Automatic Data Processing, Inc. (ADP) Q3 2008 Earnings Report, Transcript and Summary

Good afternoon. My name is Cara and I will be your conference operator. At this time, I would like to welcome everyone to the Automatic Data Processing Incorporated third quarter fiscal 2008 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). Thank you. I will now turn the conference over to Ms. Elena Charles, Vice President, Investor Relations. Please go ahead Ma'am.

Okay. Thank you everyone for joining us this afternoon. I'm here with Gary Butler, ADP's President and CEO, and Chris Reidy, ADP's Chief Financial Officer. A slide presentation accompanies today's earnings call and webcast. And it is available for you to print from the Investor Relations home page of our website at adp.com. Just to reminder you, the quarterly or history of revenue and pretax earnings for our reportable segments has been updated for the third quarter of fiscal 2008, and has been posted to the IR section of our website. During today's conference call, we will discuss some forward-looking statements that involve some risks and these are discussed on page two of the slide presentation and in our periodic filings with the SEC. I'll now turn the call over to Gary for his opening remarks.

Thank you, Elena. Good afternoon everybody. I will begin today's call with some opening comments about our third quarter. Then I will turn the call back over to Chris Reidy, our CFO, to take you through the detailed results. And then I'll return toward the ends to provide you with an update of our guidance for fiscal 2008 and give some concluding remarks before we take your questions. First of all, ADP posted very solid third quarter results, and I am quite pleased with the 12% revenue growth for the quarter and earnings per share growth was again strong at over 18%. Importantly, employer services, client retention improved 90 basis points which is absolutely terrific in this key quarter following the critical calendar year-end period. Now let me make a few comments on where we saw some slower growth in the third quarter. The number of employers on our client's payroll, our pays per control metric, grew 1.1% for the third quarter and is sitting at 1.4% year-to-date. As a reminder, this same store sales type metric is the measure of employment across our major accounts AutoPay Client Day. Additionally, year-to-date growth in pays per controls similar kind of measure for SBS are low end and national accounts continue to be stronger than the major accounts metric of 1.4%. New business sales growth of 4% for the quarter was lower than we anticipated. There are several items affecting that number. First, we had anticipated closing some transactions in March that slipped to April. These deals could be a couple of points of growth plus or minus in any given quarter. Additionally, we are seeing a lengthening of the sales cycle where large prospects are taking more time with large outsourcing decisions. As a result, we are slightly lowering our full year sales forecast to high single-digit sales growth from high single digits to low double digits growth that we had previously forecasted. This forecast is still very respectable growth, particularly in light of this challenging economic environment that we find ourselves in. And despite these economic challenges, ADP will deliver strong revenue growth for the year and excellent earnings per share growth in fiscal 2008. So with that backdrop, I will now turn it over to Chris Reidy to provide you the details of our quarterly results.

