Key Takeaways From ADP’s Q2
Key trends from ADP’s Q2 quarter earnings are outlined below:
PEO Services continue to Boost Top-Line Growth – ADP’s PEO Services business has been ever expanding as more companies are exploring the option of using HR outsourcing. For Q2, revenues were up 12% year over year. The upside was driven by an 9% increase in average worksite employees for the reported quarter. Average worksite employees paid by PEO Services were roughly 545,000. As the popularity among businesses to outsource their HR services keeps rising, this figure is likely to grow even further in 2019 and beyond.
Payroll Processing continues To Be The Core Business – While ADP’s PEO services business has driven much of the top line growth in the last few years, payroll processing continues to be its core business, contributing the largest portion of its top-line. The company’s revenue from its payroll processing services increased 7% year over year on a reported basis. The number of employees on ADP clients’ payrolls in the United States rose 2.3% whereas the new business bookings increased 1% in the reported quarter.
With a large and growing customer base and a high retention rate of clients (over 90%), the company is in a strong position to generate sustained revenue growth in this segment. Based on the company’s guidance, we estimate ADP’s total number of payroll processing clients to continue to grow consistently at a 5 – 6% rate.
Acquisition of Celergo – The recent acquisition of Celergo (a leading provider of global payroll management services) in Q1 was a step toward strengthening ADP’s international payroll offerings with a strong proprietary cloud-based technology platform and to facilitate greater integration and alignment with their businesses in FY 2019 and beyond. As multinational companies are increasingly looking for business partners with broad-based geographic and technological capabilities, this move for ADP has proved beneficial for its growth.
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