ADP Reports First Quarter Fiscal 2022 Results
•Revenues increased 10% compared to last year's first quarter to $3.8 billion; 10% organic constant currency
•Net earnings increased 16% to $701 million, and adjusted net earnings increased 16% to $699 million
•Adjusted EBIT increased 17% to $915 million, and adjusted EBIT margin increased 140 basis points to 23.9%
•Diluted earnings per share ("EPS") increased 18% to $1.65; adjusted diluted EPS increased 17% to $1.65
•Guidance increased following strong start to fiscal year; raising full year guidance for new business bookings, revenue retention, average worksite employees, revenue, adjusted EBIT margin, and adjusted diluted EPS
ROSELAND, N.J. – October 27, 2021 – ADP (Nasdaq: ADP), a leading global technology company providing human capital management (HCM) solutions, today announced its first quarter fiscal 2022 financial results and updated its fiscal 2022 outlook.
First Quarter Fiscal 2022 Consolidated Results
Compared to last year’s first quarter, revenues increased 10% to $3.8 billion and 10% on an organic constant currency basis. Net earnings increased 16% to $701 million, and adjusted net earnings increased 16% to $699 million. Adjusted EBIT increased 17% to $915 million, representing an adjusted EBIT margin increase of 140 basis points in the quarter to 23.9%, as higher operating revenues more than offset the effect of increased selling expenses and implementation costs. ADP’s effective tax rate for the quarter was 22.2% on both a reported basis and an adjusted basis. Diluted EPS increased 18% to $1.65, and adjusted diluted EPS increased 17% to $1.65.
“This strong start to fiscal year 2022 reflects improving demand across all of our offerings as more employers partner with ADP for their HCM solutions," said Carlos Rodriguez, President and Chief Executive Officer, ADP. "With strong outcomes in bookings, revenue retention, pays per control, and worksite employee growth, we are excited about our prospects for this fiscal year and beyond."
"First quarter revenue growth and margin performance exceeded our expectations for both our Employer Services and PEO segments, and we were pleased with the very strong growth in adjusted EBIT and net earnings," said Don McGuire, Chief Financial Officer, ADP. "Our updated guidance reflects stronger revenue growth through the rest of the year compared to our prior outlook, combined with steady profitability, as we continue investment in sales, technology, and implementation in support of sustainable long-term growth."
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 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 8% on a reported basis and 8% on an organic constant currency basis
•U.S. pays per control increased 7%
•Employer Services segment margin increased 150 basis points
PEO Services – PEO Services provides comprehensive employment administration outsourcing solutions. Compared to last year's first quarter:
•PEO Services revenues increased 15%
•PEO Services revenues excluding zero-margin benefits pass-throughs increased 20%
•Average worksite employees paid by PEO Services increased 15% to about 629,000
•PEO Services segment margin increased 70 basis points
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 decreased 5% to $101 million
•Average client funds balances increased 22% to $26.9 billion
•The average interest yield on client funds decreased 40 basis points to 1.5%
2
Fiscal 2022 Outlook
Certain components of ADP’s fiscal 2022 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 2021 pre-tax charges of $3 million related to transformation initiatives and pre-tax gains of approximately $31 million related to legal settlements
•Fiscal 2022 expected pre-tax charges of approximately $10 million related to transformation initiatives
Consolidated Fiscal 2022 Outlook
•Revenue growth of 7% to 8%
•Adjusted EBIT margin expansion of 50 to 75 basis points
•Adjusted effective tax rate of approximately 22.5%
•Diluted EPS growth of 10% to 12%
•Adjusted diluted EPS growth of 11% to 13%
Employer Services Segment Fiscal 2022 Outlook
•Employer Services revenue growth of 5% to 6%
•Employer Services margin expansion of 75 to 100 basis points
•Employer Services new business bookings growth of 12% to 16%
•Employer Services client revenue retention decrease of approximately 50 basis points
•Increase in U.S. pays per control of 4% to 5%
PEO Services Segment Fiscal 2022 Outlook
•PEO Services revenue growth of 11% to 13%
•PEO Services revenue, excluding zero-margin benefits pass-throughs, growth of 12% to 14%
•PEO Services margin decrease of 50 basis points to flat
•PEO Services average worksite employee count growth of 11% to 13%
Client Funds Extended Investment Strategy Fiscal 2022 Outlook
The interest assumptions in our outlook are based on Fed Funds futures contracts and various forward yield curves as of October 26, 2021. The Fed Funds futures contracts are used in the client short and corporate cash interest income outlook. A combination of various forward yield curves that reflect our investment mix, resulting in a blended rate of 1.3%, was used to forecast new purchase rates across the client and corporate extended and client long portfolios over the remainder of the fiscal year.
