ADP at Citi’s Conference: Strategic Growth Amid Economic Challenges

On Thursday, 04 September 2025, Automatic Data Processing Inc. (NASDAQ:ADP) participated in Citi’s 2025 Global Technology, Media and Telecommunications Conference. The discussion, led by CFO Peter Hadley, highlighted ADP’s strategic growth plans amid a gradually slowing economy. While the company faces some macroeconomic challenges, it remains confident in its ability to achieve financial objectives through strategic acquisitions and client retention initiatives.

Key Takeaways

• ADP targets a mid-term revenue growth of 6-7%, supported by a significant market opportunity of $180 billion.
• The company is leveraging acquisitions like Lyric and Workforce Software to drive growth in enterprise markets.
• Client retention improved to 92.1% in fiscal year 2025, signaling strong customer loyalty.
• ADP’s distribution ecosystem, with over 10,000 sellers, plays a crucial role in its market strategy.
• The company anticipates continued margin expansion, driven by growth and productivity improvements.

Financial Results

• Revenue Growth: ADP reaffirms its mid-term revenue growth target of 6-7%, slightly above the industry average, with fiscal year 2026 guidance at 5-6%.
• Bookings: Employer Services new business bookings reached 2.1 billion dollars, marking a 3% growth.
• Client Retention: Improved by 10 basis points to 92.1% in fiscal year 2025.
• Market Opportunity: ADP captures just over 10% of its estimated 180 billion dollar total addressable market.
• Interest Rate Impact: A 100 basis point move in Fed funds is not expected to impact ADP’s financials.

Operational Updates

• Acquisitions: Lyric and Workforce Software are contributing meaningfully to growth, especially in enterprise bookings and retention.
• Distribution Ecosystem: With over 10,000 sellers, ADP is innovating through channels like embedded payroll.
• Sales Force: Investments in headcount growth and AI-driven insights are enhancing sales force productivity.

Future Outlook

• Enterprise Expansion: Focus on leveraging Lyric and Workforce Software for enterprise and global market growth.
• Sales Force Investments: Continued investment in sales force headcount and productivity.
• Margin Expansion: Expected to continue, driven by company growth and productivity improvements.
• Economic Slowing: ADP is prepared for a gradual economic slowdown, viewing it as a manageable headwind.

Q&A Highlights

• Macro Environment: Despite a gradual economic slowdown, strong underlying fundamentals like employment and wage growth persist.
• Enterprise Impact: Acquisitions like Lyric and Workforce Software require time to significantly impact revenue.
• Retention Drivers: Focus on delivering excellent service and products to improve retention, though macroeconomic conditions may influence results.
• PEO Growth: Returning to double-digit PEO growth rates depends on improved same-store sales metrics and employment growth.

In conclusion, ADP remains optimistic about its strategic direction and ability to navigate economic challenges. Readers are encouraged to refer to the full transcript for a detailed analysis.

Full transcript - Citi’s 2025 Global Technology, Media and Telecommunications Conference:

Brian Keene, Analyst, Citi: Tech conference. I’m Brian Keene. I cover the payments processors in IT services here at Citi. And so we’re excited to have a fireside chat with ADP, and Peter Hadley is the CFO, is here to help us understand the latest and greatest over at ADP. So I’ll run through a bunch of questions, and if anybody has a question in the audience, just feel free to to raise your hand.

We’ll bring a mic around. So with that, Peter, thanks for coming.

Peter Hadley, CFO, ADP: Thank you, Brian.

Brian Keene, Analyst, Citi: Good to be here. I I think I wanted to kick it off and and ask the obvious question just thinking about ADP, having such a great look at the macro environment. How would you characterize the macro? And I’m thinking about pays per control, wage growth, bankruptcies, and the overall spending environment.

Peter Hadley, CFO, ADP: Yeah. No. It’s an interesting question and never more topical honestly than than literally right now. And the bunch of noise you may have some of you may have seen around around even from the Fed around our our data. Our day our numbers came out this morning.

I’m sure everyone’s seen it a little bit lower, I think, than what the market was expecting. I don’t see those numbers nor does Maria or our board even. So they’re not our IR team until they come out. So we we all get them at the same time that you do. But but but I would say not a huge surprise for us.

I think the macro has been really following a a trend of depends how you look at it. If on on the short term, there’s quite a lot of volatility from day to day, week to week, whatever. But but I think if you take, like, a six to six month view, twelve month view, it’s a fairly consistent trend and of a gradual slowing, continue continued growth gradual slowing and we’ve been talking about that calling that out in our numbers, in our guidance and so on. The underlying I think fundamentals are still quite good. We’re still seeing employment growth.

