The paragraph introduces the ADP Second Quarter 2025 Earnings Call. The call is hosted by Michelle, the conference operator, and includes speakers Matt Keating, VP of Investor Relations; Maria Black, President and CEO; and Don McGuire, CFO. The earnings materials were released earlier and are available online. The call will include discussions on non-GAAP financial measures and forward-looking statements. Maria Black expresses sympathy for victims of recent wildfires in Los Angeles before discussing a significant milestone achieved in the second quarter.

In November, ADP's Board of Directors approved a 10% increase in the quarterly dividend, marking the 50th consecutive year of dividend growth, qualifying ADP as a "dividend king." This achievement reflects ADP's strong business model and innovative capabilities. The company plans to further discuss its progress and future at the 2025 Investor Day on June 12th. ADP reported strong second-quarter results, with 8% revenue growth, a 60-basis point increase in adjusted EBIT margin, and 10% growth in adjusted EPS. The results were strong across Employer Services and PEO segments, with record new business bookings in HR outsourcing, compliance, and enterprise businesses, along with small-business offerings. Despite a slight decline in Employer Services retention, performance exceeded expectations, with high client satisfaction reaching a record level. The company anticipates a strong second half of the year due to healthy demand and an improved new business pipeline.

In the second quarter, Employer Services experienced a 1% increase in pay per control, while PEO revenue grew by 8% due to strong new business bookings. ADP announced a strategic partnership with Fiserv to integrate their small-business solutions, including Clover and CashFlow Central, with ADP's Run payroll and HR solution. This partnership aims to support small businesses by offering an all-in-one solution for managing cash flow, sales, and payroll. Additionally, ADP's acquisition of WorkForce Software is proceeding as planned.

ADP is integrating WorkForce Software's time management tools with its HCM platforms after acquiring its team. This integration has generated new business opportunities, particularly among enterprise clients, and allows ADP to offer comprehensive HR and payroll solutions. The addition of WorkForce Software enhances ADP's ability to compete across various industries globally. Additionally, ADP's new HCM platform, Lyric, is performing well with increased new business bookings, including a major client in the Midwest looking to streamline their personnel and payroll operations. The company remains optimistic about its growth in workforce management and enterprise sectors.

The paragraph discusses the successful launch and global expansion of the Lyric platform, attributed to the hard work and commitment of ADP associates. Don McGuire then provides a financial update, highlighting an 8% revenue increase for Employer Services in Q2, with solid new business growth and a steady demand for Human Capital Management services. Despite a slight decline in retention and pays per control growth, ADP maintains its growth forecasts. The company also anticipates increased client funds interest revenue for the year, raising its forecast by $25 million.

The paragraph outlines the company's financial performance and forecasts for the fiscal year. Despite challenges from foreign exchange headwinds, the company is maintaining its full-year revenue growth outlook of 6% to 7% for its Employer Services (ES) segment, with an expected margin increase driven by operating leverage and increased client funds interest revenue. The Professional Employer Organization (PEO) segment exceeded expectations with 8% revenue growth and 3% growth in average worksite employees, aided by strong new business and favorable timing of state unemployment insurance revenue. However, PEO margins declined due to higher costs and zero-margin benefits pass-through growth. Overall, the company is maintaining its consolidated revenue growth forecast of 6% to 7% and adjusted EBIT margin expansion of 30 to 50 basis points for fiscal 2025, along with an unchanged adjusted EPS growth forecast of 7% to 9%. Additionally, the company anticipates an effective tax rate of around 23% for the full year. Timing effects in revenue recognition for PEO and ES segments were also noted.

The paragraph discusses the impact of various factors, such as the strengthening US dollar and lower short-term interest rates, on revenue growth and financial metrics for the company. It anticipates a slow-down in revenue growth and adjusted EBIT margin expansion in Q3 due to these factors and integration expenses from acquiring WorkForce Software, with expectations of improvement in Q4. Following this operational update, a Q&A begins with Samad Samana from Jefferies asking about a new partnership with Fiserv. Maria Black responds by expressing excitement about the relationship, highlighting that both companies focus on the small-business market and have initiated a reciprocal referral relationship.

The paragraph discusses the integration plans between Run and Clover products, aiming to create a joint offering on the technology side. The speaker expresses optimism about the partnership's effectiveness in distributing leads and emphasizes the importance of partnerships in their market strategy, especially with channel partners like banks and accountants, and now Fiserv. The follow-up question about the enterprise side focuses on the rebranding to Lyric, the company's next-generation HCM solution, which is reportedly performing well in the market. The speaker notes that Lyric's flexibility and intelligence are appealing to clients, and there's a strong pipeline of client additions and growth year-over-year.

The paragraph discusses the demand for Human Capital Management (HCM) solutions, highlighting its broad-based strength across various client segments. Maria Black notes that despite some pressure on new business formations, demand remains elevated compared to pre-pandemic levels. In the down-market, small businesses continue to hire and invest, while mid-market demand is strong, particularly in HR outsourcing, an area where the company differentiates itself. Additionally, improvements in their mid-market product, Workforce Now, have resulted in record net promoter scores (NPS) and retention rates. Overall, the company is positive about the demand landscape.

