Kevin McVeigh: Great. Thanks so much. Hey, Maria, I think you talked about 60,000 new run clients in the quarter. Can you help us dimensionalize that? Where would that typically be? And how should we kind of expect that to evolve going forward?
Maria Black: So the 60,000 clients that I mentioned are specific to our down market, specifically the run platform. So that’s actually 60,000 clients that we started. So where would they be? They would be all over the United States, if you will, from a – and I’m not trying to be funny about it, but it’s really pretty amazing effort if you think about the volume of clients, the throughput, if you will. They come to us through some of the things that we talked about today, new business formation, they also come to us through our channel ecosystem. So we’ve made a lot of investments into the relationships we have with our CPAs, with our banks. In terms of what does it look like quarter-on-quarter, stating the obvious the third quarter for us is obviously the highest volume quarter.
So that’s why it’s kind of fun to give that shout out this quarter because, arguably, I would say that’s not a typical quarter for ADP as it relates to a number of units and the throughput because many of the starts do happen in January in that business. But they are kind of all over the place, and they come to us through the strength of our distribution model and the strength of our overall ecosystem. Does that answer the question, Kevin?
Kevin McVeigh: It did. I guess I was just – I know Q3 is a high watermark. How should we think about 60,000 maybe relative to Q3 of last year? Was it 40? I mean, just trying to understand like how the momentum is accelerating there? And then just what’s the profitability? Because it sounds like a third were digital onboarded, like the ones that are digitally onboarded, how much more profitable are those than a traditional client that’s onboarded? Just trying to get a sense of if we’re an inflection point in terms of the growth there.
Maria Black: Yes. Listen, I – fair enough. I don’t know that I meant to trip myself into giving a quarter-on-quarter number I would tell you is it’s higher than last quarter. It’s higher both in revenue, obviously and the performance. It’s also higher in share unit volume. So I suppose I’ll kind of leave it at that. In terms of the third that comes through the digital onboarding, what that yields is a few things, Kevin, one of which is better experience for the client, right? So our digital onboarded clients have very high, what we call, new business client NPS results, right? So – and when a client starts with us happier, it yields to a happier client long-term, which yields to a happier and more retentive clients.
So I think in terms of what the, call it, margin profile or lifetime value of those clients look like over time, we’re still learning a bit about that, but it’s very optimistic for us as we’re seeing the results. I think the other is it also yields efficiency for our implementation organization, right? So if you think about having the ability to have these clients digitally onboarded allows the more complex onboardings, if you will, perhaps clients are coming to us with more complications around their taxes or maybe from a competitor or something that’s actually demands and implementation person to be involved at a much higher level, it allows their focus to remain there, which also should yield a better experience for those clients.
So we’re also seeing that. So overall, we are seeing, and I cited it in the prepared remarks, we’re seeing new clients come on board happier. The digital ones are happier than the non-digital, but they are all happier than they were last year, which is a good thing for us as it relates to the retentive nature of those clients over time and what they will bring to us in terms of lifetime value.
Kevin McVeigh: Helpful. Thank you.
Operator: Thank you. And our next question comes from James Faucette with Morgan Stanley. Your line is open.
James Faucette: Great. Thanks very much. I wanted to quickly Maria, ask a clarifying question. On the mid-market, you kind of talked about some of the things that you’re doing there. But just to be clear, it sounds like from your perspective that it’s more issues or things that ADP can do to address versus macro? I just want to make sure understanding kind of your list of objectives and things to do in that segment.
Maria Black: Absolutely. The mid-market for us still has – and we’re still experiencing solid mid-market sales, right? And so I don’t – from my vantage point, I don’t think it’s necessarily the softness that we saw in Q3 versus Q2 with a byproduct of a macro type of environment. We’re paying close attention to demand cycles. We’re paying close attention to pipelines. In terms of – are there some cycles that are perhaps a tiny bit elongated, maybe, there might be some more approvals or approval layers involved, and there may be a little bit of cycle elongation. I would tell you, we’re not seeing that much of that in the mid-market, and it really looks more like ‘19, it looks more like pre-pandemic than it does necessarily something that would give us a belief that there is a macro concern in the mid-market.
