自動資料處理 (ADP) 2010 Q4 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to ADP's fiscal 2010 earnings webcast.

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 speakers' remarks, there will be a question-and-answer session.

(Operator Instructions) Thank you.

I will now turn the conference over to Ms.

Debbie Morris, senior director of Investor Relations.

Please go ahead.

Good morning.

I am here today with Gary Butler, ADP's President and CEO; and Chris Reidy, ADP's Chief Financial Officer.

Thank you for joining us this morning for our fiscal 2010 earnings call and webcast.

Our slide presentation for today's call and webcast is available for you to print from the Investor Relations home page of our website at ADP.com.

As a reminder, the quarterly history of revenue and pretax earnings for our reportable segment has been posted to the IR section of our website.

These schedules have been updated to include the fourth quarter of fiscal 2010.

During today's conference call, we will make some forward-looking statements that refer to future events; and as such, involve some risks.

And these are discussed on Page Two of the slide presentation and in our periodic filings with the SEC.

With that, I'll now turn the call over to Gary for his opening remarks.

Thanks, Debbie, and good morning to everybody.

I appreciate you joining us this morning.

I'll begin today's call with some opening remarks about the fourth quarter and our fiscal year results.

At the conclusion of my opening remarks, I'll turn the call back over to Chris Reidy to take you through the detailed results.

When Chris is through, I'll return to provide you with our forecast for fiscal 2011.

And before we take your questions some questions, I'll provide some concluding remarks.

As I look back over fiscal 2010, I am pleased that ADP's financial results were better than we initially anticipated as we entered the fiscal year.

The economy did show some signs of stabilization early on in the fiscal year.

Demand for ADP's solutions has clearly increased, and key business metrics began to improve during the second half of the fiscal year.

And importantly, reached inflection point during this fourth quarter.

Particularly noteworthy was the 25% growth in Employer services and PEO services, new business sales for the fourth quarter; and I'm very pleased that all major business segments posted double-digit sales growth in the quarter.

This obviously is compared with a very weak quarter four of last year; but it is significant, nonetheless, as we all know that positive growth in new bookings is important to longer term revenue growth.

Later in the presentation, we will review with you our revenue water fall chart, and you will see the impact of these new bookings on revenue growth.

For the year, new business sales grew 4% and we have strong momentum heading into fiscal 2011.

Having said that, we are still somewhat cautious about the over 1,000 pay national accounts market.

While we believe we are beyond the bottom, we are still cautious as this market is typically where sales cycles take longer to rebound coming out of an economic downturn.

Turning to another important metric, I'm especially pleased that client revenue retention in Employer Services improved 160 basis points during the fourth quarter and 40 basis points for the full fiscal year, which was ahead of our expectations.

Employment levels in the US continue to stabilize and our pays per control same-store sales, US employment metric turned slightly positive in the fourth quarter.

And as a result, the full year decline of 3.4% was also slightly ahead of our expectation.

We also made some positive steps with important acquisitions that support our growth strategy to enter adjacent markets that leverage our core franchise.

As you know, we did announce a few weeks ago that we signed a definitive agreement to acquire Workscape, a leading provider of integrated benefits and compensation solutions and services.

The addition of Workscape will clearly be complementary to our national account services benefits offerings, and will enable us to expand our market presence to compete more successfully for large and more complex benefits deals.

Workscape's average client has over 20,000 employees; and as you know, our current benefits solution is a better fit for companies with under 20,000 employees.

Workscape also offers compensation in performance management solutions.

While we remain strongly committed to our partnership with Cornerstone on Demand to deliver a full suite of integrated performance and learning management solutions, we do believe that the Workscape solution set will be a great complement to our existing talent management offerings and will give us an additional solution in our one-stop shop portfolio.

Let me move on to Dealer Services, where we have good positive momentum here as well.

First, let me provide some highlights regarding our North American business.

In June, we announced that Asbury, one of the large public dealer groups, had signed a letter of intent for ADP to become their sole dealer management systems solutions provider.

Asbury has 80 dealer locations representing 107 franchises and plans to begin the transition to ADP's dealer management systems toward the end of calendar 2010.

We are currently in the final steps of negotiating the definitive agreement for that deal.

Our position with large dealer groups continues to solidify.

In fact, upon the signing of the Asbury contract, we will be the exclusive DMS solutions provider for 7 out of the top 10 largest dealer groups in the United States.

On the dealer M&A front, we announced earlier this month that we signed a definitive agreement to acquire the Cobalt Group, a leading provider of digital marketing solutions to automotive manufacturers and dealers in North America.

This acquisition strongly supports dealers' long-term growth strategy, one key element being accelerating share of wallet by driving applications growth into our client base.

With BZ Results, which we acquired a few years ago, Dealer Services is already making great strides in the fast growing $7 billion digital marketing space with our dealer clients.

Cobalt Solutions and expertise will only accelerate this endeavor.

With their multi-tier marketing that simultaneously delivers content across all three marketing tiers.

The first tier being the manufactures marketing activities and website.

The second tier being regional level programs by large groups by manufacturer and their website, and the dealers own advertising and website.

And while there are still many opportunities in North America, we plan in the future to utilize our global footprint to bring these solutions to our international markets as well.

Taking a look at dealers international business, we continue to win share as a result of our strategic investments made in key markets such as Russia, China, and the Middle East.

Plus, as we mentioned at our February financial analyst conference, we have signed an exclusive agreement with Chrysler China, representing nearly 80 dealerships.

I'm pleased to announce that implementation has begun, and we expect to have all the locations up and running over the next 12 to 18 months.

We continue to build relationships outside of Asia and Europe as well.

One recently signed deal I would like to reference is Unitrans.

Unitrans is one of the top five South African based dealer groups operating nearly 100 dealerships in the current--and the installation are currently underway.

I'm also pleased to announce that pending Kuwaiti government approval, we have signed an agreement to acquire PACC a long-time distributor of our international dealer management system platform, which we call Auto Line.

They distribute in the gulf states region and have been doing so since 1992.

PACC is based in Kuwait, has an office in Dubai, and currently has customers in Kuwait, Saudi Arabia, the UAE, Oman, Qatar, Bahrain, Lebanon, and Jordan.

PACC's clients include most of the major OEM franchises represented in the region.

With that note, I'll turn it over to Chris to provide you the details of our fourth quarter results.

Thanks, Gary, and good morning, everyone.

Before I get started, I just wanted to let everyone know that Elena Charles was unable to join us today due to personal reasons.

Elena is expected back in the office next week.

In the meantime, you can reach out to Debbie Morris with any follow-up questions you may have after the call.

For those of you following along, we're on Slide Four.

For the year, total revenues increased 1% to $8.9 billion, including 0.8% from favorable foreign exchange rates.

As you saw in our press release this morning, ADP's results for both years included favorable one-time tax items.

On the slide we're showing both the reported results, as well as the results excluding the PACC (inaudible).

Excluding these items, net earnings declined 1% compared with a year ago, and earnings per share from continuing operations declined a $0.01 as anticipated to $2.37 a share on fewer shares outstanding.

In our commitment to return excess cash to our shareholders, we increased our open market share repurchases during the fourth quarter, buying back 11.7 million shares for about 485 million.

For the full year, ADP's share repurchases totaled 18.2 million shares for over 765 million.

Now let's turn to Slide Five.

Employer Services, as you'll see when we get to the Q4 discussion, ES's revenue growth improved during the year and the full year ended flat with last year.