•Interest on funds held for clients of $420 to $430 million; this is based on anticipated growth in client funds balances of 12% to 14% from $27.4 billion in fiscal 2021, and an average yield that is anticipated to decrease about 10 basis points to 1.4% as compared to 1.5% in fiscal 2021
•Total contribution from the client funds extended investment strategy of $450 to $460 million
3
Fiscal 2022 Outlook
Fiscal 2021 (unaudited) | July 28, 2021 Fiscal 2022 Outlook (a) | October 27, 2021 Fiscal 2022 Outlook (a) | ||||||||||||
| Total ADP | Revenues | $15,005M | 6 to 7% | 7 to 8% | ||||||||||
| Adj. EBIT Margin | 22.6% | 25 to 50 bps | 50 to 75 bps | |||||||||||
| Adj. Effective Tax Rate | 22.7% | ~22.5% | ~22.5% | |||||||||||
| Adj. Diluted EPS | $6.02 | 9 to 11% | 11 to 13% | |||||||||||
| Employer Services | Revenues | $10,195M | 4 to 6% | 5 to 6% | ||||||||||
| Margin | 29.9% | 50 to 75 bps | 75 to 100 bps | |||||||||||
| ES New Business Bookings | $1.5B | 10 to 15% | 12 to 16% | |||||||||||
| Client Revenue Retention | 92.2% | ~(75) bps | ~(50) bps | |||||||||||
| U.S. Pays Per Control | (3)% | 4 to 5% | 4 to 5% | |||||||||||
| PEO Services | Revenues | $4,818M | 9 to 11% | 11 to 13% | ||||||||||
| Revenues Ex Pass-throughs | $1,726M | 10 to 12% | 12 to 14% | |||||||||||
| Margin | 14.9% | (75) to (25) bps | (50) bps to flat | |||||||||||
| Average WSEs | 582,000 | 9 to 11% | 11 to 13% | |||||||||||
| Client Funds Interest | Average Client Funds Balances | $27.4B | 8 to 10% | 12 to 14% | ||||||||||
| Yield on Client Funds Portfolio | 1.5% | (10) bps, to 1.4% | (10) bps, to 1.4% | |||||||||||
| Client Funds Interest Revenue | $422M | $405 to $415M | $420 to $430M | |||||||||||
| Extended Investment Strategy | $450M | $435 to $445M | $450 to $460M | |||||||||||
(a) Outlook contemplates the 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 27, 2021 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 2020, 2021, and 2022, as well as quarterly details of the fiscal 2022 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, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| Revenues, other than interest on funds held for clients and PEO revenues | $ | 2,467.7 | $ | 2,269.6 | ||||||||||||||||||||||
| Interest on funds held for clients | 101.1 | 106.5 | ||||||||||||||||||||||||
| PEO revenues (A) (B) (C) | 1,263.5 | 1,094.6 | ||||||||||||||||||||||||
| Total revenues | 3,832.3 | 3,470.7 | ||||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||
| Costs of revenues: | ||||||||||||||||||||||||||
| Operating expenses (B) (C) | 1,930.8 | 1,762.1 | ||||||||||||||||||||||||
| Systems development and programming costs | 188.8 | 168.7 | ||||||||||||||||||||||||
| Depreciation and amortization | 103.0 | 103.5 | ||||||||||||||||||||||||
| Total costs of revenues | 2,222.6 | 2,034.3 | ||||||||||||||||||||||||
| Selling, general, and administrative expenses | 719.2 | 681.0 | ||||||||||||||||||||||||
| Interest expense | 18.5 | 15.1 | ||||||||||||||||||||||||
| Total expenses | 2,960.3 | 2,730.4 | ||||||||||||||||||||||||
| Other (income)/expense, net | (28.8) | (24.9) | ||||||||||||||||||||||||
| Earnings before income taxes | 900.8 | 765.2 | ||||||||||||||||||||||||
| Provision for income taxes | 200.3 | 163.1 | ||||||||||||||||||||||||
| Net earnings | $ | 700.5 | $ | 602.1 | ||||||||||||||||||||||
| Basic earnings per share | $ | 1.66 | $ | 1.40 | ||||||||||||||||||||||
| Diluted earnings per share | $ | 1.65 | $ | 1.40 | ||||||||||||||||||||||
| Components of Other (income)/expense, net: | ||||||||||||||||||||||||||
| Interest income on corporate funds | $ | (9.7) | $ | (13.8) | ||||||||||||||||||||||
| Realized (gains)/losses on available-for-sale securities, net | (0.1) | (0.3) | ||||||||||||||||||||||||
| Impairment of assets | — | 2.8 | ||||||||||||||||||||||||
| Gain on sale of assets | (1.3) | (0.2) | ||||||||||||||||||||||||
| Non-service components of pension income, net | (17.7) | (13.4) | ||||||||||||||||||||||||
| Other (income)/expense, net | $ | (28.8) | $ | (24.9) | ||||||||||||||||||||||
(A) Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes of $13,263.2 million and $10,925.8 million for the three months ended September 30, 2021 and 2020, respectively.
