自動資料處理 (ADP) 2007 Q1 法說會逐字稿

Good morning.

My name is Carol and I will be your conference operator.

At this time I would like to welcome everyone to the Automatic Data Processing Incorporated first quarter fiscal 2007 earnings conference 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 speaker's remarks, there will be a question-and-answer session. [OPERATOR INSTRUCTIONS] Thank you.

I will now turn the conference over to Elena Charles, Vice President of Investor Relations.

Please go ahead, ma'am.

Thank you.

Good morning.

I'm Elena Charles, ADP's Vice President of Investor Relations.

I'm here with Gary Butler, ADP's Chairman and CEO, and Chris Reidy, ADP's Chief Financial Officer.

The 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 Web site at adp.com.

During today's conference call, we will discuss some forward-looking statements that involve some risks and these are discussed in our periodic filings with the SEC.

There are about 90 people on the call with us this morning, so now I'll turn it over to Gary to share his opening comments with you.

Thank you, Elena.

It's great to be with you here today.

Good morning, everyone.

Let me start off by correcting my promotion I didn't get.

I'm still the President, not the Chairman, as Elena opened up, Art was Chairman and CEO.

Our agenda today is I'll kick start us with some opening remarks about the quarter I'm then going to turn the program over to Chris Reidy, our new CFO.

I'll then return after Chris covers the quarter with you to give you guidance on '07 and I'd also like to take this opportunity to spend a little time talking about some important strategic acquisitions that we've made or signed in the last quarter.

And then at the end, we'll be pleased to take your Q&A from both Elena, Chris, and myself.

Let me begin with a high-level perspective on the quarter before I give it to Chris for the details.

I'd have to share with you that I'm extremely pleased with the Q1 results.

We're off to a terrific start for '07.

We had accelerating revenue growth in all three of our businesses which, obviously, is something we're very pleased with.

As planned and as we shared with you in the last strategy call, we did expect tough pretax margin comparisons, particularly in Employer Services for the first half.

You'll see them today, we'll talk about them today for the first quarter and we expect those to continue into the second quarter.

I think the good news is that the investments in the businesses are starting to pay off with real tangible evidence.

I was particularly pleased, also, with the very strong sales growth in both Employer Services and Dealer.

With the four announced strategic acquisitions, you can also begin to see, as I've discussed with you earlier, the step-up in the rate of business development activity across the enterprise.

Our EGS results were terrific, up 31%, even with the one-time gains we had still up 23%.

We are progressing as planned on the Brokerage spinoff and I'm delighted that we've been able to promote Mike Martone as the COO elect for the new ADP post to spend, which we expect to happen in March or April.

I'd now like to turn the program over to Chris.

As you may remember, Chris has only been with ADP about a month ago.

He was the controller at AT&T before joining ADP.

We're delighted to have him and it's my pleasure to turn the program over to Chris at this point to review the first quarter results.

Thanks, Gary, and good morning, everyone.

As Gary mentioned, I've been here for just about a month now and I've spent a good part of that time visiting our various locations meeting with a variety of our people including our salesforce, implementation folks, customer service reps as well as my finance team.

I've also had the opportunity to speak with some of our customers.

As you might imagine, it's been a bit like drinking from a fire hose.

The one observation I'd make that was consistent in every location I visited was the energy and enthusiasm of our people.

They're clearly excited about our strategic initiatives to drive profitable growth and as a result, they're excited about the future of ADP.

I share their enthusiasm and I'm absolutely thrilled to be part of the team.

With that, let me share with you the results of our first quarter and ask you to turn to Slide 4.

As Gary said earlier, fiscal 2007 is off to a great start.

Revenues reached $2.2 billion for the quarter, growing 15% and ADP's internal growth rate was a very strong 13% on the quarter.

Earnings per share grew 31%, and as you can see, we had some one-time items that increased EPS by $0.03 in the quarter.

Excluding these one-time items, EPS grew a strong 23%, or $0.08 a share from 35 to $0.43.

The majority of this increase is from the momentum in our business and about $0.02 is from the lowest share count in the quarter versus a year ago.

Back in our September 19th webcast, we detailed nearly $30 million of incremental expense, most of which was planned resulting in a decline in our earnings by $0.03 a share.

And I want to point out again that we expect similar amounts in our second quarter versus a year ago.

These investments are paying off as you can see by our strong revenue growth in the quarter of 9% for our traditional payroll and payroll tax filing business and the beyond payroll growth of 18%.

Share buybacks totaled 13.6 million shares through early October.

I want to point out that I fully support our approach in this area and view this as an effective way to return excess cash to our shareholders.

Now turning to the next Slide 5, we'll review the segment results where all of our businesses had good momentum in the quarter.

Internal growth for ES was 12%, the strongest it's been in five years.

As I mentioned earlier, revenues from our traditional payroll and payroll tax filing business grew 9%, accelerating from just 2% growth two to three years ago.

This is important.

This is our most profitable business and it creates additional opportunities to cross-sell our beyond payroll products.

It's also important to understand that this doesn't include any impact from the change in interest rates as ES has held to a constant 4.5% rate.

This healthy grow reflects accelerating new business sales, growth in client fund balances and an increase in the number of pays on our client payrolls.

Beyond payroll revenues grew 18%, also accelerating from levels of a couple years ago.

PEO, COS, time and attendance and FSA all posted strong growth in the quarter.

We anticipated the decline in pretax margins due to the higher step-off expense level from fiscal '06 and the higher selling expenses due to stronger than planned new business sales, which grew a strong 16% in the quarter worldwide and 14% in the U.S.

Following a very strong fourth quarter last fiscal year, we believe our salesforce investments are paying off.

Pays per control, a same-store sales metric, was up 2.5% in the quarter with stronger pay growth in the small business services market and nearly a strong growth in our national accounts.

Growth in client fund balances was as anticipated and retention continues its strong levels.

And moving down the page Dealer Services, strong revenue growth of 23% was assisted by the December 2005 Kerridge acquisition.

Overall margins declined due to the Kerridge acquisition that we will anniversary in December.

Margins in our core North American DVS business improved during the quarter and we're pleased with the strong sales results both in North America and internationally.

Now let's move to Slide 6.

In Brokerage Services, internal growth for Brokerage was also nearly 16%.

This increase was driven by our Investor Communications business, primarily due to higher postage revenues.

The decline in pretax margin is due to these higher posted revenues, which are primarily pass-through.

Our proxy season is still ahead, and that's where we get the scale in this business so we anticipate better pretax margins ahead.

In the Clearing and Operations Outsourcing business, revenue growth was strong in the quarter at 23%, all internal.

