Good morning. My name is Crystal, and I’ll be your conference operator today. At this time, I would like to welcome everyone to ADP’s Second Quarter Fiscal 2020 Earnings Call. I would 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].I will now turn the conference over to Mr. Christian Greyenbuhl, Vice President, Investor Relations. Please go ahead.

Thank you, Crystal, and good morning, everyone. And thank you for joining ADP’s second quarter fiscal 2020 earnings call and webcast. With me today are Carlos Rodriguez, our President and Chief Executive Officer; and Kathleen Winters, our Chief Financial Officer.Earlier this morning, we released our results for the second quarter of fiscal 2020. The earnings materials are available on the SEC’s Web site and our Investor Relations Web site at investors.adp.com where you will also find the investor presentation that accompanies today’s call as well as our quarterly history of revenue and pre-tax earnings by reportable segment.During our call today, we will reference non-GAAP financial measures, which we believe to be useful to investors and that exclude the impact of certain items. A description and the timing of these items along with a reconciliation of non-GAAP measures to their most comparable GAAP measure can be found in our earnings release.Today’s call will also contain forward-looking statements that refer to future events and, as such, involve some risk. We encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ materially from our current expectations.Before I turn the call over to Carlos, I’d like to remind you of our upcoming Innovation Day which is scheduled for February 10. We hope to see many of you there in person and for those who are unable to attend, you can find more details about how to view the event at investors.adp.com. We’re looking forward to sharing our progress on our investments and innovation as well as our vision for our HCM technology portfolio. As always, please do not hesitate to reach out should you have any questions.And with that, let me turn the call over to Carlos.

Thank you, Christian, and thank you everyone for joining our call. This morning, we reported our second quarter fiscal 2020 results with revenue of 3.7 billion for the quarter, up 5% reported and organic constant currency. We are pleased with this revenue growth, which was slightly ahead of our expectations.Our adjusted EBIT margin increased 70 basis points for the quarter and was also slightly ahead of our expectations. Together with share buybacks and a lower adjusted effective tax rate, these results helped us deliver 13% adjusted EPS growth in this quarter. Overall, we are pleased with our progress through the first half of fiscal 2020 following a difficult compare with the first half of fiscal 2019.Moving on to operations and starting with new business bookings. This quarter, we continue to see strength in our Employer Services downmarket offerings and solid progress on the sales of our Workforce Now solutions. We were also particularly pleased to see strong double-digit bookings growth in our PEO.With that said, we are disappointed with our 3% Employer Services new business bookings growth for the quarter. This lower than expected growth was mainly the result of the same trends we saw in the first quarter with our international and multinational businesses, including delayed decisions for some of our larger multinational sales opportunities.As we have said before, given their size, these opportunities can have an outsized impact on our quarterly booking metric. With this in mind, we have narrowed our full year Employer Services new business bookings outlook and now expect 6% to 7% growth as compared to our previous guidance of 6% to 8% growth on last year’s 1.6 billion of Employer Services new business bookings. We continue to have a solid pipeline of opportunities and we remain confident in our ability to execute across our…

Thank you, Carlos, and good morning, everyone. As Carlos mentioned, we’re pleased with our continued progress in delivering growth for our shareholders and this quarter was no exception. This quarter’s reported revenue growth of 5% and 6% organic constant currency is slightly ahead of our expectations and we’re particularly pleased given the difficult compare to our second quarter of fiscal 2019.Our adjusted EBIT increased 9% and adjusted EBIT margin was up 70 basis points compared to the second quarter of fiscal 2019, both also slightly ahead of expectations due to the timing of our progress across our multiple transformation initiative.Our margin improvement continues to benefit from a combination of cost savings related to our transformation initiative and operating efficiencies. These benefits were partially offset by growth in PEO zero-margin benefits pass-through expenses, increased selling and marketing expenses and amortization expense.Similar to the first quarter of fiscal 2020, we’re particularly pleased with our margin performance given the difficult compare that we faced in the first half of the year resulting from the outsized benefits in fiscal 2019 related to our Voluntary Early Retirement Program.Our adjusted effective tax rate decreased by 260 basis points to 22% compared to the second quarter of fiscal 2019. The decrease is in line with our expectations and was mainly due to the release of a valuation allowance related to foreign tax credit carry forwards.Adjusted diluting earnings per share grew 13% to $1.52 and in addition to benefiting from our revenue growth, margin expansion and a lower adjusted effective tax rate was also aided by fewer shares outstanding compared to a year ago.Moving on to Employer Services segment and interest on funds held for clients, Employer Services revenues were slightly ahead of expectations and grew 4% reported and organic constant currency. Interest income on client funds grew…

Thank you. [Operator Instructions]. And our first question comes from Kevin McVeigh from Credit Suisse. Your line is open.

