ADP - Earnings call transcript Q1 2020 | Automatic Data Processing, Inc.

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Operator

Good morning. My name is Crystal, and I’ll be your conference operator. At this time, I would like to welcome everyone to ADP’s First Quarter Fiscal 2020 Earnings Call. I would like to inform you that this conference is being recorded and all lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. Instructions] [Operator

turn Relations. to Please now Vice Christian conference Investor President, go the will Mr. over Greyenbuhl, I ahead.

Christian Greyenbuhl

and fiscal Thank And you, President our earnings and quarter Kathleen Officer; Rodriguez, Chief thank everyone. me call XXXX Winters, you for Chief are Crystal. joining ADP’s our Good Carlos webcast. With morning, Financial and today Executive first Officer.

earnings Investor SEC’s released first where also quarter well website XXXX. today’s of reportable The pre-tax history Earlier website investors.adp.com the of the revenue call quarterly on our for this earnings by materials our morning, you available results segment. find Relations presentation we at the as and are that and our fiscal will as investor accompanies

financial useful of timing to measures measures, which can our During earnings most a call and release. A along our we found with comparable to in GAAP the of impact and reconciliation non-GAAP be that certain exclude items. these items the description non-GAAP today, we of reference be their investors believe to measure will

Today’s additional could to statements materially filings to the as from for current events and, review factors on risk. that involve results you with forward-looking call some also future such, our We expectations. SEC refer cause encourage will actual that information contain to our differ

we on a that Before will be this revenues quarter forward Carlos, over basis. in PEOs a basis previously you made margin and to net that a turning gross pass-through we correction going call today’s to the would reported reported have earnings which noticed zero on certain have

in flows. presentation assist call. of that accompanies adjustments To earnings financial operating today’s taxes, not we growth or impact included and impact also to details revise total earnings, also our consolidated you, these appendix better previously the to million. the This not prior does the we materially impact For $XX have net fiscal does and XXXX revenues cash condition before was and income expenses the consolidated reported rates consistency, periods

also schedule impacts quarterly these and revenue segments changes. reflects the history by reportable supplemental Our of of of pre-tax earnings

reported results also impact fully the outlook and commentary Carlos our the Accordingly, year of from and these and both full adjustments. Kathleen reflect following

please always, have questions. should any reach to you not out As hesitate do

the let turn to Carlos. with And call that, over me

Carlos Rodriguez

you, you for morning we our our reported Thank revenue call. $X.X XXXX joining billion Christian. currency. quarter constant thank up and for results quarter, And everyone fiscal the This of reported first organic with X%

which We with was are in despite growth, FX pleased line with expected this in than expectations. revenue unfavorability higher some our

efficiency progress points on with Our while deliver expansion client the to transformation EBIT XX line This particularly margin retention half margin and the make expectations in the improving of for margin first fiscal we that us difficult given compare are associates this enhance along efforts in your given operating our quarter. our also focus see to was helping continue our happy our productivity, strong help basis improve to our to of with satisfaction, in XXXX. adjusted expansion performance

deliver effective of lower slightly XX% a this Together rate with was than results EPS share us help growth expected ahead adjusted and these adjusted expectations. slightly which quarter, buybacks tax our

impact quarter. opportunities, to we markets, international Employer business Services guidance as quarter are on US X% slightly see timing which our helped bookings, Services growth solid new our that close expected close this in full across growth multinational sales Moving quarter and we new saw Nevertheless, X% to year maintaining we Employer the drive to regard to business fiscal did in the With some to were this X%. expected bookings are our deals now from of certain later year.

Service. Now to Client turning

our implementation the improvements satisfaction pleased in with upmarket quarter, this in client And overall scores. were we across drive to scores our and our both client satisfaction businesses. progress continue We especially in with our improvements

We mind, XX client in increase in the continued remain experience, continue steps to XX with our progress confident and to basis our positive points points. this enhance retention fiscal transform we of XXXX and basis to organization forecasted service take full year

with with the to and long-term start for solutions continued to our innovative fiscal drive business, for and clients we advancing are our pleased do momentum how We associates our XXXX and deliver our strategy in growth simplify shareholders. sustainable

change. key be the in our the agile a job to that and success a adopt understand at We to core capacity and and it’s of the that's is done. this element to in building Innovation market is anticipate need of never

market we're the even the today solutions, delivering to about more we While of are meet about an we clients needs the excited incredibly help in the are excited workforce, evolving future.

ways continues workforce user to for a their organizations manage single evolve, the through workforce to looking experience. are entire As

Today organized one allows teams, work, handle using the at where work nature happens that platform dynamic companies the done. a often by teams our from variety to to address increasingly applications flexible core work ADP is third-party get is integration of of of same Aided working the needs. easy an multiple Institute, Research sizes to Gen individuals at are designed workers need also Next on they solutions these are with and What is platform insights enough in around time. open HCM how all the with HCM

our had HR innovations Vegas took used where and I ago Next Technology stage. HCM weeks to the the platform opportunity conference attend in Gen center Las few A

HR and As solutions that reception I for today. recognition I innovative received was proud delivering the work and is how met with address we clients done of that where incredibly professionals, and

HR Product and a New Awesome Executive was especially the year to innovation. a the Gen proud HCM and award award, remarkable I our achievement HR Technology both testament Next commitment to ADP's when of won platform Top the

by of opportunity elements to our differentiating configure actionable this a some some September, data Industry that spent Next HCM enabling Analyst such client hosted showcase Day. unique to ADP's be we had of and our as, the database dynamically differentiating relationships the via around while platform driven in local we technology, design the of insights when At data allows meaningful the solutions we of graph analysts our Back industry also development meta features time drag-and-drop rapid through tailored of technology use ability more event, interface. to or teams Gen that to XXXX the and sharing powers approach the

our solution from was to cloud In the resiliency beginning other addition, designed among uptime. improve be public helps advantages This native. and

global be like target an that Finally, their our HCM. global. that for are effectively to ideal or ADP workforce manage Next to designed solution is expanding are globally, would existing Companies Gen more

experts, efforts to And industry We proud equally awards to to industry were at from while recognized these by event. see, the and recognition is our great experts. this and receive excited it

even acknowledgment rewarding translate from It more clients into our we and is efforts see when recognition our and prospects.