As anticipated, the pretax loss is lower than a year ago and the sales pipeline for Clearing and Operations Outsourcing is good.

So the bottom line is that Employer Services is heading in the right direction with 12% revenue growth in our most profitable business and stronger than planned sales growth.

We're pleased with the strong growth we're seeing in Dealer Services and we're happy with the growth in Brokerage and as we head into the proxy season in the second half of our fiscal year, we anticipate margin expansion in the Brokerage business.

Overall, we are very pleased with this great start to the new year.

Now let's move to Slide 7 and I'll turn it back to Gary to review our full-year forecast with you.

Thank you, Chris.

As you can see from what Chris just took you through on our strong first quarter results, ADP's revenue growth is accelerating.

As a result, we are raising our revenue guidance to 11% from the 10% previously forecasted number.

This increase reflects both momentum in our businesses as well as the additional $60 million in revenue anticipated from the acquisitions we've announced this year.

We'll say more, or I'll cover more about these acquisitions in just a few moments on a separate slide.

We remain highly confident in our 17 to 20% earnings per share forecast, and to be clear, this forecast includes the estimated $0.03 dilution from the acquisitions that I'm going to cover with you in a few moments.

It excludes the net one-time item that increased earnings per share by $0.03 in the first quarter.

It also excludes any Brokerage spin related cost and it does not contemplate further share backs as of this point in time.

Our forecast for client funds also remains unchanged.

Internal revenues -- interest revenues should increase around 20%, balances should be up nearly 10%, and our pretax yield for the full-year at 4.5% will be up some 40 basis points from last year.

Now let's go to the next slide, Slide 8, to review the forecast of each one of the segments.

As you can garner from Chris' earlier comments, the key business metrics in Employer Services are terrific.

The current revenue growth forecast of 12% reflects both strong internal revenue growth of 11%, plus growth from the acquisitions that we've announced.

We've got great momentum in new business sales and we expect higher than planned double-digit growth for the full-year.

And as a result of these acquisitions and the higher than planned new business sales we've told you about, we do anticipate Employer Services pretax margin to expand 20 basis points versus our previous forecast to you earlier in the year of about 100 basis points improvement.

Dealer Services.

Our revenue growth forecast for the full-year is 13%.

This is up slightly from our original forecast of 12 to 13% and is also based on strong first quarter momentum.

Obviously, Dealer overall is aided by the Kerridge acquisition and we continue to expect mid single-digit internal revenue growth for the remainder of the year.

We are also very confident that the pretax margins are expected to improve over 100 basis points for the full fiscal year in Dealer Services.

We are raising our revenue growth forecast for Brokerage to 5 to 6%, which is up from the 4 to 5 that we shared with you earlier.

This is also due to strong first quarter momentum.

We do continue to anticipate nearly 100 basis point improvement in pretax margin.

As I mentioned earlier in my opening comments, the spinoff is progressing as planned and we have no known obstacles at this point to a successful conclusion.

As part of the Brokerage spin, the Clearing and Operations Outsourcing business continues to do well.

We anticipate 20% revenue growth in this unit and with lower pretax loss than we incurred last year.

Before I go to the Q&A, let me spend just a moment talking about the acquisitions that we've either concluded or announced the signing in the last quarter.

The first one is Employease.

Employease is a Web-based HR and benefits engine, an ASP kind of model.

It is very complementary to our core payroll offerings, pay expert and autopay.

We had the benefit with Employease to be in a joint marketing partnership relationship with them for over a year before we concluded the acquisition and were very successful selling well over 1,000 new clients during that period of time.

The important thing to note here about Employease is that it will be a major boost to our major account salesforce and it also has a great door-opening capability to get new client in addition to selling this across the large major account base that we have.

Mintax is a tax credit services business.

We got into this part of the world several years ago when we acquired a company that was more centered toward the federal tax credit services business.

Mintax expands that offering as its specialty is how to get job tax credits with the various state and local incentives that are offered across the country, so again, giving us a more complete offering in the job tax credit business.

The third acquisition is VirtualEdge.

This is a real leading product out in the market today.

You see it a lot in the HR BPO world and with large national accounts, it's clearly a complement to all of our HR BPO offerings that we previously discussed with you.

Again, this is a hosted solution for recruiters and hiring managers, and it can be sold as part of our BPO bundle, our multi-product offerings or it can be sold standalone like job tax credits or our time and labor products into large standalone national account clients.

But a terrific product and a real complement to our product suite.

The fourth one is one that I'm particularly enthused about is Taxware.

Taxware is in the sales tax compliance business.

This was part of the First Data Corporation.

They basically provide transaction processing around sales tax and compliance work and we tend to -- we plan to augment those services with our specialty around money movement and large-scale compliance capability that we have in our large tax filing operation.

So again, right up our alley.

It's a great product to sell to the large number of accounts that we have in both the mid and the high-end of the market and I think it's just a perfect complement to our existing tax service business.

So as I wrap -- before I take, or we take your questions and answers, I hope you can tell from my comments today you can see why I'm so optimistic about ADP's prospects for our growth.

We are particularly pleased with our results for the quarter, especially our Employer Services and Dealer Services new business sales results, as well as these acquisitions that I've just covered with you are important new avenues for growth in the future.

We are executing extremely well on our strategic initiatives and market demand for our products and services is very, very strong.

Now I'll turn it back over to the operator and we will take your questions.

Thank you, sir. [OPERATOR INSTRUCTIONS] Our first question will come from the line of Bryan Keane with Prudential.

Good morning and congratulations on a solid quarter.

Thank you, Bryan.

Just talk a little bit about Employer Services.

Obviously sales were strong, but interested in worldwide sales, looks like that was up 16% and then you mentioned Europe, seeing some life there.

Could you just talk about what you're seeing?

Well, actually, overall worldwide sales were 16%.

Our U.S. sales were up about 14%, so by definition, our international sales were very robust compared to last year.

So well into the double-digit territory and we're very, very pleased.

I think the good news there in the international side is we're seeing very strong results in GlobalView, our partnership with SAP, but we're also seeing strong sales, particularly in Europe, of our best of breed products as they were well over plan and well over last year.

Okay.

And then just turning to the Brokerage side, I guess Brokerage revenues surprised me, was up quite a bit, up 16%, yet for the year you're only expecting 5 to 6.

What happens in, I guess, going forward that lowers that growth rate?

Or is this just kind of a one-time phenomenon?

You have a couple of things.

One is we had a large -- fairly significant postage increase which went into affect for the first quarter that wasn't into affect in the first quarter of '06.

