Q3 2025 Automatic Data Processing Inc Earnings Call
Creation of non-GAAP measures to their most comparable GAAP measures can be found in our earnings release today's call will also contain forward looking statements that refer to future events and involve some risk. We encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ materially from our current expectations I will now turn.
Maria: It over to Maria.
Maria: Thank you, Matt and thank you everyone for joining us before discussing our third quarter results I want to take a few moments to acknowledge this morning's press release announcing our CFO transition.
Maria: Dan Maguire has enjoyed a remarkable career at ADP initially joining ADP, Canada in 1998, as Vice President of Finance. He would go on to profoundly shape, our international business, serving in a number of key leadership roles around the world, including its 2018 appointment to the position of President employer services International and <unk>.
Maria: <unk> thousand 21, Don returned to his finance rates, taking on the role of Adp's CFO, where he has provided strong financial stewardship and valued strategic counsel in particular as I transition into my role as ADP as CEO I am honored to call on a colleague and more importantly, a friend.
Speaker Change: Don Thank you from the bottom of my heart for your countless contributions to ADP.
Speaker Change: And with that as part of our orderly succession planning I am excited to share that Peter Hadley will succeed Dan as CFO effective July one with Don assisting with this transition through the end of September.
Speaker Change: Many of you already know Peter threw his participation in various investor meetings and calls over the course of the last year. He joined ADP in 2002, and it's also a global citizen having held roles in both finance and operations for ADP in Europe, Asia, and the United States, including as CFO of our.
Speaker Change: <unk> and enterprise business units President of Asia Pacific and most recently as corporate Treasurer.
Speaker Change: Peter brings deep financial expertise extensive knowledge of ADP, and our industry and strong leadership and strategic skills to the position you will have the opportunity to hear more from Peter at our Investor Day on June 12 in the meantime, I Hope you will all join me in wishing Don well and in welcoming Peter to the CFO role.
Speaker Change: Now onto our results. This morning, we reported solid third quarter results that included 6% revenue growth 10 basis points of adjusted EBIT margin expansion and 6% adjusted EPS growth I'm excited to share the progress we continue to make against our strategic priorities, but let's first review some of.
Speaker Change: Additional financial highlights from the quarter.
Speaker Change: We delivered another solid quarter of employer services, new business bookings growth in particular, we were pleased with our results across our U S offerings with our small business mid market and enterprise as well as compliance solutions offerings, all performing well.
Speaker Change: Meanwhile, experienced a softer quarter for international bookings as a result of macroeconomic uncertainty in some of our key international markets.
Speaker Change: With healthy new business pipeline, we remain focused on delivering overall bookings growth within our guidance range.
Speaker Change: Employer services retention again modestly exceeded our expectations declining slightly compared to the prior year.
Speaker Change: This continued strong retention performance reflects client satisfaction scores, reaching record highs for third quarter and on a fiscal year to date basis with the most meaningful improvements coming from our enterprise International and <unk> businesses.
Speaker Change: Our U S clients continue to hire in the third quarter as our employer services pays per control growth remained at 1%.
Speaker Change: And last PEO revenue growth of 7% exceeded our expectations helped by higher wages strong retention and continued growth in zero margin pass throughs.
Speaker Change: Now, let's turn to our continued execution on our strategic priorities, which include leading with best in class HCM technology, providing unmatched expertise in outsourcing and benefiting our clients with our global scale.
Our momentum with enterprise clients continued in the third quarter new.
Speaker Change: New business bookings for ADP lyric HCM increased substantially and our pipeline for new lyric business doubled compared to last year among.
Speaker Change: Among the new clients to start a lyric during the third quarter was a leading provider of home health care services with more than 36000 employees.
Speaker Change: This client is now live with HR payroll and time and plans to add recruiting and talent this quarter.
Speaker Change: We were also pleased with workforce software new business bookings with ongoing strong interest towards time and attendance absence management and scheduling tools from organizations across a variety of industry verticals and geographies we can.
Speaker Change: Continue to make progress in our work to tightly integrate the acquired workforce software business with key ADP HCM platforms with.
Speaker Change: We further strengthened our global payroll capabilities with our acquisition of <unk> in Mexico in the third quarter.
Speaker Change: Based in Mexico City, <unk> has provided robust payroll solutions HCM expertise and technology to local and multinational clients for 30 years and has been a valued ADP global payroll partner since 2009.
Speaker Change: By integrating <unk> payroll expertise in Mexico, with Adp's global reach and comprehensive HCM solutions, we enhance the experience we can provide to our local and global clients.
Speaker Change: In addition to <unk> products and solutions. The acquisition added nearly 300 experienced associates, who bring deep local expertise as we continue to pursue growth opportunities across the Latin America region.
Speaker Change: We supported our clients and partners by hosting a number of signature events during the third quarter.
Speaker Change: At the ADP rethink event in Zurich leaders from the world's largest organizations came together to share insights and lessons learned from the global transformation and to discuss challenges and opportunities in a rapidly changing HCM landscape.
Speaker Change: At the ADP meeting of the minds event in Las Vegas, We hosted enterprise clients from across all industries sizes and locations together with industry experts to focus on one important mission, making work better.
Speaker Change: And at our accountant connect summit, we provided more than 10000 partner attendees with access to thought leaders, who are shaping the future of the accounting profession.
Speaker Change: During the third quarter. We also continued to advance our embedded payroll partnership with Fiserv, we are actively referring our clients and prospects to <unk> Clover point of sale solution wildfire serve as referring its merchant clients to Adp's run payroll.
