all of the magnitude of these challenges and what it means that our clients face. Demographics are shifting, health care costs are rising and the pool of payroll and HR talent is shrinking and meanwhile, workforces are becoming more global and employees and employers, they are demanding everything real-time. The technology landscape, this we know, this we know that it is evolving rapidly, especially as all of the AI is advancing and changing the complexities and the opportunities around us.

But fortunately, at ADP, we're very lucky because we set up our company to keep the client at the center of everything we do. And this means that we think about our clients deeply and understand their needs, not just so that we can proactively develop solutions to support them, but so that we can continue to help them in their journeys and their continued success.

Clients have relied on ADP for over 75 years. And we have established ourselves as a brand and a company that clients can depend on. This reflects the values driven culture that our founders were very careful to instill so many years ago that placed a clear emphasis on ethics and integrity.

At ADP, we believe integrity is everything, and we honor our commitments. We thrive on delivering insightful expertise. We are obsessed with our client experience and with service excellence. We are focused on inspiring innovation and finding those new ways to support our clients and help them grow. At ADP, each person counts, every client and every associate. We have a results-driven work ethic and accountability is meaningful and prudent risk-taking is important, and for 75 years, we valued social responsibility, and we deeply believe in giving back to the communities where we work and we live. In our culture and our values, they have enabled our success and they will continue to serve as our guideposts in the future.

Innovation at ADP, it's in the fabric of who we are. It is in our DNA. We've consistently been at the forefront of payroll and HR innovation. And in fact, we've enjoyed a few firsts. We invented payroll outsourcing back in 1949. We were the first in the cloud, and we were the first with a mobile app in our industry. And we were the first to create an online HCM marketplace for our industry and to roll out a chat-based payroll app.

Our scale supports our innovation and we invested nearly $1.3 billion in R&D alone in fiscal '24. And certainly, AI represents the next frontier and our industry-leading data set married to our best-in-class distribution offers ADP a competitive, distinct advantage as we will bring those things together to meaningfully improve the workplace and the lives of workers. I am really excited to have all of you hear our innovation story today and more about the potential of AI as it gets used infused across ADP.

In addition to growth initiatives for each one of our businesses, we've also identified 3 strategic priorities that apply across all of ADP and that will help guide our future growth. Our first priority is to lead with best-in-class HCM technology. Put simply, we want to design, develop and deliver the most innovative solutions possible for our clients. We believe, and you will see today, we are in a very strong position today, but we also see opportunities to further enhance our solutions, leverage creative partnerships and, of course, consider acquisitions that might accelerate our pace of innovation.

Our second priority is to provide our clients with unmatched expertise and outsourcing. This client service emphasis, it applies equally across all of our clients whether you're a basic payroll client to a fully outsourced client where we take over and become part of, if not all, of the HR department. Payroll, HR, benefits, tax and time, they are complex. And we have the deep domain expertise required to assist our clients. And it's not just here, but it's also across the globe.

And our third strategic priority is to benefit our clients with our global scale. We have the industry's broadest global reach, and we bring together our incredible data, array of partners and integrated solutions to help our clients around the world navigate the changing world of work. Innovation is critical to our continued success across these 3 priorities, and we benefit from a comprehensive innovation approach where we build, partner -- where we build, buy, partner and invest. This flywheel allows us to innovate at a pace that allows us to address our current -- our clients' current and future needs.

From a build standpoint, we're always investing in our existing products to add new capabilities and develop new platforms to address our clients' needs. Today, you're going to hear a lot about how excited we are for our next-gen products and the benefits that we anticipate from our holistic approach to infusing AI throughout our business.

From a buy perspective, we're always on the lookout for acquisitions that complement without complicating our business. M&A, it can help us innovate faster. It can help us address product opportunities that are within our product portfolio.

From a partnership perspective, ADP, we've always believed in an open ecosystem, and we strive to come together with our partners to collaborate and to leverage each other's strengths in order to deliver the best possible outcomes for our clients.

And lastly, invest. You will hear this morning, in a few minutes, in fact, about how we keep the finger on the pulse of the HCM industry to ensure that we understand what's happening with HCM innovation through our corporate venture capital fund that we launched in fall of 2023.

In the past 2 years, since we introduced our strategic priorities, we've made considerable progress across all of them. We launched ADP Lyric HCM, and we've been really encouraged by the strong reception in the market. We also acquired WorkForce Software, which meaningfully enhanced our ability in the time and attendance space and the broader workforce management needs of our clients, and we purchased Sora, a workflow automation and data integration tool that helps unify disparate business applications like HR, IT and other systems.

At the same time, we augmented our global reach by acquiring payroll businesses like BTR in Sweden and most recently, PEI in Mexico. We've also forged mutually beneficial partnerships such as the one with Fiserv, where we've teamed up with them to offer U.S. small businesses access to an integrated all-in-one solution that combines the full power of the RUN platform and the Clover small business management platform. And we also plan to introduce Fiserv's integrated accounts payable and receivables platform into RUN later this year, which will offer our smaller clients the ability to manage their cash flow more efficiently.

On the AI front, we successfully introduced ADP Assist, which provides the latest AI-driven capabilities into our products and similarly, we've deployed these tools broadly across ADP to drive efficiencies in our sales, service and technology functions. ADP Assist was recently the winner in the 2025 Artificial Intelligence Excellence Award presented by the Business Intelligence Group, earning recognition for driving innovation and possibilities in AI. AI technologies, the ones we are deploying, they are not just a triumph of imagination and execution, they are the future. And I can't wait to see what our teams dream up next.

And finally, we've done all this while driving strong revenue and adjusted diluted EPS growth. We also recently hit a major milestone increasing our dividend for 50 consecutive years, which speaks to the consistency of our financial performance.

Our client satisfaction scores, they continue to reach new record highs. During the past 3 years, our client satisfaction scores measured by Net Promoter Score, NPS, increased 40%. These strong NPS scores, they support our client revenue retention as they also sit at near-record highs, but they also serve as further proof how we keep the client at the center of everything that we do.

Our impressive execution has positioned us as an industry leader. It's incredibly gratifying to have all of these efforts recognized, but it's also an incredible responsibility to ensure that we help drive this industry forward. We must continue to develop and deploy best-in-class HCM technology, which together with our deep level of data and insight and expertise will meaningfully improve the world of work.

To wrap up, we are bullish on the HCM industry and our future in it for several reasons. We operate in a dynamic market. It's large, it's growing and it is always evolving. We have a track record of leading in innovation. Technology is moving at a rapid pace, and Sreeni is going to join us here in a minute to tell you all about it.

We have a leading go-to-market and distribution and David will come up after Sreeni and explain why ADP's distribution is one of our biggest and most important and differentiated assets for ADP. We also have scale that sets us apart from every other HCM provider. The scale helps us serve every client's HCM need, size, location with an unrivaled data set that powers and inspires our products and innovation. You will hear a lot more about how we leverage this scale across our business units today. And finally, we continue to demonstrate durable financial performance and you're going to hear all about that from Peter.

So it's with that, it's my honor to bring up our President of Global Product and Innovation to help tell our innovation story, Sreeni Kutam.

Good morning. Thanks, Maria. Thanks for joining us today. and your continued support in our team.

In our session, I would like to share some answers to 4 key questions. Number one, what have we been doing since the last Investor Day. We've been doing a lot, I'll share it with you. Second, how are we thinking about AI within ADP? And third, what are the key highlights from some of our flagship products and how those products would be differentiated in an increasing commoditized SaaS applications? And the last, as Maria said, how are we going to keep this innovation flywheel keep going with our outside in perspectives as well. So let's dive in.

As I said, we have done a lot since Investor Day. And I want to highlight some of the products and platforms that may not get a lot of limelight compared to our flagship market-facing products. And why is that important? So let me walk you through a few of the products, One Data, One Mobile, One UX, Marketplace, et cetera.

So take One Data as an example. By the way, if you ask engineers to name products, that's what we get, One Data. Basically, all the data in one place, okay? That's what it does. Why is that important? So you may have heard of a national employment report. Nela is there. Hi, Nela. You may have seen her on CNBC every month or every week for that matter. One Data powers our national employment report. So think about millions and millions of data points in one data set and what are the advantages we get and the monetization of data through our data solutions business that does the employment verification, income verification, et cetera. And analytics, we can bring insights across the products into this data set and power insights through analytics assist through AI. So there's more and more applications that come as a result of this One Data platform. And most importantly, as we're taking the journey of AI, AI without data is not that effective. And having all the data in one place powers that AI innovation. So I hope it makes sense why that is a platform that continues to power innovation within ADP. So let's think about that at the database layer. Like if you think about a SaaS application, it has primarily 3 layers: database, processing and the presentation layer.

So let's go to ADP Mobile. We did not build -- for each of our market-facing products, it's One Mobile application. We did not. We build One Mobile application, and that application knows when you log in, which products you are using and what tasks you're trying to get done and it routes the transaction to the underlying product and brings the information back. That's pretty cool. To do that engineering wise, it's very hard, but our team has done that. So that's the advantage of cross-product layers sitting at the top. And same for One UX, all the UX on all of our product looks, feel, behaves the same way. That's very hard to do as well. So my point on this slide is really simple. The whole is bigger than the sum of the products. And all these horizontal things help bring that whole very valuable to our clients.

So let's shift to AI. Before I talk about ADP's strategy, let's zoom out. What's happening for the last couple of decades when it comes to automation as well as AI. You all heard of RPA, heard of big data, you heard of machine learning. We've been at it. This is not new to us. However, what is interesting now is where are we going? And let's focus and zoom in actually on Agentic AI because you all have heard of that. And what is an agent?

Let's take a look at the 3 flavors of Agentic AI. An agent simply is a combination of information and action coming together to do a task. So a simple agent as a logical extension of that is you do a simple task by providing input information and connecting to an action through an API to get a single task done.

So let me give you an example. You all probably hired somebody, right, to work for you. The recruiter initially ask you, okay, okay, you have an opening, and I need to know the details about the job you're trying to hire the person for. So you write a job description. You can go to any market-facing product today in Gen AI and ask the Gen AI to write a job description. But what is important to feed the information of your past company job description. So you have some disclaimers, you have some tone there as well as maybe we should look at the job description of how other companies are doing and see if there are any best practices, we can take it. All of that is information required for this task of writing a job description. So that's a good example to understand a simple agent.

However, an advanced agent is, okay, what happens after you write the job description? You have to post it somewhere in the market, so the candidates can apply. Once the candidates apply, you need to screen them, you have to schedule the interviews and then keep moving forward until you generate the offer letter. Each of those tasks could be by their own definition, agent. An advanced agent, it sequences these simple agents together in such a way that end-to-end process can be done. So that's how to think about an advanced agent. It's a multiturn. But there is always a human in the middle to move it forward one step at a time. The autonomous agent is really the degree of the human in the loop basically. So autonomous by nature is as you move forward in the sophistication of this agentic journey, less and less dependence. So that's how to think about it.

So what are the possibilities as we think about agentic AI. So in that example, I gave a recruiting agent basically. So you can build a recruiting agent that does all these tasks. You can extend that and create an HR business partner agent, you can do a payroll agent, you can do benefits agent. Those are all the possibilities. But as you can see, as you build these advanced agents, it takes time because you need to know all the tasks, how to connect all the APIs. So it takes time. However, we don't need to wait for that long to build all these role-based agents. We can deliver feature sets and which we have done via ADP Assist in all of our products, and I'll share those updates in a bit.

Before we move on on this slide, though, agent interoperability is a must. So you may have seen that APIs, industries, not only HCM industry, all the software industry, they built the APIs. Why did they build the APIs? For interoperability. So think about agents a higher level above that. Agents, our clients would have agents from other systems that they have in their environment. All those providers might be developing the agents you would expect, right? And those agents have to interact with our agents within ADP.