Thanks, Gary and good afternoon everyone. As Gary said earlier, total revenues grew 12% to over $2.4 billion, assisted on the quarter by favorable foreign exchange rates due to the weak dollar. Pretax earnings grew 11% with margin expansion across all segments. Earnings per share from continuing operations increased 18% to $0.70 a share driven largely by revenue growth and margin expansion at all of the segments and lower average shares outstanding. Now turning to slide five, we will talk about share repurchases. And consistent with what we have said in the past, we have continued to repurchase shares at a higher than our historical pace, excluding onetime infusions of cash from the sale of claims in the spinoff of Broadridge. We repurchased over 24 million shares fiscal year-to-date for about $1.1 billion. The share buybacks to date are anticipated to be nearly $0.04 accretive for the full fiscal year 2008, or almost a penny additional accretion from shares purchased subsequent to the second quarter. We remain committed to return excess cash to our shareholders. Now let us turn to slide six. Employer services revenues grew 9%. And we have now lapped the last year's acquisition so the growth in the third quarter reflects that. Revenues in our traditional payroll and tax filing business in the US continued to be strong with 8% growth and our beyond payroll revenues grew 13% in the US. And to remind you, this exclusive the PEO services revenue which we will discuss in a moment. Employees acquired last year, as well as comprehensive outsourcing services at time and attendance continues to grow at strong additional digit rate. ES's pretax margin expanded 90 basis points on increasing operating leverage primarily from scale in the business. As Gary mentioned earlier, pays per control growth, same store sales metric was up 1.1% in the quarter and 1.4% year-to-date. Growth in the number of pays in Europe is increasingly positive. We are very pleased with our excellent retention rates during this critical year-end period which improved 90 basis points from a year ago. As Gary stated earlier, new business sales growth at 4% in the quarter was slower than anticipated for ES and PES services partially due to sales that lapsed early April. Sales represent the annual recurring dollar value of new bookings and become future recurring revenues that are incremental to our existing recurring revenue base. Were we are now forecasting high single-digit sales growth. Last year we sold $1.060 billion of new sales and we will grow into high single digits in fiscal 2008. This sales performance coupled with improved retention will continue to drive solid revenue growth going forward. Now let us turn to slide seven. PEO continues to grow with 20% revenue growth, average work site employees increased 17% in the quarter and pretax margin increased 70 basis points. Moving on to Dealer Services on slide eight; total revenues grew 8% and Dealer Services pretax margin expanded 40 basis points from operating leverage, partially offset by costs relating for the acquisition of three Autoline distributors made earlier this year. Slower growth in the core DMS new business sales was offset by beyond the core DMS sales which were quite strong. Now I will turn it back to Gary for an update on the full year forecast.

Thank you, Chris. We are now on slide nine and I would like to take this time to update you on our fiscal 2008 revenue guidance. We remain confident in achieving our revenue growth forecast of 12% to 13% which includes approximately 2% benefit from foreign exchange rates. We are forecasting nearly 10% revenue growth for employer services, 19% to 20% revenue growth for the PEO, and nearly 9% for Dealer Services. We do anticipate three to 4% growth in client funds interest revenues for the year. This is based on a 6% to 7% increase in client funds balances and an average interest yield of nearly 4.4% compared with last year's 4.5%. As a reminder, this forecast today does include yesterday's Fed action and Fed funds future contracts and forward yield curves at April 30, which call for no further reductions in the Fed funds rate over the remainder of ADP's fiscal year. Now let us go to slide ten. Let me speak to margins across the business. For employer services we are narrowing our forecasted pretax margin expansion to 80 to 100 basis points improvement. For PEO services, we continue to anticipate 50 to 90 basis points of improvement. For Dealer Services we anticipate about 70 basis points of improvement. As you heard me say earlier in my opening comments, we are anticipating high single-digit sales growth for the combined ES and PEO on a worldwide basis. We remain highly confident in our ability to achieve the high-end of our 18% to 21% growth for EPS for fiscal '08. There are no further share buybacks contemplated in this fiscal 2008 guidance, though it is clearly our intension to continue to buyback shares at higher than our historical pace depending upon market conditions. Now switching to slide 11 where I would like to leave you with some concluding remarks before we take your questions. First of all, I am very pleased with where we are for the first nine months of fiscal 2008. As ADP is growing nicely despite the challenging economy, anticipated revenue for the growth remained solid double-digit with pretax margins improving in each of our business segments, and our EPS growth forecast is quite strong. Our commit to me return excess cash to our shareholders continues and is clearly evidenced by higher than historical share repurchases as well as the 26% increase in the dividend for calendar 2008. We are and will continue to invest in the business as we focus on executing against our five-point strategic growth program that we discussed in detail with you at our annual analyst conference in New York in March. ADP has a wonderful business model, 90% of recurring revenues, client life cycles of ten plus years, excellent margins with enviable strong cash flows, and the markets we serve are under penetrated and growing. So despite the challenging economic environment that we find ourselves in, I remain highly optimistic regarding ADP's ability to deliver strong results for the future. So with that, I will turn it over to the operator to take your questions.