our Next platform we to market our momentum expectations. is and and its solution As our in building scale to progress continues with Gen the capabilities, also in work line

of Analyst this talent live U.S. shared As platform at the Next for Gen ease successful chose details a our Industry with a quarter, Day, with integration capabilities. ease X,XXX And employee the tool. on-boarding its own internally HCM we developed client's of earlier an example, go company that ADP's the of

growing that an also same XX,XXX-employee we the enterprise global its workforce. looking were HCM signed of recently for handling a At pleased was we to share have capable that platform, events,

innovation focus our not said, our on to that HCM Gen Next limited platform. is With

We core payroll and our learning big strategic advantages have data. in also increasing enhance the leverage, to machine

our data X,XXX simplified both and functionality down them we titles job example, an XX accuracy million raw categories, job unmatched like, this normalized cloud from and our ADP ultimately As data to enhancing of benchmarking.

business. to their benchmark our and data substantial Customers to HR are changes make compensation using

improvement, of one clients example, opportunities their for to our our turnover data, For benchmark turn reduce leverage was ultimately by XX%. and over to to identify able

While equate its another savings to to cost reduce that real Manager line These being by saw data Executive solution, by help and X%. multimillion dollar use Insight’s managers are front enabled overtime and products. ADP's our mobile operational

are implementation designing recognize, the to input, efficiency payroll different NEXT from and and to policies. payrolls our engine our so convert Also automatically payroll of an GEN enhance formats, we classify prior organization,

this of to process. because will board will us the And an best advantage new elements the give of implementation on believe we our us share clients. with that automation allow various when clients, practices it enable We

frontline low work, how we finally, value-added innovation while still delivering associates, continue an drive to And reducing contacts, for we our client transform in also value, by service. to effort

mind, different inquiry XXX support expanded organization out our functionality, rolled the handling XXX,XXX With more for of year, checkbox this downmarket our over and capable types than last which clients. in today business is small

the of our sustained ADP's needs their have meet growth clients over unique while ability believe And to to come. XX the needs driver in hallmarks I today been workers the years. the past their years in anticipating will success of future, and

outlook. results call over to Kathleen, that, commentary I’ll fiscal the with and on XXXX And turn our for

Kathleen Winters

And Carlos. you, good Thank everyone. morning,

innovate simplify, we're mentioned, in our Carlos and transforming to pleased in grow. order business, As

the strategy Our are start off working, year. a and is solid to we to

reported quarter first organic constant growth previously This amount reported our of morning, on expectation, in we greater basis, with at anticipated. a than revenue and line slightly which a unfavorability we includes FX currency X%

EBIT basis XXXX. margin our from to our fiscal procurement infrastructure. adjusted this XX quarter as We're related benefited initiative points was savings compared first cost transformation also IT with expectations. continued workforce optimization with increased EBIT efficiencies Our margin up in and to And adjusted X%, improvement, well of line the as pleased within which

faced given This partially were the as pass-through particularly margin selling, is amortization spend that as margin half we and incremental well year. the in the benefits of first expenses. brand offset These gratifying PEO compare difficult by performance

to As fiscal backfill time. benefits program to a our due from strong this reminder, first in than voluntary the half that the resulted XXXX, of related to very resulting the anticipated performance outside early-retirement at plan from slower

related in by The an mainly to decreasing from adjusted XX.X% points reserves lower quarter the XXXX. decrease tax Our incentives to increase positions. decreased R&D of to effective certain to first tax due rate was and tax basis compared efforts XXX fiscal

to diluted fewer tax And benefiting and to benefiting to expansion were Adjusted a year effective to lower per was revenue also share shares by a margin outstanding aided ago. in our growth, earnings rate XX% addition to $X.XX. compared our

our funds and X% grew constant currency. reported to client. move interest Services expectations held in organic for revenues in and Employer Let’s segment were with now line and X% Services Employer

X.X% client client X% grew Interest average funds XX% fund point a balances average billion. investments income improvement in of to benefited in on the basis and growth and $XX.X from XX earned client to our fund on yield

and inflation driven collections. control wage partially client growth was a offset of lower in balances in growth growth, SUI by per This pays our combination by

X.X% same-store quarter. Services in the first per Employer pays the metric U.S. control Our grew for

The margins of quarter mentioned our when which quarter. this discussing from same the saw consolidated results. basis in margins points by I increase XX factors earlier Services Employer the an increase enabled

compensation workers' revenues pass benefits continued through excluding margin SUI average the grew and growing to X% include $X.X zero to pressure from grew to segment to lower million Revenues PEO employees quarter X% X% billion and and worksite with for Our $XXX costs pricing. related XXX,XXX.

decreased the from of ADP which smaller XX compared points quarter about basis due the basis XXXX. changes pressure to largely drove a first reserve fiscal benefit about resulting in for estimates, Margins loss points in of to quarter fiscal XXXX Indemnity XX

not expect some to As result a in reminder, PEO, it volatility in as changes PEO ADP with the compensation margins of normal reserves. results a reported loss Indemnity our quarterly is workers' in our

start the turn Let's the and consolidated with a view. to for outlook full year

We the to revenue continued XXXX favorability remainder FX outlook of in relative revenue for growth expectations. fiscal anticipate more XXXX. to elevated X% previous a fiscal level assumes total X% of This of our to on

to income income recent now now $XXX million $XXX to interest $XXX million assume overlying our we be rates, interest of and volatility strategy the fixed $XXX and million on extended interest to investment million. is expected from client funds With

With France money wind quarter client to our moving decision we rate the two down related in interest and environment made Eurozone, the negative the the Netherlands. continued this activities in Eurozone

