10-QPeriod: Q1 FY2020

AUTOMATIC DATA PROCESSING INC Quarterly Report for Q1 Ended Sep 30, 2019

Filed November 4, 2019For Securities:ADP

Summary

Automatic Data Processing, Inc. (ADP) reported solid financial results for the first quarter of fiscal year 2020, ending September 30, 2019. Total revenues increased by 6% year-over-year to $3.5 billion, driven by growth in both the Employer Services and PEO Services segments. Net earnings saw a significant increase of 15% to $582.4 million, or $1.34 per diluted share, up from $505.4 million, or $1.15 per diluted share, in the prior year period. This performance reflects the company's successful execution of its transformation initiatives and continued investment in its cloud-based Human Capital Management (HCM) solutions. The company highlighted a 6% increase in Employer Services revenue and an 8% increase in PEO Services revenue. Interest income on funds held for clients also rose due to higher average interest rates and increased client fund balances. ADP continues to return capital to shareholders, with approximately $340 million distributed via dividends and $310 million through share repurchases during the quarter. The company's financial condition remains solid, supported by strong cash flows and a robust business model.

Financial Highlights

53 data points
Beta

Revenue

$3.50B

41.5% Gross Margin

Net Income

$582.40M

16.7% Net Margin

EPS (Diluted)

$1.34

Total Assets

$37.71B

Cash & Equivalents

$1.40B

Free Cash Flow

$432.80M

Financial Statements
Beta
Revenue$3.50B
Cost of Revenue$2.04B
Gross Profit$1.45B
SG&A Expenses$726.50M
Operating Expenses$2.81B
Interest Expense$39.90M
Net Income$582.40M
EPS (Basic)$1.35
EPS (Diluted)$1.34
Shares Outstanding (Basic)432.70M
Shares Outstanding (Diluted)435.40M

Key Highlights

  • 1Total revenues increased by 6% to $3.5 billion for the three months ended September 30, 2019, compared to $3.3 billion in the prior year period.
  • 2Net earnings rose by 15% to $582.4 million, with diluted earnings per share (EPS) increasing to $1.34 from $1.15.
  • 3Employer Services segment revenue grew by 4% year-over-year to $2.44 billion, driven by new business bookings and strong client retention.
  • 4PEO Services segment revenue increased by 8% to $1.06 billion, primarily due to a 7% rise in the average number of Worksite Employees.
  • 5Interest on funds held for clients increased by 13% to $133.9 million, benefiting from higher average interest rates and an increased client fund balance.
  • 6The company returned approximately $340 million to shareholders through dividends and $310 million through share repurchases during the quarter.
  • 7Operating expenses increased by 6% to $2.04 billion, largely driven by higher PEO Services zero-margin benefits pass-through costs and increased servicing costs, partially offset by transformation efficiencies.

Frequently Asked Questions

Revenue growth was primarily driven by increases in both the Employer Services and PEO Services segments. Employer Services benefited from new business bookings and strong client retention, while PEO Services saw an increase in the average number of Worksite Employees. Additionally, higher interest income on funds held for clients, due to improved rates and larger client fund balances, contributed to the overall revenue increase.

Total expenses increased by 6%, largely due to higher PEO Services zero-margin benefits pass-through costs and increased costs to service the growing client base. However, these increases were partially offset by operating efficiencies realized from the company's ongoing transformation initiatives and favorable impacts from foreign currency movements.

ADP has a consistent strategy of returning capital to shareholders. In the reported quarter, the company returned approximately $340 million through dividends and $310 million through share repurchases, demonstrating its commitment to shareholder value.

PEO Services revenue includes 'zero-margin benefits pass-throughs.' While these increase reported PEO revenues, the associated costs also increase operating expenses. For the quarter, these pass-through costs increased to $699.1 million, contributing to the overall rise in operating expenses, though the revenue generated from these services is also recognized.