(B) PEO revenues and operating expenses include zero-margin benefits pass-through costs of $839.5 million and $741.0 million for the three months ended September 30, 2021 and 2020, respectively.
(C) PEO revenues and operating expenses include costs related to workers' compensation coverage and state unemployment taxes for worksite employees of $116.5 million and $88.0 million for the three months ended September 30, 2021 and 2020, respectively.
5
| Automatic Data Processing, Inc. and Subsidiaries | |||||||||||
| Consolidated Balance Sheets | |||||||||||
| (In millions, except per share amounts) | |||||||||||
| (Unaudited) | |||||||||||
| September 30, | June 30, | ||||||||||
| 2021 | 2021 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,602.1 | $ | 2,575.2 | |||||||
Accounts receivable, net of allowance for doubtful accounts of $76.7 and $79.6, respectively | 2,769.7 | 2,727.4 | |||||||||
| Other current assets | 867.5 | 533.4 | |||||||||
| Total current assets before funds held for clients | 5,239.3 | 5,836.0 | |||||||||
| Funds held for clients | 46,808.6 | 34,905.8 | |||||||||
| Total current assets | 52,047.9 | 40,741.8 | |||||||||
| Long-term receivables, net of allowance for doubtful accounts of $0.3 and $0.3, respectively | 10.1 | 11.5 | |||||||||
| Property, plant and equipment, net | 648.7 | 684.5 | |||||||||
| Operating lease right-of-use asset | 462.4 | 462.2 | |||||||||
| Deferred contract costs | 2,463.2 | 2,498.2 | |||||||||
| Other assets | 817.5 | 825.8 | |||||||||
| Goodwill | 2,325.8 | 2,338.4 | |||||||||
| Intangible assets, net | 1,211.6 | 1,210.1 | |||||||||
| Total assets | $ | 59,987.2 | $ | 48,772.5 | |||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 77.8 | $ | 141.1 | |||||||
| Accrued expenses and other current liabilities | 1,796.1 | 1,963.3 | |||||||||
| Accrued payroll and payroll-related expenses | 552.7 | 910.2 | |||||||||
| Dividends payable | 389.5 | 390.8 | |||||||||
| Short-term deferred revenues | 191.6 | 203.9 | |||||||||
| Obligations under reverse repurchase agreements (A) | 45.8 | 23.5 | |||||||||
| Income taxes payable | 179.3 | 58.2 | |||||||||
| Total current liabilities before client funds obligations | 3,232.8 | 3,691.0 | |||||||||
| Client funds obligations | 46,437.1 | 34,403.8 | |||||||||
| Total current liabilities | 49,669.9 | 38,094.8 | |||||||||
| Long-term debt | 2,985.5 | 2,985.0 | |||||||||
| Operating lease liabilities | 345.7 | 343.2 | |||||||||
| Other liabilities | 813.6 | 834.1 | |||||||||
| Deferred income taxes | 469.3 | 482.9 | |||||||||
| Long-term deferred revenues | 352.5 | 362.4 | |||||||||
| Total liabilities | 54,636.5 | 43,102.4 | |||||||||
| 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, 2021 and June 30, 2021; outstanding, 422.0 and 423.7 shares at September 30, 2021 and June 30, 2021, respectively | 63.9 | 63.9 | |||||||||
| Capital in excess of par value | 1,579.1 | 1,531.3 | |||||||||
| Retained earnings | 19,754.8 | 19,451.1 | |||||||||
| Treasury stock - at cost: 216.7 and 215.0 shares at September 30, 2021 and June 30, 2021, respectively | (15,924.2) | (15,386.8) | |||||||||
| Accumulated other comprehensive (loss) income | (122.9) | 10.6 | |||||||||
| Total stockholders’ equity | 5,350.7 | 5,670.1 | |||||||||
| Total liabilities and stockholders’ equity | $ | 59,987.2 | $ | 48,772.5 | |||||||
(A) As of September 30, 2021, $45.8 million of short-term marketable securities have been pledged as collateral under the Company's reverse repurchase agreements. As of June 30, 2021, $23.5 million of long-term marketable securities have been pledged as collateral under the Company's reverse repurchase agreements.