As mentioned last quarter, the full year was impacted by fewer W-2's processed this year and pressure on implementation revenues in the high end US market.

Revenues in our payroll and tax filing business in the United States declined 4% for the year.

Our beyond payroll revenues in the US grew 6%, led by growth in our time and labor management solutions, COBRA, and HR benefits.

Revenues in our retirement services business also increased from the favorable impact of the increase in the stock market from a year ago, which resulted in higher retirement asset values on which a portion of our fees are based.

ES's pretax margin declined 60 basis points from a year ago.

In addition to the pressure from flat revenues, increased sales and service costs along with higher benefits and compensation expenses offset last year's restructuring benefits.

As Gary mentioned earlier on his comments, we are pleased that our pace for control and retention metrics for the year were better than anticipated.

Pays per control, our same-store sales employment metric for the US declined 3.4% for the year compared with our expectation of a 4% decline.

The number of pays in our international markets across Europe declined 3.2% compared with last year on a same-store sales basis and the decline in Canada was 3.8%.

We are very pleased with the improvement in client retention of 0.4 percentage points for the year, and we ended the year back up around the 90% retention level, which as you know is very strong.

New business sales for ES and PEO services combined were up 4% for the year, and we were particularly pleased that the dollar value of new business sold returned to just over $1 billion for the year.

Now, let's turn to Slide Six.

The PEO grew revenues 11% for the year, all organic, primarily from increased pass-through revenues and an increase in the number of work site employees.

Pretax margin declined 30 basis points primarily from higher benefits pass-through costs, and the resulting overall price sensitivity.

Year-over-year, average work site employees paid increased 5% to 230,000.

Now let's turn to Slide Seven.

Moving on to Dealer Services.

Dealer Services revenues declined 3% for the year, 4% organically.

Revenues continued to be negatively impacted by the cumulative effect of dealership closings.

In North America, core DMS and transaction-related revenues declined for the year, while beyond the core DMS revenues grew slightly led by growth in IP telephony and networking, PRM and front office solutions.

International revenues were impacted by lower software license deals due to client delays and implementations.

Pretax margin declined 60 basis points.

The pretax margin was negatively impacted by an intangible asset impairment charge of $7 million recorded in the first quarter relating to General Motors announced closure of its Saturn brand.

Excluding this Saturn-related charge, dealers full-year pretax margin was flat, as lower revenues, the impact of acquisition-related costs, increased benefits and compensation costs, and higher sales expenses all offset last year's restructuring benefit.

On the sales front, Dealer Services continued to gain market share and increase penetration of its layered applications compared with a year-ago, the strong sales results, and fourth quarter momentum.

Now, let's turn to a review of the fourth quarter results on Slide Eight.

We are pleased that total revenues increased 4% to $2.2 billion in the quarter including 0.6% benefit from favorable foreign exchange rate.

Similar to the earlier slide for the full year, we've shown both the reported EPS results, as well as the current running results excluding last year's fourth quarter tax benefit.

Excluding these benefits, net earnings were down 9% and earnings per share from continuing operations declined 7% to $0.42 from $0.45 a share on fewer shares outstanding.

As Gary mentioned, we've reached an inflection point in most of our key metrics; and as a result, we've made the decision to invest in the business.

As a result, fourth quarter earnings and margins were impacted by the investments we made to drive the future growth of the Company.

While these additional expenses caused short-term earnings and margin pressure, they are necessary to support future growth.

Aside from incremental investments, we also incurred higher sales commissions from increased sales during the quarter.

And to remind you, last year we told you that we froze merit increases and management incentive compensation was also reduced resulting in year to year (inaudible) pressures.

Earnings from our client fund portfolio also declined $13 million this quarter due to a decline in market interest rates, which I'll take you through in more details in a few slides.

Let's turn to Slide Nine and go through business unit results for the quarter.

Employer Services revenues grew 4%, nearly all organic for the quarter.

We are pleased to have revenues in our payroll and tax filing business in the United States, up slightly in the quarter after five consecutive quarters of decline.

Our beyond payroll revenues in the US continue to grow with 9% growth in the quarter driven by ASO, our BPO offering at the low end of the market, retirement services, and other beyond payroll solutions such as tax credit services.

ES's fourth quarter pretax margin declined 290 basis points, driving much of the decline in total ADP margins.

Higher revenues and the benefit from last year's restructuring were offset by incremental hiring in service, as well as in growth areas like ASO and international The impact of higher sales commissions on increased sales, increased merit, benefit and compensation, the impact of acquisitions, investments in our products and infrastructure, and additional sales, headcount, and programs.

Pays per control, which is our same-store sales employment metric increased 0.3% in the quarter compared to the fourth quarter of last year.

Even though small, this is the first increase in this metric for eight quarters, back to the first quarter of fiscal 2009.

The number of pays in Europe declined in the quarter compared with a year-ago on a same-store sales basis.

The decline appears to be stabilizing, but still a decline compared with the positive results we saw in the US metric.

We'll talk a little bit how this difference in the pays trend impacts fiscal year '11 when we get to guidance.

Client revenue retention continued to improve with a notable increase of 1.6 percentage points in the quarter.

As Gary mentioned, we were pleased that new business sales increased 25% in the quarter for ES and PEO.

I would also like to point out that this was the first quarter of positive sales growth since the fourth quarter of fiscal 2008.

To remind you, new business sales represents the expected new annual recurring dollar value of these sales and our incremental recurring revenues to our existing recurring revenue base.

We'll review the revenue waterfall chart with you in a few moments.

For now, let's continue with the quarter's results.

Turning to Slide 10 on the PEO.

The PEO reported 13% revenue growth for the quarter, all organic, primarily from increased pass-through revenues and an increase in the number of worksite employees.

Pretax margin declined 40 basis points, primarily due to higher benefits pass-through costs and the resulting overall price sensitivity.

Year-over-year for the fourth quarter, average worksite employees increased 8.5% to over 210,000.

Also an important inflection point to call out is this exit rate exceeds the fiscal 2010 average growth rate of 5%.

Moving on to Dealer Services.

Dealer Service revenues were flat for the fourth quarter.

Dealer's pretax margin declined 310 basis points.

Flat revenues, the impact of higher benefit and compensation costs, acquisition-related costs, and incremental investments in the business to drive future growth were only partially offset by the benefit of last year's restructuring and additional cost control measures.

Now, let's turn to Slide 12.

Before we get into the results of our investment strategy for client funds, I want to remind everyone that the safety and liquidity of our client funds continue to be the foremost objectives of our strategy.

Client funds are invested primarily in fixed income securities in accordance with ADP's prudent and conservative investment guidelines.

To give you a quick understanding of how to read the schedule, as most of you have previously seen it, this schedule shows the overall impact of our client funds portfolio extended investment strategy with average balances and interest yields shown in the top half of the slide, and the corresponding pretax P&L impact shown in the lower half, all color coded.

Getting into the details for the year, the results were pretty much in line with our most recent forecasts.

Near the top right of the slide, you can see that average client fund balances were flat compared with the year-ago period at $15.2 billion.

Fewer pays and slower payroll sales were offset by wage growth, increased state unemployment rates, net pay growth, and a positive impact from Canadian foreign exchange rates.

While average balances were flat, the average yield on the client funds portfolio declined 45 basis points to 3.6%, resulting in a decline of $67 million in interest on funds held for clients on the P&L.