Great. Thanks. I think one of the things we’ve been focused on is the retention – the improvement in the retention. Can you give us any sense of how kind of the first half scaled relative to the full year guidance?

I think you can tell from our comments that it obviously improved in the second quarter and we’ve tried to get away from – with the new guidance that we started providing I think was a year ago, we’re trying to get away from quarterly guidance but we are still committed to giving you kind of a sense of kind of where we are. And I think you can tell from my prepared comments that we had a good first quarter and we also had a good second quarter. So retention is definitely a positive for us like we talked about last year in terms of some of the bright spots, our midmarket business retention continues to improve and is on track to really get through this year close to record levels. So it’s very satisfying because we went through a very difficult time back in the day where we did all of the client upgrades and migrations and then with ACA at the same time, that was a business where we really had a real step back of retention. By the way, step back for us is a couple percentage points. Now we have recovered all of that and are kind of on track to get back to kind of where we were at record levels.

Understood. And then just --

I’m sorry, another comment was I think we also in the first half have had good retention in the upmarket which was another place it’s been kind of a challenge for us over the last couple of years. So I think both of those businesses – when you combine them, they are a significant portion of our revenues and I think have a solid retention performance.

That’s super helpful. As a quick follow up, despite the revenue adjustment, seems like you’re maintaining the margin guidance. I guess what’s driving that outperformance given kind of the revenue adjustments in the PEO and I guess overall?

We have – our business model is interesting because sometimes at least for the first half as you could tell we’re hoping and planning on a recovery in terms of our sales results for the second half. But in general we benefitted in the first half from an expense standpoint from having weaker new business bookings, because as you know our business has a little bit of a soft adjusting factor. Now the new 606 rules I think when you amortize some of these costs over time, they blunt some of that impact but there’s still some impact from that. So we did benefit from that and we just have a lot of good things going on from a margin standpoint. We really want to make sure that we focus on the growth as well, but we feel pretty good about the initiatives that we put in place call it last fiscal year that are impacting this year’s cost structure. And I think those – we talked about those as procurement initiatives, also the workforce optimization which was a delayering exercise where we reduced spends and control, so we took three layers out and increased spends across the board including all the way at the very highest levels where we had for us I would call it a significant decrease in overhead, if you will, in terms of – at our more senior levels. And so I think we’re benefitting from all of those items and that’s helping the margin. So we feel pretty good about where we are in terms of cost and margin. We have a lot of transformation initiatives around cost and margins and obviously we want to make sure that we focus on growth and new business bookings as well.

Yes. Not too much to add to that. Carlos has covered a lot of the points, but we’re seeing the operating efficiency come through. We’re executing on the transformation projects that we have in flight right now. Saw a little bit better than expected margin expansion in the second quarter, primarily some timing on some of the transformation work. But look, the teams executing really nicely on that, particularly on the procurement side and we’re focused on continuing to do that and building the pipeline of additional opportunities.

And just one little item in terms of color, you’ll see from the Q that credit to the organization – again, a lot of these transformation initiatives have been – some of them when we talk about them, they’re the big ones. We have dozens of other initiatives that are really improving the way we work automating things, taking out kind of non-value-added work. And when you look at our Q, you’ll see that really R&D and selling expense that have increased and we really are holding the line on the rest of our operating expenses due in large part to some of these initiatives that we have underway that are making work a little bit easier for our associates and also taking some of the work out. And so that’s the key because we want to make sure that we keep and we are keeping our NPS scores and our retention high. So that’s the magic formula there. I think keeping our expenses lower and improving margin if it results in lower client satisfaction, lower retention is not going to help us in the long term, but fortunately and again credit to the associates and to the management team, we’re actually pulling it off where we’re getting both of those things right now.

Super. Thank you.

Thank you. Our next question comes from Tien-tsin Huang from JPMorgan. Your line is open.

Thanks. Good morning and congrats to Christian and Danny. I want to ask on – I guess a big picture question maybe for the team just balancing – you’re balancing the new tech investments, you just mentioned the transformation initiatives in the pipeline there, but just given that you’re early – you’re on track to get to your fiscal year targets this year – for fiscal '20, I’m sorry. Are you more willing to invest and stay in the short to midterm to maybe energize revenue growth and get that up a little bit more, or is your preference to still hit the higher end of your long-term margin target? Just trying to understand how you might be balancing revenue growth and margin expansion given where you are now?

