Automatic Data Processing, Inc. (ADP) Q2 2015 Earnings Report, Transcript and Summary

Good morning. My name is Ashlin; I'll be your conference operator. At this time, I'd like to welcome everyone to ADP's Second Quarter Fiscal 2015 Earnings Webcast. I like to inform you that this conference is being recorded. And all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I'll now turn the conference over to Ms Sara Grilliot, Vice President, and Investor Relations. Please go ahead.

Thank you. Good morning. This is Sara Grilliot, ADP's Vice President, Investor Relations, and I am here today with Carlos Rodriguez, ADP's President and Chief Executive Officer; and Jan Siegmund, ADP's Chief Financial Officer. Thank you for joining us for our second quarter fiscal 2015 earnings call and webcast. Before we get started with Carlos's commentary on the quarter, I want to give you an update on our Investor Day. The event will be held on March 3rd in New York City and we have an exciting agenda plan that will showcase our new products and include an update on our business and strategic initiative. We look forward to seeing you there. I'd like to remind everyone that today's call will contain forward-looking statements that refer to future events, and as such, involve some risks. We encourage you to review our filings with the SEC for additional information on risk factors that could cause actual results to differ materially from our current expectations. With that, I'll now turn the call over to Carlos.

Thank you, Sara. And good morning, everyone. This morning we reported solid results for our second quarter of fiscal 2015 including revenue growth of 7% and worldwide new business growth of 15%. During the quarter, we increased the number of businesses in the cloud to 480,000 and migrated 22 million users to our new user experience, providing them with a new way to access the pay information. And since last year we have more than doubled a number of mobile users to 3.6 million. And we are on track with our client migrations. And are pleased that we have migrated almost all of our small business clients to ADP RUN. We now have fewer than 2,000 clients left on the legacy EasyPay platform. We are excited as we prepared to sunset this platform in the coming week. A continued progress was made possible by our investments and innovations and our laser focus on leading in the Human Capital Management or HCM market. We remain optimistic as our strengthening portfolio of strategic platforms continued to experience success in recent months. The success is evidence by our year-to-date record client revenue retention in both the US and internationally. And our strong new bookings growth as clients of all sizes are seeing the value in ADP's integrated offerings and the value we provide and helping them manage their workforce. In the US, we continued to be focused on growing our suite of integrated cloud based HCM solutions and we are pleased with the number of new clients choosing our flagship platforms ADP RUN, Workforce Now and Vantage as well as the adoption rates of additional modules by our existing client base. Our HR business processing outsourcing solutions especially our PEO continue to perform quite well as businesses look to fully outsource increasingly complex HR processes to ADP. To further enhance our capabilities, during the quarter we launched ADP Health Compliance targeted primarily at larger enterprises. This new solution which ADP is uniquely positioned to deliver helps businesses navigate the challenging and complex landscape associated with ACA healthcare compliance. We are optimistic about the interest we've seen from clients and the opportunity this represent. We are also keenly aware of our opportunity in the HCM space outside of the US. And although the European economic situation remains a challenge, ADP's strength global compliance and our presence in 100 countries has contributed to our success internationally. Not only have we seen solid execution in sales for multinational corporation, but we continue to enjoy a leading position abroad for our in country solution. Overall, we are pleased by the balanced success we are seeing across our portfolio. And we are constantly looking for ways to provide better, value added services for all of our clients whether they are small businesses or multinational corporation. We continue to sharpen our focus and evolve the end-to-end client journey leveraging our unique insights and expertise to create a more integrated and seamless client experience. We also understand that no two companies have the same need but the same way of doing business. So providing flexibility and adaptability of our market leading solutions is essential. For this reason we introduced the ADP market place earlier this fiscal year which is designed to help employers make the most of their workforce data by empowering partner companies and developers to deliver new and innovative applications that leverage and integrate with ADP's data. The openness of the ADP market place which is enabling to access to our Application Programming Interfaces or APIs, enables workforce data integration across multiple workforce management platform, provides client with a more seamless and efficient HR process and lets clients extend the value of their relationship with ADP. In the three months since launch, our development team has begun working with potential partners. We are excited about the opportunity it provides for ADP to collaborate with third party developers and providing solutions that help our client better manage their workforce. And as we leverage ADP's unique big data capability, we are delighted with the launch of our ADP Workforce Vitality Report this October. The new report from the ADP research institute is unique in its ability to provide insight into the health of the US labor market. Not just job numbers but the quality of job and the trends driving its momentum. When considered together with our well regarded national employment report, we are sending a clear message to the market that ADP is at the forefront of identifying, analyzing and driving actionable insight in the HCM's space. In that regard we are also encouraged by the demand we are seeing for ADP's analytic solutions which are particularly strong among our up market client. We introduced these solutions just one year ago. And while the product is still in its early stages, we are enthusiastic about future opportunities for ADP to leverage our big data capability. In summary, we have entered the back half of our fiscal year on solid footing. While we certainly understand and are aware of the changing dynamics in the HCM's space, we are confident that our robust offerings and insightful expertise will enable to maintain and extend our leadership position. Again, thank you very much for your continued interest in ADP and I look forward to speaking with many of you at our Investor Day on March 3rd. With that I'll turn the call over to Jan to walk you through our second quarter results.