The impact from lower new purchase rates was most pronounced in the client short portfolio where the average yield earned was 110 basis points lower than last year as the fed funds rate declined to its current range of zero to 25 basis points late in our second quarter of fiscal 2009.

The average corporate extended balances, the purple section on the slide, were down about $300 million compared to last year.

The average yield on the corporate extended declined slightly about 20 basis points.

At the bottom of the slide, you see a $16 million negative impact to the P&L as a result of the decreased balance and the lower yield.

Average borrowings were down this year and the average interest rate paid on those borrowings dropped 90 basis points to a blended average borrowing rate of 0.2%.

The result was a $21 million positive impact to the P&L, offsetting the $21 million negative impact in the client's short portfolio.

So when you take into consideration the entire extended strategy presented here, the result was a $63 million P&L decrease before tax for a decline of 9% driven primarily by the year-over-year decline in market interest rate.

The bottom line, $622 million of pretax generated by this strategy for the year resulted in an overall yield of 4.1% compared with 4.5% last year, much more than the decline in the market interest rate.

Now, let's turn to Slide 13, where I'll take you through the results for the fourth quarter.

This schedule for the quarter is presented in the same format.

For the quarter, average client fund balances were up $1.4 billion, or 9% compared with the year-ago period, and the average yield on the client funds portfolio declined 50 basis points to 3.4%, resulting in a decline of $7 million in interest on funds held for clients on the P&L.

You can see the impact from lower new purchase rates was the same throughout the client portfolio, where the average yields earned were 30 basis points lower than last year.

Average borrowings were down in the quarter, however, the average interest rate paid on the borrowings remained at a blended average rate of 0.3%.

The result was a negligible impact to the P&L.

Focusing your attention on the net P&L impact on the lower portion of this slide, taking into consideration the entire extended strategy presented here, the results were $13 million P&L decrease before tax for a decline of 8%.

The overall yield of the bottom line impact when calculated is 3.8% compared to 4.5% last year.

Now let's turn to Slide 14 where I'll take you through the extended investment strategy forecast for fiscal 2011.

Before I get into a discussion of the detailed forecast, I would like to update you on the credit quality of the portfolio.

As was the case when we last showed you the details at our February analyst conference, currently about 85% of the portfolio remains AAA or AA rated.

Net unrealized gains as of last week are up another $30 million from the net gain of $711 million as of June 30th reported in this morning's earnings release.

While the level of unrealized gains changed as the interest rate environment changes, the way to think about this is that the unrealized gains indicate we are holding securities yielding higher rates than current market rates.

As part of our extended investment strategy, our intent is to hold these securities to maturity and over time earn these higher than current market yields.

I also would like to point out that this $700 million plus net unrealized gain includes gross unrealized losses of less than $10 million.

Now, for the fiscal 2011 forecast.

This slide summarizes the anticipated pretax earnings impact and the extended investment strategy for the client funds investment portfolio for fiscal 2011.

It is important to keep in mind that 15% to 20% of the investments are subject to reinvestment risk each year.

We're anticipating an increase in average client fund balances of 2% to 3%, driven by wage growth, increased state unemployment rates, and net pay growth.

You'll recall that the fourth quarter average client balances grew 9%.

I'll spend a quick minute to help you frame why we're not expecting that level of growth in balances to repeat in fiscal 2011.

Wage growth in the fourth quarter of fiscal 2010 followed the wage decline in the fourth quarter of fiscal 2009, and it was influenced by over 30% growth in bonuses and a return to merit increases in the current period.

In fiscal 2011 wage growth--we are still assuming growth, but at a more modest rate.

State unemployment rates also affect the growth rate.

SUI effective rates increased dramatically at the onset of calendar 2010, our third fiscal quarter versus calendar '09.

As states look to refill their coffers, SUI rate increases tend to lag a down turn.

While we expect those increase rates to hold true during the beginning of fiscal 2011, we don't get much average balance benefit as this is our seasonally low balance period.

For the calendar 2011, SUI effective rate goes into effect, we're expecting another increase in rate, but not to the extent of the large increase we saw in 2010 versus 2009, thus having less of an impact on average balance growth in the back half of fiscal '11 versus what we saw in fiscal '10.

We are forecasting pays per control to be flat to up 0.5% for the year, and we're anticipating a yield on the client funds portfolio of 3.3% to 3.4%, down 20 to 30 basis points from fiscal 2010.

We are anticipating a decline of $25 million to $30 million client funds interest as the lower anticipated interest yield will more than offset the expected growth in balances.

Average new purchase rates are expected to be around 275 basis points lower than the embedded rates on maturing investment.

We are anticipating that average corporate extended balances will be flat to up to $100 million and the average yield on the corporate extended will be down 30 to 40 basis points.

We are anticipating average borrowings will also be flat to up $100 million and the average interest rate paid on those borrowings will be up slightly in fiscal 2011, 10 to 20 basis points to a blended average borrowing rate of 0.3% to 0.4%.

Looking now at the lower right of the chart, you see that the continued anticipated decline in interest rate is expected to outweigh the benefit of growing average balances resulting in a $35 million to $40 million decline in pretax earnings for fiscal 2011.

For fiscal 2011, we anticipate a decline of about 30 basis points from fiscal 2010's overall yield of 4.1% from the net impact of this strategy.

Now, I'll turn it back to Gary to take you through the remainder of the forecast for fiscal 2011.

Thank you, Chris.

We're now on Slide 15, for those of you following along.

In our fiscal '11 outlook, we are assuming no change in the current economic landscape.

We have also not included the impact of the Workscape acquisition and Employer Services, nor dealers Cobalt acquisition, as these transactions had not yet closed.

We will provide an update on our first quarter earnings call to take place in late October.

As you know, we don't provide quarterly guidance, but I would like to provide some thoughts on how we think about fiscal 2011.

We do anticipate pressures early in the year, particularly with the first quarter year-over-year comparison.

A year ago, we expected the same early pressures, but that was primarily due to comparisons to a strong result early in fiscal 2009 before the economic downturn began to effect ADP.

In fiscal 2011, we anticipate early pressures from the impact of reinstated merit increases and the sales force and service hiring that took place over the second half of fiscal 2010.

These are all terrific reasons for short-term earnings pressures because they're expected to yield positive long-term results.

Now, let me take you through the forecast that you see here on the slide.

We do anticipate an increase of 1% to 3% for total revenues, and an increase in diluted earnings per share from continuing operations of 1% to 3%.

This is compared to the $2.37, which excludes favorable tax items in fiscal 2010.

As is our normal practice, no further share buybacks are contemplated in the forecast, albeit it is clearly our intent to continue to return excess cash to our shareholders, obviously, depending upon market conditions.

For our reportable segments, we anticipate an increase in employer service revenues of 1% to 3%, which reflects a range of flat to slightly up for both pays per control and client revenue retention.

We do expect more favorable pays per control comparables that are anticipated early in fiscal 2011 due to the significant declines that we saw in this metric early in fiscal 2010.

I want to point out that while we are forecasting slightly positive pays per control for the clients on our Auto Pay platform in the US, the pay trends in our international markets are still negative and are expected to offset the anticipated increase in the US pays per control metric we guide to.

So we'll have marginal net downward pressure in fiscal 2011 for ES Worldwide.

We do anticipate up to 50 basis points of pretax margin improvement for Employer Services.

