EX-99 2 q1fy20exhibit99.htm EARNINGS RELEASE Exhibit


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ADP Reports First Quarter Fiscal 2020 Results
•
Revenues increased 6% to $3.5 billion; 6% organic constant currency
•
Employer Services New Business Bookings grew 6%
•
Net earnings increased 15% to $582 million, and adjusted net earnings increased 10% to $582 million
•
Adjusted EBIT increased 8% to $745 million, and adjusted EBIT margin expanded 60 basis points to 21.3%
•
Diluted earnings per share ("EPS") increased 17% to $1.34 for the quarter, and adjusted diluted EPS increased 12% to $1.34
•
Maintaining fiscal 2020 guidance of 6% to 8% Employer Services New Business Bookings growth, 6% to 7% consolidated revenue growth, and 12% to 14% adjusted diluted EPS growth

ROSELAND, N.J. – October 30, 2019 – ADP (Nasdaq: ADP), a leading global technology company providing human capital management (HCM) solutions, today announced its first quarter fiscal 2020 financial results.
First Quarter Fiscal 2020 Consolidated Results
Compared to last year’s first quarter, revenues increased 6% to $3.5 billion, 6% organic constant currency. Net earnings increased 15% to $582 million, and adjusted net earnings increased 10% to $582 million. Adjusted EBIT increased 8% to $745 million, representing adjusted EBIT margin expansion of 60 basis points in the quarter to 21.3%. Adjusted EBIT margin expansion was driven by continued execution of transformation initiatives as well as operating efficiencies, offset by incremental sales and marketing, amortization, and PEO pass-through expenses. ADP’s effective tax rate and adjusted effective tax rate for the quarter was 21.2%. Diluted EPS increased 17% to $1.34, and adjusted diluted EPS increased 12% to $1.34 due to the factors discussed above as well as a net share count reduction.
“We are making steady progress on our transformation and will continue to enhance our market-leading HCM technology, differentiated service, and open ecosystem to deliver the greatest value to our clients,” said Carlos Rodriguez, President and Chief Executive Officer, ADP. “The recognition we have received in the market for our Next Gen solutions and in winning this year's HR Executive 'Top HR Product' award reflect our commitment to innovation and strong execution by our associates.”
“We are pleased with our start to the year with balanced overall performance in line with our expectations, including solid Employer Services New Business Bookings growth and consolidated margin expansion,” said Kathleen Winters, Chief Financial Officer, ADP. “We are continuing to execute well on our initiatives aimed at streamlining the organization while concurrently improving client satisfaction.”

1


Adjusted EBIT, adjusted EBIT margin, adjusted net earnings, adjusted diluted earnings per share, adjusted effective tax rate, and organic constant currency are all non-GAAP financial measures. Please refer to the accompanying financial tables at the end of this release for a discussion of why ADP believes these measures are important and for a reconciliation of non-GAAP financial measures to their comparable GAAP financial measures.

First Quarter Fiscal 2020 Segment Results
Employer Services – Employer Services offers a comprehensive range of global HCM and Human Resources Outsourcing solutions. Compared to last year's first quarter:
•
Employer Services revenues increased 4% on a reported basis and 5% on an organic constant currency basis
•
Employer Services New Business Bookings increased 6%
•
Pays per control increased 2.4%
•
Employer Services segment margin increased 50 basis points

PEO Services – PEO Services provides comprehensive employment administration outsourcing solutions. Compared to last year's first quarter:
•
PEO Services revenues increased 8%
•
PEO Services revenues excluding zero-margin benefits pass-throughs increased 7%
•
Average Worksite Employees paid by PEO Services increased 7% to about 563,000
•
PEO Services segment margin decreased 70 basis points, including 60 basis points of grow-over pressure related to workers' compensation reserve reductions at ADP Indemnity in the first quarter of fiscal 2019

Included within the results of our segments above:
Interest on Funds Held for Clients – The safety, liquidity and diversification of ADP clients’ funds are the foremost objectives of the Company’s investment strategy. Client funds are invested in accordance with ADP’s prudent and conservative investment guidelines and most of the investment portfolio is rated AAA/AA. Compared to last year's first quarter:
•
Interest on funds held for clients increased 13% to $134 million
•
Average client funds balances increased 7% to $23.7 billion
•
The average interest yield on client funds increased 10 basis points to 2.3%