(Operator Instructions). Your first question comes from the line of Liz Grausam with Goldman Sachs.

Thank you. Just one of you dig in a little bit more on the sales in the quarter, and the sales in the quarter up only 4%. And what exactly happened over the course for the last few weeks of March? And particularly in the global view product, where your average sales price may be a lot higher and therefore, bringing a little bit more volatility in the quarter performance.

A couple things Liz, as I had mentioned in the opening comments. Anecdotally, I just hear from our people in the high-end of the market that corporate America and some of the large global companies with everything they read in the newspapers like you and I do are just a little bit more cautious today than they have been for the last six to nine months. So, we are seeing some of that in terms of deals just taken longer to get to the table. In addition to that, our March results were a little softer than we had anticipated because clearly, we indicated at the Analyst Meeting that we had had a strong January and February. On top of that, we had a deal or two that were fairly substantive in size that were deferred out of March, but then we closed in the first couple of weeks of April. So I guess the message I would leave you with is, yes, I would like more it had been better. But we certainly are not panicked in anyway, and continue to think that high single-digit growth for the year is pretty doing good.

And balancing the effects of the new sales growth being a little bit slower but your retention was up the most significantly, I can remember in the last several years. How does that affect the outlook as you look into 2009 for your visibility on the top line?

As you think about '09, I think there is three things that you ought to think about. First of all, the primary slowness in the sales results for the quarter were up market, and they were larger kinds of transaction. Those kind of transactions won't affect '09 in any significant way because they are big deals that take anywhere from a year to two years to get installed. The good news in the quarter was that the low-end of the marketplace in terms of like SBS and majors where the payroll starts are immediate in SBS and within three to four months in majors were quite strong double digits in both cases. So, if anything, it will have no impact there in terms of revenue. So, when you think about the fact that last year we sold somewhere like $1.060 billion for the year, and when you think about high single digits growth off for that number and drop it a point or two, potentially, you know, you are talking $15 million, $20 million in revenue, it is kind of the impact that we are talking about. Yet if you took our year-to-date loss improvement of 40 basis points, I stand corrected, and you multiply that times recurring revenue of $6 billion plus, it more than offsets the half of what we would have lost on the sales because it would be installed ratably over the year. Improved retention we get for the full year. So if anything, we are ahead of the curve with the excellent retention than what we are for the $10 million to $20 million that we may have gotten pushed off further in the cycle.

I would also relate that back to the metric we have given before on retention, that a 1% change in retention is worth about $50 million in revenue. So as Gary said, a 40 basis point improvement year-to-date, you can do the math, and that is offsetting the impact of the takedown in the sales.

Thank you.

You know, Liz, just as a further clarification, the first place we saw any slowness was corporate America just starts, pulling capital spending in a little closer to invest. Frankly, I think that is what has happened here in terms of slowing down on some of these large transactions.

Great. Thanks.

Your next question comes from the line of James Kissane with Bear Stearns. Mr. Kissane, your line is open. He is unavailable for questions. We will move to the next questioner. Your next question comes from the line of Brandt Sakakeeny with Deutsche Bank.

Thanks. Is there any risk that, you saw early signs in the larger clients starts to show up in smaller clients in terms of pure small business creations and you think that the guidance sort of affords for a slight deceleration in that segment of the payroll business?

We have not seen any evidence of slowdown in small business at all. I think part of that is small business is highly affected by the service sector and as you know, if you follow the BLS or ADP's National Employment Report, the service sector and particularly the low end of the service sector, is the area that still has rather decent growth in terms of employment, and I guess new business formation. That being said, over my 30 years at ADP, there have been cycles where we had strong recession, where we have seen some lessening of new business formation, which certainly could have an impact. To date, we have seen no evidence.

Okay. Great. Thanks. And just to comment quickly on the PEO business. Any sort of changes in the workers' comp. rates or in other rates that are affecting profitability there? Sounds like that business put in another very good quarter.

