Automatic Data Processing, Inc. (ADP) Q4 2010 Earnings Report, Transcript and Summary

Good morning. My name is Amanda, and I will be your conference operator. At this time, I would like to welcome everyone to ADP's Fiscal 2010 Earnings Webcast. [Operator Instructions] I will now turn the conference over to Ms. Debbie Morris, Senior Director of Investor Relations. Please go ahead.

Good morning. I'm here today with Gary Butler, ADP's President and CEO; and Chris Reidy, ADP's Chief Financial Officer. Thank you for joining us this morning for our fiscal 2010 earnings call and webcast. Our slide presentation for today's call and webcast is available for you to print from the Investor Relations home page of our Web site at adp.com. As a reminder, the quarterly history of revenue and pretax earnings for our reportable segments has been posted to the IR section of our Web site. These schedules have been updated to include the fourth quarter of fiscal 2010. During today's conference call, we will make some forward-looking statements that refer to future events and as such, involve some risks. And these are discussed on Page 2 of the slide presentation and in our periodic filings with the SEC. With that, I'll now turn the call over to Gary for his opening remarks.

Thanks, Debbie, and good morning to everybody. Appreciate you joining us this morning. I'll begin today's call with some opening remarks about the fourth quarter and our fiscal year results. At the conclusion of my opening remarks, I'll turn the call back over to Chris Reidy to take you through the detailed results. When Chris is through, I'll return to provide you with our forecast for fiscal 2011. And before we take your questions, I'll provide some concluding remarks. As I look back over fiscal 2010, I am pleased that ADP's financial results were better than we initially anticipated as we entered the fiscal year. The economy did show some signs of stabilization early on in the fiscal year. Demand for ADP's solutions has clearly increased, and key business metrics began to improve during the second half of the fiscal year and, importantly, reached inflection point during this fourth quarter. Particularly noteworthy was the 25% growth in Employer Services and PEO Services new business sales for the fourth quarter, and I'm very pleased that all major business segments posted double-digit sales growth in the quarter. This obviously is compared with a very weak quarter four of last year, but it is significant nonetheless, as we all know that positive growth in new bookings is important to longer-term revenue growth. Later in the presentation, we will review with you our revenue waterfall chart, and you will see the impact of these new bookings on revenue growth. For the year, new business sales grew 4%, and we had strong momentum heading into fiscal 2011. Having said that, we are still somewhat cautious about the over 1,000 pays National Accounts market. While we believe we are beyond the bottom, we are still cautious, as this market is typically where sales cycles take longer…

Thanks, Gary, and good morning, everyone. Before I get started, I just wanted to let everyone know that Elena Charles was unable to join us today due to personal reasons. Elena is expected back in the office next week. And in the meantime, you can reach out to Debbie Morris with any follow-up questions you may have after the call. For those of you following along, we're on Slide 4. For the year, total revenues increased 1% to $8.9 billion, including 0.8% from favorable foreign exchange rates. As you saw in our press release this morning, ADP's results for both years included favorable one-time tax items, so on the slide, we’ve shown both the reported results as well as the results excluding the tax item. Excluding these items, net earnings declined 1% compared with a year ago, and earnings per share from continuing operations declined $0.01, as anticipated, to $2.37 on fewer [ph] shares outstanding. In our commitment to return excess cash to our shareholders, we increased our open market share repurchases during the fourth quarter, buying back 11.7 million shares for about $485 million. For the full year, ADP's share repurchases totaled 18.2 million shares for over $765 million. Now let's turn to Slide 5, Employer Services. As you'll see when we get to the Q4 discussion, ES’s revenue growth improved during the year and the full year ended flat with last year. As mentioned last quarter, the full year was impacted by fewer W-2s processed this year and pressure on implementation revenues in the high-end U.S. market. Revenues in our Payroll and Tax Filing business in the United States declined 4% for the year. Our beyond payroll revenues in the U.S. grew 6%, led by growth in our time and labor management solutions, COBRA and HR benefits. Revenues…