6
| Automatic Data Processing, Inc. and Subsidiaries | |||||||||||
| Statements of Consolidated Cash Flows | |||||||||||
| (In millions) | |||||||||||
| (Unaudited) | Three Months Ended | ||||||||||
| September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net earnings | $ | 700.5 | $ | 602.1 | |||||||
| Adjustments to reconcile net earnings to cash flows provided by operating activities: | |||||||||||
| Depreciation and amortization | 129.1 | 131.1 | |||||||||
| Amortization of deferred contract costs | 237.3 | 232.3 | |||||||||
| Deferred income taxes | 25.6 | 23.5 | |||||||||
| Stock-based compensation expense | 42.3 | 33.8 | |||||||||
| Net pension income | (15.8) | (11.1) | |||||||||
| Net amortization of premiums and accretion of discounts on available-for-sale securities | 22.7 | 12.4 | |||||||||
| Impairment of assets | — | 2.8 | |||||||||
| Gain on sale of assets | (1.3) | (0.2) | |||||||||
| Other | 3.2 | 6.1 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Increase in accounts receivable | (51.8) | (78.7) | |||||||||
| Increase in other assets | (494.2) | (454.8) | |||||||||
| (Decrease)/Increase in accounts payable | (61.9) | 5.7 | |||||||||
| Decrease in accrued expenses and other liabilities | (413.8) | (23.1) | |||||||||
| Net cash flows provided by operating activities | 121.9 | 481.9 | |||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Purchases of corporate and client funds marketable securities | (2,412.6) | (812.8) | |||||||||
| Proceeds from the sales and maturities of corporate and client funds marketable securities | 1,279.1 | 1,196.7 | |||||||||
| Capital expenditures | (35.9) | (43.5) | |||||||||
| Additions to intangibles | (93.2) | (76.4) | |||||||||
| Proceeds from sale of property, plant, and equipment and other assets | 26.2 | 0.2 | |||||||||
| Net cash flows (used in)/provided by investing activities | (1,236.4) | 264.2 | |||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Net increase in client funds obligations | 12,100.6 | 3,203.3 | |||||||||
| Payments of debt | (0.2) | (1,000.6) | |||||||||
| Proceeds from the issuance of debt | — | 991.1 | |||||||||
| Settlement of cash flow hedges | — | (43.6) | |||||||||
| Repurchases of common stock | (528.0) | (213.6) | |||||||||
| Net proceeds from stock purchase plan and stock-based compensation plans | (16.7) | (7.9) | |||||||||
| Dividends paid | (393.2) | (391.0) | |||||||||
| Net proceeds/(payments) related to reverse repurchase agreements | 22.3 | (13.6) | |||||||||
| Net cash flows provided by financing activities | 11,184.8 | 2,524.1 | |||||||||
| Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents | (21.2) | 37.9 | |||||||||
| Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents | 10,049.1 | 3,308.1 | |||||||||
| Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period | 13,143.2 | 7,053.6 | |||||||||
| Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period | $ | 23,192.3 | $ | 10,361.7 | |||||||
| Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the Consolidated Balance Sheets | |||||||||||
| Cash and cash equivalents | 1,602.1 | 1,613.1 | |||||||||
| Restricted cash and restricted cash equivalents included in funds held for clients | 21,590.2 | 8,748.6 | |||||||||
| Total cash, cash equivalents, restricted cash, and restricted cash equivalents | $ | 23,192.3 | $ | 10,361.7 | |||||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Cash paid for interest | $ | 23.9 | $ | 27.3 | |||||||
| Cash paid for income taxes, net of income tax refunds | $ | 55.0 | $ | 45.4 | |||||||
7
| Automatic Data Processing, Inc. and Subsidiaries | ||||||||||||||||||||
| Other Selected Financial Data | ||||||||||||||||||||
