10-QPeriod: Q3 FY2018

AUTOMATIC DATA PROCESSING INC Quarterly Report for Q3 Ended Mar 31, 2018

Filed May 4, 2018For Securities:ADP

Summary

Automatic Data Processing, Inc. (ADP) reported strong performance for the nine months ended March 31, 2018, with total revenues increasing by 7% to $10,007.2 million, driven by growth in both Employer Services and PEO Services segments. Net earnings rose by 3% to $1,512.1 million, and diluted EPS increased to $3.40 from $3.25 in the prior year period. The company also highlighted significant strategic acquisitions, including Global Cash Card and WorkMarket, aimed at enhancing its cloud-based Human Capital Management (HCM) solutions and expanding into digital payments and freelance management. Financially, ADP demonstrated robust operational cash flow generation and maintained a solid balance sheet, with cash and cash equivalents of approximately $2.3 billion as of March 31, 2018. The company continued its shareholder-friendly capital allocation strategy, increasing its quarterly dividend by 10% and returning approximately $1.4 billion through dividends and share repurchases. The recent Tax Cuts and Jobs Act provided additional financial flexibility, and ADP anticipates a future adjusted effective tax rate of 25% to 26%.

Financial Highlights

53 data points
Beta

Revenue

$3.70B

43.7% Gross Margin

Net Income

$661.00M

17.9% Net Margin

EPS (Diluted)

$1.49

Total Assets

$44.07B

Cash & Equivalents

$2.29B

Free Cash Flow

$1.13B

Financial Statements
Beta
Revenue$3.70B
Cost of Revenue$2.08B
Gross Profit$1.62B
SG&A Expenses$750.10M
Operating Expenses$2.85B
Interest Expense$18.60M
Net Income$661.00M
EPS (Basic)$1.50
EPS (Diluted)$1.49
Shares Outstanding (Basic)441.00M
Shares Outstanding (Diluted)443.40M

Key Highlights

  • 1Total revenues grew 7% to $10,007.2 million for the nine months ended March 31, 2018.
  • 2Diluted earnings per share (EPS) increased to $3.40 from $3.25 in the prior year period.
  • 3Acquired Global Cash Card, Inc. to strengthen digital payment capabilities and WorkMarket, Inc. to expand freelance management solutions.
  • 4Increased quarterly cash dividend by 10% and returned approximately $1.4 billion to shareholders via dividends and share repurchases.
  • 5Employer Services revenue retention improved by 100 basis points for the nine months ended March 31, 2018.
  • 6PEO Services saw a 13% revenue increase for the nine months ended March 31, 2018, driven by growth in worksite employees.
  • 7Benefited from the Tax Cuts and Jobs Act, anticipating a future adjusted effective tax rate of 25%-26%.

Frequently Asked Questions

For the nine months ended March 31, 2018, ADP's total revenues grew by 7% to $10,007.2 million. This growth was primarily driven by new business bookings across its Employer Services and PEO Services segments, as well as an increase in the number of employees on client payrolls and higher client revenue retention rates.

ADP acquired Global Cash Card, Inc. (GCC) in October 2017, making it the only HCM provider with a proprietary digital payments processing platform, enhancing its employee payment offerings. In January 2018, ADP acquired WorkMarket, Inc., a freelance management solutions provider, to expand its market opportunities in the growing gig economy and complement its existing HCM solutions.

The Tax Cuts and Jobs Act enacted in late 2017 provided ADP with additional financial flexibility. For the nine months ended March 31, 2018, the Act resulted in a decrease in income tax expense of approximately $140 million, including a one-time net benefit of $42.9 million from the re-measurement of deferred tax balances. ADP anticipates a future adjusted effective tax rate of 25% to 26%.

ADP continued its disciplined approach to capital allocation. During the nine months ended March 31, 2018, the company raised its quarterly cash dividend by 10% and returned approximately $1.4 billion to shareholders through dividends and share repurchases. The company also noted its flexibility for future reinvestments, potential acquisitions, and returning cash to shareholders.