Thank you very much, Carlos. And good morning, everyone. I am pleased with ADP's results for the quarter. Revenue grew 7%, nearly all organic. Pretax earnings grew 8%. The effects of foreign currency translation negatively impacted the quarter's revenue and pretax earnings growth by approximately one percentage point. As Carlos described, ADP's sales force executed well in the quarter, delivering combined worldwide new business bookings growth of 15% over last year's second quarter. And as expected investments in our products and sales force moderated earnings growth in the second quarter. Earnings per share grew 8% which included a negative impact of about 1% due to foreign currency translations. Our tax rate in the quarter was higher than last year's second quarter. However, better than we anticipated due to an expected one time tax benefit. ADP continued its shareholder friendly actions, repurchasing over 5 million shares in the quarter at a cost of $436 million. And as a reminder, ADP received $825 million in dividend proceeds from CDK as a result of the spin-off which occurred on September 30th, which were intended to fund share repurchases and accordance with the tax free nature of the spin. We intend to complete this share repurchases by June 30, 2015 subject to market conditions. Employees Services revenue grew 4% from addition of new recurring revenues tool from our HCM solution. This growth rate was impacted by almost two percentage point from foreign currency translation. As well as higher revenues received in last year's second quarter from administering employment tax credit for our clients here in the US. And certain one time benefit we experience in last year's quarter which all resulted in a more difficult compare. Despite the more difficult compare and the growth headwinds we experience from foreign currency translation, we continue to be pleased with the fundamentals of our business model. Our client revenue retention which is at a year-to-date all time high and improved slightly over last year's second quarter. Same store pays per control in the US remain strong with an increase of 3% and client fund balances grew 7% driven by net new business growth as well as growth in pays per control. As a reminder, approximately 15% of our client fund balances are held outside the US, most notably in Canada, the UK and in the Netherlands, so although our year-to-date balance growth is at the high end of our forecasted range of 5% to 7% for the full year, we anticipate coming in closer to the mid point of the range due to expected pressure from foreign currency translation in the next two quarters. We continued to be pleased with the overall revenue growth in our international business. As the positive results in Asia Pacific and Latin America as well as the success of our multinational offerings have continued. And although the economic situation in Europe continues to be sluggish, same store pays per controls was flat over the last year's second quarter following several period of decline. Our pretax margin expansion Employees Services was 30 basis points in the quarter. Our business continues to perform well, however, anticipated higher selling expenses and planned investments into products cause margin pressure over last year's second quarter. The PEO continues to outperform posting another quarter of strong revenue growth of 18% compared to last year's second quarter. Average worksite employees grew 15% to $354,000. The solid execution of our sales force and the strength of our distribution model continued to be a key driver of our growth. We are also pleased that efficiencies in sales and operations continue to drive margin expansion in the PEO which delivered about 140 basis points of improvement in the quarter. ADP's consolidated pretax margin improved by 30 basis points in the second quarter, which included a drag of about 20 points from slower growth of our high margin client fund revenues as these highly profitable revenues grew at slower rate than overall revenue. So now I'll take you through our fiscal year 2015 outlook which has been updated to reflect the results we have seen in the first half of the year as well as the expected impact of foreign currency translation on our full year results. We've experienced a solid first half in the worldwide to bookings growth and although we have a tough compare in the third quarter compared with last year's third quarter growth of 14%, we now expect to achieve about 10% full year growth in new business bookings over the $1.4 billion sold in fiscal year 2014. The fundamentals of our business are solid and for total ADP we still expect revenue growth of 7% to 8% despite the current environment surrounding foreign exchange rate. Although the overall forecast remains the same, we do expect changes on a segment level and Employees Services and the PEO. We are adjusting our forecast for Employees Services to reflect expected headwinds of about two percentage points from the impact of foreign currencies and translation and now expect about 5% growth compared to our prior forecast of 6% to 7%. And while once the employment tax program was extended through the end of calendar year 2014, it has not yet been renewed for calendar year 2015 and we therefore expect lower revenue than previously anticipated from these tax credits filed on behalf of our clients. For the PEO, we are increasing our revenue forecast to reflect solid performance during the first half of our fiscal year and we now expect the PEO to deliver 15% to 17% growth compared with our prior forecast of 13% to 15% growth. So the mix is changed but overall we expect to be on track for our full year revenue guidance even with the expected headwinds from foreign currency translation. Our pretax margin forecast for total ADP remains the same; we still expect 75 to 100 basis points of margin improvement from the 18.4% in fiscal year 2014. On a segment levels, we are modifying our margin expansion forecast for the PEO and now expect margin expansion of up to 100 basis points compared with our prior forecast of up to 50 basis points. Our forecast of margin expansion in the Employees Services remains unchanged. We still anticipate about a 100 basis points of margin expansion. We're updating our forecast with effective tax rate to reflect the one time benefit we've received in the second quarter and we now anticipate a tax rate of 34.2% compared with our prior forecast of 34.6%. Although we have changed our forecast of tax rate, we expect to have earnings pressure from the impact of the foreign currency translation in the second half of the fiscal year, so there is no change to our diluted earnings per share forecast. We still expect growth of 12% to 14% compared with a $2.58 in fiscal year 2014. And as a reminder, this forecast of 12% to 14% includes an anticipated $0.02 benefit resulting from share repurchases funded by the $825 million in dividend proceeds ADP received as a result of the spin-off of the CDK. However, the forecast does not contemplate further share buyback beyond the anticipated dilution related to equity comp plans and the dividend proceeds from CDK. There is no change to our previous forecast related to the client funds investment strategy. We could experience some pressure in client funds interest revenue in the second half of the year due to the changing interest rate environment and the impact of foreign currency translation on interest earned outside the US, however, we are maintaining our forecast and still anticipate an increase of $5 million to $15 million over last year from the client funds extended investments strategy. The detail of this forecast is available both in the press release and in the supplemental slides on our website. In closing, last week I had the opportunity to participate in ADP's annual ReThink Conference in London, this was our largest ever gathering of clients and prospect representing multinational corporations. HR finance and IT executive from some of the largest companies in the world joined us for two days of discussions about the future of HR and ADP's HCM's capability. In the many personal conversations I had with these leaders at ReThink, it is clear that our vision for HCM is resonating giving me confidence that we continue to be on the right path. With that I'll turn it over to the operator to take your questions.

[Operator Instructions] Our first question comes from Sara Gubins of BofA Merrill Lynch. Your line is open.

Thank you, good morning. Great performance in the new business sales this quarter. Could you give us some details on where you saw most of the strength?

It was actually across the board.

Okay, great. With the RUN migration now over can you talk about where you are shifting those resources? And also could you give us some client count for Workforce Now versus those still on the legacy platform and when you would expect to be able to shut legacy platforms down?

Well, Jan has the numbers in terms of -- on Workforce Now. In terms of our priorities, just again I want to reemphasize how proud we are of the organization and small business. It took on us very large task of moving several hundred thousands clients which is benefit of hindsight now seems like the right decision and we actually had our retention improve and our margin and cost structure improve in that business over the last two three years. But that wasn't -- it wasn't obvious that was going to be the outcome at the time. There was a lot of trepidation about losing clients and competitive issues and so forth and it just -- it turned out be very well executed migration that really enhance our competitiveness, our market position, our market share just really across the board. A great job by that organization and we are right at the end of the show here with only couple of thousands clients. So I just want give, praise to that organization in terms of the job they did because that was serve I think as an example for the rest of the organization as to what can be done and what the outcomes are when it is done in terms of migration because you can just feel simplification and the simplicity entering into that business as a result of having only platform, having to train only one set of implementation, associate, maintaining only one platform, it just got -- it is a real home run so obviously now we turn our sight to the mid market and to the up market. We have a lot of momentum and lot of progress already with Workforce Now in the mid market and really national accounts where the up market is where we are now training our sight to as quickly as possible began moving larger client. So right now the focus for us is doing what we can to use both internal resources and we are actually -- I think we mentioned in the last call actually also using some external resources to help with those migration in the up market to try to accelerate. So I guess the answer to the question is we are trying to move resources that were being focused on the migration to RUN and the small business market over national account. And I think in the mid market it is steady as you go, we are just continuing to plow away and moving as many clients as possible over to our strategic platforms. I think Jan has the numbers.