Thank you, Chris. We're now on Slide 15 for those of you following along. In our fiscal '11 outlook, we are assuming no change in the current economic landscape. We have also not included the impact of the Workscape acquisition and Employer Services, nor Dealer’s Cobalt acquisition, as these transactions have not yet closed. We will provide an update on our first quarter earnings calls to take place in late October. As you know, we don't provide quarterly guidance, but I'd like to provide some thoughts on how we think about fiscal 2011. We do anticipate pressures early in the year, particularly with the first quarter year-over-year comparison. A year ago, we expected the same early pressures, but that was primarily due to comparison to a strong result early in fiscal 2009 before the economic downturn began to affect ADP. In fiscal 2011, we anticipate early pressures from the impact of reinstated merit increases, and the sales force and service hiring that took place over the second half of fiscal 2010. These are all terrific reasons for short-term earnings pressures because they are expected to yield positive long-term results. Now let me take you through the forecast that you see here on the slide. We do anticipate an increase of 1% to 3% for total revenues and an increase in diluted earnings per share from continuing operations of 1% to 3%. This is compared to the $2.37 which excludes favorable tax items in fiscal 2010. As is our normal practice, no further share buybacks are contemplated in the forecast, albeit it is clearly our intent to continue to return excess cash to our shareholders, obviously depending upon market conditions. For our reportable segments, we anticipate an increase in Employer Service revenues of 1% to 3%, which reflects a range of…

(Operator Instructions) Your first question is from Gary Bisbee with Barclays Capital. Gary Bisbee – Barclays Capital: Hi, guys, good morning.

Good morning, Gary. Gary Bisbee – Barclays Capital: Can you give us a sense as to how large the international piece of employer is and it’s surprising to hear that’s large enough to drag down the pays number to slightly negative I guess unless we are expecting employment double dip in the US?

As we said, international in ES, for example is about 1.3 or so, a 1.4 of revenue and that would include Canada as well. And we’re seeing pays decline in all of those countries. The growth in pays in the US is just small. So, it’s marginally down instead of being marginally up, so it’s not overly significant, but we just didn’t want to give the impression that because our guidance on US pays was up that, that’s going to be a lift next year. In fact, it’s just a slight decline.

Yeah, Gary. Gary Bisbee – Barclays Capital: Hey.

Pay shrinkage in Europe and in Canada has been in the order of minus 3 plus kind of number and we’re at least forecasting only nominal growth in the US in terms of pays for control. Obviously, that could improve or stay in that area depending upon how the economy moves. Gary Bisbee – Barclays Capital: Okay. Can you give us any sense of size? How we should think about the incremental sales commissions and investments you’re making in sales and service people?

Yeah, I think the fourth quarter was the biggest place and what you saw in commissions was probably in the magnitude of about $20 million. You also had merits and benefits and bonus was in around that same neighborhood. The headcount both in service and in sales was another double-digit kind of number, so incrementally fairly significant. And then on top of that we did make some investments in our products, we stepped up investments in our product spending in the quarter, for products like Run and Workforce Now, we’ve been spending a little bit more on our Taxware solutions pretty much across the board, and that was also significant. Gary Bisbee – Barclays Capital: Okay. And then I’m not sure if you will comment on this, but there’s been a lot of chatter that you’re possibly one of the companies that was trying to pursue Hewitt. Didn’t seem to me necessarily something you’ll be doing, but you don’t want to give us any comment, yes or no on that?

We’ve got a long history of not commenting on deals like that, but if you think back to our comments around types of acquisitions that we’re targeting, that isn’t in our strategy to do something along those lines. Gary Bisbee – Barclays Capital: Okay, great. Thanks a lot.

Your next question is from Jim Kissane with Banc of America/Merrill Lynch.

Good morning, Jim. James Kissane – Banc of America/Merrill Lynch: Hey, Chris and Gary. Obviously, margins are under a little pressure in the first half and Gary definitely indicated that they will move back up in the second half. Can you give us a sense of where you'll be exiting fiscal '11 by segment?

Well, let’s see. We gave some guidance on the segments with segment increases in ES up to 50 basis points and slightly up in Dealer. It’s hard to – hard to give anything more than that in terms of exiting, but I think the key is that our overall strategy of 50 basis points of margin improvement is still something that is part of our fabric and hasn’t changed. So, that kind of growth going forward can be expected. More pressure in the beginning of the year because of all the reasons we articulated. James Kissane – Banc of America/Merrill Lynch: Would you take a stab, maybe Gary, at long-term targets for operating margins by segment? Where the business actually should operate on a normalized basis?

Trans acquisitions and then the kind of the economic activity that we’ve seen in the last two years, I think you should see a compounded 50 basis point improvement on a year-by-year basis. And depending on where you are signing from, you can do the math from there. If we could add internal revenue growth in the mid-to-high single digits that’s kind of a minimum scale we get in the business makes those kinds of margin improvement pretty reasonable to expect. Again, acquisitions can change that one way or the other and that’s clearly the path that we are back on to as demonstrated by forecast and the way we’ve talked on the waterfall chart that we expect to get back to those kinds of a levels assuming some kind of a reasonable economic recovery. James Kissane – Banc of America/Merrill Lynch: Okay. And you recently stepped up the buyback pretty aggressively. I mean, how would you characterize your appetite for stock buybacks right now?

