Good morning. My name is Brian and I will be your conference operator. At this time I would like to welcome everyone to ADP's Third Quarter Fiscal 2019 Earnings Call. I would like to inform you 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 Christian Greyenbuhl, Vice President, Investor Relations. Please go ahead.

Thank you, Bryan, and good morning everyone. Thank you for joining ADP's Third Quarter Fiscal 2019 earnings call and webcast. [Technical Difficult] Earlier this morning we released our results for the third quarter of fiscal 2019. These earnings materials are available on the SEC's website and our Investor Relations website at investors.adp.com, where you will also find the quarterly investor presentation that accompanies today's call, as well as our quarterly history of revenue and pretax earnings by report of the segment. During our call today we will reference non-GAAP financial measures, which we believe to be useful to investors and that excludes the impact of certain items in the third quarter and full year of fiscal 2019, as well as the third quarter and full year of fiscal 2018. A description of these items and a reconciliation of these non-GAAP measures 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 expectation. 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 everyone for joining our call. Before we get started with the earnings discussion I'd first like to welcome Kathleen to the call, into her new role as ADP's Chief Financial Officer. Kathleen comes to us with a strong operating background and we look forward to her contributions in partnership as we execute on our transformation initiatives. I also know that she is looking forward to the opportunity to meet with you over the coming months. Let's now move to a brief review of the quarter. Jan will then take us through the quarter results in more detail, after which Kathleen will take us through an update to our fiscal 2019 outlook. This morning we reported our third quarter fiscal 2019 results with revenue of $3.8 billion up 4% on a reported basis, 5% organic constant currency. This revenue growth was in line with our expectations and continued to be aided in part by the strength of our Employer Services down market offerings and multinational solutions. Our adjusted diluted earnings per share grew 13% to $1.77 per share and benefited from continued strength in our margin performance, lower adjusted effective tax rate and fewer shares outstanding. We are pleased with the overall results this quarter and we believe our performance continues to highlight the underlying strength of our business model. I’d now like to turn to our sales and marketing initiatives, starting with our solid 10% growth in Employer Services, new business bookings for the quarter and then discuss some of our recent sales and marketing investments. First, we are pleased with our Employer Services, new business bookings performance this quarter which benefited from broad-based growth. With three quarters behind us, we feel good about our overall progress this year. At the same time we continuously…

Thank you, Carlos, and good morning everyone. Our consolidated revenue this quarter was $3.8 billion, up 4% on a reported basis, 5% organic constant currency, and as Carlos said, this was in line with our expectations. With that said, we have been seeing more pressure for the impact of FX which drove approximately 1 percentage points of pressure this quarter. We continue to see strong momentum throughout our down market HCM offerings. In addition, excluding the impact of FX, we are pleased to see continued underlying strength across our international offerings, in particular from our multinational solutions. I would also like to remind you of the PEO, SUI revenue timing impact last quarter, which also impacted our third quarter consolidated revenue growth by approximately 1% and PEO revenue growth by approximately 2%. There was no impact on our full year revenue estimates from this event. Our earnings before income taxes increased 12% and adjusted EBIT increased 10%. Adjusted EBIT margin was up about 140 basis points compared to last year's third quarter and included 20 basis points of pressure from acquisitions. This margin improvement was slightly ahead of our expectations and benefited from a few key drivers. In addition to benefiting from our early, voluntary early retirement program, we also continue to see incremental efficiencies within our IT infrastructure helping to drive improvements in our overall cost base. Also we continue to execute on a number of tactical and incremental transformation initiatives, which while none are individually significant enough to call out collectively are helping to drive net productivity improvements across the business. The benefits from these initiatives together with the impact from our underlying operating approach were partially offset by incremental investments in the third quarter related to the launch of our new brand platform and growth and selling…