We do anticipate low double-digit revenue growth for the PEO services with a decline in pretax margin due to higher benefit pass-through revenues, and we anticipate high single-digit growth in the annual dollar value of ES &PEO Worldwide new business sales from the $1 billion sold in fiscal 2010.

And for Dealer Services, we anticipate flat to slightly positive revenues and pretax margins.

So I'll now move on to Slide 16, where I'll take you through our Employer Services and PEO Services revenue forecast with a waterfall chart view.

At ADP, the term sales and revenue are not synonymous.

Sales is the dollar value of the 12 month annualized value of the recurring revenue portion of new bookings, whether it be a new client or an additional offering sold to an existing client.

A sale turns into revenue in either the current fiscal year or the following fiscal year, depending on when it is sold and how quickly we get the client implemented.

For smaller clients in SBS and the PEO, clients can be implemented in a matter of days or weeks.

For larger clients and national accounts, it can be 6 to 12 months and even longer for GlobalView.

Major accounts falls in between SBS and National.

Revenue is P&L revenue generated during the fiscal period and includes both recurring, what we refer to internally as processing revenue; and nonrecurring, what we refer to internally as setup or one-time revenue.

Sales start to become recurring revenue once the client is installed.

With that as background, the drivers of Employer Services and PEO Services revenue growth are best depicted in a waterfall chart as shown on this slide.

If you start on the left side of the chart, you will see our fiscal '10 revenues, $7.8 billion when you add ES & PEO services together.

The second column represents sales.

About 50% to 60% of fiscal '10 annual sales value becomes incremental revenue in fiscal 2011.

And about 40% to 50% of fiscal '11 sales will become revenue in the current '11 year.

These percentages are not digitally accurate, so we use 50% on this slide as a proxy for both years to give you an idea of how sales become incremental revenue over the course of two fiscal years.

As a percent of fiscal 2010 revenue, new sales from both '10 and '11 are expected to equate to roughly 13% of new revenue growth.

So if we were able to retain all our clients, we would generate recurring revenue from new sales of approximately $1.1 billion during fiscal '11.

$1.1 billion on a denominator of $7.8 billion is 13% being driven by sales and sales alone.

We do have excellent retention rate and we're anticipating an increase in fiscal '11 to about 90% on average.

When we quote retention, it is a revenue retention metric.

So if we retain 90% of our revenues, that means we lose about 10% a year as depicted by the red bar on the chart.

Other revenue drivers include our annual price increase, which went into effect July 1st at about 0.6% of revenue.

And our client fund balances and other revenues are expected to contribute somewhere between a slight drag of minus 1% to a positive 1% to revenue growth in fiscal 2011.

You can see the impact from growth in client balances is expected to be minimal.

Other also includes the impact of pays per control, which while our guidance calls for an increase in fiscal '11 from which we expect to see a minimal revenue impact, don't forget the impact of an expected decline in the international pays, which somewhat offset our US guidance numbers.

We also expect to see a small positive incremental impact from acquisitions that are currently--that have previously been closed.

Beyond these items, other includes implementation revenues, frequencies of payroll processing, and other peripheral revenue streams, like W-2s and reports, which have all been under pressure.

Taking all these items into account, we are looking at 1% plus or minus revenue growth from other in fiscal year 2011.

When you add it all up, you get 3% to 5% forecasted revenue growth for ES and the PEO combined.

This is the sum of guidance of 1% to 3% for ES and low double digits for the PEO.

Remember, ES and the PEO are credited with interest revenue at a standard 4.5% on client balances in this segment view.

The offset of approximately $180 million between the 4.5% credit to ES and the PEO, and the actual rates we expect to earn of 3.3% to 3.4%, which Chris covered with you, shows up in the total Company results.

Also taking into account, Dealer Services relatively flat revenue guidance and the drag from foreign exchange rate gets you to the 1% to 3% total Company forecast.

While this chart depicts our fiscal '11 forecast, it's really how we think about our business model adding to our recurring revenue base by growing sales, reducing losses, modest price increases, and the normal intrinsic growth in pays and balances from our base.

In more normal times, the sales growth bar would show around 10% sales growth in both fiscal years, which would drive 16% to 17% revenue growth.

And also growth in client balances, pays, acquisitions, and other driving an additional 3% to 5% revenue growth.

Turning to Slide 17, I would like to leave you with some closing remarks before we open it up to your questions.

I think you can all tell on Slide 17, and you can tell from our tone on this call, that I am particularly pleased overall with ADP's results for fiscal '10 and ADP's position in the market.

While not up to historical ADP standards, our results were pretty darn good considering what was working against it.

Namely, the cumulative impact of lost business and the rising unemployment levels in fiscal '09 and early fiscal '10.

A record low interest rate environment, and also the hesitancy of large businesses, especially in the US, to invest capital spending for outsourcing decisions.

What I do want to reiterate is that I believe we have reached an inflection point in most of our key metrics as we conclude 2010.

New business sales posted strong growth, up 25% in the quarter, ending the year up 4%.

We obviously exited the year with excellent fourth quarter momentum, leading to our high single-digit sales growth forecast for fiscal '11.

ES client retention increased for the second consecutive quarter, ending the year up 40 basis points, and we're anticipating retention will be up flat to possibly another 40 basis points in the year ahead.

Pays per control in the US turned slightly positive in Q4, and we are expecting flat to half a point of growth in fiscal 2011.

Growth in average worksite employees in the PEO accelerated in the fourth quarter and turned positive on a same-store sales basis.

The revenue declines in our traditional payroll and payroll tax filing business has abated as growth, again, turns slightly positive in the fourth quarter, although ending the year down 4%.

We continue to be keenly focused on growing our core payroll and tax revenues as part of our strategic growth program.

While these trends do show that things are moving in the right direction, we still have incremental pressures in fiscal '11.

Most significant are the $30 million to $40 million that Chris referenced from the impact of declining market interest rates on our client funds portfolio.

We do have increases in benefits and compensation expenses, and we do have an increase related to our investment in sales and service associates.

And we do have expected continued declines in pays in our ES international business, albeit at a lesser rate than the declines we saw this year.

Most importantly, ADP's business model remains solidly intact.

Because of ADP's highly recurring revenues with strong and consistent cash flow generation, we were able to continue investing in our market-leading solutions during the economic downturn through both in-house development and very importantly, M&A activity.

As a result, ADP's value proposition is strong and we are winning in the marketplace.

In turn, we have increased our investment in the sales force, and in client service, ending fiscal 2010 with positive sales momentum; and importantly, improving service metrics.

While we expect that pretax margins will be under some pressure near term from these increased investments, you can see from our fiscal 2011 forecast that we do anticipate pretax margin expansion in our flagship Employer Services segment as the year progresses, which clearly speaks to the strength of the business model.

ADP's return on equity this year is over 22%, and we anticipate another year of comparable ROE in fiscal 2011.

ADP's AAA credit rating reflects the strength of our balance sheet and the financial stability of our business model.

ADP continues to execute against this five point strategic growth program and remains focused on this strategy for the foreseeable future.

You've also heard me say in previous quarters that it will take several years to reaccelerate the kind of growth we're really looking for coming out of the deep economic downturn we've just weathered.

You've heard us talk about the investments we made in the business that have caused a short-term drag on earnings and margins, but I want to reiterate that these investments are key to reaccelerating our growth engine; and are unquestionably, the right things to do for the long term health of the business.

With that, I'll conclude my--our opening remarks and I'll turn it over to the operator to take your questions.

(Operator Instructions) Your first question is from Gary Bisbee with Barclays Capital.

