Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Automatic Data Processing Inc (ADP, Financial) reported a strong first quarter with 7% revenue growth and 12% adjusted EPS growth.
- The company achieved record volume in Employer Services new business bookings for a first quarter, indicating strong demand.
- ADP's client satisfaction scores reached an all-time high for a first quarter, driven by improvements in mid-market, enterprise, and HR outsourcing businesses.
- The acquisition of WorkForce Software expands ADP's workforce management solutions, enhancing its ability to serve large global enterprises.
- ADP introduced Lyric, a new global HCM platform, which has generated strong interest and is expected to drive future growth.
Negative Points
- Employer Services retention rate declined slightly, although it exceeded expectations.
- ADP anticipates a 10 to 30 basis points decline in full-year retention due to expected increases in small business losses.
- PEO margin decreased by 80 basis points in Q1, primarily due to higher workers' compensation program costs.
- The acquisition of WorkForce Software is expected to pressure ADP's adjusted EBIT margin this fiscal year.
- ADP's recent debt issuance will increase corporate interest expense by about $40 million for fiscal 2025.
Q & A Highlights
Q: Can you discuss the demand and bookings backdrop for Employer Services in Q1 and how it progressed through the quarter?
A: Maria Black, President and CEO, stated that demand for HCM remained strong with a solid and broad-based sales quarter. Strength was noted in Retirement Services in the down market, HR outsourcing in the mid-market, and continued international growth. The demand remained consistent, with companies still hiring and buying, despite complexities in the mid-market.
Q: Are you still anticipating an improvement in PEO worksite employee retention year-over-year growth for fiscal '25?
A: Maria Black explained that the outperformance in worksite employees was primarily due to strong new business bookings. While retention contributes modestly, the focus remains on accelerating PEO new business bookings to offset any deceleration in pays per control.
Q: Can you provide details on the financial profile and strategic rationale of the WorkForce Software acquisition?
A: Maria Black highlighted the strategic rationale, emphasizing WorkForce Software's capabilities in supporting large global enterprises with robust solutions. Don McGuire, CFO, added that the acquisition is expected to contribute to revenue growth, with modest pressure on EPS due to integration costs and amortization of intangibles.
Q: What factors drove the all-time high client satisfaction scores, and how do you plan to integrate WorkForce Software?
A: Maria Black attributed high client satisfaction to investments in product and service tools, resulting in improved NPS and retention. Regarding WorkForce Software, the focus is on integrating their offerings into ADP's global enterprise space, leveraging their expertise and client base to enhance ADP's workforce management solutions.
Q: How do you view the health of small businesses, and are there any changes in your strategy for the client funds portfolio?
A: Maria Black noted that small business health remains strong, with new business formations still elevated despite a slight pullback. Don McGuire stated there are no changes planned for the client funds portfolio strategy, as the current laddering approach continues to be beneficial.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
