Thank you, Crystal. Good morning, everyone, and thank you for joining ADP's Q3 fiscal 2021 earnings call and webcast. Participating today are Carlos Rodriguez, our President and Chief Executive Officer and Kathleen Winters, our Chief Financial Officer. Earlier this morning, we released our results for the quarter. Our earnings materials are available on the SEC's website and our Investor Relations website at investors.
Adp.com, where you will also find the investor presentation that accompanies today's call. During our call, we will reference non GAAP financial measures, which we believe to be useful to investors that exclude the impact of certain items. A description of these items along with a reconciliation of non GAAP measures to their most comparable GAAP measures can be found in our earnings release. Today's call will also contain forward looking statements that refer to future events and involve some risks. We encourage you to review our filings with the SEC for additional information on that could cause actual results to differ materially from our current expectations.
And with that, let me turn it over to Carlos.
Thank you, Danny, and thank you, everyone, for joining our call. This morning, we reported another strong set of quarterly results that were ahead of our expectations, with revenue growth of 1% and adjusted EBIT margin down 90 basis points, combining for a modest adjusted diluted EPS decline of 2%. This of course was the final quarter before we begin to lap the impact of the pandemic, And I'm very proud of our organization's ability to have delivered positive revenue and earnings growth for the 1st 9 months of the fiscal year despite unprecedented challenges in the economy and the labor markets. I'll start with a review of some of our key performance drivers and an update on the operating environment we've been experiencing. This quarter, our Employer Services new business bookings reaccelerated and we delivered 7% growth, a strong result for the team.
The improved year over year growth compared to the Q2 was driven by every business unit. Importantly, we ended the quarter on a particularly strong note with record March sales performance that was well above Pretandemic fiscal 2019 levels, which we see as a positive signal for client engagement in the quarters ahead. The selling environment will likely continue to evolve month to month and with differences on a regional basis as COVID cases and the reopening trajectories stabilize. We are optimistic that with vaccine deployment progressing steadily, Our clients are in the best position since the pandemic started to begin making buying decisions again. Also encouraging is that we started to hold more in person sales meetings with over a third of our field sales force having conducted at least one in person meeting this quarter.
We expect in person engagement to pick up over the coming quarters as well. With our Q3 performance and the trajectory we see in Q4, We're pleased to narrow our bookings range around a higher midpoint. We now expect growth of 20% to 25% for the year versus 15% to 25% prior. Achieving this growth rate would put us at 1st full year sales productivity close to 90% of pre pandemic levels, which would be an incredible achievement for our sales associates. Our retention, which has been a key driver for our strong results this year, was a positive development once again and performed slightly ahead of even our revised and elevated expectations.
Retention remains at record levels. Many of you have been asking about how sustainable this improved retention performance is for ADP. It's a great question and hard to answer with precision given the unpredictable environment we're all in. But our belief is that during the pandemic there have been some temporary benefits from client hesitancy to make major decisions, plus lower out of business losses given government support in North America and Europe. But we also believe there will be enduring benefit resulting from the record client satisfaction we've seen as our product and service Both have continued to improve.
Next quarter, we expect to be in a better position to talk about retention expectations for fiscal 2022. But clearly, we feel very good about what we've achieved this year. On the back of our record Q3 performance, we're pleased To raise our guidance and now expect full year retention to be up at least 125 basis points from 2020 versus our prior guidance of up 100 basis points. As a reminder, this guidance would put us in record territory for the year. Moving to the overall employment picture, Our pace to control metric performance was softer than expected as it improved only modestly from Q2 and rounded again to a decline of 6% for Q3.
But that said, we are encouraged by the recent trends in employment data, particularly in the U. S. As more of the economy reopens. As of April, we've now started to lap the pandemic affected taste per control figures and have been pleased with the positive year over year growth we've seen so far in Q4. So we're making no change to our full year pace per control outlook of down 3% to 4%.
I'd like to now provide an update on some of our key product and strategic initiatives. In February, we announced the launch of Roll, a new payroll and tax filing product for small businesses. Roll combines the simplicity of an AI driven chat based interface with the power and scale of our payroll and tax filing expertise, sold digitally and delivered through an app only interface. With this offering, we believe we can expand our reach into the U. S.
Small business market beyond the businesses we've historically targeted with Run. As the target clients for role users are with simpler needs, we prioritize a mobile first fully chat based interface. This is a different set of users compared with the target clients for a more comprehensive run solution. We look forward to sharing RUL's progress with you in the quarters ahead. Parallel to this, we're also making great progress in increasing the amount of digital onboarding we're conducting with Run.
And we've continued to scale up this capability since we discussed it with you during our Innovation Day in early 2020. This quarter alone 15,000 or over 1 third of our new run clients onboarded themselves digitally, enabling a better experience for the clients as well as cost savings for ADP. This initiative is just one of many digitally enabled efforts we are making to drive improved efficiency at ADP. And as we've mentioned in the past, we have more to look forward to as our digital transformation continues. Our next gen payroll engine also continues to scale up and demonstrate success in the mid market.
In this quarter, we sold 100 more clients and continue to expand our capability set to accommodate more complex payroll needs. We now have over 400 clients live on Workforce Now with our next gen payroll engine and we expect to accelerate this further in the coming quarters. In addition to its improving position in the mid market, Workforce Now continues to scale nicely into the enterprise market. In this quarter ADP was recognized as a customer's choice leader in Gartner's voice of the customer for cloud HCM suites from North American companies with 1,000 or more employees. This is a great milestone for the team and strong validation of the flexibility of Workforce Now as we've continued to sell it to larger clients in recent years, while of course concurrently scaling implementation and service of our next gen HCM platform.
Ultimately, these product enhancements are all designed to drive growth. And I'm happy to report that this quarter, our client count reached 900,000, a remarkable achievement, particularly during the pandemic. This is a testament to both the strong retention we've experienced this year as well as better than expected year to date sales performance. We're very proud of our execution so far this year we look forward to putting the impact of the pandemic behind us. On that front, we recognize there's a lot of interest in our potential growth and earnings profile for next year.