I think going forward, it’s part of the comprehensive capital utilization. So why don’t I take this opportunity to go through that. We see cash flow from operations being in the 16, 17 levels, dividend allocation is consistent with what we would say in the past with anticipated increases around the size of EPS, so that’s going to take in the 600 to 700 million kind of basis. Then you have, let’s say, 300 to 400 of acquisitions typically a year. I would expect to do that this year on top of the 450 to 500 that we announced already in the Cobalt and in Workscape. So, if you do the math and you look at the capital expenditures and the software amortization of around 250 million, you are left with plenty of room given that we have 1.8 billion of cash. We’ll work that cash number down; we can do 300 to 400 of share repurchases readily in that depending on acquisition activity and everything else. James Kissane – Banc of America/Merrill Lynch: Okay. That's great. If I can get one last one, kind of goes back to Gary's question on the international business, but maybe another way to ask it, what portion of your overall ES is now Auto Pay? And is that still a good proxy for us to kind of track employment trends at ADP?

It’s still the best proxy we have, Jim, it’s not 100% accuracy – accurate because in the national account area, we still have a lot of clients from the Pro Business acquisition, we also have clients that run on our enterprise platform, some of our large more customized payroll clients. But in the grand scheme of things, it’s still the vast majority of the pays in majors and nationals. At the low end of the market, we’ve got Easy Pay and our new Run product, which is getting a lot of traction. And the numbers even though they are not strategically valid in Easy Pay and Run versus the Auto Pay, are in the same order of magnitude. So, if we were seeing trends either in the other segments or in Easy Pay, Run that we thought would dramatically distort those numbers. We think about talking to you in different ways. But I still think it’s a good product. James Kissane – Banc of America/Merrill Lynch: Okay, great job. Thanks.

Your next question is from Glenn Greene with Oppenheimer. Glenn Greene – Oppenheimer: Well, thank you, good morning. Just wanted to drill down a little bit on the sales environment. Obviously the 25% year-over-year looks like a great number. You did have very easy comparisons, so just wanted to get a sense for the environment relative to the easy comparisons, maybe a little bit of contrast across the segments. It sounded like nationals might be the one area that might be still slow.

Well, if you recall, if my memory serves me correct, we were down high 20s or something in the fourth quarter of last year and that compared on average of about minus 15% for the full year. So, if you thought the average decline over the quarters was, call it, down 15% give or take. Even though we’re still up, plus 25% which would have been flat, let’s say, to the year before ’09. So, it’s still like a 10% improvement over the year average, which I think is really the way to think about it. Glenn Greene – Oppenheimer: Okay. And across the segments, just the small, medium – ?

As we put out I think either in my comments of the release, we were up double digits in all the major segments. Glenn Greene – Oppenheimer: Even nationals, which – it sounded like your commentary is a little bit cautious there.

Well, it is cautious (inaudible) where we had the easiest year-over-year compare. So, that’s – but it’s was still up double digits.

Yeah. Strong double digits, but again you have to also remember, you have the psyche of the sales force. So, if national accounts was the unit in sales set, the lowest performance this year allow the sales folks awaiting for next year in terms of how they book their business and that kind of thing. So, technically if a sales force is underwater, going into the end of the year, they tend to kind of save what they can for the following year as oppose to put in where as guys who are running to maximize their bonus so their sales incentive trips tend to pull things forward. So in general, I’m very pleased with the results in the fourth quarter in sales. I think it gives us some wind at our back as we go into fiscal ’11. But – I just still remain a little bit cautious in national only because capital spending is the high end of the market. Across the board is still kind cautious. And their big accounts are just waiting to see what this economy is going to do and what happens in Washington. Glenn Greene – Oppenheimer: And similarly, the retention improvement, the 160 basis points, I can recall, when you had a quarter that strong. And I think the drag is typically on the small business side. Maybe you could contrast by the segments where you saw the improvement.

I mean, I was nothing short of the static on 160 basis points. The static is not the kind of term we use – normally like we use on these kinds of conference calls. But I was really pleased with that and in fact in the low-end of the market the retention increase for the full year was actually even, I think it was up a couple of points, year-to-year in the SBS/PEO range. So we're really pretty pleased with retention across the board, and in fact of anything, if it bounced back faster than I anticipated, and yeah, and we are expecting 90% plus kind of retention rates for next year, which gives us back, kind of, close to the record levels where we were before this whole downward slide starting. Glenn Greene – Oppenheimer: I'm just trying to reconcile the small business side. I mean, I thought bankruptcy trends were still a pretty significant drag and just wondering how you're sort of improving the retention so much on the small business side.

