ADP - Earnings call transcript Q2 2020 | Automatic Data Processing, Inc.

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Operator

Good morning. My name is Crystal, and I’ll be your conference operator today. At this time, I would like to welcome everyone to ADP’s Second 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

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

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

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

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

and looking progress technology to investors.adp.com. you for as many hope see upcoming of I which details Before to how like the for view I’d event on you is innovation forward XX. find turn portfolio. those our the well person sharing We��re HCM call more vision Innovation to and Day our We are attend, to for as Carlos, our remind our can our you there over to who investments unable at to about scheduled in February of

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

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

Carlos Rodriguez

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

this with ahead pleased expectations. slightly are growth, revenue was which our We of

EBIT lower Our also and results XX% us XX tax a our slightly share and adjusted points the quarter adjusted in quarter. for these expectations. with our effective through margin we fiscal deliver following are Together difficult ahead buybacks helped rate, was of increased with Overall, compare adjusted first growth of basis half XXXX. with fiscal first EPS this half the pleased a progress the XXXX of

and new bookings. operations to on with business starting Moving

on solutions. downmarket our continue This solid quarter, also PEO. progress strong Services sales to particularly growth in see and in Employer our double-digit we the Workforce of bookings to our offerings see Now strength We were pleased

mainly business are we new lower With trends our and result was our opportunities. larger multinational international that businesses, quarter. in sales with saw said, disappointed the bookings expected X% we same growth delayed Services some growth our for of multinational This than decisions first for the of the the Employer with including quarter

mind, size, have an on we quarterly outlook Services new on and With new have Employer opportunities growth our metric. bookings last have X% we year’s to given billion business X% of growth as in to to of impact our our outsized before, previous Employer X% Services booking their this said As year narrowed compared bookings. guidance now X.X expect X% business full these can

remain execute our to have opportunities and we ability across to in pipeline solid confident our portfolio. continue We a of

scores in service, Looking progress we and net overall at retention. with promoter good our see client to continue strength

basis result, forecasted a expect to points. XX we fiscal increase Employer retention XXXX year to As Services full XX continue our revenue to

three-year and at Investor at of Day. midpoint Now targets the outlined our we’re XXXX halfway we our XXXX to fiscal June

financial thoughts updated our share we our and from also and here my fiscal months giving moments back As to will that look few six giving our guidance any Day, XXXX I upcoming to on at are not outlook since a take progress Innovation want away guidance. provided we be we

with Let’s start business new bookings.

average would results June that in were look share business Investor bookings recall targeting Though we worldwide Day, outlined XXXX worldwide PEO since back that as we Services X% seen through that to which new we longer for quarter we regularly midpoint fiscal we the and growth includes together, You reminder growth beginning Employer the of of have helpful X% a figure, of segments context thought to our bookings X% report that no a XXXX. will XXXX. growth it of a

an in organization Service initiatives, broad-based Alignment fiscal years initiatives. in and bookings We as of with most Voluntary with retention even XXXX we’ve Retirement Program fiscal 'XX, of and a the including and meaningful through improvements revenue strength Early as they going demonstrate Optimization how with growth Initiative recently our in stability our XXXX together Workforce business been Procurement our worldwide set transformation our our this are pleased and Employer Services and

Meanwhile, constant our XX revenue reported organic the months. consolidated quarterly grew X% past over average and currency

developments our planned employee some growth. our revenues we at recent has than expected and performed not our PEO of relative long-term worksite to affected that look the that lower note line in expectations we lower pass-through have by expectations, growth driven than As with our

incentives, compensation healthcare discussed including some our workers’ impacts past impacting revenue PEO rates. of in unfavorability the and retention the and inflation growth, several state unemployment quarters, have the softness insurance related Over recent sales from we factors to

X% And X% growth to pass-throughs expectation impact revenue X%. X% growth long-term months average to compared to to the from our over these of expectation as employees contribution XX our average With was the past in our worksite factors, a long-term X% was XX%. to of of compared

expectations, we confident slight PEO to our are the for underperformance offerings. overall the and to demand our the of healthy relative see Despite prospects in continue business

experience. an fully Our PEO in this helps outsourced service business leading together market HCM we unparalleled combine HR platform with the solution which and is the best-in-class partners, deliver

average are now total revenue, back growth X% to six Stepping tracking quarters. at we through

of with continue record we’ll track key performance playbook strong a driving proven bookings a retention and growth and focus sustained have priorities. growth to delivering consistent on as We solid

period this of during further solutions solidified associates we continue P&L, way clients. foundations the business the down we to the innovative transform delivering moving our our also as And to while work our

These through the fiscal with of leverage of growth and our the CAGR model adjusted our XX.X% line robust which top EBIT transformation fiscal target XXXX XX.X%. our steady have operating efforts along of second and is XX% deliver the in average an expansion of growth within margin range of quarter the XXXX, end helped to

is our XX.X% targeted of buybacks effective to through adjusted and fiscal This growth ahead lower together XXXX. rate adjusted XX%, has tracking XX.X% share of of which our tax driven a with EPS disciplined growth

fiscal three-year As invest our the one the margin guidance for business range, you fiscal efforts of we our target for in XXXX can ahead year ongoing tell schedule. XXXX, ending given is the to within from long-term. our no This accomplishment year anticipate small currently

with innovation I’m very a to grow one. progress upon Overall, and work, our simplify have we date. business to The pleased is our drive journey how we that embarked challenging

to as experience. to However providing of and also our more offerings continue the clients to the importantly, opportunities it client us we demonstrate great is value our simplify with

we both and our solutions these and and best-in-class needs. of depth continued strength do they ability force, fit products business scale are to clients serve wherever organization with R&D enhancing worldwide efforts sales that collective our Through the the of their our our and with

efforts as recognizing these as turn the in both these to clients promoter in scores revenue continue that due years. as remain to as increases shareholder see our Our our actions is well our such of Employer success efforts XX% committed of improvements we additional dividend over It two Services are friendly the net past nearly to in recent retention. we