We also had strong demand in our fulfillment and some of our other mailings that was, I don't want to use the term unexpected, but higher than what we had planned.

The combination of those events gave us a very strong revenue quarter.

I'll also remind you that the first quarter in Brokerage is the smallest from a revenue standpoint and the real activity takes place in the third and fourth quarter.

Stock record growth, it's too early to make the call for the full-year, but we don't expect it to be up a great deal, so the comparisons in the big quarters should be much lower in terms of growth rate than the strong first quarter that you saw.

Bryan, and if I could just add to that.

There was also in the first quarter, some of those mailings that came in did relate to certain specials and rework type mailing so those are things that are not recurring in nature.

Okay.

And then just finally, Gary, on the acquisitions, obviously, the activity picked up a little bit.

Are there a lot of these smaller-based niche acquisitions that you see out there that could be added to the portfolio that could really help beyond Payroll Services?

There are a number of those out there.

This quarter was a little unusual in just the timing, they all just kind of came together at once.

We've been working on these particular acquisitions over the course of the last year.

We do have some other ones in the pipeline and potentially could have a couple of more before the year is out, but I wouldn't expect four a quarter.

They are out there, the timing here was just a little bit unusual.

Okay.

Great.

Thanks a lot.

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

Thanks.

Good morning.

Gary, good to see you making the investment in the business even though it does hold back some of the margin expansion in Employer this year.

I'm okay with this given it's not too material and you're being up-front about quantifying it, but can you talk about the timing and the extent of the pay back for both growth and margin expansion in fiscal '08 and beyond?

Obviously, we knew this question was coming and I think it's an important question.

We found ourselves a couple of years ago in a situation where we really had to step-up the investment levels to get the nose of the ship up, so to speak, in terms of the growth rate.

So over the last 18 to 24 months, I think the level of step-up investment has been higher than what you should anticipate on a go-forward basis.

So just like we had to double-up, so to speak, in the second half of '06 in terms of salesforce, headcount, those kind of investments should return back to normal levels as we come into '07 and beyond.

So I think clearly, again, I don't want to preclude any acquisitions that might happen or those kind of things.

But in terms of business as usual, I would expect our investment level to not require the step-up levels that it has for the last two years and be more of a ratable level as we move into '08 and '09.

So the stuff you're doing today, I guess, in this quarter and next quarter be dilution of the acquisitions by a few pennies, again, no big deal.

What do they give you in '08 and '09, both on the top and in the middle?

We don't really do that, per se, because the acquisitions, as you could see from the slide, it was only $100 million for all four of them.

So the real benefit is it will continue to drive new sales, and that new sales is really across the ES enterprise and it's not dilution from those particular products.

So once you get through the intangibles and growing up and the cost of money that we charge back to the business, the dilution is relatively minimal.

This is exactly the kind of acquisitions that we like to do because they leverage our large distribution capability.

We can take a small company and make it big, and it's clearly not within the plan, clearly wouldn't be dilutive beyond the first year as we take these things to market.

Do you see a big step-up?

In the past this has been a good acquisition strategy for you guys.

What kind of timeframe is the return in terms of when you see real significant revenue growth from the acquired entity once you plug it into your distribution system?

Well, it, again, depends on, I just take the four that we've done, just to give you an idea.

Employease, I think we sold over 1200 new clients in the year we had the partnership, so they're going Katie bar the door right now selling it as fast as they can install it.

You take the opposite of that, like the sales tax initiative, we've got to build the money movement capability and some of those kind of things into the back end of their compliance, so I think it will really take more like six to 12 months before we start getting real traction.

Things like VirtualEdge, we'll start selling it pretty quickly.

We've got to train the salesforce and that kind of an implementation takes a while to install.

So it will take us probably six months to really get into the saddle in terms of the VirtualEdge one.

And Mintax, they're selling those services today and I think it's a natural complement.

You'll see it get up to speed within the next 90 days.

If I could just throw in one last one on EPS, good to see that you had a few pennies of upside were it not for the investments, but do you feel more urgency than normal to return more cash to shareholders whether it be increased dividends or buybacks?

And then if you can clarify what you're doing in the share count. 10 to 12 million increase for benefit plans in terms of shares, does that get offset by buybacks or are we looking at net zero or if you could clarify what's going to happen with the share count.

As you know, over the last six to nine months, as I've traveled around and participated in these calls, we very openly shared our plan around returning more capital to our shareholders.

We again intend to do that first through strategic acquisitions of the ones we just discussed, share buybacks and potential dividend increases.

We've been very aggressive in fourth quarter of last year.

We were again very aggressive in the first quarter of this year as you can see.

We will continue to be in the marketplace and as we approach the spinoff, we will make a decision at some point whether or not to continue buying or to basically keep our powder dry until post the spin and then potentially get more aggressive, again, depending upon market conditions on the new ADP post the Brokerage spinoff.

But again, as kind of a guiding principal, it would be unusual for us at a minimum to not buy back at least enough over a year to cover employee benefit plan.

Okay.

Thank you.

Our next question comes from the line of Craig Peckham with Jefferies.

I wondered about the HR BPO business.

It sounds like we're expecting roughly a $15 million loss in that business.

Off of what kind of revenue base is that coming?

And as a follow-on to that, what's the sort of revenue level for that business you think you need to realize to reach breakeven?

Craig, as I've shared with this audience many times before, we're very committed to HR BPO and we're very committed to what I call HR BPO in the box, which means using ADP platforms and also includes from small clients to very large clients.

So this investment that you're seeing is really an investment in three areas.

It's a step-up investment in the PEO to expand our infrastructure as well as our sales reach in the PEO, because the PEO is the ultimate BPO, so to speak.

We're also beginning the launch of our ASO platform, which is basically a PEO offering without coemployment and the requirement to buy our insurance products like our medical or our worker's compensation.

It also includes step-up investments in COS, which is our BPO offering for our large national account clients.

So the PEO business is a $700 million business.

The COS business is a $100 million business, and ASO offering is nascent, it's just beginning.

So it sounds like you're not, I guess at this point, willing to identify what the minimum revenue is to get that business to breakeven or beyond that?

Maybe if you could just map out sort of how the profitability looks these days?

Well, as I'm sure you would know from looking at the segment results, the PEO is very profitable --

But we don't show the profits by segment.

That's right.

You're correct.

But the PEO is very profitable and doing extremely well.

COS is losing on $100 million less than $10 million, and the ASO is all expense.

So there is no real revenue to speak of.

But when you think about COS, we clearly think as we begin to exit this year and somewhere in '08 that we should pass through the profitability line for COS.