Speaker Change: We expect our sales to accelerate as we complete our product integration work this year, enabling us to offer a differentiated integrated solution. We are excited by this relationship as well as the broader opportunities we see to grow our embedded payroll solution over time.
Speaker Change: Finally, our focus on best in class HCM technology led to several recent awards, including run being named number one on <unk> best software product for small business.
Speaker Change: ADP lyric HCM being named data solution of the year for human resources, and the 2025 data breakthrough awards.
Speaker Change: And ADP assessed being named a winner in the 2025 artificial intelligence Excellence awards presented by business Intelligence group, earning recognition for driving innovation and possibilities and AI.
Speaker Change: We look forward to sharing more details around the strength of our product portfolio as well as our innovation roadmap at our upcoming Investor Day on June 12.
Speaker Change: Overall, we were pleased with our strong financial and strategic outcomes in Q3, I would like to thank our associates, who continue to deliver exceptional products and service to our clients and whose efforts drive our client wins industry recognition and record client satisfaction levels. Thank you again for all that you do for ADP and.
Speaker Change: For our clients Don.
Don: Thank you Maria and good morning to everyone on the call before I start I would just like to thank you Maria for the kind words it.
Speaker Change: It has truly been a privilege to contribute to adp's success over the years and to work alongside so many talented and committed colleagues I am also happy to see ADP CFO position being assumed by such a capable and innovative leader and I look forward to working with Peter to ensure a seamless transition in the coming months.
Speaker Change: Now for some color on our results for the quarter and our updated fiscal 2025 guidance overall, we reported a solid third quarter with our consolidated revenue growth and adjusted EBIT margin coming in above our expectations. We are adjusting our full year guidance to reflect our better than expected Q3 results as well as making a few other changes.
Speaker Change: Which I will detail.
Speaker Change: Let me begin with our employer services results and guidance.
Speaker Change: Segment revenue increased 5% on a reported and organic constant currency basis in the third quarter.
Speaker Change: As Maria mentioned Es, new business bookings growth was solid given the current macroeconomic uncertainty our recent softer international bookings and the importance of the fourth quarter a range of new business bookings outcomes remains for fiscal 2025.
Speaker Change: And we are reiterating our 4% to 7% growth guidance.
Speaker Change: With Es retention again coming in better than expected in Q3, we now forecast a decline of 20 basis points to flat for the year, which is better than our prior guidance.
Speaker Change: Yes pays per control growth was 1% in Q3, and we now expect 1% growth for the full year.
Speaker Change: Client funds interest revenue increased by more than we anticipated in Q3, driven by stronger average client fund balance growth.
Speaker Change: We are raising our full year average client funds downloads growth expectation to 5% to 6%.
Speaker Change: Our fiscal 2025 forecast ranges for client funds interest revenue and the net impact from our extended investment strategy each increased by $15 million at the midpoint.
Speaker Change: In total there was no change to our fiscal 2025, es revenue growth forecast of 6% to 7%.
Speaker Change: Our es margin increased 20 basis points in the third quarter, we are narrowing our fiscal 2025 Es margin guidance to now expect growth of 50 to 60 basis points.
Speaker Change: Moving onto the PEO.
Speaker Change: We had 7% revenue growth and 2% average worksite employee growth PEO.
Speaker Change: <unk> revenue, excluding zero margin pass through growth of 8% was supported by higher wages and strong retention.
Speaker Change: Oh pays per control growth decelerated modestly from the second quarter.
Speaker Change: To reflect our Q3 results as well as the ongoing benefits anticipated from higher wages, we are increasing our full year PEO revenue growth forecast to 6% to 7%.
Speaker Change: And PEO revenue, excluding zero margin pass through growth.
Speaker Change: The 5% to 6%.
Speaker Change: We are maintaining our 2% to 3% average worksite employee growth guidance for the year.
Speaker Change: PEO margin was flat in the quarter a.
Speaker Change: Our strong revenue growth and favorable actuarial loss development in workers' compensation reserves were offset by higher workers' compensation and Sui costs.
Speaker Change: We now expect PEO margin to decrease between 60, and 80 basis points for the full year, which is slightly better than our prior forecast.
Speaker Change: Putting it all together we are maintaining our fiscal 2025 guidance for consolidated revenue growth of 6% to 7% and now expect to come in towards the high end of this range.
Speaker Change: We are updating our adjusted EBIT margin expansion guidance to 40 to 50 basis points.
Speaker Change: We continue to anticipate a full year effective tax rate of around 23% and now expect fiscal 2025 of adjusted EPS growth.
Speaker Change: 8% to 9%.
Speaker Change: As we look ahead to fiscal 2026, we wanted to share a few early thoughts.
Speaker Change: First heightened levels of macro uncertainty, our leading to projections for slower economic growth with this in mind, we expect our pays per control growth to continue at below normal levels next year.
Speaker Change: We will also continue to monitor any impacts from the uncertainty in the global macro environment on international sales, particularly our larger multi country deal activity.
Speaker Change: As a result of our lettering strategy, we remain positioned for continued tailwind from our client funds portfolio as anticipated reinvestment rates remained above the average yield of our maturing securities driving overall yields expected on the portfolio of both fiscal 2025 levels.
Speaker Change: As always we will remain focused on driving growth in our new business bookings, maintaining strong client satisfaction and retention levels and investing in our products and people to deliver sustainable revenue growth and margin expansion over time.
Speaker Change: Thank you and I'll now turn it back to the operator for Q&A.
Speaker Change: Thank you.
