Ramsey El-Assal: Hi. Thanks for taking my question. Could you give us your latest thoughts on the competitive environment in PEO and how that’s sort of evolving over time? I think there’s somewhat slower than historical growth across the industry. Are there any signs that the market is, saturated with providers or is there any competitive overlay to PEO performance?
Maria Black: I would suggest that the PEO ASO conversation, if you will, or PEO HR outsourcing offerings kind of continues. I don’t know that there’s anything new to report, Ramsey. I think from my vantage point, it’s always been a very competitive environment. We all have slightly different PEOs from one another. I think we talked a lot about ours today and the way that it skews to professional services and tech. I think you have others that skew to different types of industries. You also have other PEOs that perhaps are a bit more down market. We tend to skew a little bit more upmarket than some. And so I think all the PEOs look slightly different. I think we all know our models are also not identical in terms of how we actually go-to-market, whether it’s through the strength that we have in the competitive advantage of being able to have ADP’s client base contribute about 50% of those upgrades.
So I think how we go to market, our models, never mind the models of, you know, fully insured to self-insured, et cetera. I think similar trends are within the ASO offerings, or some refer to them as HRO offerings. And so I think within there, you also have various models and various go-to-markets in terms of the, some competitors perhaps some — have some flexibility or more movement between ASO and PEO than I think we’ve cited in the past. And so, I think all that to suggest I think the competitive environment is about the same and remains. I think I’m optimistic and expect growth in both our PEO bookings as well as our HRO and ASO offerings throughout the balance of this year. And so I think we remain very, very excited and optimistic about the growth of those — all of our HR outsourcing offerings, both in this year as well as the long term.
Ramsey El-Assal: Got it. Okay. And a follow-up for me. Could I ask you to revisit those comments you made about higher selling expenses in PEO? What does that mean exactly? And also just I wanted to make sure I understood that, Don mentioned that, there’s some expectations those may continue, but they’re still, in essence, sort of a non-recurring step up in expenses. It’s not a permanent step up in, in expenses in the segment.
Don McGuire: Yeah. We saw higher selling expenses in Q1 for the PEO, and we expect to see higher selling expenses year-over-year in the first half, but we do think that that’s going to settle down into the second half. So we’re not looking at the kind of growth that we saw last year. I think we commented quite extensively on the many, many salespeople we added into the business last year and had great success and allowed us to finish the year the way we did. So those folks are in place. So we are continuing to add some sellers. We will add though, most of those sellers in the first half and it’s important to also, I think, call out here that, what we are seeing with our sellers is that we are getting much better retention within the seller community. So we are hoping and expecting to benefit from the improved tenure that we should see from the selling organization as we go through the balance of this year.
Ramsey El-Assal: I got it. So it’s headcount-related primarily. That makes a lot of sense. Thanks so much.
Maria Black: Yeah. I think it’s a timing thing. I think that’s the…
Ramsey El-Assal: Got it.
Operator: Thank you. Our next question comes from Jason Kupferberg with Bank of America. Please go ahead.
Jason Kupferberg: Good morning, guys. Just staying on PEO for a second and maybe if we can just refresh a little bit here. I’m just thinking back to the Analyst Day two years ago, we thought it was a medium-term 10% to 12% grower. Now it’s 2% to 3% at the moment. There was definitely some post-COVID normalization. But maybe just, Maria, if you want to take us back through the dynamics in terms of just how the business has evolved from your perspective? And is there a potential path back to double-digit growth for this business if the macro is a little bit more cooperative?
Maria Black: Yeah. So I’ll let Don kind of speak to the medium-term targets and kind of the path back. But I think, from my vantage point, and I said it earlier today, that step one is the continued reacceleration of bookings. And so this is the third quarter that we’re pleased and we did have a solid contribution of PEO bookings to the overall bookings picture in this quarter. That was the case last quarter, it was the case the quarter before. And I think the reason that I go to that is not just because it’s the piece that will accelerate the growth and path us back to what our long-term goals and medium-term targets are with — for that business. I think it’s also because it speaks to the demand environment. It speaks to the value proposition and the strength of that offering that still exists in the market.
And so I think that’s a big piece of it. I think step two is the continued acceleration — reacceleration of retention. So I mentioned that retention has been stable and as we reaccelerate retention back into that growth, that also will contribute to obviously the revenue. And then last but not least, Jason, you mentioned it, the macro headwinds, and I think I talked about the last couple quarters, how that’s been the post-pandemic, call it, nuances that impacted that business. I think we talked a lot about the renewal over the last couple of quarters. Now we’re seeing these trends in PPC. My view would be that all of the post-pandemic waves that have been, call it, flowing through the PEO and all the variables that make up that model. We’re still seeing some of those case in point being really call it the reversion of what we saw several quarters ago, which was when professional services and tech was in a massive hiring boom, now we’re seeing the opposite of that, right?
So I think we still have some of these waves, kind of shuffling through or whether or going through — flowing through the PEO. And if and when the macro changes with respect to that, that certainly will help reaccelerate that business as well. So in terms of the path back, I’ll let Don kind of speak to the medium-term targets.
Don McGuire: Yeah. I think Maria covered it very comprehensively there. I would say that when we established the mid-term targets, I think a lot of things have changed since then, certainly the inflation environment and that we’ve seen in particular and Maria just mentioned professional services and technology, we saw incredible growth in those sector — in those segments and growth beyond what we thought we — or what we had predicted in the mid-term targets or spoken to. I think now we’re seeing some reversion. We do, though, continue to be incredibly positive about that business. We think it definitely has a place, and we think that we will make our way back. But as Maria also said, it’s a little bit early to forecast when we think we’re going to get back to some of those mid-term target growth areas that we had discussed.