Thank you, Jan, and thank you Carlos for the warm welcome to ADP, and good morning to everyone on the call. I'm looking forward to meeting many of you over the coming weeks and months. I'll start now with the outlook for Employer Services. We now expect revenue growth for fiscal 2019 to be at the lower end of our previous guidance range of 5% to 6% growth. We narrowed our guidance this quarter since we expect slightly elevated pressure from the impact of FX and as I will discuss shortly, we have also narrowed down our guidance for interest income from client funds as a result of changes to the forward yield curve this quarter. We continue to anticipate growth of 2.5% in our pays per control metric. We are raising our fiscal 2019 ES New Business Bookings Guidance to 8% to 9%. Regarding the agreement that we completed in March, I'd like to highlight that this was not an acquisition of a business. We will however be recognizing an intangible asset for the acquired client list. We are not disclosing the purchase price for this asset, but you will see some activity related to this investment in additions to intangibles on our cash flow statement. And starting in the fourth quarter we will begin to amortize this intangible asset in accordance with our policies for similar transactions. While we anticipate incremental expense from our brand efforts and the increase in our sales guidance, as well as incremental amortization related to intangible assets, we are raising our ES margin outlook and now anticipate full year ES margins to expand about 225 basis points from our prior forecast of 175 to 200 basis points. Our outlook also continues to contemplate 50 basis points of acquisition drag for the year. Moving…

Thank you. [Operator Instructions] We will take our first question from the line of Mark Marcon of Robert W. Baird. Your line is now open.

Good morning and thanks for taking my question. Well Carlos, Jan and Kathleen nice to meet you. Wondering if you can talk a little bit about the new type of deal in terms of taking over for you know existing payroll providers. Just how does that compare to when you win a new client just from an economic perspective and how big is that opportunity as we look out over the next few years.

Well in terms of helping you size it, I think that based on the comments you made about our new business bookings. I think you can back into it. It’s about a 2 to 3 percentage point impact for the year on new business bookings gross. So that gives you a sense of from a bookings standpoint what the size of the opportunity is. And just in terms of elaborating a little bit more on it, we actually do these types of deals on a much smaller basis on a fairly regular basis and have been doing them for 20 to 30 years where small providers that are either retiring or selling out, want to sell their book of business, we are not really interested in buying additional platforms or frankly taking infrastructure or offices and so forth. So we structure it really as an agreement where we buy the right to convert the clients and we get some help, and some assistance from the seller. But in essence it looks a lot like a typical new business and the economics would look a lot like a typical new business with the exception of course that we have to pay some acquisition costs if you will to the seller. But the way we organize the effort is very similar to a typical sales effort in a sense that we send out either through our inside sales force or our field sales force, people to get the client to sign a contract with ADP, because we are not buying contracts and we're not buying the business. So they become an ADP client on our pricing terms and we in essence implement them with our resources onto our platform. So it looks a lot like a business as usual. The reason we had to call it out is obviously the size. These typically are frankly really small, a couple of thousand, even in the hundreds of clients CPA Firm or an owner of a small payroll company may be retiring. This is a much larger transaction that has a material, somewhat material impact on our results and our guidance and we thought it was important to point out. We are being a little bit coy about you know the details because obviously for competitive reasons we are literally right in the middle of converting all these clients. So our sales force has already been out for several weeks “selling and converting” these clients and we've begun the implementation process. But most of our competitors are aware of this transaction that was going on. So they are going after those clients as well. So we just rather not talk about it more than we have to, just to make sure we give you the proper context and the proper guidance.

I just meant from a strategic perspective, longer term do you see more of these types of opportunities coming up as you and some of the other large national players have invested more behind technology and smaller regional players just can't keep up.

Yeah, I wouldn’t call this a small regional player. So this is probably as you get more information about it, I think it will become obvious. This is kind of the last of its kind as far as I'm aware and just for historical purposes, I was personally involved. In 2007 was the first time that I met with this organization about trying to create an opportunity for us to acquire this business or in this case the right to convert these clients and there were people before me who had already been having those discussions. So this has been going on for quite a long time. So I would say this is in the category of relatively unique and in terms of size and also type of payroll provider that it is.

Great, thank you.

Thank you. And our next question will come from the line of Jason Kupferberg with Bank of America Merrill Lynch. Your line is now open.

Hey thanks, good morning guys. I just wanted to ask a follow-up on that point with this new agreement. Is there anything baked into the revenue guidance for the year and can you give us a rough sense of how many clients this involves and then just was there any promotional pricing or any extra promotional pricing in Q3 to help fuel the bookings rebound that we saw, the 10%?

