Automatic Data Processing, Inc. (ADP) Q3 2011 Earnings Report, Transcript and Summary

Good afternoon. My name is Beverly, and I will be your conference Operator today. At this time, I would like to welcome everyone to ADP's Third Quarter 2011 Earnings Webcast. [Operator Instructions] I will now turn the conference over to Ms. Elena Charles, Vice President, Investor Relations. Please go ahead.

Thank you. 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 for our Third Quarter fiscal 2011 Earnings Call and Webcast. Our slide presentation for today's call and webcast is available for you to print from the Investor Relations homepage of our website 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 website. These schedules have been updated to include the third quarter of fiscal 2011. 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.

Thank you, Elena, and thanks to all of you for joining us on this Monday evening. Before we get in to the third quarter discussion, however, I wanted to take a few moments and this opportunity to say a few words about Henry Taub, ADP's founder, who, regrettably, recently passed away. Henry was a true entrepreneur, and it was his vision back in 1949 when ADP began. And that vision created the industry of processing other companies' payrolls. Henry recognized from the beginning that helping companies to outsource this important function to an expert would allow those companies, which at that time were small and midsize businesses, more time to focus on what matters, and that's growing their business. Henry also recognized the importance of delivering excellence in client service, which is the essence of the culture that defines ADP to this very day. We're all especially grateful for Henry's vision, support and counsel over these many years of his involvement at ADP. Henry's passing is truly a loss to the ADP family, and we will miss him deeply. Now let me turn to the discussion for the third quarter. I'll begin today's call with some opening remarks about our third quarter results. Then I'll turn the call over to Chris Reidy, our CFO, to take you through the detailed results, after which, I'll return to provide you with our updated forecast for fiscal '11, and before we take your questions, I'll provide some concluding remarks. I'm now turning to Slide 4. Overall, I'm quite pleased with ADP's third quarter results for fiscal '11. Particularly noteworthy is that the investments ADP continued to make over the last several years are having the desired impact, which is accelerating the growth in the business. Starting with Employer Services, the investments in our…

Thanks, Gary, and good evening, everyone. We're now on Slide 5. We're pleased that total revenues increased 12% to $2.7 billion in the quarter. Employer Services grew total revenues 9% and Dealer grew 29%, both including acquisitions. And the PEO grew 18%, all organic. Excluding acquisitions, total revenues grew 7% in the quarter, and we are very pleased with this level of revenue growth. When you look at it by reportable segment, Employer Services' organic revenue growth was 7%, PEO was 18% and dealer was 3% in the quarter. I'd like to focus you on the growth in Employer Services, payroll and tax filing revenues in the United States, which grew 5% in the quarter. To remind you of what I indicated last quarter, nearly 2 points of this growth was from the timing of certain revenues related to calendar year end activities that spilled over from the second quarter into the third quarter. Without the timing impact, Q2 growth would've been 2% and Q3 growth would have been 3%. Additionally, our acquisition activity into adjacent markets is fueling growth of beyond payroll revenues. In the U.S., growth was 15% in the quarter, with nearly 4% growth primarily coming from the acquisition of Workscape earlier this fiscal year. Tax credit services, time and labor management, ASO, our BPO offerings to small and midsize businesses and HR services in major accounts all grew nicely during the quarter. The continued positive trending of several of our key business metrics, as Gary mentioned earlier, contributed to revenue growth. Very importantly, client revenue retention showed strong increases for ES, the PEO and Dealer Services. Pays per control and Employer Services in the U.S. increased 2.7%. All geographies across the U.S. showed increases, led by the northeast and central regions, as well as Northern California.…