Wage growth, in particular, continues to be strong. It certainly surpassed our expectations in fiscal twenty five for us, both in our PEO business, which generates a good chunk of its revenues based off of the payroll levels of the PEO clients, as well as in our client fund balances, which grew beyond our expectations to a really healthy level. So I think wage growth is still there. Think in terms of the employment numbers, there’s not a the number of additions has certainly slowed as has the number layoffs or voluntary departures. So the market, I think, is relatively quiet in that respect, which might sound counterintuitive to all the headlines we read.

But I think it’s we’re seeing a gradual slowing. It’s not particularly moving at a at a pace that is surprising us either positively or negatively. It’s it’s sort of sort of there. But but for us, I think the most important underlying fundamental is the demand environment. And the demand environment, you know, continues to be strong.

Sales cycles have elongated. We may talk about that, Brian, in your questions. But certainly, the demand environment for our services and what ADP offers, you know, we believe continues to be strong. How about new business starts and bankruptcies? Any changes in those two metrics?

Not a lot. On the new business formations number, actually, they’ve been pretty healthy in recent months and quarters. So, you know, that’s again another positive sign if you like to the economy. It’s funny these days, you know, you each day delivers a metric disappoint, the next one you receive is sort of positive. But certainly, new business formations continues to be pretty healthy.

Bankruptcies have been edging up a little bit, but more or less back to levels that we we were used to. Probably not even quite there yet, but towards levels at least that we were used to, you know, prior to the to the COVID period. So so again, you know, it’s there’s a lot of healthy underlying fundamentals. There’s also a lot of, I think, I don’t know, indecision perhaps or or stagnation, you know, around decision making just given potential whatever, you know, policy or economic things that that are going on out there and companies perhaps are waiting to see what happens. But I think underlying consumption now perhaps is the confidence index might be softening a little bit.

But there’s positives and there are negatives. Again, I think in terms of bankruptcies and business new business formations, that remains pretty healthy as does really the underlying fundamentals of The U. S. Economy, albeit continued on a continued slowing trajectory.

Brian Keene, Analyst, Citi: I wanted to ask, ADP being the largest player in the HCM market and just kind of thinking high level here given your size, how can the company reach that 6% to 7% mid term revenue growth that you guys have outlined I think in the Analyst Day and that would be above kind of industry average growth of kind of mid single digits, I mean slightly above, but just thinking of your size, how do you guys able to grow above kind of industry growth rates?

Peter Hadley, CFO, ADP: Yeah. I mean, we we are a big company, obviously, as as everyone here I think knows. We have a lot of benefits from being a large company. I think the great thing for us though is is whilst we are the largest player, we believe at least in the HCM industry, we have tons of room to grow, we think. We size our market opportunity and we did this at Investor Day a couple of months ago at $180,000,000,000 Obviously, we are a little over 10%, maybe 11% of that number based on our last reported revenue numbers.

So we have tons of room to grow. We’ve also been, over our decades at least of our history, the largest player in the industry. And we’ve had a record, I think, of growing faster than what we see at least as industry growth rates. So, we have lots of opportunities. Can point fingers at many areas.

Would say, in the down market, we continue to be really successful, I think, in adding clients to our offerings, be they new clients, be they in our client count growth. You may have seen that reported in our 10 ks. It continues to be really healthy in that space, notwithstanding the fact we have over 900,000 clients. We have additional offerings where which are really successful, but they still have, you know, relatively low penetration, like retirement services, our insurance offering, our PO. I think we size that too in Investor Day in terms of the market opportunity.

We see plenty of room for growth. And then in the enterprise and global space, in particular, where I think on the domestic enterprise space at least, we’ve perhaps not performed as well as we would have liked over the last decade or so. We have our offering Lyric now out in the market about twelve months coming up to about twelve months, Getting a lot of great traction there. Enterprise in particular takes time. It’s a slower segment in terms of moving the needle just due to the size of the companies, the size of length of the sales cycles, the length of the implementation cycles, the change rates and what have you.

Over, you know, taking a sort of a medium to longer term view, we think there’s tremendous opportunity there. And then putting that together with with our global opportunity, we’ve done very well in global payroll. We’ve been somewhat nascent in global HR and we have a little bit of global time, but not a not a great deal. So between Lyric, our workforce software acquisition and our global continued strengthening of our global payroll opportunities, we don’t feel at all bound by or constrained, if you like, by our size, nor do we feel constrained to market growth rates, because we see there’s a lot more opportunity out there than what we’ve tapped to date, notwithstanding the success the company’s had for seventy six years and our size.