What I would say is on the macro side, it’s not getting any easier in the mid-market to be a client, right? And so if you think about the complex environment for the mid-market customers and clients, it does continue to increase. And so they are solving for hybrid work, they are solving for talent, they are starving for compliance, regulation. And they are turning to HCM providers such as us, to help with all of that. So I think the macro supports a very strong environment for the mid-market and we do continue to expect to have mid-market growth, including our HRO.
James Faucette: Got it. Got it. And then I guess maybe dovetailing with that, can you speak a little bit about the competitive environment? And any changes you’re seeing there? Or what are you seeing from customers? Is there a flight to quality versus maybe some of the regional players and what is the impact of newer entrants? Just can you give us kind of a state of the competitive landscape?
Maria Black: Sure. I would say the competitive landscape, one way to think about it is it actually hasn’t changed that much. So is there a flight to quality, sure. We’ve seen some of that, but it’s not material at this time as it relates to clients calling us and asking about the macro and what’s happening in the world. We’ve had a few of those calls just recently based on some things that have happened in the environment. But what I would say – when I think about the competitive environment, we look at this very closely. We just completed our strategic plan process, and we’ve been looking at our competitive position against all the major players, mid-market and others over the last handful of years in a surgical way.
What I would offer is a few items, one of which is we have strong retention, specifically in the mid-market. We also have very strong retention in international. We have a near-record highs in NPS. And so I would say that our value proposition and our competitive positioning – it’s proof, if you will, if you look at the retention, from a balance of trade, we are also winning more away from our competitors than we have in years past. And so again, I think our position is about the same when I look at it year-on-year, but it’s getting perhaps a little bit better on the wind side. And I think that a lot of that does have to do with the quality that we’re providing, so inside kind of the NPS results. Certainly, the investments we’ve made, the investments into our organization to serve our clients better.
Some of the things I talked about, new products that we’re leveraging, the likes of AI to actually drive self-service, to drive better experience for our clients, their employees and drive friction out. So I would say, investments into product. And then lastly, again, investments into new products that is creating better wins for us.
James Faucette: That’s great. Thank you so much for that color, Maria.
Maria Black: You bet.
Operator: Thank you. Our next question comes from Kartik Mehta with Northcoast Research. Your line is open.
Kartik Mehta: Don, I know you gave preliminary FY ‘24 guidance. And one of the things you talked about is obviously pays for control moderating. But do you think – could there be an offset because inflation is still running high and there is a pricing opportunity for the company, especially on the payroll side?
Don McGuire: Yes, Kartik, it’s a good question. So certainly, talked about pays per control growth decelerating. We called that out. And we’ve also – I mentioned earlier, for ‘24, I think there is a risk that it decelerates further. So we will have to watch and see what happens there. On the inflation side and pricing, we’re still in the early days of our FY ‘24 plan. So we’re watching it carefully. I think we can say that we are happy with the impact of the results of the price pricing decisions we took in ‘23. We had those readily accepted, I guess, with – reflected by our higher NPS scores by our continued strong retention. So we have an ability to take price. But as we always come back to, we’re in this for the long haul with our clients, their long-term retention is the most important thing to us.
So we need to make sure that we continue to have that good value proposition between what the absolute prices, how much price we can take, etcetera. But once again, Kartik, it’s definitely something we’re looking at and trying to evaluate as we get closer to putting the plan to bid.
Kartik Mehta: And then, Maria, just on the PEO side, could – is any of the attrition related to maybe customers deciding that they had a PEO and it just got too expensive for them. So they have decided to move out of the PEO for a while until they can get a better understanding of what’s happening in the economy. Any changes like that?