Yes, Sara, So as Carlos mentioned of course RUN is huge success story so now with almost 425,000 clients on that platform is really a wonderful outcome. And we are making similar steady progress on the PCPW migration in major accounts and I think we have formally alluded that we would finish this by the end of fiscal year; we are still on track for that. We migrate in the first half of approximately 3,000 and we have about the same left, so we are really here in the final stages of also finishing that major migration project.

I think the other thing just to reiterate why we are doing this. I think there are a variety of reasons but clearly two of the most important reasons are as we use the number of legacy platforms we can reinvest those funds in our strategic go forward platforms. So that's exciting to be able to put even more resources into the new stuff. And second of all it is to improve our competitiveness in the market place because this older legacy platform sometimes creates an exposure from client retention standpoint. So I think we've so far, knock on wood, I think proven that we are getting a both of those things and done some from these migration strategy.

Thank you. Our next question comes from David Togut of Evercore ISI. Your line is open.

Thank you. And good morning. Carlos you highlighted increased competitiveness as you move up legacy platform and just some of the new platforms, could you perhaps share some insights in terms of direct competitive experience let say down market versus paychecks and perhaps in the mid market versus ultimate where you have almost completed the transition to Workforce Now.

We try not to get into specific one by one competitors, I think overall in the categories that you described we have obviously a lot of data around win loss ratio and we have some data around market share and I think that's why we make the comments that we believe our competitiveness is improving because I think our metrics show that. And again these are incremental improvements but we are still happy with them and they are going in the right direction. I don't know if Jan has any additional color but we measured competitiveness really in terms of winning or losing in the market place. And we believe that our win rate curve improved as a result of not just our investments in new products but also these moves are putting our clients on a newest platform.

This is the follow up to that you mentioned 15% global booking growth in Employees Services and strength across the board. Can you flush that out a little bit? Is some of the strengths driven by particularly new products? Is this tend to be more kind of down market with RUN? Is it up market with Vantage HCM?

So I think as we mentioned in prior calls in terms of being consistent about giving the same answer when things are good versus when they are not so good. Sales for us are more variable than obviously our revenue is in other metrics in our business because the nature of the way our new business booking work. So there are lots of things that have an impact. Incentive has an impact and we talked about that in the past. Sometimes our incentives can hurt us and sometimes they can create more difficult compares. The economy clearly has something to do with it. Competitors obviously are a factor as well as the strength of our product and the timing of product releases. So there are just a lot of things that go into the mix. So it's very, very hard with a degree of I think objectivity to give you specific answers to what's driven the strength. But this is our second quarter of double digit sales growth and when I look at the trends over the last -- won't call the trend but we have now couple of decades of data around our quarterly sales results. And this feels like a very good situation for us because as you know last year we ended the year with 7% sales growth after several years of double digit sales growth. And I think we are on track this year obviously based on our revised guidance the double digit gains so it is incredibly pleasing because I think it appears that we've at a minimum broke-in kind of what I'd call the economic cycle issue which is -- we have tended in the past and strong economic cycles to go double digit and then we kind of trail off in terms of sales growth over time and then during recession we end up going negative. And so this time when I look at that chart and I look at that trend, this is -- this was an important year for us, important quarter and important six months in showing that we can continue to grow our sales at double digit, ex any factors in the economy or in this case we have some issues abroad and Europe and few other places. So I wish I can give you an objective answer other than it is a combination of a lot of things. I think our products are getting incrementally better. Our sales force is executing incredibly well. We've refined some of our incentives over the years to I think drive better sales results and we have also changed the mix of our sales headcount to have more components in our inside sales force to drive our sales expense to a better level. So it is just -- again I gave lot of praise to our small business division for the migrations over the RUN and also got given an enormous amount of praise to our sales force in terms of the way they executed this quarter and these six months because last year was not -- it was a tough year. And again just to reiterate it is across the board. I wasn't trying to be short in that end but it is just that that is the fact. Double digit sales growth across really all of ours sales segment, up market, mid market, low end, just really across the board. So I can't unfortunately provide you any more detail on that.

Thank you. Our next question comes from Georgios Mihalos of Crédit Suisse. Your line is open.

Great, thanks, good morning, guys. And congrats on another strong quarter and good momentum. Wanted to start off can you remind us how new sales breakdown throughout the fourth quarter? I don't think there is that much variability, but if you could address that and maybe related to that, January is a big month on a small business side. Maybe just your thoughts as we exit that month how the sales activity was there?

Funny you should mention that because I asked Sara for that data couple of days ago just to -- we are obviously not going to talk about January because that's the -- it is next quarter's discussion but we do have the January results and I was curious to see how much of the year's quota has been expanded because we do have very strong sales in November. And very strong sales in January due to seasonality. But we also have as you have probably seen in the past, very, very strong June mainly driven because of yearend incentives which we've talked about I think quite a bit. Both the positives and the negative. So the long and short of it is that it actually works out the right about balance so in seven out of 12 months we have expanded about 7/12th of our quote and I think in six months so there is probably a little bit less but it is really not -- it is not meaningful in terms of difference in terms of you being able to think through or me being able to think through, the odds of asking able to hit our forecast given what where we are in the year. We feel pretty good about hitting our forecast.

It definitely sounds that way. And then just follow up to that the pays per control outlook 2% to 3%; you have been 3% now over the first half of the year. Is that just conservatism keeping the low end of the range here? What seem here that you are going to be able to do better than that?

Yes. Maybe I'll answer that. Really we're for the first half of the year, and the number itself is not that impactful for our total results. So it is really depended of --if the economy going to change significant course we had, great employment growth of the country for now a number of years so we didn't feel we needed to updated it but it should be right around somewhere.

And as a reminder 1% change in pays per control is $8 million in annual revenue. So if that were to change by half of a percent for the rest of the year, it would be $2 million impact for revenue so I think as Jan said really not that impactful but more importantly we've seen this movie before where we are incredibly please that it is holding up at that level and it has been that way for a few years. But it will at some point come down to 2.5 or 2 or somewhere in that range but we hope it continues indefinitely but we are not planning on that.

Thank you. Our next question comes from Smittipon Srethapramote from Morgan Stanley. Please go ahead.

Now that the January 1st deadline is passed can you just talk a little bit more about the new ACA product how did in the quarter and how it is done since beginning of the year?

We don't have any specific numbers that we can share but we are very, very pleased. Jan may want to add his own color. We had a business review with the folks running that business actually quite recently and the number of units that we've sold and the new business bookings, we have generated new business bookings from this product, and we have actually started a handful of clients, and we have a very large backlog, and we're very excited about it.