Thank you, Chris. We're now on Slide 8. In our fiscal '11 outlook, we are assuming no change in the current economic landscape. And we have updated our forecast to include the impact of the acquisitions that closed during the third quarter of fiscal '11 as well as the impact of key metrics that were ahead of our expectations during the third quarter. Overall, we anticipate no dilution to earnings per share from the acquisitions closed to date during fiscal '11. But as a reminder, the acquisition-related costs will be dilutive to segment pretax margins for both Employer Services and dealers. As disclosed in our public filings and on our website schedules, the reportable segment results include a cost of capital charge related to the funding of the acquisitions. This charge is then eliminated at the total ADP level. Now let me take you through the forecast you see here on this slide. For total ADP revenues, we anticipate growth of about 10%. Excluding revenues from the acquisitions closed to date during fiscal '11, we anticipate about 6% revenue growth. We also anticipate 6% to 7% growth in diluted EPS from continuing operations compared to last year's $2.37, excluding favorable onetime tax items in fiscal '10. As you know, we normally look to drive EPS growth in excess of revenue growth. However, there are certain items to note this year and to consider when you look at margins. In fiscal '11, the pretax margin decline is driven by the impact from the anticipated lower client funds interest revenues. While we have returned to healthy client fund balance growth, the lower market interest rate environment is offsetting this growth, causing a negative drag, as you heard from Chris earlier. Additionally, the full year impact of the investments we made in sales,…

[Operator Instructions] Your first question comes from the line of Rod Bourgeois with Bernstein. Rod Bourgeois - Sanford C. Bernstein & Co., Inc.: Yes, Gary, 2 quick questions. First, on the client retention. It's very encouraging to see that number coming through so strong. Can you talk about what's created the upside in that number and whether you see further upside in client retention as you move into fiscal '12? I mean it's great they were at record levels, but can there be a new record level as you move over the next year?

First, you have to consider, Rob, that, that trend line has been getting better consistently quarter-over-quarter. I mean obviously, they are adjusted seasonally. So certainly, as we think about next year, we're not going to be satisfied with the status quo. That will vary by business unit, et cetera, but we are quite pleased. If you would have asked me that question back in '08 when we reached our previous high, I would have probably given you a similar answer. And now, as we come out of this deep recession, it's particularly encouraging to me to see it rebound as strong as it has. I'm delighted with the fact that, for example, our losses to service and price are down 20% to 25% across the board. And our losses to competition are down similarly across the board. So I clearly think we have room to grow, and we'll see. We're particularly pleased with the increase in client retention. On the low end of the market, we've maintained our retention rates. At the high end, we've actually slightly improved them. So I'm pretty optimistic long term here. Rod Bourgeois - Sanford C. Bernstein & Co., Inc.: All right. And then to build on that, we've been waiting for more of a "normal" environment since the financial crisis. Do you view fiscal '12 as more of a normal year in terms of your growth prospects, particularly with the sales momentum that you're talking about? And if that's the case, I mean, what type of growth targets can you achieve in a more normal environment, which we may be in now?

You know I can't talk about that, but it's good of you to ask. I would say '12 is clearly a more normal. I don't know whether normal is the right word. Our historic pattern in normal times, whatever that means today, is to try to drive sales growth of 10%-plus and to try to drive client retention growth of 30 to 50 basis points and to work on margin improvement across the board. So I would expect we'll continue to see improvement in employment and improvement in balances in the year ahead. And I think the auto sector is going to continue to improve over the next couple of years as well.

What we'll also do, Rod, is on Thursday, I planned on kind of giving a glimpse of the next 5 years and what we see over that 5-year period. So I think that will help address your question as well. Rod Bourgeois - Sanford C. Bernstein & Co., Inc.: I look forward to that. And Gary, you mentioned momentum in the Small Business segment. We didn't necessarily here that from your biggest competitor in the Small Business segment. We heard struggles with new business starts. You're seeing a different trend there, it seems. What would you attribute that difference to? I mean, is the run product an internal things that you're doing at ADP allowing you to pick up share? Or is there really a rising tide in the overall market? Or is it both?

All of the above. We couldn't be more delighted with the progress of that product. Our realtime, cloud-based run product, we've reached 100,000 clients this quarter. The retention rates are noticeably higher as the number of lead runs is noticeably lower, so the overall quality is driving significant increase in retention in the low end of the market. We've also taken this opportunity to rehire and actually expand our distribution capability on the low end of the market. And when you look at run coupled with our PEO offering and our ASO offering collectively, we've got the waterfront well covered, and it's working.

