Automatic Data Processing, Inc.

Good morning, my name is Crystal and I will be your conference operator. At this time, I would like to welcome everyone to ADP's first quarter fiscal 2020 earnings call. I would like to inform you that this conference is being recorded and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. To withdraw your question, press the pound key. I will now turn the conference over to Mr. Christian Graham Buell, Vice President, Investor Relations. Please go ahead.

Thank you, Crystal. Good morning, everyone, and thank you for joining ADP's first quarter fiscal 2020 earnings call and webcast. With me today are Carlos Rodriguez, our President and Chief Executive Officer, and Kathleen Winters, our Chief Financial Officer. Earlier this morning, we released our results for the first quarter of fiscal 2020. The earnings materials are available on the SEC's website and our Investor Relations website at investors.adp.com. where you will also find the investor presentation that accompanies today's call, as well as our quarterly history of revenue and pre-tax earnings by reportable segments. During our call today, we will reference non-GAAP financial measures, which we believe to be useful to investors and that exclude the impact of certain items. A description and the timing of these items, along with a reconciliation of non-GAAP measures to their most comparable GAAP measure, can be found in our earnings release. Today's call will also contain forward-looking statements that refer to future events and as such involve some risk. We encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ materially from our current expectations. Before turning the call over to Carlos, you will have noticed in today's earnings release that we made a correction this quarter to certain PEO zero margin pass-through revenues that we had previously reported on a gross basis and which going forward will be reported on a net basis. For consistency, We also revised prior periods, and the total impact of fiscal 2019 revenues and operating expenses was $65 million. This does not materially impact our previously reported growth rates and does not impact consolidated earnings before income taxes, net earnings, consolidated financial condition, or cash flows. To better assist you, we have also included the details of these adjustments in the appendix to the presentation that accompanies today's call. Our supplemental schedule of quarterly history of revenue and pre-tax earnings by reportable segment also reflects the impacts of these changes. Accordingly, our reported results and full-year outlook and the following commentary from both Carlos and Kathleen also fully reflect the impact of these adjustments. As always, please do not hesitate to reach out should you have any questions. And with that, let me turn the call over to Carlos.

