Automatic Data Processing, Inc.

Good morning. My name is Michelle, and I'll be your conference operator. At this time, I would like to welcome everyone to ADP's second quarter fiscal 2023 earnings call. I would like to inform you that this conference is being recorded. After the prepared remarks, we will conduct a question and answer session, and instructions will be given at that time. I would now like to turn the call over to Mr. Daniel Hussain, Vice President, Investor Relations. Please go ahead.

Thank you, Michelle, and welcome everyone to ADP's second quarter fiscal 2023 earnings call. Participating today are Maria Black, our President and CEO, and Don McGuire, our CFO. Earlier this morning, we released our results for the quarter. Our 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. During our call, we will reference non-GAAP financial measures, which we believe to be useful to investors and that excludes the impact of certain items. A description of these items, along with a reconciliation of non-GAAP measures to the most comparable GAAP measures, can be found in our earnings release. Today's call will also contain forward-looking statements that refer to future events and 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. I'll turn it over now to Maria.

Thank you, Danny, and thank you, everyone, for joining us. ADP delivered strong Q2 results headlined by 10% organic constant currency revenue growth, 120 basis points of adjusted EBIT margin expansion, and 19% adjusted EPS growth. We continue to deliver exceptional value in the HCM market as we invest in ourselves and innovate to continuously meet and exceed the changing needs of our more than 1 million diverse global clients. I'll start with some highlights from the quarter. In Q2, we drove very strong ES new business bookings growth, which included an incredible finish in December. We have continued to see robust demand across our downmarket portfolio and our ES HRO offerings and our international sales performance, especially our GlobalView platform was much stronger in Q2 after a softer Q1. Overall, we are pleased with our sales results for the first half of the year, and although clients are still dealing with a number of uncertainties, our pipelines are healthy and we feel well-staffed and well-positioned to deliver solid bookings growth for the remainder of the year. Our ES retention was once again a source of outperformance with modest year-on-year improvement in Q2 overall despite continued normalization in down-market out-of-business rates. This strong result was just shy of the record retention set during the pandemic and was led by our mid-market, our upmarket, and international businesses. And we're pleased to be taking our full-year guidance up slightly. Our pace to control metric was 5% for the quarter, decelerating slightly from Q1 as we had anticipated. Jobs growth in the U.S. labor market has been slowing, but clearly remains solid, which you see reflected in our client base. Despite recent headlines noting job cuts by number of companies, we have yet to see broad-based softening in the labor market. Last, on our PEO, our growth in average works on employees was solid at 8%. While we had been expecting growth to decelerate over the course of this year, the pace was a bit faster than we previously assumed and we're adjusting our outlook accordingly. With that said, demand for the PEO solution remains healthy The secular growth opportunity is unchanged, and we are well positioned to re-accelerate our worksite employee growth. Stepping back from the quarter, I want to provide a quick update on our broader strategy. Over the last several years, you've heard us talk a lot about the modernization of our products. Our simpler user experience enhances ease of use for our key platforms like RUN and Workforce Now, and enables a more seamless integration to complementary solutions like insurance, retirement, and payments. Our next-gen payroll engine is a prime example of how we're modernizing the back end of our solutions, and we continue to offer it to a broader set of new mid-market clients. And brand new solutions like Roll and our next-gen HCM platform position us to address certain HCM opportunities more fully than before. These product enhancements are designed to drive win rates and retention even higher, and we have tremendous opportunity in front of us. But our strategy has always been about much more than just offering HCM software. ADP clients want us to help them find, hire, pay, engage, and provide for the retirement of their workers in a thoughtful and compliant way. To truly solve for these needs, we are modernizing all aspects of the client relationship. That starts with product but also extends to our go-to-market approach, how we onboard our clients, and even how we advise and support them on critical issues. We refer to this collective effort as our modernization journey. And as with our product journey, the opportunities here are incredible. We are removing friction and enhancing the client experience in many ways. In our U.S. down market, we continue to digitally onboard tens of thousands of clients every year, making onboarding easier for our clients and accelerating time to start. We have seen this success in the U.S., and we're beginning to scale this same capability in Canada. Our intelligent self-service capability, launched only last quarter, is already helping a portion of our client base answer millions of questions from client employees through a completely automated process. And now, in our international portfolio, we're implementing chatbots to reduce work for those clients as well. We continue to invest in our robust partner ecosystem, cultivating deep relationships and integrations with financial advisors, CPAs, and benefits brokers to provide a seamless experience for our mutual clients. And we're using the power of our extensive data to deliver insights to bring greater value to clients, From better aligning pay to market trends, to reducing the frequency and severity of worker compensation claims, to identifying tax credits and other legislative incentives. To bring this large-scale modernization journey to life, I'll speak to one of our fastest growing businesses, ADP Retirement Services, which helps employers establish and administer retirement plans. Businesses today face a complex environment with significant legislative change, and our clients look to us to help them navigate these changes, stay compliant, and address talent challenges. For example, in the retirement space specifically, the recently passed Secure Act 2.0 alone has over 90 provisions for businesses and employees to consider. And what we've designed makes life easy for our clients and partners. improves the financial wellness of their employees, and sets us apart in the market. Our robust 401 solution with thousands of different investment options is not only clean and intuitive thanks to our new UX framework, but is also deeply integrated with RUN and Workforce Now. Our highly tenured, licensed retirement services sales force understands our clients and understands which solutions can make a meaningful difference in a client's unique talent strategy. To expand on our partnerships with financial advisors, we recently developed a platform called Advisor Access, much like the Accountant Connect platform we developed for the CPA community years ago. This positions us better to serve our mutual clients and their employees. And our tax credits team, full of experts in their field, is there to help our clients or their CPAs apply for and obtain the appropriate legislative incentives. Our goal in our modernization journey is to consistently improve the full end-to-end experience for our clients and their employees, which will in turn contribute to our long-term sustainable growth and profitability. We look forward to keeping you updated. And now, over to Don.