Your next question comes from the line of Adam Frisch with Morgan Stanley.

Just want to get a better feel for your increased appetite for strategic M&A and investment going forward. Is this something that will continue at its current pace into next year? Or do you feel you're well positioned after the activity in the last few quarters?

No, we classically would like to acquire 1% to 3% kind of revenue each and every year. We're not looking for a large, potentially problematic kind of acquisition. But as we demonstrated with both our acquisition of Workscape and earlier in the year with Cobalt, if it makes sense strategically, we have an appetite to continue making those kind of acquisitions. So assuming the flow of business development and flow of outside deals is there, we clearly have the appetite to stay the course.

I want to go outside of the box a little bit here and ask something that kind of usually doesn't get asked on these calls. But one of the acquisitions you did was particularly interesting to me, and it was the Advanced acquisition, particularly because of its healthcare focus. What's the rationale there? And is that kind of the strategy or the roadmap that we should look for going forward in terms of vertical expertise, additional offerings, things of that nature?

Well, there's a couple things. One is I'm not going to get too deep, either at this call or on Thursday, with those efforts around AdvancedMD. It's a relatively small acquisition, call it $40 million, give or take. They clearly -- they support about 13,000 or 14,000 physicians as part of their offering. We also in Small Business and the CEO have payrolls that we do for some 25,000, give or take, doctors and doctors' practices across the lower end of our markets. So there's a lot of good synergy between the 2, and it clearly is a business model that is very close to what we do in Dealer on a smaller scale but in a market that potentially has very strong growth prospects. So we made an opening-round bid, so to speak, to learn more and over time, we'll expand our thinking and share that with you.

The next question comes from the line of David Togut with Evercore Partners.

Quick question for you on Employer Services. You've been in a substantial investment mode over the past year, both in terms of acquisition expenses, sales force expansion and, obviously, the hit on interest rates, yet all of your leading indicators are very strong. So question is, when do you see meaningful and sustainable margin expansion in Employer Services?

Well, we're going to continue a little bit of investment, for example, in sales over hires, that kind of thing, for the fourth quarter, which we normally do to get ready for the next year. So you're absolutely right. We did make an investment in service, sales, R&D, but we do feel that those are all paid off. You can see what's happening to the sales engine, and the sales growth, you can see the retention going up significantly. And if you join us on Thursday, you'll actually see some live demos of some of the new products that we have, and I think you'll be interested in that. So we really think that that's paying off. We really -- structurally, the model hasn't changed. We still believe we can drive the "50 basis points of margin" improvement, and I think you'll begin to see that in the fourth quarter in the ES margins. And I think you'll see that again going forward. So...

And, David. If you remember my opening comments, in Employer Services, if you take the acquisitions off, we are actually delivering, or forecasting to deliver, 50 basis points of margin improvement. So in terms of cash flows of pretax before you make those acquisitions, we are delivering improved margins and improved cash flows based on last year's revenue, so to speak. And those acquisitions should be a vehicle that will help us grow organically in the future, or they're rationalizing a market share, which is clearly a margin play when you do it. So at the end of the day, at least in my book, we are delivering on margin improvement for this year and will continue to do so in the future. Dealer itself also has, I forget the exact number, but it's 50 basis points of pretax margin improvement as well if you take Cobalt out. So I think we are doing that.

Okay and just finally, you referenced improved, or I should say lower client losses, due to pricing. Can you give us a sense of what the year-over-year unit pricing trends were, both in ES and dealer?

Well, we're coming up to the new pricing going forward. And I think last year, we said it was just under 1%. So the decision as to what we do going forward is still...

Are you talking about price increase or market price?

Well, year-over-year unit pricing trends. So taking into consideration -- well, maybe a net price change, if you look at your price increase balance against any discounts you might be giving in the marketplace.

That's the...

Discounting is certainly under less pressure today than it was last year. And we increased prices last year, I think, about 0.6 of 1%, 0.6%. And I would expect it will be in the 1%-ish kind of range in the year ahead.

