Automatic Data Processing Inc Q2 2025 Earnings Call Summary

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

Question: Samad Samana - Jefferies - Analyst : Hi, good morning. Thanks for taking my question (inaudible) and great to see the strong end to the calendar year the last year, Maria and team. So congrats on that. I guess, first question just on the Fiserv partnership, that's obviously exciting news. Is that going to be a referral between the two organizations? Is there a co-development on the product? And maybe just help us think about is there any kind of revenue share associated within? And should we see this as the beginning of more of an ISV-driven strategy? I know it's a multi-parter, but there's a lot there.

Question: Samad Samana - Jefferies - Analyst : Great. And then maybe just one follow-up. On the enterprise side, I know that with the rebranding to Lyric, there's been a lot of focus on that. You sounded very good about it last quarter. You called it out for bookings this quarter. Are you seeing -- is this kind of a clear inflection now? Is it fair to say that? And how should we think about maybe the impact of bookings or what's built in the forecast of this year from the enterprise side of the business?

Question: Samad Samana - Jefferies - Analyst : Great. Thank you so much for taking my question.

Question: Bryan Bergin - TD Cowen - Analyst : Hi, good morning. Thank you. My first question on demand, so it's good to hear the continuation of a healthy backdrop here. Can you double-click on how that's progressed across the client segment size? And I'm curious as the calendar turn just post-US election, did you note any changes or anything that's worth calling out in bookings specifically on what you see in the US versus international?

Question: Bryan Bergin - TD Cowen - Analyst : Yes, for sure. Okay. Appreciate all that detail. And then on the '25 outlook here. So Don, appreciate the cadence clarifications. For the full year outlook, when we think about you affirmed the range on EPS growth, just any indications on kind of comfort levels within that range as you move through the second half. How should we be thinking about the EPS here as it relates to kind of upside potential as the curve remains elevated versus potential FX headwinds from dollar strength?

Question: Bryan Bergin - TD Cowen - Analyst : Okay, okay. Appreciate that. And congrats on the 50 years of dividend increases.

Question: Ramsey El-Assal - Barclays - Analyst : Hi, thanks for taking my question. Good morning. Don, would you comment a bit further on the drivers of the implied slower PEO revenue growth in the back half? I know there were some timing-related issues. Can you just sort of parse that out for us and help us understand a little better why that should decelerate the way you've implied it will.

Question: Ramsey El-Assal - Barclays - Analyst : Got it, okay. And then a follow-up for me. In the context of the Paychex-Paycor acquisition, do you see any changes in the M&A environment or in your appetite to do deals?

Question: Ramsey El-Assal - Barclays - Analyst : Got it. Alright. Thank you very much.

Question: James Faucette - Morgan Stanley - Analyst : Great. Thank you very much. Appreciate all the times this morning. Want to ask quickly about retention. Last quarter, you flagged you saw a little bit of a retention degradation, but it wasn't really specifically attributable to an uptick in small, medium-sized bankruptcies and instead kind of rather broad-based off-peak hiring levels. What specifically did you see in the quarter on that latter point? Are we seeing kind of hiring levels move around at all? And what's the assumption in the back half for -- and is the assumption for the back half that small, medium-sized business bankruptcies will pick up again?

Question: James Faucette - Morgan Stanley - Analyst : Great. Appreciate that. And then I wanted to do a little bit of a status check on some of your AI and machine learning-driven initiatives. You guys have always been very front-footed on that, and I know that kind of ebbs and flows as a topic. But I'm wondering if you can just give us an update on service and sales efficiency efforts with some of your Gen AI projects. And if you have any examples that you could provide of how your Gen AI initiatives are impacting client retention or sales productivity or any other metric you may want to touch on.

Question: James Faucette - Morgan Stanley - Analyst : That's great. Thank you so much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 29, 2025 / 1:30PM, ADP.OQ - Q2 2025 Automatic Data Processing Inc Earnings Call

Question: Mark Marcon - Robert W. Baird & Co. - Analyst : Hey, good morning, Maria, Don and congratulations on the strong end of the calendar year and obviously the 50 years for the whole organization. On the strategic side, with regards to Fiserv and Clover, it sounds really promising. How meaningful could it be? Like if we fast-forward two years or three years, how do you envision the partnership working? And could it be expanded above and beyond RUN? Because I think for some clients, it might also be pretty relevant on the lower end of Workforce Now. So I'm wondering how you're thinking about that. I know it's early days but wondering if you can just give us a feel for that.

Question: Mark Marcon - Robert W. Baird & Co. - Analyst : That's great. And then on WorkForce Software, it sounds like everything is going according to plan. As you think through the next fiscal year, how well integrated will it be by -- for fiscal '26, do you think? And how meaningful could that end up being with regards to the upmarket?

Question: Mark Marcon - Robert W. Baird & Co. - Analyst : Terrific. Got tons of questions, but I'll leave it there. Congratulations again.

Question: Bryan Keane - Deutsche Bank - Analyst : Hi, guys. Good morning and congrats on the solid results. Just a clarification on the Fiserv partnership just on the economics. How do the economics exactly work between the two companies? Is it a percentage of sales as a onetime fee? Is it a recurring fee? Just curious on how that relationship works on both sides.

Question: Bryan Keane - Deutsche Bank - Analyst : Okay. That's helpful. And then just as a follow-up, just thinking about selling season and targets for kind of new client growth and what is the pricing environment? What kind of pricing yield do you think you'll be able to get in the key new selling season? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 29, 2025 / 1:30PM, ADP.OQ - Q2 2025 Automatic Data Processing Inc Earnings Call

Question: Bryan Keane - Deutsche Bank - Analyst : Okay. That's helpful. Thanks, guys.