As you can appreciate, it's still early to discuss fiscal 2022 with any precision given the dynamic environment and the fact that we're still going through our operating plan process for next year. But Kathleen will share some additional perspective on fiscal 2022 in a moment. I'd also like to share that we plan to host a virtual Investor Day later this calendar year, where we plan to update you on our strategy and discuss our post pandemic aspirations. We are tentatively aiming for November and we'll share a date shortly. For now, we remain focused on maintaining our very positive momentum as we close out this fiscal year.
And with that, I'll now turn the call over to Kathleen for more detail on the quarter and the outlook.
Thank you, Carlos, and good morning, everyone. Q3 represented another strong quarter for us With our performance on both revenues and margins driven by excellent execution across the organization, our revenues grew 1% on both a reported and organic constant currency basis, which represented a slight acceleration versus Q2. We delivered this growth despite incremental drag from client funds interest versus Q2 as well as some incremental pressure related to our usual seasonal Q3 revenue drivers such as annual W2 forms. I'll share more on these in a moment. As anticipated, we also experienced a margin decline as we continued to make additional growth and productivity investments And as we experienced a more significant client funds interest revenue decline compared to prior quarters, but the 90 basis points of margin decline was better than our expectations.
Combining this revenue and margin performance, our adjusted EBIT was down 2% to 1,100,000,000 Our adjusted effective tax rate increased slightly compared to the Q3 of fiscal 2020 as we had less contribution from excess tax benefit on stock comp, But our share count was lower year over year driven by share repurchases and as a result our adjusted diluted earnings per share of $1.89 was down a modest 2% versus last year. For our Employer Services segment, Revenues declined 1% on a reported basis and 2% on an organic constant currency basis, demonstrating steady growth rates compared to last quarter despite additional pressure from 2 sources, as I just mentioned, both of which were fully anticipated. 1st was greater pressure from client funds interest. Our Q3 has a seasonally larger client funds balance than other quarters of the year. And as a result, it skews more to cash and cash equivalent investments where interest rates have been pushed down to near 0.
As a result, our client funds interest declined 32% versus last year, With average yield down 70 basis points, more than offsetting our strong balance growth, which improved to 6%. 2nd was a headwind related to seasonal Q3 revenues like the annual Form W-two, which effectively makes our Q3 slightly more sensitive to pays per control and employment turnover trends in other quarters. Looking past these two headwinds, underlying ES performance showed sequential improvement, driven in part by continued record level retention that was partially offset by slightly lower than expected pays per control. Employer Services Q3 margin was down 120 basis points compared to last year, ahead of our expectations. We continue to invest in headcount to support our growing client base.
We also started lapping lower incentive costs from last year And we experienced greater pressure from the lower client funds interest revenue compared to the first half of this year. But at the same time, we kept our focus on prudent cost control and continued to execute on our transformation initiatives. Our PEO also had another very strong quarter. Average worksite employees increased sequentially to 594,000. This was flat on a year over year basis and this strong result was supported by retention outperformance and a slight sequential improvement in pace per control, which was more impactful than what we experienced in our ES segment.
Although PEO sales growth still lags that of our ES segment, We did see an improvement in sales performance in Q3 and are encouraged that unit sales growth for the PEO was positive. Our PEO revenue growth meanwhile was very strong at 7% and revenues excluding 0 margin benefits pass throughs grew 10%, both ahead of our expectations. Once again, this strong performance benefited from higher payroll per WSE supported by employee mix. Additionally, this quarter, our revenue per WSE was further supported by a more favorable SUI rate environment as some states have started to increase SUI rates. Workers' comp rates remain a headwind in the quarter.
PEO margin increased 100 basis points in the quarter, driven by revenue growth and continued expense discipline, as well as roughly 50 basis points of contribution from workers' compensation reserve true ups. I'll turn now to our Our updated guidance for fiscal 2021. With only 1 quarter remaining, we're pleased to raise our guidance midpoints for several key metrics and narrow our guidance ranges for others. Beginning with the ES segment, we now expect revenue to be up about 1% for the full year versus our previous expectation for flat to up 2%. There's no real change in our revenue expectations And this revised outlook includes the impact from the following drivers.
We now expect our ES New business bookings to be up 20% to 25% compared to our prior forecast of up 15% to 25%. This reflects Q3 sales performance that came in slightly ahead of our expectations and our better line of sight into Q4. We're very happy to raise our bookings guidance again. And although this doesn't materially change our revenue expectations for this fiscal year, It does add to our optimism about next year. We now expect our ES retention to be up at least 125 basis points versus up 100 basis points prior.
Similar to our updated bookings guidance, this improvement is driven by our Q3 performance and encouraging visibility into Q4 retention. We are raising our client fund's interest expectations slightly and now expect $415,000,000
for the
full year. We've seen the interest rate environment improve compared to what we had contemplated last quarter. However, those improvements only apply to our new fixed income purchase over the last few months of the year. There is no material change to our expectation for 1.6% average yield in our client funds portfolio for fiscal year 2021. We are encouraged by the signs of improvement in the U.
S. Labor markets. But as we mentioned, over this last quarter, pay per control did underperform our Q3 expectations modestly. We have tempered our Q4 expectations slightly as a result, but our full year fiscal 2021 outlook remains to a decline of 50 to 75 basis points. While we experienced stronger than expected margin performance in Q3, We will reinvest some of this on discrete projects in Q4 to further accelerate our growth, investing, for example, in our NextGen rollout, WiseCard program and additional marketing advertising.