Your next question comes from the line of Kartik Mehta with North Coast Research.

Gary and Chris, are your acquisitions a result of just seeing more opportunities? Or is it just a culmination that you had a lot of acquisitions in the pipeline and they're just finally coming to fruition?

I think it's a combination of both. I think we're doing a better job on Business Development, so analyzing where we have holes in the portfolio, and want to augment our product platforms. We're targeting certain companies or certain acquisitions. And I think because the pricing around M&A activity has kind of returned to not normal, but near-normal kind of levels, I think we're seeing more deal flow to boot. So I think it's really both.

Gary, I think you talked about margin degradation from the Cobalt acquisition. And I'm wondering as this acquisition's been integrated how long do you think that might last or when you think Cobalt might get to similar margins, the corporate margins, in the Dealer business?

We've had Cobalt at the better part of this year, so what is it, about 11 months or thereabouts? And it really is just a margin issue, not a bottom line issue. And so when we bring in that much revenue, with the drag and everything, we should start lapping that. And we'll get back to normal year-over-year comparison with Cobalt next year.

And over time, it should get to look more Dealer-like without the intangibles. But you've got a big intangible charge that's reported in those margins, so you have to look at that and take it out and then compare apples to apples.

And then one final question. Just, Gary, you guys have had excellent success on the beyond payroll side of the business. And I'm just wondering, any particular product that's helping you really drive that? I know you listed them in your prepared remarks, but I'm wondering if there's anything specific that's really helping you drive that revenue in that business?

You noticed that list said in the prepared remarks was long, because it really is across the board we're seeing growth.

You know our HR BPO products, the ASO offering and the PEO are clearly continuing to grow and faster than the other beyond payroll rates. The other thing that's helping us is Workforce Now in our recent -- which is for the mid-market, and our recently announced Vantage, which is Workforce Now for larger clients, if I can put it that way. It comes with the ability to have 4 products running on one database with one user interface. So we're naturally getting more lift in selling bigger bundles. And as we upgrade existing clients to these new platforms, we're seeing a high propensity for them to go beyond payroll and sign up for benefits or time or HR when they do it.

[Operator Instructions] The next question comes from the line of Jim Kissane with Bank of America Merrill Lynch.

Gary, can you give a little more color on sales by maybe client size and also international?

As I mentioned in the opening remarks, we've seen very strong sales in SBS, the PEO, and ASOs. So that's probably the place that it's most consistently the healthiest. In the high end of the market, we saw good sales in both national accounts and GlobalView in terms of growth percentage. But when you compare them to the disappointing results we had a year ago, we're just not beating our chest about it, so to speak. Our core domestic best of breed of products in international are doing fine, call it double-digit kind of numbers. And we were about even in major accounts because we had a pretty strong growth year last year. I think Major Accounts was up low double-digits last year. So we're seeing kind of a flattish kind of comparison, albeit we're expecting a positive growth rate for the year.

And Chris, the slightly lower pretax margin guidance for F '11, is that entirely due to M&A, or are you using this as an opportunity to step up and invest in a little bit, as you have pretty strong wind building at your back?

No, it was the M&A. It was all the transactions we did in that third quarter, which was primarily the AdvancedMD acquisition, but it's not all entirely due to that.

And it's all in the third quarter, it sounds like. So on a go forward basis...

Yes.

The next question comes from the line of Gary Bisbee with Barclays Capital.

In the past year or so, I think you frequently talked to us about it taking several years to get back to the longer-term revenue growth targets just as sales flows through, but it feels like things have picked up a bit now. Is that still the right way to think about this, the sales acceleration will take a couple of years to fully finance later revenue?