That’s a great question and I think our Board obviously has that discussion with us as well. And I think our Board is very long-term oriented. And so as much as we’re committed to hitting all individual components, it’s about balancing all of those factors to really create long-term sustainable growth. And we would love to have as much growth as possible. And when I think about where are some of those places that we could invest, as an example like in our sales organization, we are fully staffed. I think we’re probably a little bit ahead of our plans in terms of our headcount. So we clearly have some execution issues there, especially as we mentioned in our international and multinational businesses and some difficult compares over the last year, but we have really strong performance in the downmarket and in the midmarket and even in the domestic upmarket this quarter. So it doesn’t feel like we’re under investing. In fact, I’m pretty sure that we’re not under investing in sales and marketing. We also have a brand campaign that we’ve invested in over the last year which has added some expense. So I think we’ve put our money where our mouth is when it comes to sales and marketing. And then turning to the other obvious places where we could invest again for growth and product in our R&D organization, again, R&D grew but always say that we could spend more. But when I look at the year-over-year and even a three-year growth of our investments in our Next-Gen platforms and even some of the additional feature functionality that we’re adding to our existing product, including user experience, that’s again a place where our investments are growing. So you can see it from our depreciation and amortization line,…

Understood. And then just maybe on that point with the U.S. bookings, it sounds like it’s more international again. So I’m curious if this is more cyclical or is there some very broad base or is it more – just a few select clients just looking for a decision, just trying to better understand the visibility here on the international side?

I think the most obvious one in terms of because it’s easy to see and quantify is in our large Global View multinational deals, we had a very difficult compare. Now, of course, that means that 12 months ago we were celebrating getting those deals and those sales and also we talked about it that that was giving us tailwind at the time when I think we did, but we’d have to go back to the transcripts. And now unfortunately now we have a very difficult compare. Now we just had our rethink meeting, we call it rethink meeting where we have all of our large multinational prospects and clients and I think we walked away with a very solid pipeline and a lot of enthusiasm. And so we feel good about hopefully the second half. And whether it’s the second half or next year, but any less enthusiastic about our multinational solutions but we just have a very difficult compare. So that’s an obvious place. We do have a couple of what we call in-country or best-of-breed locations that are also having some challenges that I think also have some difficult compares. But it’s hard to point at any kind of cyclical or product issues, because we’ve been strengthening our products overseas as well and I think investing in our sales force. So again – and European economy in particular seems to be at a minimum stabilizing if not improving. So I don’t think we can point to anything cyclical which is why we remain optimistic about the turnaround.

Yes. So maybe I’ll just add a little more color and talk about it in terms of kind of U.S. bookings overall. I guess what I’d say is that, look, as you go into the year there’s always going to be areas where you do better and areas where you do worse than you may have planned. And thus far into the year we’ve seen particular strength in downmarket as we’ve noted in our comments. And actually internationally we’ve also seen strength in our Celergo streamline product which was quite nice to see. And as you saw, the multinational Global View is where we were seeing really the slowness or the weakness for the last two quarters now. It’s hard to say that it’s – we’re not really seeing that it’s attributable to any change from an economic landscape or environment standpoint but more so just seeing delayed decision making and it’s taking time to get these larger and sometimes much more complex deals through the decision making process. So we’ve seen it two quarters in a row. The pipeline looks pretty decent. We’ve got some of these deals in the pipeline, but remains to be seen exactly how much longer it takes to get them closed.

Okay. Thanks. See you in a couple of weeks.

Thank you.

Thank you. Our next question comes from Ramsey El-Assal from Barclays. Your line is open.

Hi, guys. Thanks for taking my question. Could I ask you to give us kind of a brief macro overview in terms of what you’re seeing in your various markets given everything that’s going on in the world today, any callouts or any changes in the environment?