That's great.

That helps a lot.

Just a final question here.

Integrating four acquisitions at this point, can you give us a sense for what your bandwidth is on the integration side and how many more acquisitions you're comfortable integrating at one time?

Well, again, these are four relatively small acquisitions, so the largest of which is like Taxware, which is close to a $40 million business.

Employease was in the low 20s and they're integrated by different groups across ADP.

As you can imagine with 40,000 plus associates, our ability to integrate these sides, acquisitions, is relatively straightforward.

Our major accounts unit is integrating the Employease implementation.

Our San Dimas operation, which is our tax filing operation, is integrating the sales tax operation and our national account group is in the job tax credit in our Employment Services, pre-employment group is integrating the VirtualEdge group.

So really not an issue for us at this time.

So handling a couple more over the course of the next six to nine months would really not be that bad for us.

Thanks, Gary.

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

I wanted to inquire about the impact the economy is having on your actual business in the Employer Services unit.

Are you seeing any sort of negative affect from the slowing U.S. economy and then you're just offsetting that with other improvements that are happening in the business, or is the economy a relatively benign effect over the last couple of months?

Rod, we've seen no quantifiable or notable problem with the economy.

I think the thing that's easiest for us to look at is pays per control growth.

In the quarter, our pays per control were up 2.5%, which is the second highest level in the last eight to ten quarters.

If you look at that as a barometer, it's certainly not a drag and typically people are willing to invest in new systems as you can see by the robustness of our sales results.

So we have not been negatively infected in any noticeable way at this point.

Okay.

Great.

And can you specify what your salesforce expansion plans are this year as compared to last year?

A lot of your up-front expenses this year relate to the increased salesforce that you invested in in fiscal '06.

Can you tell us the salesforce headcount expansion plans in fiscal '07 compared to last year?

Rod, kind of our guiding principal around salesforce expansion is, first of all, we always want to attempt to build a double-digit sales plan every year.

And we usually do that by hiring, call it 6, 7, or 8% headcount growth and then striving for 5, 6, 7% productivity improvement.

So I think you should see, again, 6 to 8% kind of headcount growth as we go into '08.

We'll continue to drive the successful results we've had in telesales so I would expect us, it's a more cost effective form of sales investment, so we'll probably accelerate that activity a little bit more than the 6 to 8%.

But in terms of true headcount, I think that's probably a good number to use.

Is there a quick update you can provide on your progress in the health insurance distribution market that you've been investing in?

We have, as you know, we already have a successful worker's compensation salesforce -- I mean, sales initiative, which we are continuing to expand.

We do have pilots going on in both our small business and major accounts area around the healthcare initiatives.

As I'm sure you know, building a nationwide healthcare initiative is not a simple thing to do.

We remain pleased with our results and optimistic about our ability to expand this program in both segments.

Great.

Thank you guys.

Our next question comes from the line of David Grossman with Weisel Partners.

Good morning and thanks.

Gary, I wonder if we could just go back to a question that was asked earlier about the margin in ES.

Can you give us anymore color on how we should think about kind of a target margin expansion in a more, kind of normalized growth environment for that segment?

When we build operating plans, David, and again, this is without any kind of acquisitions or unusual strategic investments that we may choose to make, but typically speaking, we would always push for our business units to improve margins by half a point.

If I can get double-digit revenue growth internally or organically asking a business unit to, at a minimum, deliver a half a point of margin improvement is a fairly reasonable request and I think a good way for you to think about it at a minimum.

If we get more growth than planned or things go our way, sometimes that number can be higher.

But as you look into the years ahead as you do your modeling, that's kind of the way I would think about.

So the 100 basis points then going into this year before the acquisitions, obviously, was really that incremental 50 basis points would have been driven by the higher new sales growth?

Or higher organic internal revenue growth, installing the backlog from last year, good pays growth, good tax filing, balance growth, new products getting to scale, delivering margins.

I think the really encouraging news that no one has asked about, so I'll share it with before you ask it, is that our internal payroll growth for tax filing and payroll products was up 9% this quarter.

That's the highest it's been in five years or more and that's where my highest margin products are.

So you guys can take that with, as part of your facts and forecast from there, but I am very pleased with those results as we think about the rest of the year.

Okay.

Great.

Thanks.

Just one other question.

You mentioned that part of the new sales growth was being driven by the strength in the small business segment.

Can you give us any more color on what's going on in that segment?

We don't -- I can give you some color, actually, it's a little bit different than you described.

Our strongest sales results right now are in the PEO, which is in the small part of the business.

It's very strong in the PEO, you know, from that standpoint.

We're also seeing very strong results in national accounts.

Our BPO offerings, our COS offerings, our multi-product offerings are going terrific and we're doing very, very well in our international segment and particularly GlobalView, which we shared with you last year, and one that we remain highly optimistic on for the rest of '07.

Can you just give us a sense of what GlobalView is running on a run rate basis?

In terms of new bookings and orders?

Yes.

It will be up 50 to 60% over last year to so call it 30 to $40 million in new business.

Very good.

Thank you.

Our next --

That's the annual run rate by the way.

Our next question will come from the line of James Kissane, Bear Stearns.

Hi, Thanks.

Jim Kissane.

Gary, just following up on that, can you comment on the implementations of your new GlobalView clients, how smooth it's going, what kind of a challenge it is?

Jim, I'm unaware of any difficulties at this point with any of our large clients there.

Obviously, these are big complex companies, so by definition, it's a pretty detailed and complex process.

I was personally involved in a number of those larger sales and have heard no negative comments.

As far as I know, we're on plan and moving forward with all of these implementations that we've shared with you earlier.

I'd also just warn you or caution you that in many cases these implementations take 12 to 18 months or sometimes longer.

I think we shared with you IKEA, which is over 70,000 employees in 20 countries.

This is really a two-and-a-half year implementation process, because in many cases, the client doesn't have the resources to do it all at once either.

When would you expect GlobalView to be breakeven?

I think as we get into '09, I think the -- one side of me says, I hope not for a while because we're selling the heck out of it and that's a good problem that I have to [bill] up the resources.

So one side of me wants to grow as fast as possible, the other side wants to start seeing returns.

So for at least '07 and likely '08, we're going to try to keep the pedal to the metal because we've got a great position in the marketplace today.

We're ahead of what our competition has, so I want to strike while the iron is hot, so to speak, and invest as much as I can afford in terms of growing that business.

It's a little bit of a Catch 22.

But I think in terms of the way you think about, it's likely '09.

Okay.

And if I can get one last question.