Dutch anticipate As now to we We client excusive liquidated and our and our be is our and to XXXX. end client have will decision previous by a the client Netherlands. X%, X%. compared fiscal French of average growth portfolio This as X% portfolio we to funds result, balances year the of our liquidating to France funds about be therefore forecast

compensation XXX points effective adjusted tax basis to be we our includes margin basis stock quarter's exercises. adjusted XX.X%. anticipate rate tax related benefit points. our continue XXX stock-based now unplanned this option anticipate to to points to to We The basis rate from EBIT expand And

potential given dependency however the option of further timing related stock that It on to of does benefit estimated exercises. not those include exercises any the benefit tax future

share per With to to continue adjustments slight our to earnings expect XXXX. we fiscal outlook, to these diluted XX% XX% grow adjusted in

Moving on Services. let's the look take at to segments, a Employer

FX from X% my We growth interest and continue includes in changes adjustments Employer income segment. X% to anticipated expect client previous impact regarding to This to the on in outlook. remarks outlook Services our revenue funds our

control of about We X.X%. continue growth per to pays anticipate

for Employer to in Services to Services points. Services volatility earnings to XX commented inherent X% to continue I bookings international bookings to call X% the that revenue I'd and basis in growth improve of basis from Employer larger upmarket you also and retention is points metric new business XX expect We the like as remind quarterly Employer deals. prior our there

the to of And you client XXXX fourth remind to difficult quarter from due I’d fiscal XXXX also our quarter in part like fiscal resulting performance in compare strong a the fourth of in list acquisition. the

Moving onto margins.

margin the basis expand to segment in points our Services expect basis to points. by Employer continue XXX XXX We to

fiscal in margin resulting half XXXX, a from the of difficult continue latter XXXX. expect fiscal half much with increase of to stronger reminder strong first a compare we As in our performance the margin a

segment, unchanged. PEO overall, remains outlook our Regarding our

expect XX% pass-throughs, growth growth in excluding zero in PEO to revenue to of revenues X% fiscal X% to to anticipated driven growth by worksite We margin benefit employees. in continue X% X% and PEO X% an XXXX both average

of of guidance fiscal growth the expect range slower the year employees average in growth at to our we Because reacceleration as fourth lower rate the year gradual our of worksite quarter progresses. half growth continue the end XXXX, in the first the a our with the of in be of to

As discussed SUI PEO workers' we last to cost our growth. to related revenue continue and pricing expect pressure we compensation also and total quarter, lower

which be include to points XX in approximately adjustments XXXX. to fiscal anticipate reserve For pressure from XXXX, basis points basis fiscal to in of flat to PEO in margin, XX continues we favorable smaller compared down ADP to continue Indemnity margins fiscal XXXX,

hand latest XX, of showcasing strategy February focused to I technology, an Before the over that be share like her will on hosting Innovation and I'd we call Q&A, on for innovations. Day, some

analyst developments of some following Others tweets Industry of few the those Analyst some our September opportunity have had of notes, HR had during the you have A to Tech. may see industry from glimpse a Day. and

our in The make, specifically share the for to the these innovation, the February innovations XXth product would progress event dialogue continue we differentiate and to that a market. to have service including ADP help be community, how around investment and

please We look in lookout, forward the to on and welcoming you details for then, near the be future. further

questions. turn With over the that, I'll to your call to operator the take

Operator

comes El-Assal Instructions] from from Thank you. first And our question [Operator Ramsey Barclays.

open. is line Your

Unidentified Analyst

for color Employer see ask know Damien you the I on both Services give at good bookings Ramsey. Hi, just just to But about morning. This you it if guidance. is talked I wanted quarterly the anymore I on cadence. on lengths. to wanted could

just know mentioned level kind to be granularity the just But to I And you up that then, midpoint X% that you of QX. give Kathleen any difficult would get maybe coming in overall confidence of great. could X% to of comps guidance?

Carlos Rodriguez

Kathleen maybe pattern, again, last if let as was comment soft. But year's I'll make that you well. our a quarter I year last second think

because the a client acquisition the quarter And fourth more would be the acquisition of be think, Wells little Fargo, base I from compare. it'll difficult. easier So that the of

to of have try individual performance information apply things. And on and happening across unit about obviously what's obviously some regions. we these But kind judgment we

quarter details the international some of had in that really as few accounts. we core And I provide And in major would into we’ll comments And as our strong, we what results we expected. that. some deals color think national businesses, first call as some a in the well that prior this multinational. didn't SBS, is and had try deals I in large look and weakness with of our were accounts close very year, US the what to strong quarter There

track we’re quarterly still these on of some So us despite fluctuations. that confidence the year, kind that I would think, for give

bookings as revenues. But the we times of than think the model. zero said, have many Obviously, I to more and the we for Because said Kathleen's us certainly on quarter. revenue goes back beginning clock is volatile at every bookings recurring

But think weakness because is it’s economy, been a we gives some have that in don't looking multinational some that change major Europe a the large a some any in us that for we we’re while economic in have and climate it's at. something difficult the that kind But the business. strength underlying in we optimism. international see did of where I

So, lumpiness like, as looks again look just our detail, it typical the bookings. at I in

Kathleen Winters

always mean to have number that. I you’re to degree at in Yeah. with couple just Look lumpiness of bookings right? a quarterly of going follow-up things, on some right, from your least

then comp. easier deals, lumpiness. multinational comps the larger comp type some you’ve year-over-year And an or to got cost issue a If you’ve got going and got you’ve tough that's

on. So going you’ll have that bit little of always a

obviously important numbers longer trend, more so term importantly, right? at look while the quarterly a I even important And think to

of doing then When billion then that you number a pleased particular year top another we've start in solid for what and X%. the been look look right, think that last longer $X.X feeling to we’re really pretty you year having a in And when at really with the record, is we of actually of of think time, strong number how X% with period I last and at QX, year. on

of there little the are are outside of start Now a but of little lumpiness course of mentioned year. there, bit gate to is with that the and slower pockets the maybe and always that pretty on a net-net having others US we're out the Carlos stronger the pleased