2


Fiscal 2020 Outlook
Certain components of ADP’s fiscal 2020 outlook and related growth comparisons exclude the impact of the following items and are discussed on an adjusted basis where applicable. Please refer to the accompanying financial tables for a reconciliation of these adjusted amounts to their closest comparable GAAP measure.
•
Fiscal 2019 pre-tax charges of about $138 million related to transformation initiatives
•
Fiscal 2019 pre-tax gain of about $16 million related to sale of assets
•
Fiscal 2020 pre-tax charges of about $30 million related to transformation initiatives
Consolidated Fiscal 2020 Outlook
•
Revenue growth of 6% to 7%
•
Adjusted EBIT margin up 100 to 125 basis points
•
Adjusted effective tax rate of 23.3%
•
Diluted EPS growth of 14% to 16%
•
Adjusted diluted EPS growth of 12% to 14%
Employer Services Segment Fiscal 2020 Outlook
•
Employer Services revenue growth of 4% to 5%
•
Employer Services margin up 100 to 125 basis points
•
Employer Services New Business Bookings growth of 6% to 8%
•
Employer Services client revenue retention up 10 to 20 basis points
•
Increase in pays per control of 2.5%
PEO Services Segment Fiscal 2020 Outlook
•
PEO Services revenue growth of 9% to 11%
•
PEO Services revenue growth excluding zero-margin benefits pass-throughs of 7% to 9%
•
PEO Services margins flat to down 25 basis points; this outlook reflects approximately 50 basis points of anticipated grow-over pressure related to workers' compensation reserve reductions at ADP Indemnity in fiscal 2019
•
PEO Services average Worksite Employee growth of 7% to 9%
Client Funds Extended Investment Strategy Fiscal 2020 Outlook
The interest assumptions in our outlook are based on Fed Funds futures contracts and forward yield curves as of October 29, 2019. The Fed Funds futures contracts are used in the client short and corporate cash interest income outlook. The three-and-a-half and five-year U.S. government agency rates based on the forward yield curves as of October 29, 2019 were used to forecast new purchase rates for the client and corporate extended, and client long portfolios, respectively.
•
Interest on funds held for clients of $570 to $580 million; this is based on anticipated growth in average client funds balances of ~4% from $25.5 billion in fiscal 2019, and an average yield which is anticipated to be about flat as compared to 2.2% in fiscal 2019
•
Total contribution from the client funds extended investment strategy of $575 to $585 million


3


Revision of Previously Reported Financial Information
The Company has historically classified certain fees collected from worksite employers for certain benefits within PEO revenues and the associated costs of these benefits within operating expenses as PEO zero-margin benefits pass-through costs in the Company’s Statements of Consolidated Earnings. During the first quarter of fiscal 2020, the Company corrected prior period amounts previously reported on a gross basis to a net basis by reducing PEO revenues and operating expenses for associated costs, which for fiscal 2019 totaled $65 million. This revision does not impact earnings before income taxes, net earnings, consolidated financial condition or cash flows. A quarterly schedule of this correction is available in an accompanying table at the end of this release.
Fiscal 2020 Outlook
 
 
Fiscal 2019
Revised (a), unaudited
July 31, 2019
Fiscal 2020 Outlook (b)
October 30, 2019
Fiscal 2020 Outlook (b)
Total ADP
Revenues
$14,110M
↑ 6% - 7%
↑ 6% - 7%
Adj. EBIT Margin
22.4%
↑ 100 - 125 bps
↑ 100 - 125 bps
Adj. Effective Tax Rate
23.8%
Flat at 23.8%
23.3%
Adj. Diluted EPS
$5.45
↑ 12% - 14%
↑ 12% - 14%
Employer Services
Revenues
$9,943M
↑ 4% - 5%
↑ 4% - 5%
Margin
29.8%
↑ 100 - 125 bps
↑ 100 - 125 bps
ES New Business Bookings
$1.6B
↑ 6% - 8%
↑ 6% - 8%
Client Revenue Retention
90.8%
↑ 10 - 20 bps
↑ 10 - 20 bps
Pays Per Control
↑ 2.7%
↑ ~2.5%
↑ ~2.5%
PEO Services
Revenues
$4,178M
↑ 9% - 11%
↑ 9% - 11%
Revenues Ex Pass-throughs
$1,530M
↑ 7% - 9%
↑ 7% - 9%
Margin
14.7%
Flat to ↓ (25) bps
Flat to ↓ (25) bps
Average WSEs
547,000
↑ 7% - 9%
↑ 7% - 9%
Client Funds Interest
Average Client Funds Balances
$25.5B
↑ 4% - 5%
↑ ~4%
Yield on Client Funds Portfolio
2.2%
Flat at 2.2%
Flat at 2.2%
Client Funds Interest Revenue
$562M
$580 - $590M
$570 - $580M
Extended Investment Strategy
$557M
$585 - $595M
$575 - $585M
(a) Fiscal 2019 results revised to include change in PEO zero-margin pass-through revenue and operating expenses, as noted above.
(b) Outlook contemplates the impact of prior fiscal year acquisition of Celergo and anticipated impact of foreign currency in revenue and operating results.

Investor Webcast Today
As previously announced, ADP will host a conference call for financial analysts today, Wednesday, October 30, 2019 at 8:30 a.m. ET. The conference call will be webcast live on ADP’s website at investors.adp.com and will be available for replay following the call. A slide presentation accompanying the webcast is also available at investors.adp.com/events-and-presentations.  

Supplemental financial information including schedules of quarterly and full year reportable segment revenues and earnings for fiscal years 2018, 2019, and 2020, as well as quarterly details of the fiscal 2020 results from the client funds extended investment strategy, are posted to ADP’s website at investors.adp.com. ADP news releases, current financial information, SEC filings and Investor Relations presentations are accessible at the same website.

About ADP (Nasdaq: ADP)
Designing better ways to work through cutting-edge products, premium services and exceptional experiences that enable people to reach their full potential.  HR, Talent, Time Management, Benefits and Payroll. Informed by data and designed for people.  Learn more at ADP.com.