Question: Jason Kupferberg - Bank of America - Analyst : Thank you, guys. Good morning. I just wanted to start on bookings. The tone there continues to sound quite upbeat. I know the guidance for the year is unchanged at 4% to 7%. I was hoping you could talk qualitatively at least about how you're tracking to that guide this year versus last year. Just wondering whether or not the visibility on the full year bookings is higher now than it was at this time last year?

Question: Jason Kupferberg - Bank of America - Analyst : Understood. Okay. And then maybe one for Don. Appreciate all the moving parts here in the back half of the year. But can you just put maybe a finer point on Q3 versus Q4, how we should be thinking about revenue growth and margin cadence just so that we've got the pieces calibrated? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 29, 2025 / 1:30PM, ADP.OQ - Q2 2025 Automatic Data Processing Inc Earnings Call

Question: Jason Kupferberg - Bank of America - Analyst : Okay. Thanks a lot.

Question: Scott Wurtzel - Wolfe Research, LLC - Analyst : Hey, good morning, guys. Thank you for taking my question. So I wanted to start on the PEO segment. One of your peers had called out maybe some dynamics with clients opting into lower-cost benefit plan. So just wondering if you've been seeing any changes in benefits enrollment behavior recently?

Question: Scott Wurtzel - Wolfe Research, LLC - Analyst : Got you. That's helpful. And then just as a follow-up, Don, on the softer pays per control growth maybe relative to your expectations, was that in any specific pockets of your client base? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 29, 2025 / 1:30PM, ADP.OQ - Q2 2025 Automatic Data Processing Inc Earnings Call

Question: Tien-Tsin Huang - JPMorgan Chase & Co - Analyst : Hi, thanks so much. Yes. So a couple of quarters of really strong pipeline. I think you've mentioned -- I'm just curious, do you see timely deal awards in the second half? And I don't know if I heard this, but are deal sizes getting larger in general? Just curious how the shape of the pipeline and the quality.

Question: Tien-Tsin Huang - JPMorgan Chase & Co - Analyst : Glad to hear it. Just on the consolidation side, Maria, just I feel like we've seen some SMB players invest in mid-market solutions. Feels like an endorsement of the ADP's model. I don't know, do you see that as a trend? Love your thoughts on that.

Question: Tien-Tsin Huang - JPMorgan Chase & Co - Analyst : That's great. Thanks, Maria. And way to get map plus into transcript, didn't expect -- Thanks. Have a good day.

Question: Peter Christiansen - Citi Investment Research - Analyst : Thank you, and good morning. Lot of good stuff here. Maria, I wanted to talk about -- dig a little bit in your thoughts longer term perhaps on the adjacency of B2B payments, even treasury management solutions. It seems like a real natural adjacency for ADP. I know ADP established ADP Trust Company a couple of years ago. Just wondering how do you think about that longer term? We've seen a couple integrations with some other companies, even on the cross-border side with payroll. Just curious if you see this emerging as a real longer-term TAM expansion opportunity for ADP. Thank you.

Question: Peter Christiansen - Citi Investment Research - Analyst : Thanks, Maria. It's very interesting. Looking forward to your analyst day.

Question: Kevin McVeigh - UBS - Analyst : Great. Thanks so much. I think, Don, you talked about kind of trends in the back half with the reacceleration in Q4 as opposed to Q3. Any puts and takes on what drives that reacceleration? I think it was specifically around ES or maybe the business overall? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 29, 2025 / 1:30PM, ADP.OQ - Q2 2025 Automatic Data Processing Inc Earnings Call

Question: Kevin McVeigh - UBS - Analyst : That's helpful. And then just real quick on the retention. I know typically the Q2, right, the December quarter -- or Q1 rather, just any thoughts on what quarter seasonally would have the most outsized retention? Just remind us, I know there's some seasonal impact just given the January start. Just any thoughts around that.

Question: Kevin McVeigh - UBS - Analyst : Great. Thank you.

Question: Kartik Mehta - Northcoast Research Partners, LLC - Analyst : Hey, good morning. Don, you talked about pricing and pricing being about 100 basis points versus 50 that it's historically been and maybe down from the 150 you saw previously. But I'm wondering, do you think the environment has changed? Is 100 basis points something you could see net pricing for the next couple of years or do you think we're just in a unique period where you're getting this a little bit outsized pricing? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 29, 2025 / 1:30PM, ADP.OQ - Q2 2025 Automatic Data Processing Inc Earnings Call

Question: Kartik Mehta - Northcoast Research Partners, LLC - Analyst : And just a follow-up on the PEO. You've talked about pays per control being slightly lower in the PEO than ES. And I know that's kind of more of a near-term phenomenon. Is there anything changing in that business or the industry where you could see this trend continue or is this just a bit of an anomaly where the pays per control are lower than the ES business?

Question: Kartik Mehta - Northcoast Research Partners, LLC - Analyst : Perfect. Thank you very much. Appreciate the time.

Question: Dan Dolev - Mizuho Securities USA LLC - Analyst : Hey, guys. Thanks for squeezing in here. I did notice -- I know we talked -- you talked a lot about the backlog, but I did notice a slight change in maybe language or formulation. I believe last quarter, you said clients continued to hire at a moderate pace and now you're saying albeit at a slower pace. I just want to know maybe more about from your experience, you've obviously been doing this for a long time. When this slowing train starts rolling, is it a trajectory that could change? Is this like maybe just a hiatus? Just more like long-term perspective on this one would be great. And other than that, obviously, really strong results and love it. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 29, 2025 / 1:30PM, ADP.OQ - Q2 2025 Automatic Data Processing Inc Earnings Call

Question: Dan Dolev - Mizuho Securities USA LLC - Analyst : Got it. Thank you, and congrats again on being a thought leader on HCM, looks like your competitors are taking a page off your book now. So congrats again.