There was nothing incremental in Q3 in terms of just answering that question first, which I think is somewhat unrelated to the other questions. So the answer to that is, not that I'm aware of. There was no – nothing artificial done or nothing – remember part of – I tried to explain in the second quarter and hopefully this is some indication that we were giving you guys the right story is that calendar wise we had some, a couple of days of selling that moved into the third quarter from the second quarter. So if you remember we had a relatively weak second quarter new business booking. So I think some of it is calendar. Frankly it’s even better than we expected based on just the calendar explanations. So I think it was just an overall good rebound and good performance. In terms of the size of the transaction impact on revenues, just because of the mechanics that our business operates on, as I mentioned that our sales forces is literally right now getting sales orders, converting the clients and we have implementation, people starting the implementation process. We have implemented some clients, but it was – it's an insignificant impact on revenues for the fourth quarter, but a significant impact in booking in new business bookings, which is why we've adjusted the guidance the way we have. The other factor that I would mention is, as you do your work on margins and so forth and you might notice some pressure in the fourth quarter, there's also again typical of the way our business works. We have a significant pressure from an expense standpoint in the fourth quarter as a result of incremental selling expense and in this case we also have the amortization of the intangible without the offsetting “revenues” because they haven't started yet. Some of them have stated, most of the impact on revenues is in the first quarter and beyond of next fiscal year. So it's a meaningful headwind from a cost standpoint and the other thing to keep in mind is if you recall, last year's fourth quarter we had very, very strong margin improvement. So the comparison is difficult, plus we have this fairly significant expense pressure from this transaction which obviously hurts us in the fourth quarter and it’s slightly dilutive. I think we figured it’s a couple of pennies I think we talked about?

Yeah, a couple of pennies in the fourth quarter.

But it will help us I think on a go forward basis, because obviously by the first quarter almost all of that selling expense will have – and implementation expenses will be behind us. The amortization expense will still be with us, but most of the acquisition and implementation expenses will already be behind us, and then we’ll have the revenue and incremental margin from that business. So again, had we just made sure that we don’t over complicate this, if we had a – which we’ve had in the past. If we had a blow-out fourth quarter sales results, it would be about the same discussion. We would have had a lot of incremental selling expense and implementation expense, and it would be good news for future growth and for revenues that it will be pressure in the short term on the earnings.

Right, right. So that kind of leads to my follow-up question just on margin, because obviously the execution continues to be very strong there. So you are absorbing some of these incremental costs, yet you did raise the guidance again for margins for this year. So I wanted to talk a little bit about just your plans to backfill some of the roles that are being vacated or have been vacated by the early retirement program. How are you thinking about that now versus what you initially envisioned in terms of back filled percentage?

It's a great question. I think the way that I look at it, just from a 40,000 foot level is really head count growth year-over-year, because there's so many other pieces of noise like this incremental expense pressure we have in the fourth quarter that’s the best way to really kind of – given that most of our expense is really people related is really FTE growth year-over-year and I think on that basis as we expected and as we predicted and as we encouraged our organization to do, we closed some of the gap that we had in the first quarter by the third quarter. So we're still ahead and we wouldn't be increasing our guidance if we hadn't been still ahead. So we’re still a little bit ahead of where we thought we would be in terms of not back filling as much as we expected, but we closed some of that gap. Now that was the appropriate thing to do, because we want to make sure that our client retention, our client satisfaction, our NPS score stay. I think it’s at the record levels that they are in some of our business units, so that was an important objective for us, which was to extract incremental margin and efficiency out of the organization and out of the business, but at the same time making sure that we stayed focused on client satisfaction and client service. I think we're doing that, I think we've landed the plane in a fairly good place. I think the organization responded well. I think to the absorption of the early retirement reductions, as well as the reworking of some of the things that we do and some of the processes that we have in order to make sure that we can continue to deliver the high levels of service that we have with fewer people.

And maybe I'll add within the nuts and bolts, as a reminder we anticipated the impact of the older early retirement program to happen in your life. The impact of approximately $150 million and we are anticipating that to be true going forward. So the overall opportunity has not increased, but we captured in this fiscal year a higher percentage of that total number which we now expect slightly to be below that and like 140 – I would say roughly $140 million to $150 million. So we think Jason that the overall assumptions regarding the back hiring and the backfills remains intact.