So when we look at – we have a few things that we obviously look at in terms of, call it economic macro indicators. The ones that are kind of relatively stable I would call them relatively stable or pace for control and wage growth and we look at obviously our own data as we get ready for this earnings call but we also have the ADP research institute that publishes its own kind of wage growth information and other factors around the economy. And I think all those signs positive point to what I would call stability. Our pace for control was slightly lower than it was the previous quarter in that trend, but we’ve seen that many times before where we go 2.5% one quarter and then we go a little bit lower the next quarter, but then it comes back to 2.5%. It does seem and we’ve been saying it and we’ve been wrong so far that as the labor markets tighten, there’s just not enough people available in the U.S. to continue to drive the kind of pace for control work that we’ve experienced. But obviously labor force participation has been ticking up slightly and for a variety of reasons that’s continued to hum along. And again, we see the same kind of indicators that all of you see around consumer spending, et cetera. So when we look across all of our domestic businesses, the pace for control growth seems to be a reasonable indictor that the economy is on stable ground. And wage growth we think should continue to accelerate, but that’s moderated slightly also for the last couple of quarters but it’s still at robust levels and should drive continued consumer spending and continued consumer confidence. We do look at pace for control also outside of the U.S. and I think there we again in our numbers see some signs of stabilization in Europe when it comes through on the unemployment and pace for control metrics there. So for us I think that everything looks – bankruptcies are – we’re seeing the same things at our own business that you see through external metrics. We don’t see any kind of elevation or increase in out of business or bankruptcies in our downmarket business, which is the canary in the coal mines, the first place you would see it. And our sales are also strong in the downmarket and the midmarket, so it doesn’t feel like the weakness we had this quarter is anything other than the lumpiness that we talked about around multinationals, because new business bookings would be another I think macro indicator that could weaken. We talked about our retention continuing to improve. Retention doesn’t improve in a bad economy, because it – that’s one of the things that really suffers as a result of out of business in a downmarket and that has stayed strong and solid. So no negatives that we can see in the macro.

Okay. And you’ve sort of addressed this. Dovetailing with Kathleen's last answer and your answer just now, but can you talk a little bit about the competitive environment and that doesn’t manifesting itself as sort of pricing-related actions or an intensification of maybe more an increasing opposing bidders showing up for contract processes or new business models emerging out there. I’m just trying to explore whether there’s any other peripheral causes for some of I think what are timing-related delays in things like bookings especially maybe in Europe but elsewhere as well?

Sure. So back to maybe a little bit of what Kathleen said about, there’s always – there’s positive and there’s negative. When it comes to competitors, it’s the same thing. We have a lot of competitors in each of our segments and some years we do better, some years we do worse, but we do have the overall balance of trade and our situation there is better. And you would think that based on our retention results and based on the comments we just gave you about new business bookings in our downmarket, midmarket and domestic upmarket business. So I think in North America I think if you look at those results, I would say our competitive situation has improved and it shows in our net balance of trade that we keep track of. Particular I would point out besides the continued strength in our downmarket business which has been growing market share here for a few years, if you look at our midmarket business, the last two quarters in particular were quite strong in terms of what we call new logos against a variety of competitors. But again, we can’t point to any one competitor because we have a large set of competitors. Some of them are geographically concentrated and some of them are national, but I think we’re very pleased with this quarter’s performance against those competitors in the midmarket. And then in the upmarket I would say that the addition of Workforce Now and call it the 1,000 to 5,000 range, so the lower end of our upmarket which we did a couple of years ago has really been an important generator of win-loss and balance of trade success for us in the upmarket. So we’ve had a robust growth in units and revenue and sales dollars from introduction of Workforce Now into that 1,000 to 5,000 which addresses a segment of the market where that platform really has a lot of appeal.

That is super helpful. Thank you so much.

Thank you. Our next question comes from Jason Kupferberg from Bank of America. Your line is open.

Hi. Good morning, guys. I just want to drill in a little bit more on the commentary around the delayed decision making. Have you guys been down selected for these contracts already or is the actual RFP process still kind of dragging along?

I wish I could tell you that I have that level of detail. I don’t. So this is really – it ties back to the comment I made before about we have a certain number of sales people in the field, we have a certain pipeline of dollars that we track year-over-year and we know what our sales results were the previous year in the same period whether it was the first quarter or the first two quarters of the year. So we are attributing the weakness to the late decision making. But this is not – we do have large contracts particularly in multinational and they definitely move the number from one quarter to the other, but we don’t have $50 million, $100 million contracts. It’s not that kind of business. So I don’t put – I know our sales leaders have that level of detail. I don’t have it available at my fingertips here.

Yes, maybe you’re asking kind of have we seen any particular shift in where things are in terms of stages of the cycle and stages in the pipeline. Nothing that we’ve seen or heard that we can draw any conclusion from or point to any trends.

But we do have pipeline of deals – sure, we went into rethink this year with more participants, more attendees and a larger pipeline of dollar opportunity than we had the previous year.

Right. I was just curious if you were just kind of waiting for some final signatures to make the bookings official or if it really is a matter of kind of just broader pipeline conversion. Just my second quick follow up just on the margins. You had the 70 bps up overall in the quarter, which was better than you expected, but at the segment level I know ES was up only 30 and PEO was down 30 if I’m not mistaken. So I think it was some of the below the line drivers that got you to the 70. Can you elaborate on those because I know you have some add backs in your adjusted EBIT margin calculation?