| (Dollars in millions, except per share amounts) | ||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||
| Three Months Ended | ||||||||||||||||||||
| September 30, | ||||||||||||||||||||
| 2021 | 2020 | % Change | ||||||||||||||||||
| Segment revenues | ||||||||||||||||||||
Employer Services | $ | 2,571.5 | $ | 2,376.8 | 8 | % | ||||||||||||||
PEO Services | 1,264.1 | 1,095.9 | 15 | % | ||||||||||||||||
Other | (3.3) | (2.0) | n/m | |||||||||||||||||
Total revenues | $ | 3,832.3 | $ | 3,470.7 | 10 | % | ||||||||||||||
| Segment earnings | ||||||||||||||||||||
Employer Services | $ | 784.0 | $ | 689.3 | 14 | % | ||||||||||||||
PEO Services | 193.0 | 159.4 | 21 | % | ||||||||||||||||
Other | (76.2) | (83.5) | n/m | |||||||||||||||||
Total pretax earnings | $ | 900.8 | $ | 765.2 | 18 | % | ||||||||||||||
| Segment margin | ||||||||||||||||||||
Employer Services | 30.5 | % | 29.0 | % | 1.5 | % | ||||||||||||||
PEO Services | 15.3 | % | 14.5 | % | 0.7 | % | ||||||||||||||
Other | n/m | n/m | n/m | |||||||||||||||||
Total pretax margin | 23.5 | % | 22.0 | % | 1.5 | % | ||||||||||||||
| Three Months Ended | ||||||||||||||||||||
| September 30, | ||||||||||||||||||||
| Earnings per share information: | 2021 | 2020 | % Change | |||||||||||||||||
| Net earnings | $ | 700.5 | $ | 602.1 | 16 | % | ||||||||||||||
| Basic weighted average shares outstanding | 421.4 | 428.6 | (2) | % | ||||||||||||||||
| Basic earnings per share | $ | 1.66 | $ | 1.40 | 19 | % | ||||||||||||||
| Diluted weighted average shares outstanding | 423.8 | 430.0 | (1) | % | ||||||||||||||||
| Diluted earnings per share | $ | 1.65 | $ | 1.40 | 18 | % | ||||||||||||||
| Three Months Ended | |||||||||||
| September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Key Statistics: | |||||||||||
| Employer Services: | |||||||||||
Change in pays per control - U.S. (A) | 7 | % | (9) | % | |||||||
| PEO Services: | |||||||||||
| Paid PEO worksite employees at end of period | 638,000 | 555,000 | |||||||||
| Average paid PEO worksite employees during the period | 629,000 | 547,000 | |||||||||
Significant PEO expenses included within Operating expenses | |||||||||||
Zero-margin benefits pass-through costs | $ | 839.5 | $ | 741.0 | |||||||
Workers' compensation and state unemployment taxes | $ | 116.5 | $ | 88.0 | |||||||
(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, | |||||||||||||||||
| 2021 | 2020 | % Change | |||||||||||||||
| Average investment balances at cost (in billions): | |||||||||||||||||
| Corporate, other than corporate extended | $ | 2.1 | $ | 1.6 | 25 | % | |||||||||||
| Corporate extended (A) | 2.2 | 2.6 | (14) | % | |||||||||||||
| Total corporate | 4.3 | 4.2 | 1 | % | |||||||||||||
| Funds held for clients | 26.9 | 22.0 | 22 | % | |||||||||||||
| Total | $ | 31.2 | $ | 26.2 | 19 | % | |||||||||||
| Average interest rates earned exclusive of realized losses (gains) on: | |||||||||||||||||
| Corporate, other than corporate extended | 0.3 | % | 0.4 | % | |||||||||||||
| Corporate extended (A) | 1.5 | % | 1.9 | % | |||||||||||||
| Total corporate | 0.9 | % | 1.3 | % | |||||||||||||
| Funds held for clients | 1.5 | % | 1.9 | % | |||||||||||||
| Total | 1.4 | % | 1.8 | % | |||||||||||||
| Net unrealized gain position at end of period | $ | 371.8 | $ | 851.9 | |||||||||||||
| Average short-term financing (in billions): | |||||||||||||||||
| U.S. commercial paper borrowings | $ | 2.0 | $ | 2.4 | |||||||||||||
| U.S., Canadian & U.K. reverse repurchase agreement borrowings | 0.2 | 0.2 | |||||||||||||||
| $ | 2.2 | $ | 2.6 | ||||||||||||||
| Average interest rates paid on: | |||||||||||||||||
| U.S. commercial paper borrowings | 0.1 | % | 0.1 | % | |||||||||||||
| U.S., Canadian & U.K. reverse repurchase agreement borrowings | 0.2 | % | 0.3 | % | |||||||||||||