The paragraph discusses the company's positive outlook for the mid-market segment and pipeline strength despite global economic uncertainties. It mentions that any demand changes due to a new administration are still uncertain, but change generally benefits ADP as it helps companies remain compliant. Bryan Bergin inquires about the 2025 EPS growth outlook, noting potential FX headwinds from dollar strength. Don McGuire acknowledges these FX challenges but highlights the third quarter as having the highest average daily balances due to federal and state tax cycles.

The paragraph discusses various financial dynamics impacting the company's performance. It highlights the effect of short-term rate decreases and FX headwinds, emphasizing the challenges faced in Q3 before an anticipated rebound in Q4. Additionally, Don McGuire explains the slower PEO revenue growth, influenced by the timing of SUI recognition due to calendar effects and potential slower pace per control growth compared to ES, despite rounding down to a 1% growth rate in ES. The paragraph also references a 50-year dividend increase milestone and includes interaction with analysts Brian Bergin and Ramsey El-Assal regarding these financial insights.

The paragraph discusses the approach to mergers and acquisitions (M&A) in the industry context following Paychex's acquisition of Paycor. Don McGuire indicates that their M&A strategy remains unchanged despite regulatory considerations, focusing on acquisitions that complement rather than complicate their offerings. They emphasize a continued interest in making strategic acquisitions, such as tuck-ins, which have helped improve their network control and overall business. Ramsey El-Assal and the operator then transition the conversation to James Faucette from Morgan Stanley, who asks about retention issues flagged in the last quarter. Specifically, he inquires whether retention degradation is linked to broader hiring level changes rather than an increase in small to medium-sized business bankruptcies.

In the discussion, Maria Black confirms the assumption that small to medium-sized business bankruptcies will increase in the latter half of the year. Despite this, she expresses satisfaction with their retention rates, which indicate that many small businesses are managing to stay operational. There has been a slight decline in the down-market across the first two quarters, but overall, they are achieving record retention levels. Therefore, they intend to maintain their current retention guidance. Additionally, James Faucette inquires about the company's AI and machine learning initiatives, particularly their Generative AI projects and their impact on client retention and sales productivity. Maria responds that they are focused on their Generative AI strategy, and additional insights may be provided by Don.

The paragraph discusses how the company is integrating Generative AI into various aspects of its operations. It describes three main areas of focus: enhancing products through ADP Assist, improving service efficiency with tools like Agent Assist and call summarization, and digitally transforming client onboarding, particularly for small businesses. Additionally, the company is modernizing its sales process by implementing advanced technology for opportunity prioritization and pre-call planning, aiming to improve productivity and effectiveness in their sales strategy.

The paragraph discusses the impact of technology and tools on sales productivity and efficiency. The speaker reflects on past methods of preparing for client interactions and highlights how modern tools now aid salespeople, boosting their effectiveness. This modernization and tenure in the sales force are leading to increased productivity and sales. Don McGuire adds that while many associates have access to these tools, there are still more to equip, and he anticipates further positive results once that's achieved. However, the benefits will manifest more significantly in the long-term rather than immediately. The conversation concludes with a transition to the next question in the discussion.

Mark Marcon congratulates Maria Black and Don on their organization's 50th anniversary and their progress with Fiserv and Clover. He inquires about the future potential of this partnership. Maria appreciates his compliments and discusses plans to expand partnerships, particularly through distribution channels like banks, CPAs, and POS channels. She envisions this partnership as a significant channel in the future, akin to accountants and banks today, to drive value in the small business market. While the primary focus is on small businesses, there's potential to expand beyond that, depending on future success in the down-market.

The paragraph discusses the focus on client-centric solutions at Fiserv and ADP, emphasizing their commitment to aiding business owners across various market segments. It highlights the progress of integrating WorkForce Software into ADP, noting that everything is on track with the integration plan. Maria Black expresses satisfaction with the progress made in the first 100 days since the integration began, particularly regarding market collaboration between the two companies and the focus on workforce and time management solutions. However, she acknowledges that the integration process is ongoing and specific timelines for full integration are still being worked out.

The paragraph discusses a business conversation during a call, where Maria Black and Don McGuire address questions from analysts Mark Marcon and Bryan Keane. The conversation touches on the excitement about expanding in the workforce management, enterprise, and global spaces, particularly with a product integrated with the Lyric offering. Bryan Keane asks about the Fiserv partnership's economics, to which Maria Black responds that the arrangement includes both referral fees and revenue sharing. Keane also inquires about the selling season and pricing environment, with Don McGuire noting that the competitive landscape remains consistent, with no significant changes from previous periods, aside from typical promotional activities.

The paragraph discusses the pricing strategy and sales outlook for a company. The company is aiming for a 100 basis point price increase for existing clients this year, which is more than the historical 50 basis points but less than the 150 basis points during high inflation periods. They believe this target is achievable due to strong client retention. During a discussion with Bryan Keane, the company also maintains an optimistic outlook on bookings, with a guidance range of 4% to 7% growth unchanged from last year. Maria Black notes that pipelines, particularly in the mid-market, upmarket, and international segments, are in good shape and up year-on-year. In the down-market, activities like new appointments and RFPs are used as indicators, and both are performing well. The company emphasizes that their sales tend to be stronger in the latter half of the year.

