Automatic Data Processing, Inc. Q4 FY2025 earnings call

• Strong fourth quarter with 8% revenue growth, 40 basis points adjusted EBIT margin expansion, and 8% adjusted EPS growth; full year had 7% revenue growth, 50 basis points adjusted EBIT margin expansion, and 9% adjusted EPS growth.
• Strategic priorities progress: Innovation with ADP Lyric HCM seeing over 50% client sales increase in fiscal '25 and AI rollout with ADP Assist; expertise deployment via AI tools across associates; global scale expansion with enhancements in global payroll, acquisitions like PEI in Mexico and WorkForce Software, and embedded payroll expansion.
• Employer Services retention exceeded expectations at 92.1% for the year, company-wide client satisfaction scores at record highs, and PEO new business bookings growth accelerated in Q4 with full year revenue growth of 7%.

Employer Services: Q4 revenue increased 8% reported and 6% organic constant currency; full year revenue grew 7% reported and 6% organic constant currency, with margins expanding 100 basis points. PEO: Q4 revenue grew 7%, full year revenue grew 7%; average worksite employees increased 3% full year; margins contracted 60 basis points full year. Revenue contribution details were not explicitly broken down by percentage in the transcript but focus was on the financial performance of each segment.

• Fiscal 2026 outlook assumes slight macroeconomic moderation. ES segment expects revenue growth 5%-6% with ES new business bookings growing 4%-7%, ES retention forecast to decline 10-30 basis points from 92.1%, and U.S. pays per control growth 0%-1%. FX to transition from headwind to tailwind. Client funds interest revenue expected to increase.
• PEO segment expects revenue growth 5%-7%, with zero-margin pass-through revenue expected to contribute more. Consolidated revenue outlook 5%-6% growth, adjusted EBIT margin expansion 50-70 basis points, adjusted EPS growth 8%-10%.

• Macro backdrop uncertainty impacting client decision-making. Potential retention pressure from moderate macroeconomic slowdown and small business out of business levels. Wage growth moderation affecting non-pass-through revenues in PEO. Elevated state unemployment insurance rates in prior year not expected again but still a factor.

Q: Bryan Bergin asked about ES signings underperformance, HRO softness, and July bookings.

A: Maria Black responded that HRO softness was due to delayed decisions in complex, long sales cycle deals with strong pipeline remaining; confidence in bookings reacceleration from product maturity, go-to-market investments, and seller enhancements; July performance too early to comment but pipeline remains strong.

Q: Ramsey El-Assal asked about pricing contribution and retention outperformance.

A: Peter Hadley said pricing assumptions more consistent with near term, retention outperformance was broad-based with no specific callouts but pleased with small business side.

Q: Mark Marcon asked about WorkForce Software integration and lift.

A: Maria Black and Peter Hadley responded that WorkForce Software contributed to bookings, receptivity was above expectations, and it will contribute to growth in MNC international space with co-selling already happening.

Q: Samad Samana asked about bookings vs Analyst Day expectations.

A: Peter Hadley said no discernible linkage between FY '25 booking result and medium-term objectives, macro backdrop uncertainty causes volatility.

Q: Tien-Tsin Huang asked about bookings acceleration drivers.

A: Maria Black said sales from new opportunities vs beyond payroll remains 50-50, head count investments in line with prior years, and seller productivity uplift from tenure.