Automatic Data Processing Inc Q3 2025 Earnings Call Summary

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

Question: Ramsey El-Assal - Barclays Capital Inc. - Analyst : Hi. Thank you for taking my question, And it's been great working with you, Don. Best of luck in the future and also congratulations to Peter. Maybe I could ask about the softer international bookings that you called out, a little more color there. Is it sort of a particular regions, products? Any other color that you could give us there would be helpful. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 12:30PM, ADP.OQ - Q3 2025 Automatic Data Processing Inc Earnings Call

Question: Ramsey El-Assal - Barclays Capital Inc. - Analyst : Got it. Okay. Thank you. Got it. Okay. And also on the -- you called out the Fiserv relationship. And I guess just more broadly on that embedded offering, what do you think of the growth opportunity there in the addressable market? Is there a large opportunity for embedded across potentially other distribution channels and partners?

Question: Dan Dolev - Mizuho Securities USA, LLC - Analyst : Hey, guys. Great results, and it was a pleasure working with you, Don. It's -- I feel like everyone is a little bit confused. Results are great. You're talking about uncertainty. Some of the payment companies out there are still saying things are good. Can you maybe tell us a little bit more in terms of when we say uncertainty, how much is it holding back on hiring? Or is it just people are worried? Like maybe just like concerns -- maybe you could parse out concerns versus actual actions, I would say, from your clients that would I think would really be helpful for investors.

Question: Mark Marcon - Robert W. Baird & Co. Incorporated - Analyst : First, Don, it's for the pleasure working with you. Hope you have all the best and enjoying your retirement. And Peter, welcome. Maria, you mentioned international, and we just talked a little bit about the uncertainty. But I'm just wondering if you could delve a little bit more with regards to what you're seeing in terms of mid-market companies, the smaller companies that would typically use RUN. Are you hearing anything, or are your sales folks hearing anything about any sort of uncertainty pushing out delays? Or how is that impacting the PEO business we heard from a different player yesterday that ended up indicating that they were seeing a slowdown with regards to potential hires in their PEO business. So wondering about that? And then I've got a follow-up.

Question: Mark Marcon - Robert W. Baird & Co. Incorporated - Analyst : That's great. And then Maria, ADP has been doing a great job in terms of modernizing. Can you give us an update with regards to Workforce Software in terms of that being integrated and maybe even a little bit more color with regards to Lyric. It sounds like things are going really well from that perspective.

Question: Mark Marcon - Robert W. Baird & Co. Incorporated - Analyst : Great. Thank you very much. Look forward to seeing you on June 12th. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 12:30PM, ADP.OQ - Q3 2025 Automatic Data Processing Inc Earnings Call

Question: Tien-tsin Huang - J.P. Morgan Securities LLC - Analyst : Hey. Thanks so much And all the best to Don, of course. I wanted to ask on ES, it decelerated a couple of points and is running below the full-year range. I know you reiterated it for the full year and you're running on the higher side in the first half. But just wanted to make sure I understood what the factors were there for the change.

Question: Tien-tsin Huang - J.P. Morgan Securities LLC - Analyst : Okay. Thanks for the complete answer. I knew we had the leap year thing in there, but I just -- yeah, I wanted to make sure we caught all that. Just -- my quick follow-up just on the PEI, the Mexico acquisition, can you roughly size that for us? And I'm curious, can that be extended or pushed into other parts of the region, LatAm, et cetera?

Question: Bryan Bergin - TD Cowen - Analyst : Hi. Good morning. Thank you. And Don, congrats and best wishes. And then Peter, we're looking forward to working with you. My first question is on '26. So I appreciate the comments on PPC. I was hoping you could just dig in a little bit more on early 2026 thoughts. Any important considerations on implied 4Q '25 exit rates across the business that may be stickier versus those that may be at more risk? And can you remind us just how to think about relative installation in the business model in the face of a potential macro slowdown?

Question: Bryan Bergin - TD Cowen - Analyst : Okay. Understood. And follow-up on client hiring. So can you comment on what you saw as you move through the third quarter kind of month to month through 3Q and through April? And is there any notable variation by industries that may be more directly exposed to tariff versus not?

Question: Samad Samana - Jefferies LLC - Analyst : Hi, good morning, And I will echo the comments of many. Congrats to Don and look forward to working with Pete as well. Peter and Maria, just maybe a question for you. When I think about the Lyric bookings pipeline, again, I think for the last several quarters, you sounded much more optimistic about trends up market, specifically with Lyric post-rebrand. How much of that's from existing customers that are converting over to it versus gaining share from competitors as you've now kind of established a beachhead with some four customers there?

Question: Samad Samana - Jefferies LLC - Analyst : Understood. And then maybe a follow-up, Don, just as I think about the commentary between what's going on with the core business and maybe some of the international softness that you've seen and then the kind of the macro side that you called out, if I take all that together, how should we think about maybe ADP's own hiring plans? Are you guys going to still track to maybe what you anticipated in terms of head count growth for fiscal '25? Or should we think about a change in either direction in terms of hiring more or less than you originally anticipated, especially as we contextualize it with what's happened maybe over the last several weeks?