Unidentified Analyst

around strategy the suite how the time of just your of strategy then you bit the advantage wanted and That over on zoom large ask Yeah. your I’ll context you out Lifion sort invest sort at to in dig and level. and product continuing enterprise to and new in overall I sense, there of products maybe see - just a makes great. little revolving your strategy offering. Then see

Carlos Rodriguez

quarter highlight and one end lower frankly but with we it the of sure been Now of so Don't also though our landed can of X,XXX the signal to higher. trying go yet, to use this. in it's not call it for it frankly a upmarket, X,XXX forget I am the to kind again even that has how highlights Workforce decision the

that couple have clients competitively on of wise. that have X, We that has in a great decision employees X,XXX But growth been are Now. Workforce

units a lower upmarket. of in So the selling of we kind lot end are that of

and are Now speaking So requirements complex certain complex profiles imagine fits of to like so and you for more more but Workforce large, use simpler have types needs - the they would probably clients and clients complex and be benefits ability and can it forth. and generally Vantage talent

still in an And even Lifion type even product, how Now from Workforce Now the of it’s and obviously of result size a again And we've we it’s are new accounts I in told ADP, we're that great traction of numbers the like Vantage the early quarter affecting and you terms in done what though a adopter terms of bookings the good getting and as - wasn't given really sales in that really Workforce of I we the primarily upmarket in Now. had revenue. good national clear think case results

is all for we strategy we’ve same which along, out the had strategy we’ve a the really of the solution great So that is segment figured I a market. have think

for by external be was our good mentioned addressed we us that's last third-party doing. size quarter, of that the we're what Now a market think Workforce and found some market. entire of segmenting have solution And I the the fit in doesn't solutions I market, one can what and terms percentage we pretty that and usual an as analysis do

a another kind we the of still Lifion And solution is segment right. we a have analysis of for placed But right. the having lot the on on and lot more big it's that as a think future. And a we the and confidence a and market bet Vantage the impact addresses was obviously of emerging And the today not - of really numbers. big were of

industry meeting comments again, the Tech just Las had we think, Conference that who about also HR in we mentioned for And and it Vegas at in just dynamic we anyone think some when was my financial impact your signs – that I were in clear market. question early analysts had in of an analysts market some there, pretty are some I this I terms positive of I our the was there, making

flow in because So multiples was in it lead our upmarket has of Lifion. the past what the the been in interest of

want in three revenue, relative mentioned. is here be because just billion But to long-term quarters I signs positive terms quarter Kathleen the our in But as pace to or in not $XX very, are next cautious the this from of now. very

the traction on - think, in very, encouraging. focus is the Lifion I very you we're If long-term, Lifion getting

Unidentified Analyst

that's keep Thanks. That's, Yeah. watching. We'll good. really

Operator

you. Thank

next Suisse. comes Credit from McVeigh question Our from Kevin

Your line open. is

Kevin McVeigh

incremental client Great. there particularly couple to of FX? lower like Thank and you. kind the able guide funds Was revenue of the on offset the Hey, you’re extended investment. able headwinds despite interest kind reaffirm reaffirm headwinds. you're there to of and It given seems despite those any the

Carlos Rodriguez

goes to about You we're know, saying back what I business. underlying performance it think, the the the of of some

that an quarterly improved though comments, we it into first so probably about good could that read compared hope you this year's we last example, don't from that prior to even pretty quarter, as give tell quarter. - it could guidance felt prior retention, So I on to our you

impact impact as terms have of a equal before much our And frankly big has in the you business. if and business implement on do growth as bookings on I revenue you mentioned to because for pretty retention math outside don't margin

area And into that strength. an here, so go parts of out pot lot there's moving of the one different point as would that a I but

about think businesses. our I we've core talked performance in strong the U.S.

three had performing quarter our So bookings for well. businesses terms the as very we of in well core first kind of

we think the ground range. we're process some it's now that of a up still forecast and plan us of in and this the that So have optimism forecast, building from I first

just of four way one the when other growth just was that point retention story years way, because of retention takes math out works. the it offset because pointed going I ago sales business I or four to the growth the new point of to of want it but And three five to bookings out points

now in - bit retention terms you little And helps that - improvement our as rate. get as of retention of a lot a in growth so

Kathleen Winters

Yes.

headwind Carlos a gave client that the and or there's mentioned expecting the funds. particularly would versus we some obviously from unfavorably what as So interest us have couple been things of FX

when things look operationally at look However, you really good. fundamentals the

As now the up harder the go. some quarter gets Carlos to said the bookings harder solid upwards here, and for is higher retention we're you level on steady in and But track first increase a happy were see of quarter.

Carlos Rodriguez

would for interest, not on I And we we do but gave in huge it's have some has we below add information number to you obviously client this we it terms are the of funds - an year. just expected - we for guided be, year the a as this of the fiscal impact what slightly

Kevin McVeigh

Great. obviously progress sense success because enterprise just little highlight range there. those? more bit mid-market nice And Carlos a the really retention just the versus the then little the a kind Any the across on of to bit of downstream versus

Carlos Rodriguez

a sense. some improving sense that, lot. have do is I Yes. we're My

we some the in call in what So mid-market we of our business. balance show trade, signs particularly the of terms win-loss, signs encouraging some

you all clients definitely again got because the we platform and of single be lot to - which the according is forward-looking performing script, performing statement. you is remember our pain of in one of Workforce Now. sense cautious a to mid-market migrate to it's So strategic to there's took on the now But a effort lot if

in we our beginning same and were what the business. to it's And that that, of When happened we show SBS business. mid-market And have would downmarket of hopeful at optimistic the kind look traction our history now. did in when we you

in am more. retention we feels told now six I it range. for So or improving quarters have that like being somewhere seven

migration the of got kind we once that So difficulty. and finish through

in improvements steady have we think I retention.

the ever see business had, this we've bookings. what our in of quarter in encouraging highest mid-market in quarter This new retention is And second the business. level activity was very was to

combination what two a profitable is and those gives one businesses. us things optimism feeling - the So, more for of of biggest of

Kevin McVeigh

Awesome, thank you.