And I think in terms of new contact this was a fairly large undertaking that we hadn't been through before. So I think in the context of you know the guess work that went into the backfills and the pacing of those backfills and so what, I think the organization did a great job.

Okay. Jan, best of luck to you and Kathleen, I look forward to meeting soon.

Thank you.

Likewise. Thanks.

Thank you. And our next question will come from the line of Jim Schneider with Goldman Sachs. Your line is now open.

Good morning. Thanks for taking my question and congratulations to both, Jan and Kathleen. Maybe just to start out, maybe Carlos, can you provide a little bit of color on your view on where the PEO market demand stands right now. Anything that you are seeing that makes you kind of more or less encouraged about the demand outlook and your ability to kind of sustain the same pace of growth over the next few quarters as you have seen, and maybe kind of give us any color around the comment that I believe Jan made on the kind of cautious optimism around the healthcare renewal season.

No, I think from a long term strategic standpoint, don't really see any changes from what we've seen for the last, honestly a couple of decades, which is kind of the underlying environment of increasing complexity for small employers and even in this case mid-sized employers I think continues to be a reality. I think the war for talent I think just adds to that dimension of you know small and mid-sized companies now on top of having to deal with regulation and complexity and so forth and it happens in every administration. We’ve seen now this administration obviously has a different view of regulations, but there's still a lot of activity. Like there’s a recent announcement around changes in the overtime regulation that had been previously announced under the Obama administration. So that the world continues to become difficult and complex for small and mid-sized employers and then on top of that very low unemployment rates create a real competitive issue for people to find talent. So all of those things I think are, I think fuel for kind of the long term strategic growth of the PEO models. So there's really nothing that I see that’s changed that potential net trajectory. There’s still relatively low penetration whether it’s at the ADP client base level or even out in the marketplace. The number of clients on PEO's relative to the available market is still relatively small. You know there's obviously noise along the way as Jan mentioned. You know we have a healthcare renewal in the fourth quarter, but we have that every year. We have year-end which tends to create a lot of activity as well and by that I mean January 1, which that's now the times this year, but that occurs every year. You have other kind of events that happen along the way, like ACA was an event that I think had an impact, first positive and then slightly negative afterwards in its week. So there are things that you know will create ups and downs, but overall we're still very bullish on that business in terms of the long term outlook.

And on the short term Jim, you were following up on the specifics of the healthcare renewal I think. We don't see anything specifically positive or negative on this healthcare renewal, so it's kind of – it always changes by carrier as we receive the proposals, but it feels like largely in line with the historic trends that we have seen.

That’s helpful, thank you. And then as we think about the kind of go forward impact of the book of business you are taking on, can you maybe help us a little bit as we model forward or model in terms of for example over the next quarter or by the end of June if he signs the rough number of clients you expect to get out of and be able to convert. What percentage of those clients you think you'll be able to sign up of the total by the end of June?

I think the easiest way Jim to think about it is we increased our guidance and you've got basically the incremental number from Carlos today. If you translate those new business bookings, they will be caused by largely smaller clients. We anticipate an almost full run rate of revenues for next year. So you just translate the incremental new business bookings into yes, they are all yes clients and then they will become revenues.

Helpful, thank you.

Like 1% of new business bookings growth Christian reminds me, there’s approximately $15 million of revenue. So that gives you a good – I think that gives you a fair sizing of the opportunity.

Thanks.

Thank you. Our next question will come from the line of Ramsey El-Assal of Barclays. Your line is now open.

Yeah, thanks for taking my question. I wanted to ask you about the pricing environment. I think you mentioned last quarter it firmed up a bit and I just was wondering if you could update us on any pricing trends that you are seeing more recently, maybe into the year and selling season?