Question: James Faucette - Morgan Stanley & Co. LLC - Analyst : Great. Thank you so much and offer my congratulations to Don and Peter as well. I wanted to ask quickly on PEO, just wondering how client behavior in the PEO segment has evolved regarding benefits enrollments? And are you seeing any shifts in preference towards lower-cost benefit plans, particularly as there's a little bit of macro pressure, perceived macro pressure?

Question: James Faucette - Morgan Stanley & Co. LLC - Analyst : Got it. And maybe just like a more nuanced question or deeper dive. I mean clearly, you're executing well, et cetera, but is there anything that you can point to -- I guess I'm just a little surprised because it seems like you guys are driving even better growth off of a higher base than a lot of your peers. And so just trying to get a sense of whether that's go-to-market, cross-sell, specific offerings where you think you're differentiated? Just a little more color there is all. Thank you.

Question: Jason Kupferberg - BofA Global Research (US) - Analyst : Hi. This is actually Jason Kupferberg from Bank of America. Congrats to everybody. I wanted to maybe just start with a question. It might be more for Maria. But coming back to this topic of just bookings and sales cycles and the macro, the intersection of all that, obviously, you talked about some of what you're seeing on the international side. Maybe just talk a little bit more about the US. Are you seeing any client hesitancy, particularly upmarket? Any changes just in the last month or two as the tariff uncertainty has skyrocketed? And to the extent US customers seem to be behaving differently than international, I would just be curious to get your perspective on why that might be the case. Thank you.

Question: Jason Kupferberg - BofA Global Research (US) - Analyst : Understood. I wanted to also get your latest views just on the competitive landscape, particularly down market. I mean we've been hearing a little more from some of the privately held cloud-based providers. So curious what you guys might be seeing on that front just in terms of win rates, pricing, et cetera?

Question: Bryan Keane - Deutsche Bank Securities Inc. - Analyst : Hi. Good morning. I wanted to ask, what percentage of bookings come from international? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 12:30PM, ADP.OQ - Q3 2025 Automatic Data Processing Inc Earnings Call

Question: Bryan Keane - Deutsche Bank Securities Inc. - Analyst : Got it. No, that's helpful. And then just thinking about the enterprise moving more to Lyric and Workforce Software solutions, you talked a little bit about the drag on margins. I think it's 50 basis points this year. Just how do we think about margins in general going forward? Do we get that 50 basis points back into fiscal year '26 and then the overall kind of margin profile Lyric and Workforce Solutions?

Question: Bryan Keane - Deutsche Bank Securities Inc. - Analyst : Got it. Okay. And congrats, Don, amazing career, and Peter, welcome.

Question: Kevin Mcveigh - UBS Securities LLC - Analyst : Great. Thanks. And again, congratulations. It's been a pleasure, Don. I guess can we talk -- maybe just reconcile the improving retention with the lower pays per control, is that a function of the client mix? Or what's driving that?

Question: Kevin Mcveigh - UBS Securities LLC - Analyst : Helpful. And then just real quick on the client funds. It looks like you increased -- it was a similar amount for kind of client funds and then the extended strategy as well. But obviously, the balances are a lot different in terms of average balances. Anything that kind of explains just -- because, again, you increased it by the same amount, but it's like 7 to1. Anything that explains that?

Question: Kevin Mcveigh - UBS Securities LLC - Analyst : Helpful. Congratulations, Peter.

Question: Kartik Mehta - Northcoast Research - Analyst : Thank you. I know there's a ton of questions asked on international bookings, so I apologize for asking one more. But can we get a sense -- have you seen any pushback from ADP being an American company and maybe companies holding off a little bit until things settle down? Or is this just an issue of uncertainty? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 12:30PM, ADP.OQ - Q3 2025 Automatic Data Processing Inc Earnings Call

Question: Kartik Mehta - Northcoast Research - Analyst : And then to follow up on the PPC on the PEO business. I know that there has been a difference between the ES PPC and the PEO PPC. This quarter, did that come a little bit closer? It sounds like they're both kind of getting close to 1% or just a matter of rounding.

Question: Kartik Mehta - Northcoast Research - Analyst : And Don, it's been a pleasure working with you. Good luck with everything. And Peter, look forward to working with you.

Question: Ashish Sabadra - RBC Capital Markets Wealth Management - Analyst : Thanks for taking my question. Just on PEO ex-pass-through revenue growth. There was like -- it grew 7%, 6% and 8% in the first three quarters. The 5% to 6% guidance for the full year implies like a material slowdown. Is that just conservatism? Or are there some puts and takes as we got into the fourth 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. APRIL 30, 2025 / 12:30PM, ADP.OQ - Q3 2025 Automatic Data Processing Inc Earnings Call

Question: Ashish Sabadra - RBC Capital Markets Wealth Management - Analyst : That's very helpful color. And maybe just on the broader theme of GenAI, I was wondering if you could share any additional progress on that front. Thanks.

Question: Ashish Sabadra - RBC Capital Markets Wealth Management - Analyst : That's great color. And congrats to both Don and Peter. Thank you.