Yes, I can help maybe a little bit with that. As you know, the transformation initiatives that we are undergoing right now, some of those are sort of back office facing as well. So if you think about procurement and the workforce optimization initiative, those will have impacts to items that what we would deem other in the segment review. So corporate functions, for example, that’s where the delta probably sits for you.

Okay, great. Thank you, guys.

Thank you.

Thank you. Our next question comes from Mark Marcon from Baird. Your line is open.

Good morning. Let me add my congratulations to both Christian and Danny. With regards to the bookings, just looking ahead and thinking about the comparisons for the third and fourth quarters, are there things that we should think from a sequencing perspective in terms of they’re both – one’s up 10%, one’s up 11%. Is there anything that’s particular in one versus the other that would make it a more difficult comp or how should we think about the bookings over the next two quarters in terms of the sequencing?

I think our number one goal is to obviously maintain the momentum we have in everything other than our international and multinational businesses. And again, these businesses not just because of the big ocean between them, they are fairly separate, right, in terms of how they’re managed in terms of sales and sales execution and so forth even though we have one worldwide sales organization. So we feel good that we’re going to be able to maintain the momentum we have in the rest of the business and then hopefully we get a little bit of tailwind with some of this stuff going our way in terms of the larger deals and some of the international stuff that we talked about. We do have in the second half, particularly in the last quarter, we do have a difficult compare because last year as you recall we purchased – it was a client-based acquisition – an acquisition of the company with a client-based acquisition of Wells Fargo’s payroll business and that helped our new business bookings and obviously translated into some revenue helping in a downmarket and it was part of what’s given us some tailwind from a revenue growth standpoint in that business. But since it was a client-based acquisition, it does – and it wasn’t an acquisition of a business, it does roll through our new business bookings and that was I believe in the fourth quarter.

That’s [indiscernible] and that’s part of the reason for asking the question. So arguably the third quarter should be a little bit of an easier comp.

For some reason they never feel easy, but mathematically – you’re probably mathematically correct. But we have a lot of things that we’re cooking to make sure that we hit – obviously our intention is to achieve the guidance we provided and we don’t provide it lightly.

Great. And then, Carlos, obviously you’ve got a longstanding set of experiences with the PEO market. How are you feeling about the longer-term trajectory of the market? What are you thinking or ex pass-throughs, the sustainable growth rate is there? And what are you seeing on the competitive front? It seems like there’s a little bit more private capital that’s coming into the space. So just wondering how you’re thinking about that space and the legislative outlook there?

Well, when you look at again the balance of trade information there, I feel pretty good about our competitive situation. So you always feel good about your own children, about your business, but you got to look at the facts, right. And I think the facts are pretty good for us in terms of our win-loss in our balance of trade. So that feels pretty good. And then the second thing that makes me feel really good particularly in this quarter versus last year and started to feel it last quarter is we really took a while to kind of filter through to make sure that we had our incentives properly aligned to make sure that our sales force is focused on obviously, number one, selling the right thing to our clients but making sure that they’re properly incented to make sure that the PEO is something that they raise, because it’s a difficult sale, because it’s a high involvement sale and so you have to have the right incentives in order for the sales force to really want to sell it. And so I think we did that and I think we talked about that. It’s got to be 12 months ago I think it was. So that feels like it’s starting to filter through and I think we talked about very strong double-digit new business bookings for the quarter which that’s the most important metric for the future to really give us confidence that the business model is still strong and intact. So that feels pretty good.

Terrific. Thank you.

Thank you. Our next question comes from Samad Samana from Jefferies. Your line is open.

Hi. Good morning. Thanks for taking my question. So I wanted to maybe ask a question about what’s been going on in terms of bookings and how you’re thinking about guidance. Was guidance updated just to reflect what bookings has done so far this year or have you may be made some changes to the guidance framework to account for some more of the variability or variance that you’re seeing in multinational or international deals closing? So I guess is guidance more conservative or are you using the same framework that you’ve historically used? And then maybe just one follow up.

Yes. Again, just a reminder just given the last comment that I made about the PEO that the guidance that we provide for bookings is ES only just to be clear. So if you look at our combination of our PEO and ES sales, it’s a better picture and a stronger picture in the first half than what our guidance would depict, because we provide guidance for the PEO based on average worksite employee growth, not on new business bookings. But having said that, I think the answer is just – this year like there’s no change in our thinking or our framework given that we just think there’s some large deal delays that I don’t think impact our deal in the future.

Yes, no change in framework, no change in kind of the way we’re rolling up that forecast or the data we’re looking at. For example, we look at things like, okay, where’s business coming from in terms of by segment or by geography or new clients versus upsell to existing clients. We’re continuing to see fairly consistent trends in terms of the split between new and upsell. So no change in the framework. It’s more so just, look, we’ve seen slower out of the gates for two quarters now, lower than we expected in international. And so we thought it was – given that we’re six months into the year here, we thought it made sense to give you our best view. So, therefore, we narrowed the view for the year.

