- Revenue Growth (Q4 2024): 6%
- Adjusted EBIT Margin Expansion (Q4 2024): 80 basis points
- Adjusted EPS Growth (Q4 2024): 11%
- Revenue Growth (Fiscal 2024): 7%
- Adjusted EBIT Margin Expansion (Fiscal 2024): 70 basis points
- Adjusted EPS Growth (Fiscal 2024): 12%
- Employer Services Bookings Growth (Fiscal 2024): 7%
- Employer Services Retention (Fiscal 2024): 92%
- Employer Services Pays Per Control Growth (Q4 2024 and Fiscal 2024): 2%
- PEO Revenue Growth (Q4 2024): 6%
- Fiscal 2024 Revenue: $19.2 billion
- Employer Services Segment Revenue Growth (Q4 2024): 7%
- Employer Services Segment Margin Expansion (Q4 2024): 220 basis points
- Employer Services Segment Revenue Growth (Fiscal 2024): 8%
- Employer Services Segment Margin Expansion (Fiscal 2024): 210 basis points
- PEO Segment Revenue Growth (Q4 2024): 6%
- Average Worksite Employees (Q4 2024): 742,000
- PEO Segment Revenue Growth (Fiscal 2024): 4%
- Average Worksite Employees Growth (Fiscal 2024): 2%
- Fiscal 2025 Revenue Growth Outlook: 5% to 6%
- Fiscal 2025 Adjusted EBIT Margin Expansion Outlook: 60 to 80 basis points
- Fiscal 2025 Adjusted EPS Growth Outlook: 8% to 10%
Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Automatic Data Processing Inc (ADP, Financial) reported strong financial results for Q4 2024, including 6% revenue growth, 80 basis points of adjusted EBIT margin expansion, and 11% adjusted EPS growth.
- The company achieved 7% revenue growth for fiscal 2024, with 70 basis points of adjusted EBIT margin expansion and 12% adjusted EPS growth.
- Employer services new business bookings grew by 7% for fiscal 2024, reaching the high end of their guidance range.
- Client satisfaction scores reached new all-time highs for both the fourth quarter and the full year, supporting strong retention rates.
- ADP's next-gen HCM solution saw strong client interest and exceeded sales expectations, indicating robust demand for their advanced offerings.
Negative Points
- PEO margin contracted by 240 basis points in Q4 due to higher operating expenses and unfavorable actuarial loss development in workers' compensation reserves.
- Fiscal 2024 PEO new business bookings growth rate moderated from the prior year, indicating some slowdown in this segment.
- The company expects a 10 to 30 basis point decline in employer services retention for fiscal 2025, reflecting potential pressure from higher small business out-of-business levels and slower economic growth.
- PEO revenue growth is expected to be modest at 4% to 6% for fiscal 2025, with average worksite employee growth forecasted at only 1% to 3%.
- The fiscal 2025 outlook assumes some moderation in economic activity, which could impact overall financial performance.
Q & A Highlights
Q: Can you provide more color on the attribution of that bookings performance across the business? And in general, any changes based on employer size or geography?
A: The bookings performance was broad-based, showing strength across small business, mid-market, enterprise, and international segments. The HCM demand environment remains strong, and ADP's offerings are essential for businesses. The company is optimistic about the demand environment and has a strong pipeline.
Q: Can you compare and contrast the pays per control performance in ES versus what you're seeing on the same store sale, PPC and PEO?
A: The labor market remains resilient, but pays per control is expected to moderate to 1% to 2% growth in 2025. The pays per control growth in the PEO segment is expected to be lower than in ES, but overall, there is still growth anticipated.
Q: How much of the strength in ES is idiosyncratic versus driven by the macro environment? And what could go well or wrong in terms of the macro for the guidance?
A: The strength in ES is driven by both internal factors and the macro environment. ADP's value proposition fits well into the demand environment, and the company is executing well across its sales differentiation. The macro environment remains a factor, but ADP is confident in its guidance.
Q: Have you observed any meaningful price compression from competitors, particularly in the mid and down market segments?
A: The competitive environment remains status quo, with no significant price compression observed. ADP continues to execute well with its best-in-class products and services, which is a key differentiator in the market.
Q: Can you provide more color on the composition of bookings, especially between enterprise, mid-market, and down market? And what are you seeing in the international business?
A: The down market showed incredible strength, with 50,000 new clients in Q4. The mid-market and enterprise segments also performed well, with strong demand for ADP's next-gen HCM offering. The international business had a fantastic year, with strong performance across all quarters.
Q: How are you thinking about the balance between pricing and retention, and your confidence level in taking 100 basis points of pricing without impacting retention?
A: ADP is confident in its ability to take 100 basis points of pricing, which is realistic given the moderating inflation environment. The company focuses on long-term client relationships and lifetime value, ensuring that pricing decisions do not negatively impact retention.
Q: How should we think about the long-term opportunity for generative AI in terms of monetization?
A: Generative AI is expected to drive both revenue growth and operational efficiency. ADP is embedding generative AI across its products and services, which should enhance sales, retention, and client satisfaction. There are also monetization opportunities in the long term, although it is too early to share specific details.
Q: Can you explain the PEO guidance, given the lower WSE growth but slightly better revenue growth?
A: The PEO revenue growth is primarily driven by zero-margin pass-throughs. While pays per control growth is under pressure, ADP is investing in its sales force to drive top-line growth and increase worksite employees. The company expects some margin pressure from higher workers' compensation costs and selling expenses.
Q: How does ADP drive value and perform during broader economic slowdowns?
A: ADP's value proposition is durable and essential for businesses, regardless of the economic environment. The company has a playbook to adjust quickly to changing demand environments. While bookings may be impacted during a significant economic decline, ADP's financial model is designed to self-adjust and maintain performance.
Q: Can you provide more details on the strong bookings in the small business segment and the source of these clients?
A: The strong bookings in the small business segment are broad-based, coming from digital inbound, new business formations, and competitive takeaways. While new business formations are slightly down year-on-year, they remain elevated compared to historical norms. The mix has shifted slightly, with more clients coming from competitors.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