For PEO SENT, We now expect revenue up 5% to 6% versus our prior forecast of up 3% to 5%, and we expect average work site employees to be up 1% to 2% versus our prior forecast of flat to up 2%. We also expect our revenues excluding 0 margin pass throughs to be up 5% to 6% compared to our prior forecast of up 3% to 5%. Our top line raise for the PEO is driven primarily by the strong Q3 performance we experienced and slightly higher payroll per WSE assumptions for Q4. Last for PEO margin, we now expect to be up about 75 basis points in fiscal 2021 versus our prior forecast range for up 50 to 100 basis points. Our visibility into Q4 has improved and year to date we've seen stronger revenue performance Better than expected contribution from workers' compensation true ups offset by greater pass through revenue.
For our consolidated outlook, We now anticipate total ADP revenue to be up 2% to 3% in fiscal 2021 versus up 1% to 3% prior, And we anticipate our adjusted EBIT margin to be down 50 to 75 basis points, an improvement of our prior guidance of down 50 to 100 basis points. There is no change to our expected effective tax rate of 23% for the year, and we continue to assume a net share count reduction in our guidance. Net of all these changes, we are updating our adjusted diluted EPS guidance to be flat to up 1% versus our prior guidance of down 2% to up 2%. As you know, with Q4, we will begin to lap the impact of the pandemic, and we recognize there is a lot of interest in what our growth rate will look like as conditions continue to normalize. With that said, we're still going through our planning process.
As usual, we will provide fiscal 'twenty two guidance when we report our 4th quarter results, but I'd like to share some preliminary considerations. The most important factor for us in accelerating growth is driving strong new business bookings, And we expect our sales productivity to improve further next year as in person visits increase and clients and prospects continue to reengage more fully. As that productivity continues to progress toward pre pandemic levels and beyond, the contribution it makes to our revenue growth will likewise continue to build. Pays per control should provide a tailwind and the magnitude of contribution will depend on the pace of global employment recovery. We've provided sensitivities to pace per control in the past and will share a pace per control assumption next quarter.
Client funds interest will likely remain a headwind if the current rate environment holds, though it should be much less of a headwind than we are experiencing in fiscal 2021. And on retention, improving economic activity could mean greater client switching levels compared to this year, but we're not seeing pressure yet and will remain focused on holding on to the gains we've achieved. We'll share our assumption about it next quarter. Clearly, there are a number of moving pieces, but the net effect should be favorable. The 2% to 3% revenue growth we expect to deliver this year demonstrates the resilience of our business model, And we look forward to building from this higher revenue base and accelerating our growth back to pre pandemic levels as quickly as we can.
We are going into next year from a position of strength and our aim is to deliver an improved market position, Stronger top line growth and margin expansion, while maintaining the steady cash flows that have allowed us to increase our shareholder distributions consistently for more than 7 decades. More on all this will come next quarter and we look forward to updating you then. I'll now turn it back over to operator for Q and A. Thank you. And we will take our First question from Ramsey El Assal from Barclays.
Your line is open.
Hi, thanks so much for taking my question this morning. I wanted to ask about the increase in in person engagement with the sales force. Can you kind of contrast for us the productivity you're seeing from those in person meetings relative to the remote meetings? Is that something that we Consider to be an incremental sort of driver of productivity, maybe beyond what we were expecting as we go forward?
Yes, I think that that's right. I think you would look at it really as incremental because if you recall like our Q1, we had these robust sales results really with almost 100% of our sales force working virtually at that point. So we expect that Increased activity, if you listen to the tone of our comments that it's really incremental and hopefully gets us Quickly back to the same productivity levels we were pre pandemic, which we were approaching in the 3rd Q4 here And then hopefully beyond that, because obviously part of our model before was that we expected some incremental improvement in productivity each year In addition to increases in headcount and when you combine those factors in addition to kind of new products and other things, that's what kind of drove our new business bookings growth, the combination of increases in headcount and increases in productivity. So you're right, that path is this will help us Get quickly back to our productivity and allow us to get above that, which is, I think, important for us in terms of our long term applications.
Okay. And I wonder if you could comment too on the environment around potential tax Reforms, as I recall, when the corporate tax rate fell, that was translated into lower client interest balances for you or client fund balances for you. I know it's early days and everything needs to move through Congress, but can you comment on the degree to which some of the changes may or may not be factored in your budgeting process or what you're Expecting here in terms of tax changes going forward and the impact on your business?
I think for corporate, If you're referring to really what's currently on the table, even though there's a lot of discussion about a lot of different things, including an increase in the Kind of tax rate for the higher income individuals, but right now and there's obviously discussion about capital gains taxes as well. But right now, the thing that is probably most prevalent in discussions is corporate income tax rate. And I'm trying to think through, I don't believe that, that has Really any direct impact on our balances, obviously has an impact on ADP corporate itself. But I don't know, Dan, if you have
Yes, Randy, you're definitely right about the individual tax brackets having an impact on our float balance. So back when we had a previous core tax reform and the individual bracket changes, it was a headwind of I think about a percentage point are in that ballpark. So in theory, it will drive a tailwind to our growth will depend on actual change in rate here and what that means for overall individual income taxes. So it would be a contribution if not factored to our outlook at this time, but obviously it's something we would benefit from.
Terrific. Thanks for taking my questions this morning.
Thank you.
Thank you. Our next question comes from Dan Dolev from Mizuho. Your line is open.
Hi, good morning. Thanks for
taking my question. I got just a quick cost being in then, longer term strategic question. You're guiding, I think, to Forked EPS slightly below the street. Is there any margin pressure to call out in the Q4?
Well, I think if you From our prepared comments, you would probably see that the pressures are what I would call self inflicted in the sense that we believe there's an opportunity for us to make some investments that improve our long term growth prospects both for 2022 and beyond. And I think Kathleen in particular mentioned the 2 or 3 Things that we're investing in. So the answer is no, there's no kind of mysterious margin pressure. In other words, the business continues to move In the right trajectory, like almost every metric we have improved, in fact, I'd say every metric we have has improved sequentially, Even the pace control, even though it was modest, it's still rounded to 6% down. We know now after watching the data at the beginning of Q4 that that's Heading in the right direction and we can all tell from what's happening with unemployment that that's going to also continue to improve fairly quickly here.