| Interest on funds held for clients | $ | 101.1 | $ | 106.5 | (5) | % | |||||||||||
| Corporate extended interest income (B) | 8.4 | 12.0 | (31) | % | |||||||||||||
| Corporate interest expense-short-term financing (B) | (0.7) | (1.0) | 32 | % | |||||||||||||
| Net Impact from Client Fund Strategy | $ | 108.8 | $ | 117.5 | (7) | % | |||||||||||
| Three Months Ended | |||||||||||
| September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Corporate extended interest income (B) | $ | 8.4 | $ | 12.0 | |||||||
| All other interest income | 1.3 | 1.8 | |||||||||
| Total interest income on corporate funds (component of Other (income)/expense, net) | $ | 9.7 | $ | 13.8 | |||||||
| Corporate interest expense-short-term financing (B) | $ | 0.7 | $ | 1.0 | |||||||
| All other interest expense | 17.8 | 14.1 | |||||||||
| Total interest expense | $ | 18.5 | $ | 15.1 | |||||||
(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 | |||||||||||||||||||
| 2021 | 2020 | As Reported | ||||||||||||||||||
| Net earnings | $ | 700.5 | $ | 602.1 | 16 | % | ||||||||||||||
| Adjustments: | ||||||||||||||||||||
| Provision for income taxes | 200.3 | 163.1 | ||||||||||||||||||
| All other interest expense (a) | 17.8 | 14.1 | ||||||||||||||||||
| All other interest income (a) | (1.3) | (1.8) | ||||||||||||||||||
| Transformation initiatives (b) | (2.1) | 0.8 | ||||||||||||||||||
| Excess capacity severance charges | — | 2.4 | ||||||||||||||||||
| Adjusted EBIT | $ | 915.2 | $ | 780.7 | 17 | % | ||||||||||||||
| Adjusted EBIT Margin | 23.9 | % | 22.5 | % | ||||||||||||||||
| Provision for income taxes | $ | 200.3 | $ | 163.1 | 23 | % | ||||||||||||||
| Adjustments: | ||||||||||||||||||||
| Transformation initiatives (c) | (0.6) | 0.2 | ||||||||||||||||||
| Excess capacity severance charges (c) | — | 0.6 | ||||||||||||||||||
| Adjusted provision for income taxes | $ | 199.7 | $ | 163.9 | 22 | % | ||||||||||||||
| Adjusted effective tax rate (d) | 22.2 | % | 21.3 | % | ||||||||||||||||
| Net earnings | $ | 700.5 | $ | 602.1 | 16 | % | ||||||||||||||
| Adjustments: | ||||||||||||||||||||
| Transformation initiatives (b) | (2.1) | 0.8 | ||||||||||||||||||
| Income tax provision/(benefit) for transformation initiatives (c) | 0.6 | (0.2) | ||||||||||||||||||
| Excess capacity severance charges | — | 2.4 | ||||||||||||||||||
| Income tax benefit for excess capacity severance charges (c) | — | (0.6) | ||||||||||||||||||
| Adjusted net earnings | $ | 699.0 | $ | 604.5 | 16 | % | ||||||||||||||
| Diluted EPS | $ | 1.65 | $ | 1.40 | 18 | % | ||||||||||||||
| Adjustments: | ||||||||||||||||||||
| Transformation initiatives (b) (c) | — | — | ||||||||||||||||||
| Excess capacity severance charges (c) | — | — | ||||||||||||||||||
| Adjusted diluted EPS | $ | 1.65 | $ | 1.41 | 17 | % | ||||||||||||||
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 are not related to our client funds extended investment strategy and are labeled as “All other interest expense” and “All other interest income.” | ||||||||||||||
| (b) In the three months ended September 30, 2021, transformation initiatives include gain on sale of assets and net reversals of charges related to other transformation initiatives, including severance. Unlike other severance charges which are not included as an adjustment to get to adjusted results, these specific charges relate to actions taken as part of our broad-based, company-wide transformation initiative. | ||||||||||||||
| (c) The income tax (benefit)/provision was calculated based on the annualized marginal rate in effect during the quarter of the adjustment. | ||||||||||||||
(d) 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: | 2021 | 2020 | ||||||||||||