with a other XXX us companies their our that in Our consecutive the also years dividend dividend minority or for track increases record XX more. small annual of have in XX grown puts in S&P

is future, we as look right for long-term shareholders. resilient confident one As further remain to to the order strategy we value in the our sustainable forward business our that aim strengthen model we drive our to

am you that which the detailed quarter received how turn for the it of Kathleen over built. want recognitions external business I review, Before which I know on culture we corporate to proud is to a strong I our reflect financial this

recognition best sector. rewarding is recent remarkable a name are that for also of our and efforts for our both rank future. XXth most to us the on solutions us focused and achievement their the associates time who number one admired the list I proud As the again our especially today clients I'm magazine for and reflect This consecutive FORTUNE companies a providing our efforts, for in on

only some efforts I XXX we the the Street the opportunities in stakeholders. pleased the best reflected are where recognitions biggest into great we our Institute Drucker particularly create for of our companies for jumping to These our efforts list am top to quartile. Journal’s are also receiving places of were one of see managed movers that of Wall all

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

Kathleen Winters

good Thank you, Carlos, everyone. morning, and

mentioned, quarter exception. As this was shareholders no pleased progress in Carlos for with our and our delivering growth we’re continued

fiscal This organic our X% quarter is quarter’s reported compare pleased XXXX. revenue constant expectations ahead our of to currency difficult of X% particularly and of growth second the and given slightly we’re

our timing XX progress also to Our expectations adjusted initiative. of margin EBIT multiple the slightly adjusted increased basis of second and compared ahead points the was up both fiscal X% EBIT transformation our XXXX, to quarter across due of

a expense. combination savings from and benefits and of amortization and transformation in related operating by benefits zero-margin to marketing PEO cost expenses, margin initiative growth were continues Our to improvement offset partially increased efficiencies. selling benefit our expenses These pass-through

our pleased Similar we the compare to particularly outsized the to performance with Early fiscal given faced related the in in Voluntary XXXX, resulting Retirement margin first of difficult half first the benefits from XXXX of we’re our year fiscal quarter Program. the that

Our XXX line XXXX. our in to allowance a tax related expectations foreign quarter basis due is to rate the credit to the was by release decreased to tax XX% The compared valuation points of second adjusted mainly of carry forwards. with decrease and effective fiscal

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

growth reported on Interest funds Services This and funds Employer client per wage growth, driven inflation billion. income expectations held by on Employer to growth currency. and in average balances revenues a X% of Services our balances control. constant client X% of ahead in for on growth grew from XX.X client Moving organic in combination X% and be clients, to and benefited and grew slightly to segment continues of pays were funds interest

Our metric for earlier mentioned I grew driven when same-store the Services increased pays second X.X% by results. the Employer XX factors our in in discussing basis U.S. quarter. that margins the quarter points Employer per same Services control the consolidated

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

as Our in PEO bookings quarter. proposition by growth the PEO remains strong evidenced new our business value this double-digit

Our traction midmarket sales of signs sales continues continued seeing realignment we’re channel. downmarket of channel our the referral incentives grow our following to and positive within

optimistic expenses in XX the PEO With latter resulted PEO these we increase difficult mind, the our an due to the in reaccelerate for fiscal and quarterly our strong in remain part decreased compare business to growth. about selling the points in Margins in of basis bookings quarter factors from largely a ability new XXXX.

average us with tracking now to behind higher not to turn six below and do expectations, employee year and previous full growth end worksite start With guidance and the the revenues our slightly of for we expect our the range. the achieve Let's months year-to-day outlook our PEO.

average and revenue both and narrowing XXXX fiscal anticipated an we by growth X% growth PEO our guidance are excluding X% in such, in X% employees. growth X% PEO benefits to in now pass-throughs, to revenues, of expect XX% As zero-margin to driven X% worksite

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

XXXX. For down basis fiscal margins PEO XX to margin, we continue anticipate be points to in flat to

at from smaller As calls, this previous XX fiscal points reserve approximately adjustments of basis ADP compared XXXX. to XXXX favorable to noted Indemnity pressure continues in fiscal we outlook include in

Moving at on, look let’s take Employer Services. a

We a the coming are and growth versus and revenue of narrowing XXXX. prior continued growth to in our into of bookings FX outlook in our X% by of half rates our unfavorability relative guidance fiscal X% interest driven year, the first X% combination expectations lower the to to

of now growth to to continue revenue to Employer of X%. per meanwhile to and improve We anticipate X% control XX Services pays new XX expect points. Services business about basis And X.X% Employer growth bookings retention we

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

to We to total previous outlook X% elevated for our X% the relative expectations our year. about continues X%. fiscal revenue to on to now FX revenue assume XXXX favorability of of anticipate of of compared beginning the an level outlook fiscal XXXX growth This in as at

our fund XXX to We to be balances between million interest funds million. average average income be growth our to to earned on continue about yield the fund XXX anticipate on and in investments client about to client be X.X% X%, client

to interest also from to extended to expect income We our strategy XXX investment million. million continue XXX be

continue basis to points. XXX anticipate our expand adjusted We margin XXX to EBIT to

to As in transformation our a cost optimization and fiscal also reminder, workforce million contemplate approximately XXXX procurement savings continues related XXX this guidance initiatives. for to

not, compensation does given related be however, includes of now any XX.X%. that future stock The dependency on quarter's the benefit related rate further to tax rate exercises. tax stock-based benefit estimated include option unplanned option We potential anticipate the tax It stock of exercises from to benefit timing those adjusted this our exercises. to effective

continue per share grow diluted expect fiscal XXXX. adjusted We to to XX% XX% earnings to in

Finally, businesses. Innovation as Christian Christian Day, the before our Relations. already of contributions know to European will Relations we welcomed program who Danyal Investor of General on be to also Hussain that I you take Investor new let for your know Head to his want international to wanted one our many questions, of February you Manager Congratulations as and thank both you. many leading an shortly our our of I assignment after of XX moving take