I think may be a few the ACA product has a new direction serves, of course, as an example of ADP's strength of combining technology with compliance. And so we fun lighted [ph] of course it is one of the largest problem solve clients' space. This ACA product targeted for large clients of market product so the number of units that we will be selling and trying to achieve in the realm of a national account type product. And I think what yielded our positive outlook on the product is really started in earnest in the last quarter and second quarter to sell this product, and the pace of how the pipeline has built and our ability to close a number of much the same in that space caused basically optimism. I don't think it will augment clearly and will support the growth rate of new business bookings, but it would be also wrong to anticipate that this would have tonnage point difference in our sales growth rate going forward. But it is going to be an important product that rounds out our value proposition and combination with our core offerings is very powerful, but that's more the purpose of why we talk along bit more in detail about the ACA products.

Thanks, Jan. Maybe my enthusiasm got ahead of me because our blessing and our curses that we have nearly $1.6 billion in new bookings, and $11 billion in revenue. So I think Jan is very correct that my enthusiasm wasn't intended to imply that this is going to add two to three points of either sales growth or a point of revenue growth. You can just do the math in terms of what that would imply. We hope that over the next two to three years it could be meaningful and significant, but clearly for this year it is not going to -- it's helping and rounding things out, but I should have probably been more careful in the choice of my words.

Thanks for the clarification. And maybe just a follow-up on the same topic. As the PEO business continues to do very well, can you talk about what you are seeing in terms of customer demand for your ASO type products?

Sure. First of all, let me just say that I was actually in Atlanta, had a great visit to Atlanta in December and visited with a couple of the business units that operate mainly out of our Atlanta office, including the PEO, and folks who run the ASO. And that business just in general is executing incredibly well, both PEO and the ASO. So really all of our -- all of our BPO offerings, mid market, up market, and the ones that you're referring to, PEO and ASO, are all I think really resonating in the marketplace, probably driven in part by this increasing complexity around compliance. So some of it is ACA driven in terms of people just looking for alternative, that's creating more meetings and more discussions which leads to more opportunities, and then closing more business. Some of it may be what appears to be a growing need for focusing on talent as the unemployment rate begins to dip here and people start to focus more on attracting and retaining and managing their workforce well. So I think there are probably a number of reasons in terms of creating some tailwind. But the very -- a great discussion, and just business is really executing very, very well, both the ASO and the PEO, just across the board, great execution on the sales results but also in terms of the implementation of our business and the underlying metrics of the business in terms of pays per control there. They're all just -- they're all in very good shape. So great discussion that went

Thank you. Our next question comes from Gary Bisbee of RBC Capital Markets. Your line is open.

Hi, guys, good morning. Let me just first follow up on that last point. Is there -- PEO continues to be incredibly strong. Is there any way to know how long the momentum continues at this level? And I guess what I'm particularly interested in, are you seeing any -- now that a lot of businesses are in compliance with ACA, are you seeing any decline or is there any sense that maybe there was some pulled forward demand to get into compliance, or are those drivers of more people being interested and considering their options remaining strong in calendar 2015?

And I think our plan is to have the momentum continue forever. That would be the way we are planning things because in part the market share of the PEO industry in general in relation to the total employment for small and midsized businesses is relatively low. This is a theme that I think has been true for a couple of decades. I think the backdrop in terms of the economy and the regulatory environment has some impact on whether clients are open to discussion or not. But the fact of the matter is you want to be in businesses preferably with lower penetration versus the higher penetration. I think the PEO is that kind of business where only a couple percentage points at most of employees -- the available market are actually using a PEO. So we believe that theoretically the opportunity is very large and then it becomes a question of execution. And as I mentioned, other factors that may or may not be tailwinds, like the regulatory environment which we think happens to be very favorable right now. We haven't seen any signs yet that everyone is all of a sudden in compliance, and that there's no more interest in the PEO because you saw the quarter results, and I think our forecast for sales results for the rest of the year for that business would not indicate any feeling or belief that interest is drying up. So I think that there is a need to be in compliance, but if you remember, ACA is mostly affecting over -- and clients with over 50 employees. What are causing some of the interest in PEO is the entire backdrop around ACA and the regulatory environment which is people scrambling to have competitive benefit plans that you can compete also with some of these exchanges. So it's not specifically clients that need it on a particular date to be in compliance. I think this is something that will continue for many years to come where small companies and midsize companies are going to be looking for alternatives to healthcare plans that they may have in the past, add on an individual plan basis, whether that be they look at our solutions through the PEO, or they look at exchanges. I think people are just looking for alternatives to be able to control healthcare cost to be competitive in their own business.

Great. And then the follow-up, it seems like you're starting to get more, whether it's products or other from the innovation lab you set up a year or two ago, and I guess, can you give us a high-level sense, do you think those investments are going to lead to noticeable incremental revenue in the next few years, or is it more on the margin? And as part of that maybe could you just give us an example of what kind of thing the ADP marketplace offering might be able to lead to? What would be like a tangible example of a potential product there? Thank you.

Just in terms of -- I'll let -- actually Jan can be talk about the examples in the ADP marketplace because he is equally excited about that. But in terms of your question about innovation driven products and growth coming from that, again, back to unfortunately you have to go back to the comment in terms of just keeping us all on the same page because of our size and our new business bookings, so our new business bookings per year are larger than most of our competitors combined. So we have a large path. I think the innovation lab and some of our focus on product is intended to as to use Jan's words to round out and ensure and hopefully improve a little bit on our growth rate in sales and revenue. So clearly we would be less than ambitious if we told you that we're just trying to stay in place. But we're clearly trying to accelerate our growth. Again the expectations that we create it is very important for us to be transparent, and I think for us to move our revenue growth up a couple percentage points is very difficult and requires a big increase in new business bookings and very, very good client retention. So having said all that, that's our plan, is to try to continue to drive and improve revenue growth through better net new business which is the difference between start or new business bookings and or loss. And our innovation investments are a large part of that. As we said multiple times. All of the products that we've discussed that have come out thus far, that are new out of either innovation lab or some of our other processes that we have internally in terms of new product launches are relatively small in comparison to the size of our new business bookings in total and to ADP overall. So it is very, very hard to say today that it is going to add x amount of incremental sales for revenue growth but that's our plan over multiple years is to really have a pipeline of organically built and organically developed products that are easier to use and provide better value to our clients and are better integrated to really drive more unit sales but also more sales of our additional modules around benefits, talent management, and other areas around HCM in addition to our traditional payroll. So I don't know, Jan, if you want to talk about the marketplace.

