- Worldwide new business bookings grew 13% for the quarter
- Revenues increased 7% to $3.2 billion, 9% on a constant dollar basis
- Diluted earnings per share from continuing operations increased 14% to $1.17
- ADP acquired 3.8 million shares of its stock for treasury at a cost of $309 million during the quarter
ROSELAND, N.J., April 28, 2016 – ADP (Nasdaq:ADP), a leading global provider of Human Capital Management (HCM) solutions, today announced its third quarter fiscal 2016 financial results. Compared to last year’s third quarter, revenues grew 7% to $3.2 billion, 9% on a constant dollar basis. EBIT grew 9% to $806 million, 10% on a constant dollar basis. EBIT margin increased about 40 basis points in the quarter to 24.8%. Diluted earnings per share from continuing operations increased to $1.17, representing growth of 14% on a reported and constant dollar basis. This growth reflects a lower effective tax rate and fewer shares outstanding compared with last year’s third quarter.
Constant dollar, EBIT and EBIT margin 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.
“We are seeing continued traction for our technology solutions and our robust service offerings, as a growing number of clients adopt new applications or chose our higher-touch HR outsourcing models,” said Carlos Rodriguez, president and chief executive officer, ADP. “While sales of additional human capital management modules that assist with the Affordable Care Act, or ACA, compliance continue to boost our performance, we are especially pleased to have seen balanced contributions to growth from across our HCM portfolio.”
“ADP’s results in the third quarter were solid and reflect investments we’ve made to support our clients through the first year of ACA compliance reporting,” said Jan Siegmund, chief financial officer, ADP. “On a year-to-date basis, we have made substantial investments in operational resources and additional selling expenses, and have also continued our shareholder friendly actions, returning over $1.7 billion in cash through dividends and share repurchases.”
Third Quarter Fiscal 2016 Segment Results
Employer Services – Employer Services offers a comprehensive range of HCM and human resources outsourcing solutions.
- Employer Services revenues increased 5% over last year’s third quarter, 7% on a constant dollar basis.
- The number of employees on ADP clients’ payrolls in the United States increased 2.5% for the third 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 30 basis points compared to a year ago.
- Employer Services segment margin decreased approximately 40 basis points compared to last year’s third quarter. This decrease was primarily driven by the impact of investments made in operational resources to support new business sold.
PEO Services – PEO Services provides comprehensive employment administration outsourcing solutions through a co-employment relationship.
- PEO Services revenues increased 16% compared to last year’s third quarter.
- PEO Services segment margin increased approximately 50 basis points over last year’s third quarter, primarily driven by sales and operational efficiencies.
- Average worksite employees paid by PEO Services increased 14% for the quarter to approximately 422,000.
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 third quarter, interest on funds held for clients increased 2% to $103 million from $101 million a year ago.
- Average client funds balances increased 2% in the third quarter to $26.7 billion compared to $26.2 billion a year ago. On a constant dollar basis, average client funds balances increased 3%.
- The average interest yield on client funds remained flat in the third quarter at 1.5% when compared to 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. Adjusted amounts below exclude these two items.
ADP continues to expect growth in worldwide new business bookings of at least 12% over $1.6 billion sold in fiscal 2015.
Forecasted revenue growth remains unchanged at about 7% or about 9% on a constant dollar basis. This forecast includes an anticipated negative impact of approximately one percentage point from the sale of the AdvancedMD business.
ADP now anticipates adjusted diluted earnings per share growth of about 12% compared with our prior forecast of 11% to 13% growth. On a constant dollar basis, adjusted diluted earnings per share is expected to increase about 13%, compared with our prior forecast of an increase of 12% to 14%.
ADP’s earnings growth forecast still assumes adjusted EBIT margin expansion of about 50 basis points from 18.8% in fiscal 2015. ADP now anticipates an adjusted effective tax rate of 33.3% compared to the prior forecasted rate of 33.7%.
Reportable Segments Fiscal 2016 Forecast
- For the Employer Services segment, ADP still anticipates revenue growth of 4% to 5%. ADP continues to expect about 7% revenue growth on a constant dollar basis. Employer Services segment margin is now expected to expand about 50 basis points compared with our prior forecast of margin expansion of about 75 basis points.
- ADP now expects pays per control to increase 2.5% for the year, as compared to the prior forecast of 2.0% to 3.0%.
- For the PEO Services segment, ADP now anticipates about 17% revenue growth compared with our prior forecast of 16% to 18%. ADP now expects segment margin expansion of up to 75 basis points compared with our prior forecast 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 April 26, 2016. The Fed Funds futures contracts used in the client short and corporate cash interest income forecasts do not anticipate an increase in the Fed Funds target rate during the remainder 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 April 26, 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 now expected to be about flat from $378 million in fiscal 2015, compared to the prior forecast of an increase of up to $5 million. This forecast is based on anticipated growth in average client funds balances of 3%, to about $22.4 billion, compared to our prior forecast of 2% to 4% growth. On a constant dollar basis, average client funds balances are expected to grow 4%. This forecast assumes an average yield of 1.7%, which is anticipated to be flat compared to fiscal 2015.
- Consistent with the previous forecast, the total contribution from the client funds extended investment strategy is expected to be about flat compared to last year.
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