(inaudible). Glenn Greene – Oppenheimer: Okay. We'll leave it at that. Congrats.

Thank you.

Your next question is from Rod Bourgeois with Bernstein.

Hi, Rod. Rod Bourgeois – Bernstein: Hey, guys. Just on the margin front, can you quantify how much margin impact you expect from the cost reinstatements in your fiscal '11 guidance? In other words, I just want to get a read on how much your fiscal '11 margin improvement is being impaired by these cost reinstatements related to merit pay and sales force and client service?

Yeah, while the one number we gave you is a 35 to 40 of the interest. In the benefits in compensation, lots of puts and takes with merit and bonus and everything else, that’s in the neighborhood of about another $20 million drag. In the sales and service investments it’s a little bit north of that and than in the pays, decline in ES is a couple million, kind of, neighborhood. Rod Bourgeois – Bernstein: Okay. So in other words, absent those cost reinstatements, you would be planning for well above 50 basis points of margin expansion in Employer Services in fiscal '11, is that an accurate way to look at it?

That's generally the way the math works. Rod Bourgeois – Bernstein: Okay. I mean, are there some one-time cost benefits that you're getting in fiscal '11 or is there nothing abnormal that's going to help you on the cost side and – or even on the margin side in general?

No, we get the benefit because we had a big swing in the fourth quarter also from a standpoint, you got to remember that in fiscal ’09 our bonus payouts across the enterprise were considerably below our initial persevere targets. So, I think they average, call it, 80%. This year, they are going to average closer to 120% because we’re back on plan and people are doing. And then in the following year, we obviously plan a target again based upon our internal metric. So, you do get some swing in that regard and we did have some investments in the fourth quarter with some IT spending that we thought could really payback year where we inputted that in the fourth quarter. But, other than that, nothing big that you should be concerned about. Rod Bourgeois – Bernstein: Okay, great. And then in the small business segment, do you think you're gaining share consistently at this point in the small business segment? And if so is this largely due to new products, like Run or also to better sales tactics? Can you elaborate on what you're doing competitively in the small business segment?

Well, we did have positive unit growth for the year in the small business segment, which I think speaks of the fact that we are gaining share. Our small business segment is basically close to flat for the full year in terms of new business sales and that’s with 10 to 15% fewer headcount then they had in the previous period. So clearly, Run is hitting home. The sales guys love it. We're rolling out our mobile strategy for Run in the next month or so. And I think it’s going to continue to have extremely positive momentum in the marketplace. Rod Bourgeois – Bernstein: Okay, and is the discounting activity and promotion activity in the market, has it attenuated versus – in a big way versus a year ago, or–?

It’s better but it’s still there. Rod Bourgeois – Bernstein: Okay. And is that mostly due to competition against the regional competitors, or some of your–?

Yes. Our major price competitor has been and remains the regional competitor. Rod Bourgeois – Bernstein: All right. Thank you, guys.

Thanks, Rod.

Next question is from Kartik Mehta with Northcoast Research. Kartik Mehta – Northcoast Research: Good morning. Gary, I wanted to get your thoughts on the ES side of the business. Have you seen any change in – fundamental changes in the business because of what's happened over the last two years? And by that I mean not pays per control or any of the metrics, but just how the business –you're competing for business or how others are competing for the business? Gary Butler I think, what has – is probably a little bit different is the emergence of the regional price players. When times are tough some of the value and extra add-on products and those kinds of things at ADP works very hard on. If you’re trying to struggle to make it through the night you're not as worried about that. So, we're testing some things to try to be at their better ways to address that price sensitive part of the market. But the fundamental way we go to market other than trying to optimize more lead flow through the Internet, sell more through tele sales, really fundamentally hasn’t changed. Kartik Mehta – Northcoast Research: And then in FY '11, if the – let's say the market gets better, the economy gets better and the top line for ES is better than you anticipate. Would that result in margins improving or would you – or are there other investments you would like to do, so we shouldn't expect margins to improve even if top line comes in better than what your current guidance is?

What I think is, it’s always a tradeoff as you make organic – increased organic revenue growth clearly makes it easier to drive margins. No question about it. It also – then you’re also given the choice whether you want to try that expedite spending in R&D to bring more product to market faster or you want to take that margins to the bottom line. And historically, we’ve tried to do some of both. And so I think it’s – to directly answer your question, it showed improved margin and it’s a question of how much we want to invest versus bring to the bottom.

That’s always a tradeoff and then to do 50 basis points a year, year-in year-out you’ve always got to have your eye on the ball for two, three, four year out and you got to start thinking the investments early on. So, it’s kind of a high-class problem to have. Kartik Mehta – Northcoast Research: And then just a final question, Chris, on the Dealer business. It sounds as though you're having a lot of success on the international side and that part of the business is going to continue to increase. Is there a margin impact as the international business on the dealer side continues to increase either positive or negative?

