• Revenue Growth: 8% increase in the second quarter.
• Adjusted EBIT Margin Expansion: 60 basis points increase.
• Adjusted EPS Growth: 10% increase.
• Employer Services Revenue Growth: 8% increase on a reported basis, 7% on an organic constant currency basis.
• PEO Revenue Growth: 8% increase.
• Average Worksite Employee Growth: 3% increase.
• Employer Services Margin: Increased by 90 basis points.
• PEO Margin: Decreased by 140 basis points.
• Client Funds Interest Revenue: Increased more than anticipated, full-year forecast increased by $25 million.
• Fiscal 2025 Revenue Growth Outlook: 6% to 7% growth.
• Fiscal 2025 Adjusted EBIT Margin Expansion Outlook: 30 basis points to 50 basis points.
• Fiscal 2025 Adjusted EPS Growth Outlook: 7% to 9% growth.
• Effective Tax Rate: Expected to be around 23% for fiscal 2025.

• Warning! GuruFocus has detected 2 Warning Signs with BOM:541301.

Release Date: January 29, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Automatic Data Processing Inc (NASDAQ:ADP) achieved a significant milestone by increasing its quarterly dividend for the 50th consecutive year, joining the elite group of 'Dividend Kings'.
• The company reported strong second quarter results with 8% revenue growth, 60 basis points of Adjusted EBIT margin expansion, and 10% Adjusted EPS growth.
• ADP's client satisfaction levels reached a new all-time high in the second quarter, reflecting strong overall business environment and high client satisfaction.
• The strategic partnership with Fiserv is expected to enhance ADP's small business offerings by integrating Fiserv's Clover platform with ADP's RUN solution.
• ADP's acquisition of WorkForce Software is progressing well, with new business opportunities emerging from the integration of their solutions with ADP's platforms.

Negative Points

• Employer services retention declined slightly compared to the prior year, although it modestly exceeded expectations.
• Employer services pays per control growth decelerated to 1% in Q2 from 2% in Q1, indicating a slower hiring pace among clients.
• PEO margin decreased by 140 basis points in the quarter, impacted by higher zero-margin benefits pass-through revenue growth and increased costs.
• The company anticipates a deceleration in revenue growth in Q3 due to factors such as FX headwinds and lower short-term interest rates.
• ADP's fiscal 2025 outlook includes a forecasted modest decline in employer services retention and a decrease in PEO margin for the full year.

Q & A Highlights

Q: Can you provide more details on the Fiserv partnership? Is it a referral relationship, and is there any revenue share involved? A: Yes, we are currently in a referral relationship with Fiserv, exchanging leads between our distribution arms. We plan to integrate our products, with RUN being embedded in Clover and vice versa. There is a revenue share component, making it a mutually beneficial partnership. We believe in partnerships and the ecosystem, and this could be the beginning of more such relationships.

Q: How is the Lyric platform performing, and is it contributing to growth? A: Lyric, our Next Gen HCM solution, is resonating well in the marketplace. It is contributing to our growth in new business bookings, although it will take time to scale and significantly impact financials. The platform is gaining traction with global enterprise clients, and we are excited about its market reception.

Q: Can you elaborate on the demand trends across different client segments, especially post-US election? A: Demand remains strong and broad-based across segments. In the downmarket, companies are still hiring and buying. The mid-market shows strength in HR outsourcing, and we have a strong mid-market story with Workforce Now. In the global and upmarket segments, we remain watchful but see no alarming trends. The new administration's impact on demand is still too early to call.

Q: What are the drivers behind the implied slower PEO revenue growth in the back half? A: The slower PEO revenue growth is due to the timing of state unemployment insurance revenue, which was pulled into Q2, and slower pays per control growth compared to Employer Services. We expect PEO pays per control growth to be slightly slower than ES for the full year.

Q: How is ADP leveraging AI and machine learning in its operations? A: We are focused on integrating generative AI into our products and service organization. This includes tools like call summarization and digital transformation in implementation, which improve service efficiency. In sales, AI helps with opportunity prioritization and pre-call planning, enhancing sales productivity. These initiatives are driving productivity and efficiency, with positive long-term impacts expected.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.