No, I think we are back much sooner than we were the last time. We never really cut the sales force headcount, with the exception of Small Business, during the downturn because it was the easiest place to replace. We have since replaced what we cut and added in the small end of the market. And we are adding, we started adding back in the third quarter, early third quarter, in the rest of the segments pretty much across the board. So we've seen a much faster bounce-back this time. We went from the depths of being slightly negative, I think we were down 10%, to last year, I think we were up about 4%. And this year, we're forecasting at this juncture, high single-digits. So it's come back pretty nicely to the standard kind of methodology, around 10% growth that we would normally look for on the normalized year, to use that term.

And then just I guess a follow-up, can you give us any more color on GlobalView? It sounds like it had a better quarter but not yet quite where you'd like to see it. Is the pipeline still doing well? Or is it just the sales cycle?

The pipeline is still good. I mean, we're seeing the same kind of issues in GlobalView that we're also seeing in National Accounts. National Accounts, domestically here in North America, had a great growth quarter. But we're still, it's still too much big-deal-itis, And it's still a struggle to get some of these larger accounts, both in GlobalView and National Accounts, off the finish line. And you see it even in some of the employment metrics. Employment growth is not returning as fast to the high end of the market, as it is to the mid- and low end of the market. So I think it's just guys sitting in my chair and Chris's chair are still a little cautious.

Your next question comes from the line of Julio Quinteros with Goldman Sachs.

So I just wanted to circle back up on your comment about new sales being in the 10%-plus range. What would it take to get that new sales number up above kind of the current levels in terms of where we are right now, sort of the high-single-digit targets? Is it a function of pricing? Is it a function of the economy? Any just way of sort of trying around what you guys would be thinking about there in terms of getting that metric up higher?

It's really driven by 2 things. One is, obviously, headcount. Second is productivity in the existing headcount. The other thing that's difficult in our business, and I'm assuming it's true in most any other business, headcount is the most predictable, reliable way of bringing in new sales. You put money into product and innovation to try to pull new business, but at the end of the day, particularly in the mid- and up-market, you have to have feet on the street to actually culminate the sale. And what happens is if you try to ramp to 15% or 20% sales growth, the amount of new heads you have to hire coupled with all the people you have to promote to manage them, the return kind of starts to become asymptotic if you're not careful. So typically, we tried to hire a 7% to 8% headcount growth and shoot to grow 10% to 12%, 13%, 14% in a good year, if things are going well for that very reason.

And what about the effect of market share gains? How do you guys think about that as it relates to new sales opportunities?

I'm not sure I follow your question.

Do you expect a factor of your new sales improvements beyond the sort of targets that you're sort of setting up to be driven at all by market share gains? Or is this still not really a sort of a metric that you would sort of factor in there as well?

A lot of that depends on where you're losing on the backside of market share. But clearly, we take competitors -- we take business from competitors, we take business from in-house software and on the low end of the market, we take it from manual. So we're clearly picking up share on the low end of the market, but it's not that directionally positive when you look at the midsized because of the large scale that we already have there. We're picking up a lot of share domestically and with GlobalView. But again, sure, we're always focused on market share gains.

Your next question comes from the line of Jim Macdonald, First Analysis.

With all the products you have in beyond payroll now, what do you think that growth level could get to in a good economy?

Growth level in beyond payroll?

Right, I mean you're at 15% now. How high could that go?

The best way to look at that is history. I think the best we've ever done is like 8% to 9% payroll and tax growth -- in recent history, put it that way. And beyond payroll growth in the 15% to 20% range.

So with all these new products, you're still limited out at those kind of levels, you think?

Well, you never say never. But if we do some new things like some of the businesses that we bought like Workscape and the high end of the benefits market, this relatively small business, $60 million to $70 million, so you could very easily grow that business much faster than 15% a year. But when you look at all the beyond payroll revenue we already have, which is approaching $2 billion, it gets to be pretty challenging to grow that number 20%, 25%.

Your next question comes from the line of Tien-Tsin Huang with JPMorgan. Tien-Tsin Huang - JP Morgan Chase & Co: I wanted to ask about retention. With retention coming in ahead of plan, I guess pays for control as well, I'm a little surprised that you didn't raise your organic ES margin outlook. Is that just conservatism, or am I way off base in my thinking?