So we are building interoperability as a foundational principle when we do our agents. Okay? And we're using market-leading framework such as MCP and ATA and few others, I'm sure the market would be introducing. So that's an important point, agent interoperability.

But to do all of these things, as Maria said, you need data. And we have the biggest data set in this industry. Just having the biggest data set is not enough. When you think about data, there are 2 ways to think about it: Structured data and unstructured data. Also, there are multiple flavors of data. Public information, let's say, IRS are a country-specific regulations or minimum wage rules. So this is all public information you need to know. And then you have client level information, how many locations, how many employees, where do they operate from. And then you have groups within the company, what departments, sales, service, operations, R&D and what are the policies in each country that you need to apply to.

So you see some of that is restructured, some of that is unstructured. How do you organize that data in such a way you can build meaningful relationship between different entities? It takes some knowledge and good engineering work. So I go back to the One Data platform that I introduced you on the first slide. We have that. We've been at it and we've been organizing the data with the right way so that we can power AI moving forward, okay.

Let's look at strategy. So now we understood all of that. What is our strategy? Our strategy simply is based on 2 pillars: One, we will build role-based agents in our client-facing products. I already talked about recruiting agent. So just the extension of that. I don't know if you guys know this, I used to be CHRO of this company before I took this job 2 years ago. So HR departments are not homogeneous as you might think. There are multiple groups. There is a recruiting department. There is benefits department. There is a HR business partner, there is compensation person, et cetera, et cetera. And each of those roles have set of responsibilities. So our strategy is to build those role-based agents, okay? That's great. What about internal ADP operations? And we are applying the same principle to our internal ADP operations. So what are the roles within ADP? We have service people. We have implementation people. We have R&D people. We have sales. So we are building agents for each of those roles. So that's the way to think about the overall strategy of ADP AI, okay.

Now what we have done so far in our products? As you see, 4 million interactions on ADP Assist. So one of the key persona that our clients have is an employee, right? It's a very generic employee. And employees have questions and they want to do some transactions. So in the past, SaaS applications have self-service capabilities, do you come to an HR system payroll system, you do those self-service transactions. And now you can apply AI agents on top of that, and that's what we have done. And we have plans to roll out more capabilities throughout. So those 4 million transactions you're talking about are through the ADP Assist, they are employee self-service, manager self-service, and practitioner self-service, okay?

So let's think about -- let's go to service. Similar to the HR role-based agents for our service agents, what we have done was so far call summarization. Because if you think about the services say, what happens, there's a reactive and a proactive approach, somebody calls you for information on an action or you're reaching out to a client for information sharing or having them take an action. So what we are doing is we are providing answers in such a way they are accurate as well as very effective in connecting all the dots from One Data platform.

When I say One Data, by the way, it's not just the product transactional information. We're ingesting our One Data platform with our call transcripts, our chat transcript, transactional logs. So all of that will be there so that we can take meaning out of it, information, insight and power the answers that the service assists are required to do. And we are seeing very good productivity from there.

So let's keep going to sales. So what are we doing in the sales agent realm? In the sales agent realm, we are answering 3 key questions. We delivered that and 40% of our sales assists are already using it. Who to call, when to call and what product to pitch. Simple, you would think that, well, it's not that hard to do. It's not that hard to do. Adoption, changing the behaviors and effectiveness of all these things powered through the AI channel, we're seeing good results. And we would be delivering more capabilities through our sales agent realm very soon.

Last but not the least, let's talk about R&D. As you see, 100% of our developers have access to our AI tools. And what they are focusing on is documentation, test automation as well as the code generation. And we are seeing very good results so far. And we will continue to power and build a developer agent along the way, okay.

So in summary, think about role-based agents inside our product and inside our operations, all the tools that we are using with our associates, okay? That's our strategy for AI, and we're making good progress.

So let's shift to our product portfolio. The breadth and the depth is unparalleled in this space. We cover 1 employee company, as Maria said, to 1 million employee companies. We have products that do software as service and all the way up to outsourcing. Domestic to global. Great portfolio and very proud to represent that. However, differentiation, how do we think about in an increasing commoditized role, differentiation. This is where we came up with a philosophy, what we call it, make it easy, make it smart, make it human. What does it mean? Let me walk you through an example so that you understand what that means. It's a philosophy. And we're trying to operationalize that within our products.

Most of the software vendors try to get the easy part done, meaning introduce automation, introduce self-service so that a particular transaction is easy to do with less friction. That is "easy" to understand. However, smart. With AI coming in, you can build insights on top of the transaction so that the decision-making power gets better and better, okay? Let me -- and the human part is hard to understand, but let me walk you through an example.

So let's say I am a shift worker, and my manager is setting me up for a shift change because something else happened. So through ADP Assist, he just says, change Sreeni's shift tomorrow from X time to Y time or change tomorrow to the day after. I'm not supposed to work day after. But imagine the ADP Assist is smart enough powered by our One Data insight to say, that is the day Sreeni's son is having a birthday. But the manager has no idea, right, because that has nothing to do with the shift change. So imagine the ADP Assist comes back and tells that manager that, hey, here is an issue. Are you still okay to do it? And at that point, manager has a choice to make. Let's say he has no other choice, he still needs Sreeni to do the shift. He says, "Yes, I still need to do it." But then ADP assist comes back and says, "Do you want me to send a birthday cake to Sreeni's home?" That is human. Because what happens when Sreeni goes home after the shift, there is a birthday cake sent by the manager. That's what I'm talking about.

We build people systems but we stuck at the easy layer how to change the shift easily. But what are all the things that you should be thinking about. That's what we believe in. Because ADP is always designing for people. And what do people have? Emotions. Nobody is addressing those things through our people systems. So why can't we do that? Why can't we do that? Not every single transaction is going to be fit for that. But those few that you raise the plain from easy, smart to human, that's when our users would allow our products even more. That's worth the journey to go after, and that's what we are going after. So that's the philosophy we believe in, and we hope we can continue to deliver on that promise.

Let's go through quickly our products. These are flagship products. You guys are very familiar, 900,000 clients, amazing. Even the skeptics would agree with that. And one of the things that key for RUN platform is the integration of retirement solutions and insurance solutions. This is absolutely value added within our RUN platform and our clients tell us every day, and they are not well understood. But I want to highlight the seamless experience that our clients have with RS and IS integration. And then how do we continue to move forward within that RUN platform? Embedded Payroll, Maria talked about Clover integration, which is live and few other things that we're thinking about that.

We're not satisfied just putting it in the other wholesale providers, but the operations-wise, digital onboarding, we continue to see huge progress and especially with AI coming in. So -- and then on top of that, we have a few other things. I hope you get an opportunity to see the demos today, our RUN platform right there and WFN analytic.

Let's keep going. This is our mid-market leader, WFN. You all know that. And the scale is, again, amazing 900,000-plus. In mid-market, having HR, payroll, benefits, compensation all in one place is very, very key because they don't have the sophistication, the resources to go put best-of-breed products together and integrate it all into one. So that is a key factor in the buying decision and our product delivers on that promise.

And what else is happening in the platform is we released our next gen in a couple of market segments, and we're seeing fantastic traction and in very near term, that is going to be the leading offering in the mid-market, WFN NextGen. It's connected to our single Global Payroll platform. To continue to the scaling of this product, we are integrating it with all the major ERPs and we are also doing industry-specific solutions such as construction, restaurants, et cetera, coming through. And obviously, AI infusion, as I described earlier.

Let's go through our newest entrant, Lyric. First time ever in ADP's history, we have a Global HR platform. And why is that important? So think about -- we are known for Global Payroll, now we're going upstream, connecting that to Global HR with the integration of WFS that we bought recently. We have global time, and we're also known for global service. So with these 4 components, we have created a unique offering in the market, Global HR, Global Payroll, Global Time, Global Service. Nobody has this in the enterprise segment. Our competitors have a few of those, but nobody have put together these assets in such a way that it is market compelling. And we are very enthusiastic about this and the traction from sales and implementation backlog is amazing.

And last, I want to cover ventures, as Maria talked about. The hypothesis behind this is really simple. As good as we are, and we have been good for 75 years, we also believe, they're truly differentiated solutions some start-up founders have been developing. And their dream is to put their product in front of as many clients as possible, and we have the biggest distribution network. So why can't we combine the forces, bring those products, give it to our distribution and let's test them out. And of course, we will invest in those companies where it makes sense so that we can influence the road map, better integration with our ADP product and see how the market reacts to those innovative solutions. If the market loves those things, then potentially, they become our M&A pipeline. So the venture fills that innovation flywheel very well, and we are very excited about that.

So in conclusion, we'll continue to build great products with a philosophy that is easy smart human, continue to drive AI infusion with role-based agents inside and outside and then continue that innovation journey with an outside in perspective through our venture capital.

So thank you for your time. Appreciate it. Also, it's a privilege to be standing in front of you representing the work of all the associates at ADP, all the good work they've been doing. All this innovation, though, is meaningless if we can't distribute it. So fortunately, we have the best distribution in this industry. So to talk all about that, let's welcome David.

It's always great to follow, Sreeni, because he always ends with no pressure kind of thing. So if you're anything like me, just hearing what the stuff that Sreeni's talking about, it's incredibly exciting every single time we hear it. So Sreeni, thank you for the -- thank you for that, and thank you for the introduction.

So good morning, everybody. My name is David Foskett, I'm the President of Global Sales at ADP, and I'm happy to share with you today as Maria talked about, Sreeni has just touched on our distribution at ADP.

I thought I would just maybe level set us, first of all, with who we are. So Maria touched on it, these are FY '24 results and data. So we have $2.5 billion in worldwide new business bookings. Included in that is 200,000 new logos. So we sell 200,000 new logos every single year. That is distributed through our huge sales force, biggest in the HCM market. Maria talked about scale. Our scale of sellers is 8,500 people. And that is split between field and what we call digital. So some of you know that as inside sales, we call it digital sales. So we split our distribution through field and digital. Maria touched on it. We cover -- we have coverage across 140 countries, so we're selling into 140 countries around the world.

And we also have a big network and distribution through partnerships. So partnerships are incredibly important to us. 50% plus of what we sell comes through partners and relationships with partners. So whether that's CPAs, brokers, private equity, they all help us, and they help us win new logos. So as you can see, there's a lot here. We've got a big distribution. We sell a lot of new logos, and we've got a lot of sellers. What I'd like to do is maybe look forward and look forward as we look into kind of FY '26 and beyond -- and we anchor our growth as we go forward to innovation and to scale. So we're kind of going to talk through with you 5 key areas this morning.

Firstly, from a productivity point of view. So we talked about we have a lot of sellers, our distribution is critical, and our productivity is critical. So whether that's recruitment, whether that's onboarding, whether that's training and then enabling our sellers as well through AI technology, which Sreeni touched on and we're going to go a little bit deeper on that as well.

Products is obviously key. Innovation is critical to our scale and to our continued growth, whether that be opening new target audience for us, helping us increase our win rates and of course, growing our share of wallet with clients or with new opportunities as well.

Marketing, so we continue to extend our digital demand generation. It's a critical thing for us, and we'll come on to that as well.

Channels, so I touched on our extensive partner ecosystem regardless in the world. We partner with many different organizations at many different scale and then head count. We'll touch on headcount and how we continue to expand our sales force, grow our sales force as a critical growth engine for us also.

So first up, just product. Sreeni kind of touched on this. I don't want to go too deep on it because he does a much better job on that than I do. But innovation is critical to us. As we continue to grow our bookings, Innovation is key. It allows us to reach new target audiences, obviously, and it also allows us to grow our share of wallet and sell into existing clients as well.

I'll just give you a couple of examples on the screen. So in our small business market RUN, Sreeni just talked about it a second ago, RUN is our award-winning platform. It continues to win with small businesses, and we continue to see record levels of new logos as well. In the mid-market, the flexibility of WorkForce Now or WFN, we love acronyms, you guys know that. Our flexibility there allows us to sell technology. It allows us to sell outsourcing or allows us to sell full PEO on the same platform.

