Maria Black: The trend in specifically professional services has stabilized. And so, I think Danny made the comment earlier, it’s no longer contributing to the deceleration. So, it used to – the professional services cohort used to contribute to the acceleration of pays per control, then we found ourselves where it was contributing to a deceleration, and it’s largely stabilized at this time.
Samad Samana: Got you. And just as you think about the pricing environment, I know that we’re still not at when the company does the annual price increases, but as you think about maybe for new deals or for new customers that are onboarding, any change in the kind of price pressure or competitive nature of what your competitors are offering in terms of discounts or what ADP’s is having to offer? And just as we look ahead to price increases, how are you thinking about this year’s price increases?
Don McGuire: Yes, we’re not really seeing any changes, Samad, in the price environment, the competitive environment. We think we’re priced appropriately, and we’ve always acknowledged that we’re a little bit of a premium to others. But we’re happy with that because we think we offer better service and stability, et cetera. So, no real changes. You’re right. It is a little bit early. The budget cycle kicks off here in the next six, eight weeks or so, and we’ll certainly be looking at the pricing increases for next year and weighing all the regular factors, what’s inflation been? We thought our price increases were very well received last year. We thought they were in line. So, we’ll keep that in mind. But as always, we’re always interested in the long-term value prop with our clients and being competitive in the market. So, we’re always measured, I believe, when we think about the price increases that we do hand out to our clients.
Samad Samana: Great. Appreciate you taking my questions.
Operator: Thank you. Our next question comes from Kevin Mcveigh with UBS. Your line is open.
Kevin Mcveigh: Great. Thanks so much. Maria, I think you talked to kind of implementations a little bit. Can you remind us maybe what percentage of the revenue is done internally on implementations today, and if that’s a shift philosophically, what that can be over the course of time? If I heard the remark right. Maybe I picked it up wrong, but just any incremental thoughts on that?
Don McGuire: Yes, I’ll maybe – Kevin, you’re a bit soft by the way, but you’re a little bit hard to hear, but I think the question was what kind of revenue we derive from implementation, and is that …
Kevin Mcveigh: Yes.
Don McGuire: Yes, so it’s not a substantial. Sub 10% of our overall revenue comes from setup – we internally call it setup fees. So, it’s not a substantial amount.
Kevin Mcveigh: And then do you see that – Don, over time, does that become less if you outsource that? And is there any way to think about the margin impact from that initiative?
Don McGuire: Well, I mean, you also – so, no, I don’t think there’s a big opportunity there. We certainly have had conversations. We certainly have lots of folks who would like us to outsource our implementation because they think it’s a revenue stream for them. We like to have that control over the client from sale-through to go live in service. Not to say that we won’t work with third parties to help us from time to time, which we do. But it’s really not that large a factor. Certainly, there’s some money there to be had, but it’s not that large a factor in the overall scheme of things. There’s also some interesting accounting, of course, around implementation and setup fees and the deferral over the terms of the contract. So, once again, it would take a lot of changes to do anything, make any changes to the bottom-line financials in the near term.
Kevin Mcveigh: Helpful. Thank you.
Operator: Thank you. Our next question comes from Tien-Tsin Huang with J.P. Morgan. Your line is open.
Tien-Tsin Huang: Thanks so much. Good results here. Just want to dig in on your prior comments. I know a lot of people asked on PEO and the healthy activity there and the confidence in the acceleration. Is ADP doing anything differently, or is industry demand changing? I understand it’s not – it doesn’t sound like there’s a cost of pricing change there. So, I just want to make sure I understood that. Thanks.
Maria Black: Yes, good morning, and thank you. I am happy to talk about PEO bookings. I think as mentioned in the prepared remarks, we’re very pleased with our PEO bookings. This really is the fourth quarter that we’ve seen positive PEO bookings momentum, and the Q2 specifically exceeded our expectations. Most of the pressure that we felt in the PEO has been a byproduct of kind of the pressure on pays per control and having to overcome that, which is why the focus on bookings has been so paramount for us. And certainly, we deliver that in the second quarter. In terms of from a demand perspective, I speak about the PEO all the time, as you know. I think the demand continues to be incredibly strong. I wouldn’t suggest that there’s anything unnatural that we are doing outside of a tremendous amount of focus across the enterprise to ensure that we’re executing on the PEO booking side.
But in terms of anything unnatural or demand changing, I think the value proposition, as I always say, is stronger than it’s ever been. I think clients in that space are looking toward ADP to help them from a PEO value proposition. So, everything from payroll to benefits to navigating the complexity of being a business and having the ability to execute on a co-employment relationship. So, I would say the value proposition is as strong as it’s ever been. I think it remains strong. The demand is there. The organization is focused on PEO bookings as an execution lever for us. And I’m pleased to see that we did just that in Q2, and we’ve really had – this marks the fourth quarter of positive bookings momentum from the PEO.
Tien-Tsin Huang: No, that’s great. Thank you, Maria.
Operator: Thank you. Our next question comes from Jason Kupferberg with Bank of America. Your line is open.
Unidentified Analyst: Hi, this is Caroline (indiscernible) on for Jason. Thanks for taking our question. So, pays per control growth has been 2% quarterly through the first half, but the guide for full-year 2024 is still 1% to 2%. So, what are the drivers of the second half deceleration, or do you think that the high end has become more likely?
Don McGuire: Caroline, thanks for the question. We said we would go to – we’d be 1% to 2% for the year, and we certainly have that 1% to 2% range still in the back half. We’re not really anticipating any slowdown in pays per control, but we certainly have it built in. So, perhaps we’re a little bit conservative there. But as we sit here today, the employment demand continues to be robust, although still declining somewhat, but I think we’re confident that in the back half, we’re going to be declining a little bit, but still coming in on that 1% to 2% range for the year. Not really much more to say there other than employment demand, labor markets continue to be maybe a bit softer than they were, but as we saw this morning in our NER report, hirings still out there, still good growth. So, not a lot of extra color, I don’t think, to add around pays per control.
Unidentified Analyst: Okay, great. Thank you.
Operator: Thank you. Our next question comes from Dan Dolev with Mizuho. Your line is open.
Dan Dolev: Hey, guys, great results here. Just a strategic question, obviously if you look over the next 12 to 18 months, interest rates are coming down. There is a big debate out there on the ability to offset some of those headwinds in terms of revenue. Can you talk about maybe some idiosyncratic initiatives that you could do to offset the headwind from declining interest rates? Thank you so much.
Don McGuire: I think that’s really a macro question. I guess the macro answer to that would be that if interest rates start to decline, we’ll see an offsetting increase just in economic activity. And if we see that increase in economic activity, we should see revenue go up. We should see bookings opportunities go up, et cetera. So, I think that if interest rates come down – and there’s lots of debates, whether it’s two cuts or four cuts, et cetera, who knows, but if they do come down, we should certainly avoid the recession. Nobody’s asked about a recession on the call today, so thank you. I think the consensus is that there’s not going to be a recession. So, certainly any of the polls suggest that the economy’s healthy with 3.3% GDP growth in the last report. So, if rates come down, the economy should remain healthy, and a healthy economy should help continue to contribute to our growth.
Danny Hussain: Dan, I’ll just add also, our model involves reinvesting further out in the yield curve, and as you know, we’re still reinvesting at higher rates than what’s embedded in the securities that are rolling off. So, even if we do start to see short-term interest rates fall next year, which is obviously consensus at this point, a lot of that will be offset by the reinvestments that we have further out in the yield curve. And so, it’s too early to be talking specifically about the interest rate outlook for next year, but we would just recommend you keep that in mind.