Absolutely. So of course the marketplace there is basically an offering that allows a third party software developer as well as clients to easily integrate with our core product offering. With ADP focusing on human capital management we realize that we're living in an integrated world, and I think we have the utmost flexibility for our clients to integrate our solutions into their overall businesses which is very important. So we expect for example, vertical-specific applications to be available maybe the restaurant industry or maybe the retail industry that would leverage employment data for additional value adds or components to it. But it could be also product like advanced management that we don't offer and have a close relationship to our core payroll offering that will benefit from tight integration into our core product set. I think the message we want to send primarily with this call is, our push for innovation and to be at the leading front of having flexible and easy to integrate technology that makes the value to our clients the highest is our intent. And that may be a different notion compared to the ADP that you would have known three, four, five years ago where we were a little bit more proprietary and harder to integrate maybe and today we really believe and through that integrated network of applications. So that's what the marketplace is really about. And it is kind of an outcome of our investments into innovation, yielding our ability to have these APIs, really accessing a whole bunch of our applications just through one API so I think a very good step forward for us illustrating I think the progress we're making on the back of our technology.

I think, in a nutshell, it's really asked for, and we already have an app there, and we intend to drive more partnerships. And we hope that it will not only make things better for our clients because of their ability to integrate, but we do have revenue share agreements like anyone else would have in their types of app scores, so the key question is what's going to be the degree of success? Because this literally brand new. So we'll obviously keep you informed because this could end up being a large opportunity, or it may not, from a revenue and sales standpoint.

Thank you. Our next question comes from SK Prasad Borra of Goldman Sachs. Your line is open.

Hi. Thanks for taking my questions. First, on the PEO segment, can you provide any color on the mix of your customer base and what traction are you seeing more at the mid to low end? And what positive impact does it have on operating margin in the midterm?

In the PEO, the mix of business, our PEO tends to be more white and gray collar than I think the average of the US economy and some other PEOs. So that's number one. If our average client size I believe are around 40, if I'm not mistaken. Yes, I'm getting the confirmation it is around 40. So that tends to be probably slightly larger than maybe some other PEOs. But we still have a lot of small business clients. So it is obviously they're averages. We have large clients that improve the average but it's still largely an under 50 sweet spot business if you will. In terms of industries, tend to stay away from -- it doesn't mean we don't have any, we tend to stay away from very high-risk things like roofers and construction and so forth. In terms of the impact on the margins on the overall business, we segment report so it's mathematically it's a drag on our earnings when PEO is growing as robustly as it is. Having said that, the fact of the matter is, that on an earnings -- pure earnings growth standpoint, it is an incredibly accretive and profitable and attractive business on any measure, whether it's on an MPV basis, the business requires no investment per se. Whatever investment we make, most of them run through the P&L so there's no kind of outside capital investments that would drive kind of return other than what you are seeing which is a very, very high return business despite the fact that because of its profile it just happens to have a lower margin because of all the past. So we will grow the PEO as fast as we can, because it will add to EPS growth and shareholder value, and we will explain and manage through the margin compression if necessary.

I'm sorry, I also meant that just from a customer profile point of view as it changes over the next few years based on your investments and based on your sales and marketing push, what kind of a positive or negative impact does it have as your customer profile in the PEO segment changes? And probably just one other question is, more from a product portfolio perspective. Are there any obvious areas in your product portfolio where you want extra investment both organically and through M&A?

Let me just clarify, you're expecting what kind of change in our client profile on the PEO?

I was saying that if your customer profile size probably decreases from base say 40 numbers to probably 20 or whatever that is, do you have more profitability as the size of your customer profile decreases?

It's been very consistent for a long, long time, and I don't anticipate that it is going to change dramatically. When we had our business review in Atlanta, the profitability of our large clients versus our small clients, there's some differences, but it wasn't meaningful. So and again, we have 350,000 worksite employees now. To move that number from 40 to 20 is almost impossible in any kind of reasonable period of time. On your question about what things do we want to -- I think your question was what we want to make more investments in.

From a product portfolio standpoint

From a product portfolio standpoint, I think you are going to see us continuing to make the same kinds of investments that you have seen us do over the last two or three years which are really focused on creating a better integrated, easier to use experience for our clients. And so the work that we're doing in the up market and the work that you have seen us do in Workforce Now are all around all of that. So we have -- we believe we have already a very broad set of solutions in HCM all the way from recruitment to retirement. So what we're really trying to do is enhance the usability of our products and the integration of our products, and then obviously we mentioned in our talking points that we believe that data analytics is a huge source of potential competitive advantage and insight that we could provide for our clients, because now that we're all in on HCM what we really want to do is be known for helping our clients better manage their workforce. And that means going beyond just data processing and being efficient to really providing expertise and insight and data we have I think allows us to do that but that requires some investment as well.

Thank you. Our next question comes from Joseph Foresi from Janney Montgomery Scott. Your line is open.

Hi. I wonder on the new bookings growth can you give us some idea what of that is attributable to either change incentives versus the macro versus the new product you have in place. I'm just trying to get a sense of sort of how you can break that down. And I have one follow-up.

I may have confused the issue by bringing even the topic of incentive. There have been no changes in incentives. I just always mention that because it seems to rear its head sometimes in our fourth quarter, either positive or negative. And then it rears its head again in the first quarter because we have a lot of incentives that drive year end results. This is true in almost every company that has a sales force where you have accelerators or incentives towards the end of the year. So I think it happens a lot in software companies. And so we're no different. So this specific quarter, no changes in incentives, so there's really nothing to report there. I should have probably not brought it up. In terms of how much of it was new product versus sales force execution, I think the people from R&D would say that it was 100% product, and sales would say that it's 100% execution. So the truth is probably somewhere in between.

Okay and then just --

Let me add, it would be, as you know, the sales model drives from adding heads to our sales force and overall drives productivity of our sales force with enhanced productivity of our product and better execution and it would be balanced growth profile add as well. [Technical Difficulty]

And that productivity has really been phenomenal for multiple years now. And I'm sure that products are helping but clearly it's also really great execution and great leadership in that organization. They have proven once again this quarter that we have the best direct sales force in the world.

Got it. And then just on any color on win rate changes, if you want to be, either the company level and/ or within the individual mid cap, large cap spaces that you are going after?

We watch those numbers very carefully, and we're also very, very careful about how we talk about. I would just tell you the best way to describe it are a generalization. I think Jan can add, but I would say that we are very, very pleased with the focus that our business leaders have in improving our win rate, our win/loss rate, not just at the retention level in terms of losing clients with but upfront in the sales process. And so I think we have leaders who understand the importance of winning in the marketplace and of increasing market share and metrics we have are very encouraging.