And then in the upmarket and in the global space, Lyric and WorkForce Software. So Global HR, Global Time, Global Payroll, Global Service with that human-centric approach. We continue to see that opening new opportunities. We're continuing to see good growth in pipeline as well. So we're kind of covering all sectors, as Maria touched on earlier.

So with the largest HCM sales force, obviously, productivity is key for us. And we enable our sellers in 3 ways. I'm just going to walk you through those now as well. Recruitment is obviously key. We're going to continue to add headcount, as I touched on. So recruitment is absolutely key to us. So we have a variety of different methods, as you would expect, we have on-campus recruiting and internship programs. We have a strong referral program from other associates within ADP. We also have a global recruiting team focused on sales recruitment. So this allows us to recruit the best talent in the HCM market.

Once we recruit the best talent, onboarding and training is obviously key as well. So we have the best onboarding program in the industry. So whether that's by segment or whether that's by role, we focus on new hires, obviously, but we also focus on our tenured associates as well as our leaders to make sure that every single sales associate or every single leader is the best onboarded or the best trained in the industry.

And then enabling with technology. So we enable our sellers with best-in-class tools and technology, whether that's leveraging third-party technology or whether that's our own developed technology as well, which we'll dig into a little bit now.

So Sreeni touched on some of the AI sales portals that we use. We have a thing called The Zone. So we call it The Zone. This is leveraging industry-leading solutions, it's using ADP technology, and it's using our own data set. As Sreeni said, we've got it in the hands of around 40% of our sellers right now, and we continue to roll it out to more sellers over time. The -- what this gives us and the very simple premise behind The Zone to begin with, was to provide insights to our sellers, not only to give them answers when they're talking to opportunities, but to try and put them in front of the right buyer at the right time, with the right product, with the right message. And this is across all segments and all roles. So we're rolling it out to everybody. As I said, at the moment, we've got it in the hands of just under half of our sellers. We continue to roll it out more and more.

And my thought I would do is -- we've got a short video we're going to show you in a second. But what I also thought we would do is maybe share a little bit around how we use it and how we use it for targeting, gaining access and then ultimately selling as well. So anybody that's ever sold, the hardest thing is, who do I contact, when should I contact them? And what solution should I potentially propose? So what we have with The Zone and what we allow our sellers access to is hundreds of different inputs every day and every week that we put in front of them. Who's most likely to purchase and what solution best fits their needs.

The approach allows our sellers to actually look at what the -- what our opportunities need and what solutions they potentially need. So once we've targeted and once we've helped them with that, it's then about gaining access. So why now? What should I say? And will this resonate? Our sales associates get a targeted list of who, based on the hundreds of inputs, do we think our sellers should contact and who should they connect with. The idea being that when they connect and when they speak, they are having meaningful conversations with clients and with opportunities. The Zone takes into account a number of different items that we believe are top of mind for these individual buyers. That might be a trigger event. So that might be a trigger event in a state or a change in regulation that we believe is important to that -- to the buyer. It might be key changes within their business. So they might be opening a new location. It enables our sellers to have a much more personalized interaction with a buyer.

So once they've gained access, obviously, the selling part comes in. So The Zone will continue to help them with that as well. So how do I answer buyer questions? What's the next best action and then that continuous improvement, how can I be better? So once they are engaged, they must be ready to answer any questions. The Zone can help them with that. And then after the engagement, there's the opportunity to reflect, to think about what they did, to have coaching with their leader and to think about what questions came up and how can they answer those complex questions differently. The Zone is at every step of the way with our sellers. And like I said, we're excited to keep rolling it out. We're excited we've got so many people using it, and we're excited to keep rolling it out.

So I said we had a video. So rather than maybe hearing from me about it, we have a couple of our sales associates who are just going to talk about how they use The Zone. So if we can roll the video.

[Presentation]

So obviously, thank you to Dana and for Colton for spending time to do that with us. And hopefully, that gives you a flavor of how our sellers are using it. We are beyond excited to use it with our sellers that have it today as well as the continued rollout that we see of The Zone.

So if we switch gears maybe to marketing and to demand generation, our digital demand generation function operates at an unmatched scale. You can see here, we create over 350,000 leads for our sellers each year. The team leverages a variety of different parts, as you would expect. And as AI tools become more and more common in the world, whether that's for bio search, whether that's for discovery or whether that's for self-education, we believe we're in a great position to continue to ensure that we get an outside share of that digital demand.

As we go to market with our extensive ecosystem of partners, as I shared, we have a well-oiled machine. We have a strong brand, as you all know, and we have a reputation of delivering for clients over 75 years. So whether you're in the small business and whether you're a small business sector, we tend to focus on centers of influences for entrepreneurs, so whether that's CPAs, banks, point-of-sale providers. In the mid-market, we focus on financial advisers, benefit brokers and franchises. I should probably note like some of these do cross between the 3 segments as well. And then finally, for our domestic and multinational and our large enterprises, PE firms, ERPs and systems integrators are all helping us drive bookings.

One of the things I'd be remiss if I didn't talk about, the immense pride it gives me that these partners want to work with us and do work with us. We don't take that lightly. We work with them every day. We definitely feel a sense of obligation that we are delivering for them, and we continue to partner with them, and we are incredibly excited with our huge partner ecosystem that we have.

The final piece is around headcount. So we have almost doubled our headcount since FY '10. So we're showing the kind of the graphic up here, that's across field and digital. And we continue to see that as a big opportunity for us. It helps us with new products. It helps us with adjacencies. It also helps us with existing clients and cross-sell to existing clients as well. So we continue to see headcount growth as a key growth lever for us as we go forward.

So to summarize, we continue to drive bookings through innovation and scale, whether that's through enabling increased seller productivity with the tools and technology that we've just talked about, whether that's capitalizing on new products and enhancements to existing offers that Sreeni has talked about, our marketing approach to continue to generate leads for our sellers, our wonderful channel and partner ecosystem that we work with every day, and of course, our continued strong appetite for headcount growth as well.

So as we look to the medium term, we anticipate our target for continued growth around that 6% to 7% mark, and you can kind of see it up on the screen. So thank you for listening to me.

I'm now going to pass to our EVP for North American Global Operations, Joe De Silva, Joe?

Good morning, everyone. Nice to see all of you again.

As David shared, my name is Joe DeSilva. I'm responsible for our HCM businesses here in North America as well as leading global operations for ADP and service delivery for our 1.1 million clients. You've heard today about our strategic direction from Maria. You've heard our approach to innovation from Sreeni and now you just heard about our differentiated go-to-market from David. Now it's about bringing this all to life through our client-facing business units.

Our business units allow us to move fast, staying tightly aligned to our clients, delivering cutting-edge software, exceptional service. Our global scale and our deep-rooted service culture within our business units allow us to grow with our clients from their very first employee right through global expansion. But it's not just about delivering technology to our clients. It's that human touch that's very important to us and core to who we are. And I point that out because as AI becomes more prevalent, it's those personal connections that are going to matter more than ever.

In front of you, you will see a list of our client-facing business units. As Maria shared earlier, we are the only HCM provider to service clients of all size around the globe. This business diversification is unique in the HCM industry and just one of the many things that has ADP standing out. And as you could see, we delivered over $19 billion in revenue in FY '24.

Today, I'm going to cover small business services, major accounts or our mid-market, national accounts or enterprise space. I'm then going to pass the floor to Virginia Magliulo, who will cover our international opportunity, and we'll round it out with Brian Michaud, who will cover our HRO businesses. Between the 3 of us, we will cover the majority of the business units you see on this slide. And our goals today are actually quite simple. We want to show you how far we've come, and we want to give you a taste of what's on the journey ahead.

So let's start with small business. An area where ADP has long been a leader evolving beyond payroll and HR, bringing value to the entire client ecosystem. Who are our small business clients? I want you to think about restaurant owners, accountants. They are the backbone of the economy. They care deeply about their businesses. They care deeply about their people. They care deeply about themselves. They're hands on, recruiting, hiring, ordering, servicing. They're stretched in front office, back office, internal, external, vendor, partner. And they're trust-driven, trust is important to them from the people that they hire to the vendors that they hire to the partners that they work with. They are not HR or finance experts. They need help navigating the fragmented solutions that are out there, the complex regulatory environments, rising costs. Their needs are actually quite simple. They want to be able to offer simple and affordable payroll. They want to be compliant, and they want to be able to offer benefits to their employees without having to be the benefits expert. And most importantly, they tend to stick with providers that they trust and make it easy for them end to end.

And speaking of easy and trusted providers, let's talk about where we are in small business. We have come a long way since the days of paper-based payroll processing. Over $3.4 billion in revenue, servicing over 900,000 clients, record client satisfaction. Over the last 3 years improving our client satisfaction 7% in the small business, which, by the way, is no small accomplishment for this business unit because they've long led the charge within ADP amongst our other business units.

David talked earlier about our trusted network of partners where we refer leads and we cultivate business together. And we're excited about expanding that reach with the recent announcement of our relationship with Fiserv, stepping into embedded payroll. We've enhanced our offerings to include integrated workers' compensation and insurance services, G2 naming us #1 best product for small business. And our Retirement Services product ranked #1 by PLANSPONSOR, giving clients and our employees -- and their employees the confidence to retire. We are extremely proud of how far we've come. We're really excited about what's on the road ahead.

So what's next for small business. We're going to extend our leadership position. We're going to expand the HCM suite, and we're going to integrate further into the SMB ecosystem. First up, we're going to extend our leadership position in payroll, HR and retirement by continuing to invest in AI, automation and employee modernization, all while continuing to focus and invest in onboarding accuracy and usability at scale. We're going to drive deeper penetration into and across the HCM suite by expanding our time and attendance offering, strengthening our benefits offering through partners and integrating all of those capabilities directly into RUN to maintain that simplicity for our clients.

And finally, we're going to integrate further into the SMB technology ecosystem. Our relationship with Fiserv is a great example of just that, a seamless experience, but beyond embedded payroll, a seamless back-office experience to things like accounts receivable, accounts payable, cash flow, all of this to say, we want to be the go-to-market platform to run a small business, not just pay people, but protect them and help owners grow with confidence. While we're thrilled at how far we've come, we're excited about the journey ahead.

Let's flip the page and talk about the mid-market. So who are our typical mid-market clients? They're midsized companies. They're growing in operational complexity. Think about a regional service provider, a manufacturer, professional services firm, a fast growing company. They typically have small but dedicated HR finance teams, but those teams have growing expectations, growing expectations around efficiency, insights, scale, all while the company continues to grow. They're growing, and they need the systems that can keep up with them. They're fragmented, often dealing with disconnected tools across payroll, benefits, HR, slowing them down and driving inefficiency and they're discerning. They want modern, integrated solutions.

In the mid-market space, platform cohesion matters most. Clients want automation. They want integration, and they want one system of record to run their workforce confidently. We're in a great spot in the mid-market. The first to introduce an HR system of record to the mid-market with WFN, a major industry innovation. And over time, we've continued to invest in our service models and expand our service models. We've expanded our referral network. We've invested in automation to drive efficiency. We currently benefit from the most digitally advanced payroll offering on the market. AI-enabled, mobile-first design, comprehensive HCM suite, delivering over $2.9 billion in revenue, a mid-market leader, 2 years of record client satisfaction. And over the 3-year horizon, improving client satisfaction in the mid-market 21%, which is important to point out that's evidence of and a nod to smoother go-lives, faster time to value and our consistently strong client service.

And finally, customizable HCM experiences through ADP Marketplace, making WFN a true HCM hub, where clients can create their own tech stack and don't have to rely on APIs and integrators and the cost and complication that come along with that. It's great to be a mid-market leader, but we're even more excited about the road ahead.