Speaker Change: If you wish to ask a question. Please press star one one if your question has been answered and you wish to remove yourself from the queue. Please press star one again.
Speaker Change: Please be aware of the allotted time for questions. Please ask one question with a brief follow up.
Speaker Change: We will take our first question from the line of Ramsey El <unk> with Barclays. Your line is open.
Ramsey El: Hi, Thank you for taking my question and it's been great working with you Don.
Speaker Change: Good luck in the future and also congratulations to Peter.
Speaker Change: Maybe I could ask about the softer international bookings that you called out a little more color. There is it is it sort of a particular regions products and any other color that you could give us there would be helpful.
Ramsey El: Yeah sure. So good morning, Ramsey, Anna and thanks for joining us today, So I'll comment on the international bookings so overall.
Ramsey El: International Space had executed and we had several quarters of consistent strength and what we saw in Q3 was a bit of softness and undoubtedly we think the softness is anchored and uncertainty in the macro environment that said, though the international space in general. These are large deals they tend to be lumpy, we have strong pipelines so from a broad base.
Ramsey El: Perspective, the pipelines are strong both in country as well as the global Global view offers and things of that nature of the multi country deals. However.
Ramsey El: We have a lot to get done I guess EMEA in the fourth quarter. So it is a little bit of a lumpy environment out. There. These are lumpy deals, but the pipeline supports a solid finish to the year.
Speaker Change: Got it okay. Thank you and also on the call. This the Pfizer relationship and I guess, just more broadly on that embedded offering what do you think of the growth opportunity there and the addressable market is there is there a large opportunity for embedded across potentially other distribution channels and partners.
Ramsey El: Sure. So we are very very excited about the <unk>.
Speaker Change: So relationship it is progressing while this year, we are going to roll.
Speaker Change: The rollout the integration I think there'll be a leapfrog leapfrog stage for both of US. So thus far we're sharing referrals back and forth. We are perfecting the model from a distribution. So you imagine our distribution being folded in to the other with their distribution across our go to market, but also across our bases.
Speaker Change: In terms of the over 1 million clients that we havent run and I think theyre shy of $1 million, but nonetheless, the overlap is not 100%. So theres a tremendous amount of opportunity for us to address each other's bases and so we do think the game changer that will be when run is embedded into the clover offer and cash flow central is embedded into the <unk>.
Speaker Change: One offer and that's forthcoming so we're really excited about that we do think Thats big that said, we also believe that there might be an opportunity to extend that reach across multiple additional ADP platforms. So think.
Speaker Change: Taking it into potentially the med market into other countries, where both global businesses. So we think the reach just even within Pfizer is meaningful for us but to your question beyond that we're very excited about our embedded offer we have it across a couple of other places and in my mind. This is the proof point of early seeing.
Speaker Change: How the integration can work from a technology perspective, but certainly we are looking at other places that we have the ability to extend our reach through our embedded offering.
Speaker Change: Really.
Speaker Change: Extend the other total addressable market if you will.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Dan <unk> with Mizuho. Your line is open.
Speaker Change: Hey, guys great results.
Speaker Change: Pleasure working with you Don.
Speaker Change: No.
Speaker Change: I feel like everyone is a little bit confused results are great you're talking about uncertainty.
Speaker Change:
Speaker Change: Some of the payments companies out there are still seeing things are good can you maybe tell us a little bit more in terms of when you see uncertainty how much is it.
Speaker Change: Holding back on.
Speaker Change: On hiring or is it just.
Speaker Change: People are worried.
Speaker Change: Maybe just like.
Speaker Change: Concerns maybe parse out concerns versus actual actions I would say from your clients.
Speaker Change: We would really be helpful for investors.
Speaker Change: Yes, John Thanks for the comments and thanks for the question.
Speaker Change: What we're seeing we're seeing a lot of stability in our base.
Speaker Change: The underlying economic factors are still pretty strong for us in terms of unemployment is low and yes, we are still rounding down to 1% PPC growth. So people still are hiring theres some of that happening I think the uncertainty that we're seeing though as Maria mentioned earlier and the bookings comments is these very large deals that perhaps span multiple countries.
Speaker Change: I think there is some some apprehension there if you will to make decisions. Although the pipelines are very strong and these deals are always a long time in the making because they are complicated and complex and they do reach into several corners of globe. So.
Speaker Change: But.
Speaker Change: Having said that we're not terribly far off what we saw pre pandemic, where it was always hard to find people to get signatures et cetera. So we're still optimistic.
Speaker Change: And as we said we in our own base things are still going well, we watch bankruptcies, we watch clients, who are active but not not billing.
Speaker Change: So things seem to be pretty calm for us, but we.
Speaker Change: We can't deny the what we're hearing and what you are reading we're all hearing.
Speaker Change: So hopefully these things settled down but.
Speaker Change: In our own base in day to day business things are still pretty strong.
Speaker Change: That's great. Thank you Isaac.
Speaker Change: We hope to clarify.
Speaker Change: What's out there really appreciate it.
Speaker Change: Thank you. Our next question comes from Mark Marcon with Baird. Your line is open.
Speaker Change: <unk> gone from pleasure working with you.
Speaker Change: Hope you have all the best.
Speaker Change: Enjoy your retirement.
Speaker Change: From Peter welcome.
Speaker Change: Maria.
Speaker Change: You mentioned international and.
Speaker Change: We just talked a little bit about the uncertainty, but I was just wondering if you could delve a little bit more with regards to.
Speaker Change: What youre seeing in terms of.
Speaker Change: Mid market companies.
Speaker Change: The smaller companies that typically run.
