Automatic Data Processing Inc Q1 2025 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Zachary Ajzenman - TD Cowen - Analyst : This is Zack Ajzenman on for Bryan. First question is on Employer Services, just the demand and bookings backdrop. If you can just dig into the areas of strength in Q1, and kind of how it progressed through the quarter? And then we have a follow-up.

Question: Zachary Ajzenman - TD Cowen - Analyst : Got it. And then a follow-up on PEO retention. So it sounds like worksite employee retention came in above plan in Q1. As we think about the balance of the year, are you still anticipating an improvement in PEO worksite employee retention year-over-year growth for fiscal '25? And is it an offset -- enough to offset the decel and pays per control?

Question: David Paige Papadogonas - RBC Capital Markets - Analyst : This is David Paige on for Ashish. I was wondering if we could double-click on the WorkForce Software business. Maybe what's the financial profile in terms of revenue growth, the annualized revenue and the margin profile? And then a follow-up after that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 12:30PM, ADP.OQ - Q1 2025 Automatic Data Processing Inc Earnings Call

Question: Mark Marcon - Robert W. Baird & Co. - Analyst : First of all, congratulations on the first quarter results, really strong particularly. Maria, you mentioned client satisfaction scores are at all-time highs. Can you talk a little bit about some of the factors that drove that? And then I'd like to do a follow-up on WorkForce Software.

Question: Mark Marcon - Robert W. Baird & Co. - Analyst : Got it. We had a chance to demo the WalkMe tool within Lyric, and that was pretty impressive. I imagine that's going to end up continuing the upward surge in terms of the NPS. Wondering with regards to WorkForce Software, what's the integration plan? I mean the strategic rationale seems fairly obvious. But just how long -- how soon will we be able to see you fully integrate them in terms of a go-to-market plan? When will you start doing joint sales? How much of their client base, which does include similar marquee already ADP clients? What are the opportunities with regards to potentially penetrating some of those that aren't? Can you talk a little bit about whether it's going to be domestic as well as international in terms of when you go to market and how quickly you can do that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 12:30PM, ADP.OQ - Q1 2025 Automatic Data Processing Inc Earnings Call

Question: Scott Wurtzel - Wolfe Research - Analyst : I wanted to go back to the to PEO segment to start, and thought the results there were very encouraging, especially on the bookings side. So I would love to hear just a little bit about that bookings outperformance. And has there been any sort of change to the sales strategy, to your benefits packaging and offering? A little bit of a combination of both? Any color on that would be very helpful.

Question: Scott Wurtzel - Wolfe Research - Analyst : Got it. That's helpful. And then just as a follow-up on the WorkForce Software acquisition. And as we sort of think about maybe incremental revenue opportunities, I mean is there -- I know it's an enterprise-focused solution. Is there an opportunity to maybe also bring this down to serve your mid-market customers as well?

Question: Samad Samana - Jefferies - Analyst : I'll echo the congrats on a good quarter. Don, maybe first one for you. Just as I think about the size of the WorkForce deal, it's one of your bigger transactions. Any signal in that, that we should take whether that's the company willing to be more acquisitive or if multiples are in a state where ADP is maybe ramping up M&A more broadly overall? Or is this a one-off as part of a strategy or kind of a broader signal? And then I have a follow-up for Maria.

Question: Samad Samana - Jefferies - Analyst : Great. And then, Maria, just maybe a question on Lyric. This is something that investors have talked to us a lot about. Just thinking about how it builds on Lifion, which was a focus before and with the rebranding, I guess the question we've gotten is, is this -- what was the evolutionary or revolutionary moment that led to the rebranding now? Is it product market fit is finally right, and maybe there's an inflection that we're reaching? Is it about -- from a go-to-market perspective, like what led to it now at this particular moment? And should we see maybe an inflection in demand going forward?

Question: Ramsey El-Assal - Barclays - Analyst : Retention continues to outperform expectations. Can you update us on the drivers here, new products, technology, maybe fewer SMB bankruptcies? I'm not sure if that's still an important driver. And also, what was the retention rate in the quarter? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 12:30PM, ADP.OQ - Q1 2025 Automatic Data Processing Inc Earnings Call

Question: Ramsey El-Assal - Barclays - Analyst : Great. And a follow-up for me then is on PEO margins, they came in better than expected in the quarter and you listed your full year margin expectations for the segment. Could you elaborate on the main drivers there? And also for the full year, are you anticipating any reserve releases around workers' comp. As I recall, I don't think that (inaudible) in last year at this time so I was curious.