So what's next for major accounts. We're going to accelerate our technology deployment. We're going to broaden our solution set, and we're going to enhance and expand our integrations. First up, we are going to accelerate the deployment of WFN NextGen, a transformational leap forward, easier and faster to implement, lower cost to serve, better client experience on the public cloud, placing us in a true technology leadership position. Additionally, in WFN, we've been working hard to address the functionality and capabilities of those complex, larger mid-market clients. And as a result, as time goes on here, we expect a larger percentage of those clients to end up on our WFN offering.

Next, we're going to broaden our industry-specific solutions. You heard Sreeni talk about WFN for construction. Next up, WFN for restaurants, and we'll enhance and expand our integrations with ERPs, it's great to be a mid-market leader, but we're super excited about extending that leadership position moving ahead.

Finally, let's talk about national accounts. Who are our national account clients? They're large enterprises, MNCs that typically operate across multiple geographies, multiple business units, multiple regulatory environments. Decisions typically held at the CHRO office, CIO office or some transformational leader, typically with very lengthy RFP processes. These clients are complex, multilayered, diverse systems. They're strategic. Enterprise clients aren't looking for a vendor. They're looking for a partner. And they want a partner that's got long-term transformation in mind, and they're sophisticated. They have high expectations of scale and configurability.

ADP's enterprise strength was long built on best-in-class payroll with modular HCM components like recruiting, benefits, talent management. And while we delivered on all of those individually, over time, enterprise expectations have evolved. They've evolved to things like unification, intelligence, global readiness. But the good news is, while their expectations have evolved, so has our approach. We have been very, very busy in this space and the future is extremely bright. Our national accounts business delivering over $1.2 billion in revenue, improving customer satisfaction 3x over in the last 3 years. We have been very active enhancing and expanding our product set, scaling WFN to the 1 to 3,000 space for those clients that are looking for a preconfigured pre-integrated, looking for scale and simplicity in a platform.

We launched Lyric, our next-gen HCM offering, flexible, intelligent, human-centric. We acquired WorkForce Software, expanding our capabilities in time, scheduling, labor optimization, and we maintain our leadership position in Global Payroll, serving clients in over 140 countries. All this time, all of this effort, all of this focus and all of this innovation responding directly to the characteristics of the enterprise clients, complex, strategic and sophisticated.

So what's up next for the enterprise space? First, we're going to accelerate our growth in the U.S. Next, we are going to integrate and scale our newest asset. And third, we're going to extend our leadership position globally.

First, we are going to accelerate our U.S. growth by scaling WFN and leveraging the strength of Lyric's modern capabilities to bring access to this integrated HCM suite to our existing client base and the prospect business at large.

Next, we are going to continue and complete the integration of WorkForce Software directly into all of our core HCM platforms, providing the most seamless customer experience. We're going to scale WorkForce Software across our enterprise and global clients leveraging our expanded go-to-market, excuse me.

And I think now is a good time to remind everybody in the room, why owning this asset is great for ADP. First and foremost, we now have control over the future road map and what we build out in the WorkForce Software platform. Second, it provides leverage and provides operational and financial leverage. And third, it allows us to unify the global experience as we bring together payroll and HR.

And last up, we're going to extend our leadership position globally. Continue to leverage the capabilities in Global Payroll, all while encompassing Global HR and Global Time.

In the enterprise space, our primary objective is to make our clients' lives easier by unifying the global client experience. And we now have the pieces of the puzzle to do that. Building on our already capabilities in Global Payroll, the acquisition of WorkForce Software and the addition of Global Time and the rollout of Lyric with Global HR, we have evolved to a true global HCM provider offering a fully integrated suite to our global clients across payroll, time, HR, talent, analytics and workforce management. And combined with ADP's unmatched service and implementation expertise and our global scale, we are becoming the unified partner that enterprise clients have long needed, delivering technology and execution at scale, a true global HCM provider.

So I'm going to end where I started because I want to make sure it's clear. We have been extremely busy in the enterprise space, and the future is extremely bright.

And with that, I'd like to welcome to stage Virginia Magliulo, who will cover our international opportunity.

Thank you, Joe, and good morning, everyone. I am Virginia Magliulo from Italy, and I lead for ADP the international space.

So I'm going to take it off from where Joe left it saying how big is the opportunity in front of ADP, not only U.S. but also outside of U.S. So in the next 10 minutes, I'm going to cover how we continue to keep winning in this space and also some of our achievements.

I'm going to start by our global footprint. Our footprint is truly global, and this is not only based on the features of the products or the services that we offer, but on our truly global client base. We service 65,000 clients outside of the United States, and we pay 50 million of people across more than 140 countries.

Now this map is dynamic. It changes all the time. Maria referred to the last acquisitions we did in Mexico, the prior one we did in Sweden, before that, we acquired a business in South Africa. We keep evolving both organically and inorganically following our clients' needs. We want to be where they need us to be.

The way we go to market in international is through 2 main type of offers. We have single country offers, which we provide to clients that have operations in just one country. And then we have the multi-country offer that we provide to multinational type of clients. So a typical single country client would ask us to manage for them payroll and taxes end-to-end in the local language in one country. When it comes to the Global Payroll offer, we addressed this type of clients that Joe just described, complex, sophisticated, multinational with populations that spans across the border. And in this case, they would ask ADP to manage their payroll, taxes, time and attendance across the boundaries. For both type of clients, we have a last mile ecosystem that allow us to interact with local authorities and to manage compliance locally everywhere.

Now why our offer is so compelling. I'm going to go through that. I want to cover the slide, so first, let me go back to the footprint. Why it is so important? Well, our clients don't look for a vendor, they look for a trusted partner that can grow with them. Many of our clients have operations across multiple countries. The largest we serve across 100 countries. And typically, they have, in some countries, large populations. In some other countries, they may just have a sales office with a few employees. We are able to manage their populations regardless to the size across all the geographies. And so this is why our footprint is so important.

Then, of course, in all of these geographies, we need to manage for them compliance. Local regulations are very complex. We manage for them countries such as Brazil, but eSocial is very complex or if you think about France, France is the most complex country for the payroll calculations. And to calculate taxes for 1 individual, we need more than 500 data points. We are truly experts in this field. We have a deep local expertise that our clients value enormously. We understand the best work of regulations, and we are able to manage compliance for our clients in all the geographies where we are.

Then, of course, security, data security, regulations around data privacy. You know that there are many regulations out there in the likes of GDPR for Europe and many others. Now data security is paramount. It's very important for our clients, and our product and our services are designed to guarantee that at every step.

Then you heard Maria talking about innovation and innovation being in the DNA of ADP. Well, that is the case also for Global Payroll. We keep enhancing and refining our offer at every step. We have worked to deliver a global consistent experience investing on UX, so user experience, integrations, reporting. Of course, we are deploying GenAI, as you heard from Sreeni, and we keep investing in security and compliance. And everything we do is innovation at scale. So we make it available for our clients across the border.

I mentioned our investment in reporting and analytics. That is truly important for our clients. enhanced analytics allow our clients to have full visibility of their workforce across the globe, as well as doing a zoom in when needed on a given country or any given employee. We allow them through enhanced analytics to benchmark the productivity of their service teams. We provide them recommendation based on best practices. So all in all, we provide them with actionable insight on the data so that they can take decisions in a timely manner and that they need to take strategically.

So I would like you to hear not only from me but from one of our clients that we are very proud to serve, which is the London Stock Exchange, what they think about the partnership with ADP.

[Presentation]

So I think you could see how we truly partner together to design and implement the transformation journey of the payroll of this client and also how we manage to add value to save for the client time and money and to keep them compliant. Actually, she did such a good job that I could finish the presentation here, but I won't. I'm going to go still with a couple of slides like Jodi to explain where we are and where we are going.

You can see here, we keep investing on innovation. And the way we do it is in a client-centric manner, we have client advisory boards in each and every region to make sure we listen to our clients, and we solve real problems of real clients, adding real value for them. We keep enhancing our user experience, and so we have delivered a consistent global user experience that is accessible from everywhere. It's agnostic and accessible from every device. We keep being really obsessed with the quality of the services. If you look at the NPS result, it's amazing. We have been increasing that 76% across the last years, and this goes and match the high retention that we have with our clients.

So looking at our retention in the enterprise global space, we are in the high 90s. So we really have long-lasting relationship with our clients. And we don't rest on our laurels. We keep investing on business process improvement, on tools, on people. Just last year, we run 30 academies to train hundreds of payroll specialists to make sure that we always have the best talent to serve our clients.

We also know that the payroll doesn't stay on its own. And we need to integrate with other systems. So we have invested in a marketplace ecosystem to make sure that our clients can always access, implement their solutions end-to-end, and receive full service from us. And then last but not least, of course, we keep expanding our footprint, as I commented already.

Now this -- our market credentials are not recognized only from our clients, as you heard, also industry analysts recognize us as a leader in this industry. So where are we going? We're going to keep investing. We're going to keep investing on innovation at scale with AI to make sure that our solutions are even more intuitive and responsive and we can provide all the -- sorry, the fantastic innovation that you have seen explained by Sreeni previously.

We have also noticed in the market that our clients need more and more service, comprehensive services -- type of services, so we want to deepen the breadth of the service we provide for them across the globe. And then the most exciting part of all which Joe touched upon. If you think about what we do now in international, most of our revenue is related to payroll only. So we do pay 50 millions of employees, but you've seen the revenue in the prior page, we have $2.6 billion out of 19. So if you do the math, you understand we could contribute more to the revenue of ADP if you could tackle more than payroll. So for us, it's very exciting to have the possibility now to leverage WorkForce Software and Lyric to combine together payroll, time and attendance and HR underpinned by our global services capability and by our compliance expert. So this is really exciting for us, and we look forward to it.

So to summarize what I said, the opportunity out there is really impressive, and we are going to go after it by continuing our innovation at scale, by deepening the service content of what we offer internationally and by putting together an end-to-end value proposition, which combines Global Payroll, Global Time and Global HR, and we will do this at scale where our clients need to be. Thank you.

And with that, I invite on the stage, Brian Michaud, Executive Vice President of Smart Compliance Solutions and Human Resources Outsourcing.

Thank you, Virginia. I'm Brian Michaud and I have the privilege of leading both Smart Compliance and our Human Resource Outsourcing business or you'll hear it referenced as HRO. Today, I'm going to spend a little bit of time talking about all of our HRO offerings, but I'll also do a deeper dive on PEO, okay?

So the HRO has 2 distinct offerings. We have ADP TotalSource or what we call our PEO and HRO managed services. Both of these businesses are unique in the sense that they span all of our traditional offerings that Joe talked about today, small businesses, major accounts and national accounts. We sell to all pay sizes. But the buyer profiles between the solutions differ depending on what the prospect or the client is seeking from the offer. Within our PEO, they're typically small or medium-sized businesses. They are growing. They have multiple locations, and they're generally in a white or gray collar industry. They like to leverage us for Fortune 500-style benefits, compliance, dedicated support and technology across the HR realm to manage all their processes.

In HRO managed services, clients are seeking administrative relief, both in payroll, HR and benefits in order to find efficiencies in their business. They leverage us for compliance monitoring and best practices, and we serve this offering up in an a la carte model so we can tailor it to what clients need most.

Now these offerings within HRO share some commonality. From a client lens, both deliver expertise and compliance and both are unique in the sense that we are providing service and support to their employees in the area of payroll HR benefits to really demonstrate that value that comes along with the proposition. From an ADP standpoint, they share commonality as well. They're both natural extensions of our traditional offerings and both have significantly driven growth for us historically despite economic headwinds.

So I'd like to spend a little bit of time on sharing how our PEO helps clients. We leverage a co-employment relationship with them, which allows us to provide a holistic solution across the HCM spectrum, whether that's payroll, benefits, HR, risk management, retirement and so much more. These are all areas in which we help clients navigate a very complex regulatory environment, one that's in constant flux. There are so many examples here, but I'll give you a couple to illustrate what clients really appreciate ADP and partnering with us.

