AUTOMATIC DATA PROCESSING INC Q1 FY2025 earnings call

Financial Highlights: Reported 7% revenue growth, 130 basis points adjusted EBIT margin expansion, 12% adjusted EPS growth. Strong new business bookings in Employer Services, broad-based HCM demand, record client satisfaction score. Acquisition and New Offerings: Acquired WorkForce Software, expanding Workforce Management Solutions. Introduced ADP Lyric, a flexible, intelligent, human-centric global HCM platform with Generative AI capabilities. Generative AI and Workflow Automation: Expanded access to Generative AI-based service tools for associates, improving client experience. Launched Intelligent Workflow Automation in Workforce Now, enhancing employee experience and reducing manual work for HR practitioners.

Employer Services (ES): Revenue increased 7% on reported and organic constant currency basis. New business bookings were solid, with strength in Retirement Services, mid-market HR Outsourcing, and International. Retention declined slightly but better than anticipated. Pays per control grew 2% in Q1, with full-year guidance at 1%-2%. Client funds interest revenue higher than expected in Q1 but forecast to decrease by $10M for the year, net impact from client funds investment strategy unchanged. ES revenue growth range for fiscal 2025 increased to 6%-7%, margin expected to increase 40-60 basis points. PEO: Revenue growth 7% and average worksite employee growth 3% exceeded expectations. Strong new business bookings offset deceleration in pays per control growth. Fiscal 2025 PEO revenue growth forecast 5%-6% and average worksite employee growth 2%-3%. Margin decreased 80 basis points in Q1 but expected to be down 70-90 basis points for full year, 20 basis points better than prior outlook.

Employer Services: Maintains 4%-7% full-year revenue growth guidance. Retention forecast to decline 10-30 basis points. Pays per control growth forecast 1%-2% for full year. Increased ES revenue growth range to 6%-7% for fiscal 2025, margin expected to increase 40-60 basis points. PEO: Fiscal 2025 PEO revenue growth forecast 5%-6% and average worksite employee growth 2%-3%. Margin expected to be down 70-90 basis points, 20 basis points better than prior outlook. Client Funds Interest Revenue: Reduced client funds interest revenue forecast by $10M for full year, net impact from client funds investment strategy unchanged.

Market and Economic Factors: Potential impact of macroeconomic changes on small business retention and yield curve effects on client funds interest revenue and borrowing costs. Integration Risks: Challenges in integrating WorkForce Software, including potential drag on EPS from amortization of intangibles and integration costs.

Q: On Employer Services demand and bookings backdrop, areas of strength in Q1?

A: Maria Black mentioned strength in Retirement Services, mid-market HR Outsourcing, and International, with broad-based demand and solid sales quarter.

Q: WorkForce Software financial profile and integration plan?

A: Don McGuire discussed WorkForce Software contributing about half of the 1% increase in consolidated FY'25 revenue growth, with modest pressure on EPS from amortization and integration costs, and strategic intent to integrate for global enterprise clients.

Q: Client satisfaction scores drivers?

A: Maria Black cited investments in product, service organization tools, and Generative AI in SBS as drivers, leading to record NPS across most businesses.

Q: PEO margins and workers' comp reserves?

A: Don McGuire said PEO margins improved due to stronger revenue from worksite employee growth and wage rates, with no expected reserves releases for workers' comp.

Q: Lyric rebranding and demand inflection?

A: Maria Black explained Lyric rebranding as a result of product readiness and market demand, with strong interest post-HR Tech Conference and potential for demand inflection