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

Operator

comes you. question Thank Kevin McVeigh from our Suisse. And [Operator from first Instructions]. Credit

Your open. is line

Kevin McVeigh

Thanks. Great.

guidance? retention. us any of first you relative of scaled been one think year I the focused to – Can the the on things kind the improvement retention of we’ve sense full is give in half how the the

Carlos Rodriguez

started to comments to second it away new my good that I kind get also think think we’ve a can that I guidance obviously and you to from our first committed had we quarter still the kind we’re And can from are that tell ago, away we in quarterly tell the where of of think trying I improved prepared was we giving we quarter. quarter a but had year sense a comments you guidance with get tried you – we from of a providing good are. second from and

year spots, to us and really is our we definitely So retention like get for through of continues to terms levels. a some positive retention close midmarket year bright of last is talked business the about in record to improve on this track

satisfying way, step So that in ACA had migrations all real was retention. then couple a we at difficult where it’s went the we of same business through a upgrades is time, very us very really did back with because for and percentage By a and day the where we back time client of the a points. back the step

back get on Now at to levels. track we record kind all are of recovered and that we to where of were kind have of

Kevin McVeigh

then And just -- Understood.

Carlos Rodriguez

comment also think for the it’s in another the a had in over we I’m of years. the challenge place have good was first couple was upmarket I half last us retention which kind been sorry, another of

I think significant of So they retention think solid revenues you – performance. those of when combine are a businesses and have both our a I them, portion

Kevin McVeigh

That’s super helpful.

maintaining you’re I of the PEO kind what’s the up, adjustments overall? quick seems that revenue guess guess outperformance driving given and a margin follow the adjustment, I like despite in revenue As guidance. the

Carlos Rodriguez

our an as for the we’re a our on tell least sales terms We first recovery having general of the from and business from is new hoping half in standpoint expense in know as for second little because results But interesting in the because could bookings, have weaker factor. has a business sometimes first half model you we – adjusting at business soft you our bit a half. planning benefitted of

of they that new that. think still XXX the blunt from Now there’s some you impact some amortize over I time, costs these rules of impact some but when

that but going focus at those sure as across it call from including spends procurement make just was way highest to our and we I the levels. out – about benefit a would good did initiatives, impacting growth where feel of and of we initiatives delayering this And reduced well, standpoint. I really at took in are three and in terms more very significant year we a we a we think decrease want that lot margin board in the the we layers as control, those We So you on the good all it also put have the that that on pretty the we we a workforce call from so we about fiscal year’s cost place last talked optimization – structure. if exercise had increased which levels overhead, where will, us senior for things spends

benefitting think I margin. helping that’s those we’re the items so all And and from of

feel we about of margin. we cost pretty are So terms and in where good

initiatives around as make have new cost on We to and of that lot growth and business we transformation focus well. and margins want a obviously we bookings sure

Kathleen Winters

Yes. much but add of the too points, that. efficiency covered lot come we’re Not the to a to has seeing operating through. Carlos

building the But some and projects on particularly do we and expected than the right nicely the second side of opportunities. teams pipeline a to transformation margin bit expansion executing some in transformation Saw procurement little work. the executing look, on in We’re the focused continuing on of have we’re additional that, really primarily on that quarter, better now. timing flight on the that

Carlos Rodriguez

some transformation these terms ones. little the color, see that again, we the And to – Q the a one credit them, them when they’re in talk – initiatives item big about have you’ll of from of just of been lot organization

are automating kind that little in And line way bit easier the out we initiatives of really holding large that at on taking that are that a these some for the initiatives We non-value-added and increased work are Q, our of and underway work R&D and have our have we work dozens other expenses of look due rest out. we operating really see our taking of the expense to things, part of some associates really when you also the improving that making have selling work. you’ll

and And because are make NPS want scores we we keep keeping that so high. to key we that’s our the retention sure our and

there. formula magic the that’s So

satisfaction, I retention of think credit in help keeping and going right in those things again our to both off but team, we’re where expenses lower associates client fortunately results not long to and is us now. management lower margin lower it improving if and the to term, getting the we’re pulling actually it the

Kevin McVeigh

Super. Thank you.

Operator

Thank you.

Our question Tien-tsin JPMorgan. comes from next Huang from

open. line Your is

Tien-tsin Huang

you how might target? higher be the transformation Just track mentioned investments, long-term for to Good you on balancing and end of fiscal question now? are big still or willing balancing initiatives Danny. new expansion maybe that early growth – a fiscal to your hit 'XX, and margin to in where I year and up maybe given get and I’m on more preference but to you’re the this invest team that margin is tech sorry. guess more, to pipeline the Are targets for ask Thanks. just to you the Christian – year get you’re you balancing – congrats just to morning to and revenue – the picture bit there, growth just trying want you’re your revenue stay little understand your midterm I given energize a the in short to

Carlos Rodriguez

that with oriented. think Board And question is discussion think and well. long-term Board That’s a as our I great our us obviously has I very

create we about our about we as much fully as individual factors much are that we growth. all possible. are those all when And to it’s some growth as where places would example sustainable sales have an to as invest, hitting really long-term of organization, we’re And so of like think to in balancing love And as committed components, staffed. could I those

in I plans think little headcount. of of a our ahead we’re probably bit terms our

the and really international clearly last mentioned domestic difficult issues quarter. and some execution businesses strong the in but performance the the our in as we midmarket downmarket have in especially and upmarket we multinational we this So some have even year, and compares there, in over

feel doesn’t we’re it investing. under So like

fact, that investing I’m not In marketing. under pretty sales and in sure we’re

brand year last campaign invested We also the over that expense. added a have which we’ve in has some