Thank you.

As we have discussed over time, at the highest level improving sales, improving retention generally just has to be indicator about this business relative to prior periods, and that's really virtually the only number that you can draw from at the high level. At the detailed level, I think we shared with you that our losses are comprised not of a single poor lost competitor -- lost that was to a single competitor but to a whole range of 20, 30, 40 competitors that we all need to monitor. So I think it would be probably misleading to point out single ones, because -- and it's not a single competitor is immaterial, but the aggregate of the 30, 40 competitors that we monitor are very important to us. So that's why I think it's probably most fair to go with the directional comments that Carlos gave and round it out with the overall competitive of accelerating sales and together to form an overall picture.

Thank you. Our next question comes from Bryan Keane of Deutsche Bank AG. Your line is open.

Hi, this is Ashish Chhabra calling in on behalf of Bryan Keane. Thanks for taking our question. Quickly on the PEO, a pretty solid growth there. And if you look at the average worksite employee paid growth over the last four quarters those have been trending in the mid-teens or even higher. And those have been significantly higher than what the normal growth has been over the last few years. So just looking forward, does this accelerated growth create tougher comps going forward? And also what would be the normalized growth in the worksite employees as we look forward on a more normalized basis? Thanks.

I think it's a very good question, and again we would hope that the momentum continues indefinitely, but I would tell you that when you look at our operating plans and our forecasts, the compares do get more difficult. That business happens to have a great deal of lumpiness on January 1st because of the way taxes operate in the PEO environment. Ironically, it was a change in the law as part of the yearend Congressional law that were passed that are going to make that a little bit easier going forward and PEOs are not going to have to restart taxes. So that should smooth out the lumpiness of that business somewhat, and not have such a huge peak in January. But the reason I bring that up is because of that peak in January, the growth rate of that business, even though they tend to have another peak in June because of our fiscal yearend and the incentives that we always talk about in sales there, January has been a particularly important number for us in the PEO business because the difference between the new business bookings and the losses that take place in that December to January timeframe tend to drive the year-over-year growth rate on worksite employees for the next 12 months on a calendar year basis. And because of just the size of the business, which is 350,000 worksite employees, I think anyone can do the math and figure out how many new worksite employees we need to sell. We know what our retention rate or you can probably guess close to what our retention rate is, and you can figure out that, that the need to sell that many clients larger than probably all but two or three other competitors in the space. So it is - the compares are getting difficult to say the least. And we are entering the law of large numbers. So if it were me, I would probably be expecting moderation in the growth rate. It doesn't mean that it is going to happen next quarter or this fiscal year, but I think it is a good idea to moderate expected growth rate of that business. We've been incredibly pleased with it for the last two or three years, but I think we're just trying to be realistic here in terms of expectations.

Carlos thanks for that color. And a quick follow-up again on the PEO side. When I look at revenue for average worksite employee that has been trending more in the 3$ range in the first half of the year. Can you just talk about what are the drivers there? Is it more higher fees, more pass through? And as you look forward, how should we think about that particular metric? Thanks.

Actually all of the above. So its additional fees as in fees that drive our kind of bottom line we call processing revenue and hence our profitability plus also the pass. So whenever you have inflation in either workers' compensation or in benefits cost, that will also drive growth obviously in revenue and also growth in revenue per worksite employee in that business. So we give you the worksite employee number, and we provide in the Q and in the 10-K pass through, and you can actually do the math and figure out how much of the growth is coming, as we're trying to be transparent, how much of the growth is coming from pass through, and that allows you to back into how much of the growth is coming from our fees, if you will, and again, back to my visit to Atlanta, I think they're both growing at reasonable rates. So there isn't -- and again, we would tell if you our fees were dropping and it were all because of pass through. The reason we haven't told you that is because it's not true and there's nothing to report. It's been consistent for many years now that the PEO has been growing its own internal fee income per worksite employee at a -- call it 2% to 3% rate and than the pass has been growing at varying rates, depending on what's happening with healthcare inflation.

Thank you. Our next question comes from Jason Kupferberg of Jefferies LLC. Your line is open.

Hi, guys, this is Ryan Cary calling in for Jason. I just wanted to dig deeper into FX. I was hoping you could give us a little more color on your assumption for the remainder of the year. So when we are looking at the 1% full year headwinds, does that assume the dollar trading at the current levels?

Yes. That is the assumptions.

Okay, great, thanks so much. And then now that the dealer service of business spun out, and really a pure play HCM company, is it plausible you might look to M&A a bit to extend your reach further into the market and kind of looking beyond that when looking at the market where do you see the most M&A opportunities? Is it more in the legacy core payroll processing side of the business or is it more along the PEO/BPO side?

We actually -- we do still do acquisitions in kind of our core payroll business as you have just described. They tend to be kind of tuck-in and they're just migrations. As you can tell from our theme, we're trying not to maintain and add additional platforms in our business for the time being. But we do those. Again because of our size, we don't talk about those a lot, but we are kind of actively using our capital to when we can grow market share as long as there's a good MVP associated with the acquisition. We tend to call those client based acquisitions where we are buying the clients and moving them on to our platform rather than buying the entire entity or the company. Outside of that space in terms of just the broad HCM market, again we think we have a broad solution from recruitment to retirement, but we absolutely understand and acknowledge that there are people that are stronger than we are in some parts of HCM, and it may be appropriate at some point and in some cases to enhance our capabilities through M&A activity or through acquisitions. So we are -- it may not feel like it or look like it to many people, but we do want to use our capital, but we want to use it wisely. And so it has to make sense in terms of the technology that we're getting, and it can't just be revenue and a new platform. That's not our strategy, and so there has to be on our terms and it has to fit into our strategic direction. But we believe that there are opportunities out there that would enhance our competitiveness and our ability to grow and add new business bookings, but we're being incredibly disciplined, and as you know, the valuation backdrop is not favorable in the HCM market right now. And I think the other big opportunity for us is geographic. You saw that we made an acquisition in Latin America last year. And this is a place where, again, back to the issues of market share, we talk about the PEO having very low penetration in general in our PEO specifically, geography is another place where you look at outside the US, ADP has really only scratched the surface of opportunities in many of the geographic opportunities that we serve. Not just multinationals but also in countries. So this is another place where it would be a safe assumption to plan on us using our capital to kind of expand our reach globally. It may be counterintuitive because today it feels like because of what's happened with FX, everyone is running from international but generally speaking that's exactly the time to look at something is when everyone else is running away. So we're, I think continuing to look at opportunities outside the US and trying to find ways of enhancing our competitive strength and our growth outside the US.

Thank you. Our next question comes from Jeff Silber of BMO Capital Markets. Your line is open.