Well, the margins in the international business aren’t as great as the U.S. business in dealer, but improving. So that level of improvement is probably helping us because we see those margins improving year-over-year. So, I think that offsets the increased growth. We’re still getting growth in the – or we would expect over the next five years to get growth in the core business as well.

And again in Dealer, Dealer U.S. is actually doing remarkably well, in terms of new sales and very strong market share gains in terms of new booking versus losses in U.S. And the real issue with U.S. in the first half of the year, particularly is the second half of the bow wave of all the GM and Chrysler closing. But as new car sales get back to the 11 million plus level that they kind of had today. We would expect that bow wave to abate for the second half of the year and for Dealer U.S. to be in a more positive position as we exit FY11. Kartik Mehta – Northcoast Research: Thank you very much.

Okay, thanks.

Your next question is from Jason Kupferberg with UBS. Jason Kupferberg – UBS: Hey, thanks, good morning, guys. And Gary, just wanted to pick up on a comment you made a little bit earlier, kind of, a longer-term question, but I think you had made reference longer term to mid to high single-digit internal growth. And I know that's pretty consistent with what you guys had talked about as a long-term target at your Analyst Meeting back in February. But I guess, how do you get the comfort and the confidence over the long-term that you guys can get back there? I'm trying to just separate cyclical from secular factors here, and maybe it's market penetration rates and your view that those are going to increase materially over time, particularly in the ES business. But if you can just help us understand how you guys get mid to high single-digit over a sustained period longer term, would love some thoughts there.

Well, let me – clearly the waterfall chart would help get you there, but you have to remember that two years ago we sold 1.150 billion before the economy started going down. So, take a 1.150 and put a 8 to 10% growth on that and do the same waterfall chart in your own math and you can – and keep 90% retention and get 1 to 3% positive balance in employment growth and go do the waterfall chart and you can get there in a pretty big hurry. So we’re pretty confident we can get that to those levels, the employer services marketplace is like globally an $18, $19 billion marketplace split pretty evenly between the U.S. and international. And we are really also starting to get very serious about pursuing the benefits market as well as the global view in international expansion and they are starting to kick in. So, when you look at the products that we’ve added and benefit and performance management and learning and those kinds of things coupled with our core HR and time and label management, we’re really not too concerned about the potential. We’ve just got to go get the people and the resource in place and go execute once the economy gets back in decent order. Jason Kupferberg – UBS: Okay. That color is helpful. Thinking about the competitive landscape in benefits outsourcing and HR BPO, I mean, now that you guys have made the acquisition of Workscape on the ben admin side and now you've got AON in the process of buying Hewitt. I mean, how do you see the competitive landscape in ben admin and HR BPO potentially changing as those two competitors come together and you guys integrate Workscape?

Jason Kupferberg – UBS: Last one from me, on the ES revenue growth, I think you're looking for 1 to 3% in fiscal '11. Not sure if I missed this, but did you give the split between the core and the ancillaries for that 1 to 3?

No we didn’t. But I think you can take this year’s results and the ratio that we’ve given you for beyond payroll and core payroll and tax and kind of do that same kind of math for the next year too and get pretty to the same result. Jason Kupferberg – UBS Okay, makes sense. Thanks, guys.

Your next question is from Adam Frisch, Morgan Stanley. Glen Butter – Morgan Stanley: Hi, it’s Glen Butter [ph] for Adam. Thanks for taking my call. Looking at the outlook from a high level, last year we started with a lot of uncertainty, but as the year progressed, the outlook was gradually ratcheted up. This year still starting with uncertainty, but we are in a far better situation than we were 12 months ago. All that said, is it unreasonable to assume that you're planning to follow the similar process or mindset as it did last year, when you laid out the goals for guidance?

I think, ADP has a history of trying to make its earnings forecast and our philosophy in terms of the guidance and our operating plans has not varied this year versus previous year.

Yeah, what I would say in the planning process we go through, particularly at the beginning of the year, we look at upside to certain metrics and downside to certain metrics and we try to have a reasonable range. To give you an example, you tell me what’s going to happen in foreign exchange and the impact on revenue this year when a couple of weeks ago we were at $1.20 and now we’re at $1.29 for the euro. That significant change that could swing the revenue forecast by 1% in and of itself, more impact on revenue than the bottom. But still, just an example of the kind of variables that you have to take into consideration. So, I think it’s the same thing we did last year, went through that same process this year. Glen Butter – Morgan Stanley: My apologies if you covered this, but can you update us on the sales force build plans? I believe it was expected 300 to 400 people add. Where are you at in that process? And are there any tangible benefits you can point out that have come out of your efforts yet?