We manage leaves and absence process for them, which is very complex. When is somebody eligible? How long can they come up? Can they be out of the office? When do they have to return? And what's really complex is it is very different from state to state based on their laws. Clients also rely on us to offer benefits to their employees both timely and compliantly under the rules of the Affordable Care Act or ACA. But what I think is really unique, clients will involve us in their employee coaching or disciplinary practices to protect themselves from employment liability. So the point is the clients get access to all this expertise and compliance in all these areas on top of this Fortune 500-style benefit program that is generally reserved only to the largest organizations.

In all these areas, we're helping our clients reduce risk, find administrative relief, go out and attract and retain, compete for the best talent, compete within their marketplaces because we're helping them focus on their core competencies. If I could sum it up in one way, we help owners pursue their passions without the worries of the onerous burdens that come along with being an employer across the HCM spectrum from hire to retire.

So ADP TotalSource, our PEO is uniquely positioned and differentiated to continue to win share. Our scale as the largest PEO affords us the opportunity to offer a wide choice to our clients of benefit offerings and medical plans. Those medical plans include the largest -- 4 of the largest carriers offered in the United States, but more local to specific markets to give our clients more choice and to give them an offering that's competitive and relevant in the market that they serve. That same scale that I talked about provides our clients with the greatest protection from insurance cost fluctuations. And we deliver all this on our leading HCM and proprietary HCM technology, WorkForce Now, where we provide personalized support to every client.

Our associates often develop deep relationships with our clients. In fact, they're often considered an extension of their staff. Through all this, we're delivering very easy compliance for a brand that employers trust, ADP, and our client satisfaction scores are high and continue to rise. So leveraging all these advantages gives us the privilege to serve over 17,000 clients, approximately 750,000 worksite employees, all while delivering $6.2 billion in revenue to ADP in '24.

Another distinct advantage. Upgrading clients within our ecosystem to the PEO creates a ton of value for ADP. You've heard us talk about it before. About 50% of our business is coming from within our 4 walls, meaning we're upgrading them from major accounts or small business. And when we do upgrade them, that provides us with 10 to 12x the revenue. It also provides from a client lens more robust services for them and a deeper value proposition. It allows us to deepen our relationships with our clients. And certainly, helps us increase wallet share.

But from a client perspective, this is where it's really a win-win. Change management and friction from switching vendors is significantly reduced. And clients enjoy and are familiar with WorkForce Now technology, okay? They don't have to learn a new system. Implementations are largely automated, quick and easy. And our addressable market for the PEO is vast. We define this in a couple of different ways. Clients that fit our size range that we typically service and prospects that are offering benefits to their employees, most specifically health benefits.

We estimate that the total market size is 30 million worksite employees with PEO only serving about 5 million. The way I look at that is 83% of the market is available or 25 million, up for grabs and for ADP to earn. And if you use that same methodology I just talked about in sizing, more than 4 million of those worksite employees are within our traditional offerings, within our 4 walls in the SBS or majors base and our ability to capture this incremental share relies on us continuing to execute on identifying clients that have a high propensity to buy and that can really benefit from PEO services. You heard David Foskett talk about earlier, and we're doing just that with our AI technology, The Zone.

So summing up here, future is really bright for HRO. We have a market-leading position, a large addressable market and we're confident in our strategic direction, which includes capitalizing on those opportunities that are right in front of us, our clients, and as I mentioned, we'll leverage The Zone, but all the leading sales AI tools to increase our effectiveness in that market.

We'll also evolve the offerings in PEO that means tailoring the service model to specific clients. In HRO managed services, we are already bringing these offerings to our Next Gen technology. We'll continue to expand there. And we are launching new managed service offerings based on client demand. From a go-to-market standpoint to get after the net new ADP prospects, we will continue to leverage and build upon our broker channel. That way, we can expand our coverage as well as earn new share. And then, of course, you can always rely on us to optimize our service operations, we could deliver on our unwavering promise to our clients that exceed their expectations. And of course, along with that comes driving efficiencies. So in closing, we're bullish on HRO, and we look forward to getting after the opportunities right in front of us.

With that, we're going to take a short 10-minute break, and when we come back, you'll hear from our incoming CFO, Peter Hadley, on our financial frameworks. Thank you.

[Break]

Great. Hi, everyone. If you could please take your seats, we'll get started momentarily. Okay. Great. Well, without further ado, I'd like to pass the stage over to Peter Hadley, our incoming Chief Financial Officer. Peter?

Thank you, Matt. Welcome, everybody, back from the break, and good morning to you all. I'm Peter Hadley, ADP's Corporate Treasurer; and as Matt said, incoming Chief Financial Officer.

This morning, we've discussed our strategy and our vision. Our approach to product and innovation, our distribution advantages and how all of this comes together at the business unit level in our markets to deliver growth for our company.

I'm now going to be reviewing our financial framework, where we continuously strive to deliver both returns for our shareholders as well as to invest in our business to lay the foundation for future growth. Our well-established financial strategy has helped us to deliver consistent growth in revenues, in earnings and in cash flows for decades, and I am very excited for hopefully much more of this as we move forward into the future.

Before we get started on the future, let me first take a minute to review our financial performance against the medium-term financial objectives that we previously shared at our November 2021 Investor Day. And I'm really pleased that it's a really good story on all key metrics. For revenue, for adjusted EBIT and for adjusted earnings per share, we came in at the high end of the growth objectives we set ourselves for the period. And we share this not to pat ourselves on the back or to congratulate ourselves but to illustrate for you the power of our financial model and the consistent, repeatable growth that it helps us to deliver. Delivering on our financial objectives remains a key priority for ADP, and we look forward to continuing this track record of delivery as we move ahead.

Let's take a look now at ADP's investment thesis. Why you all should own ADP? As you've heard this morning, we are the leader in a very large, attractive and growing market. We benefit from high levels of client -- of recurring revenue and very strong client revenue retention. We deliver mission-critical solutions that are not discretionary. We have a portfolio of businesses that cover all segments of the market, all industry verticals and all corners of the globe. We enjoy the benefits of diversification, while at the same time, we remain laser-focused on the human capital management space.

We have a strong track record of delivering margin expansion, which enables our earnings to grow faster than our revenues. And our results are enhanced by our extended investment strategy for our client funds portfolio, which delivers us an incremental level of interest income over time and at the same time, lessens our exposure to short-term interest rate volatility. We also continue to operate a low capital-intensive business model. We also maintain and continue to maintain a strong balance sheet, and these 2 factors together enable us to be highly cash flow generative.

Our model importantly allows us to make appropriate levels of investment back into the business, while at the same time, continually and consistently expand our margins and grow our earnings. We continue to take a thoughtful approach to M&A and also to financial leverage. And we have long maintained our commitment to shareholder-friendly actions and to returning excess cash to our shareholders. So my next several slides will attempt to bring these important investment attributes to life.

First, durable topline growth. At ADP, we have a history of delivering consistent, strong revenue growth. Over the last decade, we grew our revenue at an average annualized growth rate of 6.5%. And during that decade, we grew our revenue every single year, including right through the middle of the COVID-19 pandemic. Our ability to deliver this consistency of growth stems from all of the factors I just mentioned, our position as the leader in a very attractive market, our recurring revenue model and high levels of client retention, the fact that we deliver mission-critical nondiscretionary solutions, the benefits that we enjoy from our diversified portfolio of businesses that cover all segments and geographies within the global human capital management market.

Just taking a further look at our diversified portfolio and how it helps us drive growth. Some of you may remember, we provided -- first provided a revenue disaggregation at the business unit level at our November 2021 Investor Day. And then earlier this morning, Joe presented the same revenue view for fiscal year 2024. Here on the screen, you can see the change in revenue view over that period of time by business unit. What is most pleasing for us is that every single business unit was able to grow its revenues over that period from '21 through to '24. Different segments and different geographies within the market performed differently during various stages of the macroeconomic cycle. Being a leader in all segments of the market allows us to drive consistent total revenue growth over time, and we continue to see significant growth opportunities for each and every one of our businesses in their respective markets.

Moving on now to margins. Consistent strong revenue growth remains a key enabler for us to continually expand our margins. Additionally, as I said, our approach is to make appropriate levels in the business to drive future growth, while at the same time to manage our expenses carefully and also to drive productivity improvements across our business allowing us to consistently expand our margins. We recognize that as shareholders, you want to see healthy growth in both revenues and margins each and every year. So we take a look again at the last decade, we were able to deliver around 700 basis points of margin expansion across that 10-year period. And further, we delivered consistently year after year with only a single year, being fiscal year '21, showing a small retreat in margin levels from the year prior, around 40 basis points, and this was during the height of the COVID pandemic.

Now, I'd like to share some more details about how our extended investment strategy for our client funds portfolio enhances ADP's financial profile. To quantify the benefits that we enjoy from this strategy, as you can see on the screen, we have delivered an incremental level of interest income of about $1.8 billion from the inception of the strategy in fiscal year 2001 through the end of fiscal year 2024. Our strategy is enabled by our strong balance sheet and our high investment-grade credit ratings. It involves extending and laddering the maturities of securities in our investment portfolio, while at the same time, utilizing short-term financing arrangements to satisfy our client fund obligations.

In other words, our financial strength and our ability to continuously source liquidity allows us to take advantage of upward sloping yield curves being the predominant shape of the yield curve over time. So while safety of principal, diversification and liquidity remain the primary objectives of our client funds portfolio, this extended investment strategy also allows us to optimize our interest income returns over time and as I said, minimize our exposure to short-term rate volatility.

Our extension and laddering strategy differentiates us from our competitors, and we expect that it will provide us tailwinds over the next few years. As you can see from the screen, we have around $13 billion in client funds investments scheduled to mature in aggregate over the next 2 years. The average embedded yields on those maturing securities are just 1.5% in fiscal year '26 and 2.6% in fiscal year '27. These embedded yields are meaningfully below the expected reinvestment rates during the periods if we look at the current forward yield curves.

Accordingly, we anticipate meaningful positive reinvestment rate differentials through fiscal year '26 and fiscal year '27 that, along with the overall growth in client funds balances that we are projecting during that period to provide us tailwinds from client funds interest income going into fiscal year 2028. And this is one factor that gives us the line of sight we need to continue to make the necessary investments back into our business to drive future growth, while at the same time to consistently deliver earnings growth during the period that's covered by our upcoming medium-term financial objectives.

I'm going to move on now to capital allocation. Our first priority, as I've mentioned, is to continue making organic investments in our business. Next come strategic M&A, and we'll talk more about that in a few minutes. And third, we very much intend to continue our commitment to shareholder-friendly actions and returning excess cash to our shareholders through our dividend and our share repurchase programs.

Organic investments. We currently have several high-return organic investment opportunities, which will help us drive sustainable growth in the medium term and also in the longer term. On the technology front, our investments are centered around continuing to scale our operational capabilities for our product Lyric as well as adding and improving feature functionality for the product and broadening its global reach. Additionally, in the technology space, we intend to continue investing in the integration of WorkForce software with existing ADP HCM solutions. We also intend to continue investing in extending the addressable market for next-generation WorkForce Now. We're also continuing to modernize our technology footprint, and we're investing in delivering AI capabilities and technologies infusing through our product set.

In terms of distribution and service, we intend to continue to grow our sales force. We intend to continue to nurture and optimize our partner channels. We intend to continue to invest in lead generation via digital marketing. And we intend to continue to invest in industry-leading tools and AI technologies to enable our frontline teams to win in the market and to also best serve and support our clients.

On the M&A front, our M&A strategy is tightly linked to the 3 ADP strategic priorities that Maria was talking about earlier this morning. First, we look at potential acquisition targets that have best-in-class technology solutions that we believe will complement our existing suite of products. Second, these targets should bring incremental expertise to ADP. And third, we look for acquisitions that will enable us to continue to benefit our clients with our global scale. We continue to remain thoughtful and disciplined when it comes to M&A, both from a valuation perspective and from a target risk profile perspective.

