Workforce Newsroom

ROSELAND, N.J., Jan. 31, 2018 (GLOBE NEWSWIRE) -- ADP® (Nasdaq:ADP), a leading global provider of Human Capital Management (HCM) solutions, today announced its second quarter fiscal 2018 financial results, and provided an update to its fiscal 2018 outlook. 

Second Quarter Fiscal 2018 Consolidated Results

Compared to last year's second quarter, revenues grew 8% to $3.2 billion, 7% organic.  Net earnings were ahead of Company expectations but declined 8% to $468 million primarily due to the prior year second quarter $205 million pre-tax gain on the sale of the CHSA and COBRA businesses.  Earnings before income tax declined to $566 million, or 28%.  Adjusted earnings before income tax increased to $602 million, or 2%.  Adjusted EBIT margin declined about 120 basis points in the quarter to 18.6% due to pressure from higher pass-through revenues and acquisitions. The enactment of the Tax Cuts and Jobs Act helped reduce the effective tax rate for the quarter to 17.4%, and 25.6% on an adjusted basis. This adjusted effective tax rate excludes a one-time net benefit of approximately $46 million related to the revaluation of U.S. deferred tax balances partially offset by a one-time transition tax and the recording of a valuation allowance against our foreign tax credits. Diluted earnings per share declined 7% to $1.05. Adjusted diluted earnings per share increased 14% to $0.99.

"The world of work is going through transformative changes and we are continuing to evolve our solutions to meet our clients' dynamic needs," said Carlos Rodriguez, President and Chief Executive Officer, ADP. "With the recent acquisitions of Global Cash Card and WorkMarket we have further solidified our strategy of being the leading provider of HCM solutions across the entire workforce as we now comprehensively address the growing importance of freelance workers for our clients."

"ADP delivered strong results in the quarter, posting solid revenue, bookings and adjusted EPS growth. Based on the performance in the first half of the year, and the ongoing benefit we expect from corporate tax reform, we are raising our full year adjusted EPS guidance to 12% to 13% growth," said Jan Siegmund, Chief Financial Officer, ADP.

Adjusted EBIT, adjusted EBIT margin, adjusted diluted earnings per share, adjusted effective tax rate, and organic revenue 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. 

Second Quarter Fiscal 2018 Segment Results

Employer Services - Employer Services offers a comprehensive range of HCM and human resources outsourcing solutions.

• Employer Services revenues increased 6% on a reported basis, 4% organic compared to last year's second quarter.
• The number of employees on ADP clients' payrolls in the United States increased 2.6% for the second quarter when measured on a same-store-sales basis for a subset of clients ranging from small to large businesses.
• Employer Services client revenue retention declined 20 basis points compared to last year's second quarter.
• Employer Services segment margin decreased approximately 50 basis points compared to last year's second quarter.  This decrease resulted primarily from approximately 70 basis points of pressure from acquisitions and foreign currency.

PEO Services - PEO Services provides comprehensive employment administration outsourcing solutions through a co-employment relationship.

• PEO Services revenues increased 15% compared to last year's second quarter driven primarily by a 10% increase in average worksite employees for the quarter and higher than expected growth in pass-through revenues.
• PEO Services segment margin declined approximately 30 basis points compared to last year's second quarter, primarily driven by pressure from higher pass-through revenues. 
• Average worksite employees paid by PEO Services were about 498,000 and we ended the quarter with about 504,000 worksite employees.

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 the credit quality of the investment portfolio is predominantly AAA/AA.

• For the second quarter, interest on funds held for clients increased 16% to $107 million from $92 million a year ago.
• Average client funds balances increased 7% in the second quarter to $22.5 billion compared to $20.9 billion a year ago. 
• For the second quarter, the average interest yield on client funds was 1.9% which was up 10 basis points compared to a year ago. 

Notable Subsequent Events

The composition of work is increasingly moving toward the freelance, or "gig," worker and it is with this evolution in mind that ADP acquired WorkMarket, a leading provider of cloud-based freelance management solutions.  With this acquisition, ADP has expanded its market opportunities while building on its current portfolio of industry-leading payroll and HCM solutions that help clients and workers modernize the way work gets done, while unlocking productivity, engagement, and growth. The purchase price of this acquisition was approximately $125 million.