He said organic, though. Tien-Tsin Huang - JP Morgan Chase & Co: Yes.

It does have a lot of pressure, and don't forget, we are going to do a little bit of headcount increases in the fourth quarter that offset that. So I think it will be healthy in the fourth quarter. You'll see that, but it's still in the same ballpark that we had.

Yes, we raised substantial investments in sales and service and R&D this year which are offsetting some of those. Because you're right, to the extent that you get fewer organic revenue growth, particularly when it's at the high margin like pays per control or our balances, it would certainly help in doing that. But again, we're offsetting that. Part of that is because of the lower -- you got to remember, ES gets credited 4.5%, and we take the other end of it at the ADP level. So you have to look at the total as well as the segment. Tien-Tsin Huang - JP Morgan Chase & Co: Yes, fair enough. I'm sure we'll get some of it back next year as well. I think I understand. My second question is just the, I guess, the EPS outlook, you raised it 1 to 2 points. That makes sense. Just want to make sure I got the components of that. About half of that looks like it's coming from higher interest rates, and then it looks like the rest is from revenue growth. Am I missing anything else? It sounds like the tax outlook is the same, Chris?

Well, a couple of things there. So the effective tax rate you saw was adjusted somewhat from what you probably had in your models. The interest came down about $10 million or so. And you had a little bit of a lift from the pays coming up. But then you do have a little bit of the revenue growth coming from the FX. The dollar has certainly weakened, and that doesn't drop too much to the bottom line. So you've got a little bit of offset there. So as we look at it, those are the different factors that went into the raise in the guidance on EPS.

The next question comes from the line of David Grossman with Stifel, Nicolaus. David Grossman - Stifel, Nicolaus & Co., Inc.: We saw a really nice organic acceleration of revenue growth in the U.S., and I'm wondering if you can help us understand how much of that is from the core business rebounding cyclically versus growth from some of the investments that you articulated, particularly your ability to now withhold payroll taxes in Europe and the bundling of services that you referenced across the product line. I guess that's just another way of asking have you started to see revenue growth benefit from these investments, or is that still on the horizon, if you will?

Really, you've got to remember the 2 things that are the biggest impact on our growth are new sales and improved retention. And if you look at any of the waterfall charts that we've shared with you in prior periods, it is by far the biggest growth impact. And clearly, sales accelerating in this quarter at 13% is a big plus in terms of the organic growth rate. And when you improve your retention by a full 100 basis points in a year, not only is the improved lifetime profitability noticeable, but it clearly helps your growth rate the following year by at least 1%, not to mention those clients continue to buy other products, et cetera. 1% in terms of pays per control is worth, call it $20 million, give or take. And so when you look at the grand scheme of a company approaching $10 billion in revenue, it's not material when you look at us selling $1.1 billion in new bookings.

And just to be specific on your comments about money movements, it's still very small internationally. That's not going to move the needle that much yet. David Grossman - Stifel, Nicolaus & Co., Inc.: I was thinking more in terms of growth in getting new companies to outsource now that you do offer money movement as opposed to the contribution of float.

Most of what we're selling in money movement today is for best-of-breed platforms in Europe, and most of that is being sold into the base, although we are getting a reasonably high percentage, I think, call it 40%, 50% of new clients signing up also buying it. But it's a long way to get it to the point that it's the kind of major contributor that we have here in the U.S, although I believe one day we will be there. David Grossman - Stifel, Nicolaus & Co., Inc.: And just one other question was on the financials, and I may have missed this, Chris, in your prepared remarks. But would we expect the comparisons going forward in a flat rate environment to be positive now on a year-over-year basis?

No, we'll talk more about that on Thursday, and we'll go into more detail. But no, it all depends on what your assumptions around balance growth going forward, but the year-over-year drag, as you know, from the new purchase rates versus the embedded rates is still there. Interest rates haven't moved. So we've benefited from the balance growth, particularly in the quarter. It's still down year-over-year. I'll go through more details on that Thursday.

