Financial Data and Key Metrics - Revenue growth of 7% in Q1 2025, with adjusted EBIT margin expansion of 130 basis points and adjusted EPS growth of 12% [6] - Employer Services (ES) segment revenue increased 7% on both a reported and organic constant currency basis, exceeding expectations [24] - PEO revenue growth of 7% and average worksite employee growth of 3% in Q1, both exceeding expectations [10][30] - Client funds interest revenue increased more than anticipated in Q1, driven by stronger average client funds balance growth [27] - Full-year adjusted EBIT margin expansion forecast increased to 30 to 50 basis points, with adjusted EPS growth expected to be 7% to 9% [34] Business Line Performance - Employer Services new business bookings reached a record volume for Q1, with broad-based strength across small business, mid-market, and HR Outsourcing segments [7][8] - ES retention rate slightly declined but still exceeded expectations, with client satisfaction scores reaching an all-time high [9] - PEO new business bookings growth offset modest deceleration in PEO pays per control growth, leading to strong PEO performance [10][31] - ES pays per control growth of 2% met expectations, with full-year growth forecasted at 1% to 2% [26] Market Performance - International business maintained strong momentum from the previous year, contributing to overall HCM demand stability [8] - ES margin increased by 260 basis points in Q1, driven by operating leverage and client funds interest revenue growth [29] - PEO margin decreased by 80 basis points in Q1, primarily due to higher workers' compensation program costs and zero-margin benefits pass-through revenue growth [32] Strategic Direction and Industry Competition - The acquisition of WorkForce Software strengthens ADP's Workforce Management Solutions, particularly for large global enterprises [12][13] - Introduction of ADP Lyric, a next-gen HCM platform, aims to meet the evolving needs of the modern workforce with integrated Generative AI technology [15][16] - Continued investment in Generative AI capabilities to enhance client experience and associate productivity [18][19] - Focus on three strategic priorities: leading with best-in-class HCM technology, providing unmatched expertise in outsourcing, and leveraging global scale [22] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to advance strategic goals and deliver strong financial results [22] - The acquisition of WorkForce Software is expected to pressure adjusted EBIT margin in the short term but is seen as a strategic growth opportunity [33] - Management highlighted the importance of client satisfaction and retention, with record NPS scores driving favorable retention results [46][62] Other Important Information - ADP issued $1 billion in 10-year notes in September, increasing corporate interest expense by approximately $40 million for fiscal 2025 [34] - The company expects a full-year effective tax rate of around 23% [34] Q&A Session Summary Question: Demand and bookings backdrop for Employer Services [36] - Demand for HCM remained steady, with strong performance in Retirement Services, mid-market HR Outsourcing, and International segments [37] Question: PEO retention and pays per control growth [38] - PEO retention contributed modestly to outperformance, with new business bookings being the primary driver [38] - PEO pays per control growth is expected to be slower than ES pays per control growth [40] Question: Financial profile of WorkForce Software [41] - WorkForce Software is expected to contribute to ES revenue growth, with modest pressure on EBIT margin and EPS due to integration costs and amortization [43] Question: Client satisfaction drivers [45] - Record client satisfaction scores were driven by investments in product and service tools, particularly in the mid-market and HR Outsourcing segments [46][47] Question: Integration plan for WorkForce Software [48] - The integration plan focuses on leveraging WorkForce Software's capabilities in the global enterprise market, with potential synergies with ADP Lyric [49] Question: PEO bookings outperformance [51] - Strong PEO bookings were attributed to intense focus on execution and the value proposition of PEO offerings, particularly in health benefits and workers' compensation [52] Question: Cross-sell opportunities with WorkForce Software [68] - Cross-sell opportunities are seen as a key growth driver, with potential to leverage ADP's scale and distribution to expand WorkForce Software's client base [68] Question: Generative AI investments [70] - ADP continues to invest modestly in Generative AI, with tools like call summarization and virtual knowledge assist showing positive results [70] Question: Small business health and out-of-business rates [72] - Small business health remains strong, with out-of-business rates almost normalized to pre-pandemic levels [72] Question: Pricing strategies [78] - Pricing strategy remains consistent, with expected price increases of around 100 basis points for the year [78] Question: WorkForce Software revenue contribution [88] - The revenue contribution from WorkForce Software is expected to grow, but it is too early to quantify the exact impact [89] Question: Lyric's impact on financials [92] - Lyric is still in early stages, with strong pipeline growth but limited immediate financial impact [93] Question: PEO pays per control growth [95] - PEO pays per control growth is expected to continue, albeit at a slower pace than ES pays per control growth [95] Question: Employer Services bookings growth [96] - ES bookings growth is expected to remain within the 4% to 7% range, driven by strong demand and execution [96]
ADP(ADP) - 2025 Q1 - Earnings Call Transcript