Thanks so much. I think we've seen an earnings season with a number of other companies is the impact of declining oil prices on their business. And I just was wonder if you have seen any of that either in a positive or negative way. On the negative side I would think would be if you have a lot of energy exposure, if you've seen some reduction in payroll from some of those customers. Thanks.

I think it's a good question. Just because of again of our size and our geographic spread and our industry spread, the answer would be no. Certainly not something that we've been able to identify. So we will look at it again to make sure that my answer is correct, but we really don't have that kind of concentration in our business. We're so big and so broad, both in the US and also globally, that the real impact is the FX impact which may or may not be connected to what's going on with oil, but it's certainly connected to what's happening in Europe and Japan and other parts of the world. And luckily for us, only 18%, in this case luckily for us, because it is something we've been trying to address, and I just mentioned in my previous comments, we're trying to become bigger internationally, but the fact is that today our revenues outside the US are only 18%. And as you know, some companies that are peers are in the S&P 500 have close to 50% of their operating earnings and their revenues outside the US. So we have relatively less exposure. And that happens to work out well right now. Our operating income I believe is only 15% exposed outside the US, and both the 18% and the 15% include Latin America, Brazil, and include some business in Asia. So our European exposure is even less than 18%. So again, it's a drag on our revenues and our operating income, but our relative basis, it's a smaller impact for us than it is for some of our other large cap brethren.

Great. And just a follow-up to that. Can you just remind us where your international exposure is the largest?

It is in Europe.

In Europe. And how about Canada?

I am sorry - -

Canada would be number two.

Canada would be number two.

Yes, right, thank you so much.

And Canada is -- it's actually a relevant good question because Canada is a relatively large business calls it between $300 million and $400 million, and it's quite profitable. So it's like a small version of the US, a very good business. I have been in Canada for decades and decades and the reason I mention that is clearly because of the profitability of that business and we have a very good float income business in Canada as well. The impact of the Canadian dollar move has a decent impact on our overall revenue growth in Canada and also our operating income growth in Canada when it gets translated to US dollars.

Thank you. Our next question comes from Jim MacDonald of First Analysis Securities Corporation. Your line is open.

Yes, good morning. Thanks for taking my questions. Just on the PEO, one more little thing. Anything of note during the critical year-end selling season?

The only thing of note is it did a spectacular job.

Okay. And you talked a lot about integrated solutions, and I suspect we will hear a lot about that at the Analyst Day, but how would you sort of view -- grade yourself in integrated solutions, and what areas are you looking to improve there?

I don't think I'm going to take that bait. So I think it varies. I think our strategic platforms are actually quite well integrated and quite broad and have rich feature functionality. So we still have pockets. We haven't been able to migrate clients where competitors would point out lack of integration. And I think that's just lack of ability or termination to move those clients to our strategic platform. Because once we have those clients on our strategic platform, I think these issues of integration tend to fade into the background. So I think it's a legitimate criticism of us, but it's old news, and it's historical, and it won't be true in the near future.

Thank you. Our next question comes from Ashwin Shirvaikar of Citigroup. Your line is open.

Thank you. Hey, guys. This may seem like a odd question but over the last few years, as you guys have progressively simplified the overall business, the talk that sort of comes up is what are the synergies, and are there synergies that you can point to why the Employer Services and PEO business should be under one roof, or can you take advantage of the excellent performance in PEO and the valuations in pure play PEO and shared that business and become really pure play ES?

Frankly, the two businesses because of co-employment, because of pass through and a number of other issues, it's a separate segment. But the businesses have a lot of share a lot of things in common, including the sales forces work very, very close together. So our small business and midsize business sales forces of which you know we have thousands of people on the street, provide leads to our PEO sales force, which has its own sales force, but without their brothers and sisters in the rest of ADP, I don't believe that our PEO would have the kind of success that it has today. So the biggest synergy we believe that we have in distribution and in sales, and we believe it is large, and a very big move for our business has been historically and I think it will be going forward. I think there are other advantages. We have capital so when we run into issues around historically in the marketplace around workers' compensation, we've been able to do things that others eventually were able to do but we had more flexibility in terms of being able to use our capital and our strong credit rating. And so I think there are other advantages to having the PEO be part of ADP, but the most important one is the sales synergy. So I would say that I can't envision that business being a separate business.

Okay. Understood. I guess another question I have is and you mentioned this in the past, with regards to the platform -- the ongoing platform consolidation, as we think of the forward margin impact of that, and how much will you allow to flow through to the bottom line, versus investing in other things. Could you help clarify? I'm assuming it is primarily not so much a fiscal 2015, but more like a fiscal 2016, 2017 impact, but just trying to quantify if we are going to see potentially outsized margin improvement years.

Right. I think it depends on the competition. If we were able -- ever able to get into a situation where there were no competitors left, then we would not reinvest anything in the business. But we're trying to build, I think Jan and myself and the entire management team I think are keenly aware that today we have the opposite situation where we have a highly competitive environment and a lot of competitors, some of which have done a very nice job. And so our plan for the short term and medium term, and we'll go into a little bit more detail at the Investor Day, is to invest as much as we can in creating long-term value for this company. But we are a 65 year old company. We intend to be around for another 65 years. And the only way to do that is to be constantly reinventing yourself and reinvesting in the business. And so our strategies around migrations are in part to make sure that our stakeholders and our shareholders also get some return in the form of improved margin. But the main reason why we're doing the things we do is to create better competitiveness and to create long-term value for the company, so that we make sure this enterprise endures and continues to grow at a very good rate for a long time, not just for a year or two.

Got it, understood. You guys sure don't behave like 65 years old but yes it is a good thing.

Thank you. Our next question comes from Mark Marcon of Robert W. Baird & Co. Your line is open.

Good morning. Carlos so I was really encouraged by your comments with regards to international and investing there. Nice to see somebody take advantage of the strong dollar. Can you talk a little bit more about the opportunities that you see over there and what you are hearing Jan in London, in terms of the receptivity to ADP and how it is positioned vis-à-vis some of the competitive alternatives?

Yes. I think, Mark, thank you for the question. When we talk about ADP's global footprint just to level set, we have a physical presence of in country solutions in about 40 countries and we offer within a 100 countries now solution and some of these countries we serve through partners and our Latin American acquisition that we did little bit more than a year ago, was one of those partners that we worked with and they were great partners since the integration and ownership of certain technology assets allows us to improve the services to offer client a more integrated as we talk solutions, so when we evaluate where to expand and what country, it is really driven by the demand of our multinational clients and the ability to have partners that have good technology solutions and services that would help us further differentiate that solution. And today already a market leading solutions in the vast majority of the outsource global market is really captured by ADP. So we are very, very good on the multinational side. And we would continue to keep that said advantage that we have by investments. So I think it is really driven by where is the lot of demand and is in that country a good competitor or a good partner that we think is viable to be acquired and I think that will drive the expansion to moderate that expectations these tend to be now smaller countries or faster growing countries so the acquisitions are maybe a bit smaller in nature and more technology oriented but they will certainly then help us to just mend our leading position over time.