I mean the one thing we do know at this point about next year is the embedded rate will be lower based on where we are in the yield curve. So the $64,000 question is how much will the balances grow and when will rates turn so that we can start moving the other way to get back to, over time, having a positive increase in rates rather than a negative in rate.

Your next question comes from the line of Ashwin Shirvaikar with Citi.

I just wanted to ask a follow-up to the previous question. You've obviously gone through significant investments all through the downturn, seem to be benefiting here. Do these investments -- I mean, is the expectation that they tail off at some point in fiscal '12 or '13? Or do they get replaced with new kind of investments, and the bigger play is better scale and growth?

It's a little of both, but when you make investments around service and sales force headcount, in our model, you would typically go backwards unless you were in a severe economic downturn. Clearly, when things are going well and you have the ability to accelerate or make some onetime investments in product and innovation, you do take the opportunity to do that. But our core investments in R&D, I've never really seen them go backwards, because innovation, the competition and technology just keeps moving forward, and if you're not out in front of that, you may get a couple of years of happy contributions to the bottom line. But at the end of the day, in the long-term scheme of things, you're going to be sorry.

Understood. I do think that's the right approach. The pretax margin decline due to acquisitions, I just want to focus on that. Have you broken out, maybe I missed this, how much of that is due to integration? And how much goes away by next year?

No, we haven't gone through that level of detail.

Are you going to?

The year-over-year compare is going to get a little bit easier except for, as Gary mentioned earlier, you can always have that amortization going forward. So year-over-year, it will be a better compare, but you'll still have a little bit of a drag overall because of the amortization.

And we don't normally expose that kind of granularity at the level for the number of acquisitions that we've done. It's just, we don't historically, just don't disclose that.

Your next question comes from the line of Giri Krishnan with Credit Suisse.

I had a question around Europe. Gary, in your prepared remarks, I think you had said pays declined in Europe by 2%. Is there an expectation for when you might see that turn positive? And is this lag sort of normal versus the last cycle?

Yes, they go down much lower, and they come back much lower because of the way people -- the cost of having any kind of a downsizing as well as the heavy social expense of hiring people in Europe, you'll see them flex plus and minus using temporary staffing long before they start hiring permanent employees. But what's happening is we're reaching the bottom there, and so that decline is lessening. And I would expect over the next 6 to 9 months that it's going to flatten out.

And when you talk about retention, was retention in Europe comparable to your overall, was it slightly below the U.S.?

No, retention in Europe has always been notably higher than the U.S. So if we would run 89% to 90% retention in the U.S., in Europe we would run, call it 94%, 95% and have historically. It's actually up a little bit I think this year, Chris, I don't remember exactly, but I think it's within half a basis point or something, 50 basis points of the other rate, and it's very comparable to the retention rate we get in National Accounts here in the U.S. European business tends much -- to be much more focused on the high end and mid-side of the market. And so that's not that unusual. And if you look at GlobalView, we're running 97%, 98% retention, because if you go through that much expense and the pain of a conversion, you're not going to just change willy-nilly.

Your next question comes from the line of Tim McHugh with William Blair & Company. Timothy McHugh - William Blair & Company L.L.C.: Most of my questions have actually been asked. I wanted to ask was if you could elaborate a little more on -- I was going to ask about bridging the gap between talking about the strength in the international sales and yet pays per control declining over there. If you can talk a little more on the growth rates but maybe in these particular or markets or services more so internationally that make it better than the pays-per-control trends?

Part of it is beyond payroll. We've made a number of important acquisitions, and we're now marketing some product platforms that allow us to sell HR kind of software as well as time and labor and employee self-service, management self-service. So that's helping us drive increased gains in terms of sales force. Other than that, yes, the stream running sales, which is our ability to sell to U.S.-based companies, smaller processing opportunities in different countries, we've done very well with doing that. So that's helped driving their sales. But there's nothing that just jumps off the page at you other than beyond payroll. And it's pretty much the same across the board. I mean, we don't really have much of a presence in some of the places like Spain and Portugal and Greece that are under the most pressure. And it's kind of business as usual but with a little bit of tightness in the rest of the core Western European and U.K. marketplace.