Well, I mean we clearly indicated we were going to add 300 plus heads in sales. And again, began that process in the third quarter of fiscal ’10. We have – we do have most of those folks in play and I think clearly you saw the 25% increase in the fourth quarter and clearly you saw the high single-digit forecast for the next year, which is driven both by increased productivity in the ones we had as well as the added benefits for the ones we’ve hired. Glen Butter – Morgan Stanley: Last one from me. Is your investment plan and what you've laid out in the – in progress so far, is it pretty static versus what the backdrop does, or if we have a faster than anticipated rebound, could that be expanded or more of you built in and vice versa if it – or conversely, if the economy maybe takes a step back?

I think we have crossed that point already in terms of we hit the inflection point on all of the metrics we laid out. When you think about it – one after the other of our metrics hit an inflection point in the fourth quarter and I think the key to growth coming out of a downturn is making sure you invest early enough to lay the groundwork for that growth. So, we’ve pulled that trigger in the second half of the fiscal year and I think it prepares us well for an inevitable return with the question of how quickly we see, but we’re seeing signs of that with the inflection of the metric. Glen Butter – Morgan Stanley: Okay. Thank you. Good luck in the quarter.

Thanks.

And due to time constraints we ask that you please limit yourself to one question and one follow-up question. Your next question is from Julio Quinteros of Goldman Sachs.

Good morning, Julio. Julio Quinteros – Goldman Sachs: Hey, guys. So, just one last question, I guess, on my side, just on the – thinking about the price commentary that you guys made. It sounded like you had suggested minimal price increases. I wonder if you could sort of break that up in terms of new clients versus existing clients. And then if possible, also try and characterize the pricing environment in the SMB versus the large enterprise side, if you will.

The 0.6% is clearly all just at the client base, our book prices really haven’t changed across the board. So, I’m not sure that answers your question. But in addition I think the pricing environment has been most difficult under a 100 employees and clearly when you’re selling payroll and only payroll, when we’re selling multiple products like workforce now or we’re adding kind of in labor management or some of our other benefits product, pricing pressure is not as severe because you’ve eliminated for the most part the regional competitors in the equation. National accounts, you're dealing with a procurement department most of time anyway, so they’ve been a little tougher the last couple of years than they were before, but they weren’t easy before that. So, we’ve seen some pressure, but most of those are contractual relationship, most of them are two to three applications at one time. So, again it’s not anything that’s overly different than historic.

And clearly that’s a trade-off, price increase and retention is the trade-off that you make and we’re very pleased with the fact that the retention is going in the right direction, which is really positive. You look back to that waterfall chart, that’s a key driver. So, it’s a consideration of not wanting to pile on too much on the price increase and stall our retention.

Yeah, we clearly gave retention the nod this year as opposed to driving higher price increase because the lifetime profitability of keeping those accounts and selling additional services it just makes all the sense in the world. Julio Quinteros – Goldman Sachs: Yeah, that makes a lot of sense. And just – can I just throw in a quick question on healthcare reform? Any sense on how that's driving enterprise thinking at this point in time? Are you guys seeing anything new in terms of demand opportunities there?

Well, I think the demand opportunity right now are, we’re getting a lot of inquiries on what does all of this mean to me. And the regulations are still being developed. I think it’s clearly going to drive a lot more reporting, both to your employees as well as to the government. It’s going to inquire a lot more compliance risk and typically anything around reporting and compliance and dealing with the government helps our new business. So, over a multi-year period as we move toward 2014 when the last pieces of it are implemented, I think it’s clearly going to be a net plus to us even though I’m not thrilled personally on the higher taxes. Julio Quinteros – Goldman Sachs: Okay. Thanks, guys. See you next week.

Okay.

Your next question is from Tien-Tsin Huang with JPMorgan. Tien-Tsin Huang – JPMorgan: Hi. Thanks. Can you hear me?

Yes. Good morning, Tien-Tsin. Tien-Tsin Huang – JPMorgan: Hey, sorry about that. Thanks for bringing back the waterfall slide. I'm happy to see it, it’s always very helpful.

(inaudible) another appearance. Tien-Tsin Huang – JPMorgan: Yeah. I just have a couple of quick ones. Just the benefits business, I'm curious, how big is that now? And who is your primary competitor in that sub-20,000 market?