So when you really kind of add it all together, like we're in a very strong position, have very strong momentum. And people who've known us for a long time know that when We experienced that. We try to reinvest some of that. And I think that's exactly what you're seeing in the Q4. So I would say that those are conscious decisions that we are making.
Got it. Thank you. Yes, that's exactly right. And I'll just add in, in addition to what I think is Smartly doing those investments in the Q4 and accelerating some of that. We've also got some year over year comping going on right as you would In fact, with selling having been down Q4 last year versus Q4 this year, we'd see incremental year over year selling And in Q4 as
well. Got it. And just my follow-up is, I was very impressed to see Bookings kind of back to fiscal 2019 levels, really strong. Can you maybe talk a little bit about how NextGen payroll engine is helping bookings?
It's a relatively modest contribution because despite our level of excitement about really all of our next gen Platforms and even Roll, which you could argue that that's a next gen solution as well. Again, it's just because of the size and scale of our company. Like right now from a dollar impact standpoint, it's really not that's not what's moving the needle. It's really across the board, Really in every business unit in every channel and every category, our bookings have been improving again sequentially every quarter And we continue to do that this quarter. So we believe that medium to long term, that's the key to us Sustaining kind of our multi decade growth rates is these next gen platforms, but I just continue to caution everyone to because we want to give you the updates and we want to Continue to focus on NextGen, and I like I appreciate the question because it's important to kind of separate what's driving the quarters and what's driving the next fiscal year versus what's Driving the next 3 to 5 years, I would say that NextGen payroll is going to be increasingly important in the next year or 2 From a bookings standpoint and we'll start to probably make a difference and we'll then give you that color in terms of what difference it's making.
But We should be cautious about revenue impact just because of the recurring revenue model just takes a while for that to get into the revenue growth numbers. But it was positive, but really not what really moved the needle.
And I would just add that We shared that we sold hundreds of clients on our NextGen payroll engine with Workforce Now. Just for context that compares to typically 2,000 clients that we sell in the mid market. So it's still a piece of the overall puzzle, but as that scale to become the majority and then ultimately all of our mid market sales, then you would truly feel the incremental benefit.
Got it. So And that is yet to come. It's really the message there.
Thank you. Great stuff. Thanks.
Thank you. Our next
So I wanted to ask about down market. Great to see the introduction of Roll to target the micro customers. I was hoping you can speak a little bit more broadly about evolution of competitive landscape through the pandemic down market, how Ron has done And kind of coming out of the pandemic, what opportunities exist for ADP to continue getting share in the segment as I believe it has done prior to pandemic?
Well, I mean, I think there's a number of moving parts and I think it probably depends on people's kind of Business model. So as you know, our business model is really more about providing not just the software, but the support, right? You can call You can call it service, you can call it compliance. And I think what we saw this year with all of the activity that the government had around The various had around the various stimulus programs to help companies and individuals and so that created a lot of complexity for employers. It appears that we're entering into an environment where despite the pandemic hopefully fading, there will be increased levels of government Activity around employment and incentives and that kind of thing.
I think that's a good environment for ADP and for our down market business because most Small businesses don't have the time or the inclination to really focus on these things and to take care of these things. So It works for some clients and we believe that that's why we're rolling out Roll, no pun intended. But once you get So even a little bit slightly larger, you do end up running into issues that you need help with and you need Support and you need advice and much of that can be automated, but you still need it. So for example, a lot of our PPP Support reports were automated, so it doesn't mean that somebody has to get on the phone and have a discussion about your PPP report, But you have to be focused on providing the support and the compliance in addition to just the software. So I think that helped us this year.
And again, so to answer your question, how do we believe we're set up competitively right now? I think we're set up excellently Competitively because we now have very simple solutions for the micro market where people want to self buy, self install and don't have complexity and maybe don't have issues with taxes or compliance or don't want to ask questions because it's not priced or built to ask questions, but we also have the ability to provide this assistance that It's important for even small clients. For sure, it's important for midsized clients and for larger clients. But I think what really got highlighted this year is that small clients need a lot of help and need a lot of assistance. And you can see in our growth rates, in our retention, in our client satisfaction, like in All of our metrics in our small business division that we happen to be in the right place at the right time, I think to be able to help our clients and then hopefully now benefit from the tailwind of the demand that that's going to create on a go forward basis.
So anyway, long winded way of saying, I think we're in a great position because of our business model.
Got it. Excellent. And then a quick follow-up from me On the global business, so just thinking about what we see now, I think is strong kind of bifurcation of the recoveries in U. S. And abroad, Strong expectation for U.
S. Recovery in your business. In global, is it going slower? And Is the implication that global might be kind of headwind to growth over the next couple of quarters?
As usual for us, Things are a little more when you peel the onion back, there's a little bit more complexity because the image you have is correct, But it hasn't really translated into the results. Our results have actually been quite good internationally, both In terms of bookings, as well as just the performance of the business overall in terms of revenue, pace per control, etcetera, Some of that is that a large portion of our business is in Europe and there were a lot of government programs there as well to help companies and to prevent high levels of unemployment. And so for example, our taste control metric never got to the negative levels that we saw in the U. S. And Europe.
So that was a benefit. At the same time, our bookings have been quite strong. And I have to admit that I've been looking for kind of the explanation for that other than really good execution on the part of our sales force as they moved into a virtual environment because they had to sell virtually there as well. But I would say it's strong differentiation of our products. Again, the service aspect to our solutions, the ability to provide support and to provide compliance and help, All of those things probably helped our bookings performance internationally as well.