Speaker Change: Are you hearing anything or is your sales or your sales.
Speaker Change: Hearing anything about any sort of uncertainty pushing out delays or how is that impacting the PEO business. We heard from a different player or yesterday that ended up indicating that they were seeing a slowdown with regards to.
Speaker Change: Potential hires and their PEO business. So wondering about that and then I've got a follow up.
Speaker Change: Sure so.
Don: I'll start I think we talked a little bit about international and Don.
Don: <unk> shared that broadly speaking, we feel solid about the pipelines, we feel solid about the execution I think it is really about we have a lot to get done as we always do in the fourth quarter.
Don: So I think with respect to the mid market.
Don: <unk> market in the PEO and the rest of your question Mark broadly speaking, we're very pleased with our results. This quarter. They are solid and so I think from a distribution standpoint, we continue to execute we continue to see that clients are investing in their people. So if you think about our industry versus what was shared earlier from from Dan around call. It the <unk>.
Don: <unk> business. If you will HCN is not discretionary as it relates to companies are investing in their people. They are investing in hiring theyre investing in talent and candidly they have to pay people and so we're not seeing from a distribution and HCM demand perspective demand feels okay. It feels.
Don: As it relates to pipelines in the Downmarket and PEO and measure that more with respect to activity in terms of how many appointments are sellers that going on how many rfps are going through the other PEO model.
Don: <unk> bookings there was growth in the third quarter. It was a little bit less in the second quarter, but at the same time, we have line of sight of good solid growth in the PEO to round out fiscal 'twenty five we also see good strength in the PEO and retention. So I think all things being equal we feel good about the demand feels okay out there in the <unk>.
Don: Market mid market up market.
Don: Even in international has pipelines to support the broad range of.
Don: The bookings guidance that we have yes.
Don: Maybe just to add on the PEO question Mark that you asked our PEO bookings were good in the quarter, we were happy with them and we did have 2% worksite employee growth. So of RP pays per control were also a little bit better than we expected. So we were happy with the appeal in the quarter for sure.
Don: That's great and then.
Speaker Change: Maria he's been doing a great job in terms of modernizing can you give us an update with regards to workforce software in terms of that.
Don: Great.
Don: Maybe even a little bit more color with regards to <unk>. It sounds like things are going really well from that perspective.
Don: They are mark things are going incredibly well so.
Don: Just a reminder for everyone. We closed on that integration in October and we've been very busy since then.
Don: So part of that business was.
Don: The overlap of the pipelines and really seeing that go to market come together it's.
Don: Also the integration of the overall offer.
Don: Call. It the organization into ADP. So we are still working on the technology integration and Thats coming along incredibly well, we're really excited to see the the.
Don: Our sales force has come together and from a go to market perspective, I know I mentioned, our rethink events I mentioned, our meeting of the minds event I think the thing that I wouldn't say has surprised us but has really pleased us since October is how well. This offer is resonating with our large clients in the enterprise and in the global space. So we're really excited in fact.
Don: We have a few wins that we were excited to see come through this quarter that candidly wouldn't have been wins without this offer in our in our portfolio. If you will so we're really excited about the progress. We've made we're excited to see the integration come together.
Don: And I think it's going to continue to drive tremendous opportunity for us going forward.
Don: Great. Thank you very much look forward to seeing in June 12.
Don: Yes.
Speaker Change: Thank you. Our next question comes from Tien Tsin Huang with Jpmorgan. Your line is open.
Speaker Change: Hey, Thanks, so much and all the best to Dawn of course.
Speaker Change: I wanted to ask on on Es decelerated, a couple of points and is running below the full year range I know you reiterated for the full year in roofing.
Speaker Change: Higher side in the first half, but just wanted to make sure I understood. What the factors were there for the for the change.
Speaker Change: Yes, Tien tsin. Thank you so on the revenue side I think as we set up the third quarter, we mentioned that we had some.
Speaker Change: Poor calendar for us so we had a bit of a stronger Q2 than Q3. So we expected that softness there was a strengthening dollar at that time that was causing us some grief and we also expected that we were going to have some impact from declining short term rates. So we positioned <unk> to be a bit softer.
Speaker Change: And then we actually did better in Q3 on the revenue side than we had anticipated because of those things didn't didn't come to fruition, but or there was less impact as we look forward to Q4, we do expect a little bit of re acceleration theres no anomalies in the calendars FX is a little bit more favorable and of course client fund balance.
Speaker Change: These are really making an impact there growing based on higher wages more positively than we had expected but then.
If we look at the second half we look at Es and we think about margins. The real story on the margin side is that we would have had better acceleration of our margin certainly we're getting some some benefit from higher rates.
Speaker Change: We are.
Speaker Change: Getting an offset to that though we said workforce software integration was going to cost us about 50 bps and we continue to think that's about the number for the full year. So that's having an impact so.
Speaker Change: That's the that's the other the other aspect in FX should be a little bit less unfavorable on the compare in the fourth quarter. So I think those are really the drivers for yes.
Speaker Change: Okay. Yeah. Thanks for the complete answer I knew we had the leap year thing in there, but just.
Speaker Change: I want to make sure we call that just my quick follow up just on the PEO.
Speaker Change: The Mexico acquisition can you roughly size that for us and I'm curious can that be extended or.
Speaker Change: Pushed into other parts of.
Speaker Change: Of the region, whether them et cetera.
So it's been a long time partner of ours since I think 2009. So it has been with us for quite some time. This is really a domestic mecca.
Speaker Change: Mexico Company.