4


Automatic Data Processing, Inc. and Subsidiaries
Statements of Consolidated Earnings
(In millions, except per share amounts)
(Unaudited)
 
 
 
 
 
Three Months Ended
 
 
 
 
 
September 30,
 
 
 
 
 
2019
 
2018
Revenues:
 
 
 
 
 
 
Revenues, other than interest on funds held
for clients and PEO revenues
 
$
2,306.2

 
$
2,218.6

 
 
Interest on funds held for clients
 
133.9

 
118.5

 
 
PEO revenues (A) (B) (C)
 
1,055.6

 
973.2

 
 
 
Total revenues
 
3,495.7

 
3,310.3

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
Costs of revenues:
 
 
 
 
 
 
Operating expenses (B) (C)
 
1,787.7

 
1,697.0

 
 
Systems development and programming costs
 
168.2

 
158.0

 
 
Depreciation and amortization
 
88.9

 
72.6

 
 
 
Total costs of revenues
 
2,044.8

 
1,927.6

 
 
 
 
 
 
 
 
 
Selling, general, and administrative expenses
 
726.5

 
713.9

 
Interest expense
 
39.9

 
35.9

 
 
 
Total expenses
 
2,811.2

 
2,677.4

 
 
 
 
 
 
 
 
 
Other income, net
 
(54.6
)
 
(13.9
)
 
 
 
 
 
 
 
 
Earnings before income taxes
 
739.1

 
646.8

 
 
 
 
 
 
 
 
 
Provision for income taxes
 
156.7

 
141.4

 
 
 
 
 
 
 
 
Net earnings
 
$
582.4

 
$
505.4

 
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
1.35

 
$
1.16

 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
$
1.34

 
$
1.15

 
 
 
 
 
 
 
 
Components of Other income, net:
 
 
 
 
 
Interest income on corporate funds
 
$
(32.3
)
 
$
(28.5
)
 
Realized gains on available-for-sale securities
 
(2.6
)
 
(0.4
)
 
Realized losses on available-for-sale securities
 
0.3

 
1.3

 
Impairment of intangible assets
 
—

 
12.1

 
Gain on sale of assets
 
(1.9
)
 
—

 
Non-service components of pension expense, net (D)
 
(18.1
)
 
1.6

 
Other income, net
 
$
(54.6
)
 
$
(13.9
)

(A) Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes of $10,510.6 million and $9,629.4 million for the three months ended September 30, 2019 and 2018, respectively.

(B) PEO revenues and operating expenses include zero-margin benefits pass-through costs of $699.1 million and $640.5 million, for three months ended September 30, 2019 and 2018, respectively.

(C) PEO revenues and operating expenses include costs related to workers' compensation coverage and state unemployment taxes for worksite employees of $91.9 million and $89.5 million, for the three months ended September 30, 2019 and 2018, respectively.

(D) Non-service components of pension expense, net, includes reversals of charges of $5.1 million related to Voluntary Early Retirement Program ("VERP") for the three months ended September 30, 2019.


5


Automatic Data Processing, Inc. and Subsidiaries
 
 
 
Consolidated Balance Sheets
 
 
 
(In millions)
 
 
 
(Unaudited)
 
 
 
 
September 30,
 
June 30,
 
2019
 
2019
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,403.9

 
$
1,949.2

Short-term marketable securities (B)
3,545.1

 
10.5

Accounts receivable, net of allowance for doubtful accounts of $59.3 and $54.9, respectively
2,490.4

 
2,439.3

Other current assets
675.9

 
509.1

Total current assets before funds held for clients
8,115.3

 
4,908.1

Funds held for clients
21,393.2

 
29,434.2

Total current assets
29,508.5

 
34,342.3

Long-term receivables, net of allowance for doubtful accounts of $0.6 and $0.4, respectively
22.1

 
23.8

Property, plant and equipment, net
767.1

 
764.2

Operating lease right-of-use asset
504.0

 
—

Deferred contract costs
2,401.4

 
2,428.5

Other assets
1,129.4

 
934.4

Goodwill
2,303.3

 
2,323.0

Intangible assets, net
1,078.9

 
1,071.5

Total assets
$
37,714.7

 
$
41,887.7

 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
108.8

 
$
125.5

Accrued expenses and other current liabilities
1,994.6

 
1,759.0

Accrued payroll and payroll-related expenses
443.6

 
721.1

Dividends payable
339.1

 
340.1

Short-term deferred revenues
213.1

 
220.7

Obligations under reverse repurchase agreements (A)
428.6

 
262.0

Obligation under commercial paper borrowing (B)
3,536.7

 
—

Short-term debt
1,001.3

 
—

Income taxes payable
123.7

 
54.8

Total current liabilities before client funds obligations
8,189.5

 
3,483.2

Client funds obligations
21,011.4

 
29,144.5

Total current liabilities
29,200.9

 
32,627.7

Long-term debt
1,003.4

 
2,002.2

Operating lease liabilities
355.4

 
—

Other liabilities
707.9

 
798.7

Deferred income taxes
708.2

 
659.9

Long-term deferred revenues
378.2

 
399.3

Total liabilities
32,354.0

 
36,487.8

 
 