Yes. Just one other comment in terms of something little bit quirky about as we changed our guidance to focus on ES worldwide bookings versus the PEO based on average worksite employees. The reason we gave you some color about the bookings for the PEO this quarter is even though we’re not going to change the way we do our guidance is in some respects what’s good for the PEO sometimes in the short term if business gets referred to the PEO, it can have in the short term a dampening effect on Employer Services. But we still had a great result in the downmarket and in the midmarket in Employer Services. So we definitely can’t point to that. But again, it is kind of important to keep in mind that it’s really the combination of those two that are driving overall ADP bookings and overall ADP revenue growth.

Great. That’s helpful. And then maybe if I could just ask one follow up. I think there’s a lot of excitement around Lifion coming off of HR tech and ahead of the Innovation Day that the company is hosting. So I just wanted to see if there’s any early patterns in terms of customer profile, whether it’s by size or whether – what do you think about existing products that they’re using, whether it’s Vantage or Workforce Now, maybe where are you seeing the early adopters come from and any type of profile commentary you could give on that would be helpful? Thank you.

So again, in our case everybody’s maybe approaches it differently, but we started off with smaller, less complex clients and now we’ve actually just sold I’ll call – consider it to be very large clients, so call it tens of thousands of employees. And so we’ve got a couple of very large sales that we’ve done and we have a bunch in the middle and then we have a few smaller ones that we did in the early days. Some of the business we’ve sold is obviously new logo, some of it has been as you mentioned off of some of our existing platforms. I don’t think that I can point to one particular platform and say that we’re not targeting – because we’re not trying to do migration or upgrades. We’re trying to go after clients that have the right profile and the right needs, right, so that we can make them happier ADP clients in the long term. So we know what the capabilities are of the platform and we try to target the clients and the prospects whether they’re internal or external in the appropriate manner. So I guess the best way to put it is it’s kind of across the board in terms of – from an internal view. And then in terms of industry or size of client, fortunately it’s also kind of a wide spread.

Great. Thanks for taking my questions. I appreciate it.

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

Thank you. Good morning. There have been a few questions on bookings already, but this seems to be the main question of the day. The one question that I’d like to explore here is you’re still in the critical selling season which typically runs December to February. So is there anything you see in your pipeline in the U.S. or confidence on international close rates that gives you the confidence that you can close this critical selling season in better shape that we’ve seen obviously in the second quarter and the first quarter bookings results?

So again, at the risk of getting too much into the sausage making, if you remember like part of our business particularly downmarket and into some of our midmarket, we report our sales when they start. So they’re – like bookings and starts are basically equivalent. But when you get to very large deals, that’s where you’re really recognizing a sale and then the revenue starts at a later date. It could be six months, it could be 12 months. With a very large complex international deal, it could be 18 months later. So to your point about the critical selling season, pretty much now and done because January is the biggest month for us particularly for our downmarket business and the lower end of our midmarket business as well and the PEO. So just because of a natural cycle of the PEO, a large number of clients – by the way affect retention as well, but from a new business bookings standpoint January is the critical month for us. So the December-January period is the critical month for us in the PEO. And again, we’re in the middle of that quarter so it’s kind of hard to make comments about the quarter since the quarter isn’t done yet. But I think in a downmarket and in our PEO in particular, we had I’d say a good start to the quarter.

Yes. The only other thing I would add and this is with regard to the ES bookings in particular, if you kind of look at the cadence of the year last year and this year and you look at six months year-to-date, we’re at about the same point this year as we were last year in comparison to where we ended the year.

So in other words, you see enough in the pipeline at this point and expect to close rates that drive your expectation of the 6% to 7% bookings target. Is that accurate?

I think that – again, that is a level of detail to say that we have specific things in the pipeline. I think just to reiterate what we said before, so the number one driver of our confidence in our sales results in most of our business is headcount and execution and we believe we’re fully staffed and we have that headcount in place. In the place where we’ve had the variability or the volatility, if you will, it does come down to what you’re describing which is RFPs, pipeline, et cetera. Yes, we do believe we have the pipeline and the visibility of that pipeline to feel that we will close the gap for the rest of the year. But that’s not – in our SBS business, in our downmarket business, it doesn’t work that way. It’s really more about the volume – it’s a volume business. It’s really related to having the proper amount of headcount, the right digital marketing tools and spend and again there we feel good and we feel confident.

Understood. Thank you.

