10-QPeriod: Q1 FY2016

AUTOMATIC DATA PROCESSING INC Quarterly Report for Q1 Ended Sep 30, 2015

Filed November 5, 2015For Securities:ADP

Summary

Automatic Data Processing, Inc. (ADP) reported a solid quarter for the period ending September 29, 2015, demonstrating revenue growth driven by new business bookings and an expanding client base. Total revenues increased by 6% year-over-year, reaching $2.71 billion, with particular strength in the PEO Services segment, which saw an 18% revenue increase. Net earnings from continuing operations grew by 14% to $337.5 million, translating to a 16% increase in diluted EPS from continuing operations to $0.72. The company highlighted increased investments in sales force and product innovation, particularly related to compliance with the Affordable Care Act (ACA). While facing pressure from foreign currency translation and declining interest income on client funds, ADP's core business model, characterized by recurring revenues and strong client retention (though slightly down from prior periods), continues to perform well. The company also strengthened its capital structure by issuing $2 billion in senior notes, with plans to return capital to shareholders through share repurchases.

Financial Highlights

52 data points
Beta

Revenue

$2.71B

39.3% Gross Margin

Net Income

$336.60M

12.4% Net Margin

EPS (Diluted)

$0.72

Total Assets

$34.38B

Cash & Equivalents

$3.18B

Free Cash Flow

$109.10M

Financial Statements
Beta
Revenue$2.71B
Gross Profit$1.07B
SG&A Expenses$605.30M
Operating Expenses$2.26B
Interest Expense$4.90M
Net Income$336.60M
EPS (Basic)$0.73
EPS (Diluted)$0.72
Shares Outstanding (Basic)462.40M
Shares Outstanding (Diluted)465.70M

Key Highlights

  • 1Total revenues increased by 6% to $2.71 billion, driven by new business bookings and an expanded client base.
  • 2Net earnings from continuing operations grew 14% to $337.5 million, with diluted EPS from continuing operations up 16% to $0.72.
  • 3PEO Services segment revenue showed strong growth of 18%, indicating robust demand in that area.
  • 4The company issued $2 billion in senior notes in September 2015, strengthening its capital structure.
  • 5Investments in sales force and product innovation, especially for ACA compliance, are a key strategic focus.
  • 6Operating expenses increased by 6% to support revenue growth and strategic investments, while margins slightly improved.
  • 7The company repurchased approximately 4.2 million shares of common stock during the quarter.

Frequently Asked Questions

Revenue growth was primarily driven by new business started over the past twelve months, stemming from strong new business bookings. Increased client employee counts and price increases also contributed, particularly in the Employer Services segment.

ADP issued $2 billion in senior notes in September 2015, with $1 billion due in 2020 and $1 billion due in 2025. The company plans to use these proceeds for share repurchases over the next 12 to 24 months.

ADP experienced pressure from foreign currency translation and a decrease in interest income on funds held for clients. Additionally, client revenue retention decreased slightly compared to the prior year, attributed to losses on legacy client platforms.

ADP is focused on its global Human Capital Management (HCM) strategy, emphasizing product innovation and enhancing distribution and service capabilities. This includes increased investments in the sales force and product development, particularly for solutions that help businesses comply with the Affordable Care Act (ACA).