Speaker Change: <unk> for us so it's important for us to get in the ground. It's.
Speaker Change: I don't even think it shows up in the cash flow statement. It was a sub $10 million acquisition. So company has been working with for very very long time, and but it's very much domestic Mexico, but certainly we're enthusiastic and hopeful that we can grow in the domestic Mexican market and use it continues to use it as a <unk> partner as we have for <unk>.
Speaker Change: Many years now.
Speaker Change: Yes, I think the only comment I would make is we're really excited about their deep expertise and obviously the other local.
Speaker Change: The contribution that it will make from a Mexico perspective, but we are also incredibly focused on our global expansion and we have a big business in Brazil, a big business and and Chile I was there actually just a couple of weeks ago. So we continue to remain focused on overall international expansion, that's specifically to Latin America.
Speaker Change: Good Thank you Bob.
Speaker Change: Thank you. Our next question comes from Bryan Bergin with TD Cowen Your line is open.
Bryan Bergin: Hi, Good morning, Thank you and Don Congrats and best wishes and Peter we're looking forward to working with you.
Bryan Bergin: My first question is on 26, so I appreciate the comments on PTC was hoping you could just dig in a little bit more on early 2026 thoughts.
Bryan Bergin: Any important considerations on implied <unk> 25 exit rates across the business that may be stickier versus those that may be at more risk and can you remind us just how to think about relative installation in a business model in the face of a potential macro slowdown.
Okay.
Bryan Bergin: I'll say I'll say, a little bit about 'twenty six beyond what we said in the prepared remarks, I mean, I think we wanted to make sure everyone understood. The the float impact in how our lottery strategy is going to work and if you have more detailed question that that you can certainly ask Peter easing the room here with us. So he can answer that question.
Speaker Change: We want them to do that but I think I also don't want to ruin Investor day coming up on June 12, so not too much to say on 26 beyond what we shared in the prepared comments, but I would say that when we think about the potential of a slowdown.
Bryan Bergin: Whether these types of storms many many times in our business is well insulated.
Bryan Bergin: So it took several quarters for the slowdown to the prior slowdown to show itself in our results. So.
Bryan Bergin: So the question earlier the business activity continues to be good.
Bryan Bergin: And so if things were to start.
Bryan Bergin: Start to materialize or manifest themselves in a kind of a.
Bryan Bergin: Less positive economy, we would certainly see things in the pipeline.
Speaker Change: Et cetera, the sales pipeline, but generally speaking it takes quite a while for that to work its way through through the ADP business model, which is very resilient as Maria said, just a few minutes ago, we're not discretionary so so that works well for US and then of course, we have the levers that we've had in the past and we can use them theres. Some naturally self correcting items like sales commissions et cetera, if things.
Bryan Bergin: Were to progress or continue.
Speaker Change: Implementations would be slower et cetera.
Speaker Change: A number of things were changing our focus on some of our R&D initiatives. So theres. Many things many levers we can pull to soften any potential blows and I think our history has shown that we've been able to do that on a pretty successful basis many times before.
Speaker Change: Okay, Okay understood.
Speaker Change: One follow up on client hiring so can you comment on what you saw as you move through the third quarter on a month to month through <unk> and through April and is there any notable variation by industries that may be more directly exposed to tariff versus versus not.
Speaker Change: I think generally I think I made the comment on the last call last quarter that we rounded down to 1% we are still rounding down to 1% and yes. So things are softer normal years. If we go back 16 to 19, and we look at pays per control growth are in the 2% to 3% range. So at 1%.
Speaker Change: The lower end. So there was nothing specific no specific industries that kind of jumped out at us. So.
Speaker Change: We would prefer to have higher PPC growth of course, but.
Speaker Change: It's still it's still positive and rounding down to one.
Speaker Change: Okay. Thank you for the detail.
Speaker Change: Thank you. Our next question comes from Samad Samana with Jefferies. Your line is open.
Samad Samana: Hi, good morning, and I will echo the comments of many congrats on and look forward to.
Speaker Change: Working look forward to working with you as well.
Miranda: <unk> and Miranda just maybe a question for you.
Speaker Change: When I think about the lyric bookings pipeline again, I think for the last several quarters you sounded much more optimistic about trends up market, specifically with lyric plus rebrand how much of that is from existing customers that are converting over to it versus gaining share from competitors as <unk> kind of established a b.
Speaker Change: Chad Woodson for customers there.
Speaker Change: Yes, so it's a great question, so I should reiterate my incredible excitement and optimism for Lyrica as a whole not just the rebrand which by the way it is an incredible brand.
Speaker Change: And certainly we love the love the name lyric, but that offer is resonating really well. So we talked about the pipeline is building, we don't delineate necessarily we obviously know, but we don't disclose how much of the pipeline is upgrades and or new new business bookings or net new logos. If you will but the answer is both it is rare.
Speaker Change: <unk> really well with Chr OS in the market I would say at these events be it rethink and meeting of the minds that I mentioned, the excitement was there around workforce software, but it was also there around lyric and the combination of the two and what I would say to you is CH arrows are liking this modern.
Speaker Change: Because it is argued.
Speaker Change: Arguably the most modern technology that's out there at this point of human centric in its design. It's adaptable we consider a groundbreaking it appears based on the response were seeing in the market.
Speaker Change: And then the pipelines that the market agrees with that sentiment. So yeah, we're really really optimistic about what we're seeing with the market receptivity and how that is resulting in the pipelines and the new business bookings that we've seen with lyric and expect to continue through this year.
Speaker Change: Understood and then maybe.