Employer Services | 8 | % | (3) | % | ||||||||||
PEO Services | 15 | % | 4 | % | ||||||||||
| Consolidated revenue growth as reported | 10 | % | (1) | % | ||||||||||
| Adjustments: | ||||||||||||||
Impact of acquisitions | — | % | — | % | ||||||||||
Impact of foreign currency | — | % | — | % | ||||||||||
| Consolidated revenue growth, organic constant currency | 10 | % | (1) | % | ||||||||||
| Segment: | ||||||||||||||
| Employer Services revenue growth as reported | 8 | % | (3) | % | ||||||||||
| Adjustments: | ||||||||||||||
Impact of acquisitions | — | % | — | % | ||||||||||
Impact of foreign currency | — | % | — | % | ||||||||||
| Employer Services revenue growth, organic constant currency | 8 | % | (3) | % | ||||||||||
11
| Automatic Data Processing, Inc. and Subsidiaries | |||||||||||||||||
| Fiscal 2021 to Fiscal 2022 Non-GAAP Guidance Reconciliation | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| Fiscal 2022 | |||||||||||||||||
| Fiscal 2021 | Outlook | ||||||||||||||||
| Earnings before income taxes / margin (GAAP) | $ | 3,361.2 | 22.4 | % | 15 to 40 bps | ||||||||||||
| All other interest expense (a) | 57.3 | 40 bps | 5 bps | ||||||||||||||
| All other interest income (a) | (6.5) | - | - | ||||||||||||||
| Transformation initiatives (b) - FY21 | 0.0 | - | - | ||||||||||||||
| Transformation initiatives - FY22 | - | - | 10 bps | ||||||||||||||
| Excess capacity severance charges - FY21 | 2.9 | - | - | ||||||||||||||
| Legal settlements - FY21 | (30.7) | (20) bps | 20 bps | ||||||||||||||
| Adjusted EBIT margin (Non-GAAP) | $ | 3,384.2 | 22.6 | % | 50 to 75 bps | ||||||||||||
| Effective tax rate (GAAP) | 22.7 | % | 22.5 | % | |||||||||||||
| Transformation initiatives (b) - FY21 | - | - | |||||||||||||||
| Transformation initiatives - FY22 | - | - | |||||||||||||||
| Excess capacity severance charges - FY21 | - | - | |||||||||||||||
| Legal settlements - FY21 | - | - | |||||||||||||||
| Adjusted effective tax rate (Non-GAAP) | 22.7 | % | 22.5 | % | |||||||||||||
| Diluted earnings per share (GAAP) | $ | 6.07 | 10% to 12% | ||||||||||||||
| Transformation initiatives (b) - FY21 | - | - | |||||||||||||||
| Transformation initiatives - FY22 | - | - | |||||||||||||||
| Excess capacity severance charges - FY21 | 0.01 | - | |||||||||||||||
| Legal settlements - FY21 | (0.05) | 1 | % | ||||||||||||||
| Adjusted diluted earnings per share (Non-GAAP) | $ | 6.02 | 11% to 13% | ||||||||||||||
| (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) In fiscal 2021, transformation initiatives include impairment charges as a result of recognizing certain owned facilities at fair value given intent to sell and accordingly classified as held for sale and lease asset impairment charges, offset by gain on sale of assets and net reversals of charges related to other transformation initiatives, including severance. Unlike other severance charges which are not included as an adjustment to get to adjusted results, these specific charges relate to actions taken as part of our broad-based, company-wide transformation initiative. | |||||||||||||||||
12
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; the adequacy, effectiveness and success of our business transformation initiatives; and the impact of any uncertainties related to major natural disasters or catastrophic events, including the COVID-19 pandemic. 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, Inc.
Copyright © 2021 ADP, Inc. All rights reserved.
ADP - Investor Relations
Investor Relations Contacts:
Danyal Hussain, CFA
973.974.7836
Danyal.Hussain@adp.com
Matthew J. Korn, CFA
973.974.7844
Matthew.Korn@adp.com
ADP - Media
Media Contact:
Allyce Hackmann
201.400.4583
Allyce.Hackmann@adp.com
13