The third pillar of our capital allocation program, again, is returning excess cash to our shareholders. So we have a long-standing track record, as many of you know, for capital return. And that track record now includes 50 consecutive years of dividend increases, allowing us to join a small exclusive group of companies known as the Dividend Kings. Our strategy is to continue to grow our dividend as our earnings grow within a target payout ratio range of 55% to 60%, while returning any remaining excess cash to shareholders beyond that through our share repurchase program. As you can see from the slide, we have returned around $30 billion in cash to shareholders in the form of dividends and share repurchases over the last decade alone.

We also intend to continue our thoughtful approach to our capital structure and to our leverage levels. Our intent is to continue with leverage levels that are commensurate with high investment-grade credit ratings. Strong ratings are important to our model because they enable us the access to the short-term financing arrangements that underpin our extended investment strategy with respect to our client funds portfolio.

Okay. Moving ahead to our medium-term financial objectives. Before I share the objectives, although I know everyone has already read them, and they've been posted via the 8-K and probably many other means, I do want to level set, it's important that I level set, that these are based on a set of macroeconomic assumptions that are broadly consistent with the current economic environment. They do not contemplate any meaningful acceleration in economic activity, and similarly, they're not predicated on any recession scenarios. Our financial objectives do not incorporate any meaningful effect or significant impact from unannounced M&A nor any meaningful changes in either the current yield curve environment or corporate tax rates.

And finally, you can think about medium-term horizon as the next 3 to 4 years, with our financial objectives representative of what we would anticipate to deliver on an annualized basis over that period of time, meaning that individual years may be either higher or lower than the financial objectives I'm about to share.

Okay. The contribution from Employer Services new business bookings growth that David spoke to earlier this morning, together with continued strong client retention, we believe will drive approximately 6% Employer Services revenue growth on an annualized basis across the medium term. Additionally, we're anticipating 6% to 8% revenue growth for the PEO on an annualized basis over the same time period. For both Employer Services and the PEO, we are not assuming any significant revenue impacts from changes in pays per control growth or from changes in price increase levels across the period. On a consolidated basis, this rolls up to 6% to 7% expected revenue growth on an annualized basis for ADP over the medium-term horizon.

Taking a look at margins now. We expect adjusted EBIT to grow 8% to 10% annualized over the medium term, which implies around 50 to 75 basis points of margin expansion each year. This should support earnings per share growth of around 9% to 11% annualized across the period, which assumes that we will continue to retire around 1% of our outstanding share count each year. And adding in a 2% dividend yield brings our total shareholder return to an expected range of 11% to 13% on an annualized basis across the medium term.

To sum it all up, we are bullish on the human capital management industry and we are very bullish on ADP's future in it. We are the leader in a large and growing market, and we have significant runway for future growth. We are innovating at pace to deliver best-in-class HCM technology, and we are well placed to harness the power of AI. Our industry-leading distribution differentiates us from our competition, and we're extending our lead by deploying AI-infused sales tools and leveraging the partner ecosystems that we've built. Our unrivaled scale sets us apart in our markets and helps us to drive growth as we continually seek to enhance the client experience and to improve on our record client satisfaction levels.

And finally, we are really proud of our ability and our consistent delivery of strong financial performance. We look forward to continuing to deliver on our financial objectives and also to delivering healthy returns for you, our shareholders.

And with that, thank you very much for listening. We're going to transition, I should say, in a moment to Q&A. Maria is going to join me momentarily on stage as these chairs come up. And we also have -- my apologies -- we also have all of today's presenters sitting here in the front row, ready to take your questions. I'm going to pass back to Matt in a moment. He's going to give us the road safety rules on the Q&A and looking forward to taking your questions, but thank you very much for listening.

Thank you so much, Peter. So if you could please wait for the microphone before you ask your question. And if you could also state your name and your firm as you ask the question, that would be appreciated. [Operator Instructions] And so maybe we'll start with Dan Dolev there in the back.

Dan Dolev here at Mizuho. Great presentation, great Analyst Day. Thank you so much. I wanted to ask, so those medium-term targets are obviously fantastic. I just wanted to ask, maybe you can give us some color on more of the near-term if you can on how '26 ties into that? How should we think about the trajectory over the next 2 to 3 years? I think that would be really helpful for modeling purposes.

I'll take that. So yes, no, we're not really prepared to talk about '26 at the moment. The good news, Dan is, as you know, you don't have to wait very long. Our earnings call is scheduled for July 30. So roughly 6 weeks, I think. Again, our focus is on the medium term. Some years may be a little higher, some years may be a little lower. But we'll -- we still have quite a lot to do. I know it's June 12, but as you know, I think the fourth quarter and even the month of June is a really big month for us, certainly, in terms of bookings, also in terms of things like retention, for example, in our PEO, like we're right in the middle of those cycles at the moment. So we prefer to wait to July when we have the output of the year where we're stepping into '26 to share on '26. But certainly, we feel confident around the ability -- our ability to deliver those medium-term targets over those -- over that period of time, which obviously includes FY '26.

Mark Marcon from Baird. Terrific presentation. I've got a question, maybe it's for Sreeni, maybe it's for Maria. But I'm wondering when you think about all of the different technology steps that you're going through, can you give us a little bit of a sense for WorkForce Software, what would you anticipate would be the time for having that fully integrated? And when would we start seeing benefits from that? If we think about Next Gen Payroll, when will that be fully integrated into WorkForce Now and Lyric? Anything on the AI front, anything else that people should really key in on in terms of key benchmarks to help you accomplish the goals that you set up financially?

Yes. Fantastic, and thank you, Mark. Always appreciate the question. By the way, it's not often I get to sit here and see all the hands up. So thank you all for participating this morning.

I'll start and then to your request, I'll have Sreeni comment because you're actually asking the same question that I generally ask Sreeni. He has the luxury of sitting almost next to me and I ask him the same question almost every day, which is when, when, when and faster, faster, faster. But the reality is, we are actively working on each of the things that you mentioned.

So as it relates to WorkForce Software, we are in motion of integration, specifically with Lyric. That is a big piece of our growth story. It's a big piece of our execution story, as you heard from both David and Joe, as we come together with a Global Payroll, Global HR, Global Time and Global Service offer., Now when all of that gets integrated and ultimately, when it starts contributing to our financial models, which I think is the second piece to your question, I think it's in some time. So while it will meaningfully impact bookings this year, we've talked about our expectations for Lyric. We saw that in '24. We see that thus far in '25. We expect that it will continue to meaningfully impact our bookings. In the medium term, when it starts hitting revenue, I think, will take a bit more time.

I think that's a consistent message for each of the products you mentioned. We have Next Gen Payroll deployed, as Joe mentioned, to a subset of our mid-market at this juncture. Each day, we are continuing to expand that. That is meaningfully impacting bookings and then will start meaningfully impacting revenue over time.

So what I would say to you is it's over this horizon and the future decades as all of these things come together and then start contributing to the financial outcomes and the financial model. But as it stands, they are all contributing and will continue to accelerate in contribution specifically to bookings.

So in terms of when and when is it going to go faster, I'll leave that to Sreeni to answer.

I didn't realize that I have to actually answer the questions after my presentation. But thanks, Mark. I appreciate it. I'll give the same answer I generally give it to Maria, soon. No, I'm just joking. The WFS, the way to think about integration is like multiphase. So think about single sign-on, meaning client has both our product as well as WFS, right, already. So let's connect it so you don't have to enter the user ID and password again. Like this is simple. It's already delivered. And then the data integration, meaning let's have the time entries come into the payroll system and payroll data goes back there vice versa, right? So that's already being done.

Third would be the UX integration. Can the look and feel can be integrated into Lyric, GlobalView and WFN, et cetera. That's being worked upon. In the next few months that would be done as well. So that's on the WFS front.

And similar to what Maria said on the Global Payroll integration with WFN. So obviously, mid-market segment is already being live and thousands of clients on it already. We are just introducing to the different segment in the mid-market, upmarket above 150 or so, and the traction is very good so far. So I would say, in the next few months, we're going to have more and more clients joining the journey there.

We'll go to Bryan Bergin.

Great presentation today. Bryan Bergin from TD Cowen. I guess I'll got 2 here. The first one, Maria, bookings, I got to go there. 6% to 7% target is bullish. Curious, the means to getting there and how important the upmarket pushes now with the lean-in on Lyric and Global Payroll relative to the other solutions you've been strong in the down in the mid-market. So how much more important is upmarket to getting to that 6% to 7%? Anyway you could rank order that?

And then as it relates to modeling here, just in ES and PEO, can you double click a little bit more on the employment of PBC and the worksite employee growth? Are we talking this fiscal '25 type levels? Or are we kind of thinking back to normal levels?

Fair. I'll start, not surprised that you're asking a bookings, bookings, bookings question. We are bullish on the 6% to 7%. I think the contribution as mentioned, is about headcount. It's about investment into productivity, and it is about product. It is also about broad-based contribution.

So from a modeling perspective, I don't know that we want to delineate how we're building the sales plan by business, but from a contribution perspective, the investments we've made both organically as well as through the acquisitions to position ourselves in the enterprise space is meaningfully different. And as such, we are looking toward broad-based contribution across each one of the businesses as we think about that 6% to 7%. And we believe we have, as you heard from Joe today, the best products in each one of the spaces. From Brian and Virginia, inclusive of the enterprise and Global Space and PEO. But the basic assumption is broad-based contribution based on products, offerings as well as productivity, things as well as headcount. So that's kind of the answer on the -- all of it.

Yes. And Bryan, on the pays per control question. So yes, to your question, we are not expecting to be back at the levels we communicated as sort of normal, so to speak, in our previous Investor Day, so for Employer Services closer to current levels than to sort of traditional norms, so to speak. And for the PEO, yes, I mean, we're still quite a way below the levels we were at back then, and we're not really contemplating returning to those levels through this medium term.

And the reason for that, obviously, is really just the macro environment. When you look at 4.2% unemployment and sort of various policies like where is sort of outsized, if you like, versus where we're at today, labor growth going to come from. So we're really not counting on any meaningful uptick in that as part of our projections.

I think there might be a question in the back.

Samad Samana from Jefferies. I'll echo the congrats, great job, everybody, and appreciate all the progress you've made. This is going to be an AI related question, but there's 2 parts because they pay us by the question over here. So if I think about internally, you mentioned having 12,000 service agents, 8,500 quota-carrying reps. So that's about 20,000 employees that face your customers. How are you thinking about how AI will impact what the growth of that has looked like historically versus maybe going forward? Or should we think about that more in productivity terms?

And then related, as you think about AI facing your customers, how are you thinking about monetization beyond just adding value? Is there a specific monetization mechanism? Sorry for the 2-part question.

No, it's great. And great to see you, Samad. Thank you for the question. I'll start, and then certainly, Peter, you can add to it from a modeling perspective. So as it relates to the work that we are doing to continue the journey of digital transformation, it is about productivity. It is about enhancing whether it's our sellers' ability to execute more sales or it's our service associates' ability to handle more clients, that is a journey. If you remember, Sreeni's slide, that is the journey ADP has been on, candidly, even beyond the horizon of his slide and really the innovation journey that we've been on for 75 years.

So I think the #1 thing that I would suggest as it relates to the AI work that we are doing into our house and really even into our clients, HR, payroll, tax, domains is to make everybody more efficient and more productive as it relates to this discipline.

