Q4 2024 Summary
Published Jan 10, 2025, 5:10 PM UTC- ADP reported Employer Services (ES) new business bookings growth of 7%, reaching the high end of the 4% to 7% guidance range, with strength across small business, mid-market, enterprise, and international segments, indicating robust demand and effective execution. ,
- The next-gen HCM solution is exceeding expectations, with strong sales even before general availability, showing significant market interest and potential for future growth in the enterprise segment. ,
- Achieved record-high client satisfaction scores and better-than-expected ES retention at 92%, which supports future retention and growth.
- Moderation in PEO Bookings Growth: ADP's PEO bookings growth moderated in the back half of fiscal 2024 compared to the previous year, suggesting potential slowing demand in this segment.
- Expected Margin Pressure Due to Lower Pays per Control and Pricing Increases: ADP anticipates margin pressure in fiscal 2025 from lower pays per control growth, lower pricing increases, and lower client funds interest, particularly in the second half of the year.
- Risk of Normalization in Small Business Retention Rates: ADP acknowledges the potential for increased small business bankruptcies and out-of-business levels, which could lead to a normalization of retention rates in the down-market segment.
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Bookings Performance and Demand Outlook
Q: Can you provide more color on bookings performance and demand?
A: Bookings showed broad-based strength across small business, mid-market, enterprise, and international, leading to an exceptional 7% growth for the year. The HCM demand environment remains strong, as our services are an imperative for businesses, and pipelines look strong year-over-year. -
Pays per Control Outlook in ES and PEO
Q: How is pays per control expected to perform in ES versus PEO?
A: We anticipate pays per control to moderate to 1%-2% growth in '25. ES is expected to be somewhat stronger than PEO, with pays per control growth in PEO likely lower than in ES, but we're still optimistic about overall growth. -
PEO Revenue Guidance and Drivers
Q: What's driving PEO revenue growth despite lower WSE assumptions?
A: The main contributor to PEO revenue growth is zero-margin pass-throughs. While pays per control are under pressure, we're focusing on investing in sales to drive top-line growth and expand our worksite employees, despite some margin pressure from workers' compensation. -
Pricing Strategy and Impact on Retention
Q: How are you balancing pricing increases with client retention?
A: We're planning a 100 basis point pricing increase in '25, down from 150 basis points in prior years, reflecting the moderating inflation environment. We're careful not to over-rotate on price, prioritizing long-term client relationships and lifetime value, and we're confident this won't adversely affect retention. -
Generative AI Monetization and Impact
Q: How will generative AI contribute to revenue and growth?
A: Generative AI will both enhance sales, retention, product efficiency, and NPS and offer monetization opportunities. By integrating ADP Assist across our products, we're aiming to drive more sales, improve client satisfaction, and increase efficiency. Each initiative includes goals for revenue growth, though it's too early to share specifics. -
Competitive Landscape and Pricing Pressure
Q: Are you seeing increased price competition in the market?
A: We haven't observed any meaningful price compression and consider the environment status quo. While competitors run promotions, nothing seems atypical. The key change is that we're stronger than ever, with the best product, record retention, record NPS, and exceptional sales execution. -
Bookings Composition and International Growth
Q: Can you elaborate on bookings across segments and international business?
A: In the down market, we onboarded 50,000 new small business clients in Q4 alone, with 890,000 of our 1.1 million clients now in this segment. Mid-market sales were phenomenal, and our next-gen HCM offering in the enterprise space is seeing record results even before general availability. Internationally, we've had a fantastic year, with each quarter outperforming the last. -
Business Resilience in Economic Slowdowns
Q: How does ADP perform during economic slowdowns?
A: Our business is durable because HCM services are an imperative for companies. We have a playbook to quickly adjust to shifts in demand. While a significant macro downturn might impact bookings, we're confident in our ability to adapt and flex, leveraging our experience and operational levers as needed.