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    ADP
    Earnings call· Mar 2025(Q3 FY25)

    AUTOMATIC DATA PROCESSING Q3 FY25 earnings call ADP

    Apr 30, 2025 Source

    Executive summary

    Automatic Data Processing, Inc. Q3 FY25 — Solid Results Driven by Strong Retention and Client Funds Performance

    ADP delivered solid Q3 FY25 results, driven by strong client retention and favorable client funds performance, which offset softer international bookings and below-normal pays per control growth. The company is navigating macroeconomic uncertainties with a resilient business model and strategic investments in technology and partnerships, while also announcing a CFO transition to ensure seamless leadership.

    Highlights

    5

    • Consolidated revenue grew 6% in Q3 FY25.

    • Adjusted EBIT margin expanded by 10 basis points in Q3 FY25.

    • Employer Services retention modestly exceeded expectations, leading to an improved full-year guidance of a decline of 20 basis points to flat.

    • PEO revenue grew 7% in Q3 FY25, exceeding expectations.

    • Average client funds balance growth was raised to 5% to 6% for FY25, driving increased client funds interest revenue.

    Concerns

    3

    • International bookings experienced a softer quarter due to macroeconomic uncertainty, though pipelines remain strong.

    • Employer Services pays per control growth remained at 1% in Q3 FY25, below normal levels.

    • PEO margin was flat in Q3 FY25 due to higher workers' compensation and SUI costs, despite strong revenue growth.

    Guidance & targets

    17
    CategoryTargetConfidence
    Employer Services new business bookings growth
    4% to 7% growth
    high materiality
    Medium
    Employer Services retention
    decline of 20 basis points to flat
    high materiality
    High
    Employer Services pays per control growth
    1% growth
    medium materiality
    High
    Average client funds balance growth
    5% to 6%
    high materiality
    High
    Client funds interest revenue & net impact from extended investment strategy
    increased by $15 million at the midpoint
    high materiality
    High
    Employer Services revenue growth
    6% to 7%
    high materiality
    High
    Employer Services margin growth
    50 to 60 basis points
    high materiality
    High
    PEO revenue growth
    6% to 7%
    high materiality
    High
    PEO revenue, excluding zero-margin pass-through growth
    5% to 6%
    high materiality
    High
    PEO average worksite employee growth
    2% to 3%
    medium materiality
    High
    PEO margin decrease
    between 60 and 80 basis points
    high materiality
    High
    Consolidated revenue growth
    6% to 7%, towards the high end
    high materiality
    High
    Adjusted EBIT margin expansion
    40 to 50 basis points
    high materiality
    High
    Effective tax rate
    around 23%
    medium materiality
    High
    Adjusted EPS growth
    8% to 9%
    high materiality
    High
    Pays per control growth
    continue at below normal levels
    high materiality
    Medium
    Client funds portfolio yields
    above fiscal 2025 levels
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Employer Services
    Revenue growth was 5% on a reported and organic constant currency basis. Margin increased 20 basis points. New business bookings were solid, with strong U.S. offerings, but international bookings were softer. Retention exceeded expectations, and pays per control growth was 1%.
    New business bookings growth: solidRetention: modestly exceeded expectations, declining slightly YoYPays per control growth: 1%
    		—5%—increased 20 basis points
    PEO
    Revenue grew 7%, supported by higher wages and strong retention. Average worksite employee growth was 2%. Margin was flat as strong revenue and favorable actuarial loss development were offset by higher workers' compensation and SUI costs.
    Average worksite employee growth: 2%Revenue excluding zero-margin pass-through growth: 8%Pays per control growth: decelerated modestly from Q2
    		—7%—flat

    Operational metrics

    8
    Consolidated revenue growth
    6%
    Q3 FY25

    Solid Q3 results.

    Adjusted EBIT margin expansion
    10
    Q3 FY25

    Solid Q3 results.

    Adjusted EPS growth
    6%
    Q3 FY25

    Solid Q3 results.

    Workforce Software integration cost impact on ES margin
    50
    FY25

    Includes intangible amortization and financing costs, not all of which will be recovered.

    Revenue sensitivity to client funds balance
    $11M-$12M
    full year

    A point of balance is around $11 million or $12 million of revenue on a full year basis.

    International revenue share
    12%
    current

    88% of revenue is in the domestic U.S. and the rest is outside of the U.S.

    ADP RUN client count
    almost 1 million
    current

    Extending reach through partner ecosystem.

    Fiserv Clover client count (overlap)
    shy of 1 million
    current

    Overlap with ADP RUN clients is not 100%.