Hi, guys.

Good morning.

Can you give us a sense as to how large the international piece of employer is and--it was surprising to hear that it was large enough to drag down the pays number to slightly negative.

I guess unless we're expecting employment double dip in the US.

Well, as we said, international in ES, for example, is about 1.3 billion or so $1.4 billion of revenue and that would include Canada as well.

And we are seeing pays decline in all of those countries.

The growth in pays in the US is just small, so it's marginally down instead of being marginally up.

So it's not overly significant, but we just didn't want to give the impression that because our guidance on US pays was up, that that's going to be a lift next year.

In fact, it's just a slight decline.

Yes, Gary.

Okay.

Pay shrinkage in Europe and in Canada is in the order of minus 3 plus kind of number, and we're at least forecasting only nominal growth in the US in terms of pays per control.

Obviously, that could improve or--or stay in that area, depending upon how the economy moves.

Okay.

Can you give us any sense of size?

How we should think about the incremental sales commissions and investments you're making in sales and service people?

Yes, I think the fourth quarter was the biggest place and what you saw in commissions was probably in the magnitude of about $20 million.

You also had merits and benefits and bonus was in around that same neighborhood.

The headcount both in service and in sales was another double-digit kind of number.

So incrementally fairly significant.

And then on top of that, we did make some investments in our products.

We stepped up investments in our product spending in the quarter for products like one and work force now, even spending a little bit more on our tax ware solution pretty much across the board, and that was also significant.

Okay.

Then I'm not sure if you'll comment on this, but there's been a lot of chatter that you're possibly one of the companies that was trying to pursue Hewitt.

Didn't seem to me that it was necessarily something you would be doing, but are you willing to give us any comment, yes or no, on that?

We've got a long history of not commenting on deals like that, but if you think back to our comments around the types of acquisitions that we are targeting, that isn't a strategy to do something along those lines.

Okay, great.

Thanks a lot.

Your next question is from Jim Kissane with Banc of America Merrill Lynch.

Hey, Chris and Gary.

Obviously margins are under a little pressure in the first half and Gary definitely indicated that they will move back up in the second half.

Can you give us a sense of where you'll be exiting fiscal '11 by segment?

Well, let's see, we gave some guidance on the segments with segment increases in ES up to 50 basis points and slightly up in Dealer.

Hard to give anything more than that in terms of exiting, but I think the key is that our overall strategy of 50 basis points of margin improvement is still something that is part of our fabric and hasn't changed.

So, that kind of growth going forward can be expected.

More pressure in the beginning of the year because all the reasons we articulated.

Would you take a stab, maybe Gary, at long-term targets for operating margins by segment?

Where the business actually should operate on a normalized basis?

Sans acquisitions and sans the kind of economic activity that we've seen in the last two years, I think you should see a compounded 50 basis point improvement on a year-by-year basis.

And depending on where you're starting from, you can do the math from there.

Yes, if we had internal revenue growth in the mid to high single digits as kind of a minimum the scale we get in the business makes those kinds of margin improvements pretty reasonable to expect.

Again, acquisitions can change that one way or the other and that's clearly the path that we're back onto, as demonstrated by our forecasts and the way we've talked on the waterfall chart, that we expect to get back to those kind of levels, assuming some kind of a reasonable economic recovery.

And you recently stepped up the buyback pretty aggressively.

How would you characterize your appetite for stock buybacks right now?

I think going forward, it's part of the comprehensive capital utilization.

So why don't I take this opportunity to go through that.

We see cash flow from operations being in the 1.6, 1.7 level.

Dividend allocation is consistent with what we would say in the past with anticipated increases around the size of EPS.

So that's going to take you in the $670 million to $700 million type basis.

Then you have let's say $300 million to $400 of acquisition typically a year, so we would expect to do that this year on top of the 450 to 500 that we announced already in the Cobalt and in Workscape.

So if you do the math and you look at the capital expenditures and the software amortization of around $250 million, you're left with plenty of room, given that we have $1.8 billion of cash.

We'll work that cash number down.

We can do 300 to 400 of share repurchases readily in that--depending on acquisition activity and everything else.

Okay.

That's great.

If I can get one last one, kind of goes back to Gary's question on the international business, but maybe another way to ask it, what portion of your overall ES is now Auto Pay?

Is that still a good proxy for us to kind of track employment trends at ADP?

It's still the best proxy we have, Jim.

It's not 100% accuracy--accurate.

Because in the national accounts area, we still have a lot of clients from the Pro Business acquisition.

We also have clients that run on our enterprise platform, some of our large, more customized payroll clients.

But in the grand scheme of things, it's still the vast majority of the pays in majors and nationals.

At the low end of the market, we've got Easy Pay and our new Run product, which is getting a lot of traction.

And the numbers even though they are not statistically valid in Easy Pay and Run versus the Auto Pay, are in the same order of magnitude.

So if we were seeing trends either in the other segments or in Easy Pay Run that we thought would dramatically distort those numbers, we'd think by talking to you in a different way.

But I still think it's a good proxy.

Okay, great job.

Thanks.

Your next question is from Glen Greene with Oppenheimer.

Well, thank you.

Good morning.

Just wanted to drill down a little bit on the sales environment.

Obviously the 25% year-over-year looks like a great number.

You did have very easy comparisons, so just wanted to get a sense for the environment relative to the easy comparisons, maybe a little bit of contrast across the segments.

It sounded like nationals may be one area that might be still slow.

Well, if you recall, if my memory serves me correct, we were down high 20s or something in the fourth quarter of last year, and that compared on average of about minus 15% for the full year.

So if you thought the average decline over the quarters was--call it down 15 give or take, even though we were still at plus 25%, which would have been flat, let's say, to the year before '09.

So it's still like a 10% improvement over the year average, which I think is really the way to think about it.

Okay.

And across the segments, just the small, medium?

I would--as we put, I think, either in my comments or the release, we were up double digits in all the major segments.

Even nationals, which--it sounded like your commentary is a little bit cautious there.

Well, it is cautious.

That's probably where we had the easiest year-over-year compare.

So that's--but it was still up double digits.

Yes, strong double digits.

But again, you have to also remember, you have the psyche of the salesforce.

So if national accounts was the unit in sales that had the lowest performance this year, a lot of the sales folks are waiting for next year in terms of how they book their business and that kind of thing.

So typically the--if a salesforce is under water going into the end of the year, they tend to kind of save what they can for the following year as opposed to put it in.

Where it's guys who are running to maximize their bonus so their sales incentive trips tend to pull things forward.

So in general, I'm very pleased with the results in the fourth quarter on sales and I think it gives us some wind at our back as we go into fiscal '11.

But I just still remain a little bit cautious in national, only because capital spending is at the high end of the market across the board, is still kind of cautious.

And big accounts are just waiting to see what this economy's going to do and what happens in Washington.

And similarly, the retention improvement, the 160 basis points, I can recall when you had a quarter that strong.

And I think the drag is typically on the small business side.

Maybe you could contrast by the segments where you saw the improvement.

I was nothing short of ecstatic on the 160 basis points.

Ecstatic is not the kind of term you normally like to use on these kind of conference calls, but I was really pleased with that.

In fact, in the low end of the market, the retention increase for the full year was actually even.

I think it was up a couple of points year to year in the SBS/PEO range.

So we're really pretty pleased with retention across the board.