spend comes to again, and invest organization, our it we’ve our think our functionality I when the at places in and grew the turning investments in where sales our even could R&D product So always a we where when experience, growth our place marketing. to look and that growing. could additional I but our where even And again a year-over-year product, that money of we three-year But say adding is including mouth platforms growth the of put and to feature R&D we’re our more. other then obvious for investments again some are Next-Gen user that’s existing

are So can you balance line, that the software. in can of and you amortization can see capitalized and see it when from our it Q in depreciation we it our terms sheet from words you our see hear in see you – and it

call investing But size enthusiasm, So company, relative the of timing we’ve first lot – that got these we future we actually our have is Next-Gen XX over Lifion. clients a about to live issues is believe – for the and Next-Gen example, last do the you for Next-Gen we HCM this on Next-Gen first platforms. the months the which the sometimes have now have including we platforms, have we of where our payroll time that and because year we are

excited. we’re So

so it our We’re revenue platforms doesn’t around future. it clients results, terms ahead on of of of difference or those in sales the than a results doesn’t the one you But clients just and make yet XX another to plan. enthusiasm XX the of less call on dampen one but it platforms, XX have the

lack and for it. but take see to it’s of guess So growth, short again, that is we an think invest long will we us the a of investment, opportunity I it if don’t trust I

Tien-tsin Huang

international maybe with the Understood. bookings, it’s it that again. And point more U.S. like just sounds then on

if curious just is more side? international is I’m So it very few better visibility clients – for here trying just or cyclical a the a base broad to there more understand or this the looking select is on some decision, just

Carlos Rodriguez

terms Global deals, the in our think is of we multinational compare. large a because it’s see View obvious had very easy most I quantify one to in and difficult

Now, tailwind deals now of time back XX a when means were course, and that we transcripts. that to we’d sales compare. at that talked us we now getting celebrating have it very months did, unfortunately and the those was but go those we ago the giving about And also that I have think we difficult to

Now multinational we and had very large pipeline and a where of and I rethink solid walked think have we call we a of meeting, lot just all we our clients meeting away our it enthusiasm. prospects rethink with

we difficult good And just the a half. solutions the so about have but our enthusiastic next feel multinational very less whether we it’s hopefully And about any or compare. second but second half year,

sales have of obvious that’s it’s and in So we’ve couple product issues, our our also also of or what as call at that difficult investing overseas think having force. kind that challenges best-of-breed compares. think have we been in-country an some I place. cyclical to do But or are hard strengthening any a because some point I products We locations well

in again and So improving. a to seems be not minimum at European stabilizing – particular if economy

cyclical anything remain turnaround. to optimistic So about why is we I can which point think the we don’t

Kathleen Winters

Yes.

attributable into in of may add than planned. seen So what color and have strength the particular comments. we’ve kind worse in of look, our really so streamline it much that downmarket from where about complex the larger U.S. in I noted Global was seeing always really and go areas last we’re a it’s to the quite process. or guess internationally for also decision going there’s deals time taking maybe View Celergo it’s areas is actually as year the which in bookings It’s terms just you more were you do multinational two say and seeing thus an it’s saw, And see. nice – our more be that landscape or the strength seeing better economic more these to delayed standpoint far do the talk through we’ve I’d year any you hard to change little seen slowness but now. to where you into say not sometimes where quarters we I’ll making And environment we’ve is product weakness that, decision as And you overall. get making as just and the to

it seen in these them got We’ve takes seen The a decent. exactly looks we’ve pipeline row. pretty two pipeline, much quarters longer of So in get deals some it remains the how but closed. to be to

Tien-tsin Huang

Thanks. of in weeks. you couple See Okay. a

Carlos Rodriguez

you. Thank

Operator

you. Thank

comes Ramsey from question next Our from El-Assal Barclays.

open. Your line is

Ramsey El-Assal

in your markets that’s macro terms of what Hi, guys. seeing any overview to various Thanks the for taking brief a everything in world or callouts environment? given my any question. Could I ask you’re the going in you give today, of on us kind changes in

Carlos Rodriguez

and obviously ready our institute all relatively terms we own factors would obviously kind ADP that other stable data publishes for we information them think of, that I signs I its economy. So stable look the own stability. the for growth what wage have few research around macro get I a call as earnings And of control pace of we when it we or to those point at ones also positive and are economic this indicators. but The have call growth we wage look call look in things relatively we at would kind – at that call and

labor and up trend, seen pace that lower the comes it to control been many we quarter tighten, participation back bit quarter labor next enough Our and times we’ve that continue But X.X%. for of we’ve it work was as not pace wrong drive there’s far in to little the then just U.S. control the go people force ticking X.X% so has experienced. for available It obviously to been kind variety cetera. around you slightly reasons one that And but that a hum of lower we was and it we’ve indicators before consumer previous same that’s we been kind does of the the go markets see the than where that spending, for et seem and of we’ve quarter, all continued slightly a saying then but see along. in to again,

look continued of that the robust couple growth should accelerate, across stable we indictor consumer should and also think there when still last of the pace there. and the the think outside control confidence. at look stabilization So slightly but numbers control when wage seems unemployment on for that’s pace all and it’s reasonable growth of our in in I We spending economy through some see and for businesses, to for U.S. we pace And our a domestic Europe be continue signs again drive on the for do ground. but comes it is metrics to consumer also moderated levels continued of control we quarters at

a downmarket are you the the any So out through – business the our don’t also I doesn’t elevation downmarket own at that – of coal because We in for talked our indicator or canary that it this downmarket another We of the place that strong or business same a and economy, increase new in about bankruptcies looks improve bankruptcies it you other business And quarter see us retention lumpiness solid. bookings the things would that are strong has first is that we the kind around and like doesn’t of stayed business, in Retention anything suffers the is midmarket, weaken. about that weakness could – than see see it. as out everything our multinationals, macro business that’s mines, metrics. I result the in of a talked so really one think our bad we think because of we’re external feel seeing and to in had continuing improve. would sales in be the which things

we can So no see the negatives in that macro.