Now in terms of the second part of the question, which is how will you ultimately look at that from a productivity over time? And does it have an impact to what -- where your headcount goes and as you hire? Our job and our goal is always to become more efficient and to -- our step-up point is to solve with technology, but we are also a growing business. So I think it's -- it's too early to sit here and tell you what does the head count look like in X number of years out, Y number of years out? I think what we're working on right now is the journey that we've been on, which is digital transformation, productivity, efficiency. By the way, all of that removes friction and allows us to sell more and keep more clients. And that is fundamentally the most important part of our business model. So I think over time, it's a bit to be determined in terms of the impact on our overall headcount.

Before I turn it over to Peter, and he can comment on both. I'll comment quickly on data monetization as well because I think that was your second piece because it's related to the overall AI work. As Sreeni mentioned, the foundation of all of that is One Data and what we can do with that data. Today, we do data monetization in various ways. Some of it is using that information internally to become more productive. You saw that as an example with The Zone. You see that, as Sreeni mentioned, we're consuming all of our chat transcripts and call transcripts, probably sounds boring, but we take tens of millions of calls and chats per year that we're consuming. That's allowing us to feed information back into our client base. That will make our clients happier and ultimately allow us to take price where appropriate.

The other part of data monetization is also the data. Again, the One Data that we use for the NER, we also use that data to monetize it outside of our walls. The best example of that is the work that we do in employment verification to solve that use case for clients. And we have lots more use cases there as we think about how to leverage that data on a go-forward basis to monetize and then take all of that and marry it to others data, marry it to AI tools. And undoubtedly, there are more data monetization opportunities in our horizon, undoubtedly in the future. So, yes, I'll let you comment.

Yes. No, I mean I think that was very well answered. The only thing I would add would be that I just want to stress, it's not all work now for benefits in the future. Like we are materializing and realizing like real benefits now, and we have been since we started this journey. What you don't necessarily see or maybe why you're asked the question around the financials is, we're seeing the benefits already in the areas where we have deployed. But we're a broad company, a large company. We have a governed sort of managed process in terms of how we roll out these technologies. It's not just deployed on mass to our 60-odd thousand associates and tell them do what you like with it. We certainly have a programmatic method to approaching this. So we're already seeing productivity improvements, benefits from the technologies that get rolled out, the benefits start to get realized and the staffing models adjust and then the benefits come from, the financial benefits I'm talking about, come from productivity.

But at the same time, we're then starting to roll out in the next area and the next area and the next area. So we're in a little bit of a net investment sort of position, if you like, from like a generative AI rollout position, Samad, and we anticipate that that will probably continue through a good portion of the medium-term horizon that we're sharing just given our size and scale and the opportunity we have with GenAI. But I do want to stress that we are seeing benefits now like real benefits from the areas that these tools have been rolled out, whether it's through Sreeni's team or the business units or what have you.

I think there's a question in the back. Zachary Gunn.

Zack Gunn, FT Partners. I wanted to ask a little bit about the Clover partnership and the opportunity there. So Clover has 750,000, 800,000 merchants. It's a pretty large opportunity when considering the 900,000 clients you have in the SMB business today. Can you help us think about -- is there anything that prohibits you from going after the entire Clover merchant base? What the go-to-market looks like there? And anything in terms of thinking about a realistic cross-sell opportunity and what portion of Clover you can capture over time?

Sure. And it's a great question. We are incredibly excited about embedded payroll, and we are equally excited about this exclusive partnership that we formed with Fiserv specifically as it relates to running Clover. A big piece of the thesis of that partnership is exactly what you just said in terms of their -- I think they call it their back book, we call it a client base, they call it a back book, but what they call their back book and the number, hundreds of thousands of clients that they have and the almost 1 million clients that we have on the RUN payroll.

Now there -- invariably, there will be some overlap. But to your point, and that's some of what we're working through right now, where does that overlap exists. But undoubtedly, there is a tremendous opportunity for each of us to penetrate each other's basis with our various offering. In our case, it's putting -- marrying RUN payroll with Clover. In their case, it's putting CashFlow Central into our run offer and both of those present themselves to be incredible opportunities.

The go-to-market today is exactly what you'd expect from 2 companies that have best-in-class distribution. So we're working through how to go to market together, whether that's in the field, it's in digital, inside sales. It's from digital distribution, all the different ways that we can serve up our offers inside each other's product and allow for self buying as well as field or seller enabled buying. Those are all the motions we're, I would say, perfecting, and it's an important piece because the other part of your question was just how big can it be and is there anything stopping you from full penetration?

I would say there's nothing stopping us but we're early in the journey of perfecting the model. And a lot of that is, again, I'm a client-centric person by nature. It's understanding where is that small business owner making the decision and at what juncture of their entrepreneurial journey. And where do we meet them? Where does Clover meet them? How do we meet them together and how do we facilitate this journey together. And so today, it's done through exactly what you'd imagine, which is co-selling and referrals and things of that nature. But I think we've only just gotten started in terms of just how broadly this could be deployed across both of our bases.

Yes. And just as a reminder for everyone, if you weren't already aware, I mean in terms of the Clover client base, RUN is sitting now on the Clover dashboard. I'm not sure if it's fully rolled out to the entire client base. I think they were doing that over the period of a few months. But it will be sitting there available for anyone, as Maria was talking about, to self buy. So like to me, at least, the addressable opportunity is something like the total -- sorry, the entire Clover user base absent where the overlap is because obviously, they already have RUN. So we're very bullish about it, but as Maria said, it's still early stages and will probably take some time to feed through.

Kartik?

Kartik Mehta, Northcoast Research. Peter, just to make sure I understood. On the ES guidance you gave pricing, would that be back to the historical levels or kind of the levels we're at today, just to make sure that we understand that part?

Yes. Good question, Kartik, more like the levels we're at today. So I think we said around 50 basis points back in 2021. Obviously, the environment was quite different. Inflation was -- although it's becoming lower, it's still nowhere near what it was through the pandemic period. So we're contemplating more -- as we have lower pays per control than we had back then, we have a little bit more in terms of price. But our philosophy has not changed on price. So our philosophy still remains that we take the long-term view. We have long client life cycles. As you know. We have great marginal profitability on most of our clients. And we also, as David was talking about, we also get around half of our bookings from our client base. So retention and lifetime value is most critical to us, taking price. We take price, what price we think is appropriate, but we don't get greedy on price. So it's more driven by the macro assumption, if you like, and where the world is at today with respect to price increases than some change in philosophical approach at ADP to pricing.

And then just on AI. I know you said it's benefiting you now. But as you look at it from a financial perspective, do you think -- is it a drag on margins today? Or do you think it's a benefit? And if it's a drag, when do you think it can become a benefit?

At the moment, it's still a drag, but not a hugely significant drag. In terms of the investments we're making, some of the product investments we were talking about and scaling our operational capabilities around Lyric are a bigger impact on margins than what the net position is on Gen AI. We don't really have a specific date yet in terms of like when will that equation flip. It's not -- like I said, it's -- we're talking tens of millions of dollars of net investment, not hundreds of millions of dollars. So it's it will come. Whether it's in 2 years or 3 years or 4, I think, remains to be seen. But our focus at the moment is really landing the opportunities where we have deployed and then looking for the next opportunity to deliver. And it's not just about margins or even about financials. As Maria said, it's about client experience, associate experience, client retention and obviously, there's economic benefits to it as well.

I think there's a question in the middle. James Faucette.

James Faucette, Morgan Stanley. Wanted to follow up on the question around Clover and maybe make it a little more generalized. It seems like you guys are being able to build an interesting network of partnerships across lots of different businesses. And I guess the questions that I have first is in the relationship with Fiserv, how should we think about if there's going to be any meaningful change in where the impact is on a gross margin versus operating margin basis. I don't know if we should be thinking about that.

And then another question that we've been getting actually from investors is one of the most interesting probably developments from an employee standpoint in new offerings over the last couple of years has been the growth in earned wage access programs, et cetera. And I know you guys have some programs there. But in those programs, what's the potential for impact on things like flow and client funds held? Is it such a small piece of the overall market that it probably won't make a difference? Or is that something we should be aware of?

Yes. So maybe I'll start, and I'll just give a general partnership answer because both of what you mentioned, both obviously Clover and Fiserv as well as EWA, we address through partnership today. So I'll just kind of give basic Maria and ADP version of how we think about partnership and the importance of the open ecosystem and extending our reach, which is exactly that.

And so when I think about what it means to be a best-in-class HCM technology provider, what it means to have unmatched service and expertise, it is really that realization of what are you really good at? And at the same time, leveraging others for what they're really good at. And I think that's what's happened with, as an example, the entire category of embedded payroll. So there used to be a time when perhaps POS providers believed, payroll, like, we'll build that. And that's an easy one. And today, that market is recognizing we should be really good at POS, and we should leverage the likes of ADP who's really good at payroll. And that coming together to solve a real business problem is, in my mind, the most beautiful part of partnership, right? And that's how we think about it.

So we -- by the way, our embedded payroll strategy is not just Fiserv. So we're committed to overall embedded payroll. And we're also committed to partnerships like the one that we have through EWA and the things that we have inside of the ADP Marketplace, which is again about extending the reach to help our clients either navigate better or solve a specific employee need in the case of an EWA or a specific company and business problem. And so that is -- that is our partnership thesis.

And I'll let you kind of comment on how to think about the impact on margin, but also how to think about the impact on float.

Yes. Yes. So I mean, on margin, specifically, James, to the Clover question, in terms of contribution margin or gross margin, operating margin, no real difference, I don't think, to that -- to those -- that batch of clients, so to speak, versus the wider batch again, the service delivery is still and what the client is consuming is still the same as another small business client who buys through a different channel.

The distribution costs are a little bit different because of the rev share model, not necessarily worse. It's just the mechanics are a little bit different. So it's a cost-effective way of distributing in our opinion. And certainly, once the client has signed up and is, pardon the pun, running RUN payroll, we don't really see any noticeable difference, if you like, in why the profitability would vary either higher or lower.

On EWA, I mean, EWA for me is an important offering, but I would say it's not really gone beyond sort of a group of employees or a category, if you like, of employees. It's not really widespread. We have partnerships, as Maria said, with through our marketplace to deliver EWA to those who want to use it. There is a volume of take-up, but it's not necessarily becoming the pervasive or the norm, if you like, across the 1.1 million clients that we serve.

In terms of float, therefore, it obviously becomes quite small. And really, what you're talking about is because, again, the taxes on EWA still get filed at the same time as if you were not drawing your wages from EWA. And taxes are the most meaningful part, if you like, of the contribution to float, the net pay itself becomes a smaller portion of someone's net pay. There's a haircut involved in order to -- that someone doesn't end up overdrawing, so long story short, de minimis, in my opinion, in terms of the float impact on EWA and just the pervasiveness for one of a better description of EWA as a method of pay amongst our client base is it's there. There is interest, but I think you've seen from us and you've probably also seen from our competitors that there was a little bit more noise about it, I guess, over the last few years than what there really has been in terms of traction.

Maybe here in the front, Tien-Tsin Huang. Ramsey El-Assal.

Ramsey, it is.

Ramsey El-Assal from Barclays. Maria, you opened the day with a message that ADP scale is a differentiator. I guess from a competitive standpoint, does scale matter more than it used to do even a few years ago? And does scale help you capture incremental market scale from subscale players today? What are your thoughts on that topic?

Scale matters. That was my message. Scale is more important than it's ever been. And it has to do -- by the way, I believe it's scale, it's depth, it's broad reach, it's 75 years of experience through innovation cycles, economic cycles. All of that lends itself to being really important in today's environment. Part of that is because it's a very complex environment, just the landscape shifting around us. That has to do with the economic cycle. It has to do with the innovation cycle and knowing how to navigate that and having the reach and the extent to navigate that is more meaningful than ever.

When I think about -- and I said it on stage, and it was on my timeline, I know this because it's actually the year I was born. Like we started international in 1973. So for 51 years, we've been building the business that Virginia runs, and that is a reach and a scale and an extent that would take someone else 50 years to build because it isn't built in a day, and as such, yes, I believe it's more meaningful. Clients are becoming more complex, more global, need all of those services.