I appreciate that color. Carlos on the PEO side, can you talk a little bit about what your -- the declines that you are gaining, are they existing PEO clients and you are taking them from competitors or are they brand new to the PEO and it is a complete conversion? And which regions of the country are you seeing that stem from? In other words, is it the well penetrated markets like Florida and Texas or do you see a rapid expansion across the country?

So again back to the visit n Atlanta, we've got some information on some of those questions and I think that we've actually consistently for many, many years had a mix of our clients that we get from other PEOs and again this very similar to the ADP business model and a fair amount that comes from we call in house so they are doing it themselves, they have an insurance broker for insurance and they do payroll with ADP or with someone else. And so I don't think there is really any meaningful change to report there. Clearly, there are no more competitors that have higher profile now in the PEO space and maybe two or three years ago but again this is a business where we clearly run into competition but because of penetration rates and market share for both us and our competitors, there are still a lot of open territory out there in terms of not on only geographically but I mean in terms of clients to sell that are not necessarily with a competitor. Having said that, we clearly take our fair share from competitors and some of them take their fair share from us. But there is really nothing meaningful to report there. And some of the geographic distribution of our success again because of the size of the business, we clearly have variability in terms of different regions in different parts of the country which are driven in some case by execution issues and other cases by past through costs like healthcare so a variety of reasons that might cause shift in one region versus other. But because of sheer size there really isn't anyone region who is performing very poorly because it would be impossible for us to generate the kind of results that we are delivering now if we had any one specific geographic region not performing. So they are really performing well in a fairly balanced way. There is really nothing significant to report there either.

So from a longer-term perspective, do you believe that with the new legislative change that the penetration rate can become more even across the country relative to the way it is now?

The changes in the law really affect the way taxes start at the federal level and so I don't think they really causes the change in geographic -- well it could be because higher wage client in California and New York for example, the tax restart issues was more pronounced in higher wage areas and higher wage state. So it might be some small impact from -- positive impact from the fact that the taxes won't have to restart again. But I think the biggest impact that we expect to see is more evenly distributed sales throughout the year. And clients not having to wait till January 1st start because of this negative impact from the tax restart. So that actually the most meaningful -- the most meaningful issue. And I think that helps a lot in terms of the execution of that business and it might actually help a little bit in terms of incremental sales because it is not always easy to talk to client in June and then convince them to sign but start in on January 1st. So the fact that the client can now sign up and start in June without any negative impacts on the tax restarts should be an enhancement to our competitiveness and to industry's competitiveness.

Great. And if I could squeeze one more in, just on the mid market space, what percentage I missed it, what percentage of your client base has been switched over to work place now?

Workforce Now?

Workforce Now

So we have now about 1,000, TCW clients meaning out of in the mid market

Out of how many?

We have about almost 55,000 clients on Workforce Now. So a very small number so we are kind of really on task to also finish as planned in fiscal year -- end of fiscal year.

Thank you. Our next question comes from Lisa Ellis of Sanford C. Bernstein & Co. Your line is open.

Good morning, guys. Question on the PEO. I think when we've discussed it before you've indicated that small sized M&A in the PEO market like rolling up these 700-800 odd small PEOs out there is tricky because of the insurance, underlying insurance risk in those companies. Given the secular growth, accelerated secular growth we are seeing in that market, have you kind of revisited that or is that still kind of off the table in terms of accelerating the growth in the PEO?

Well, I think the -- that the best way to answer that is that I think that the PEO general depending on how much risk you take and how -- I don't think the secular growth or tailwinds really impact the -- I guess our view of the world that way. In the sense that now insurance cycle tend to take place over long period of time. They don't take place in one quarter or one year. And whenever you take risks whether it is on healthcare or workers' compensation, the balance sheet reserve that you have are very, very important. Secondly, what you have been taking in terms of P&L expense to drive those reserves is incredibly important too because it is either accurately reflects or doesn't accurately reflect true profitability of those worksite employees for those client. So I guess that's go on and on but no it doesn't change our view that these businesses have underlying insurance risks and as long as PEO is taking risks, you have to then analyze it and look at it as an insurance risk rather than as a recurring revenue processing business which is the rest of our businesses are. So we treat the PEO as one of those ADP business and transfer the risk to either the carrier through healthcare or in case of workers' compensation to captive which is run by our corporate group at an arm's length and hence we believe that we run ours by isolating or limiting the insurance exposure and I think most of our competitors take a lot more risk than we do. Whether they are small or large and that's not of interest to us.

Thank you. And our final question comes from Tien tsin Huang of JP Morgan Chase & Co. Your line is open.

Thank you. I'll trying to be quick. Just following up on that, on all these PEO questions, just to clarify was the raise in the outlook driven by what we are seeing in January or something else? Just trying to get some understanding around the change there.

No. It was really based on the prior six months.

Okay. And then have you --

Is that answer on the PEO.

I guess I'll ask one more just on the sales headcount growth on PEO. Have you disclosed what that it is? Have you elevated that number in the last 12 months?

No. We don't really disclose sales headcount by business unit. But you can assume that it is growing at the same in line with kind of the overall sales headcount growth of plus or minus little bit but not as -- as Jan said we are trying to grow our sales headcounts call it between 2% and 4% and then try to achieve the rest of our sales results through productivity improvements.

And then just quickly on the international pays per control. Did you -- can you give that by three regions, big regions and that's all I have. Thanks a lot, guys.

We disclosed the European thing and as I mentioned it was flat for the quarter and we have I guess 10 or 20 basis points decline in each of the quarters before so it really has flattened out in Europe, so a very casual utilization.

I think when we talked about the European performance and almost that backdrop is still sluggish as we would describe it but overall the performance actually of our national was quite good.

This concludes our Q&A session for today. I am please to hand the program back over to Carlos Rodriguez for any closing remarks.

So thank you all joining the call today. You probably could tell that we are very pleased with the fundamental performance of the business here in the first six months. Very, very happy with the record client retention and the very, very strong new business bookings growth. And I think both of those things reflect that we are winning our fair share in the market. And despite the economic headwinds from the foreign currency translation and some still ongoing pressure from interest rate, still on track to deliver our full year revenue and earnings guidance which is very satisfying for us. Hope to see you at our Investor Day on March the 3rd, New York City. And thank you again for joining us and have a nice day.