In fact, if anything, it bounced back faster than I anticipated, and we are expecting 90% plus kind of retention rates for next year, which gets us back kind of close to the record levels where we were before this whole downward slide started.

I'm just trying to reconcile the small business side.

I thought bankruptcy trends were still a pretty significant drag, and I'm just wondering how you're sort of improving the retention so much on the small business side.

Better service.

Okay.

We'll leave it at that.

Congrats.

Thanks.

Your next question is from Rod Bourgeois with Bernstein.

Hey, guys.

Just on the margin front, can you quantify how much margin impact you expect from the cost reinstatements in your fiscal '11 guidance?

In other words, I just want to get a read on how much your fiscal '11 margin improvement is being impaired by these cost reinstatements related to merit pay and salesforce and client service?

Yes.

Well, the one number we gave you is a 35 to 40 of the interest.

In the benefits and compensation, lots of puts and takes with merit and bonus and everything else, but that's in the neighborhood of about another $20 million in drag.

In the sales and service investments, it's a little bit north of that.

And then in the--in the pays decline in ES is a couple million kind of neighborhood.

Okay.

So in other words, absent those cost reinstatements, you would be planning for well above 50 basis points of margin expansion in Employer Services in fiscal '11, is that an accurate way to look at it?

That's generally the way the math works.

Okay.

I mean, are there some one time cost benefits that you're getting in fiscal '11, or is there nothing abnormal that's going to help you on the cost side or even on the margin side in general?

Well, we get some benefits because we had a big swing in the fourth quarter also from the standpoint of--you got to remember that in fiscal '09, our bonus payouts across the enterprise were considerably below our initial first of the year targets.

I think they averaged, call it 80%.

This year, they are going to average closer to 120% because we're back on plan and people are doing.

And then the following year, we obviously plan at target again, based upon our internal metrics.

So you do get some swings in that regard, and we did have some investments in the fourth quarter with some IT spending that we thought could really pay back next year, where we inputted that in the fourth quarter.

But other than that, nothing big that you should be concerned about.

Okay, great.

In the small business segment, do you think you're gaining share consistently at this point in the small business segment?

And if so, is this largely due to new products, like Run, or also to better sales tactics?

Can you elaborate on what you're doing competitively in the small business segment?

Well, we did have positive unit growth for the year in the small business segment, which I think speaks to the fact that we are gaining share.

Our small business segment was basically close to flat for the full year in terms of new business sales and that's with 10% to 15% fewer headcount than they had in the previous period.

So clearly Run is hitting home.

The sales guys love it.

We're rolling out our mobile strategy for Run in the next month or so, and I think it's going to continue to have the extremely positive momentum in the marketplace.

Okay, and is the discounting activity and promotion activity in the market, has that attenuated versus--in a big way versus a year ago, or--?

It's better than but it's still there.

Okay.

And is that mostly due to competition against the regional competitors, or some of your--?

Our major price competitor has been and remains the regional competitor.

All right.

Thank you, guys.

Thanks, Rod.

Your next question is from Kartik Mehta with Northcoast Research.

Good morning.

Gary, I wanted to get your thoughts on the ES side of the business.

Have you seen any change in--fundamental changes in the business because of what's happened over the last two years?

And by that, I mean not pays per control or any of the metrics, but just how the business--you're competing for business or how others are competing for the business?

I think what has--is probably a little bit different is the emergence of the regional price players.

When times are tough, some of the value and extra add-on products and those kind of things that ADP works very hard on, if you're trying to struggle to make it through the night, you're not as worried about that.

So, we're testing some things to try to see if there are better ways to address that price sensitive part of the market.

But the fundamental way we go to market other than trying to optimize more lead flow through the internet and sell more through telesales, it really fundamentally hasn't changed.

And then in FY '11, let's say the market gets better, the economy gets better, and the top line for ES is better than you anticipate.

Would that result in margins improving, or would you--or are there other investments you would like to do, so we shouldn't expect margins to improve even if top line comes in better than what your current guidance is?

Well, I think there's always a trade-off that you make.

Organic--increased organic revenue growth clearly makes it easier to drive margins.

No question about it.

It also--then you're also given the choice of whether you want to try to expedite spending in R&D to bring more product to market faster, or you want to take that margin to the bottom line.

And historically, we tried to do some of both.

And so I think to directly answer your question, it should improve margin and it's a question of how much we want to invest versus bring to the bottom.

That's always the trade-off.

To do 50 basis points a year, year in, year out, you've always got to have your eye on the ball for two, three, four years out.

And you got to start thinking reinvestments early on.

So it's kind of a high class problem to have.

And then just a final question, Chris, on the Dealer business.

It sounds as though you're having a lot of success on the international side and that part of the business is going to continue to increase.

Is there a margin impact as the international business on the dealer side continues to increase either positive or negative?

Well, the margins in the international business aren't as great as the US business in dealer, but are improving.

So that level of improvement is probably helping us because we see those margins improving year-over-year.

So I think that offsets the increased growth, but we're still getting growth in the, or we would expect over the next five years to get growth in the core business as well.

Again, in Dealer--Dealer US is actually doing remarkably well in terms of new sales.

They had very strong market share gains in terms of new bookings versus losses in the US, and the real issue with the US in the first half of the year particularly is the second half of the bow wave of all the GM and Chrysler closings.

But as new car sales get back to the $11 million plus level that they are at today, we would expect that--to albeit toward the second half of the year and for Dealer US to be in a more positive position as we exit FY '11.

Thank you very much.

Okay, thanks.

Your next question is from Jason Kupferberg with UBS.

Thanks, good morning, guys.

And Gary, just wanted to pick up on a comment you made a little bit earlier, kind of a longer term question, but I think you had made reference longer term to mid to high single digit internal growth.

And I know that's pretty consistent with what you guys had talked about as a long-term target at your analyst meeting back in February.

I guess, how do you get the comfort and the confidence over the long-term that you guys can get back there?

I'm trying to just separate cyclical from secular factors here, and maybe it's market penetration rates and your view that those are going to increase materially over time, particularly in the ES business.

But if you can just help us understand how you guys get mid to high single digit over a sustained period longer term, would love some thoughts there.

Well, let me--clearly the waterfall chart would help get you there, but you have to remember that two years ago, we sold 1.150 billion before the economy started going down.

So take 1.150 billion and put 8% to 10% growth on that and do the same waterfall chart in your own math and you can--keep 90% retention and get 1% to 3% positive balance and employment growth, and go do the waterfall chart, and you can get there in a pretty big hurry.

So we're pretty confident we can get back to those levels.

The Employer Services marketplace is like globally an $80 billion to $90 billion marketplace, split pretty evenly between the US and international.

And we're really also starting to get very serious about pursuing the benefits market, as well as the GlobalView in international expansion are starting to kick in.

So, when you look at the products that we've added in benefit and performance management and learning and those kinds of things, coupled with our core HR and time and labor management, we're really not too concerned about the potential.

We've just got to go get the people and the resources in place and go execute once the economy gets back in decent order.

Okay.

That color's helpful.

Thinking about the competitive landscape in benefits outsourcing and HR BPO, now that you guys have made the acquisition of Workscape on the ben admin side and now you've got AON in the process of buying Hewitt.

How do you see the competitive landscape in ben admin and HR BPO potentially changing as those two competitors come together and you guys integrate Workscape?

Yes, I mean, we're not in a clear outright strategy to go chase Hewitt.

That's not the strategy.