Thank you, Christian, and thank you, everyone, for joining our call. This morning we reported our first quarter fiscal 2020 results with revenue of $3.5 billion for the quarter, up 6% reported and organic constant currency. We are pleased with this revenue growth which, despite some higher than expected unfavorability in FX, was in line with our expectations. Our efforts to enhance our operating efficiency, along with our focused attention on transformation, helped us deliver 60 basis points of adjusted EBIT margin expansion for this quarter. This margin expansion was in line with our expectations, and we are happy to see the progress that our associates continue to make in helping to improve our productivity while also improving client satisfaction, particularly given the difficult margin compare given our strong performance in the first half of fiscal 2019. Together with share buybacks and a slightly lower than expected adjusted effective tax rate, these results helped us deliver 12% adjusted EPS growth this quarter. which was slightly ahead of our expectations. Moving on to Employer Services New Business Bookings, this quarter we saw solid growth across our U.S. markets, which helped drive 6% growth in the quarter. With regard to our international and multinational sales opportunities, we did see some impact from timing, as certain deals that were expected to close this quarter are now expected to close slightly later in the fiscal year. Nevertheless, we are maintaining our full-year employer services new business booking guidance of six to eight percent. Now turning to client service, we continue to drive improvements in our client satisfaction scores across our businesses. In this quarter, we were especially pleased with our progress in the upmarket with improvements in both our implementation and overall client satisfaction scores. We continue to take positive steps to transform our service organization and enhance the client experience. And with this continued progress in mind, we remain confident in our forecasted full-year fiscal 2020 retention increase of 10 to 20 basis points. We are pleased with our start to fiscal 2020 and with the continued momentum in advancing our strategy to simplify how we do business, deliver innovative solutions for our clients and associates, and drive sustainable long-term growth for our shareholders. We understand that a key element of building our success in the market is in the capacity to be agile and to anticipate and adapt to change. Innovation is at the core of this need, and it's a job that's never done. While we are incredibly excited about the solutions we are delivering in the market today to help clients meet the needs of an evolving workforce, we're even more excited about the future. As the workforce continues to evolve, organizations are looking for ways to manage their entire workforce through a single user experience. Today, companies of all sizes are using a variety of applications to get work done. What they need is an open HCM platform that allows easy integration with third-party solutions and is also flexible enough to handle the increasingly dynamic nature of work, one where workers are organized around how work happens in teams, often with individuals working on multiple teams at the same time. Aided by insights from the ADP Research Institute, Our next-gen HCM platform is designed at the core to address these needs. A few weeks ago, I had the opportunity to attend the HR Technology Conference in Las Vegas, where our next-gen HCM platform and newest innovations took center stage. As I met with clients and HR professionals, I was incredibly proud of the reception and recognition that we received for delivering innovative solutions that address how and where work is done today. I was especially proud when our NextGen HCM platform won both the HR Executive Top HR Product of the Year Award and the Awesome New Technology Award, a remarkable achievement and a testament to ADP's commitment to innovation. Back in September, we also had the opportunity to showcase some of the differentiating features of ADP's NextGen platform to HCM industry analysts when we hosted our 2019 Industry Analyst Day. At this event, we spent time sharing some of the more meaningful and differentiating elements of our technology, such as the use of graph database technology that powers the unique ability to dynamically configure teams while enabling actionable data and insights around relationships, or our metadata driven design approach that allows the solution to be tailored by the client via low code rapid development through a drag and drop interface. In addition, Our solution was designed from the beginning to be public cloud native. This, among other advantages, helps improve resiliency and uptime. Finally, our solution is designed to be global. Companies that are expanding globally or that would like to more effectively manage their existing global workforce are an ideal target for ADP NextGen HCM. We were equally proud and excited to see the recognition of our efforts from industry experts at this event and While it is great to receive these awards and to be recognized by industry experts, it is even more rewarding when we see our efforts translate into recognition and acknowledgement from our clients and prospects. As we work to scale our solution and its capabilities, our next-gen platform is also building momentum in the market and continues to progress in line with our expectations. As an example, earlier this quarter, at our Industry Analyst Day, we shared details of a successful go-live with a 6,000 employee U.S. company that chose ADP's NextGen HCM platform for its talent capabilities and the ease of integration with the client's own internally developed onboarding tool. At the same event, we were also pleased to share that we had recently signed a 65,000 employee global enterprise that was looking for an HCM platform capable of handling its growing workforce. With that said, our focus on innovation is not limited to our NextGen HCM platform. We have also increasingly leveraged machine learning to enhance our core strategic advantages in payroll and big data. As an example, we simplified 21 million raw job titles from our unmatched data lake and normalized them down to 2,400 job categories, ultimately enhancing both the functionality and accuracy of our ADP data cloud benchmarking. customers are using our compensation and HR benchmark data to make substantial changes to their business. For example, one of our clients was able to leverage our turnover benchmark data to identify opportunities for improvement and ultimately to reduce their turnover by 20%. While another saw its frontline managers use our executive and manager insights mobile solution to help reduce its overtime costs by 6%. These equate to real multimillion dollar operational savings that are being enabled by ADP's data and products. Also, to enhance the efficiency of our implementation organization, we are designing our next-gen payroll engine to automatically recognize, convert, and classify different formats and inputs from prior payrolls into payroll policies. We believe that this will give us an advantage when we onboard new clients since it will enable the automation of various elements of the implementation process and allow us to share best practices with our clients. And finally, we also continue to drive innovation for our frontline associates in an effort to transform how we work by reducing low-value client contacts while still delivering value-added service. With this in mind, last year our support organization in the down market rolled out expanded chatbot functionality, which today is capable of handling over 100 different inquiry types for more than 640,000 small business clients. ADP's unique ability to meet the needs of clients and their workers today, while anticipating their needs in the future, have been hallmarks of our success over the past 70 years, and I believe will drive our sustained growth in the years to come. And with that, I'll turn the call over to Kathleen for her commentary on our results and fiscal 2020 outlook.