Operator

Thank you.

comes ISI. question next David Evercore from from Our Togut

is Your open. line

David Togut

to the XX% your this you growth for Could from recent drivers is that revenue you your in up which Good on, expect Thank morning. to move year? guide quarter you. X% to comment the PEO X%

Analyst that year’s a the multiyear Did trending as the single growth well the to you your HRO rates period? for at the towards double-digits of gave of to Day your high now. you digits? guide follow-up just you're that business, effectively, XX% end anticipate mid- say, year in Let's then, would a And XX%, below last time earlier and slow that CAGR

Carlos Rodriguez

Well I if I the to start the fair Kathleen. with one second can analysts and in was first, since not there ask

precedent, the I think this I think through the around certain we we revenue built had inflation years. those three for we've numbers of for compensation or that I historical health and We as are our estimates couple pass had have mentioned guess around times, guidance both had some workers expectations of and care.

and have any any very the it picture communicated we clearly without frankly, anxiety that transparently doesn't And in our EPS. I of impact and changed, think literally within very that, and months two because

So on the June PEO inflation. brought least, growth to for August close you I at earnings primarily had rate our that call, mainly when if it significantly we almost lower based for remember year - Day, we the and think Investor I the think, think I down

affect in we Now what main core slowdown had differential on this top we which worksite of driver from growth I Day of real employee the driver think But profitability the big communicated is and that, some growth, business. our really the dollars. been of concern terms the inflation us, which it’s pass-through, lower zero margin doesn't of of our in a way has in in underneath because at the have of Investor a of has again terms doesn't been

just this about of terms the scope beyond of behavior the your quarters of when and forth, terms of the question we in probably of In kind but, math have so call it's open and for May, happens which enrollment you tend kind client of we’ve communicated some what have June occurs, that healthcare to very in happens churn. transparently timeframe that when when our again

up your again. terms another event because start have in robust, as calendar where drops they the calendar leave of assuming in for year in to as And well. of end - revenue lot historically bookings PEO. that the you have at you of the churn at year more then growth client bookings some So end worksite that employee the choose to base And and year-end, the clients you that a to end that's at January to continue continue growth be we but the also build then have of obviously natural,

we're we've are doing of numbers for and as just So in we on that. change -- terms to trends. But XX think come of the supposed in would they or see a this a we I communicate obviously based been years difference historical kind dropping

And last say so year of weaker did because we and just the obviously, year. with the that range started quarter would the a ending last I would worksite a start into lower fourth range in from end of progresses a somewhat as employee we expect to the quarter grow then David we year number add, the

Christian Greyenbuhl

adding higher again year. I And worth in slightly than health full I previous just mean, think probably renewal think the I it's said asking our quarter last care transparency, it we was

the of wasn't out was So I it but historical, norm terms previous it year wouldn't of - anything in higher than

overall part care to large tend - pays have -- more that structure when business what cause when happen And a their of that a of workforce. get health you small in and more shoppers we is their cost

in more to have think we I little tend they prior and and we bit so look the around so forth, have than so had year. a And churn that shop and

The think for that us issue, we've that good we dealing care. XX that been for years, but any but is don’t with have we risk health on news is

through we zero carriers, margin pass-through. get XXX% which in price those increases we we terms the So whatever through of why is pass call

surprises in the have just risk or the you also future, courage the to where pass eliminates they through those but means let that So any any have frankly it to chips that may. costs fall and

And because you but the chips slowdown, didn't in collapse a the can the of kind it's the really have and new ramp to definitely we chips had our fell business numbers speed I and bump rate. the growth up see off fall and have the from there regain of a that momentum because we that wasn't through huge think the again and now of bookings that reacceleration table,

David Togut

you Understood. very Thank much.

Operator

Thank you.

Bergin comes from question from next Cowen. Bryan Our

line is Your open.

Bryan Bergin

macro you. Thank due to encouraging current ask product business, based the that much market. employment Carlos, might you be outlook Good demand versus saying? It on morning. the but the to the competitive curious of improved of performance on I'm the position underlying wanted Hi. is your sounds how

Carlos Rodriguez

et It's we on obviously a do one an that it's they rates have put important us per asking control, would turn to some great question you because ourselves, know kind if is things for them, pressure us, one keep us cetera. of on interest pays of

the pretty feeling and about our our think going also forward we're product competitive situation situation marketplace But in I good here.

on is for So it important that's going next -- the us few be very a focused question stay here to for to quarters

per But today, leading look like access it if control, indicators at things in slow a to you our to that - as look lagging pays terms we issue, indicators at Michigan you indexes look doesn't things of NFIB/ISM at of or same confidence. everyone types else have look those or confidence of like down so and when would the have access that you there's a but big

bit our those, get there’s doesn't softness some numbers, the concern which and control where and of employers. In we've prior reflected large base for we it is employers, little there caution. and You our and some and seen because employers report of both some pace base very a for what know reason have only place Autopay midsize in our smaller large as disclosed we this is

run employer pays anything of when think - still alarmed for history, it's down at doesn't levels. factors growth our I control slight It at XX-year over seen over cause but other year. by, most days I per significantly, but a and tick - be of we've prior in have above don't softened recession we in certainly platform to couple happened and it I look you well caution. that's you think, at look when NFIB in the the last But to just a look the our there it's

patch. think all that kind - patch we a it out same a And consumer Fed so and soft like or I this still thing the the soft of our here now to of line. right work plans is we’re kind way trend which But of trying easing the are strong kind our through is figure with

Bryan Bergin

And the share And you and you progress, were transformation then helpful. anything margin surprising seat? just expansion more yield, on you Kathleen look That's seeing various details Okay. initiatives? the as across most you various on just any can had further resources you've the in as time the