Ramsey El-Assal

explore there. of opposing environment emerging or just what with new bidders for bookings I this. are pricing-related an last business a as but now, and up you’ve maybe in some that showing any bit And especially more causes the maybe answer sort peripheral things itself models but other can of of intensification just actions competitive timing-related Kathleen's little in for Europe I’m Okay. addressed answer as of sort increasing Dovetailing to elsewhere about delays talk there’s and out think manifesting doesn’t an you processes contract whether like well? trying or your

Carlos Rodriguez

Sure.

there’s So same – back about, there’s the a to negative. it’s it what thing. said comes always maybe of Kathleen When and to bit competitors, positive there’s little

bookings worse, you And gave but do business our retention lot years would better. new that business. on some have and is a the balance think we in our of downmarket, there comments you and about we our have some segments of and do the trade based in we do just We competitors situation we of overall and better, our upmarket years results on based domestic midmarket each

trade few our at that So results, growing because if one say I think been large of. would in would Particular look shows what continued the our North a have if for in share a competitor we strength besides were set America net point new of strong the and in you two But terms competitive we has has competitors. look variety downmarket against think balance improved I which logos point you quarters call I we we to in business, years, a out track I at business keep of again, competitors. it of midmarket those of here quite our situation market can’t particular in last our any

to quarter’s geographically some Now are And competitors but those of I then that the of Workforce it them we and end the addition midmarket. which X,XXX lower with concentrated and the against we’re win-loss of a the upmarket the for us upmarket call say of success our years generator of this the of in of has so Some are think I range, upmarket. did in trade really X,XXX balance been would pleased national, performance an important and very them couple ago in

segment growth units revenue and Now X,XXX dollars has platform addresses market in robust of that X,XXX appeal. a and sales where really that a which So into of Workforce of from we’ve had a lot the introduction to

Ramsey El-Assal

super you so much. is Thank That helpful.

Operator

you. Thank

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

Your line is open.

Jason Kupferberg

guys kind process the down the more around still been these RFP or contracts want drill you I little actual commentary guys. morning, Have decision bit selected just a of to making. is dragging delayed in Good the Hi. for along? on already

Carlos Rodriguez

of I you level could have don’t. I wish that tell I that detail. I

ties the year have and in we or quarters were results what the certain first first really the know in whether – people to same of we have of the year-over-year this previous it a quarter pipeline year. sales before the is a back the dollars it track our So the about comment period two I made we was we that number field, sales certain of

– multinational don’t It’s of definitely we So number they to late do large we that million not in weakness to the million, But not making. contracts. from are $XXX other, the have have contracts the and quarter we decision one move this the kind is attributing business. but $XX particularly

don’t of my put don’t our sales detail. leaders – it I I know have fingertips have at So I here. level that available

Kathleen Winters

shift asking we of you’re Nothing draw we’ve any conclusion seen maybe stages pipeline. where trends. can cycle we to stages are in of in have or any seen particular point and Yes, from the that things any of or terms heard the in that kind

Carlos Rodriguez

of participants, pipeline larger pipeline into sure, we But we do a year. more deals – rethink year attendees this opportunity we dollar more went previous of the have than with had and

Jason Kupferberg

signatures a kind official some is conversion. broader to final just it pipeline of Right. I you the really just of make if just curious bookings matter if waiting for or were of was kind

Just my follow second up quick the on just margins.

down than was know the only the XX the which had level quarter, XX if I not mistaken. segment at up XX expected, better ES you was bps but I’m in and was You up PEO overall

XX. of it drivers got think your know you some the calculation? on to margin below the was Can I So backs line add EBIT adjusted that some the I you in because you have those elaborate

Carlos Rodriguez

little bit Yes, help with a that. I can maybe

right well. office as back are transformation facing those are sort of the know, undergoing some we of now, you initiatives As that

So if you that think about what the in procurement review. and deem the other workforce optimization initiative, those would will segment items have we impacts to

the example, So corporate for functions, sits where for delta probably you. that’s

Jason Kupferberg

Thank guys. great. Okay, you,

Carlos Rodriguez

Thank you.

Operator

you. Thank

Mark question next Our from Marcon from Baird. comes

Your line open. is

Mark Marcon

morning. Good

my terms Christian fourth that both versus regards about the the and just one’s quarters, next one to third to bookings, congratulations we should up – comparisons looking particular the anything and terms a things in thinking from the about Danny. that more both sequencing comp XX%, ahead in add they’re perspective are of make and think one’s would me two for With how up there think Let other the quarters should bookings the sequencing? a there we over it XX%. or difficult of in Is that’s the

Carlos Rodriguez

I ocean other sales managed number our and of have momentum between in big again, of sales we think how these right, and than And businesses fairly because businesses. sales just and multinational forth one even obviously worldwide have we everything our the the to not so separate, are terms execution they goal terms international is in them, though they’re in of organization. one maintain

and get then the of So we’re a way with business of some and we payroll maintain company the in business. momentum going believe part able going this a client-based little quarter. our terms have tailwind does acquisition it a feel some growth of our standpoint revenue we in good of we be business rest of hopefully that stuff it fourth and through in I of to to have have downmarket new bit and was the it the wasn’t in of acquisition was stuff us international in recall – the business, bookings quarter, that our about. – tailwind was we in as a the half, some do Fargo’s does the and roll acquisition in what’s with an last the a was a client-based of talked revenue compare do We business we last acquisition of you some it new since translated given that and difficult year and we acquisition, helping the client-based an But particularly second it purchased obviously helped a it that a – deals business bookings larger because into Wells from that

Mark Marcon

that’s and [indiscernible] reason the question. for part the of That’s asking

easier third the a bit quarter should be comp. So little arguably an of

Carlos Rodriguez

we have probably For some feel easy, our But we don’t lot the – intention cooking of we we’re sure it that never correct. mathematically provide – to achieve make and reason hit we guidance things a you’re but provided lightly. obviously is that they mathematically to