    Industry KPIs

    5
    MetricValueDetails
    Peo metrics2%%
    Retention ratedecline of 20 basis points to flatbps
    Pays per control1%%
    Client funds balances yield5% to 6%%
    New business bookings growth4% to 7%%

    Product announcements

    4
    ProductTypeDetails
    ADP Lyric HCMmilestone
    Workforce Softwareupdate
    ADP Assistmilestone
    ADP RUNmilestone

    Deals & partnerships

    2
    PEIAcquisition of a Mexico-based payroll solutions and HCM expertise provider.sub-$10 million

    PEI, based in Mexico City, has provided robust payroll solutions and HCM expertise for 30 years and was a valued ADP global payroll partner since 2009. The acquisition enhances ADP's ability to serve local and multinational clients in Mexico and supports growth opportunities across Latin America.

    FiservEmbedded payroll partnership for client referrals and product integration.

    ADP is referring clients to Fiserv's Clover point-of-sale solution, while Fiserv refers merchant clients to ADP's RUN payroll. Product integration work is expected to complete this year, enabling a differentiated integrated solution. This partnership is seen as a significant opportunity to extend reach and address each other's client bases.

    Risks & headwinds

    3
    Macroeconomic uncertainty impacting international bookingsQ3 FY25, ongoing

    Softer quarter for international bookings

    Mitigation: Strong pipelines, focus on execution in Q4, resilient business model.

    Projections for slower economic growth leading to below normal pays per control (PPC) growthQ3 FY25, expected FY26

    PPC growth continued at 1% in Q3 FY25; expected to continue at below normal levels in FY26 (normal 2-3%)

    Mitigation: ADP's business is non-discretionary and resilient; has levers to pull (e.g., sales commissions, R&D focus) to soften potential blows.

    Higher workers' compensation and SUI costs offsetting PEO marginQ3 FY25, FY25

    PEO margin flat in Q3 FY25; FY25 PEO margin expected to decrease between 60 and 80 basis points

    Mitigation: Strong revenue growth and favorable actuarial loss development partially offset these costs.

    What to watch in Q4 FY25

    5

    International bookings growth

    Q4 FY25
    Currentsofter quarter
    Targetsolid finish to the year

    Why it matters

    International bookings are typically large and lumpy, and their recovery is key to meeting the full-year bookings guidance range.

    We meanwhile experienced a softer quarter for international bookings as a result of macroeconomic uncertainty🌐 in some of our key international markets. With healthy new business pipelines, we remain focused on delivering overall bookings growth within our guidance range.

    Q&A highlights

    8

    Seeking more color on the softer international bookings, specifically regarding regions, products, or other contributing factors.

    Maria Black explained that the softness is likely due to macroeconomic uncertainty, but pipelines remain strong for these typically lumpy, large international deals. She noted that Q4 is crucial for execution.

    “what we saw in Q3 was a bit of softness. And undoubtedly, we think the softness is anchored in uncertainty in the macro environment. That said, though, the international space in general, these are large deals. They tend to be lumpy.”

    asked by Ramsey El-Assal · answered by Maria Black

    2 min read5 chapters

    Detailed Narrative

    01

    CFO Transition and Succession Planning

    Maria Black announced the retirement of CFO Don McGuire and the appointment of Peter Hadley as his successor, effective July 1, with Don assisting through September. Peter Hadley, currently Corporate Treasurer, brings deep financial expertise and extensive knowledge of ADP, having held various finance and operations roles globally. This transition is part of orderly succession planning.

    02

    Strategic Priorities and Technology Leadership

    ADP continues to execute on its strategic priorities, focusing on best-in-class HCM technology, outsourcing expertise, and global scale. The company highlighted momentum with enterprise clients, particularly with ADP Lyric HCM, which saw substantially increased new business bookings and a doubled pipeline. Workforce Software integration is progressing well, enhancing global payroll capabilities.

    03

    Global Expansion and Partnerships

    The acquisition of PEI in Mexico strengthened ADP's global payroll capabilities, adding local expertise and associates. This move enhances the experience for local and multinational clients in Latin America. ADP also emphasized the progress of its embedded payroll partnership with Fiserv, expecting sales acceleration as product integration completes this year, aiming to offer a differentiated integrated solution.

    04

    Client Satisfaction and Industry Recognition

    Client satisfaction scores reached record highs for the third quarter and fiscal year-to-date, with significant improvements in enterprise, international, and HRO businesses. ADP received several awards, including RUN being named #1 on G2's Best software products for small business, ADP Lyric HCM receiving the Data Solution of the Year award, and ADP Assist winning an AI Excellence Award, underscoring its product portfolio strength and innovation in AI.

    05

    Macroeconomic Environment and Business Resilience

    Management acknowledged macroeconomic uncertainty🌐, particularly impacting international bookings and leading to projections for slower economic growth and below-normal pays per control growth for FY26. However, ADP's business model is described as resilient and non-discretionary, historically weathering slowdowns well, with levers available to mitigate potential impacts.

    AI-generated summary of the company’s earnings call. Not investment advice.