Kathleen Winters

question. years. to what very big a context of I couple the in on for when the in really mean some I'm get step that is take look focused just done the and well. of you picture as on and really kind kind at of back Thanks last we've Yes. focused Obviously, organization something

small and big XXXX I mean fiscal in were at of expansion amount a year XXXX, we -- transformation of rate XXXX, remember initiatives. on executing and margin in back then we really margin when when XX.X%, were with in some meaningful that

basis expansion -- that reminder as to another points saw points, really XXXX. XXX of know a for You points guide basis outsized the XXX XXX margin and basis for fiscal

consistent a here really fiscal that record start happy we planned as XXXX to how that on we're we very with expansion in So see year. And with of points that the basis track we're happy expansion. really and margin track XX margin QX

alignment projects And behind one going around executing Now the the call execution and a my developing lot lot lot I is well I a number but a energy a of comment and and of lot there's the what pipeline out it work point on as for of as I'd in-flight of that energy both as around there's scenes alignment. started that future.

that's really So exciting.

are from both a what most optimization year very I the about coming of on much from track optimization from is this previous and transformation standpoint. expansion we're a margin the perspective on that procurement calling talked workforce workforce initiatives call

you in spans Think will layers if about of and that exercise to terms and layers. management targeted particularly

beyond So most already of being XXXX in with much on benefit of from that's XXXX. fiscal that that fiscal kind track not coming executed and

transformation spend to the and on. suppliers. of across at going as organization - we all parts there procurement look our policy of there a smartly then opportunity with ability we and at volume look projects we and and vendors look and negotiate is there's There lot is at of And execution lot there a as we at look

of on. going execution lot a work So

and lot the what happy to do. of but a work are with So, the happy with we're by doing more currently the organization, progress, teams

Bryan Bergin

you. Thank

Carlos Rodriguez

was Hi, particular. but was Brian. time. the particularly add, you in I year, growth very in and thing your as just to But obviously just I one driving the think first And second to think last - strong those. what's related about second margin that because the quarter question a quarter margin margins in

And pressure just at that a also we time. reminder, had from M&A

year So, margin one think on about just layer year. when that cadence to as versus you last this well it

Bryan Bergin

All you. right. Thank

Operator

you. Thank

Our next from David Grossman Stifel. question comes from

is open. line Your

David Grossman

with peers if have I Each you. of with incremental just Thank space the reports. a in recent their follow-up insurance some Good questions of PEO. in I health type wonder of your issue identified could on that morning. book most of couple kind their larger

be delivering PEO place health may And I in the market is know health impacting cost model. and in there industry? you're But your through seeing in you you mentioned, just the that pass else, premiums higher obviously everything anything insurance of the

Carlos Rodriguez

No.

David Grossman

right. All

see be may of on around anything that not guess, you, don't for impacting claims seeing cost? I in really is just else? higher and you the terms claim it's So how the premium a straight

Carlos Rodriguez

what's with of sense carriers and carefully employee, of but claims we at You individual partnership claims will data to our happening our trends. see very, looking course data carriers, very with get in terms some

bit issue. I increase a on little clear be Maybe premium more, should this,

renewal year. you to to want I'm it from two think to give down prior exact call rabbit that the was I average going But percentage the than So, get hole. renewal this don't higher, prior we numbers. the points the on to one not change

then was year increase next the was was it if, So previous it X% X%. or it renewal year the was X% the average

year higher completely was the that seven years. that slightly was increase or line prior with that in six And

So are that wasn't prior downs. actually so one was -- some ups it But the was there exceptional. and year

I that. think we were very about clear

our carriers. talked remember not average think on really our one that I health we multiple we a calls, this These renewal in is that I had are about carrier. care great on

we number coverage We different of carriers to have a sure across use the country. entire make good

this us competitively. norms unusual. it that. helped of that and out was to not And with I think renewal has But with was any historical do line And so, of nothing

not bringing anything I approach people's happening do and because this care to it's and business to you health probably bring in think has with business about underwriting the their policies just own around business, that's repricing in.

some or taking have not have those passing of opportunity through what self-insured you risk, on or the And you're underwriters passing you health with are. But every year the actually costs. your or care option through you're costs judgment if

it in generally health in what to us doesn't around that's typically so And health broadly really that But the a there's care problem anything care. could create PEOs. appear happening industry

David Grossman

I your, on your think on just then a based on commentary comp. tailwind. And just the workers had mean industry whole I

in you if then health more mean for of plus is the terms this normalized level, PEO, a right, typical items? So, at look really year terms increase more workers at a year's in this comp you of the I two those

Carlos Rodriguez

-- on time, but why And was think just we be smaller say were think clear, clear a don’t right. comp, I a again think to I positive. That's workers more the I that's fair. we one

kind as disclose significant very losses not any in have of comp in And we ship collar workers having in in a limits are we of. So Caps there down tight terms a our on a our we comp. surprises sense big the side or in by way fairly we're have way. XX-K, workers that risk that

So we have and loss individual we collar estimates. reinsurance around an claim a overall have then

the So of volatility. terms it's quite in limited

our as that very that would hasn't changed, I business well. other mix is that look carefully thing so we mention think the at I

different it at have as of major a the change categories but collar industries looked categories of lot white So people of we any and within versus those of there we see lot call a collar, well. you gray don't mix and we different

David Grossman

industry Got a for you using bigger from it. you picture rates lot follow-up, And question new is that just Carlos a relatively kind is payroll. you low already for for that is get clients of client your that a and of given penetration as the a a

and an they're already particularly records transition enrolling substantially objections cost ADP customer somebody the if the the of are payroll and disruption so to PEO lower? payroll kind and major effort have time What it in you are

Carlos Rodriguez

is it right. involvement - high my it's class marketing decision, to in which first school, think back graduate goes year I like

to taking that relationship, XX there small providing years all a create co-employment tell been you're be going you're in workers the comp there’s to relationship with are there plan, example to So for this healthcare a them a workers' remember could the PEO a that's health over an way go insurance business compensation midsize the last to and or gets that as broker care that along agent intermediated. the