So I would say that our global business actually is probably one of the bright spots, I would say despite what is obviously a very difficult environment and we obviously feel for Our businesses in not just Europe, which now happens to be improving again, particularly in UK, But we're having challenges now in Toronto, we're having in Canada, in Brazil, we're having challenges obviously as you know in India as well, But it has not translated into negative results. I think it's a testament to the resiliency and the strength of the business model, but I don't want to take anything away from the It also obviously shows great infusion by our international leaders as well.
Got it. Thank you very much.
Thank you. Our next question comes from Brian Bergin from Cowen. Your line is open.
Sorry about that. Question for you on ES versus PEO performance. It seems like pace per control appear to be a key difference. Can you just dig in more on the mix Aspects that seem to drive a pretty notable disparity of performance between those 2 and should we expect that difference to persist in 4Q or do you expect more even performance?
I don't believe we've provided like that data, so I'm surprised you came to that conclusion, but we maybe it's part of our tone. So there isn't A huge difference between ES, patient control performance and PEO, they both have been improving every quarter sequentially. And remember, the PEO doesn't we generally stay away from very, very small clients. So we don't have a lot of clients that are 1 to 2 employees or 5 employees. The average size client in the PO, I think, is somewhere around 40.
And so by definition, it tends to skew a little bit Bigger than maybe our average client size for sure for small business. So actually I was looking at these figures last night and it makes perfect sense Kind of where we are, which is that the PEO is performing a little bit better in terms of absolute level of pace for control And it's been improving sequentially just as ES has as well. So and again, I'm probably not allowed to say this, Let me get in trouble, but last night I got a note from the PEO that we experienced the 1st positive pace per control Weak. Now the problem with pay for control is that it does vary based on payroll cycle. So if you have weekly payrolls or biweekly payrolls, so You and I can't read anything into that, but it's the first time we've had a positive pace per control in any week over the last 12 months.
So that's a very positive sign.
Okay. And then just on margins, you showed outperformance here again in the quarter, But at the same time, you've called out incremental headcount investments, higher incentive comp and I think elevated implementing costs. Can you just talk about the drivers there? And then how do we connect elevated implementation costs with more efficient digital onboarding commentary.
Well, the efficient digital onboarding, I think we were pretty clear was in FBS. We love to in the future extend that into the new market and maybe someday into the off market. But as you know, like you know better than us because you talk a lot about competitors. There's not a lot of digital onboarding going on, for example, of large complex ERP installations, not to pick on any competitors, but it's pretty I know the images that this stuff all kind of gets installed itself, but most of many of our competitors use third parties. So there's still quite a lot of implementation activity and expense, whether it's done by The seller of the solutions or if it's done by a 3rd party, we have to have a model where we do a lot of it ourselves.
And so as bookings pick up When demand picks up, we need to add to our capacity for implementation, in particular in the mid market, the up And also global, which as I mentioned has been strong. So that doesn't mean that we're not adding in the down market also. But in our small business segment, as much as we otherwise would have, but even in small business, we have a lot of growth in bookings. And so it's a matter of the trade off of how much can we Digitally versus how much we still need some help with in terms of people being involved in. In terms of some of the other items that We alluded to I mean, some of this is just kind of natural to the business model.
As we bring on more clients, we obviously expect Productivity improvements every year, whether it's in sales or implementation or everywhere, but we are seeing a recovery of our business and very strong GDP forecast. And so we're anticipating improved prospects for bookings and for revenue and for growth, and we need to make sure that we have the right staffing levels based on the productivity metrics that and the productivity goals that we have to be able to handle that business so we can maintain our high Clients have level a high level of client satisfaction that we've experienced. And then we have some natural growth in expenses like I think Kathleen alluded to sales expense is clearly something that grows as you have sales success and as grows as sales grow year over year. So I wouldn't read too much into it other than that we made some conscious decisions to reinvest in some specific things in the Q4 to really position us well for 2022 beyond. But most of this is just kind of natural stuff where, again, our revenue growth picks up over time.
We still have a great incremental margin business where we would expect to have good operating leverage as we grow those revenues.
Okay. Thank you.
Thank you. Our next question comes from Mark Marcon From Baird, your line is open.
Good morning and thanks for taking my questions. Wondering if you can talk a little bit about the investments in Q4 just in terms of next gen wisely, Marketing and advertising. Just how much incremental spend will there be? And are you seeing signs with regards to wisely that the interest is picking up and therefore that's a great place to invest?
I don't it doesn't feel like it's appropriate to give you I think you asked for the numbers. I don't know that how you can probably do the math yourself like in terms of when you look at the trajectory that we're You could probably back into some rough this is not in the 100 of 1,000,000 of dollars, again, but Again, I respect the short term orientation that we have here and that you guys are trying to but I would not read as much as you may reading into These Q4 investments, we've done this way back to my Gary taught me everything I know and you knew Gary, I think as well, Mark. And We are a long term oriented company and we when we have opportunities to improve and to invest In things that are either going to drive our bookings or drive our client satisfaction or drive our efficiency, that's what we're going to do. And we've been doing that all along. So this is it's not like we Had invested, we've been telling you that we've been investing for the last three quarters and that was a conscious decision.
We took a little bit of a beating for that at the beginning of the year. Fortunately, we had positive surprises on the revenue side and on PACE for Control and other things, But we committed that we were going to invest through the downturn and that's what we've done. And now we feel like there are a few things that we can do. I would call Housekeeping items, but they're not these are not in the 100 of 1,000,000 of dollars, but they put some pressure on our 4th quarter Margin, and we knew that it would create some questions even though it really has nothing to do with 'twenty two or kind of our future expectations of either revenue growth or operating leverage. But I get I understand the question, but I don't think that Maybe Danny can give you a little bit more color, but I'm not sure that giving you an exact number is probably the right approach.
I mean you can tell me more about that.
Yes. Sorry, Janney. I would just say think about it as kind of these are tweaks to the amounts we're spending in Q4 versus kind of wholesale changes to the program So it's somewhat modest and as Carlos said, it's not in the 100 of 1,000,000 of dollars here.