Mark Marcon

coming rate thinking set got feeling seems of are are front? competitive then, a on sustainable And pass-throughs, like market? the more How And obviously longer-term into with experiences there? private Carlos, you It that’s little you the a there’s space. of about the the you’ve are or the longstanding Great. bit market. capital growth ex the seeing is what trajectory PEO you What

thinking how about So wondering and you’re legislative the outlook just there? space that

Carlos Rodriguez

when of our at Well, look you situation. I good trade about the information pretty balance again there, competitive feel

business, always think you feel our of facts, of for your about good our at I good win-loss So pretty the us you look in trade. the facts own your are to terms in children, balance about got And but right.

make right is sale, a to it. selling sure because involvement a one, but really sales really through a really our have of it’s number have feel they the last PEO make in because So makes sure had to year making that good obviously, they’re difficult make pretty the to order that we took then it in good. that versus quarter clients properly and for to filter sales force to started our sale the we is while me thing sure the and to want that sure something to on that you it’s the properly sell so to our right force feels high focused feel last thing aligned that kind incentives to incentives second incented And particularly quarter this is raise, that

did I XX it was. so think think we talked months ago that. about I be we And got I think and that It’s to

we the it’s the about double-digit strong like feels most the that us model that’s the confidence intact. quarter So filter bookings talked think business which through to starting I future very and that for really metric new strong important give and business is still to for

So pretty that feels good.

Mark Marcon

Thank you. Terrific.

Operator

you. Thank

question next comes Our from Jefferies. Samana Samad from

open. is line Your

Samad Samana

taking my Hi. for Good morning. question. Thanks

you seeing that and bookings Was terms to of be more or about same to conservative have a or to or And variance wanted international the how thinking for far historically updated been are guidance up. multinational I some the bookings I account question framework used? So going about more is you’ve year you’re one made reflect what’s maybe in done in may just guidance to so closing? that on just follow what you’re or has guess of So using guidance variability framework you the some maybe guidance. this then ask deals changes

Carlos Rodriguez

reminder given that only the PEO for I to a the we is just Again, that Yes. be just provide clear. made ES just the guidance that bookings last comment about

some framework given new the that business that there’s change no is answer that, thinking bookings. delays in the not for think what large better like look you of impact and worksite I our a and picture it’s combination on guidance having don’t we in think if I on guidance deal employee think depict, PEO But or a the PEO ES growth, our the our picture sales, future. there’s at just first based stronger our our said we provide because this – would year So average our half than in deal just

Kathleen Winters

in framework, or the change we’re way no rolling looking up of no in that the forecast we’re at. change data Yes, kind

by geography For in example, upsell or at versus existing clients. we terms to things like, business segment or okay, new look where’s coming by from clients of

consistent split in see and terms between trends continuing upsell. We’re fairly to new the of

seen It’s now, change slower than more just, international. for expected we’ve lower no in out the we gates quarters so So framework. the look, of in two

made thought given our into it give months view. we’re best we so year sense here, – we And to six thought you it that was the

for the narrowed the view we therefore, year. So,

Carlos Rodriguez

Yes.

Services. based PEO quirky going in do even we the worldwide way reason we a our changed guidance the PEO, gave we PEO in ES business the Services. can the average short quarter on though gets is Employer guidance Just is one have focus employees. But our PEO bookings to if what’s the the not on short on in about the term about little comment result this Employer something in great term change in the The as still and terms a color dampening for good in bit other effect to downmarket sometimes worksite some bookings the of we’re to midmarket some referred in respects for the it we you had versus

to overall point really But keep is combination can’t important it’s that in definitely of ADP kind of again, ADP we that. bookings the are growth. and that it revenue those two overall So to mind driving

Samad Samana

That’s could follow then helpful. And up. Great. maybe if I ask just one

tech lot I of and company the around hosting. a Lifion the of HR excitement ahead coming there’s think off Innovation that of is Day

patterns there’s Workforce Vantage do you. see by on helpful? So just type be or – maybe could if you profile commentary whether to come any it’s Now, are of give what existing in think you you would from terms where wanted products that size the Thank any profile, or whether seeing of early that I and customer whether early it’s they’re using, about adopters

Carlos Rodriguez

approaches clients, started smaller, be large – thousands employees. So we of less complex sold and again, consider with of clients it it everybody’s differently, but now I’ll very we’ve case call so off maybe actually just to tens it in call our

days. that and large very we in And have and middle so the that we we smaller ones in of sales early we’ve few we’ve the couple a done a got bunch then a did have

can of to off mentioned Some our of migration upgrades. I think to and business been that obviously not we’ve not we’re say platform some of that do of don’t targeting it we’re or particular is the trying you sold point platforms. I existing one – has because new as logo, some

needs, that happier so to and after can them that clients long have in right, the ADP term. right make the trying we profile right the go We’re clients

the of or platform internal try what prospects we know appropriate whether we the target and the are clients the So capabilities in they’re the and to external manner.

board So in to of kind a client, the then it put the view. kind of it’s of spread. in industry – of also an size best internal from terms fortunately of And I it’s way terms wide is or guess across

Samad Samana

appreciate taking my Great. I Thanks questions. it. for

Operator

you. Thank

Togut from from Our David next comes question Evercore ISI.

Your line is open.

