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01/10 00:30
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents a mixed picture. Financial performance and guidance show stability, but with some concerns like flat U.S. pays per control and margin pressure. The Q&A highlights positive developments in areas like AI and new bookings, but also reveals uncertainties in macroeconomic impacts and client adoption of Next Gen. The lack of specific financial details on acquisitions and Next Gen adoption timelines adds to the uncertainty. Given these mixed signals and the absence of a market cap, a neutral sentiment is appropriate.
Revenue Growth 7% year-over-year growth. This was attributed to solid Employer Services new business bookings, healthy growth in the small business portfolio, and reaccelerated growth in the Employer Services HR Outsourcing business.
Adjusted EPS Growth 7% year-over-year growth. This reflects the overall solid financial performance of the company.
Employer Services (ES) Revenue Increased 7% on a reported basis and 5% on an organic constant currency basis. Growth was driven by solid new business bookings and relatively stable demand.
Employer Services Retention Rate Declined slightly year-over-year but exceeded expectations. The decline was attributed to market conditions.
Employer Services Pays Per Control Growth Rounded down to 0% year-over-year. This was due to clients being cautious about adding headcount in the current environment.
PEO Revenue Growth 7% year-over-year growth. This was driven by growth in 0 margin pass-throughs and higher wages.
PEO Margin Decreased 140 basis points year-over-year. This was due to higher selling expenses, timing of state unemployment insurance costs, 0 margin pass-through revenue growth, and onetime costs related to employee retention tax credit claims.
Client Funds Interest Revenue Increased more than anticipated. This was due to stronger average client funds balance growth.
ES Margin Decreased 50 basis points year-over-year. This was due to integration and acquisition-related costs associated with the WorkForce Software acquisition.
Embedded Payroll Solution: Continued scaling in the small business space, saving time by integrating payroll into existing software platforms. Early sales collaboration is promising, with plans to add more partners.
Benefits Recommendation Tool: Launched to guide small business clients on suitable benefits options, covering group health and individual coverage health reimbursement arrangements (ICRA). Future plans include expanding to PEO.
Digital ICRA Plans: Insurance Services launched a digital option for small businesses to purchase ICRA plans directly on the RUN platform, offering employees more choice in health, dental, and vision plans.
Workforce Now Next-Gen: Accelerated deployment in the mid-market, with over 80% of new mid-market clients in the 50-150 employee space adopting this version.
ADP Lyric HCM: Strong momentum in the enterprise space, exceeding new business booking expectations. Recognized as a top HR product of 2025.
Pequity Acquisition: Acquired to broaden capabilities in compensation management, supporting complex planning needs with insight-driven solutions.
Global Expansion: Went live with the first GlobalView client in Costa Rica, serving one of the world's largest employers. Recognized as a leader in multi-country payroll solutions by NelsonHall and Everest.
AI Initiatives: Enhanced ADP Assist with generative AI for payroll anomaly detection, analytics, and compliance tasks. Increased utilization with 5.5 million client conversations in the past year.
Internal AI Tools: Equipped sales, implementation, and service teams with client-specific insights, improving productivity and client engagement.
Digital Implementation: Expanded for small business and PEO clients, allowing associates to focus on higher value-added activities.
HCM Technology Leadership: Focused on scaling embedded payroll, launching new tools, and enhancing AI capabilities to lead in HR technology.
Global Scale: Leveraged operations in over 140 countries, adding global capabilities and achieving recognition in multi-country payroll solutions.
Employer Services retention rate: Retention rate declined slightly, indicating potential challenges in maintaining client loyalty and satisfaction.
Employer Services pays per control growth: Growth rounded down to 0% for the first quarter, reflecting cautious client behavior in adding headcount, which could impact revenue growth.
PEO margin: Decreased by 140 basis points in Q1 due to higher selling expenses, timing of state unemployment insurance costs, and onetime costs related to employee retention tax credit claims.
ES margin: Decreased by 50 basis points in Q1, driven by integration and acquisition-related costs associated with the WorkForce Software acquisition.
PEO pays per control growth: Moderated in the quarter, indicating potential challenges in revenue growth from this segment.
Economic environment: Clients remain cautious around adding headcount, reflecting broader economic uncertainties that could impact business growth.
Employer Services (ES) Revenue Growth: Maintaining full-year growth guidance of 4% to 7%.
Employer Services (ES) Retention: Forecasting a 10 to 30 basis point decline in full-year retention.
Employer Services (ES) Pays Per Control Growth: Forecasting pays per control to remain about flat for the full year.
Client Funds Interest Revenue: Increasing full-year forecast by $10 million to a range of $1.30 billion to $1.32 billion.
Extended Investment Strategy Impact: Increasing expected net impact by $10 million to a range of $1.26 billion to $1.28 billion.
PEO Revenue Growth: Continuing to expect fiscal 2026 PEO revenue growth of 5% to 7%.
PEO Average Worksite Employee Growth: Continuing to expect growth of 2% to 3%.
Consolidated Revenue Growth: Maintaining fiscal 2026 outlook for 5% to 6% growth.
Adjusted EBIT Margin Expansion: Maintaining forecast for 50 to 70 basis points expansion.
Effective Tax Rate: Continuing to expect around 23% for the year.
Adjusted EPS Growth: Continuing to forecast fiscal 2026 adjusted EPS growth of 8% to 10%, supported by share repurchases.
Fiscal 2026 adjusted EPS growth: 8% to 10%, supported by share repurchases.
Share repurchases: Fiscal 2026 adjusted EPS growth of 8% to 10% is supported by share repurchases.
The earnings call presents a mixed picture. Financial performance and guidance show stability, but with some concerns like flat U.S. pays per control and margin pressure. The Q&A highlights positive developments in areas like AI and new bookings, but also reveals uncertainties in macroeconomic impacts and client adoption of Next Gen. The lack of specific financial details on acquisitions and Next Gen adoption timelines adds to the uncertainty. Given these mixed signals and the absence of a market cap, a neutral sentiment is appropriate.
The earnings call summary reflects a positive outlook with strong financial metrics, optimistic guidance, and strategic partnerships. Despite macroeconomic uncertainties, ADP's focus on growth through acquisitions and partnerships, alongside positive revenue and EPS growth guidance, suggests a favorable market reaction. The Q&A session supports this sentiment, with analysts showing confidence in ADP's strategies and no major concerns raised. The positive indicators outweigh potential negatives, leading to a prediction of a positive stock price movement.
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