I appreciate your Whiteley question, Mark. The one thing we did see was stimulus drove some uptick in the card spend per card. Other than that, during the pandemic, there haven't been any real notable changes in the wisely growth trends. So really it's the upper heart economics that have seen a slide tick up recently.
Yes. And I think it's something that we've been excited about. But again, it was hard to get excited about. There was a lot of Tailwind because people wanted more digitally oriented payment methods in the last three quarters. But From a focus standpoint, like for the 1st quarters of the year, we were focused on a lot of things and we made it all the way to the top of the list.
It was on the top of the list kind of pretend that if you recall. And so I think I would see this as more of a reemergence of some of the things that we had been talking about that excited us. I think the Wyden opportunity It's a big one. So I'm glad that the team brought us all in terms of as an investment opportunity because we were excited about it, call it, 12 to 18 months ago. We should be just as excited about it today, but admittedly it wasn't our number one focus in the middle of the pandemic, if you will, at the beginning of the pandemic.
Yes. And just one last comment, we always look very hard at the timing and amount that we spend on marketing and advertising, but with Economic activity continuing to have momentum in stock and client engagement picking up, we felt this was the right time to increase that a little bit as well.
I really appreciate that color and it is completely consistent with the long term track record going back to Art, Stephen before Gary. Can you talk a little bit about just Danny or Can you just remind us what the sensitivity on the pace per control to revenue is?
It's a 25 basis points of revenue impact for every 1 percentage point change in pace per control.
Thank you so much. I appreciate that. Thank you.
Thank you. Our next question comes from Kevin McVeigh from Credit Suisse. Your line is open.
Great, thanks. Carlos, I think you alluded to kind of a record high client count of 900,000 or so.
Can you give us a
sense of where that splits across enterprise, mid, down market and how that sits relative to historical trends in the business?
Yes, I can give you some color. We don't I don't think that's something that we've disclosed in terms of the actual breakdown by I can give you general ideas. So we had that 6% growth to $900,000 and we had, Call it growth of somewhere around that for run, our WFN growth was around that as well, And GlobalView was around that as well. So from a client pure client growth standpoint, if you look at our strategic platforms, They grew in kind of that neighborhood from a client growth standpoint, which we see as really great news given the very difficult environment that we're in. Obviously, when you look at mathematically the overall growth rate and the overall number, it's driven in large part by our small business division because that's where we have the bulk of the absolute number of clients.
But I wanted to give you a little bit of color around, if If you look at workforce now across our multiple channels, because remember, we sell workforce now just in the mid not just in the mid market, We sell it in the upmarket and we sell it in the PEO. It's the PEO platform as well. We also have that platform in Canada. And so that gives you some sense of kind of how well that platform is growing, which is Really satisfying to us. So hopefully that helps a little bit.
No, that's helpful. And then just on the retention real quick, I You took it up to 125 basis points up from 100 basis points. Can you just refine that a little bit? Is that kind of a Q4 is your run rate or is that the full year number, does that mean the 4th quarter is even higher than that or is that kind of The TTM number and then just any thoughts, maybe you could just maybe frame that a little bit more because it's obviously a big development.
You've stumped us.
No, I think we said in the opening remarks, Kevin, that it's on the Q3 performance being stronger than expected. Yes.
I think it's generally it's been consistent like it's really frankly remarkable, which is why we keep Emphasizing some caution, because we hope there's no plan. We're not going to give it back and we're not hoping for a give back. But in this business, like people have been following us for a long time, like when we have a 10 basis point to 20 basis point move in retention, it's a big deal. So to have this kind of Retention on top of the retention that we had last year is pretty remarkable. And so we're pretty excited about it.
And I think the key for us is trying to determine When I look at the retention figures, there's a lot of improvement in what's called the controllable losses. So the ones that are related to kind of service issues and so forth. So we're excited that we might be able to hold on to some of this gain, but at the same time we're realistic enough to acknowledge that Some of the stuff that was related to kind of our business and government stimulus, it might be a little bit of give back there. It's been pretty consistent like every it seems like every quarter The improvement has been in that same neighborhood year over year, hence why we kind of tweak the full year because We're probably going to end up in the range that we gave you, which is a little higher than what we had before. But it wasn't we weren't trying to like send any kind of message about the Q4 in particular.
Helpful. Thank you.
Thank you. Our next question comes from Tien Tsin Huang from JPMorgan. Your line is open.
Hey, thanks so much. A lot of questions are right. Just thinking The retention feels like it's industry wide to some degree. So just trying to better understand your new sales, the reacceleration, is it driven more from upselling and And new business formation and any surprises in the net switching or the balance of trade from a head to head endpoint?
I don't have a lot to report on that. We obviously watch all that stuff like you're referring to the balance of trade. And as you said, it's hard for me to tell About retention in terms of the rest of the industry, you guys would be the experts on that because as my casual review of some 10 ks's Makes it kind of hard to compare. Like some people would say retention of their annual recurring revenue, cloud revenues, which is not the same as the retention for their company. So it's kind of hard for me to say.
I mean, some of it, I would say it's probably more variable than you think based on what I'm seeing in terms of the variability of growth rates, because it's clearly been a huge part of our ability to outperform. I mean, this is a pretty remarkable revenue performance given what we've been through and given the pace for control headcount. And by the way, Nobody's brought it up yet, but we have a huge headwind on client fund interest, which is going to abate here in the 4th quarter It's going to abate next year as well. There may still be a little bit of headwind, but this was really the worst quarter that we had. And these 9 months were That was $130,000,000 drag just from client funds interest.
So when you put everything into the pot, Without really good strong retention, it's hard to outperform the way we have. And we've done some work on the relative Performances of us versus some of our competitors, and we feel pretty good about that and about our The potential for retention to be one of the needle movers there. There may be some other factors that I'm not that we're not we haven't thought about. But no, I don't think there's anything else really big out there like we've done a little bit better against some of our The usual competitors that you know about in terms of balance of trade, but there's others that are still challenging for us. And so net net, we're pretty comfortable with where we are and determined to continue to drive our growth.