[Operator Instructions] Your next question comes from the line of Mark Marcon with R. W. Baird. Mark Marcon - Robert W. Baird & Co. Incorporated: I was just wondering if you can comment with regards to the implied guidance for the full year. It basically implies that year-over-year revenue growth for Employer Services slows down a little bit from the strong pace that you posted in Q3? I'm assuming that that's basically because we are annualizing some of the acquisitions, and that's why -- part of the reason why we're seeing -- as we lap those, we start seeing the improvement in terms of the margins. Is that correct?

Are you talking about the revenue growth implied for ES for Q4 versus Q3? Mark Marcon - Robert W. Baird & Co. Incorporated: Exactly.

Well, Q3 is seasonally high with the year end W-2... Mark Marcon - Robert W. Baird & Co. Incorporated: I'm talking about year-over-year. So that would typically go through every year, wouldn't it?

Yes, so you're -- year-over-year, not Q3.

But also, Mark, you got to remember the payroll and tax revenues that Chris -- where we had the timing difference between the second quarter and the third quarter, that went from 0 in the second quarter to 5% in the third quarter. And when you normalize it, it went to 2 and 3, which would then pull down the aggregate to some degree. I haven't done the exact math, but I think that probably was half of this.

And then you look at seasonality and I think it hangs together. Mark Marcon - Robert W. Baird & Co. Incorporated: So in essence, I mean there is no implication or no reason aside from some of those timing differences why we should see a slowdown in terms of year-over-year growth relative to what we experienced in Q3?

I think that's right.

We certainly hope not. Mark Marcon - Robert W. Baird & Co. Incorporated: And then can you talk a little bit more about just the markets internationally where you're seeing the strongest growth and you have the greatest opportunity in?

Well, clearly, global view in terms of Asia Pac is a big opportunity for us. We're actually quite pleased with the sales growth in the U.K. We're the #2 supplier in the U.K. market, but with our new Freedom platform augmented by a recent acquisition that we made that has HR and benefits and Internet software-as-a-service kind of delivery on the front end of Freedom is really driving some great opportunities in the U.K. market. And the German and French markets are doing pretty much as they have been. The same with the Netherlands. Those 4 really constitute -- they've got decent kind of 10%-ish, plus or minus, kind of growth rates across Western Europe. Mark Marcon - Robert W. Baird & Co. Incorporated: But when we think longer-term, we're running roughly around 21-ish percent, give or take a few percent, in terms of percent from international. If we think 5, 10 years out, how big could international become?

I think the real $64,000 question there, Mark, is I hope the North American business grows as fast, if not faster, in which case it would make a percentage of the whole the same or only going up slightly. And that's really what happened. International is doing fine. It's actually growing faster than North America. But we think longer term that North America still has a lot of run room in the growth rate. And as long as its growing, even though international may be growing at a faster rate, it takes a long time to really move the needle in the mix between international and U.S.

Your next question comes from the line of Michael Baker with Raymond James. Michael Baker - Raymond James & Associates, Inc.: Just wondering on the new sales front whether you're seeing a change in mix between competitive takeaways versus moving someone from in-house to one of your solutions?

I don't think there's any significant change. Obviously, sales are better, but they're better in both categories. So I don't think there's any big marketplace shift there. In the low end of the market, we're probably doing better in the CTA level and against some of our competition, not only our national competitors, but I think also the regionals.

Ladies and gentlemen, we have no more time for questions. I will turn the floor back to Mr. Butler for closing remarks.

Thanks again, everybody, for coming on a late afternoon on Monday. Hopefully you can tell we're quite pleased with the results. I think it really sets the stage for continued growth in the future. And we're looking forward to giving you a lot more breadth and depth in all of these categories by marketplace at the coming Analyst Meeting. I think you'll be particularly pleased when you see all the progress in terms of innovation in our product and the new product platforms that we have. So thanks again for listening, and we'll see you on Thursday, we hope. Thanks, everyone.

Thank you for joining today's conference call. You may now disconnect.