Brian Keene, Analyst, Citi: Yeah, I was going to ask about some of the history, just thinking high level again on the top line. I know previous analyst days, I think two analyst days ago, the target for revenue was kind of seven to 8%. I think the most recent one we’ve been talking about six to 7% for revenue. And then you guided fiscal year twenty twenty six revenue growth of five to 6%. So just these are slight moderations.

Can you help us understand how much of that is just economically driven or maybe some maturity in the market?

Peter Hadley, CFO, ADP: Yeah, I would say it’s very much more macro driven than maturity in the market. So I go from Investor Day November twenty twenty one to Investor Day June 2025. I would say exclusively, they were very different times. Obviously, we were coming out of a pandemic. There was a difficult period with tailwinds coming out and there was some getting back to normal, so to speak, or whatever the phrase we used a few years ago collectively in society around exiting that pandemic.

Now, we’re in a bit more of a slowing economy with a little bit more headwinds, I would say, than tailwinds, but not again, not dramatically. It’s sort of a gradual slowing. So that was really predominantly the difference, if you like, between the November 21 and the June 2025 objectives. Again, we don’t feel any more constrained by sort of the market or the competitive environment now than what we did then. If anything, I think we probably feel better about our relative competitive positioning now based on what I was just saying moments ago around the enterprise space.

I think our PEO is really coming into its own. And when you look at what’s been going on with medical inflation and the way some of our competitors in that space, you know, take more risk under their own books and that what that can be a short term opportunity for them. But over time, you know, we we don’t believe in that model. And so I think we’re coming into our own there. We’re continuing to find new channels, be it embedded payroll and so on in the down market.

We feel strongly. In terms of the current year guidance versus the midterm, I wouldn’t personally draw a lot of conclusions from that. I think the midterm is just is a three to four year type of view on average. I think we said at the time at Investor Day that some years could be a little above, some years could be a little below. I think there is some conservatism, I think justified conservatism around.

We don’t necessarily know how the macro environment will play out this year. We’re not assuming major changes, there could be some changes, whereas midterm is a little bit more of a steady state type scenario. But we are very committed. The most important thing, I think, is we’re very committed to delivering the medium term objectives we gave at Investor Day. We’d very much like to hit those numbers this year.

I think if we perform at the higher end of our current year guidance ranges, we will be more there or thereabouts on all of those medium term you know, guides. And ideally over the medium term, we’ll do what we did last medium term, which is coming at the at the top end of all the key metrics.

Brian Keene, Analyst, Citi: Great. I wanna ask about and you mentioned the the enterprise capabilities, and those have meaningfully enhanced with the launch of Lyric and the acquisition of Workforce Software. When do you expect those to have a more meaningful impact on the revenue growth?

Peter Hadley, CFO, ADP: Yeah. I mean, they’re already having a meaningful impact on our growth. In terms of the absolute size of the company, you know, we’re a large company, it takes time for it to bid in. But certainly, if I look at if I decompose our sources of growth as we do that when analyzing our performance and setting our objectives. It is playing an important role already in the sources of our bookings growth and obviously retention is sky high being a new product also being in that enterprise space as long we are able to deliver, which we have a good track record of doing that.

Those clients tend to hang around quite a lot longer than the line average that our company level or our employer services level retention statistics would imply. So I think in terms of moving the needle on our $20 plus billion of revenue, it will take some time. As I was saying before, sales cycles take a little longer in that space just due to the complexity of the deals. As we go international, that adds a little more. The implementation cycles are longer than what we’re used to in the down market and the mid market.

Again, this is not new information for us, not new learnings. We’ve been in this space for a long time. It’s just it takes time for it to feed through and move the needle on $20 plus billion of revenue. But in terms of our the importance of it to the growth that we’re expecting and have been experiencing over the last year or so, it’s already an important contributor, if that makes sense.

Brian Keene, Analyst, Citi: Yeah, definitely. One of ADP’s greatest assets I always think about is its distribution ecosystem. Can you provide color on the ecosystem and specifically the new embedded payroll channel?

Peter Hadley, CFO, ADP: Sure. Yeah. I mean, it’s one of the great strengths of ADP for since we began, I think. And, you know, we have 10,000 plus sellers. We have huge amount of territory coverage.

We are I won’t be able to do it justice in a chat like this, but just the degree of infrastructure behind the ability to source, onboard, train sellers and also retain particularly the ones we want to retain. It’s a huge machine. It’s really a great asset of the company. The other thing about it is we continue to be innovative. So whether it’s adding new channels, embedded payroll is just another channel, one we’re excited about.