Dan Maguire: A follow up Dan just as I think about.
Dan Maguire: The commentary between what's going on with the core business and maybe some of the international softness that <unk> seen and then the kind of the macro side that you called out if I take all that together how should we think that maybe adp's own hiring plans are you guys going to still tracking maybe what you had anticipated in terms of head count growth for fiscal 'twenty five or.
Dan Maguire: Should we think about a change in either direction in terms of hiring more or less than you originally anticipated, especially as we contextualize that with whats happened maybe over the last several weeks.
Dan Maguire: Yes, so Matt I think that we're in.
Dan Maguire: Not expecting to make any changes at this time things are going pretty well the business is solid so we have no changes to our plans of course.
Speaker Change: Just building off the prior question from Brian <unk>.
Speaker Change: Should something come up we'll definitely slow hiring et cetera, but as we sit here today.
Speaker Change: Things are solid and we have no changes to our plans as we actually go into our budgeting cycle next week. So we're.
Speaker Change: Full speed ahead and still optimistic.
Speaker Change: Look forward to seeing you all in a few weeks at the analyst day.
Speaker Change: Thank you. Our next question comes from James Faucette with Morgan Stanley. Your line is open.
Speaker Change: Great. Thank you so much and offer.
Speaker Change: Offer my congratulations to Don and Peter as well I wanted to ask.
Speaker Change: Quickly on PEO, just wondering how client behavior in the PEO segment has evolved regarding benefits enrollment and are you seeing any shifts in preference towards lower cost benefit plans, particularly as there is a little bit of macro pressure proceed macro pressure.
Speaker Change: Okay.
Speaker Change: Go ahead, I'm going to say, yes. So I guess, we can both answer that but I'll start from a CEO perspective listen there's always some of that we actually just completed our renewal cycle and so we're really pleased with what we've seen with respect to our execution through that the team has done an incredible job moving through the motions of that but Moreover, <unk> retention was strong.
Speaker Change: In the third quarter, we do anticipate them very modest tailwind.
Speaker Change: Contributing if you will to the overall PEO results for 25, there was a modest tailwind in 24, so I think the retention of the PEO business speaks directly to the value of the value proposition within there, which has benefits right and so I think as it stands we see stability if not.
Speaker Change: Minor tick ups, if you will and benefits attached which are all good good signs that the value proposition is resonating benefits as an important piece of that a lot of that has to do with the cohorts. The industries that we sell our PEO offered to us.
Speaker Change: So I think in general the the.
Speaker Change: We're very pleased with the results on retention. We are pleased with how we've moved through the renewal cycles every cycle has some nuances James as it relates to what clients.
Speaker Change: Choose but overall, what they are choosing us to out to stay with the PEO and that's good news for us.
Speaker Change: Got it and maybe just.
Speaker Change: Just like.
Speaker Change: More nuanced question, a deeper dive I mean, clearly you're executing well et cetera, but is there anything that you can point to I guess I'm, just a little surprised because it seems like you guys are driving.
Speaker Change: Better growth off of a higher base than a lot of your peers and so just trying to get a sense whether thats.
Speaker Change: Go to market cross sell.
Speaker Change: Specific offerings, where you think youre differentiated just a little more color there. Thank you.
Speaker Change: I think one of the things I always like to remind every every one of us that <unk> are not created equal I'd like to think we have the best one of course, but Moreover, it's the fact that our contracts are different right. So we don't entirely all target. The exact same industries. Some tend to skew more to white collar companies some tend to skew to less.
Speaker Change: First of all type of companies. If you will so I think we addressed different industries, we're not always all in the same exact states. If you will and then I think the other piece, that's where construct a difference of one of the big Differentiators, especially in call. It volatile health benefit cycles is that we have a fully insured model and so I think our model.
Speaker Change: Lends itself to more predictability more stability.
Speaker Change: And that's a that's a homerun in times like this so.
Speaker Change: So we're I think we see some of that in our results I also think the other piece, which you touched on is distribution. We have theres not every PEO has the luxury of having an additional sales distribution engine, which is the rest of the payroll sellers.
Speaker Change: As you know 50% of the business at the PEO onboard comes from existing ADP clients. So the up sell cross sell that go to market together with payroll sellers just the way that we distribute I think is a again a homerun. So I think our model is different and I think it lends itself to better results.
Speaker Change: Great. Thank you so much.
Speaker Change: Thank you. Our next question comes from Caroline later with Bank of America. Your line is open.
Speaker Change: Hi, This is actually Jason Kupferberg from Bank of America, Congrats to everybody I wanted to maybe just start with a question might be more for Maria but coming back to this topic.
Speaker Change: Bookings in sales cycles, and the macro the intersection of all that obviously you talked about some of what youre seeing on the international side.
Speaker Change: Maybe just talk a little bit more about the U S are you seeing any client hesitancy, particularly up market any changes just in the last month or two as the tariff uncertainty has skyrocketed and to the extent the U S customers seem to be behaving differently than international would just be curious to get your perspective on why that might be the key.
Speaker Change: <unk>. Thank you, yes, sure. So I think broadly speaking, Jason we were really pleased with our results from a U S perspective.
Speaker Change: Kind of moving through the motions of the Downmarket, we talked about clients are still investing in talent. The mid market doesn't get any easier. It's still complex. So I think we see strength in the results we see strength in the activities in the Downmarket mid market as you get into the enterprise space pipelines are up year on year, we feel good about the enterprise clients.
Speaker Change: And in terms of the overall results in the pipelines and we expect growth.