 
 
Stockholders' equity:
 
 
 
Preferred stock, $1.00 par value: authorized, 0.3 shares; issued, none
—

 
—

Common stock, $0.10 par value: authorized, 1,000.0 shares; issued, 638.7 shares at September 30, 2019 and June 30, 2019; outstanding, 433.4 and 434.2 shares at September 30, 2019 and June 30, 2019, respectively
63.9

 
63.9

Capital in excess of par value
1,213.7

 
1,183.2

Retained earnings
17,729.6

 
17,500.6

Treasury stock - at cost: 205.3 and 204.5 shares at September 30, 2019 and June 30, 2019, respectively
(13,412.6
)
 
(13,090.5
)
Accumulated other comprehensive loss
(233.9
)
 
(257.3
)
Total stockholders’ equity
5,360.7

 
5,399.9

Total liabilities and stockholders’ equity
$
37,714.7

 
$
41,887.7


(A) As of September 30, 2019, $428.0 million of long-term marketable securities and $0.6 million of cash and cash equivalents have been pledged as collateral under the Company's reverse repurchase agreements. As of June 30, 2019, $261.4 million of long-term marketable securities and $0.6 million of cash and cash equivalents have been pledged as collateral under the Company's reverse repurchase agreements.

(B) The Company reclassified $3,535.5 million of short-term marketable securities as a result of proceeds from commercial paper borrowings as of September 30, 2019 which were utilized to pay our client obligations.

6


Automatic Data Processing, Inc. and Subsidiaries
 
 
 
Statements of Consolidated Cash Flows
 
 
 
(In millions)
 
 
 
(Unaudited)
Three Months Ended
 
September 30,
 
2019
 
2018
Cash Flows from Operating Activities:
 
 
 
Net earnings
$
582.4

 
$
505.4

Adjustments to reconcile net earnings to cash flows provided by operating activities:
 
 
 
Depreciation and amortization
117.3

 
99.0

Amortization of deferred contract costs
227.3

 
216.9

Deferred income taxes
44.4

 
26.4

Stock-based compensation expense
37.1

 
38.4

Net pension expense
(2.7
)
 
17.1

Net amortization of premiums and accretion of discounts on available-for-sale securities
12.2

 
14.3

Impairment of intangible assets
—

 
12.1

Gain on sale of assets
(1.9
)
 
—

Other
11.9

 
10.1

Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
 
Increase in accounts receivable
(96.8
)
 
(239.2
)
Increase in other assets
(391.7
)
 
(471.2
)
Decrease in accounts payable
(15.1
)
 
(2.3
)
Decrease in accrued expenses and other liabilities
(91.6
)
 
(77.8
)
Net cash flows provided by operating activities
432.8

 
149.2

 
 
 
 
Cash Flows from Investing Activities:
 
 
 
Purchases of corporate and client funds marketable securities
(1,409.9
)
 
(755.8
)
Proceeds from the sales and maturities of corporate and client funds marketable securities
1,653.7

 
539.8

Capital expenditures
(56.8
)
 
(43.2
)
Additions to intangibles
(88.2
)
 
(73.8
)
Acquisitions of businesses, net of cash acquired
—

 
(119.7
)
Proceeds from the sale of property, plant, and equipment and other assets
23.4

 
—

Net cash flows provided by / (used in) investing activities
122.2

 
(452.7
)
 
 
 
 
Cash Flows from Financing Activities:
 
 
 
Net decrease in client funds obligations
(8,063.3
)
 
(1,711.5
)
Payments of debt
(0.5
)
 
(0.5
)
Repurchases of common stock
(309.7
)
 
(227.1
)
Net proceeds from stock purchase plan and stock-based compensation plans
(32.1
)
 
(24.4
)
Dividends paid
(343.3
)
 
(302.6
)
Net proceeds from reverse repurchase agreements
166.3

 
448.4

Net proceeds from commercial paper borrowings
3,536.7

 
—

Net cash flows used in financing activities
(5,045.9
)
 
(1,817.7
)
 
 
 
 
Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents
(33.1
)
 
(12.6
)
 
 
 
 
Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents
(4,524.0
)
 
(2,133.8
)
 
 
 
 
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period
6,796.2

 
6,542.1

Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period
$
2,272.2

 
$
4,408.3

 
 
 
 
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the Consolidated Balance Sheets
 
 
 
Cash and cash equivalents
1,403.9

 
1,490.3

Restricted cash and restricted cash equivalents included in funds held for clients
868.3

 
2,918.0

Total cash, cash equivalents, restricted cash, and restricted cash equivalents
$
2,272.2

 
$
4,408.3

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
53.6

 
$
49.4

Cash paid for income taxes, net of income tax refunds
$
45.6

 
$
39.3


7


Automatic Data Processing, Inc. and Subsidiaries
 
 
Other Selected Financial Data
 
 
 
 
 
(Dollars in millions, except per share amounts)
 
 
 
 
(Unaudited)
 
 
 
 
Three Months Ended
 
 
 
September 30,
 
 
 
2019
 
2018
 
% Change
Revenues
 
 
 