We clearly are in a strategy to grow the business and even below 20,000 pays, we sometimes have clients who need a more robust complex benefits engine.

I think Workscape will help us below 20, but it will also give us the ability to go further up market.

That's not a frontal assault chasing Hewitt, it's just giving us the ability to grow the business more aggressively.

Do I think we'll be head to head with Hewitt more often than we used to be?

Probably.

But again, I don't expect it to be all the time.

And a lot of what we try to do on benefits is to drive penetration in our base as opposed to running out selling stand-alone benefits admin, which is more of what Hewitt does as opposed to what we're doing in terms of driving penetration into our client base for TLM, HR, and benefits admin, performance planning, etc.

Last one for me, on the ES revenue growth, I think you're looking for 1% to 3% in fiscal '11.

Not sure if I missed this, but did you give the split between the core and the ancillaries for that 1% to 3%?

No, I didn't, but I think you can take this year's results and a ratio that we have given you for beyond payroll and core payroll and tax and kind of do that same kind of math for the next year or two and get pretty much to the same result.

Okay.

Makes sense.

Thanks, guys.

Your next question is from Adam Frisch with Morgan Stanley.

Hi, it's [Glen Voder] for Adam.

Thanks for taking my call.

Hi, Glen.

Looking at the outlook from a high level, last year we started with a lot of uncertainty, but as the year progressed, the outlook was gradually ratcheted up.

This year, still starting with uncertainty, but we are in a far better situation than we were 12 months ago.

All that said, is it unreasonable to assume that you're planning to follow the similar process or mindset as it did last year, when you laid out the goals for guidance?

I think ADP has a history of trying to make its earnings forecast.

And our philosophy in terms of the guidance and our operating plans have not varied this year versus previous years.

What I would say, in the planning process we go through, particularly the beginning of the year, we look at upsides to certain metrics and downsides to certain metrics, and we try to have a reasonable range.

To give you an example, you tell me what's going to happen to foreign exchange and the impact on revenue this year when a couple of weeks ago we're at $1.20 and now we're at $1.29 for the euro.

That's significant change that could swing the revenue forecast by 1% in and of itself.

More impact on revenue than the bottom, but still just an example of the kind of variables that you have to take into consideration.

So I think it's the same thing we did last year, went through that same process this year.

My apologies if you covered this, but can you update us on the salesforce build plans?

I believe it was expected 300 to 400 people add.

Where are you at in that process?

And are there any tangible benefits you can point out that have come out of your efforts yet?

Well, I mean, we clearly indicated we were going to add 300 plus heads in sales, and again, , began that process in the third quarter of fiscal '10.

We have, we do have most of those folks in place, and I think clearly you saw the 25% increase in the fourth quarter; and clearly, you saw the high single-digit forecast for next year, which is driven both by increased productivity in the ones we had, as well as the added benefits of the once we've

Last one for me.

Is your investment plan and what you've laid out in the--in progress so far, is it pretty static versus what the backdrop does, or if we have a faster than anticipated rebound, could that be expanded or more of you built in and vice versa if--or conversely, if the economy maybe takes a step back?

I think we've crossed that point already in terms of--we hit the inflection point on all the metrics we laid out and when you think about it, it's one after the other of our metrics hit a inflection point in the fourth quarter.

And I think the key to growth coming out of a downturn is making sure you invest early enough to lay the groundwork for that growth.

We've pulled that trigger in the second half of the fiscal year, and I think it prepares us well for an inevitable return with the question of how quickly we see it, but we're seeing signs of that with the inflection of the metric.

Okay.

Thank you.

Good luck in the quarter.

(Operator Instructions) Your next question is from Julio Quinteros with Goldman Sachs.

Good morning, Julio.

Hey, guys.

So, just one last question on my side, just on the--thinking about the price commentary that you guys made.

It sounded like you had suggested minimal price increases.

I wonder if you could sort of break that up in terms of new clients versus existing clients.

And then if possible, also try and characterize the pricing environment in the SMB versus the large enterprise side, if you will.

The 0.6% is clearly all just to the client base.

Our book prices really haven't changed across the board.

So I'm not sure if that answers your question; but in addition, I think the pricing environment has been most difficult under 100 employees.

And clearly when you're selling payroll and only payroll, when we're selling multiple products like Work Force Now or we're adding time and labor management or some of our other benefits product, pricing pressure is not as severe because you've eliminated for the most part the regional competitors in the equation.

National accounts, you're dealing with the procurement department most of the time anyway, so they have been a little tougher the last couple of years than they were before, but they weren't easy before that.

So we've seen some pressure, but most of those are contractual relationships.

Most of them are two to three applications at one time.

So again, it's not anything that's overly different than historic.

And clearly that's a trade-off.

Price increase and retention is the trade-off that you make, and we're very pleased with the fact that the retention is going in the right direction, which is really positive.

If you look back to that waterfall chart, that's a key driver.

So, it's a consideration of not wanting to pile on too much on the price increase and stall that retention--

We clearly gave retention the nod this year as opposed to driving higher price increases because the lifetime profitability of keeping those accounts and selling additional services, it just makes all the sense in the world.

Yes, that makes a lot of sense.

Just--can I just throw in a quick question on healthcare reform?

Any sense on how that's driving enterprise thinking at this point in time?

Are you guys seeing anything new in terms of demand or opportunities there?

Well, I think the demand opportunity right now, where we're getting a lot of inquiries on what does all this mean to me, and the regulations are still being developed.

I think it's clearly going to drive a lot more reporting, both to your employees as well as to the government.

It's going to imply a lot more compliance risks and typically anything around compliance and dealing with the government helps our new business.

So over a multi-year period, as we move toward 2014 when the last pieces of it are implemented, I think it's clearly going to be a net plus to us, even though I'm not thrilled personally on the higher taxes.

Okay.

Thanks, guys.

See you next week.

Your next question is from Tien-Tsin Huang with JPMorgan.

Hi.

Thanks.

Gan you hear me?

Yes, good morning, Tien-Tsin.

Sorry about that.

Thanks for bringing back the waterfall slide.

I'm happy to see it, always very helpful.

Glad to make another appearance.

Yes.

I just have a couple quick ones.

Just the benefits business, I'm curious, how big is that now?

And who is your primary competitor in that sub-20,000 market?

We don't disclose the actual subset of the different businesses, just like we don't subset TLM.

It's multiple hundreds of millions of dollars, but we don't disclose the actual number.

The competitors underneath are all over the map Mercer, AON, Hewitt.

There's regional kind of players.

Most of the people that are in the compensation consulting business do that business.

There are a lot of TPAs that do that business.

In major accounts, a lot of the insurance brokers and insurance agents actually do that.

In fact, we get a lot of leads from the mid-market insurance agents and brokers in that business.

And we deliver that benefits business over HRB, which is the employees platform, as well as we have a new health and welfare service engine in the below 20,000 market.

So it's really all over the map, Tien-Tsin.

Obviously if you move up market, Hewitt is the predominant player.

I ask because it seem like and you tell me, is it easier to sell benefits from your position as a payroll provider in that you're providing some of those--you have some of that data already versus some of the players that you named?

I'm curious just to see how big the benefits--?

Yes, absolutely.

What you have is no different than time and labor management.

If you have an integrated database with HR payroll, then selling the benefits module is clearly easier and more efficient for the client.

So it's clearly important.

I mean, that's--Hewitt tried to get into the payroll business.

They didn't do that because they wanted to go run around selling standalone payroll.