Speaker Change: What I will say is those very large clients in the enterprise space often do have that international reach right. So as you get more global in the enterprise space and multi national clients I would say again, there is a tiny bit of pipeline aging that we're seeing again the pipeline substantiates the results, it's always lumpy Q.
Speaker Change: Four is big for us in that space. It always is.
Speaker Change: And so I think from a standpoint of where we are we're executing against a very strong pipeline both in the international space as well as in the enterprise space. We have an incredible offer with lyric we have an incredible offer combined with workforce software. So I think we have a good story, we have good pipelines, we got a lot to get done.
Speaker Change: But we haven't seen necessarily huge.
Speaker Change: <unk> elongation of sales cycles, I think we talked a lot about the sales cycle as being back to kind of pre pandemic days. We're seeing you know Don mentioned it earlier more signatures, maybe a tiny bit of additional timelines, but all eyes on Q4 is the way we think about it we have the pipeline and we need to execute against.
Speaker Change: That.
Speaker Change: Understood I wanted also get your latest views just on the competitive landscape, particularly down market I mean, we've been hearing a little more from some of the privately held cloud based providers. So curious what you guys might be seeing on that front just in terms of.
Speaker Change: Win rates pricing et cetera.
Speaker Change: Yes, I would say, there's nothing new to call out. It's always competitive Q4 is always competitive theres always a lot happening in the down market with respect to the run platform in the mid market with respect to the workforce now platform in the down market. We have an incredible story, we had almost 1 million clients on Iran platform, we're extending our.
Speaker Change: Rates through our partner ecosystem.
Speaker Change: His partnership with Fiserv as you know, it's a big it's a big bet, but we're also we believe it's a meaningful bet that's going to extend our distribution strength with theirs. So I think that's really exciting for us. So we have a winning offer we have good results on client satisfaction I think I mentioned that during the prepared remarks that is lending itself to us.
Speaker Change: <unk> retention. So the dawn market story is is there I think in the mid market. We have an incredible offer there and workforce now we've made meaningful investments we have.
Speaker Change: Strong NPS, we have strong retention we.
Speaker Change: We have a winning offer in the in the mid market. So I think it's always competitive but I think we have best in class platforms best in class execution best in class service and we see that through the results in retention in M. P. S.
Speaker Change: Thank you, we'll see you next month.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from Bryan Keane with Deutsche Bank. Your line is open.
Bryan Keane: Hi, Good morning, I wanted to ask what percentage of bookings come from international.
Speaker Change: Yes, it's a great question.
Speaker Change: It really marries our revenue and I think the last disclosure we had it's 88% of.
Speaker Change: The revenue is in the domestic U S and the rest is outside of the U S and so it's it's a think of it as a close correlation to that.
Speaker Change: Got it no that's helpful and then just thinking about the.
Speaker Change: The enterprise moving more to lyric and workforce software solutions, you talked a little bit about the drag on margins.
Speaker Change: I think it's 50 basis points. This year, just how do we think about margins in general going forward do we get that 50 basis points back into fiscal year 'twenty six and then the overall kind of margin profile lyric and workforce solutions.
Speaker Change: Yes, it's a good question.
Speaker Change: Ryan we don't get it all back certainly the.
Speaker Change: The intangible amortization and financing costs, which we've included in that 50 basis point number we give you those don't those don't go away, we do get some back certainly on the integration and deal expenses. So.
Speaker Change: No I wouldn't.
Speaker Change: I wouldn't model too much into that because it's in the Grand scheme of things, it's not an enormous number across the Sds.
Speaker Change: Yes the margin.
Speaker Change: Got it okay, and congrats dawn amazing career and Peter welcome.
Thank you. Our next question comes from Kevin Mcveigh with UBS. Your line is open.
Speaker Change: Great Thanks, and again congratulations.
Speaker Change: Pleasure.
Speaker Change: I guess.
Speaker Change: Can we talk maybe just reconcile the improving retention with the lower pays per control is.
Speaker Change: Is that a function of the client mixture, what's driving that.
Speaker Change: From the overall retention results and the pays per control I think the.
Speaker Change: The overall results as it relates to how we're feeling.
Speaker Change: With the retention guide and so I think where we've been executing well on retention we continue to see.
Speaker Change: Kind of the improvements and so we thought it was prudent to bring up the retention guide.
Dan Maguire: And as it relates to the PPC side of it I'll, let Dan kind of yes.
Speaker Change: The Big story on retention is a couple of things one we're very proud of the progress we've made in the NPS scores they've been very very strong for US. We continue to either hit records are very very close to records in most of our business units are kind of at all time highs and that's across the board. So we think that's important.
Speaker Change: We also of course, we're seeing a little bit less switching I think things are required or in that in that regard. So people are hanging around because they like the service. The NPS is good.
Speaker Change: And as we look to the balance of the year, we think that perhaps not all of normalization in other businesses et cetera.
Speaker Change: Have settled in but we think substantially all of it has so we continue to beat our retention guide quarter after quarter end.
Speaker Change: Only a quarter left so I think we're a little bit more comfortable with the guide that we've given you the improved guidance. We've given you for the balance of the year.
Speaker Change: Helpful. And then just real quick on the client funds it looks like you increased it.
Speaker Change: It was a similar amount for kind of client funds and then the extended strategy as well, but that obviously the balances are a lot different in terms of.
Speaker Change: Average balances anything that kind of explains just because you're getting increased by the same amount, but it's like 7% to one.
Speaker Change: Anything that explains that.
Speaker Change: I think I'm going to give pieter an opportunity to speak here and answer that question as a treasurer.