In my advantage – yeah, you're right. By pricing I mean we said that our promotions were down year-over-year and I think that was a sign of maybe things firming up. I would say that the information this quarter is not consistent with that, so I think if you look at the full year now after three quarters, they are probably like around the same place we were in the previous year, so again that's why sometimes it’s better to not say much, because it will look like maybe there was some kind of trend there, but I would say there's really no, there's no trend. I think that we don't see any major, unless Jan has or Christian has any other observations, but I think – because we get so much information and so much data to prepared for these calls the sometimes we get too much into the weeds. And so there was some signs of use of less promotions in the first two quarters of the year and you know I think now when you look at it over the course of nine months – by the way our heavy selling season is the third quarter in one of our business where we sign up a lot of the clients as of the beginning of the year. So I’d say there is really probably nothing meaningful to report, is that a fair…?

I think that's fair.

Okay, great. [Cross Talk]

For whatever that was.

Great, terrific. On just a broader macro question, are you seeing any changes, any you know updates on the broader macro environment, and maybe sort of a slice there kind of U.S. versus non-U.S. business, maybe particularly Europe. Is there any interesting call outs there to report or is it just sort of you still see a pretty smooth macro environment sort of unfolding.

Yes, I felt – I think it was a couple of quarters ago where I got a question, I gave a very short answer about nothing or anything going wrong in the economy and then I looked like I was going to have egg on my face in December and January, but maybe we’re now somewhat vindicated in terms of – our data has been consistently showing I think the economy continuing to move along at a very good pace. And so I think today we – the national and former report came out. You see our pace booking pool number and you see government GDP reports a few days ago and I think all of those are consistent with I think an economy that's performing quite well and so I would say we would stick to the same; won’t be quite as cavalier anymore about making economic predictions, but we don't see any real change in the current trends. Obviously Jan and I've been saying this for a couple of years and I think we’ve so far been proven wrong that you know with unemployment as low as it is, the growth in the amount of employment at some point should slow, but it appears that there's enough people on the sidelines just based on this labor participation rate number that people are still being drawn into the workforce. You know the one thing that we will point out is we’ve seen like the government and others some wage pressure which actually is good for us and we kind of like wage pressure. Not necessarily because of the pressure it puts on our cost internally, but you know our flow business benefits a little bit from higher wage inflation, obviously because it increases our balances. It’s not a meaningful number given how much inflation we've had, but the trend has been up for multiple quarters now. But I think it's all – it seems like the economy is performing very well and we look at all the other indicators that everyone else looks at, like NFIB optimism leading indicators, all the other Michigan leading indicators, all those other things, I think all look very strong.

And if I add two seconds on our European business, the last three months in Europe actually were also stronger relative to our pace for control metrics. I wouldn't over read it, but it was a very solid European quarter also.

Great, thanks so much.

Thank you. And our next question will come from the line of Lisa Ellis with MoffetNathanson. Your line is now open.

Hi, good morning guys and welcome to Kathleen. I wanted to ask just a broader question about the competitive dynamics and ADPs performance in the mid and up market. You called out continued strength in RUN and International as drivers of growth. Those have been bright spots for ADP for a long time. Can you just give us an update? I think we're now well over a year past the completion of the workforce now, migrations. Are you back to positive client growth in the mid-market and then also what’s just the update on like the new payroll engine and sort of the long term strategy to improve your competitive position in the upper end. Thanks.

So when we made the comment about the strength coming from small business and international, it was actually multinational is what we said in our prepared remarks. We’re referring to revenue if you'll recall, which is accurate and actually makes sense, but on our bookings I think we also said that we had broad based new business bookings performance that led to the 10% growth and so by broad based it would include the mid-market and the up market. So we've gotten some help from the decision to you know deploy and sell more aggressively workforce now in the lower end of the national accounts market where the clients that are in kind of the less complex range if you well in smaller size, so call it 1,000 to 5,000 employees and less complex. So that's given a little bit of a boost to our up market sales. I think in the mid-market, when we look at our mid-market business kind of across categories, because we have our traditional payroll business, but we also have a fairly fast growing mid-market business within our PEO, because our PEO sells also mid-market clients. Some of those incentives that we talked about a couple of quarters ago have started to kind of have the desired impact and we've had a little bit of a rebound in the growth of our mid-market PEO business. We also have a mid-market outsourcing business that doesn't have co-employment [ph]. We’ve had it for many years, but that's also a fast growing business as well as within the HRO segment when we talk about the strategic pillars, so it's kind of a sister business if you will to the PEO. So when you add all those together, I think we feel pretty good about our performance in the mid-market. I think our bookings were very good in the third quarter in the up market and I think when you add in global view and some of our other solutions in the up market like standalone tax, like we feel okay about it. As you know we've been very transparent. This is a place where we have work to do and we still think we have some work to do in the very – in the up market domestic business and our new platform that we affectionately referred to as Lifion I think is intended to help boost that. I think the combination of Lifion, Workforce Now and Vantage I think really are positioning us for a much stronger position in the future than what we've had over the last couple years.