We don’t disclose the actual subset of the different businesses just like we don’t subset TLM. I mean, it’s multiple hundreds of millions of dollars, but we don’t disclose the actual number. The competitors underneath are all over the map, Mercer, AON, Hewitt. There’s regional kind of players, most of them people that are in the compensation consulting business do that business, there’re lot of TPAs that do that business. In major accounts, a lot of the insurance brokers and insurance agents actually do that. In fact, we get a lot of lease from the mid-market insurance agents and brokers in that business. And we deliver that benefits business over HRB, which is the employees platform, as well as we have a new health and welfare service engine in the below 20,000 markets. So, it’s really all over the map, Tien-Tsin. Obviously, if you move up market, Hewitt is the predominant player. Tien-Tsin Huang – JPMorgan: Understood. I ask because it seems like and you tell me, is it easier to sell benefits from your position as a payroll provider in that you're providing some of those –you have some of that data already versus some of the players that you named? I'm just trying to – I’m curious just to see how big the benefits–?

Yeah, absolutely. What you have is no different than time and labor management, if you have an integrated database with HR payroll, then selling the benefits module is clearly easier and more efficient for the client. So, it’s clearly important. I mean, that’s – if Hewitt tried to get into the payroll business, they didn’t do that because they wanted to go run around selling stand-alone payroll. They wanted to sell, I would imagine, an integrated payroll and HR products. So, clearly it’s a benefit and the major thrust of our strategy typically in benefits is to sell it with payroll HR upfront or sell it back end of the bay. We don’t spend a lot of times chasing stand-alone benefits opportunity. Tien-Tsin Huang – JPMorgan: Got it. Okay. Thank you.

Your next question is from David Grossman with Stifel Nicolaus. David Grossman – Stifel Nicolaus: Thank you. Gary, just going back to your waterfall chart and some of the commentary you made about it, is it realistic to get to more normalized ES growth rates in fiscal '12 if the bookings growth stays in this high-single, low-double digit range year-over-year, and you don't see any real material degradation in the retention number?

Well, if retention were to go up 50 basis points and sales were to grow up two years in a row 8 to 10%, then yeah, we can get pretty close to the high-single digits, particularly if you don’t have the drags on the rate around pay shrinkage and balance shrinkage, then yeah, you can get there. David Grossman – Stifel Nicolaus: Well, I was thinking more of just ES alone, taking out the balance issue.

Well, the balance is the balance growth itself that they get the benefit of even though it’s 4.5%, but they get the benefit of growth. David Grossman – Stifel Nicolaus: Right.

It’s really not – it’s really pay growth rather than balance growth. And obviously if you are selling – if your base is adding 1 to 2% in terms of employment growth, it also helps. I think 1% growth in pays is worth 20, $25 million, so… David Grossman – Stifel Nicolaus: Right. And then similarly, I think you talked about the Dealer business potentially regaining some momentum here, as you anniversary a lot of stuff by the end of the year. So if that's the case, I mean, similarly, so the Dealer business be reasonably well positioned in – once we get past this stuff in the second half of the year, or are there other–?

That’s definitely the plan. The other subtlety in dealer that you probably don’t realize that our retention rate in dealer at the site level, the dealership level is over 90%. What happened over the last two years is our retention rates on revenue slid down into the low 80s because of all the out-of-business and dropped applications and shrinkage in the other applications that we had. So as that stabilizes and people stop dropping applications, start adding applications and dealership transaction start to increase, then we’ll get as much lift in dealer from higher retention as we will from new sales. So, again, that would certainly be our plan that that’s the way it’d play out as we get into ’12.

I would only add, as you do your models, so I would just point you back to what Steve would have taken us through in the February call that these impact of the – of dealership closing, the bulk of it come through in fiscal year ’11, but there is a little bit of a hangover of 10ish kind of hangover in fiscal year ’12. So, the bulk of the impact is – will be behind us at the end of ’11. But there’s still a little bit of a hangover. David Grossman – Stifel Nicolaus: I got it. And just one other question is, on the international business I think maybe Chris, you mentioned it was about 1.3 billion and I assume that it includes GlobalView as well. How should we think about the growth of this international – the pays per control issue currently aside, how should we think about the growth of the international business versus the domestic business in ES?

I mean, I think it has the potential to grow slightly faster than the US business. It’s been growing in the mid-to-high single digits even throughout this down period and the shrinkage that we’ve seen. And we expect it to grow faster than the US business in the year ahead. So, I don’t see any reason why that should change.

And that’s both in the in-country best of breed as well as in GlobalView, which we haven’t talked about on the call, but we are encouraged by the signs in GlobalView in terms of the sales side. David Grossman – Stifel Nicolaus: I'm sorry, was that mid-to-high single-digit growth in the combined payroll and non-payroll services, or is that the total number?

