ADP Q1 Earnings Call: Management Discusses International Bookings, New Products, and CFO Transition

Payroll and HR services provider Automatic Data Processing (NASDAQ: ADP) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 5.7% year on year to $5.55 billion. Its non-GAAP profit of $3.06 per share was 2.9% above analysts’ consensus estimates.

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StockStory’s Take

Automatic Data Processing’s first quarter results reflected contributions from new business bookings in its core U.S. payroll and HR offerings, ongoing demand for compliance solutions, and continued growth in its Professional Employer Organization (PEO) segment. CEO Maria Black highlighted that U.S. client retention remained strong and enterprise clients showed increased interest in the Lyric HCM platform, while international bookings softened due to macroeconomic uncertainty, particularly with larger, multi-country deals.

Looking ahead, management emphasized the resilience of ADP’s business model in uncertain economic environments, citing pipelines that support continued growth across segments. Outgoing CFO Don McGuire noted, "Our business is well insulated," and pointed to the company’s ability to adapt hiring and investment plans if macro conditions deteriorate. Management also previewed upcoming Investor Day disclosures on product innovation and reaffirmed a focus on integrating recent acquisitions and scaling embedded payroll partnerships.

Key Insights from Management’s Remarks

Management attributed the quarter’s operating performance to new business momentum in the U.S., strong client retention, and targeted product investments, while also acknowledging international sales headwinds. Forward-looking commentary focused on continued product integration and new market initiatives.

• CFO Transition Announced: Don McGuire is retiring as CFO, with Peter Hadley, the current Treasurer, set to assume the CFO role. Management described this as an orderly succession with no change to strategic direction expected.
• U.S. New Business Bookings: Solid growth in new bookings for small business, mid-market, and enterprise offerings, especially compliance solutions, contributed to revenue expansion. Management highlighted positive feedback from clients and stable pays per control (PPC) growth.
• International Softness: Bookings in international markets were softer, which management attributed to macroeconomic uncertainty and the lumpy nature of large multi-country deals. However, pipelines remain strong and are expected to support future growth.
• PEO and Retention Strength: PEO segment revenue benefited from higher average wages and strong client retention. Management emphasized the value of ADP’s fully insured PEO model, noting it offered stability in volatile benefits markets.
• Product and Partner Integration: The integration of Workforce Software with ADP’s HCM platforms is progressing, with early wins in enterprise clients. The embedded payroll partnership with Fiserv is on track, with full integration expected to expand addressable markets and drive incremental growth.

Drivers of Future Performance

Management expects near-term performance to be shaped by resilient demand in core U.S. segments and product innovation, while monitoring macroeconomic conditions, particularly in international markets. Margin trends will reflect ongoing investments in integration and technology.

• Pipeline and Product Innovation: Active pipelines in enterprise and mid-market, along with the rollout of Lyric HCM and generative AI features, are expected to drive bookings and support future revenue growth.
• Embedded Payroll Initiatives: Expansion of embedded payroll solutions, especially through Fiserv and potential new partners, is positioned to increase distribution and addressable market size, although full revenue impact will depend on the pace of integration.
• Macroeconomic and Retention Risks: Management cited global macro uncertainty as a risk to international bookings and large enterprise deal closures. However, strong client satisfaction and retention in core segments are expected to partially mitigate these risks.

Top Analyst Questions

• Ramsey El-Assal (Barclays): Asked for more detail on international bookings softness; management attributed it to macro uncertainty and the lumpy nature of large deals but reaffirmed confidence in pipeline strength.
• Dan Dolev (Mizuho): Questioned whether client concerns were resulting in reduced hiring or simply caution; CFO Don McGuire responded that the client base remained stable, with no major pullback in hiring observed.
• Mark Marcon (Baird): Inquired about PEO demand and integration of Workforce Software; management reported solid PEO bookings and emphasized early success in integrating Workforce Software with positive client response.
• Tien-tsin Huang (JPMorgan): Sought clarity on Employer Services revenue trends and PEI Mexico acquisition; management explained Q3’s revenue dynamics and noted the PEI deal’s local focus with potential for broader Latin American expansion.
• Ashish Sabadra (RBC): Asked about progress in generative AI deployment; CEO Maria Black highlighted ongoing rollout of ADP Assist and other generative AI tools, describing it as early stage but central to future product strategy.

Catalysts in Upcoming Quarters

In the coming quarters, StockStory analysts will closely track (1) the pace of international bookings recovery, especially for large, multi-country deals, (2) the rollout and client adoption of the Lyric HCM platform and generative AI features, and (3) the integration and market impact of embedded payroll partnerships like Fiserv. Progress in these areas will be key to evaluating whether ADP can maintain its growth trajectory amid external uncertainties.

ADP currently trades at a forward P/E ratio of 29.1×. At this valuation, is it a buy or sell post earnings? Find out in our free research report.

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