If I add to this, we have seen continued improvement in our client satisfaction and retention in particular in the mid-market we’re seeing the benefit of being on one platform, clients staying longer and now for many quarters in a row mid-market retention has really improved overall and so the mid-market, it is to me the midmarket compound of all these factors together is a much stronger position that was just a few quarters ago.

Traffic and then maybe my follow-up, you would call out, you are now lapping Cash Card and WorkMarket. Can you help a little bit with where those are starting to plug into your business and how big contributors they are today? Thank you.

I think that again unfortunately for Work Force, depending on how look at it for ADP, like Global Cash Card had a certainly a measurable impact, just because of the size and I think we’ve disclosed the size of that acquisition and I think the revenue impact. But generally speaking some of these acquisitions tend to have long term strategic value. I think Celergo which you didn't mention, but is another one that I would bring up, we’d expect that to really have a big impact on our multinational business in the future, but it's just you know because of the size of ADP as $14 billion, these acquisitions just are more strategic rather than kind of short term financial impact plays. On the Global Cash Card side, you know that's a place where we're very I think bullish in terms of the future of using the Pay Card I think as an avenue for growth, because we have a very large installed base that we think will fit – that solutions will fit well for and I think a – there’s demand out on the market place for it. I think WorkMarket as we’ve said, there’s a huge market if not the size, close to the size of kind of our traditional ADP W-2 business for independent contractors. But you know it’s a very, very small impact in the current fiscal year and probably for the next couple of fiscal years. And so how we are – what we are doing with these products as an example in the case of WorkMarket, we are building WorkMarket into Lifion. And so you will have a platform available to clients in the up market that will allow them to manage their entire workforce, their W-2 employees, as well as their independent contractors to have full visibility of their entire work force. So that’s an important, I think move that we’ve made to use the intellectual property and leverage that intellectual property. And then in terms of how we are building, the Cash Card into the future is I think we’ve kind of signaled that we think we have an opportunity to create a larger relationship with the worker and so this concept of B2B2C I think is something that Global Cash Card and Wisely specifically gives us I think an entree into it. So again that’s something that its three, five, ten years down the road, but we're very excited about it.

Traffic, excellent!. Thanks Carlos, thanks Jan.

Thank you.

Thank you. And our next question will come from the line of Tien-tsin Huang with JP Morgan. Your line is now open.

Thanks. Just one question on margins, because you are running ahead with the raised guidance. I’m curious if this changes your thinking on margins or investments in relation to your longer term targets on margin expansion?

So, I think we traditionally provide guidance in August. So I think that would be the tradition that we will stick to. I think we are a middle of our operating plan season here and that will obviously give us a little bit more visibility into ’20, into fiscal year ‘20 which will then appear in August. You know we gave three year guidance and I think our intention wasn't to update it quarterly. And I think when we get to I think the guidance for fiscal year ’20 we’ll see I think what that implies in terms of the guidance.

Got it, so we’ll stay tuned for that. Jan, all the best to you and Kathleen, look forward to working with you.

Thank you.

Thank you, likewise.

Thank you. And our next question will come from Ashwin Shirvaikar with Citi. Your line is now open.

Thanks, good morning folks. Kathleen welcome. Jan, it was a pleasure working with you. All the best! I guess my the first question is, in both ES and PEO you seem to have, you seem to be trending more to the lower end of revenue expectations, you did well on margins. I want to ask how you are now thinking of sort of this revenue growth versus margin growth trade-offs. All these margin initiatives have been successful, but is it leading you too much in one direction versus the other and specifically what do you need to do to get up to your 7% to 9% mid-term growth rate?