I think all of us are probably benefiting from Kind of overall economic growth and the fact that it seems like maybe there are some either in house or regional providers that are because you can see our we're growing our units In Workforce Now and in Run, and so we're it seems like we're all have some ability to grow in this environment, which is, I guess good for everyone.
Yes. No, but you said all that. We shouldn't take it for granted. Just on client satisfaction, notably higher. And did you attribute it colors more to the of course the support efforts you guys have invested in, but the next gen platforms and some of the digital initiatives or are you also seeing just clients maybe building a more better goodwill with ADP spending more time with them during these tough times during the pandemic?
Just trying Understand that because it seems like it could be if that carries over, we could see some compounding in the retention.
Yes, I think it's a great question. We obviously are trying to figure that out because it's very important for the long term value creation of the company. And all the things you mentioned, because you obviously know the business well enough that you hit on all. And the question is how much is each of those, right? Like the last one that you mentioned about the goodwill, there's no question that Us being there, like there were 2 or 3 months where people could not talk to anyone other than us about what to do, right?
What to do about The PPP loans that the government was offering around tax credits because if you buy software from someone, you can't call them to ask those questions. Just want to remind everyone, right, you can call them, ask them about the software and you can send in a ticket to get your Software issue resolved, but you can't call to ask about tax deferrals or tax credits or PPP reports or That kind of stuff. So we clearly built a lot of goodwill. But on the other hand, business is business, and goodwill doesn't last forever. So We're not planning on living off of that for the next 5 or 10 years.
So that brings me back to kind of the basics of client satisfaction, which is We have to be there for our clients when they need us, not just during the pandemic, but at all times. So it's a second major factor besides the goodwill that I mentioned and some of the digital initiatives to like make things easier for our clients and improve our user experience is that we did not panic at the onset of the pandemic. And if you recall, we took some lumps for that because we really maintained our investments both Not just in R and D, but we maintained our investments in headcount and implementation. That doesn't mean that we didn't have some drift down as a result of some turnover, which we did. And our headcount did decline because we had temporarily a drop in volume, if you will.
But that was really, really important, right, to be able to kind of get through this period and be able to deliver on our commitments to our clients. And back to the comments I made about productivity before, that's one of those things that we watch very carefully because we want to improve productivity, But we won't we can't be naive and think that if our obviously, if our headcount was 10% lower, we'd have higher net income. The problem is what would your client satisfaction be and your retention. And so that's the magic, right, of being able to figure out what's that right balance and you have tools to figure that out. You have Monitoring systems right to understand what the client satisfaction levels are in relation to how quickly you're getting back people to resolve their problems, for example, and how well trained your people are.
So there's a number of different factors that we look at, But the key is to be committed to delivering high levels of client service, which we are, and I think we just proved it. We can do it during a pandemic. We can do it anytime.
Yes, got it. Thanks so much.
Thank you. Our next question comes from Jason Kupferberg from Bank of America. Your line is open.
Good morning, guys. Thanks. I just wanted to start with the bookings question just to make sure you've got the expectations right here. Just trying to do the math on the Q4 implied guide. I think it would be about 90% growth, so I wanted to see if that's accurate.
Obviously, you've got the super easy comp there. And maybe as part of that, can you just talk about some of the activity you've seen through 1st month of the quarter, I mean, I assume you've got pretty high visibility here just given that you raised the low end of the full year guidance range for the bookings?
Hey, Jason, it's Danny. You don't have the weightings by quarter, but what's implied for the Q4 is over 100% bookings growth. And for April, we're tracking right in line with expectations.
Yes. And I would say that you should not read anything into that other than We said, which is we're still really positive. We believe we're going to continue to get sequential productivity improvements, but the percentage growth rate is really when you get down to it, whether it's 110 or 150 or 190 is not that I know you know it's not that important, but I think you're trying to get to a number, you're using the percentage to get to the number. But you should probably if I were you, I would look at maybe call it the Q2 or maybe 2019 Q4 or something. There's got to be something else that would give you something good as a proxy, right, where we don't expect to be back to 100% productivity levels in the Q4, but we should be getting close to like where we were in 2019 and there may be other small moving parts there from 2019.
So I don't want to go out on a limb and say that's the right analog, but anyway, I think that's hopefully helpful.
Yes. No, it is. Your comp certainly would matter more. I just wanted to make sure people kind of have the right numbers in their models for the quarter. And then just a quick follow-up on the pace per control.
I think you mentioned it was a little worse than you anticipated in Q3 and you tempered your Q4 expectations a little bit. I'm just curious which The portfolio is driving that, it just seems maybe a little incongruous with the U. S. Employment data that we're seeing at a high level, which obviously has continued Outperform expectations?
Yes. It's 100% timing related because We can see in the data, we have other data sets like to show us like, for example, job postings and background checks, screenings and so forth. And so you shouldn't read anything into it and we did not temper our 4th quarter at all. And in fact, we kind of tried to clarify that we kept the full year The same despite the Q3 being a little bit softer in part because we think we're on the same positive trajectory that I think that we thought we were on. So we're seeing the same thing you're seeing in terms of employment and unemployment, and we would fully expect these Patient Control numbers to improve rapidly here.
And remember that we're talking today about numbers that were through the end of the third Sorry, through the end of March, and those numbers are for 3 months, right? So if you look at the 3rd month in March, it's different than it was for January. And January, February, I know it's hard to remember to think back that far and how bad things were. That was a completely different picture And the picture we had in early April and maybe in the last very last week of March. So I wouldn't read anything into it other than timing.
Yes, Angie. Just to clarify, it was just a slight tweak to the Q4 number and holding the full year at down 3% 4%. So it's really kind of very minor tweaks. Okay, perfect.
