ADP(ADP) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a solid third quarter with 6% revenue growth, 10 basis points of adjusted EBIT margin expansion, and 6% adjusted EPS growth [7][17] - Employer Services (ES) segment revenue increased by 5% on a reported and organic constant currency basis [17] - PEO revenue growth was 7%, exceeding expectations, supported by higher wages and strong retention [20] Business Line Data and Key Metrics Changes - New business bookings for Employer Services showed solid growth, particularly in U.S. offerings, while international bookings experienced softness due to macroeconomic uncertainty [8][9] - PEO revenue excluding zero margin pass-through growth was 8%, with average worksite employee growth at 2% [20] - The integration of Workforce Software is progressing well, enhancing the overall offerings [51] Market Data and Key Metrics Changes - The company experienced a decline in international bookings, attributed to macroeconomic uncertainty, but maintains a strong pipeline for future growth [9][27] - U.S. clients continued to hire, with pays per control growth remaining at 1% [10] - Client funds interest revenue increased due to stronger average client funds balance growth, leading to an updated growth expectation of 5% to 6% for the year [18] Company Strategy and Development Direction - The company is focused on leading with best-in-class HCM technology and providing unmatched expertise in outsourcing [11] - The acquisition of PEI in Mexico is aimed at strengthening global payroll capabilities and enhancing local expertise [12][13] - The partnership with Fiserv is expected to accelerate sales and expand the embedded payroll solution [14] Management's Comments on Operating Environment and Future Outlook - Management noted that while there is macroeconomic uncertainty, the underlying economic factors remain strong, with low unemployment and continued hiring [38][40] - The company expects pays per control growth to continue at below normal levels next year due to economic conditions [22] - Management remains optimistic about the strong pipelines and execution against them, particularly in the enterprise space [100] Other Important Information - A CFO transition is underway, with Peter Hadley set to succeed Don McGuire effective July 1 [5][6] - The company received several awards for its HCM technology, indicating strong market recognition [15] Q&A Session Summary Question: Can you provide more color on the softer international bookings? - Management indicated that the softness is due to macroeconomic uncertainty, but strong pipelines remain for a solid finish to the year [26][28] Question: What is the growth opportunity for the embedded offering with Fiserv? - The company is excited about the partnership and sees significant opportunities for growth across various distribution channels [30][32] Question: How is the company addressing client hesitancy in hiring? - Management noted stability in their client base, with continued hiring despite some apprehension regarding large deals [38][40] Question: What are the expectations for PEO business in the current environment? - The company reported solid growth in PEO bookings and strong retention, indicating a positive outlook [46][48] Question: How does the company view the competitive landscape, particularly in the down market? - Management acknowledged the competitive nature but emphasized their strong offerings and client satisfaction as key differentiators [102][105] Question: What percentage of bookings come from international markets? - Approximately 88% of the company's revenue is derived from the domestic U.S. market, with the remainder from international [110] Question: How will margins be affected going forward? - The company expects some recovery in margins but noted that certain costs will persist, impacting overall margin profiles [111] Question: How is client behavior evolving in the PEO segment regarding benefits enrollments? - Management reported strong retention and stability in benefits offerings, indicating a positive response from clients [85][87]