Fiscal 2018 Outlook

Certain components of ADP's fiscal 2018 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 2017 pre-tax restructuring charges of $90 million related to our Service Alignment Initiative.
• Fiscal 2017 second quarter pre-tax gain on the sale of the CHSA and COBRA businesses of $205 million.
• Anticipated fiscal 2018 pre-tax restructuring charges of about $25 million related to our Service Alignment Initiative.
• Fiscal 2018 pre-tax proxy contest charges of about $33 million.
• Fiscal 2018 second quarter one-time net tax benefit of about $46 million from the Tax Cuts and Jobs Act.

ADP now anticipates full-year fiscal 2018 revenue growth of 7% to 8% compared to the prior forecast of 6% to 8%. This revenue forecast continues to include approximately one percentage point of growth from acquisitions and the impact from foreign currency. This revenue forecast continues to assume growth in worldwide new business bookings of 5% to 7% compared to the $1.65 billion sold in fiscal 2017. Adjusting for additional anticipated PEO pass-through pressure, ADP now assumes adjusted EBIT margin will decline approximately 50 basis points for the full year compared to the prior forecast of down 25 to 50 basis points.

ADP expects full year diluted earnings per share to be up 8% to 9%, compared to our prior forecast of down 1% to up 1% and adjusted diluted earnings per share growth to be 12% to 13% compared to our prior forecast of 5% to 7% growth.  This adjusted earnings per share forecast reflects the ongoing estimated benefits from the enactment of the Tax Cuts and Jobs Act, and ADP now forecasts an adjusted effective tax rate for fiscal 2018 of 26.9% compared to the prior forecast of 31.7%.  This benefit is primarily attributable to the lower blended federal corporate statutory rate of 28.1% for fiscal 2018.

Reportable Segments Fiscal 2018 Forecast 

• For the Employer Services segment, ADP still anticipates revenue growth of approximately 4% to 5%, and continues to anticipate a margin decline of 50 to 75 basis points for the year.
• ADP maintains expectations for an increase in pays per control of 2.5% for the year.
• For the PEO Services segment, taking into account higher pass-through revenues, ADP now anticipates revenue growth of approximately 12% to 13%, compared to our prior forecast of 11% to 13% and margin to be flat to down 25 basis points for the year, compared to the prior forecast of up 25 to 50 basis points.

Client Funds Extended Investment Strategy Fiscal 2018 Forecast

The interest assumptions in our forecasts are based on Fed Funds futures contracts and forward yield curves as of January 29, 2018.  The Fed Funds futures contracts used in the client short and corporate cash interest income forecasts assume an increase in the Fed Funds rate in March 2018.  The three-and-a-half and five-year U.S. government agency rates based on the forward yield curves as of January 29, 2018 were used to forecast new purchase rates for the client and corporate extended, and client long portfolios, respectively.

• Interest on funds held for clients is expected to increase $55 to $65 million, or about 16%, compared to the prior forecast of up $45 to $55 million.  This is based on anticipated growth in average client funds balances of approximately 4% to 5% from $23.0 billion in fiscal 2017, compared to the prior forecast of approximately 3% growth and an average yield which is still anticipated to increase about 20 basis points to 1.9% compared to the fiscal 2017 average yield of 1.7%.
• The total contribution from the client funds extended investment strategy is now expected to be up $45 to $55 million compared to the prior forecast of up $35 to $45 million.

Investor Webcast Today
ADP will host a conference call for financial analysts today, Wednesday, January 31, 2018 at 8:30 a.m. EDT.  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 will be available shortly before the webcast.

Supplemental financial information including schedules of quarterly and full year reportable segment revenues and earnings for fiscal years 2016 and 2017, as well as quarterly details of the fiscal 2018 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)
Powerful technology plus a human touch.  Companies of all types and sizes around the world rely on ADP's cloud software and expert insights to help unlock the potential of their people.  HR. Talent. Benefits. Payroll. Compliance.  Working together to build a better workforce.  For more information, visit ADP.com.

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; 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 privacy breaches, fraudulent acts, and system interruptions and failures; employment and wage levels; changes in technology; availability of skilled technical associates; and the impact of new acquisitions and divestitures. 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" in our Annual Report on Form 10-K for the fiscal year ended June 30, 2017 should be considered in evaluating any forward-looking statements contained herein.

ADP and the ADP logo are registered trademarks of ADP, LLC.  ADP A more human resource. is a service mark of ADP, LLC.  All other marks are the property of their respective owners. Copyright © 2018 ADP, LLC. All rights reserved.

ADP-Investor Relations

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

Media Contact:
Michael Schneider
973.974.5678
Michael.Schneider@ADP.com