10-QPeriod: Q1 FY2018

AUTOMATIC DATA PROCESSING INC Quarterly Report for Q1 Ended Sep 30, 2017

Filed November 2, 2017For Securities:ADP

Summary

Automatic Data Processing, Inc. (ADP) reported solid financial results for the first quarter of fiscal year 2018, ending September 30, 2017. Total revenues increased by 6% year-over-year to $3.08 billion, driven by growth in both Employer Services and PEO Services segments. Net earnings saw a significant increase of 9% to $401.5 million, leading to a 11% rise in diluted earnings per share to $0.90 from $0.81 in the prior year's comparable quarter. This performance reflects the company's ongoing strategic investments in its Human Capital Management (HCM) solutions, improved client retention, and effective operational management, even amidst some market headwinds. The company continues to focus on migrating clients to its advanced cloud-based platforms and innovating its product offerings. While new business bookings saw a slight decline, overall revenue retention improved, indicating a strengthening client base on strategic platforms. ADP also demonstrated a commitment to shareholder returns, repurchasing approximately $250 million of its stock and paying out $254 million in dividends. The acquisition of Global Cash Card, Inc. post-quarter end further strengthens ADP's employee payment solutions.

Financial Highlights

53 data points
Beta

Revenue

$3.08B

39.8% Gross Margin

Net Income

$412.60M

13.4% Net Margin

EPS (Diluted)

$0.93

Total Assets

$35.66B

Cash & Equivalents

$2.36B

Free Cash Flow

$244.70M

Financial Statements
Beta
Revenue$3.08B
Cost of Revenue$1.85B
Gross Profit$1.23B
SG&A Expenses$675.40M
Operating Expenses$2.55B
Interest Expense$28.00M
Net Income$412.60M
EPS (Basic)$0.93
EPS (Diluted)$0.93
Shares Outstanding (Basic)442.20M
Shares Outstanding (Diluted)445.00M

Key Highlights

  • 1Total revenues grew 6% to $3.08 billion, with PEO Services showing a strong 14% increase.
  • 2Net earnings rose 9% to $401.5 million, and diluted EPS increased 11% to $0.90.
  • 3Client revenue retention improved by 160 basis points, indicating better client satisfaction and platform migration success.
  • 4The company returned over $500 million to shareholders through share repurchases and dividends.
  • 5Acquisition of Global Cash Card, Inc. post-quarter end to enhance digital payment offerings.
  • 6Effective tax rate decreased to 26.8% from 30.3% due to various tax benefits.
  • 7New business bookings declined 3%, attributed partly to regulatory uncertainty and sales force investments.

Frequently Asked Questions

Revenue growth was primarily driven by new business secured from new bookings, particularly in the PEO Services segment which saw a 14% increase. Improvements in client retention and the successful migration of clients to new cloud-based solutions also contributed significantly.

Total expenses increased by 6%, largely due to higher PEO services pass-through costs, increased investment in client servicing and sales force, and R&D for product innovation. The company also incurred costs related to its Service Alignment Initiative and proxy contest matters.

The acquisition of Global Cash Card, Inc. in October 2017 strengthens ADP's position in employee payments by adding a proprietary digital payments processing platform. This allows ADP to offer new tools for employees to manage their finances and differentiates its HCM solutions.

New business bookings declined by 3% in the quarter compared to the prior year. Management notes that bookings have begun to stabilize in the first quarter of fiscal 2018, attributing the earlier decline to investments in the sales force and uncertainty around regulatory changes.