- Worldwide new business bookings grew 15% for the quarter
- Revenues increased 6% to $2.8 billion, 8% on a constant dollar basis
- Diluted earnings per share from continuing operations increased 7% to $0.74, adjusted diluted earnings per share from continuing operations increased 4% to $0.72, 6% on a constant dollar basis
- ADP acquired 5.2 million shares of its stock for treasury at a cost of $446 million in the quarter
Roseland, N.J., February 3, 2016 – ADP (Nasdaq:ADP), a leading global provider of Human Capital Management (HCM) solutions, today announced its second quarter fiscal 2016 financial results. Compared to last year’s second quarter, revenues grew 6% to $2.8 billion, 8% on a constant dollar basis, which includes a negative impact of approximately one percentage point from a business sold at the end of the first quarter of fiscal 2016. Adjusted EBIT, which excludes a $14 million gain on the sale of a building, grew 2% to $506 million, or 4% on a constant dollar basis. Adjusted EBIT margin declined about 70 basis points in the quarter to 18.0%. Diluted earnings per share from continuing operations increased 7% to $0.74, and adjusted diluted earnings per share from continuing operations increased 4% to $0.72, 6% on a constant dollar basis, reflecting a lower effective tax rate and fewer shares outstanding compared with last year’s second quarter.
Constant dollar, adjusted EBIT, adjusted EBIT margin, and adjusted diluted earnings per share from continuing operations are non-GAAP financial measures. For ADP’s definition of EBIT, see the paragraph “Non-GAAP Financial Information” at the end of this release. Please refer to the accompanying financial tables for a reconciliation of non-GAAP financial measures to their comparable GAAP measures.
“Managing human resources has never been more complex. Managing this complexity is where ADP shines, as evidenced by the continued success of our ACA solutions and the growth of our PEO,” said Carlos Rodriguez, president and chief executive officer, ADP. “We continue to experience strong momentum in new business bookings, reflecting the confidence our clients have in ADP’s ability to assist with their human capital management needs. As a result, we are again increasing our forecast for new business bookings, and now expect at least 12% growth for fiscal 2016.”
“ADP’s revenue growth in the quarter was solid despite continued headwinds from foreign currency translation,” said Jan Siegmund, chief financial officer, ADP. “As previously communicated, ADP made additional investments in the second quarter to increase operational resources in support of our service and implementation teams. These investments were ahead of recurring revenue which is expected to contribute to ADP’s growth in the second half of fiscal 2016.”
Second Quarter Fiscal 2016 Segment Results
Employer Services – Employer Services offers a comprehensive range of HCM and business outsourcing solutions.
- Employer Services revenues increased 3% compared to last year’s second quarter, 6% on a constant dollar basis.
- The number of employees on ADP clients’ payrolls in the United States increased 2.5% 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 120 basis points compared to last year’s second quarter from continued elevated losses in legacy client platforms.
- Employer Services segment margin decreased approximately 30 basis points compared to last year’s second quarter. This decrease was primarily driven by anticipated investments made in operational resources to support new business sold and increased selling expenses from continued strong new business bookings.
PEO Services – PEO Services provides comprehensive employment administration outsourcing solutions through a co-employment relationship.
- PEO Services revenues increased 18% compared to last year’s second quarter.
- PEO Services segment margin increased approximately 20 basis points compared to last year’s second quarter, primarily driven by operational efficiencies.
- Average worksite employees paid by PEO Services increased 14% for the quarter to approximately 403,000.
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 decreased 2% to $89 million from $91 million a year ago.
- Average client funds balances increased 4% in the second quarter to $20.5 billion compared to $19.8 billion a year ago. On a constant dollar basis, average client funds balances increased 6%.
- The average interest yield on client funds declined about 10 basis points in the second quarter to 1.7% compared to 1.8% a year ago.
Fiscal 2016 Outlook
ADP’s fiscal 2016 outlook excludes the impact of the first quarter gain of $29 million on the sale of the AdvancedMD business and the second quarter gain of $14 million on the sale of a building.
Reflecting another strong quarter of new business bookings results, ADP now anticipates growth in worldwide new business bookings of at least 12% over $1.6 billion sold in fiscal 2015, compared to our prior forecast of at least 10%.
ADP now anticipates revenue growth of 7% compared with our prior forecast of 7% to 8%. This change is due to higher than expected pressure from unfavorable foreign currency translation which ADP now assumes will have a negative impact of about two percentage points on fiscal 2016 revenue growth. On a constant dollar basis, revenue growth is now expected to be about 9% for the full year compared with ADP’s prior forecast of 8% to 9%.This forecast includes an anticipated negative impact of approximately one percentage point from the sale of the AdvancedMD business.
As a result of additional selling expenses anticipated from the increased new business bookings forecast and higher expected pressure from unfavorable foreign currency translation, ADP now anticipates adjusted diluted earnings per share growth of 11% to 13% compared with our prior forecast of 12% to 14% growth. This forecast assumes a negative impact of one to two percentage points from unfavorable foreign currency translation. On a constant dollar basis, adjusted diluted earnings per share is expected to increase 12% to 14%, compared with our prior forecast of an increase of 13% to 15%.
ADP’s earnings growth forecast still assumes adjusted EBIT margin expansion of about 50 basis points from 18.8% in fiscal 2015 and an adjusted effective tax rate of 33.7% compared with 33.5% in fiscal 2015.
Reportable Segments Fiscal 2016 Forecast
- For the Employer Services segment, ADP now anticipates revenue growth of 4% to 5% compared with our prior forecast of 5% to 6% growth due to higher than anticipated pressure from unfavorable foreign currency translation. ADP now anticipates 7% revenue growth on a constant dollar basis compared with our prior forecast of 6% to 7%. As a result of higher anticipated selling expenses from strong new business bookings, ADP now expects segment margin expansion of about 75 basis points for Employer Services compared with our prior forecast of margin expansion of about 100 basis points.
- ADP still expects pays per control to increase 2.0% to 3.0% for the year.
- For the PEO Services segment, ADP now anticipates 16% to 18% revenue growth compared with our prior forecast of 15% to 17%. ADP still expects segment margin expansion of about 50 basis points.
Client Funds Extended Investment Strategy Fiscal 2016 Forecast
The interest assumptions in our forecasts are based on Fed Funds futures contracts and forward yield curves as of February 1, 2016. The Fed Funds futures contracts used in the client short and corporate cash interest income forecasts assumes a moderate increase in the Fed Funds toward the end of the fiscal year. The three-and-a-half and five-year U.S. government agency rates based on the forward yield curves as of February 1, 2016 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 up to $5 million representing up to 1% growth. This forecast is based on anticipated growth in average client funds balances of 2% to 4%, to $22.3 to $22.5 billion, compared to our prior forecast of 3% to 5% growth, due in part to higher than anticipated pressure from unfavorable foreign currency translation. This forecast assumes an average yield of 1.7%, which is anticipated to be flat compared to fiscal 2015.
- The total contribution from the client funds extended investment strategy is expected to be about flat compared to last year.
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