You know, most of the softening in workers' compensation rates are pretty much state specific. And even though manual rates in some states can drop, that is not necessarily reflected in our pricing to our PEO clients. So, yes, I would say we have seen it, but it is nickels and dimes and it is mostly state specific and has had no material impact on the financials of the business.

Great. Thank you very much.

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

Hi, guys, it is Jason Kupferberg for Adam. Gary, just wanted to pick up on a point you made in response to one of the other questions that during the last downturn, this is how you saw things start where the larger corporate began to act in a more hesitant fashion. And maybe just to pick up on that thought, understanding that you were running the business much differently this time around than last time because you are continuing to invest in growth rather than slowing back, but are there other differences that you think might play out in this economic cycle versus the last one that make you feel comfortable, that you won't see the same kind of degradation in your business that we saw during the last recession?

If I had that crystal ball, I'd be making a lot more money than I'm making today.

You and me both.

Yes, I know. Typically in any kind of a recessionary cycle, corporate America, including yours truly, they slow down on capital spending, which is pretty typical in terms of what's happening. I think in this particular circumstance versus prior ones, the recession is much more industry focused than financial services, and we have got offsetting growth internationally for a lot of corporate America that we haven't had before. So, I think there is still some exposure there, but I think it is less and I think if the recession is not overly prolonged, most of what we do saves money for clients, it is not like they are investing or spending at a higher level. So we think generally our value equation plays out pretty well. So again, the other things that you can see that in prior recessions if we could not get newer clients to sign up, we focus on selling additional services like time and labor management saves money buy reducing over time and taking fraud out of the business, same way with things like benefits outsourcing. So there are lots of ways to counteract it, but nothing in particular. We have seen no increases increase in losses, which I did see at certain points in past recessions, in fact if anything, ours is better than it is been. So I think only time will tell.

Okay. Which verticals were the delayed deals observed in?

Believe it or not, it was in oil and gas which you think they'd be spending money like crazy.

Right.

We saw delays in some other deals, in some of the large banks and financial services, but these were deals that were going to close in January, that we did get closed in February. So they did not affect the quarter. So we have seen lengthening of sales cycles, particularly in financial services. However, this particular one ironically was in an oil and gas arena.

Okay. Just a last question, so the high single-digit sales growth outlook for the full year, I think if my math is, about 12% or so for the June quarter, you do have a much easier year-over-year comparison in that quarter, so that should help. However, if you can give us some kind of a sense on what your level of visibility is on this fourth quarter target, given that these were in the sales cycle.

First of all, I'm impressed that you have done the work and you can see that.

Zero, thank you.

We are running about 8% YTD. So our visibility is pretty good. Particularly as it relates to major accounts, the PEO and small business. National accounts and GlobalView were still subject to the large deals, but we are pretty comfortable with our forecast in terms of that and to your earlier point, we do have a little bit of easier compare in the fourth quarter than we did in the third.

I'll leave it there. Thanks, guys.

Your next question is a follow-up from the line of James Kissane from Bear Stearns.

Sorry about that. Will the slow down in the GlobalView signings impact the timing of the breakeven?

No, because we are not basically sensing that GlobalView is the -- we are really looking at being breakeven as we exit '09 and go into '10. And most of GlobalView is because of upfront investments as we build out the infrastructure, which we are continuing to do it. But I really have not done the work, Jim, to be candid. Even if it did, it would be a quarter or two. It would not be anything that would be significant.

Would you discuss with us generally the progress on the GlobalView implementations?

Any kind of big deal is problematic by definition. And, you know, we sold 70 of these kinds of accounts. And we have always got four or five that are problematic. However, nothing has escalated that was different than I would have been sitting here telling you a quarter ago.

You still think it fits in with the transaction based model, that ADP is real strong with?

Absolutely no question.

And, this might be a silly question, but I think your previous guidance was based on 1.5% pays per control. I think first nine months, you were running at 1.4 with 1.1 in the most recent quarter?

Yes.

Are you sticking with the 1.5?

A slight tick down from that.

That's fine.