But we’ve been working channels for years, be they in the down market accountants, banks, brokers, brokers in the mid market, ERP players in the mid market and the up market systems integrators. It’s an important channel. It’s another sort of initiative to continue to enhance that distribution capability that we have as is some of the tools including AI and tool, the zone that we spoke about, which is a combination of Salesforce technology, salesforce.com technology as well as our own some of our own proprietary tools and AI that we are enabling our sellers to really become more efficient, but hopefully more than efficient, more effective, be more knowledgeable when they go to the sale, pulling insights, identifying the propensity for certain buyers to be to be interested in our solutions, which solution are they, you know, for example, are they a 50 person company that’s just added employees in a in a couple of different states. Maybe they’re going to be an opportunity for our PEO business to have benefits or not. It’s really about making the sales force, I guess, more effective through intelligence and so And then just broadening our reach through distribution.

So yeah, would concur I think with the line in your question like it is a huge asset for ADP and one that we find we feel really differentiates us from our competition. It’s also to add that many sellers and sellers are on a relative basis are expensive. They’re an extra resource more so than maybe some of the other resources in a business like ours. So just being able to have the balance sheet and the size, financial capability and capacity to continue to maintain and grow that investment, I think is also an advantage that we have.

Brian Keene, Analyst, Citi: I know ES new bookings get a lot of attention, came in just slightly below expectations in fiscal year twenty twenty five. What gives you the kind of the confidence that the growth will accelerate in fiscal year twenty twenty six?

Peter Hadley, CFO, ADP: Yes, good question. The number did come in a little lower, but we were still very pleased, I should say, to deliver $2,100,000,000 in new business bookings for employer services. Was 3% growth. We are confident. A number of the things are around sort of what I was just saying around additional capabilities we’re adding to our sales force.

We’re not just investing in tools and not just investing in channels. We’re also investing in the sales force headcount itself. So we continue to grow our sales force headcount as well as sort of the capabilities and the maturing, if you like, the continued maturing of some of our newer products like Lyric, like Workforce Software, those you know, the amount of work that’s going on in integrating those solutions, not just the two of them together, but with our global payroll, with our Workforce Now offering, you know, we’re in a better place than we were, you know, a year ago with respect to that. So, you know, those things help us. I think the other thing that gives us some confidence, and again, don’t have full control over the macro, but is when we see within the number how the different businesses are performing and there’s no clear structural challenge in any sort of segment.

We spoke about this on our earnings call, think, like we’d had our third quarter earnings call, we spoke about how international our international bookings have been affected. That we had a better performance in international in the fourth quarter, which is sort of the typical biggest period for many of our businesses, but international in particular. So that was encouraging. It was not okay, we don’t have a structural issue. Is international going to be difficult for a few years?

Time will tell, but we don’t feel like that’s the case because we’ve seen sort of some challenging quarters and we’ve seen some strong quarters. We saw the same albeit the order was a little bit reversed in our ESHRO offerings where we had a very strong first half of the year, sort of softened a little bit in the back half. The PEO which we don’t report the numbers, but the bookings we commented, we’re really pleased with the PEO bookings in FY 2025 particularly in the fourth quarter. So we don’t feel that there’s anything at the moment at least that is structural. There’s certainly the continued gradual slowing, which is a little bit of a headwind.

But we feel we can overcome that through the investments we’re making both in distribution itself, as well as the products and services that our sellers are out there selling to our prospects and our clients.

Brian Keene, Analyst, Citi: What’s the the typical growth rate you guys grow the sales force every year? And and what is it gonna be this year?

Peter Hadley, CFO, ADP: Yeah. So we grow around half or maybe slightly above half of sort of the bookings growth we’re anticipating is headcount growth and the difference effectively comes from what we call sales force productivity, which is driven by a number of the things I was talking about, the effectiveness of channels, tools, the products themselves and offerings. Our formula, we don’t necessarily give the exact numbers, but you could think about it as around half or maybe slightly more than half of our sales growth. We expect to be able to deliver through additions to the sales force headcount growth and the difference coming from Salesforce productivity.

Brian Keene, Analyst, Citi: Yep. Can you talk a little bit about how the bookings number employee services hits the the revenue and organic growth number? I know we all look at the bookings numbers so heavily, but it it only has a minor impact on the organic growth of the company.

Peter Hadley, CFO, ADP: Yes. I mean, certainly it has an impact. It’s not as I’ve spoken to some of you about this. It’s not the easiest one to model. We appreciate that.