Gary, can you comment on the valuations for the acquisitions that you're making?

And I guess it's based on the synergies as opposed to the current business run rate.

Is that correct?

I'm not sure I understand your question, Jim.

I'm trying to get a sense on the valuations because just yesterday you did Taxware, I think, for $125 million and it looks like all our four acquisitions will contribute about $100 million of revenue.

So it sounds like they're pretty hefty in terms of valuation so I was trying to get your thought in terms of how you come up with a price.

I think that was an accurate assessment, hefty, hefty.

They're different, Jim, because as a multiple of revenue, if you take these smaller products and it's one that's growing very quickly that's backed by DCs or start-up kind of companies, the pricing for those kind of products is relatively high.

As products get more mature and the growth rates lessen, then that clearly puts a perspective on price.

So there isn't any magic formula either as a multiple of revenue or a multiple of EBITDA or whatever.

And a lot of it depends on our business case around how fast we can leverage our distribution channel and that ultimately gates what I'm willing to pay, so again, I think you used the right term.

It is hefty.

It was different for each one of the four businesses and each one of them were not really acquisitions where we're going to take a lot of cost out.

They were all really growth acquisitions, so you don't get into a synergies game, you really get into how much does it take to invest or really leverage my large distribution channel.

Great.

Thanks, Gary.

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

Good morning, Gary and Elena, and welcome, Chris.

I was wondering, with regards to Employer Service margins in terms of thinking about the 20 basis point improvement for the overall year, sounds like you're going to invest about $30 million year-over-year in the second quarter.

I was just wondering if you can comment in terms of when -- how should we sequence the margin improvement as the year progresses?

I would take that, Mark, you're right on point.

We do expect something similar to the $30 million incremental investment in the second quarter.

So the margins would be back loaded third and fourth quarter so you can expect to see that fourth quarter would be higher than the third quarter.

Okay.

And then I would imagine that that would carry through into the first quarter of the following year?

Well, it's too soon to tell, but obviously we won't have that same year-over-year compare that we had in the first and second quarter on some of the ratcheting up of the salesforce and what have you.

Okay.

Great.

And then with regards to the new sales, obviously, the growth was strong this quarter.

You mentioned that the revenues were up nicely on the traditional payroll and payroll tax filing.

Can you talk a little bit about the new sales for traditional payroll and payroll tax filing?

And then I have one last question.

Sales -- new sales were excellent in the first quarter, nothing different than what we've seen in the fourth quarter.

We expect, again, positive comparisons in both the second and the third quarter and for those of you who follow us closely, you'll recall that last year our fourth quarter ES sales were up some 24%.

Obviously, as we go into the fourth quarter this year, we'll have a more difficult challenge in the fourth quarter, but, again, that's on the heels of a 24% growth rate in the fourth quarter, which gave us a good -- a great kickoff into '07.

So I really view that as a good problem, not a bad problem.

Is there anything in particular that's spurring the stronger new sales on this decor?

Is it just the salesforce efforts that you've put in place are finally starting to kick in?

I think it's a combination of headcount.

I think the products that we have today compete excellent across all of our segments.

As I also mentioned in one of the earlier questions, we see a very healthy economy out there and receptivity to our products and the world of payroll and HR and benefits and time and labor management continues to get more complex as every year goes by, so I think the environment and the need for our kind of services remains very strong.

So I think it's really across all four fronts on top of the fact that we added a substantial number of headcount to the field salesforce.

Great.

And then there's the comment about the client retention continues at excellent levels.

Does that mean it basically stayed where it was or did it improve a little bit?

It was about the same as last year for the quarter.

Okay.

And then finally, a broader strategic question.

In terms of looking at some of your acquisitions, I'll mention VirtualEdge as a prime example.

Years ago when I used to talk to Art about acquisitions along the lines of VirtualEdge, the discussion was, well, it seems interesting, but it would require us to become software programmers and have to constantly go through updates.

Obviously, your core business model has changed and you're becoming more technologically progressive.

Is that the reason why you now feel more comfortable in terms of going into more of a software type service where you do have to stay on the leading edge?

In none of our acquisitions do we plan for the primary vehicle of how we deliver sales to be software.

In all of these acquisitions, we would be delivering software as a service in an ASP or hosted model.

So I don't look at VirtualEdge being any different than, say, our enterprise HR products where we're constantly putting out new releases, new updates, new capabilities.

So we may still sell some software along the way if we've got large clients that need it, but we'll sell it in a recurring revenue model as opposed to pay me big bucks up front and 18% a year in maintenance.

Right.

I understand that.

I just meant in terms of the, it seems like the pace of improvements in terms of staying best of breed is a little bit faster in that space.

So I was just wondering about that from that perspective?

It would be our intention to maintain the pace of improvement.

There's always a trade-off of you trying to go bigger and wider for the salesforce as opposed to getting fewer large state-of-the-art kind of products.

But we don't have any intentions at this point on cutting back the pace of investment in terms of new capability in those kind of products.

Great.

Thank you.

Our next question will come from the line of Gary Bisbee with Lehman Brothers.

Hi and congratulations on the quarter.

Thank you, Gary.

Gary, I will ask about the 9% payroll growth.

No one else did.

Especially given several months of weaker job growth, I wonder if you can help us understand the components of that.

You gave us the pays per control, but is it the better retention that you've been seeing generically over the last year versus new sales growth?

Can you give us any sense of what the components of the acceleration there has been?

Certainly, if retention is up a point, than your growth the next year would be up a point over the previous years.

So that's certainly an accurate statement.

But I think the real issue here is the rate of new sales and the rate of selling add-on products to our clients, the rate of selling three products to one customer instead of two and in cases like Employease, getting new clients to major accounts where is it's been difficult to grow new clients in that space.

So I think it's, again, all of the above.

I'm not trying to duck the question, but I think it's sales rate, record retention and a very robust product line.

Okay.

Great.

Thanks.

On the Dealer business, I guess, two questions.

The guidance for the year, mid single-digit organic.

On your strategy update call a month ago, you made what seemed like a pretty compelling case for high single-digit to low double-digit growth there.

I guess the question that's unclear to me is over what time period do we move towards that higher sustainable organic revenue growth at Dealer?

Is that something for fiscal '08, or is this more of a long-term plan?

As you, I'm sure, recall, I think Dealer's internal growth rate in the fourth quarter of '06 was something like 2%.

I think it was 2, it may have been 3 or something but it was low.

This quarter, it's up to I think 5 -- over 5 and we're forecasting that as a minimum for the rest of the year and we're off to very strong sales results in the first quarter, strong double-digit sales in Dealer in the first quarter.