David Togut

be the Good the I’d question to bookings typically one few you’re season day. The morning. of the a is on February. but to like that still here been Thank have critical this selling December which in already, seems question to There questions you. explore main runs

in bookings confidence international better that results? that close first this the second in So or in you we’ve selling and rates the you close is there gives the seen critical the see can pipeline you quarter your anything that in on confidence U.S. shape season quarter obviously

Carlos Rodriguez

you midmarket, part particularly too and into they the at business the start. again, report our when like we if of risk our remember into downmarket of sausage sales some So getting our much of making,

It starts and large XX could months where are you XX recognizing With get later. six the a large months, international at could they’re like then a deal, really starts – when equivalent. So and to it months. But complex sale basically that’s be bookings be you’re deals, a date. be very it very later revenue could

point end So about lower of business our is done to the the your us critical January pretty downmarket our the the biggest midmarket much for particularly selling business and for and PEO. season, now month as and because well

by the critical cycle January of as clients month natural a number a well, of affect for of retention because way but new business is us. just the standpoint a – from large the bookings So PEO,

done quarter our we’re again, it’s a comments the that to quarter. So of period we about the PEO so since I the quarter downmarket isn’t had start particular, PEO. kind in to a the hard good the in But December-January the of And say for the make critical month and is I’d middle in yet. in think quarter in us

Kathleen Winters

regard the would if year we year year-to-date, and we’re last as to bookings months about particular, in year and the at thing were other comparison same to add I cadence at this look where the year only in we look you ES of the year. this at ended the last this The six Yes. of and point is kind with you year

David Togut

expect bookings at words, other and enough expectation Is see drive you your target. in accurate? to point So the this in close to that that pipeline the X% rates of X%

Carlos Rodriguez

have we pipeline. the in to again, – specific of that things level think is that detail I say a that

if headcount the business, that to does driver and in results for pipeline place. our of way. and In our rest visibility had of doesn’t before, will business, what have sales is it’s to the business. place close where staffed pipeline, of the so cetera. business – downmarket pipeline having and the or volume really to we the good right marketing – related the work feel confident. it volume we that feel there It’s the that that’s feel a of not proper spend of about It’s year. we tools and amount confidence really again come the digital But in headcount, to more down our just RFPs, reiterate we in and gap SBS number our will, we volatility, which Yes, think fully our I execution the said in is believe one headcount we’re that believe et we’ve we what do in the you we the most you’re variability it have and describing we the and

David Togut

Understood. Thank you.

Operator

you. Thank

Our question Jeff BMO next Markets. from comes Silber Capital from

is line Your open.

Jeffrey Silber

that from the wanted so quarter late Thanks are happen something is another you decisions next June within most When much. deferred I’m or bookings making, apologizing does talk clarify to this calendar that decision could another mean opposed of the year just year-end so? your being or until as about I’m something. asking it related are in year-end. now I question. for clients that assuming your to

Carlos Rodriguez

because news year-ends have a for of is ADP good clients. of all we the lot kinds So have clients with we

typically than ADP probably multinationals average large most focused But year-end calendar think it I gamut. really year-end. you’re negotiating the large vendor which when own So to in the But of we a company fiscal the a consider our contract, that particularly we’d and spans right I companies rather on U.S. would one be more their we fiscal year-end. for with are those, a has

drivers that year-end. people’s so forth, right some to on procurement lot you’re tend budgets around a but so focus the And there of departments are vendors and

though fourth quarter typical deals year seen deals will is we’ve – year particularly even company’s that least doesn’t happen because large end a especially our recognized a company like or sign a it this are towards that and important their software for domestic so a quarter minds multinational good that fiscal negotiating large – be we’re again time prospects is in to historically at that for to tends negotiate. not mean And

Jeffrey Silber

Okay. I -- appreciate that

Christian Greyenbuhl

it million, an take particularly but a one just in Global can know XX deals, imagine that Jeff, you it that quarterly – basis, X% impact to bookings multinational basis the does to in before, that have on that reminder. outsized impact. perspective annual if it business put I Sorry, you said we View just these equating on

So from from in perspective, that framing adjustment it if a the quarter flow one a is of sensitivity. have deals meaningful next pretty these you that some given to

Carlos Rodriguez

bookings On the new business results.

Christian Greyenbuhl

business the On new results. bookings

Carlos Rodriguez

impact Right. Because that have the on it revenue irony – described, of doesn’t you revenue. situation the just on as a is big

client half have funds the first eventually fallen have bookings us. revenue in particular will are in that we We’re to that The having some issues on with It’s of impactful. are FX bookings not particularly impact. deny not and hurting with the short interest types

Jeffrey Silber

I appreciate on don’t of I of “acquisition” quarterly cadence out helpful. color that. the Thanks. then Okay, Wells XQ but do Fargo else XQ might the comp that’s year. Anything give the last the call And to that the know quarters? you guidance, affect called you guess on those business between out and I payroll

Carlos Rodriguez

In terms bookings? of business new

Jeffrey Silber

margins? revenues either business overall or the No,

Carlos Rodriguez

to going again, ago, guidance issue few margins, gave to and the back the again obviously a kind of again, client not we years lot interest Well, a three-year funds able that about this and expecting where we’re back to some revenues be we of and interest but as crowd, obviously sympathy of less of we’re that than $XXX expected million overcoming we in forward. terms funds to go probably client from

what is but smaller actually a where terms goes growth the growth. in to second our not half revenue number last to have think lift an probably getting I’m this no that So second in we to hurting year on seeing going it to much in it well, growth half of That’s I as start in revenue and was actually impact to going to quarter, it huge were in a quarter according terms impact revenue X% call second of the second the our help forecast.

all look net new of out business noise starts So impact But bookings and us. headwind FX, funds interest when other losses. sales bookings but at kind client that’s really these for I business you a take new minus of the when business issues, bookings starts, issues; not calendar new

you year’s and the last this business to year’s continues It’s new started, if acceleration. quarter but huge and compare have retention take second slight hopefully acceleration, second that a quarter half, acceleration. you if the second a thing So not slight we same a have into

SUI in So the second we year, in that lot helped underlying that’s also PEO a the what pull about mentioned me good remember change in because and revenue that obligated the that the a between happening growth. had one-time we of we forward noise makes and accounting strength with feel we item make were business calendar there’s called last quarter that to

down and is how I performing. of feel of that I the to get good kind all second separate half. things good you business quarter about And core to the about all business and on and feel basis, core the the those so those have the And