The paragraph features a conversation between Jason Kupferberg and Don McGuire, discussing financial expectations for the latter half of the year, specifically Q3 and Q4. Don highlights several factors impacting revenue and margins, such as foreign exchange (FX) effects and challenges with the CFI due to a 100 basis point drop. Integration expenses related to WorkForce Software are also affecting the third quarter. Don mentions that the upcoming 10-Q report will offer detailed insights into amortization and intangibles, which will help understand future financial impacts. Overall, there is expected softness in Q3 due to these factors, but growth is anticipated to accelerate in Q4, aligning with the full-year guidance. Following this, Scott Wurtzel from Wolfe Research asks about the PEO segment, noting peers' comments on clients opting for lower cost benefit plans.

The paragraph is a conversation involving Maria Black, Scott Wurtzel, and Don McGuire. Maria mentions that there haven't been significant changes in benefits enrollment behavior recently, as they are entering their renewal season. Different PEOs have varied structures, which can affect behaviors differently, but she hasn't observed notable swings. The HR outsourcing offering has shown strong performance in bookings. Don McGuire notes that the softer pace of growth was broad-based, without specific pockets of clients being more affected. Tien-tsin Huang from JPMorgan asks about the deal pipeline and deal sizes, to which Maria responds that both have remained relatively consistent.

In the paragraph, the speaker discusses the return to pre-pandemic business norms, although noting some timing irregularities due to recent holidays. Large deal cycles remain somewhat inconsistent. The conversation then shifts to market dynamics, with Tien-tsin Huang asking Maria Black about the trend of SMB players investing in mid-market solutions, suggesting it validates ADP's model. Maria acknowledges the consolidation and views it positively as it underscores the value of ADP's broad-based segment approach. She expresses confidence in ADP's product position and anticipates that they will continue to perform well against competitors.

The paragraph involves a discussion between Pete Christiansen from Citi and Maria Black about ADP's longer-term strategy regarding B2B payments and treasury management solutions. Pete is curious about the potential for these areas to serve as opportunities for expansion, given past actions like the establishment of ADP Trust Company and collaborations with other companies, including cross-border payroll efforts. Maria acknowledges these points and hints at forthcoming details at their Investor Day, highlighting a partnership with Fiserv as a learning opportunity in this area.

In the paragraph, the discussion centers around ADP's strategic approach, emphasizing client-centric solutions. This may involve collaborations, partnerships, or even shared/full ownership with other companies to address real problems. There's anticipation for future announcements, though no major revelations are teased. A shift in industry dynamics is noted, and an upcoming Analyst Day is mentioned, hinting at updates. In the subsequent conversation, Pete Christiansen expresses interest in this event. Kevin McVeigh from UBS inquires about expected business trends, particularly a reacceleration in Q4. Don McGuire explains that the reacceleration, especially in Employer Services (ES), is influenced by a reduced impact of short-term interest rates in Q4 compared to Q3, due to the differences in the client funds interest and the short portfolio's influence.

The paragraph includes a discussion about seasonal retention trends, particularly focusing on Q3 when most client switching occurs, resulting in a dip in retention. Despite a slight expected decline in retention, the decline was less than anticipated, and high client satisfaction remains indicated by strong NPS scores. The conversation also touches on pricing changes, noting a current increase of 100 basis points compared to the historical 50 basis points, and a question is raised about whether this pricing environment will sustain or if it is a temporary situation.

In this paragraph, Don McGuire discusses the uncertainty of economic forecasts and potential inflation, emphasizing that the focus is on providing value and maintaining client retention, which is a key metric for pricing decisions. He also addresses a question from Kartik Mehta about the PEO (Professional Employer Organization) segment, noting that while short-term fluctuations exist, trends have generally stabilized and improved compared to the ES (Employee Services) segment. McGuire highlights that stabilization across industries, particularly in financial administrative services, has been a positive development.

In the paragraph, Dan Dolev from Mizuho asks about a perceived change in language regarding hiring trends, noting a shift from "moderate pace" to "slower pace." He seeks insight into whether this slowing trend is temporary or long-term. Don McGuire responds by emphasizing the strong and solid macroeconomic environment, highlighting low unemployment and overall optimism in the U.S. market. He suggests that these fundamentals, along with international opportunities, support continued growth. Dan Dolev congratulates the company on its leadership in the industry, acknowledging competitors are adopting similar strategies. The segment concludes the Q&A session.

In the closing remarks, Maria Black expresses gratitude to participants and shares exciting news that ADP has been named a World's Most Admired Company by Fortune magazine for the 19th consecutive year in 2025. She credits this recognition to the dedication of ADP associates who serve clients across various segments in a dynamic environment. Maria congratulates all ADP employees and concludes the program, with the operator ending the call.

This summary was generated with AI and may contain some inaccuracies.