We're forecasting strong double-digit sales in both international and Dealer for the full-year, and I would certainly be very disappointed if that five points wasn't up a couple three notches as we go into '08 and beyond.

But again, in a service business, you can't accelerate internal revenue growth overnight.

It's a process of improved retention, accelerating sales growth and add-on products coupled with what you have.

And again, as you're starting to see now in ES, hopefully you'll start to see the same thing as we go into '08 and '09 in Dealer Service.

That would simply be the plan.

Okay.

Great.

And then just to be clear, the gain, the pretax gain you talk about in the press release, was that included on the segment data in the "other" line and not in the Dealer one?

Yes, it was.

And then just one last one.

You've talked a lot in the last six months or so about the work site marketing initiatives and the opportunity to up-sell a bunch of other services.

Any update there or is that still a little bit more of a couple year looking forward update opportunity for you?

It's still very earlier in the process.

We've been running pilots with certain groups of employers.

The challenge there is, first of all, you have to get employer's permission to market to their employees because ADP is not about to go directly to employees without employer consent, and then you have to go through a process of listening in a non-aggressive manner, so to speak, the employees of the company.

We've seen very good, early success in our money market efforts and we've seen limited results so far in our insurance initiative around auto into the base.

So we'll continue to monitor it.

I think it's still too early to tell, but it hasn't been overall encouraging or discouraging at this point.

Great.

Actually, I'll sneak in one other.

Do you have a time line at this point for when you might be filing some SEC filings with more data related to the spin of Broker?

More complete financial data there?

You talking about in terms of the Form 10?

Yes, whatever you'll file that might give some more specific financial data of the two units?

The initial filing would be towards the end of December most likely.

Okay.

Great.

Thank you.

Our next question comes from the line of Michael Baker with Raymond James.

I was wondering if you could speak in general to whether or not you've seen any meaningful change in the PEO margin in light of the fact that, obviously, we've come off some pretty meaningful deceleration and benefits costs?

And as that tapers off, I was wondering if you're seeing any meaningful change there?

Two things.

One is medical cost, which have moderated but are still high are for all practical purposes 100% pass-through.

So it really doesn't affect anything that's internally generated in terms of margins.

The worker's comp market, the increase have leveled off and we've seen some decline but, again, nothing that has affected margins in any significant way.

So we're seeing no drag for the lower pricing on worker's comp.

So, again, it's kind of business as usual and nothing dramatic.

Who are some of the key carriers you're working with on the health benefit side?

That goes all over the map in every state.

It's United in some places, Oxford in a couple places, particularly in the northeast.

I forget who it is in California, but it really goes all over the map.

There is no one or two national carriers.

Okay.

Thank you.

Our next question will come from the line of T.C.

Robillard with Banc of America Securities.

Great.

Thank you.

Just two quick questions.

Gary, can you give us a sense of timing for the acquisitions that you've just done in Employer Services?

How should we think about these acquisitions getting to normal Employer Service margins or kind of company stated Employer Service margins?

When I look at these, again, you have to be careful to mix apples and oranges because to the extent these products don't reach breakeven because I'm accelerating the sales and revenue growth on purpose.

It's a different issue than kind of normal 15% revenue growth.

Typically, these kind of businesses, as they approach $100 million in size start to get very attractive margin post whatever sales investments you're going to put into them.

So even if I've got $100 million business that has very strong, what I'd call, net processing income margins, which would be presales expense, it still may be a drag because I want to grow at 30% next year and not 15, because I'd double-up on my sales expense.

But I think a way for you to think about it in terms of it not dragging down the overall margins is like $100 million.

Okay.

That's great.

And then just secondly, you guys, obviously, have put a lot of cash to work in terms of buying back your stock over the last two quarters.

How should we think about the levels of buybacks going forward?

You've been $635 million this past quarter over $780 million back in the June quarter.

Obviously those are high amounts and your stock's come up, but how should we think about the return of cash due to stock buybacks for the rest of the year?

I think in the second quarter, we're still in the market.

We're not -- we don't, at least at this juncture plan to be at quite the same level of aggressive investments that we were in the fourth and first quarter.

And as we go into the third quarter and contemplate what we do there, we'll make a decision whether to keep our powder dry, so to speak, and wait until post spin to buy more shares of the new ADP in the third quarter and if we do do that, you would expect us to again be aggressive in the fourth quarter, all of this under the big umbrella, depending on what the market is doing.

Of course.

Great.

Thanks so much for taking my questions.

Our next question will come from the line of Greg Smith with Merrill Lynch.

Can you guys quantify how much of the revenue growth in Employer Services is due to pays per control increasing?

I'll let Elena answer that one.

When we look at the pays per control, as you know, it's the same-store sales metric, the sensitivities around that, when there's a 1% change, that's worth about 15 to $20 million in annual revenue when we look at really the pure payroll processing.

It's tough to quantify for the beyond payroll products in terms of a lot of payroll clients are taking time and attendance, for example, so the number in total is probably a little bit higher than that, but if you use sensitivity of 1% being about 15 to $20 million annually on the top line, I'd say that's a good number.

Okay.

Thanks.

And then just, if we do move into a slower economic environment, what would be the impact on Dealer?

Are you talking about in the U.S. or globally or both?

Well, actually, globally.

I'm just trying to think of what's the overall sensitivity in that business at this point?

Clearly, last year Dealer was impacted by the domestic auto scene so a healthier economy there certainly does encourage dealers to invest in new systems, et cetera.

But again, in Dealer in the U.S., actually new car sales weren't down all that much because all the buying was going to the imports, Toyota in particular.

In terms of eastern Europe and Europe itself, I think the same comment would be valid and we don't expect any downturns in terms of car buying activities in the Far East, where we're starting to expand because that economy over there is, you know, particularly in China is over 10% in terms of GDP.

It does affect it, but we're having very strong results in the first quarter of this year and expect to have strong results for the rest of the quarter in what I would call kind of an okay environment in the U.S. auto market.

Okay.

And then just lastly, looking for an update on the Microsoft partnership.

Maybe sort of what your expectations are this year versus last year?

Clearly, we'll see some increase this year versus last year.

We remain disappointed at the volumes that we're seeing from that investment.

We're really gated by the pace at which Microsoft is successful with their small business accounting.

I know they are very committed to this marketplace and this product and will continue to be aggressive in terms of marketing.

We have yet to see any real impact from that and we're optimistic but remain disappointed at this point in time.

Thanks a lot, appreciate it.

Our next question comes from the line of Liz Grausam with Goldman Sachs.