 
 
Employer Services
$
2,441.4

 
$
2,338.2

 
4
 %
PEO Services
1,056.9

 
974.9

 
8
 %
Other
(2.6
)
 
(2.8
)
 
n/m

Total revenues
$
3,495.7

 
$
3,310.3

 
6
 %
 
 
 
 
 
 
Segment earnings
 
 
 
 
 
Employer Services
$
681.0

 
$
639.8

 
6
 %
PEO Services
148.4

 
143.7

 
3
 %
Other
(90.3
)
 
(136.7
)
 
n/m

Total pretax earnings
$
739.1

 
$
646.8

 
14
 %
 
 
 
 
Segment margin
 
 
 
 
 
Employer Services
27.9
%
 
27.4
%
 
0.5
 %
PEO Services
14.0
%
 
14.7
%
 
(0.7)
 %
Other
n/m

 
n/m

 
n/m

Total pretax margin
21.1
%
 
19.5
%
 
1.6
 %
 
 
 
 
 
 
 
Three Months Ended
 
 
 
September 30,
 
 
Earnings per share information:
2019
 
2018
 
% Change
Net earnings
$
582.4

 
$
505.4

 
15
 %
 
 
 
 
 
 
Basic weighted average shares outstanding
432.7

 
436.8

 
(1)
 %
Basic earnings per share
$
1.35

 
$
1.16

 
16
 %
 
 
 
 
 
 
Diluted weighted average shares outstanding
435.4

 
439.9

 
(1)
 %
Diluted earnings per share
$
1.34

 
$
1.15

 
17
 %

 
Three Months Ended
 
September 30,
 
2019
 
2018
Key Statistics:
 
 
 
Employer Services:
 
 
 
Change in pays per control - U.S. (A)
2.4
%
 
2.4
%
Employer Services New Business Bookings growth
6
%
 
8
%
 
 
 
 
PEO Services:
 
 
 
Paid PEO Worksite Employees at end of period
569,000

 
532,000

Average paid PEO Worksite Employees during the period
563,000

 
528,000

Significant PEO expenses included within Operating expenses
 
 
 
Zero-margin benefits pass-through costs
$
699.1

 
$
640.5

Workers' compensation and state unemployment taxes
$
91.9

 
$
89.5


(A) Pays per control represents the number of employees on ADP clients' payrolls in the United States when measured on a same-store-sales basis for a subset of clients ranging from small to large businesses.

8


Automatic Data Processing, Inc. and Subsidiaries
Other Selected Financial Data, Continued
(Dollars in millions, except per share amounts or where otherwise stated)
(Unaudited)
 
 
 
 
Three Months Ended
 
 
 
September 30,
 
 
 
2019
 
2018
 
% Change
Average investment balances at cost (in billions):
 
 
 
 
 
Corporate, other than corporate extended
$
1.7

 
$
1.7

 
(2
)%
Corporate extended (A)
4.4

 
4.2

 
4
 %
Total corporate
6.1

 
5.9

 
3
 %
Funds held for clients
23.7

 
22.2

 
7
 %
Total
$
29.7

 
$
28.1

 
6
 %
 
 
 
 
 
 
Average interest rates earned exclusive of realized losses (gains) on:
 
 
 
 
Corporate, other than corporate extended
2.0
%
 
1.8
%
 
 
Corporate extended (A)
2.2
%
 
2.0
%
 
 
Total corporate
2.1
%
 
1.9
%
 
 
Funds held for clients
2.3
%
 
2.1
%
 
 
Total
2.2
%
 
2.1
%
 
 
 
 
 
 
 
 
Net unrealized (loss)/gain position at end of period
$
381.3

 
$
(405.2
)
 
 
 
 
 
 
 
 
Average short-term financing (in billions):
 
 
 
 
 
U.S. commercial paper borrowings
$
4.0

 
$
3.7

 
 
U.S., Canadian & U.K. reverse repurchase agreement borrowings
0.4

 
0.5

 
 
 
$
4.4

 
$
4.2

 
 
 
 
 
 
 
 
Average interest rates paid on:
 
 
 
 
 
U.S. commercial paper borrowings
2.3
%
 
2.0
%
 
 
U.S., Canadian & U.K. reverse repurchase agreement borrowings
2.0
%
 
1.7
%
 
 
 
 
 
 
 
 
Interest on funds held for clients
$
133.9

 
$
118.5

 
13
 %
Corporate extended interest income (B)
23.9

 
20.9

 
14
 %
Corporate interest expense-short-term financing (B)
(25.2
)
 
(20.9
)
 
(21
)%
Net Impact from Client Fund Strategy
$
132.6

 
$
118.6

 
12
 %
 
Three Months Ended
 
September 30,
 
2019
 
2018
Corporate extended interest income (B)
$
23.9

 
$
20.9

All other interest income
8.4

 
7.6

Total interest income on corporate funds (component of Other (income)/expense, net)
$
32.3

 
$
28.5

 
 
 
 
Corporate interest expense-short-term financing (B)
$
25.2

 
$
20.9

All other interest expense
14.8

 
15.0

Total interest expense
$
39.9

 
$
35.9


(A) We utilize a strategy by which we extend the maturities of our investment portfolio for funds held for clients and employ short-term financing arrangements to satisfy our short-term funding requirements related to client funds obligations. As part of our client funds investment strategy, we use daily collection of funds from our clients to satisfy other unrelated client fund obligations, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities.