I think what is representative is year-to-date 1.4. I think as it is come down and, you know, you heard our National Employment Report was flat for the quarter and the BLS consensus is negative 75, as you know. So, I think clearly employment is softening, continues to soften. So I think it would be foolish of us to think that we would hold at 1.5. So I think it is going to erode slightly.

Okay. Great job, guys.

Thanks. Your next question comes from the line of Rod Bourgeois with Bernstein.

Yeah. Hey Rod Bourgeois here with Bernstein. It sounds like bookings in the month of March in the large segment was particularly weak. Did you see that trend continuing into the month of April or can you give us an update thus far?

You know, one in particular very large GlobalView transaction that we thought was going to close in the second or third week in March, actually did close in the second week of April. So we have seen no evidence, anecdotal or otherwise that that's going to continue into the fourth quarter. But again back to my earlier comments, I think the large global corporate America kind of account are just being a little more cautious based on where we are in the economy.

Okay. Is it realistic that employer services organic revenue growth, as you look over the next year, could actually be higher than the current organic growth rate that you are experiencing? I mean, what you are dealing with right now is the bookings have softened, the pays per control you just admitted, would probably soften, but your retention is better. When you net all that out, is it realistic that your organic growth would be better over the next year than it is today?

Probably not.

Okay. Are you putting in place a strategy for the next year that's more margin expansion focused, or does that alter your strategy in any way given that some of the key metrics have softened a bit?

First of all we are committed to our five strategic growth prospects which have been very clear and clearly have demonstrated that we can grow the business. We are continuing to invest in sales, implementation and service, and we are adding sales folks now, for example, to expand, and to get ready for our '09 plan. However, when you do have the lowering of balances, we expect the average daily balances next year will not be as high as they are this year. The sales that we just talked about, we are not talking about big numbers, you are talking about $20 million that might affect $10 million of revenue next year as it gets installed ratably over the period. It is offset by improved retention, which will give us a higher revenue step-off rate. So I do not think it is going to be materially different than where we have been, but that being said, it is going to be pressured by fewer pays in the start of the year, a little bit softer in terms of sales and certainly lower balances in terms of where we are. That being said, we continue to expect our business units to improve margins by 50 basis points or more each and every year, and I do not think that will change in '09 as we look into the future.

Okay. Just to clarify, when you say lower balances, are you referring to lower balance growth or lower balance --

Lower balance growth. I am sorry. I misspoke. Thank you for catching that.

All right. That's perfect. So it is, yeah, much better to have lower growth than --

Lower balances than I would have liked, how's that?

Perfect. Yeah, the one other thing there, so you are going to now be targeting, as you have always done 50 basis points of margin expansion. There will be less sort of scaled leverage if the growth is a little lower than you were expecting. Are you instituting --

You are really talking nickels and dimes here. Whether we grow 7% or 12%, the incremental margins that you can drive on the incremental growth, are not going to change that much. Certainly it is easier if you are growing faster, but it is nothing dramatic.

Because your growth in the core business, where you get the most scale, isn't going to move that much?

Yes, I am going to get high incremental margins on that big payroll machine, regardless of whether it grows 8%, 9%, or 11%.

Okay. And pricing is fine, there's nothing changed there?

We are not anticipating any change there. Assuming the economy stays about where it is, we fully expect to be able to put in our normal type pricing.

All right. Thanks, guys.

Your next question comes from the line of Pat Burton with Citi.

Congratulations on the numbers and the environment. Gary, in the 50 basis point margin expansion in each of the units, will that come primarily from cost cutting or scale or both or is it too early to tell?