Just a quick question on the competitive environment in payroll.

Is the strength you're seeing in your sales pipeline do you think there are there any competitive issues, has your win rate ticked up at all at the expense of some of your major competitors in the market?

I don't think there's anything unusual this quarter than what we've seen in previous quarters.

Our competition is basically behaving as they've been behaving for quite some time.

I think we're doing well with the new products that we're having.

Obviously, up market, our competition changes more in many cases to the ERPs, and our partnership with SAP clearly helps there in terms of the GlobalView product, but no noticeable competitive change.

And then on the strength in your GlobalView sales, some of your major HR BPO competitors up at the top end of the market have been struggling.

Do you think that's helping you with your sales proposition currently in the [inaudible] product?

I think the GlobalView product, the thing that's really driving that is not competitive difficulties or competitive issues that they may be having, it's really that no one has a service offering that includes the compliance for payroll and HR in 30 countries today and soon to be 40 countries today and can offer a single database and single reporting and single interface in one database instance for a company.

It's really nobody else has that.

It's that unique offering and the real need for these national companies to be compliant in the countries they're in as well as for SarBox and 404 back here.

Thanks.

And just lastly, on the electronic proxy debate, has there been any update you've seen in moving towards electronic delivery?

Well, first of all, we believe that over time there will be an increasing amount of electronic delivery regardless of this particular event.

On top of that, the interest level and a more dramatic change seems to have lessened, although not totally disappeared.

So our concern there, at least near-term have certainly lessened with that lessened activity.

Great.

Thank you.

Our next question will come from the line of Brandt Sakakeeny with Deutsche Bank.

Thanks.

Thanks for taking my question.

First, I guess, Gary, on the Brokerage side, how much benefit did you get from improving equity markets and higher retail participation in the quarter?

And also, do you have the household growth in the quarter?

Actually, Brandt, the retail mix on the trades was down this quarter versus a year ago.

Let me see if I can find that mix for you.

Give me one second here.

I'll find it.

But it was down.

The larger volume trades, I mean, trades were up in the quarter, so we did benefit from that.

They were up about, let's see, 19 -- 18 or 19% in the quarter, but that really came from the institutional trades.

That was really where the growth came from and the high volumes from our largest institutional clients.

So as you know, that does not translate into a big revenue increase because of the tier pricing structure.

That's helpful.

Chris, I guess, do you have the FAS 123 impact in the quarter and also any thoughts on the duration of the bond portfolio, I guess, given where rates are or anything else?

Or any other prospective changes on that?

You know what, Brandt, let me just talk about the FAS 123.

When we look at the impact for the total stock comp expense, it's a little bit different, I'd say, than the way we spoke about it a year ago.

That $0.18 was incremental because of FAS 123 and where we have a comparable number for this year, I don't think when you look at it quarter-by-quarter, there's any significant change.

I think if you look at that over the quarter is a good way to look at it.

Slightly less this year than last year.

Slightly, slightly less.

So I think if you look at it that way, you'll be okay.

And related to the duration, we're not forecasting any significant change in duration for fiscal 2007.

We're comfortable at this time given the current flat yield curve.

As you know, we keep looking at the current yield curve and review how to invest new monies and maturities.

But keep in mind that given the size of our portfolio significant movements and duration aren't likely over a short period of time.

Great.

Thank you for taking my question.

And Brandt, I do have that retail mix for you.

It was about 33% in this quarter versus about 39% in last year's first quarter.

So it is down.

That's interesting.

Thank you.

Our next question will come from the line of Tim Willie with A.G. Edwards.

Thank you.

Good morning.

One question on BPO.

Is there any way to, I guess, characterize any kind of change in demand that you've seen at either, at however you segment your customers, larger versus maybe mid-market?

We hear talk about accelerating demand or interest levels within the mid-market.

Have you seen that?

It sounds as is, obviously, the way you're investing money that you are or you expect to, I'm just curious what it is right now if you're seeing it or expect to?

I wouldn't characterize a big change in the marketplaces.

I think interest levels remain strong, but they were strong last year.

Part of what we're dealing with here is most of the large HR BPO players were significantly up market and there weren't that many of us in what I'd call the 3,000 to 15,000 size employee base that we have and so a lot of the people in that space really weren't even aware that those kind of offerings were available.

So as we go to market and expose our client base and new prospects to that, we are seeing demand for the product, but again, no significant change from what we were seeing last year.

Great.

Thank you.

Our next question will come from the line of Tien-tsin Huang with JPMorgan.

Good morning and thanks for the disclosure.

Just had a question about the higher selling expenses in the quarter of I think $6 million, which looks like it's twice the rate that you expected in the September call.

Am I comparing the two properly, or does this suggest that new orders came in stronger than expected in the month of September?

Yes, you're looking at it properly and that's exactly what happened.

Our sales forecast for the quarter was actually lower than where we came in.

So the new orders did come in stronger than we anticipated back at that meeting.

And again, that's a great problem.

Sure.

Is that carrying forward here going into the second quarter?

Well, we said for the full-year that the new business sales growth was going to be stronger double-digit than planned and we really don't provide that by quarter, but do think for the next three quarters that we will end up for the year higher than planned, but as Gary mentioned earlier, that fourth quarter comp will be a tough comparable to the year ago.

That's helpful.

Just to clarify, does the $60 million in anticipated acquisition revenue this year include Taxware, or would that be added to it?

It includes it.

We did sign that acquisition, it hasn't closed, but we did sign it right before this call and we have a high confidence that it will close.

And that's a $40 million revenue business, Taxware?

On a year-to-date basis, but [inaudible] by the time we close it, just over half.

Understood.

Thank you.

Our next question will come from the line of Franco Turrinelli with William Blair and Company.

Good morning, Gary.

I wanted to kind of take you back to the beginning, if I may.

It seems like we haven't really spent enough time on what seems like the most important thing here, which is the acceleration and the sales for the core payroll services.

I hear what you're saying about nothing unusual particularly going on, but this is a pretty material change to where we were pretty recently.

Can you just help us understand a little bit more what the sources of this acceleration are?

Maybe help us understand better how much is from new clients, how much is from existing clients.

You said there was nothing new happening competitively, but you must be taking this business from somewhere.

So help us understand this a little more.

Well, first of all, you have to remember in all of our marketplaces the portion that is outsourced in a service environment is relatively small, so if you go to small business, the amount of business that's outsourced is less than 30%.

If you go to national accounts, above 1,000 employees like the 10 to 15% range, the place where it's most highly outsourced is in major accounts, where roughly half of the market is outsourced and we have roughly half of that as a way to think about it.