So I mentioned two things. First on Employer Services, I think we tried to be clear that we have a little bit of additional FX pressure which is obviously something that we don't control over or we don't factor it in at the beginning of the year. So I think that’s – at least for now that’s some of it, because you would see from our third quarter bookings that we feel pretty good about the long term future trajectory from a revenue growth standpoint. On the PEO I think we cautioned I think over many years and even when we did our Investor Day, that a very large part of our guidance around PEO revenues and overall ADP revenues is that the growth of pass-throughs, which has no impact on dollars of profit. It has an impact on margin, because the slower those pass-throughs grow they actually help us with our margin percent objectives, but the faster they grow the more they hurt that margin. And so we’ve cautioned and encourage people to not get too caught up. If the source of weakness is pass-through revenues, that's really not a value creating revenue stream for us. It’s part of the way we – the business model and its part of the way we bill our clients, but I would say that the tone you should be hearing from us on the PEO is actually quite positive. It has been positive since the first quarter and was positive even entering into the first quarter and the only thing that changed from you know six months before that was the pace of past-through growth which slowed in a meaningful enough way that it put pressure on the top line revenue growth for the PEO. But I would encourage you to stay focused on kind of the revenues, excluding pass-throughs and worksite employees and the other metrics which we feel are actually strong if not ahead of where we expect them to be.

And maybe I'll add a more tactical comment because this quarter really had an unusual revenue growth outcome. Just reminding everybody that much of that in the PEO of course we explained with the timing of SUI revenue collection and a couple of other one-time moving items also and we had also a timing effect of revenue relative to processing days in the second quarter that moved into the second quarter on the site. So once you adjust for all of that, actually the organic revenue growth rate for the company is fairly close to where we want it to be and if you look on a year-over-year comparison I think we remain optimistic about an acceleration of our organic revenue growth, in particular in the ES segment that should really drive overall, long term success of the company. And as you know, we have built in scale in our business model. A growing company and shows competitiveness so that’s a strong commitment to drive the revenue growth as we had indicated going forward.

Got it. I did want to go back to the transaction that you announced with what I think is a large bank distribution channel. Without that I believe you said you’d be at the lower end of the bookings range. Is there something going on there with regards to competition, prior year comps pricing, something we should be aware of that is temporary affecting that bookings performance and typically when you buy these sorts of portfolio, I’d imagine they don’t quite have this richer set of portfolio of services you have. So is that an opportunity?

The last part of your question is there’s defiantly an opportunity there, because you're right, our portfolios a little bit broader. So we are very bushing and very optimistic on the transaction. Just to clarify, we didn't say that we would be at the low end. I did say we would be at lease at the lower end and so we feel based on the third quarter bookings performance, based on momentum we feel pretty good about our situation around the business booking. So maybe we weren't strong enough in conveying that. But I think our sales force is executing quite well. I just want to clarify also, it may not have come through that. I've been working on this deal for, personally for than…

Since 2007, yeah.

I don’t think anybody’s working on it before. So we didn’t just run out and try to make an acquisition to make the quarter or to get our booking number up for the fourth quarter. I wish it were that easy because we tried many, many times to make this happen over the course of a decade and this happens to be when they occurred and we would have taken it any time any day, because it's good for our shareholders and its good for our business and we’re very, very pleased that we have it. But we have no concerns about anything happening in the macro environment, on the pricing front or otherwise to make us feel less positive about our sales force, our distribution and our new business bookings.

Got it, thanks.

Thank you. And our next question will come from the line of James Berkley with Wolfe Research. Your line is now open.

Thanks and congratulations Jan and Kathleen. Just a quick follow up on the booking side. Obviously great seeing the guidance being raised. Just how big was the days of selling impact since there was no discounting? I’m just trying to understand the acceleration. I know like holiday sales in January a lot of people struggled across a lot of different industries there, but just trying to get a feel for you know the current trend and how sustainable that is excluding you know the impact of the transaction you are expecting in the next quarter? Thanks.

If I remember correctly, it would be the same impact that we talked about that impacted the second quarter. We just – we ended up getting, I think it was two days of less selling in the second quarter which then we got in the third quarter and we saw it. If you remember the conference call that we had, we already had those two days, so we knew we could see that our sales in the first couple weeks of this quarter had kind of rebounded and I think it was a few percentage points if I’m not mistaken. I think was two to three percentage points of impact on the second quarter, which means we probably got a little bit of benefit to that extent in the third quarter.