Speaker Change: Thanks, Kevin.
Pieter: The balance increase is really driven by a higher wage levels.
Pieter: We had a strong bonus season in Q3 at the time of year, we do pick that up so we hold a lot more.
Pieter: Short money, if you like our clients' short portfolio, we have less borrowing.
Pieter: So that's really what drove the balances the right position hasn't really moved and you can see from our schedules that.
Pieter: Short term rate perspective, we're relatively well hedged across the year and not so much by quarter, but certainly across the U for short rates. So we're quite insulated.
Pieter: From a from fluctuations in short term rates between our core and shorten our borrowing levels, but I would say, it's a it's a balance of story, mainly driven by wages.
Pieter: And as a result balances have gone up a point of balances is around $11 million to $12 million of revenue on a full year basis.
Pieter: The revenue guide went up and also we narrowed the range given there's only one quarter to go.
Speaker Change: Congratulations Peter.
Pieter: Thank you I appreciate it.
Speaker Change: Thank you. Our next question comes from Kartik Mehta with Northcoast Research. Your line is open.
Speaker Change: Thank you.
Speaker Change: I know, there's not a ton of questions asked on international bookings, So I apologize for asking one more but I'm wondering is have.
Speaker Change: Have you seen any pushback.
Speaker Change: AEP being an American company, and maybe companies holding off a little bit until things settle down or is this just an issue of uncertainty.
Speaker Change: Yeah. So we're not right so from a standpoint of.
Speaker Change: The conversations with respect to international Theyre not about pushback on American companies. One reminder, is that we have from a client.
Speaker Change: ADP perspective, we have 80 peers on the ground and close to 50 countries right and our offers are.
Speaker Change: Also our in country and in many of the 140 countries that we serve right. So from the standpoint of how we serve our clients we serve them.
Speaker Change: Sometimes from a global perspective, but we also serve them from a local perspective, I think Don and he can hear in a minute talk to you about kind of the final mile and how all of that work. So that's certainly not the the conversation on international it's really about.
Speaker Change: The large deals and how they move through the motions toward closure through the fourth quarter. The pipelines are there, but it's it's not reflective of us being a U S company by any stretch so I don't know Don if you want to.
Speaker Change: It's just important to comment that we are on the ground and we serve our customers very very locally and we're part of the fabric and these are in the social security ecosystem income tax ecosystem in many many countries. So I don't think there's any pushback.
Speaker Change: Just based on the so called nationality of the company, but I think it's more just the overall uncertainty that's driving any county.
Speaker Change: Apprehension, if you will.
Speaker Change: And then just a follow up on the PTC on the PEO business I know that there has been a difference between the E. P. P C in the PEO PVC.
Speaker Change: This quarter did that come a little bit closer it sounds like they're both kind of getting close to 1% or.
Speaker Change: Matter of rounding.
Speaker Change: No. That's a good observation kartik the PPC did come quite close as a matter of fact to be candid the PPC and P. I was a little bit stronger than it was in employer services, so, but you're right, they're both trending both trending down two to one.
Speaker Change: And John it's been a pleasure working with you good luck with everything and Peter look forward to working with you.
Speaker Change: Thank you. Thank you.
Speaker Change: Thank you we have time for one last question and our last question comes from Ashish <unk> with RBC. Your line is open.
Speaker Change: Thanks for taking my question just on the yield ex pass through revenue growth.
Speaker Change: There was like $2 76 in each person in the first three quarter, the 5% to 6% guidance for the full year implies like a material slowdown is that just conservatism or are there some puts and takes as we got into the fourth quarter.
Speaker Change: Yes, I think there are some puts and takes I mean, the revenue in the third quarter was better than we expected because we did have.
Speaker Change: Higher zero margin pass throughs higher Sui and of course, the the retention was also a little bit better than we expected in the third quarter. So we do expect the fourth quarter it would be a good and valuable contributor to us but.
Speaker Change: There is no no major signals there.
Speaker Change: That's very helpful color and maybe just on the broader theme of journey II I was wondering if you could shed any additional progress on that front.
Speaker Change: I am so excited that you asked its amazing we almost made it all the way through without a gen II.
Speaker Change: Question, but listen we're incredibly excited about the progress, we're making with respect to ADP assessed in the overall.
Speaker Change: Portfolio of degenerative AI offers that we're putting into the market I mentioned during the prepared remarks.
Speaker Change: The award that we won and we're excited about that but we're also excited about the entire strategy as we think about putting generative AI into our product for our clients to use for our service associates to use for our sellers.
Speaker Change: To us to actually help build product. So I think we have an.
Speaker Change: An incredible plan, it's still very early days right. So the results that we see the awards that we're winning are fantastic, but I really look forward to how this evolves for us over the coming months in the coming years as we continue to unveil more and more functionality and continue to drive more and more efficiency in how we serve our client.
Speaker Change: Yes.
Speaker Change: That's great color.
Speaker Change: And congrats to both John and Peter Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. This concludes our question and answer portion for today I'm pleased to hand, the program over to Maria Black for closing remarks.
Maria Black: Thank you and thank you everyone for joining us I will echo the sentiments that I heard across all of the financial analysts. This morning, which is a giant thank you to to Don again, and a congratulations to out to Peter and of course to our associates I am So grateful for all that you do to support our clients.
Maria Black: To support each other as we did a little bit of a brand refresh over the last quarter and leans more heavily into our brand colors I have to tell you all of our associates all of you each and every day. It makes me incredibly proud to be ADP rod. Thank you.
Maria Black: Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.
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