Automatic Data Processing, Inc.

Good morning. My name is Crystal, and I will be your conference operator today. At this time, I would like to welcome everyone to ADP Second 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, please 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, and good morning, everyone. And thank you for joining ADP's second 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 second quarter of fiscal 2020. The earnings referrals 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 segment. 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 I turn the call over to Carlos, I'd like to remind you of our upcoming Innovation Day, which is scheduled for February 10th. We hope to see many of you there in person, and for those who are unable to attend, you can find more details about how to view the event at investors.adp.com. We're looking forward to sharing our progress on our investments in innovation, as well as our vision for our HCM technology portfolio. 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 second quarter fiscal 2020 results with revenue of $3.7 billion for the quarter, up 5% reported, and organic constant currency. We are pleased with this revenue growth, which was slightly ahead of our expectations. Our adjusted EBIT margin increased 70 basis points for the quarter and was also slightly ahead of our expectations. Together with share buybacks and a lower adjusted effective tax rate, these results helped us deliver 13% adjusted EPS growth this quarter. Overall, we are pleased with our progress through the first half of fiscal 2020, following a difficult compare with the first half of fiscal 2019. Moving on to operations and starting with new business bookings. This quarter, we continue to see strength in our employer services downmarket offerings and solid progress on the sales of our Workforce Now solutions. We were also particularly pleased to see strong double-digit bookings growth in our PEO. With that said, we are disappointed with our 3% employer services new business bookings growth for the quarter. This lower-than-expected growth was mainly the result of the same trends we saw in the first quarter with our international and multinational businesses, including delayed decisions for some of our larger multinational sales opportunities. As we have said before, given their size, these opportunities can have an outsized impact on our quarterly bookings metric. With this in mind, we have narrowed our full-year employer services new business bookings outlook and now expect 6% to 7% growth as compared to our previous guidance of 6% to 8% growth on last year's $1.6 billion of employer services new business bookings. We continue to have a solid pipeline of opportunities and we remain confident in our ability to execute across our portfolio. Looking at client service, we continue to see good progress with overall strength in our net promoter scores and retention. As a result, we continue to expect our forecasted full year fiscal 2020 employer services revenue retention to increase 10 to 20 basis points. Now we're halfway through fiscal 2020 and at the midpoint of our three-year targets we outlined at our June 2018 Investor Day. As we are also six months away from giving our fiscal 2021 guidance and we will not be giving any updated financial outlook at our upcoming Innovation Day, I want to take a few moments here to look back and share my thoughts on our progress since we provided that guidance. Let's start with new business bookings. You will recall that at our June 2018 Investor Day, we outlined that we were targeting growth for worldwide new business bookings growth of 7% to 9% through fiscal 2021. Though we no longer regularly report a worldwide bookings figure, which as a reminder includes the results of employer services and PEO segments together, we thought it would be helpful in that context of a midpoint look back to share that we have seen 8% average quarterly growth since the beginning of fiscal 2019. We are pleased with this worldwide bookings growth, together with our improvements in employer services revenue retention and how they demonstrate the strength and stability of our business, even as we've been going through meaningful transformation as an organization with a set of broad-based initiatives, including our service alignment initiative in fiscal years 2017 and 18, our voluntary early retirement program in fiscal 2019, and most recently, our workforce optimization and procurement initiatives. Meanwhile, our quarterly average consolidated revenue grew 6% reported and organic constant currency over the past 18 months. As we look at some of the developments that have affected our recent growth relative to our expectations, we note that our PEO has not performed in line with our long-term expectations, driven by lower than expected pass-through revenues and lower than planned worksite employee growth. Over the past several quarters, we've discussed some of the factors impacting PEO revenue growth, including the impacts from our sales incentives, recent retention unfavorability related to health care inflation, and softness in workers' compensation and state unemployment insurance rates. With the impact of these factors, our average growth over the past 18 months in average worksite employees was 8% as compared to our long-term expectation of 9 to 11, and the contribution to revenue growth from pass-throughs was 1% compared to our long-term expectation of 1 to 3%. Despite the slight underperformance relative to our expectations, we are confident in the overall prospects of the PEO business and continue to see healthy demand for our offerings. Our PEO platform is the leading fully outsourced solution in the HCM market, and we combine this with best-in-class HR business partners, which together helps deliver an unparalleled service experience. Stepping back now to total revenue, we are tracking at 6% average growth through six quarters, We have a solid playbook with a proven track record of driving sustained growth, and we will continue to focus on delivering consistent strong bookings growth and retention performance as key priorities. And moving down to P&L, during this period, we further solidified the foundations of our business as our associates continue to transform the way we work while also delivering innovative solutions to our clients. These transformation efforts, along with our steady top-line growth and the operating leverage in our model, have helped deliver robust margin expansion and an average adjusted EBIT growth of 13% through the end of the second quarter of fiscal 2020, which is within the range of our fiscal 2021 target CAGR of 12.5% to 15.5%. This, together with our discipline share buybacks and a lower adjusted effective tax rate, has driven adjusted EPS growth of 18%, which is tracking ahead of our targeted growth of 14.5% to 17 and a half through fiscal 2021. As you can tell from our guidance for fiscal 2020, we currently anticipate ending the year within our fiscal 2021 three-year margin target range, one year ahead of schedule. This is no small accomplishment given our ongoing efforts to invest in the business for the long term. Overall, I'm very pleased with our progress to date. The journey that we embarked upon to simplify how we work drive innovation, and grow our business is a challenging one. However, and more importantly, it is also providing us with great opportunities that demonstrate the value of our offerings to our clients as we continue to simplify the client experience. Through these collective efforts and with the continued strength of both our R&D organization and our worldwide sales force, we are enhancing the depth and scale of our ability to serve our clients wherever they do business with best-in-class products and solutions that fit their needs. Our clients, in turn, are recognizing these efforts as we continue to see improvements in both our net promoter scores as well as in our employer services revenue retention. It is due to the success of these efforts that we remain committed to additional shareholder-friendly actions, such as our recent dividend increases of nearly 45% over the past two years. Our track record of annual increases in our dividend puts us in a small minority with 30 other companies in the S&P 500 that have also grown their dividend for 45 consecutive years or more. As we look forward to the future, we remain confident that our strategy is the right one as we aim to further strengthen our resilient business model in order to drive sustainable long-term value for our shareholders. Before I turn it over to Kathleen for a detailed financial review, I want to note how proud I am of the external recognitions that we received this quarter, which reflect the strong corporate culture on which our business is built. As I reflect on our recent efforts, I am especially proud to see Fortune magazine again name us to their most admired companies list for the 14th consecutive time and also rank us number one in our sector. This is a remarkable achievement and a rewarding recognition for the efforts of our associates who are focused on providing our clients the best solutions both for today and for the future. I am also particularly pleased to see our efforts reflected in the Wall Street Journal's Drucker Institute list of best managed companies. where we were one of the biggest movers, jumping 104 places into the top quartile. These are only some of the great recognitions that we are receiving for our efforts to create opportunities for all of our stakeholders. And with that, I'll turn the call to Kathleen for her commentary on our results and the fiscal 2020 outlook.