- on to not and payroll is hard to incredibly of people have we are are you have us. some payroll mistake helps going strong to enough go – because going reputation worry sure about you sure a obviously convince the payroll accurately, to make that it's that an You make

HR their them But you’re give the to your is to business traditional trying you're payroll, someone now give trying you you convince also convince everything to to around department.

make trust to to level make. it's called decision, with And is takes a higher being so more difficult what again which it's is taught involvement longer and and of a high remember I

is that I we've anything becoming really over think I years that convinced think clients that from PEO clients. don't XX we've demonstrated honestly them. lot So a And there prevents of

can't which improvements And add in board you And even trying. continue asking, the so you're our we're Like, we question product. to asks same the more. convince

tools. continue provide to We better

enhance We to product. our continue

it the We more we do continue all compelling can things make use. to to to easier and

kind an about because platform functionality could ability the the we've business XX than in a we As slightly mid-market and satisfy the months, larger Workforce platform. example, to before now it's Now talked and clients of provides has our I starting PEO in higher new which this last think all

to clients to so there try possible. come doing a convince over PEO to solution that is we're as many And things our to of lot as

good other us but for convincing good sale. it's and kind them and it's that them I good the think can the of really I nothing the it's to there's difficulties of than point for for of

David Grossman

Thank Very helpful. got it. that. for I you

Operator

you. Thank

comes Jason America. Bank from of question next from Our Kupferberg

is line open. Your

Jason Kupferberg

commentary. second quite I as to Good the the I guys. gets of Hey. there harder wanted just mean, comparison margin quarter. actually you a bit pick-up the morning, some in on out pointed rightfully

that properly mean are expectations year-over-year? in do second expect quarter so I just margins So to you be up the calibrated. our

Kathleen Winters

a XXX tough margin we expansion. in over points basis comp really QX. It's of fiscal last year QX, had Yes. Remember

it was be Maybe slightly to So to flat it's to tough in down. QX. going up slightly expand

You many parts. know, hard to say exactly so moving there's because

would I second think is of half bulk in will the the this about year. that the the But come of way expansion the come fiscal year to

Jason Kupferberg

Yes.

there mean the just I on except fair. That's bookings Okay. the somewhat easy Because in the second got you’ve right? comp front in quarter. similar question reverse

second the achieve So the just do on outlook? stay to a harder you year the need the sure second full you in to guidance be above bit make quarter the half? that range here track to get comparisons obviously full Because in year then

Kathleen Winters

number quarter? second guidance bookings the Above in the

Jason Kupferberg

to keep be year just need QX in the on full range track? You yourself above to

Kathleen Winters

Mathematically, yes.

for So absolutely in the on you’ll in it’s quarter then growth the second have year full you're QX. and more that I much right. less to mean stay

Jason Kupferberg

XXXX? drivers be the then growth Right, What last fiscal And the in acceleration right okay. quick just during from of me. the balance would the WSE of anticipated one

Carlos Rodriguez

It clients pattern, it's I the be same to and open I sales back accelerate I tend than mean, losing at hate June, I enrollment our of that not about necessarily same couple experience client to we think, the tell goes new questions time. I'm [indiscernible] turn. at the ago really a Selling we necessarily to The the it more when really clients. - smart the but to a trying talked in some don't May

of you May of also at leave is And clients then you year a of you happens open at sometimes June. clients to lose group the of calendar the year, may bring and enrollment end but at bring on beginning and on calendar not that year then year seen end tend phenomenon so have clients where times new - you so the than and the other other which

in the two the And worksite either is the causes skewing what two non mean growth I'm growth. doesn't is differently. saying towards That things just deceleration sales or And cued are that skewed periods. leave, those those combination of employee

Kathleen Winters

and trend said at find. like time at any employee I one as of - these on – and over a one-off not have margin, these is at track you looking growth saw a very any but of record I quarter worksite - a like of when period over helpful and Looking trends happening. Yes. for Look some short the things time time I lot could look even bookings metrics things earlier right? you the

Carlos Rodriguez

obviously. on have also But these we have plan, - again usual as in you expect this we are have our right if guess the numbers case hit I we when giving what calls, now. we based we to

about. and new stay you So expected if outcomes when then would to stays we hit our bookings plans business get talking that the we we're retentions

as in three to pays lot said, to a Kathleen from the per to moving control is there's months now, of the tank the declining, if going and six PEO parts economies about addition But in But it's good the forecast we ES create in and it any ADP headwind. I think, in pretty the we and new information less have. of would than that absence feel a

Jason Kupferberg

Thank it. you. Okay appreciate I

Operator

you. Thank

next Wald Morgan Our comes question from Stanley. from Steven

Your open. is line

Steven Wald

good Hey, morning.

a just the on expansion year, to wanted the beyond, sense next a or drivers I sort the make this proper sure quarters of follow-up there. were margin messaging. path, of a getting the maybe even about looking And we few talk Just

the procurement about I next one guys has investments. tech months think is But optimization over a talk been the XX try I the improvements to of so. of or things and talk think, around workforce the you your or lot

platform, more on scale will your a in even doing you are you're terms Can base reductions that to that into little add this basis. you or you're you talk of scalable what that As or cost a margin bit adding build expense as more you're into up day-to-day improvement? how show adding about,