Well, it is a whole bunch of things. Let me just pick off some of the obvious ones. First of all, scale particularly in our core payroll, is highly incremental margin. On top of that, our beyond payroll businesses whether it is 401(k), time and labor management, benefits, where we may have had lower than payroll margins, as those businesses grow, you get incremental margins as well. Third piece is, we fully expect, as we outlined at the analyst conference in March, to pick up substantial savings in the consolidation of our ES group function with corporate ADP, as we eliminate a layer. We have made a lot of progress. We are getting benefit this year and I forgot what the actual number we shared at the March forecast, but I think it was a $20 million plus kind of number that we will continue to get from that removal of that layer and that consolidation. On top of that in '09, we will get our first full year of the data center consolidation savings, which will add $20 million plus kind of savings into the overall structure. We fully expect to increase our headcount in our offshore locations and our near shore, where we have very significant labor arbitrage as we move into next year. So that, coupled with moving a lot of our, some of it, not lot, but I would say a good bit of our sales growth into telesales, also gives us a much more efficient return on our sales investment. So all of those things together give me pretty good confidence that we can drive the margins we are talking about.

One follow-up, in terms of dealer, which we haven't spent a lot of time on, I guess the auto units produced or sold are slipping. Is there any impact on dealer or the outlook you see there in '09 and your strategic commitment to that business? Thanks.

There is no change in terms of our strategic commitment to the business. You guys read the same newspapers I do. Domestic auto sales continue to erode for both the domestics as well as the imports. And clearly we are seeing some evidence of dealers wanting to make capital investments to spend for new systems. That being said, there is a lot more push around getting more efficient in new vehicle sales, so we are seeing an expansion of our beyond core DMS products like in our BZ results and our front end sales and lead management portion of it. Auto sales across the rest of the world are doing quite well. But we do not see anything to materially change and we think dealer will continue to improve margins as we go into '09 as well.

Thank you.

Your next question come from the line of Charlie Murphy with Morgan Stanley.

Thanks. Gary, I just wanted to follow up on the datacenter consolidation. Are those 20 million of savings in '09 incremental savings? In other words, costs that are in the business in '08?

Yes, but, yeah, you really have to put it in the context, the way Gary put it from the standpoint of, it is a number of things that go into the 50 basis points of improvement. So, it is hard to pick out any one and say in your models, add $20 million. I would think of that as just one of the elements that go into an incremental 50 basis point improvement.

Charlie, let me kind of take you back in time. Probably two and a half years ago, we told you folks that we were going to consolidate the data centers and that it would be approximately $70 million worth of savings to ADP. About $15 million to 20 million of that was in tax savings to ADP corporate, because of different incentives and other kinds of arrangements that we worked out with the states where the data centers are operating. On top of that those savings included our brokerage business at the time. So roughly of the $50 million, about half of that went to brokerage and about half of that went to ES. So post the spend, they are still getting their half of the 50 and we are getting everything else. But it is been a phased implementation over two years and we just concluded the last data center within the last 30 days. So as we have eliminated those last remaining data centers, we'll get the full impact of all those that were eliminated over the course of '08, and we'll get the full impact of the savings in '09.

Okay, great. And then on the $1.060 billion of new sales, is it fair to say that the break out is similar to how revenue lines up? So national is around 30% of ES revenue, is it fair to say that 30% of sales?

No.

Could you describe a little bit more on how that breaks out?

We do not talk to the individual detail around the absolute sales amount and if all the different SPU's but, let me see if I can help you at least think about it. Obviously, by far our largest revenue business is in major account where it is $2 billion plus is the way to kind of think about it. Whereas you get to national accounts, it is over $1 billion. Yet the sales numbers for those two are roughly the same. So, you would have smaller numbers than the PEO, a little smaller numbers in SBS and smaller numbers in international with the two largest components being majors and national account, but clearly not in the same proportion as the revenue.

Thank you, that's all.

Your next question comes from the line of Gary Bisbee with Lehman Brothers.

Hi guys, good afternoon. I guess couple of questions. What -- can you give us a little more color on what drove the sequential deceleration in employer services organic revenue growth? Obviously, the pay is easing off a bit as a part of it. Was there any other big material thing you can point to or is it just the softening in general?

There was also some, we have the retirement services where we earn commissions on that and that's tied to the Dow index. So that had an impact as well.

We get 12B once of off the balance, this is Gary.