Most of international is payroll. David Grossman – Stifel Nicolaus: Okay. So total mid-to-single – mid-to-high single-digit growth during the downturn?

Yeah, it went down in ’10 compared to ’09 and we are expecting it to be mid-single digits something I think in the year ahead.

Yeah, even within ’10 we were still mid – low end of mid-single digits kind of in international, but that was down from about 9% growth in fiscal year ’09. So… David Grossman – Stifel Nicolaus: Okay, I got it. Yeah. Just one last thing on the share count, this is for you, Chris. You had some pretty aggressive repurchases recently. Can you give us a sense of where the share count ended the quarter, where it is right now on a fully diluted basis?

Yes, I can. Hold on a second. I think it was right around 500 – let me find out, I’m looking at the right thing on a dilutive basis 503.7, on a basic 500.5. David Grossman – Stifel Nicolaus: Great. Thanks very much, guys.

We have time for one final question. Your last question is from Mark Marcon with RW Baird. Mark Marcon – Robert W. Baird: Just under the bell.

A lot of multiple questions going on. Mark Marcon – Robert W. Baird: Yes. Can you just talk a little bit about – on the waterfall chart, what would you anticipate would be the – the sort of price increase that you would need in order to get to that mid-to-high single?

I mean, I don’t – we’re at 0.6 this year, and I would expect going forward, it’d be closer to the 1, 1.5 as opposed to our historical 1.5 to 2 as we pull out of this thing. But I think that’s probably the way to think about it. Mark Marcon – Robert W. Baird: Okay. And then on the regionals, how often are you – are you selling multiple services against those regionals to the small clients as opposed to just pure core? And why is it so difficult to not get a premium relative to those regionals, given how strong your balance sheet is, the size, the scope, the security that you can have with ADP? It still seems to me that you should be able to sell on a higher price relative to those regionals given just the tremendous value that you would give a business owner in terms of the security.

We do, but you got keep in mind though that the economic pressures on some of those smaller businesses, which are single jurisdiction, sort of payroll, are worried about making staying in business, so a couple of bucks a month is going to make a difference to them and so you’re going to see more pressure on – but you are absolutely right, in normal times that’s not going to be as big an issue. And we can certainly show our value as I lose my voice.

Yeah, if you selling ASO or PE, it’s not an issue, but to Chris’ point, and again, the bigger pressure for us on the low end of the margin with the regionals is that base where we don’t know if they are there. So, we are charging somebody $1 and they come in at $0.60 and convert them tomorrow, that’s the biggest challenge that we have. If we normally charge a dollar and we are competing against them at $0.60, then you are right, we can generally win the business at 0.75 or $0.80, so we can win it at $1. Mark Marcon – Robert W. Baird: And then how often do you have a cross-sell in addition to just the core payroll with those–?

Mark Marcon – Robert W. Baird: Great. And then can you comment a little bit on the size of Workscape as we feather that in?

Yeah. You can – again, it hasn’t closed yet, so we’re out in front of ourselves just a little bit, but you can expect probably in the neighborhood of 50 million for the year if we close next month, so part year – so think in the neighborhood of 50 for the remaining part of the year or 10 months like that. Mark Marcon – Robert W. Baird: Okay, but very little in the way of profitability from…?

No, just right at the breakeven after the dilution from intangibles, amortization of intangibles and the like. But it’s right on the cusp of accretive and dilutive.

Yeah, you’ve got lots of interest income, plus you’ve got the intangibles that you got to write off of… Mark Marcon – Robert W. Baird: Sure.

But the base business, if you look at Workscape has a base business, good margins, similar to the rest of our beyond payroll kind of offering. Mark Marcon – Robert W. Baird: Great. And then it sounds like if we – if we see a 2 to – or 1.5 to 2.5% GDP growth, by the time we get out to F '12, we should be able to get back to normal, is that correct?

Yeah, I hope you’re right. That’s the earliest request for guidance for next year, Mark, I have ever heard. But we hope you are right. Mark Marcon – Robert W. Baird: But it wouldn't be too far off though, right?

No, it wouldn’t be. Mark Marcon – Robert W. Baird: Okay, perfect. Thank you very much.

Thank you very much.

That concludes the Q&A session. I would like to turn the call back over for management for closing remarks.

We appreciate everybody it’s ending today. I think you can tell from the tone of Chris and my comments that we are very pleased with the fourth quarter in terms of the inflection point that we’ve crossed. I’m especially pleased with the sales results as well as the retention results and I think it positions us quite well for a good step-up for the first quarter in terms of revenue lines as we move into next year. So, we look forward to giving you an update on the acquisitions in our first quarter call in late October and if not, have a good week.

This concludes today’s conference call. You may now disconnect.