(B) While “Corporate extended interest income” and “Corporate interest expense-short-term financing,” related to our client funds investment strategy, are non-GAAP measures, management believes this information is beneficial to reviewing the financial statements of ADP. Management believes this information is beneficial as it allows the reader to understand the extended investment strategy for ADP's client funds assets, corporate investments, and short-term borrowings. A reconciliation of the non-GAAP measures to GAAP measures is provided above.

9


Automatic Data Processing, Inc. and Subsidiaries
 
 
Consolidated Statement of Adjusted / Non-GAAP Financial Information
 
 
(in millions, except per share amounts)
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In addition to our GAAP results, we use the adjusted results and other non-GAAP metrics set forth in the table below to evaluate our operating performance in the absence of certain items and for planning and forecasting of future periods:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Financial Measure
U.S. GAAP Measures
Adjusted EBIT
Net earnings
Adjusted provision for income taxes
Provision for income taxes
Adjusted net earnings
Net earnings
Adjusted diluted earnings per share
Diluted earnings per share
Adjusted effective tax rate
Effective tax rate
Organic constant currency
Revenues
Corporate extended interest income (see prior page)
Interest income
Corporate interest expense-short-term financing (see prior page)
Interest expense
 
 
 
 
 
 
 
 
 
 
 
 
 
We believe that the exclusion of the identified items below helps us reflect the fundamentals of our underlying business model and analyze results against our expectations and against prior period, and to plan for future periods by focusing on our underlying operations.  We believe that the adjusted results provide relevant and useful information for investors because it allows investors to view performance in a manner similar to the method used by management and improves their ability to understand and assess our operating performance.  The nature of these exclusions is for specific items that are not fundamental to our underlying business operations.  Since these adjusted financial measures and other non-GAAP metrics are not measures of performance calculated in accordance with U.S. GAAP, they should not be considered in isolation from, as a substitute for, or superior to their corresponding U.S. GAAP measures, and they may not be comparable to similarly titled measures at other companies.
 
 
Three Months Ended
 
 
 
 
September 30,
 
% Change
 
 
2019
 
2018
 
As Reported
Net earnings
 
$
582.4

 
$
505.4

 
15
%
Adjustments:
 
 
 
 
 
 
Provision for income taxes
 
156.7

 
141.4

 
 
All other interest expense (a)
 
14.8

 
15.0

 
 
All other interest income (a)
 
(8.4
)
 
(7.6
)
 
 
Transformation initiatives (b)
 
(0.6
)
 
32.5

 
 
Adjusted EBIT
 
$
744.9

 
$
686.7

 
8
%
Adjusted EBIT Margin
 
21.3
%
 
20.7
%
 
 
 
 
 
 
 
 
 
Provision for income taxes
 
$
156.7

 
$
141.4

 
11
%
Adjustments:
 
 
 
 
 
 
Transformation initiatives (c)
 
(0.2
)
 
8.0

 
 
Tax Cuts and Jobs Act (d)
 
—

 
1.1

 
 
Adjusted provision for income taxes
 
$
156.5

 
$
150.5

 
4
%
Adjusted effective tax rate (e)
 
21.2
%
 
22.2
%
 
 
 
 
 
 
 
 
 
Net earnings
 
$
582.4

 
$
505.4

 
15
%
Adjustments:
 
 
 
 
 
 
Transformation initiatives (b)
 
(0.6
)
 
32.5

 
 
Income tax provision for transformation initiatives (c)
 
0.2

 
(8.0
)
 
 
Tax Cuts and Jobs Act (d)
 
—

 
(1.1
)
 
 
Adjusted net earnings
 
$
582.0

 
$
528.8

 
10
%
 
 
 
 
 
 
 
Diluted EPS
 
$
1.34

 
$
1.15

 
17
%
Adjustments:
 
 
 
 
 
 
Transformation initiatives (b) (c)
 
—

 
0.06

 
 
Tax Cuts and Jobs Act (d)
 
—

 
—

 
 
Adjusted diluted EPS
 
$
1.34

 
$
1.20

 
12
%


10


(a) We include the interest income earned on investments associated with our client funds extended investment strategy and interest expense on borrowings related to our client funds extended investment strategy as we believe these amounts to be fundamental to the underlying operations of our business model. The adjustments in the table above represent the interest income and interest expense that is not related to our client funds extended investment strategy and are labeled as “All other interest expense” and “All other interest income.”
 
 
 
 
 
(b) The transformation initiatives for the three months ended September 30, 2019 include net reversals of charges related to our Voluntary Early Retirement Program (“VERP”) and Service Alignment Initiative of $5.8 million, and a gain on sale of assets related to our Service Alignment Initiative of $1.9 million, offset by charges of $7.1 million related to other transformation initiatives. Unlike other severance charges which are not included as an adjustment to get to adjusted results, these specific charges relate to actions that are part of our broad-based, company-wide transformation initiative.
 