In the shape of AI and the story that Sreeni shared around One Data and the power of that scale and what to do with that scale, it is fueling and inspiring our innovation. It allows us to solve problems for our clients. It allows us, it's the foundation for the new technology of AI that we're infusing. Without that knowledge, it -- the innovation would look very different. And so again, back to like how do you put that in context? If you were to go feed any of these AI tools, just take New York City, I live in New Jersey, I drove here -- and where am I supposed to get tax today? And if you were to feed all the tax code into an AI tool and said, where should Maria be taxed for today? It would get it wrong. And the reason is because it needs the 6 questions to ask, how long was she there? Where does she live most of the time? Where does she pay most of the taxes? Where did she pay them a lot?

It needs all of that, and we have that. We have that in all -- of the 75 years of data and the voice to text now that we're consuming to actually go answer that question properly. By the way, answer -- help our associates answer it and also answer it through modern tools. So again, to me, it is a game changer. And having scale and specifically data because data isn't just about -- it's all the things that we've talked about today, having scale and data and distribution which is also David's team, the seller distribution, but it's also the 1.1 million clients, data plus distribution, that is -- to me, that is the competitive advantage in this innovation cycle, this one being the journey of AI into the world. So that's my belief. I could go on and on, on this, by the way, Ramsey. But I -- yes, scale matters. Glad you asked.

I'll give it to Tien-Tsin.

It's Tien-Tsin Huang from JPMorgan. Just want to -- I guess, a business and a financial question, if that's okay. On the business side, the decision to go vertical on the mid-market, I thought it was interesting as long as I've covered ADP, haven't really gone vertical. So I'm curious what dictated that decision to go vertical where you're going to verticalize your sales force? And can we expect you to maybe do more of that even down market in some cases?

And then my financial question is just around discipline and M&A and Ramsey's question on scale. What about the financial discipline on M&A? Any change in thinking around accretion dilution, size of deal, that kind of thing?

Sure. So I'll actually take a stab at both and obviously, welcome Peter to join in on the M&A discussion. With respect to going vertical and the decision, again, I'm a client-centric person, and I think about clients and where we have the ability to get really good at something to solve something for a specific client in terms of the need that they have, a problem they're solving for an opportunity that we can lean into. My view as the leader in HCM is we should do that. And that's what led us down the road of what you mentioned, which is specifically workforce now for construction.

So what we realized was using our best-in-class technology married to our best service, gave us an ability to go deep into that vertical to solve specific use cases for construction, which, by the way, is a market that's been underserved. It's very complicated. Payroll and construction is incredibly complicated. And we have the ability to solve that based on our strategic priorities that we have. And so my view is, if we can do that, we should do that. And we will continue to do that where it's warranted.

Now your other question is, does that mean we're going to verticalize everything and rearrange all our furniture to sell in verticals? I don't foresee that. To me, it's more simple than that. It's where we're really good at something, and we can bring value to those clients and differentiated solutions and offerings to drive our growth, we'll go do that. So you'll see more of it, but I don't see it as a holistic rearranged input. Never say never. The second piece to the question.

M&A.

M&A. So I'll let Peter comment. You should continue to expect that ADP will be disciplined and think about everything that we stand for as it relates to M&A that is complementary, that is accretive, that is, again, solving for our journey, but also solving for our clients' journey. I don't think we're sitting up here saying that wholesale change in really anything. We're very disciplined as a company. And I think that's what's led to the durability of our financial performance. But M&A also looks different across ADP.

So we do client-based roll-ups all the time, clients where we're purchasing specifically in the down market, perhaps an accountant's portfolio of payroll that they provide, some would call that an acquisition. We did a very big acquisition of an entire company, obviously, being workforce software, largest acquisition in our history. And then we do a lot of stuff in between. And those are the country roll-ups that we mentioned in international. We talked about Sora Technology, which was a workflow tool. So we bought a bespoke piece of technology to accelerate our innovation journey.

We could have built that. We could build it right back there. We have an innovation lab right here that could have built that, but it could have taken us, I don't know, 5 years. Why would we go do that when we have the ability. So I think that constant lens of what makes sense in terms of it being complementary, not a distraction, and accretive to all of you, our shareholders, that is the lens that we will apply and continue to apply. So it might look really small or it might look big, but the commitment we have to you is that it's going to be good for all of you. So I don't know what you would add.

Yes. No. I mean, I think just to clarify also, accretive can -- I think Maria is talking about many things accretive to our product portfolio, our client base, the acquisitions. We don't really have a hard and fast rule -- sorry, let me go back actually. I just want to be really clear, like we don't have a change, and I think we said that -- a few of us said that in our prepared remarks. We don't really have a change in acquisition philosophy. We're not looking to go out and completely stage left on transformative acquisitions that are hugely dilutive or anything like that. But I would say we don't really have a hard and fast rule about how many years to accretion or what have you, how many years of dilution because I think we look at each opportunity on its merits, how strategic it is for ADP, what the opportunity is? And then obviously, we also look, as we said, and we remain disciplined on the financials.

So I wouldn't say there's a hard and fast rule, but I also wouldn't say there's any real change on that aspect, Tien-Tsin, or just the general philosophy with M&A. And I think we will look -- continue to look at each deal on its merits. And like I said in my prepared remarks, we look for stuff that's complementary to what we have, not duplicative to what we have. And we look for things that add, if you like, to ADP's capabilities. And if we can make the financials work, then great. If not, then we will be disciplined and we'll move on to the next opportunity.

Question there.

Jason Kupferberg from Bank of America. So I want to go a little bit deeper into the competitive landscape. And maybe if you can touch on downmarket, mid-market, upmarket. Are there certain types of competitors that either are becoming more relevant in your mind or maybe on the flip side, where you think you're taking some incremental share from?

Sure. Always happy to talk about the competition because there's not a shortage of them. That's one of the, I guess, benefits of being as big and broad and deep and wide as we are is that we have formidable competition in each one of the spaces. And I'm very proud, by the way, if you think of the results that we've seen, specifically in bookings and the results candidly, over whether it's last medium term or over 75 years, our ability to continue to deliver the durable revenue growth and the bookings amidst an influx of competition over the 75 years since we invented the industry is pretty remarkable. So very proud of that and certainly proud of our position today relative to the competition.

We are always keeping an eye on each piece of the landscape. So I think in the down market, and I kind of alluded to it earlier, 5, 7 years ago, we were sitting around talking a lot about POS providers entering into the down market. I think today, it's more traditional competitors that we see in the down market. We continue to think about them, think about how we distribute which we believe is better. Think about our products and how we continue to innovate and to win and make sure we have all the offers to compete. And it's also about keeping an eye on the trends in each one of the spaces. So just like we were keeping an eye on the POS trend, there are trends in the down market in terms of how this will evolve over time.

The biggest piece I look at is distribution and that reach is, again, back to a meaningful differentiator because if you think about how a small business consumes payroll today, you still need the client to be organized enough to do it all on their own. So even if somebody can go invent this all digitally, this piece, in order for it to work out to become an actual booking, both have to come together. And so again, I think our distribution and the investments we make there and the continued both in technology and headcount is a meaningful piece to that.

I would say the same is true in the mid-market. I think we picked up tremendous ground in the mid-market. The part that I see is the record NPS that we've been talking about over the last couple of years, coupled with record retention or near record retention in the mid-market. I'd like to think we're making it harder on the others. I find that fun. In terms of the upmarket, at some level, like we're just getting started. And I would say that's the part that we are all so excited and really the kind of impetus to why we wanted to bring all of you here today at our innovation area to kind of see what it is that we're doing to really bring together this offer that we think is going to be a big contributor to us over the coming years. But undoubtedly, there's not a shortage of enterprise competitors.

By the way, many of them we partner with. We live in that coopetition world. And we all want to land and expand. And the journey of landing and expanding is making sure you have the offers that once you're there, you have the ability to continue to grow. I mentioned we serve 80% of the Fortune 500 together already and together now with the offers that we have, being able to extend that reach and land and expand, that's exactly our intent. And we'll see where that leads the competition in the years to come.

Question in the middle, Scott.

Scott Wurtzel from Wolfe Research. I wanted to ask a couple of questions on the Zone. So wondering if you can talk about if there have been any way to kind of quantify or measure the uplift in sales productivity between the 40% of reps using the Zone versus 60% that are not? And then maybe also on the time line in terms of rolling that out to that other 60% as well.

Yes, it's a great question. So we've been working on a modern seller journey, forever, but more specifically over the last decade as we've started really infusing a lot of the tools and technology, the Zone being really a culmination of a lot of that journey, if you will, of modern seller, modern seller transformation and the technology involved in it. In terms of where we are, as mentioned, we're at roughly just under half.

My favorite part about the evolution of this technology is that bringing it into an organization and watching the organic desire to get to the tools. So what happens is, just like you saw in the video, those individuals, I believe they're probably in our Allentown sales office. They're in Allentown, and there's a whole slew of groups in Allentown, they're like, when am I getting this tool? I want it, too. And the reason is exactly what you suggested, which is we are -- by the way, we do this in service, technology and sales. At the micro level, we are measuring the operating efficiency of each one of these tools.

So sales is incredible because you can -- like you can see it almost to the day in terms of how many calls they're able to make, how many deals they're able to close, the relative performance. And the best part about the way that we're rolling this out is all it takes is folks like the ones on the video shouting on why they're more successful using these tools and the rest of the sales force is literally clawing. And that's my favorite. I do a lot of -- I visit a lot of our offices and nothing makes me happier than when I'm meeting with one group and they're boasting about the tools they have and then I get to the next group and they're like, can we get that, too? That's the journey we're on. It is going very fast, right? So at almost sub-50%. And I would say in the next year or so, we will be broadly deployed. But it's a game changer, and it is, for sure, increasing sales productivity.

I think we have time for one more question. I think David, right there.

David Paige from RBC. Just following up on Zone. The tools like Zone come from the upper level management, top management? Or is it the sales organization that's saying like, oh hey, like I think there's better tools out there to make us more productive, to go after sales. Just how does that work within the organization?

Yes. It's a great question, David. And as you know, I ran worldwide while I grew up in sales. I also -- I ran worldwide sales and marketing for a long time. And my answer to you is it's both. And so some of it is at the enterprise level. Obviously, we have a desire to ensure that we're partnering with the right technology, and that's everything from governance to ethics, all the things that -- so there is a lens of, I guess, the corporate folks to this. But we also, at the field level, we pilot and test a lot of tools.

And back to how do they become contagious, if you will, or attractive, it's a lot of piloting of multiple tools that perhaps are best-of-breed that do multiple things. And we let the market and then this example, that is the sales force decide the winners. And so if you look at any of these tools, a marketing outbound tool, a video tool, generally -- and by the way, we're not talking about 10 per type, we're talking about 1 or 2 per type. And then generally speaking, you start seeing success, it becomes contagious, and it becomes clear what the winner is and then we go deeper and embed it into our system.

I mentioned it, it's marketing outbound. It's tools that do some aggregation. There are tools that we partner with companies that are, again, serving up the right lead at the right time, also giving information into the headsets of sellers as to what they should say, things I used to do as a sales executive say this now is actually happening through tools. And again, it's about the take rate, and it becomes very obvious. So it does happen ground up. But then again, there are certain tools like we want to ensure that the call summarization is in a certain tool because it's the same one that we want to use for service because eventually, that call feeds implementation that feeds service, right? So that the data is usable. So the answer is both.

And that concludes...

65,000 ADPiers that are clear in their mission, and they wake up every day thinking and working on everything that you just saw in front of you. And so with that, I hope you join us in our bullishness. I hope you join us in this journey and your continued support doesn't go unnoticed. And with that, we're really excited to move forward with this plan as we head into certainly the next year, but also the medium term. So with that, my sincere gratitude for your interest in ADP.