Kathleen Winters

the question quarterly your Yes, to the of other about thing kind I linearity only year. add of would in balance the

a as second Just in much the much, QX. in in margin we had than more reminder, of half expansion year last QX

expansion. in us So, QX year versus QX terms comps for therefore, of margin tougher this

lot we guidance, would not then QX. I don’t while a in QX expect in potentially and much So give quarterly whole more

Carlos Rodriguez

some pull notwithstanding in year’s revenue these of second helped as a difficult of third last interest But second of things easier versus back mentioned depressed our get but like in standpoint, terms those year’s quarter, issues – we I of last quarter, actually were to forward on client again, then some funds from quarter. comparisons that the terms what

So to that’s easier going make an comparison.

half. So we expect in improvement revenue slight growth do second the our in

Christian Greyenbuhl

And brief client-based reminder quarter, just reminder, a a the as of so fourth so we did the acquisition.

to as increase and quarter that some the in expense will it client-based related would added the expense, fourth which booking lap acquisition well. amortization obviously So

mind. think but was expense as I quarter, launched was the in brand most third our then obviously that the So in in of the we keep And just quarter that well. kicking really campaign off fourth

as that So be lapped will well.

Jeffrey Silber

in is fourth saying the got some you what I So you’re guess tailwinds quarter.

Christian Greyenbuhl

Yes.

Jeffrey Silber

All right. Thank you for clarifying that. Thanks so much.

Operator

will for Ellis question. And one you. we Thank And question Lisa from from time last MoffettNathanson. come have final our

is line Your open.

Lisa Ellis

on of Can the engines you payroll Hi. and as guys, well. the and Good the an how think me in. morning, on where your the Christian you progress both or on a and some payroll retention the you perhaps Danny of squeezing they’re in of impacting thanks as and update Thank Carlos, on times for you. Lifion mentioned impacts? Congrats business to presentation from tax are tax. and the give Next-Gen me as side I Next-Gen the deployments and other well couple

Carlos Rodriguez

potentially Thanks. Sure. as excited but of the both also about in in Next-Gen payroll of somewhat efficiency the – terms though the well qualities cost. I in positive office as us and back helping both around bookings payroll even some it’s back future but tax, around terms Very engine office the has think

and XX our in suite. we have Next Generation XX clients payroll think somewhere live I platform between

of small relatively can amount As enthusiasm around it’s the imagine, what both in the metrics. of of revenue in terms actual comparison there, enormous or at other ADP, the level. team of impact But any retention we’re you a size doing to

what well we organization of think the to enthusiastic really team very in we’re as the enthusiastic around make and the seeing in itself. related example, the the is rest incredibly platform that’s days, in is I quickly changes can, investments early think especially just and I of how of the flexibility terms for the

others done call the and So maybe with have on Lifion. trying we the to build same this on as and develop think it we’ve of talked already experimented in in federation I kind you kind past of thing that We’ve about platform.

Australian for we And in and on so well. now is as that payroll or clients we two have actually built that a team, example, one Australia have

with what incredibly we’re we’re seeing. so happy And

XX this We’re call first is live we that through really happy we’ve gone and year-end. to clients, that it was again, time though clients was, XX have it this first the even – the year

and through closing we had year-end WXs, cetera. do go a all the actually to end et So year activities,

that’s very still of of risk were start-up, would of start-up got early we’ve a if a was terms ADP, risk was not think where front great and back the discussion and of here have in size just costs. about if news. three better really days this mention like it’s to of competitiveness we long scaling a Like two hell technical could this run, be our help now behind – have our But a still that’s will, a add you years to it like to execution a in lot been lot really than this us. a I because to the of So lot now if ago, and we us, in office would but we the

things On associates back service and office ability on clients that to the our deliver terms like their also side, efficiency, that’s amendments cost more and also focused we impact the on that probably have our an tax in notices. and do but of tax has experience when

the there is news very And positive. so, again,

We I to it’s think have – close to XXX,XXX? XXX,XXX

Kathleen Winters

Yes, clients. about XXX,XXX

Carlos Rodriguez

up clients. where But XXX,XXX of About by places I way Jurisdictions of we’re than those in we’ve jurisdictions. XX downmarket federal, XX to number taxes. refers can states now – in limited to do the jurisdictions. – actually think addition the more to clients number a are Obviously, we smaller

also well. we’re so can issues highly see say I’d very, that that’s to the very terms so platform And platforms. progressing down it a scaling either that no very flexible of of and in us those far road optimistic Again, do in what

Lisa Ellis

of a weeks. you end Excellent. see in good Thank to a like That on. point you. guys couple I’ll seems

Carlos Rodriguez

Thank you much. very

Operator

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

Carlos Rodriguez

Thank you.

the So pleased for as success we keep on financials on but our in we’re also progress here continue our on the as to many the you make sustainable over so come. trying the but can transform past pretty Obviously growth we’re and years strategy. we for to continue can again, both to build tell, saying deliver over to future with we – we’re also

and about really a like also clients. year differentiators a year the very deliver I service of and very terms able us level for And the now. a also our being appreciate this time it’s have mentioned It’s our for from time commitments of sales of want commitment mention busy time of right also it’s busy busy again, great to of associates to a associates. in we year-end that very standpoint, who that at we are year I of service, the time this somebody work one hours deliver as hard of our especially very being the to long and our

wouldn’t successful products. run long to strong be in able the we be Obviously, without

Day, have we for our how five strength the when sustainability going by products. you plan think the making of helped our been last about over we’re be so in hopefully ADP out the next Investor investments And a to years the of I lay will we’ve generation

in, discuss addition Next-Gen HCM to investing So and discussing innovations for change. also in little that industry the been vision work to we’ve the with XX to expect bit we look we the you change of time spending platform and how future to all these about February a of on forward our to

again And us for and you Thank ADP today. you. want your thank interest I joining for with once that, to in

Operator

day. the all This Ladies and you program today's thank disconnect. for and gentlemen, does a conclude Everyone, in have conference. may participating wonderful you

Automatic Data Processing (ADP) 29 Jan 202020 Q2 Earnings call transcript