10-QPeriod: Q3 FY2022

AUTOMATIC DATA PROCESSING INC Quarterly Report for Q3 Ended Mar 31, 2022

Filed April 29, 2022For Securities:ADP

Summary

Automatic Data Processing, Inc. (ADP) reported solid financial results for the nine months ended March 31, 2022, with total revenues increasing by 10% to $12.37 billion and net earnings growing by 13% to $2.32 billion. The company demonstrated strong operational execution across its Employer Services and PEO Services segments, driven by client retention, new business bookings, and an increase in average worksite employees for PEO services. Key financial highlights include a 10% year-over-year revenue growth and a 13% increase in diluted Earnings Per Share (EPS) to $5.51 for the nine-month period. Management emphasized the company's robust business model, characterized by significant cash flows and low capital intensity, enabling consistent dividend payments and share repurchases. ADP also highlighted strategic investments in enhancing its Human Capital Management (HCM) technology, including the rollout of a unified user experience and advancements in its data analytics capabilities, positioning the company for continued growth in a dynamic market.

Financial Highlights

53 data points
Beta

Revenue

$4.51B

44.3% Gross Margin

Net Income

$928.50M

20.6% Net Margin

EPS (Diluted)

$2.21

Total Assets

$72.07B

Cash & Equivalents

$1.63B

Free Cash Flow

$971.00M

Financial Statements
Beta
Revenue$4.51B
Cost of Revenue$2.51B
Gross Profit$2.00B
SG&A Expenses$817.50M
Operating Expenses$3.35B
Interest Expense$18.40M
Net Income$928.50M
EPS (Basic)$2.22
EPS (Diluted)$2.21
Shares Outstanding (Basic)418.10M
Shares Outstanding (Diluted)420.20M

Key Highlights

  • 1Total revenues for the nine months ended March 31, 2022, increased by 10% to $12.37 billion, compared to $11.27 billion in the prior year period.
  • 2Net earnings for the nine months ended March 31, 2022, rose by 13% to $2.32 billion, or $5.51 per diluted share, up from $2.06 billion, or $4.80 per diluted share, in the comparable period.
  • 3Employer Services revenue grew 8% year-over-year for the nine months, driven by strong client retention and new business bookings.
  • 4PEO Services revenue increased 15% year-over-year for the nine months, primarily due to a 16% increase in average worksite employees.
  • 5The company returned $2.7 billion to shareholders through dividends ($1.2 billion) and share repurchases ($1.5 billion) during the nine months.
  • 6Cash and cash equivalents stood at $1.63 billion as of March 31, 2022, indicating ample liquidity.
  • 7Operating expenses increased by 10% for the nine months, largely due to higher PEO Services zero-margin benefits pass-throughs and increased costs to service the growing client base.

Frequently Asked Questions

Revenue growth was primarily driven by strong client retention, new business bookings, an increase in PEO Services' average worksite employees (up 16%), and a 7% increase in the pays per control metric for Employer Services. Interest on funds held for clients also contributed, benefiting from an increase in average client funds balances.

Net earnings increased by 13% to $2.32 billion for the nine months ended March 31, 2022, resulting in a 15% increase in diluted EPS to $5.51. Earnings Before Income Taxes (EBIT) also grew by 13%, and the EBIT margin expanded by 60 basis points year-over-year.

ADP demonstrates a strong commitment to shareholder returns, returning $2.7 billion through dividends and share repurchases in the first nine months of fiscal 2022. The company maintains solid financial condition and sufficient liquidity, with $1.63 billion in cash and cash equivalents, and expects its operating cash flow, existing cash, and committed credit facilities to be adequate for future needs.

ADP is investing in its Human Capital Management (HCM) technology by rolling out a new unified user experience (UX) across key platforms like Workforce Now and the ADP Mobile app. They are also enhancing data offerings, piloting a new Global Insight Dashboard powered by DataCloud to extend analytics capabilities internationally, underscoring a focus on innovation and client value.