Question: Tien-tsin Huang - JP Morgan - Analyst : I just want hoping Maria, you can elaborate on the strong pipeline comment. Any surprises or change in visibility across all of your markets, any change in decision-making? I know we get a lot of questions up market around the elections. Can we see a little bit of a pause before we get back to normal, that kind of thing? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 12:30PM, ADP.OQ - Q1 2025 Automatic Data Processing Inc Earnings Call

Question: Tien-tsin Huang - JP Morgan - Analyst : Terrific. Just my quick follow-up. I know Mark and others asked about cross-sell potential synergies with WorkForce Software, but it's got some really nice logos going to the site when you first announced this. So is cross-sell an important consideration and decision to bring the asset in?

Question: Caroline Latta - BofA Securities - Analyst : This is Caroline Latta on for Jason. I just had a question on generative AI. I know you mentioned progress on rolling out some of those initiatives. Do you have any call-outs on potential further investment and cadence of that over the coming year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 12:30PM, ADP.OQ - Q1 2025 Automatic Data Processing Inc Earnings Call

Question: Kartik Mehta - Northcoast Research - Analyst : Maria, you talked a little bit about the SMB and out of business, and you're anticipating maybe it hasn't completely normalized. But I'm wondering as you look at KPIs for your customers, what do you think about the health of small businesses? And if you've seen any change over the last few months?

Question: Kartik Mehta - Northcoast Research - Analyst : And Don, just a follow-up. Any thoughts on change of strategy for the [ full ] portfolio? I know yields have been coming up a little bit. But I'm wondering if there's any thoughts on maybe changing some of the duration or just any other changes you might want to do for the portfolio based on kind of yield?

Question: Dan Dolev - Mizuho - Analyst : Really good results here. Just a quick housekeeping question. Would you be able to quantify how much of the EBIT drag as a result of any incremental amortization?

Question: Dan Dolev - Mizuho - Analyst : Okay. Got it. And just a quick follow-up. I mean you're doing really well on the top line. Can you maybe discuss a little bit of your pricing strategies and the pricing environment for the deals? And -- if you had already been asked. I joined late.

Question: Peter Christiansen - Citi Investment Research - Analyst : Nice trends this quarter. One quick one on WorkForce Software and a bit of a housekeeping on top of that. Just curious, Maria, in terms of the -- I understand the strategic rationale, I totally understand. You're still working through things. But if we think about REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 12:30PM, ADP.OQ - Q1 2025 Automatic Data Processing Inc Earnings Call the opportunity and framing that, is it more about new logo adds from their customer set? Or do you see upside more a function of scaling their solutions on your existing base? Just the hypothesis there on sizing the upside opportunity.

Question: Peter Christiansen - Citi Investment Research - Analyst : Sure, sure. That makes a lot of sense there. And then a quick housekeeping modeling question for Don. Just curious, plans for the assumed debt from the transaction? And if you could potentially size the interest expense impact to earnings for us, that would be helpful.

Question: Kevin McVeigh - UBS - Analyst : Just one on the WorkForce acquisition. Any sense as that business scales, how much revenue it can contribute versus, I guess, what the multiplier effect could potentially be off of the acquired revenues, you scale it across your existing client base?

Question: Zachary Gunn - FT Partners - Analyst : I just wanted to go back to Lyric for a second. I understand it's still smaller, going to take a bit to have a meaningful impact. Just wondering if there's any thought process of how long it will take before it starts to have a meaningful impact to numbers? And just any data points you can give around that? I know last quarter, I think there was some commentary of client count increasing 30%

Question: James Faucette - Morgan Stanley - Analyst : Just had a couple of, I guess, nuanced questions. First, last quarter, you had suggested that PEO pays per control would be lower than that of employer services. With it down ticking this quarter, do you still believe there's growth in PEO pays per control this year?

Question: James Faucette - Morgan Stanley - Analyst : Okay. Got it. I just want to make sure I understood that. And then following up -- and -- if I missed this, but did you quantify Employer Services bookings growth for the quarter specifically? And it sounds like you're still pretty constructive on that front, but how you think about that for the full year range?

Question: James Faucette - Morgan Stanley - Analyst : Got it. Got it. And just maybe just one last question there is, what are some of the swing factors that would push you towards one end of that range either to the upside or to the lower end?