Carlos Rodriguez

think rather we help we're it's like really than to about of to that. for that was that again what people. math, guys Kathleen comparisons in back the some doing. Well, anything was understand have talking to understand I you terms it but of And We important

planned program, we of number back had voluntary what with people happened And had just So, year planned, we certain we of that. good taking fills the all that had retirement back delayed. a then as a the were early reminder which was, was percentage last fills

that And that year. impacted so

off quick time strong we around us to start very other at the We also got off a strong what help to other a half. called for reasons. had wins of couple a start in first We transformation get that a

us, Kathleen think we strong about had improvement. talked I like incredibly And for margin --

it's just so difficult And compare a mathematically. very

how going As of we regardless along, works, been initiatives. on the math a continue we've of to work number

of and year other projects I And progress executed we're have on a expand are them around project little transformation in some well. - also sorry we have And as probably innovation making that more those bit when around we'll Day we're share on. because Analyst a things our industry of February, and this our we around some obviously those doing, we have a but kind number layers and one of think automation procurement the then that is digitization of this initiative, number we

innovating about side. product also side. just the not But it's on So the implementation the service on it's and innovating on

in of to we’ve still are our some for And our good gotten productivity which associates. some our while, businesses traction allows improve

and were satisfaction which While still no by up our surprise improving quarter client is and this the our scores again the NPS improving. way retention

that sign a is usually still It’s client satisfaction high.

the here next to plan So for that's clients to you balance again now, transform we've cost both meantime. the for in and structure, able want our you is lose the your And those here been to two. year but like all or don't of want trick

Steven Wald

one Yes. last than bit year so. seen little follow-up, higher noticed the Fair enough. And just then, I quick maybe buy we’ve back a or

forward? provide on you how any thinking pace you're the commentary there going could Just about

Kathleen Winters

Yes.

terms our the been of about base. the thinking to no that. X% really so, So change buy along how back strategy we're we've really executing no in And intent we of lines, talked change. about share those And

constantly and we if it, we'll talked of look to the about But become We we no at all that, some opportunity don't that, the more it look change. the and do look know. big is time particular in there at time, watch there as I where now all Maybe active. market we we conditions the a downturn market but want is

Carlos Rodriguez

of these continue when happen statistic, we XXXX’s, our to to pace. and Again, prepare one XX% to little now that these get we so stay we’ve I so calls. share seems on things the since like information, years intend we like count notice XX for because by Because reduced early

of of it for years. added seven been And share X% we're a a it a so obviously And certainly up in marathon for reduction. year a company last it's like adds per it's up. years the the at marathon we've XX kind around XX% proud that tune And to has

And count. We getting the marathon. that are share think of they're to we're shares think companies their different whether in I win stage dilution adding to development and this going

Steven Wald

All Great. right. Thanks.

Operator

Bank. Thank take you. we'll from Keane final our from And question Deutsche Bryan

Your line is open.

Bryan Keane

guys. Hi,

Just a quick two quick - clarifications.

your Indemnity. sound it On street, sounds it was the below was comp but expectations. like like it there And margins ADP a it tougher to below the was PEO didn't really

margin just So on to side? talk could forward looks and the that going maybe that how

Carlos Rodriguez

fair No, characterization. Yeah. I that's think a

be in expecting as guidance. I what topic, can and with results specific the there’s don’t since quarterly we expectations. try as usual we we're think there our line a between were – we disconnect obviously But think as is I to be versus give I slight think because we’re that that straight sometimes on

Kathleen Winters

It to year. the how line definitely expect Yeah. start we in was with

Bryan Keane

margin on PEO? for then the forward about think the how And just that we cadence going

Carlos Rodriguez

question. That's good a

that down… think annual think the at to you down I when it XX guidance, I was flat look

Kathleen Winters

Down XX basis points.

Carlos Rodriguez

basis points. XX to Down

was that think guidance. the I

- I you something don't number, - is now that fluctuations the because would rest year into margin not over the If first quarterly course these quarter have we our we ADP any real of a are improvement visibility of can ratably take in that. that for assume something the have Indemnity

we've is, done this ago, remember our around part had of a criticism if disclosures. as just why again, some a And reminder, years you of we couple

kind we businesses. our and us those being interest in the client of other not category, kind have these funds up makes questions had not allowed So of and which of the results to handled Indemnity

are there to every story. two But as usual, sides

And and so enough. I things Fair think of the criticism results really those the unit. belong the was business

So explain every quarter saddled fluctuations matters are we kind is really to underlying of what having now any business. health made because we that the with of the change here, and

for what's doesn't business say anything affects because to size a get numbers, the underlying can what fluctuation million about you is it in get of in this We we business. But happening if don’t you which take really of quarter down, enough it it but business, up the the risk the that matter. or $X had

We But funds it it you and of that have able is in interest. likewise we’re give going kind to client now is. Employer And now what Indemnity have Services PEO to color. be report to every in we the quarter

that so creates And now well. that in some as business variability

Kathleen Winters

going the Yeah, you'll just QX down down basis see through depend to it XX that how in and again - to of during year. XX down mathematically ADP with on ramps. Indemnity the that the so points with the and it's comes flat But the balance

Carlos Rodriguez

XX it. we've But certainly -- doing we because in PEO. that when was handled for years. nothing been the We've ADP have Indemnity easier It didn't

are the a exactly handling it. handled all. always That's We’re not report. we’ve we way just way by accounting same the different It’s

Operator

And I'm remarks. closing pleased Carlos Thank does for over program the portion today. hand our this for to you. conclude to Rodriguez question-and-answer any

Carlos Rodriguez

very thanks much. Well,

we good about tell to here lot a can transformation. share about obviously when lot Innovation Day You a pretty feel February. to change have we of our talked you We're the start in with XXXX. things. trying We’ve We'll more

our continuing we a are doing our on on we think alluded our But our job - as still this be focused clients in and a front Kathleen continue execution we’re phenomenal lot of scores. associates. there's of And associates to improvements in execution by to evidenced But as I focused try our still NPS us.

debut. what our with Lifion Obviously, with we happened HR felt good Tech, about

about We're excited I in first that optimism. quarter. some mid-market So what's happening business think us here the gives in very the

So I and organization that continue the of - to the they continue transformation to be resiliency proud organization our the of execute on. very and efforts

you you So we today. for thank we joining time to look you. the to forward And Thank come. giving call in our updates more

Operator

for program. the This participating you conference. in thank gentlemen, conclude and Ladies does today's

a Everyone all have wonderful day. may You disconnect.

Automatic Data Processing (ADP) 30 Oct 192020 Q1 Earnings call transcript