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

Thanks so much. I’m apologizing for asking another bookings related question. I just wanted to clarify something. I’m assuming that most of your clients are in calendar year-end as opposed to your June year-end. When you talk about the late decision making, does this mean that decisions are being deferred until another year from now or is it something that could happen within the next quarter or so?

So the good news for ADP is we have clients with all kinds of year-ends because we have a lot of clients. So really it spans the gamut. But you’re right that probably the average company in the U.S. has a calendar year-end. But I think most large companies and particularly multinationals which I would consider ADP to one of those, we typically when we are negotiating with a vendor for a large contract, we’d be focused more on their fiscal year-end rather than our own fiscal year-end. And so you’re right that there are some drivers around people’s budgets and so forth, but a lot of procurement departments tend to focus on the vendors year-end. And so we’ve seen historically – doesn’t mean that it will happen again this year – is that our fourth quarter for large domestic and especially for large multinational deals is a particularly important quarter because prospects are recognized that even though we’re not like a typical software company that negotiating towards a company’s fiscal year end at least in their minds tends to be a good time to sign deals or negotiate.

Okay. I appreciate that --

Sorry, Jeff, just one reminder. I know we said it before, but the 1% impact on an annual basis in business bookings equating to that 17 million, these multinational particularly Global View deals, you can imagine that if you take that on a quarterly basis, it does have – just to put it in perspective that outsized impact. So from a framing perspective, it is a pretty meaningful adjustment if you have some of these deals that flow in from one quarter to the next given that sensitivity.

On the new business bookings results.

On the new business bookings results.

Right. Because on revenue – as you just described, the irony of the situation is that it doesn’t have a big impact on revenue. We’re having issues with FX and with client funds interest in particular are hurting us. It’s not to deny that the bookings eventually will have some impact. The types of bookings that we have fallen short on in the first half are not particularly revenue impactful.

Okay, that’s helpful. I do appreciate the color on that. And then I know you don’t give quarterly guidance, but you called out I guess the comp on the “acquisition” of the Wells Fargo payroll business last year. Anything else to call out between 3Q and 4Q that might affect the cadence of those quarters? Thanks.

In terms of new business bookings?

No, the overall business either revenues or margins?

Well, again, back to revenues and margins, the client funds interest issue and again going back to kind of the three-year guidance that we gave a few years ago, again, obviously not expecting a lot of sympathy from this crowd, but we’re probably about $100 million less than where we expected to be in terms of client funds interest and we’re obviously able to overcoming some of that as we go forward. So that in the second half is actually going to according to what I’m seeing in terms of our forecast. That’s going to start to have an impact on revenue growth as well, not a huge impact but where we were getting call it 1% lift in terms of revenue growth last year in the second quarter, I think this second quarter it was a much smaller number and in the second half it goes to probably no help to actually hurting our revenue growth. So that’s a headwind for us. But when I really take out all these issues; FX, client funds interest and other kind of calendar noise issues, when you look at the net impact of new business bookings starts, not new business bookings sales but new business bookings starts minus losses. So if you take retention and new business that have started, if you compare last year’s second quarter to this year’s second quarter and hopefully the same thing continues into the second half, we have a slight acceleration. It’s not a huge acceleration, but a slight acceleration. So that’s what makes me feel good about the strength in the underlying business because there’s a lot of noise happening in between with calendar and remember last year, we also had a one-time item that we mentioned that we called SUI pull forward in the PEO and accounting change that we were obligated to make that helped the second quarter revenue growth. And so all those things you have to kind of separate all those and get down to the core of the business and how the core business is performing. And on that basis, I feel good about the quarter and I feel good about the second half.

Yes, the only other thing I would add to your question about kind of quarterly linearity in the balance of the year. Just as a reminder, in the second half of last year we had much, much more margin expansion in Q3 than in Q4. So, therefore, tougher comps for us this year Q3 versus Q4 in terms of margin expansion. So while we don’t give quarterly guidance, I would expect not a whole lot in Q3 and then potentially much more in Q4.

But again, back to like – in terms of what I mentioned in terms of some of these comparisons that were difficult versus last year’s second quarter, some of those things then get easier on a revenue standpoint, notwithstanding the issues from client funds interest as we pull forward actually helped last year’s second quarter, but depressed our third quarter. So that’s going to make an easier comparison. So we do expect slight improvement in our revenue growth in the second half.

And just a brief reminder of the fourth quarter, so as a reminder, so we did the client-based acquisition. So that added some amortization expense, which will lap in the fourth quarter and obviously it would increase booking expense related to the client-based acquisition as well. So just keep that in mind. And then we obviously launched our brand campaign I think in the third quarter, but most of that was really the expense was kicking off in the fourth quarter as well. So that will be lapped as well.