 
 
 
 
(c) The tax provision (benefit) on transformation initiatives was calculated based on the annualized marginal rate in effect during the quarter of the adjustment.
 
 
 
 
 
(d) There was no impact from the Tax Cuts and Jobs Act in the three months ended September 30, 2019.
 
 
 
 
 
(e) The Adjusted effective tax rate is calculated as our Adjusted provision for income taxes divided by the sum of our Adjusted net earnings plus our Adjusted provision for income taxes.
 
 
 
 
 
The following table reconciles our reported growth rates to the non-GAAP measure of organic revenue, which excludes the impact of acquisitions, the impact of dispositions, and the impact of foreign currency. The impact of acquisitions and dispositions is calculated by excluding the current year revenues of acquisitions until the one year anniversary of the transaction and by excluding the prior year revenues of divestitures for the one year period preceding the transaction. The impact of foreign currency is determined by calculating the current year result using foreign exchange rates consistent with the prior year. The PEO segment is not impacted by acquisitions, dispositions or foreign currency.
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
September 30,
 
Revenue growth consolidated:
2019
 
2018
 
 
 
 
 
 
Employer Services
4
%
 
7
 %
 
PEO Services
8
%
 
10
 %
 
Consolidated revenue growth as reported
6
%
 
8
 %
 
Adjustments:
 
 
 
 
Impact of acquisitions
—
%
 
(1
)%
 
Impact of foreign currency
1
%
 
—
 %
 
Consolidated revenue growth, organic constant currency
6
%
 
7
 %
 
 
 
 
 
 
Segment:
 
 
 
 
 
 
 
 
 
Employer Services revenue growth as reported
4
%
 
7
 %
 
Adjustments:
 
 
 
 
Impact of acquisitions
—
%
 
(2
)%
 
Impact of foreign currency
1
%
 
1
 %
 
Employer Services revenue growth, organic constant currency
5
%
 
6
 %
 




11


Automatic Data Processing, Inc. and Subsidiaries
Fiscal 2019 to Fiscal 2020 Non-GAAP Guidance Reconciliation
(Unaudited)
 
 
 
 
 
 
 

 
Fiscal 2020
 
 
Fiscal 2019
 
Outlook
Earnings before income taxes / margin (GAAP)
 
$
3,005.6

21.3
%
 
165 - 190 bps

All other interest expense (a)
 
59.9

40 bps

 
(5) bps

All other interest income (a)
 
(32.4)

(20) bps

 
10 bps

Gain on sale of assets - FY19
 
(15.7)

(10) bps

 
10 bps

Transformation initiatives - FY19 (b)
 
138.3

100 bps

 
(100) bps

Transformation initiatives - FY20 (b)
 
-

-

 
20 bps

Adjusted EBIT margin (Non-GAAP)
 
$
3,155.7

22.4
%
 
100 - 125 bps

 
 
 
 
 
 
Effective tax rate (GAAP)
 
 
23.7%

 
23.3
%
Gain on sale of assets - FY19
 
 
-

 
-

Transformation initiatives - FY19 (b)
 
 
0.1%

 
-

Transformation initiatives - FY20 (b)
 
 
-

 
-

Adjusted effective tax rate (Non-GAAP)
 
 
23.8%

 
23.3
%
 
 
 
 
 
 
Diluted earnings per share (GAAP)
 
 
$
5.24

 
14 - 16%

Gain on sale of assets - FY19
 
 
(0.03
)
 
~ 1%

Transformation initiatives - FY19 (b)
 
 
0.24

 
~ (5%)

Transformation initiatives - FY20 (b)
 
 
-

 
~ 2%

Adjusted diluted earnings per share (Non-GAAP)
 
 
$
5.45

 
12 - 14%

 
 
 
 
 
 
a) We include the interest income earned on investments associated with our client funds extended investment strategy and interest expense on borrowings related to our client funds extended investment strategy as we believe these amounts to be fundamental to the underlying operations of our business model. These adjustments in the table above represent the interest income and interest expense that is not related to our client funds extended investment strategy and are labeled as “All other interest expense” and “All other interest income.”
b) The charges within transformation initiatives are comprised of charges for our VERP, Service Alignment Initiative, Workforce Optimization and other transformation initiatives. For the twelve months ended June 30, 2019, charges include $48.2 million for non-cash pension settlement charge and special termination benefits, and $23.6 million of expenses related to the continuing health coverage related to our VERP. We also recorded severance charges totaling $33.6 million primarily relating to our Workforce Optimization initiative to reduce management layers and increase spans of controls and $56.8 million related to our other transformation initiatives. These charges were partially offset by net reversals of charges and gain on sale of assets related to our Service Alignment Initiative of ($23.9 million) for the twelve months ended June 30, 2019. Unlike other severance charges in prior periods which are not included as an adjustment to get to adjusted results, these specific charges relate to actions that are part of our broad-based, company-wide transformation initiative.