And this timing event overall didn't really impact our full year outlook for new business bookings. So it was really neutral and everything we thought we lost was made up as precise as it can be, and these things was made up in January.

I think it's fair to say if you take all the noise out of calendar and so forth that we feel like we're right where we thought we would be in terms of book, in terms of where our plans were and where our objections were.

And James, I would just remind you like we talked a little bit about FX, right and we also talked about interest income being a little bit weak. So if you are talking about you know in the context of the strength of revenue growth just keep those two items in mind.

Okay, great, thanks a lot. I appreciate the color.

Thank you. And we have time for one last question. So our last question will come from the line of Kevin McVeigh with Credit Suisse. Your line is now open.

Great thanks. Is there any way – and congratulations again on both Jan and Kathleen. If you think about the impact of the retention across – so the 25 to 50 basis point to that. How much of that come kind of from down market versus mid versus up, just sort of thinking about the year overall?

Well obviously we don’t provide retention by business unit, but maybe we can give you some – I think we already gave you some colors, and some sense of that. I think Jan talked about some really good improvement in our mid-market and our mid-market business. We do have obviously a number of other businesses besides kind of the general categories of small, medium and large. Like for example in the down market we have our retirement services business, we have an insurance businesses that really acts as an agency in addition to the traditional payroll business. We talked about the outsourcing businesses that we have, that are in employer services, but are not part of the PEO. So these kind of more comprehensive solutions if you will that those are, those business have gotten to be a meaningful size as well. We have a screening and selection business, we have an RPO business. So we have a lot of moving parts, and I think for us to get improvements in retention, we have to have broad-based improvements and client satisfaction and NPS scores and execution. It’s just there is no way around it. So you have to assume that – by the way for the last, as long as ADP has been around, we have some people that are performing better, any particular quarter or any particular year, and others that are performing less well. But when you see this kind of trend, you have to assume that the overall company is performing better and executing well, which is what is happening.

That’s super helpful. And then just on the acquisition, are the clients mostly kind of down-mid enterprise or across the board and historically has there been kind of more of a service or they already on the cloud or you would shift them to the cloud as you kind of bring in the mid.

Its small and mid, which is traditionally the way these – these acquisitions are typically in that space and technically not acquisitions just to be clear. If you remember, the right to convert the client on our platforms from their previous provider. So these are typically, I don’t think we’ve ever been able to do – who knows, but we’ve never been able to do this with kind of enterprise size clients. I guess it's technically possible just to buy the right to convert. This typically happens with small and mid-size client. The majority, of the clients would be small clients and some mid-sized clients.

Super, Thank you.

This concludes our question and answer portion for today. I’m pleased to hand the program over to Carlos Rodriguez for closing remarks.

Thank you. So as you can tell, I think from our comments we are really pleased with the rebound in our bookings. We are happy with this transaction that we consummated in late March. I think we have good momentum. I think our financial performance has been strong. But I also want to kind of call out to the comment and the question about retention. We really wouldn't be able to perform on a long term basis as well as we're performing if we weren’t really delivering strong client satisfaction and better products. So I want to also complement our associates and our organization on staying focused on NPS scores, on client satisfaction and on building stronger products, because the performance of the financial side doesn't come without those factors. And all while we are doing that, we are trying to transform our business and I think become more efficient. So there is a lot of effort and a lot of work and I appreciate all of that everyone is doing. Last thing I just want to mention is obviously we’re very excited about having Kathleen here with us and everyone will get to know her, but it's bittersweet moment here with Jan leaving. As always, even the way he handled this transition was a total class act. So you know we've been partners here for a long time, prior to us being either CEO or CFO, we've been through a lot together, we've done a lot and I just want to thank Jan one more time for everything you've done not just for our shareholders and for all of you who are here on the call. But he’s also done a lot for our clients, our associates, and he did quite a bit for his community as well. So Jan, I thank you again, and I declare you not only Ironman Athlete, but Ironman CFO.

Thank you.

Thanks for everything Jan. Good luck to you. And thank you today for your attention. I appreciate it.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program and we may all disconnect. Everybody have a wonderful day!