So I think we've got 20% or 20% plus of the total market there.

There's lots of room to grow and in GlobalView there aren't, with the exception of western Europe, any large service providers.

By definition, everything we sell in GlobalView are our high-end national accounts business, internationally is new payroll sales to ADP.

Now our beyond payroll continues to be quite strong.

I think this quarter it was up some 18%, which is stronger than where we were last quarter so we are selling a lot of add-on products.

The new salesforce adds are a lot of new clients that come to ADP from small business.

Employease is clearly driving new client accretion to ADP.

And in national accounts, because our primary competitors up market are ERP providers, almost by definition is new payroll revenues.

That's a little different from history, but overall momentum based on headcount, wider band of product, and markets where by definition we're taking from software would be all contributing to that result.

So, Gary, do you feel that this is something that you are driving because of your improved sales activity and capabilities, or has something also changed in the thinking of your prospects that's making it more attractive to them to outsource?

I would say, Franco, that primarily it's the former.

We are stepping up our rate and our quote unquote attack on the market.

But secondly, I think there is a propensity more today and comfort level, particularly with the Internet and things that are going on, as that matures that outsourcing is a good thing.

And a lot of the products we offer today, they're outsourced in an ASP model and they do behave like a software product in house, they just happen to be hosted at ADP and serviced by ADP and you pay by the month instead of all up-front.

Certainly that would be a change from five years ago but, again, not from something that happened last year.

Franco, I'd add just a little bit of color on that coming from a financial perspective.

As I mentioned earlier, I spent some time with our customers and when you think about our customers a lot of them are CFOs and finance people and HR people.

What I found was that they're experiencing the same thing that I experienced in the past, particularly at AT&T, which is a pressure on expense and finance having to lead the way on that.

In an environment that Sarbanes-Oxley where you have to cut your costs but you've got to do it in way that you can ensure the controls continue to be of high importance.

So that's a tough line to walk and I think that's leading people more to the thought of outsourcing in different ways they can do that to reduce their costs and still maintain control.

So I agree with Gary that's it's probably more the former, but I think there's a growing movement within corporations to look under every rock, basically, for potential to reduce expenses while at the same time maintaining controls.

Thanks, Chris.

Thanks Gary, It's all very impressive.

Congratulations.

Our next question will come from the line of Rod Bourgeois with Bernstein.

I just wanted to ask another follow-up question on the core payroll and tax growth rate.

I know you mentioned that it was 9%.

We were expecting that the major driver of potential acceleration in that business would be the reduced client retention.

I know you mentioned that is helping.

Are there other things besides just the strong salesforce growth and sort of traction in the client base and the client retention that's helping the core payroll and tax growth?

And I specifically wanted to ask about Sarbanes-Oxley and SFAS 70 requirements?

Is that potentially helping you a little bit with share gains versus some of the regional players out there in the market?

SFAS 70 and Sarbanes-Oxley has certainly helped us in the forefront of our success in national accounts and in GlobalView, because by definition a lot of the accounts we're selling there are public entities or people they choose to behave alike a public entity.

Certainly that has helped us a lot.

As you think about the mid market, I think it's more around a better bundle of products that behave like in house that are driving a lot of our success.

So our integration with our time and labor management, our integration with the new Employease offering is clearly going to help us drive new payroll revenue that comes along in the three product bundle.

So I think in both cases, it's product and market.

I'd add that it doesn't look to me like this is something that happened overnight.

I mean it's a combination of things.

We talk about our retention being pretty much on where it was last year, but that's record high levels.

So that's something that continues to drive that growth and so our investment in the salesforce goes the same way, where that was something we've done over time and it's beginning to pay off.

I don't think this is anything, as I see it, that's an overnight issue.

It's something that's been part of the strategy for the last year.

The key follow-up to that, though, because of those trends and the fact there's been a buildup to it, would you expect that this 9% growth pace appears fairly sustainable, potentially for more than a year given what's happening with client retention and the salesforce trends?

I think it's a little early to say that.

I'm very pleased with the results.

I think last year that number was 7% and there were a couple of quarters, I think, where it actually hit 8% last year.

So as you look back over a four-year horizon where that's gone from 2% to 4 or 5 to last year 7 and 8 and this first quarter at 9, I kind of like the trend line.

Am I ready to say that's forecastable and holdable?

It could happen but it could not, but I'm optimistic that we're on the right track.

If that doesn't happen, is that going to be the result of, what would cause that not to happen?

Is it the economy or is it just the inability to sustain the sort of bookings space that you've had in the last few quarters?

What would cause that to happen would be a lessening of sales growth or worse, losses.

If you did have a shrinking employment market where 2.5% went to flat, which we saw a number of years back, then certainly that makes it more difficult.

Obviously, our balances go up as wage increases go up and as employee count goes up, so it would lessen the amount of overall tax filing business that we would get, so it would be a combination of those things, but I think the single thing that I can control, or at least influence, is new sales growth and having a product bundle that's attractive to new payroll and tax volume clients for ADP.

So things like VirtualEdge, or sales tax, or other kinds of things are going to help me pull in new clients and the more we do that, the happier I am.

Thank you guys.

That's very helpful color.

Our final question comes from the line of Lloyd Zeitman with Bernstein.

Good morning, folks.

Just a housekeeping question.

The $8.8 million restructuring and facilities exit charge, where does that appear on the income statement?

That's part of the "other" in the segment reporting.

Well, on the income statement itself, in terms of operating cost, G&A, et cetera, where would that come in there?

You know, Lloyd, I'm not sure if I have the breakout by line on the P&L, but I can certainly get that for you after the call.

Okay.

Great.

Thanks very much.

You're welcome.

At this time, there are no further questions.

I will now turn the call back to Ms. Charles.

Thank you.

We'd like to thank everyone for participating and we appreciate your continued interest in ADP.

Thank you.

Before I conclude, I would hope that you could certainly tell from our comments that you can see why we are so optimistic about ADP's prospects for growth.

As I mentioned as we began the call, we're particularly pleased with our results for the quarter, especially our Employer Services and Dealer Services new business sales results as well as the very important strategic opportunities our new acquisitions will provide for us.

And I think again, the message you should take away is we're executing well on the strategic initiatives that I've outlined over the past six to nine months and as I've also reiterated in this call, we see continuing market demand for our product services in quite a strong way.

With that, I'll wrap up and thank you for your time this morning.

This concludes today's Automatic Data Processing Incorporated first quarter fiscal 2007 earnings conference call.

Thank you for your participating.

You may now disconnect.