12


Automatic Data Processing, Inc. and Subsidiaries
FY2019 Revision of Previously Reported Financial Information
(in millions)
(Unaudited)

 
 
 
Q1 FY2019
 
 
Q2 FY2019
 
 
Q3 FY2019
 
 
Q4 FY2019
 
 
FY2019
 
 
 
As Reported
Revision (a)
As Revised
 
 
As Reported
Revision (a)
As Revised
 
 
As Reported
Revision (a)
As Revised
 
 
As Reported
Revision (a)
As Revised
 
 
As Reported
Revision (a)
As Revised
Segment Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PEO Services
$
987.8

(12.9
)
$
974.9

 
 
$
1,058.2

(13.5
)
$
1,044.7

 
 
$
1,134.7

(19.2
)
$
1,115.5

 
 
$
1,062.0

(19.4
)
$
1,042.6

 
 
$
4,242.7

(65.0
)
$
4,177.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Segment metrics
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PEO zero-margin benefits pass-through
653.4

(12.9
)
640.5

 
 
673.2

(13.5
)
659.7

 
 
684.5

(19.2
)
665.3

 
 
701.5

(19.4
)
682.1

 
 
2,712.5

(65.0
)
2,647.5

 
 
PEO revenues excl. zero-margin benefits pass-through
334.4

—

334.4

 
 
385.0

—

385.0

 
 
450.2

—

450.2

 
 
360.5

—

360.5

 
 
1,530.2

—

1,530.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Statement of Consolidated Earnings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues, other than interest on funds held for clients and PEO revenues
2,218.6
—

2,218.6
 
 
2,319.8
—

2,319.8
 
 
2,546.9
—

2,546.9
 
 
2,290.5
—

2,290.5
 
 
9,375.8
—

9,375.8
 
Interest on funds held for clients
118.5
—

118.5
 
 
129.1
—

129.1
 
 
167.4
—

167.4
 
 
146.9
—

146.9
 
 
561.9
—

561.9
 
PEO revenues
986.1
(12.9)
973.2
 
 
1,057.0
(13.5)
1,043.5
 
 
1,133.1
(19.2)
1,113.9
 
 
1,061.3
(19.4)
1,041.9
 
 
4,237.5
(65.0)
4,172.5
 
 
Total revenues
$3,323.2
(12.9)
$3,310.3
 
 
$3,505.9
(13.5)
$3,492.4
 
 
$3,847.4
(19.2)
$3,828.2
 
 
$3,498.7
(19.4)
$3,479.3
 
 
$14,175.2
(65.0)
$14,110.2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
1,709.9
(12.9)
1,697.0
 
 
1,785.9
(13.5)
1,772.4
 
 
1,874.5
(19.2)
1,855.3
 
 
1,775.4
(19.4)
1,756.0
 
 
7,145.9
(65.0)
7,080.9
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBIT (b)
$686.7
—

$686.7
 
 
$786.5
—

$786.5
 
 
$1,013.4
—

$1,013.4
 
 
$669.1
—

$669.1
 
 
$3,155.7
—

$3,155.7
 
 
Adjusted EBIT Margin
20.7
%
 
20.7
%
 
 
22.4
%
 
22.5
%
 
 
26.3
%
 
26.5
%
 
 
19.1
%
 
19.2
%
 
 
22.3
%
 
22.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Reflects a revision to PEO revenue and operating expenses as previously noted earlier in this release.
(b) For a reconciliation of this previously disclosed non-GAAP financial metric to its closest comparable GAAP metric see our Q1 fiscal 2019, Q2 fiscal 2019, Q3 fiscal 2019, and Q4 fiscal 2019 earnings releases available at investors.adp.com.


13


Safe Harbor Statement
This document and other written or oral statements made from time to time by ADP may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature and which may be identified by the use of words like “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,” “could” “is designed to” and other words of similar meaning, are forward-looking statements. These statements are based on management’s expectations and assumptions and depend upon or refer to future events or conditions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed. Factors that could cause actual results to differ materially from those contemplated by the forward-looking statements or that could contribute to such difference include: ADP's success in obtaining, and retaining, clients, and selling additional services to clients; the pricing of products and services; the success of our new solutions; compliance with existing or new legislation or regulations; changes in, or interpretations of, existing legislation or regulations; overall market, political and economic conditions, including interest rate and foreign currency trends; competitive conditions; our ability to maintain our current credit ratings and the impact on our funding costs and profitability; security or cyber breaches, fraudulent acts, and system interruptions and failures; employment and wage levels; changes in technology; availability of skilled technical associates; the impact of new acquisitions and divestitures; and the adequacy, effectiveness and success of our business transformation initiatives. ADP disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. These risks and uncertainties, along with the risk factors discussed under “Item 1A. Risk Factors” of our most recent Annual Report on Form 10-K, and in other written or oral statements made from time to time by ADP, should be considered in evaluating any forward-looking statements contained herein.

ADP, the ADP logo, and Always Designing for People are trademarks of ADP, LLC.

Copyright © 2019 ADP, LLC. All rights reserved.
ADP - Investor Relations

Investor Relations Contacts:
Christian Greyenbuhl
973.974.7835
Christian.Greyenbuhl@adp.com

Danyal Hussain
973.974.7836
Danyal.Hussain@adp.com
ADP - Media

Media Contact:
Allyce Hackmann
201.400.4583
Allyce.Hackmann@adp.com


 




14