They wanted to sell, I would imagine, an integrated payroll and HR product.

So clearly it's a benefit, and the major thrust of our strategy typically in benefits is to sell it with payroll HR upfront or sell it back into the base.

We don't spend a lot of time chasing standalone benefits opportunities.

Got it.

Okay.

Thank you.

Your next question is from David Grossman with Stifel Nicolaus.

Thank you.

Gary, just going back to your waterfall chart and some of the commentary you made about it, is it realistic to get to more normalized ES growth rates in fiscal '12 if the bookings growth stays in this high single, low double-digit range year-over-year, and you don't see any real material degradation in the retention number?

Well, if retention were to go up 50 basis points and sales were to grow up two years in a row 8% to 10%, then, yes, we can get pretty close to the high single digits, particularly if you don't have the drag on the right around pay shrinkage and balance shrinkage, then, yes, you can get there.

Well, I was thinking more of just ES alone, taking out the balance issue.

Well, the balance is the balance growth itself that they get the benefit of even if it's 4.5%, but they get the benefit of growth.

Right, but it's--it's really pay growth rather than balance growth.

And obviously if you're selling--if your base is adding 1% to 2% in terms of employment growth, it also helps.

I think 1% growth in pay is worth $20 million to $25 million.

Right.

And then similarly, I think you talked about the Dealer business potentially regaining some momentum here, as you anniversary a lot of stuff by the end of the year.

So if that's the case, I mean, similarly, so the Dealer business be reasonably well positioned in--once we get past this stuff in the second half of the year, or are there other--?

That is definitely the plan.

The other subtlety in dealer That you probably don't realize, that our retention rate in Dealer at the site level, the dealership level, is over 90%.

But what happened over the last two years, is our retention rates on revenues slid down into the low 80s because of all the out of business and dropped applications and shrinkage in the other applications that we had.

So as that stabilizes and people stop dropping applications, start adding applications, and dealership transaction--transactions start to increase, then we'll get as much lift in Dealer from higher retention as we will from new sales.

So, again, that would certainly be our plan, that that's the way it would play out as we get into '12.

As you do your models, I would just point you back to what Steve would have taken us through in the February call, that these impact of the--of dealership closings, the bulk of it comes through in fiscal year '11, but there's a little bit of a hangover, $10 million-ish kind of hangover in fiscal year '12.

So the bulk of the--the impact is--will be behind us at the end of '11, but there is still a little bit of a hangover.

I got it.

And one other question.

On the international business I think Chris, you mentioned, it was about $1.3 billion.

I assume that includes GlobalView as well.

How should we think about the growth of this international--the pays per control issue currently aside, how should we think about the growth of the international business versus the domestic business in ES?

I think it has the potential to grow slightly faster than the--than the US business.

It's been growing in the mid to high single digits, even throughout this down period and the shrinkage that we've seen.

And we expect it to grow faster than the US business in the year ahead.

I don't see any reason why that should change.

That's both in the in-country best of breed, as well as in GlobalView, which we haven't talked about on the call, but we're encouraged by the signs in GlobalView in terms of the sales cycle.

I'm sorry, was that mid to high single-digit growth in the combined payroll and non-payroll services, or is that the total number?

Most of international is payroll.

Okay.

So total mid to single--mid to high single-digit growth during the downturn?

Yes, it went down in '10 compared to '09, and we're expecting it to be mid single digits or something I think in the year ahead.

Even within '10, we were still mid--low end of mid single digits kind of in international.

But that was down from about 9% growth in fiscal year '09.

Okay, I got it.

Yes.

Just one last thing on the share count for you, Chris.

You had some pretty aggressive repurchases recently.

Can you give us a sense of where the share count ended the quarter, where it is right now on a fully diluted basis?

Yes, I can.

Hold on a second.

I think it was right around 500, but let me find that.

If I'm looking at the right thing on a dilutive basis, 503.7, on a basic, 500.5.

Great.

Thanks very much, guys.

We have time for one final question.

Your last question is from Mark Marcon with RW Baird.

Just under the bell.

Lot of multiple questions going on.

Yes.

Can you just talk a little bit about--on the waterfall chart, what would you anticipate would be the--the sort of price increase that you would need in order to get to that mid to high single?

I mean, I don't--we're at 0.6 this year and I would expect going forward we would be closer to the 1, 1.5 as opposed to our historical 1.5 to 2 as we pull out of this thing.

But I think that's probably the way to think about it.

Okay, and then on the regionals, how often are you--are you selling multiple services against those regionals to the small clients as opposed to just pure core?

And why is it so difficult to not get a premium relative to those regionals, given how strong your balance sheet is, the size, the scope, the security that you can have with ADP?

It still seems to me that you should be able to sell on a higher price relative to those regionals given just the tremendous value that you would give a business owner in terms of the security.

We do.

You got to keep in mind that the economic pressures, some of those smaller businesses, which are single jurisdiction, fewer payroll, are worried about making payroll or staying in business.

So a couple of bucks a month is going to make a difference to them.

And so you're going to see more pressure on that; but you're absolutely right, in normal times, that's not going to be as big an issue.

And we can certainly show our value, as I lose my voice.

If you're selling ASO or PEO, it's not an issue.

But to Chris' point; and, again, the bigger pressure for us on the low end of the market with the regionals is our base, where we don't know they are there.

So we're charging somebody a $1 and they come in at $0.60 and convert them tomorrow, that's the biggest challenge that we have.

If we normally charge a $1 and we're competing against them at $0.60, then you're right, we can generally win the business at $0.75 or $0.80, but we can't win it at a $1.

And then how often do you have a cross-sell in addition to just the core payroll?

Below 20 pays, very infrequently.

As you move up market, you sell time and labor management and some unemployment cost management, but basic--but then you start moving into the--basically the ASO offering and then it's, then it's--you're kind of replacing the payroll department.

Great.

And then can you comment a little bit on the size of Workscape as we feather that in?

You can--again, it hasn't closed yet, so we're out in front of ourselves just a little bit.

You can expect probably in the neighborhood of $50 million revenue for the year if we close next month, so part year.

I think in the neighborhood of $50 million for the remaining part of the year, or 10 months let's say.

Okay, but very little in the way of profitability?

No, just right at the break-even after the dilution from intangibles--amortization of intangibles and the like, but it's right on the cusp of accretive and dilutive.

Yes, you've got los of interest income, plus you've got the intangibles that you've got to write off.

Sure.

But the base business, if you look at where escape is as a base business, good margins, similar to the rest of our beyond payroll kind of offering.

Great.

And then it sounds like if we--if we see a 2% to--or 1.5% to 2.0% GDP growth, by the time we get out to F '12, we should get back to normal, is that correct?

I hope you're right.

That's the earliest request for guidance for next year, Mark, I've ever heard.

But we hope you're right.

It wouldn't be too far off though, right?

No, it wouldn't be.

Okay, perfect.

Thank you very much.

Thank you very much.

This will conclude the Q&A session.

I would like to turn the call back over for management for closing remarks.

We appreciate everybody attending today.

I think you can tell from the tone of Chris and my comments that we are very pleased with the fourth quarter in terms of the inflection point that we crossed.

I am especially pleased with the sales results, as well as the retention results, and I think it positions us quite well for a good step-off for the first quarter in terms of revenue line as we move into next year.

So we look forward to giving you an update on the acquisitions at our first quarter call in late October; and if not, have a good week.

This concludes today's conference call.

You may now disconnect.