Thank you, guys.
Thank you. And our next question comes from Pete Christiansen from Citi. Your line is open.
Good morning. Thanks for the question. Carlos, I think the high customer sat scores, the goodwill, Truly a testament to ADP's capabilities and certainly the service business model. But I guess clients need certainly change and we've been hearing from some of our other companies that talent acquisition has been, I guess, even more challenging than in the past. And I recall at the last Analyst Day that ADP Had really been making a lot of strides in improving its recruiting management tools, so on and so forth.
How would
you think that you stack up competitively in that area, particularly in recruiting management tools? And Do you think that could be another vehicle or vessel to maintain the high retention levels that You're currently experiencing?
Absolutely. I think that you're right. I mean, some of this obviously is cyclical, right, in the sense that 12 to 18 months ago, people were looking for other tools other than client acquisition tools. So you have to be careful about not Kind of shifting with the win that's there, you have to be consistently able to help people throughout the whole life cycle of HCM. And right now, that happens to be an important one.
And so I would say that there's 2 things. 1 is we build our own tools, as you said, around recruitment management, and we also have an RPO business, And we have other tools to help with the talent acquisition process. We also partner and we have some really strong partnerships. I'm not sure I should I mentioned the names of the companies or not, but the names that you hear a lot of kind of advertising about, we have very strong integration and partnerships with some of those companies to really make it easy in particular in small business, but also even in the mid market for people to use those tools to really help with the recruiting needs that they have. But we feel we've been making we have made Significant investments in our recruitment management platform and our talent acquisition platforms, nothing to do with the pandemic, so that You could call it fortuitous that we had done that before the pandemic and we would expect that those would be contributors to our overall value proposition Sorry, into our bookings growth because those are generally tools that create incrementality around Your bookings number.
In other words, where you can charge clients is typically there's a core set of solutions and then recruitment management, Things like time and attendance or workforce management, those tend to be more incremental around the basic package, if you will, of HCM. So we're positive, we're bullish on it. And I think we're very just as a reminder, our App Marketplace is creates a very easy and seamless way for people to use different solutions in HCM and this would be a Category that we would have a lot of partners in that app marketplace that allow you to get all the other benefits you mentioned about ADP's business model and still be able to fulfill your talent acquisition needs if you don't believe that ADP has what You need, which we believe you do, but if you don't, you can always get it through one of our partners.
That's helpful. And apologies if This was addressed earlier, but given the change in the yield curve, Has there been any thoughts on potentially extending duration of the portfolio or Any other investment selection choices as you head into 2022?
Probably not worth mentioning. As you know, in the yield curve right now, kind of 5 7 year is a little bit better than 2, 3 just because of the way the Fed is managing the curve, If you will, so I think there are always I would call them tactical opportunities, but no. I mean, I think our duration has Been in the same range since I've been CEO and I would anticipate that not changing and we're not changing our laddering strategy And we're not changing our client funds interest strategy. The good news is that it appears the worst is behind us In terms of drag from client funds interest, which was painful, I think we had a $50,000,000 drag just this quarter. So again, not beat a dead horse, but it just shows the strength of the business that we didn't mention that to you.
And we kind of overcame that drag $130,000,000 for the year. So we're looking forward to better times ahead. And I did see an interesting chart. Again, I probably shouldn't say this, but we had Not $35,000,000 in client funds interest. So it just shows to you the magnitude.
I mean, you all know what's happened to interest rates. But that was 2,008. That wasn't like in a different Century or in a different country like that was here. And so today our balances are Calling the mid-twenty $1,000,000,000 number for the year, I think that's the expectation. So I think you could probably do the math yourself In terms of if we do believe that there's going to be some inflation here and if you look at the inflation breakevens and you look at some other Things are going on.
We're looking forward to better times ahead for client funds interest.
And the adjusted EBITDA margin was 19% back then, near or above that. That's great. Thank you so much.
Thank you. And we have time for one more question and that comes from Jeff Silber from BMO Capital Markets. Your line is open. Thank you. And this concludes our question and answer portion for today.
I'm pleased to hand the program over to Carlos Rodriguez for any closing remarks.
So as you can tell from our comments, we continue to, I think, have the same level of Optimism as we had last quarter, and we're really thankful for The performance of our sales organization and also our frontline associates in terms of what they've been able to do for
Our
clients and at the risk of ending on a negative note though, all of this positive and all of this in Positivity and enthusiasm, we don't want to overlook the fact that we still have some challenges and some people still have some challenges in other parts of the world. This is a U. S. Headquartered company with over 80% of our revenues in the U. S.
So that's probably why you're hearing all of this optimism, but we're not only in the U. S. We have associates in India, in Brazil, in Canada and in Europe and the situation is not The same there. Even though the businesses are performing well, we just as back in the spring of last year, There was enormous suffering and challenges here in the U. S.
Among our associates. The same thing is happening for some of our associates in some other parts of the world, in particular in India. And we are not going to forget them. We're doing everything we can to help them. We appreciate what the U.
S. Government is doing along with the Indian government and local governments to help as well. To help as well and we look forward to having helping them kind of get through the same difficult Situation that we managed to get through and they too will have their vaccination rates pick up in all of those parts of the world And they too will emerge from the pandemic, but it's clear that it's going to take a little bit longer and we should all remember to be there to help them and to support them in any way we can. And ADP will do exactly that. But having said that, we are I will be close to seeing this situation in the rearview mirror here and we're really anxious to see our growth rates We accelerate the kind of where we were pre pandemic here at some point in the future and getting back to business and to helping our clients with their challenges and helping our associates build careers and helping all of you and our Other shareholders and stakeholders get a fair return for their investment.
So again, as always, we appreciate Your interest in ADP and we appreciate you tuning in and we will be back in the quarter with our outlook for fiscal year 'twenty two. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect. Everyone have a great day.