AUTOMATIC DATA PROCESSING INC Q3 FY2025 earnings call

• CFO Transition: Acknowledgment of Don McGuire's career at ADP and Peter Hadley's succession as CFO, effective July 1st. - Third Quarter Results: Solid results with 6% revenue growth, 10 basis points adjusted EBIT margin expansion, and 6% adjusted EPS growth. - Strategic Priorities: Progress with enterprise clients, including Lyric HCM new business bookings growth and pipeline doubling. Integration of Workforce Software, acquisition of PEI in Mexico to strengthen global payroll capabilities. - Events: Hosted ADP ReThink, Meeting of the Minds, and Accountant Connect Summits. - Partnership: Embedded payroll partnership with Fiserv, expected to accelerate sales as product integration completes. - Awards: RUN, Lyric HCM, and ADP Assist recognized for innovation in software and AI.

Employer Services: Segment revenue increased 5% on a reported and organic constant currency basis in Q3. New business bookings growth was solid despite international softness due to macroeconomic uncertainty. Retention modestly exceeded expectations, and pays per control growth was 1%. PEO: Revenue grew 7% with 2% average worksite employee growth. Excluding zero-margin pass-throughs, revenue growth was 8% supported by higher wages and strong retention. Revenue contribution: Employer Services is the larger segment, with PEO contributing a smaller but growing portion.

• Consolidated: Maintains 6%-7% revenue growth guidance, adjusts adjusted EBIT margin expansion to 40-50 basis points, and adjusts adjusted EPS growth to 8%-9%. - Employer Services: Reiterates 4%-7% new business bookings growth, revises retention to decline 20 bps to flat, maintains 1% pays per control growth, and raises client funds interest revenue midpoint by $15M. - PEO: Increases full-year revenue growth to 6%-7%, revises margin to decrease 60-80 basis points.

• Macroeconomic uncertainty impacting international bookings. - Potential impact of global macro environment on international sales, particularly multi-country deals. - Uncertainty in economic growth affecting pays per control growth.

Q: Could you provide more color on software international bookings?

A: Maria Black stated international bookings had softness due to macro uncertainty, but pipelines are strong with large deals and multi-country offers, focusing on strong Q4 execution.

Q: How is the Fiserv relationship progressing?

A: Maria Black mentioned the relationship is progressing well with referrals, expecting sales to accelerate as product integration completes, with potential to extend reach across platforms.

Q: What's the impact of uncertainty on hiring?

A: Don McGuire said there's stability in the base with low unemployment, but large international deals have some apprehension, though pipelines are strong and base business is still going well.

Q: How is the WorkForce Software integration going?

A: Maria Black said integration closed in October, sales force and go-to-market coming together well, with strong resonance with enterprise clients and wins in Q3.

Q: What about mid-market companies and PEO?

A: Maria Black and Don McGuire stated mid-market is executing well, PEO results are solid with 7% revenue growth and 2% worksite employee growth, and demand for HCM is not discretionary as companies invest in people.

Q: Can you size the PEI acquisition?

A: Don McGuire said it was a sub-$10 million acquisition, a long-time partner, and focused on domestic Mexico and Latin America expansion.

Q: Thoughts on 2026 hiring plans?

A: Don McGuire said no changes to hiring plans currently, business is solid, and will adjust if needed.

Q: PEO client behavior on benefits enrollments?

A: Maria Black said PEO retention is strong, benefits attach is stable, and model with fully insured benefits is predictable. Distribution from existing ADP clients adds to success.

Q: Competitive landscape in down market?

A: Maria Black said ADP has best-in-class platforms, strong client satisfaction, and retention, with partnerships like Fiserv extending distribution strength.

Q: International bookings percentage?

A: Maria Black stated 88% of revenue is domestic U.S., with the rest international.

Q: Margin impact from integration?

A: Don McGuire said integration has a $50 million impact, but intangible amortization and financing costs remain, with no immediate reversal expected.

Q: Client funds interest revenue?

A: Peter Hadley said client funds balance increase driven by higher wages, with rate position relatively hedged, and revenue guide midpoint increased by $15M.

Q: International bookings pushback on ADP being American?

A: Maria Black and Don McGuire stated no pushback related to nationality, it's about large deal execution and pipeline strength in international markets.

Q: POX pass-through revenue and GenAI progress?

A: Don McGuire said Q3 POX pass-through revenue was better than expected, and Maria Black highlighted progress with ADP Assist and Generative AI offers, with awards and ongoing strategy for innovation.