Okay.

One question I do not think about rest on GlobalView, what are the up front costs from that point of…

Gary, there are two other things, that obviously your payroll, pays on the payroll; the balances are coming down as we talked about in terms of the growth, which is certainly affecting it. We have got the dow effect on the 401K business and we anniversaried all of those acquisitions that we made. Before where we did have organic growth on top of the flat, but when you are growing something off a very small base and it gets to be larger, it is, the percentages are not as big. I do not know Chris?

Yeah, the only other thing compared to last year is we had some Katrina related credits and tax credits services that were in last years numbers that we obviously didn't replicate this year.

Okay, great. And then the second question on GlobalView in the COS product or the other big managed payroll deals, what's the upfront cost from a customer perspective? Is part of the reason that maybe the sales cycle lengthening, is that there is a big cost to them or are you handling both of that?

Well, there is an up front cost. It is certainly pails in comparison to what you have to spend if you were buying an upfront license from one of the ERP providers. But to put it in some order of magnitude, if you have got a $2 million kind of GlobalView account, as an example. Probably the upfront cost could be half a million dollars in the first year. A lot of that depends on how many countries are involved. So, if you have got ten thousand people over six countries, it will cost you more upfront than you have 10,000 people over two countries. So, but I think that's a way to think about it, kind of 50% of the first years annual revenue?

Okay, great. And then, this maybe the same answer to the first question but the beyond payroll number, as far as couple of quarters in a row, is there any products within that that were particularly weak, or is it stuff like the retirement services and some of the other things for us?

Actually big thing under beyond payroll, a couple of things. Let me remind you that PEO is not in that anymore, so if you are thinking about a number including PEO before we broke that out as a separate segment, you have to adjust for that. Then, when you look at with the fact that we lapped the acquisitions we did last year, all of which were beyond payroll (inaudible) acquisitions. So, virtualized those kinds of transactions, minute tax. So the fact that we lapped those would naturally bring down the -- and Gary those came in kind of ratably across the year. We had some in October of last year, some in the second quarter, and then several in the third and fourth quarter.

Okay. Then, if I could sneak one last one in. Just any update on further M&A? It has been now I guess more than a year since you did you a rash of those little deals. Are there some other things that you are looking at? Are there any other areas that you would like to strengthen the product to get just any color? Thanks a lot.

Well, we continue to look to buy sharing core payroll. So, we are always looking for those kinds of transactions, but there are not many of those available today, They are mostly smaller regional or local kind of acquisitions. We are continuing to look to expand particularly, additional offerings for our COS offering. A couple of areas that we talked about are areas always like performance management and recruiting BPO kinds of activities. So we are looking for those kinds of product extensions to augment where we are. The activity is, I would say fairly small at this point although there are a number of things that we are working on.

Great. Thanks a lot.

Your next question comes from the line of Mark Marcon with R.W. Baird.

Hi, good afternoon and congratulations on the terrific year thus far.

Hey, Mark.

Just wondering, can you talk a little bit about, if you are seeing any changes at all in the competitive environment as it relates to ES?

As compared to say, the beginning of the fiscal year or --

Yes, six months ago, nine months ago, three months ago.

We are not seeing any changes in the competitive environment as it relates to pricing. We do not see the competition doing irrational things. So I would say pricing behavior is rational and consistent with where we have been. Our primary competitors in the low ends and the mid-part of the market are pretty much behaving as they have been for the last year. So, I wouldn't see any real difference there. And you probably know as much about the ERP players as I do. No. There are few odds and ends but nothing substantive or trim like.

Okay. And any change in, aside from hesitancy are you seeing any change in terms of buyer behavior in terms of trying to use the current environment to try to get better deals?

Again, we do not track that in any kind of organized way but anecdotally, I'm hearing nothing but price. In fact, in GlobalView price is usually one of the first thing that gets resolved and it is coming up with the service level agreements and the liability agreements or them just getting it through their legal side that are the biggest road blocks to getting deals signed.