So I guess what you’re saying is you got some tailwinds in the fourth quarter.

Yes.

All right. Thank you for clarifying that. Thanks so much.

Thank you. And we have time for one final question. And our last question will come from Lisa Ellis from MoffettNathanson. Your line is open.

Hi. Good morning, guys, and thanks for squeezing me in. Congrats to Christian and Danny from me as well. Carlos, you mentioned a couple of times and I think in the presentation the progress on both Lifion as well as the Next-Gen payroll and tax. Can you give an update on where you are on the deployments of the Next-Gen payroll and tax engines and how they’re impacting your business perhaps on the retention side or some of the other impacts? Thank you.

Sure. Thanks. Very excited about the Next-Gen payroll as well as the back office tax, but the payroll engine even though it’s somewhat back office I think has some positive qualities in terms of potentially helping us both in terms of – in the future both around bookings but also around efficiency and cost. I think we have somewhere between 30 and 40 live clients in our Next Generation payroll platform suite. As you can imagine, in comparison to the size of ADP, it’s a relatively small impact in terms of revenue retention or any of the other actual metrics. But enormous amount of enthusiasm around what we’re doing there, both at the team level. I think the team is incredibly enthusiastic and I think the rest of the organization is very enthusiastic as well in terms of what we’re seeing in the early days, especially around the flexibility of how quickly we can, for example, make changes and that’s just related really to the investments in the platform itself. So we’ve already kind of experimented and I think we maybe talked about this in the past with kind of federation as you call it in trying to have others develop and build on that platform. We’ve done the same thing on Lifion. And so now we have a team, for example, in Australia that is actually built Australian payroll and we have one or two clients on that as well. And so we’re incredibly happy with what we’re seeing. We’re really happy that we have live clients and this is the first year that – again, even though it was, call it 30 to 40 clients, this was the first time we’ve gone through year-end. So we actually had to go through a year end and do all the year-end closing activities, W2s, et cetera. So it’s still very early days just because of the size of ADP, but if we were a start-up, this would be like really great news. Like this was the – if this was a discussion about a start-up like we’ve got now a lot of technical risk behind us, if you will, and now we have scaling and execution risk that’s still in front of us. But that’s a hell of a lot better than where we would have been two to three years ago, and I think it could really add to our competitiveness here in the long run, not to mention to help a lot in terms of our back office costs. On the tax side, that’s probably more focused on back office cost and efficiency, but that also has an impact on our associates in terms of their ability to deliver service and also the experience that our clients have when we do things like amendments and tax notices. And so, again, the news there is very positive. We have – I think it’s close to 140,000 to 150,000?

Yes, about 140,000 clients.

About 140,000 clients. Obviously, those are smaller downmarket clients in a limited number of jurisdictions. But I think we’ve now – we’re up to 20 – more than 20 jurisdictions. Jurisdictions by the way refers to number of states in addition to federal, places where we can actually do the taxes. And so I’d say that that’s progressing also very, very well. Again, a highly flexible platform that we’re very optimistic in terms of what it can do to us down the road and see no scaling issues so far in either of those platforms.

Excellent. Thank you. That seems like a good point to end on. I’ll see you guys in a couple of weeks.

Thank you very much.

Thank you. And this concludes our question-and-answer portion for today. I am pleased to hand the program over to Carlos Rodriguez for any closing remarks.

Thank you. So as you can tell, we’re pretty – we’re pleased with the progress we continue to make on both the financials but also on our strategy. Obviously as we keep saying over and over again, we’re trying to build on our success in the past but also transform for the future here so we can continue to deliver sustainable growth for many years to come.I also want to mention that this time of year as somebody mentioned about this being a busy time of the year for us from a sales standpoint, it’s also a very busy time for our associates who deliver service and also our year-end commitments to our clients. It’s very long hours and very hard work and I really appreciate the commitment of our associates. And again, it’s one of the great differentiators we have in terms of being able to deliver that level of service, especially at a very busy time of the year like we are right now.Obviously, we wouldn’t be able to be successful in the long run without strong products. And so when we have our Investor Day, we’re going to hopefully lay out a plan for you about how the sustainability of the strength of ADP will be I think helped by the investments we’ve been making over the last five years in our next generation products.So we look forward to spending time with you on February 10 to discuss all of these innovations that we’ve been investing in, in addition to the Next-Gen platform and also discussing a little bit of our vision for the future about how we expect work to change and the HCM industry to change.And with that, I want to thank you once again for your interest in ADP and for joining us today. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day.