SAP had a fairly well publicized call this week, and it seems like their SAP by design is having some issues. Is that impacting GlobalView at all in any way, shape or form?

No, that product is their new product for the mid part of the market. It is a global product that they, I believe they plan to still the same, I do not want to speak to them, certainly. But they were planning to launch that here in the US. It is a totally separate code base from the GlobalView R3 base. And actually ADP is working with them to be in essence ADP inside that environment. That's a fairly well known partnership that we have with them. So, it really will have no effect on GlobalView at all.

So, the key is that it actually, when by design eventually gets launched, that will actual will be another kicker to your sales.

If it is successful which we certainly hope it is, we built web services kind of product to be their payroll and money movement engine inside of that product. So we are certainly cheering for them.

Great. And then lastly, are you seeing any change in terms of retention of your own people in terms of sales people? Is turnover slowing down as the economic environment is becoming a little bit less certain and obviously you are a great place to be?

Overall turnover at ADP is actually almost a point better this year than it was the last year. It is down from around 12% to 11%. So we are pretty good, feel pretty good of that. If you took the turnover in our sales groups since the very low end of the market, the turnover would actual will be below 10% as a company. In fact, even generally across all of the sales functions I think turnover percentages are all lower across the boards. There may be one exception to that but generally speaking, sales as a category is better this year than it was last year.

So all other things being equal, you are going to have more trained sales reps going into next years selling season?

I would agree with that.

Okay, terrific. Thank you.

Thanks Mark.

Ladies and gentlemen, we do have time for one or two more questions. Your next question comes from Franco Turrinelli with William Blair & Company. Franco Turrinelli - William Blair & Company: Thank you, my questions have been asked.

Your next question comes from the line of Tien-tsin Huang with JP Morgan.

Hi, thanks. Good afternoon. Couple of questions, first dealer services. I'm curious, how much are the revenues there discretionary or non-recurring? And also, maybe you can just comment on pricing and dealer in general, any new trends there?

Help me with what you mean by discretionary, Tien-tsin?

I know you guys do not sell software typically but I guess how much of those sales are incremental sales on top of the DMS to get pushed out to the extent?

To get pushed out or cancelled, is that what you mean, cancelled?

Yeah, pushed out or cancelled from the dealers.

Well, in dealer services we sell upto like 30 different applications that a dealer can use. The larger the dealer, the more applications he uses. At the low end of the market, it is low to middle end, it is pretty hard because you got to have parts, you got to have service, you have to, yes or no, to sell vehicles, you got to have a accounting applications to do it and you got to communicate with the manufacturer. So it is difficult in the mid and low end of the market to do that. On the high end of the market where you have multiple dealerships and a lot more sophistication in the way they run the dealership, they tend to kind of stay the course because there is pay back in certain of those kinds of activities. And the bigger problem for the dealer is, once you train everyone on how to use something and then you install that process in your dealership, it is kind of difficult to back up. The biggest place where we have usually price issues with dealerships is if we are upgrading them from platform A to platform B, they tend to want to negotiate the monthly rate they were paying for the old to offset some of the newer rates that we are charging them for the more sophisticated applications that they are adding. So there is some ability to push it back. It is never been a real big problem historically and we are not seeing anything that's abnormal for this kind of cycle right now.

Okay, but nothing abnormal. Then on employer services, quickly just -- we heard the comment on GlobalView. How about outside of GlobalView overseas, how are the trends there?

Actually our sales of best of breed products domestically was very strong double digits for the quarter.

Okay. Tracking well there. Lastly then bankruptcies, I just got a little bit late, bankruptcies, did you comment on bankruptcies across your client base?

No, we didn't comment on it. I mean it is up marginally but nothing dramatic.

Got it. Very good, thank you.

Thank you.

We appreciate everybody joining us today. That concludes our Q&A. And thank you for joining us.

This concludes today's Automatic Data Processing Incorporated third quarter fiscal 2008 Earnings Call. Thank you for participating. You may now disconnect.