It’s very important to the revenue number. It’s the lever again. When I think about our revenue model itself, it’s the lever that moves the needle the most because retention, we can talk about retention if you like, but retention is very high. Obviously, that’s not necessarily guaranteed. You have to do a lot of work to maintain that, but can see a lot of movement there, pace per control and other things, price and what have you.

Also, smaller levers in terms of moving the needle. So it is really important, but it’s challenging to model because I guess our diversity and where the bookings are coming from, try to give color on that. We don’t report the numbers, but we try to give color on where the bookings are coming from. But again, bookings in the down market space might start literally within hours or days, perhaps a couple of weeks, depending on the client’s desire and need from when the booking is made, whereas go to the other end of the spectrum, a 22 country multi country payroll and perhaps these days Lyric HCM system of record that could take three years to roll out. Now again, it doesn’t take three years to get the first dollar of revenue, but progressively builds.

So it really depends on the segment mix, if you like, of the bookings as to how it flows through. But for ADP, the way we run the company internally and with our sales force is booking ultimately is only a booking once it becomes revenue generating. So again, we can sell a deal, for example, in the enterprise space. And if that deal did not go live twelve months later, the booking that we may have taken gets reversed. If we don’t think it’s going to go live, we wouldn’t book it to begin with.

But sometimes circumstances changes with clients. So ultimately, every dollar that you see in terms of what we report in bookings makes its way into revenue. It’s a question of when, which segment it’s coming from, but it certainly all flows through. I think people have and we try to give as much color as we can to help with the modeling. You may see, you know, as our as we continue to strengthen in the enterprise space, you know, the the conversion rates may have to shift a little bit just due to the sales and it won’t not the sales, but the implementation

Brian Keene, Analyst, Citi: Yeah. Because those deals take a little longer to close and implementation, I assume, is a little longer than The US.

Peter Hadley, CFO, ADP: Yeah. Yeah. And the the booking don’t get recognized until the sale is closed, obviously. But the implementation cycle can can certainly impact, you know, the timing of timing to revenue.

Brian Keene, Analyst, Citi: Yeah, I did want to ask about client retention. I know it improved 10 basis points to 92.1% in fiscal year twenty twenty five. That’s a high number obviously as you said. Is there room to grow there or is that pretty a stable number and what was driving kind of the improvement to begin with?

Peter Hadley, CFO, ADP: Yeah, mean, I think there’s we always think there’s room to grow. I mean, if you look at structurally, one thing that can impact the aggregated number obviously is the mix. So if we’re growing and we have grown, as you all know, I think very strongly in the down market. The down market structurally has a lower retention rate. So the ease of change, I guess, for smaller businesses versus enterprise clients is easier.

Bankruptcy rates are obviously a little higher in the down market and so on. So, the mix can play a part if you like in the aggregated number. For me, terms of how we run the business, we’re very much focusing on the total is important, but certainly the trends by segment, by business unit is important. And we believe that we have opportunity in pretty much all of our businesses, I think, to improve retention. Whether that will manifest in the total in a meaningful number is hard to say.

We have had steady improvement over recent years, think, as you’re aware. We think that that we don’t think we’re at a ceiling. In terms of our guidance, again, that’s we’ve gotten a lot of questions on that. We don’t necessarily have an insight that tells us retention is going to a specific insight, I should say, retention may decline this year. Our guidance is predicated around continued macro slowing.

And our experience with macro slowing is that those bankruptcy rates that you were talking about earlier do tend to rise as macro slow. And again, we know that we’ve said the same thing for the last couple of years and this has not manifested. We’ve been happy about being wrong on that one. We’d be happy to be wrong again this year. We don’t think we’re at a ceiling.

And in terms of what’s driving it, many things I think. But the most important thing I think is our focus and attention on delivering for our clients at all the time and in every way we can. And whether that’s through great service, through great products, it’s all of those things. But we have really an extremely strong focus on that. Maria, in particular, comes not that Carlos did not, of course, did.

Maria, in particular, comes from very much the commercial side of the organization, from sales, from client service and operations. And I can tell you the culture and the attention to delivering for our clients has never been stronger in the almost twenty four years I’ve been at the company. So we will continue to control that to the best extent we can and deliver control what we can control. The macro will do what it does, But and we’ll see how that manifests on retention. But I don’t feel like we’re at a ceiling to answer the first part of your question again in any way.

Think we have opportunity. But I would caution just given our size and also the mix. I wouldn’t necessarily expect it to go from 92.1% to 96% overnight. It’s not it doesn’t move like that. But gradual improvement is our objective.

Brian Keene, Analyst, Citi: You mentioned PEO and the strength in PEO bookings you saw towards in that fourth quarter. What would it take to get back to that double digit growth rates in PEO?

Peter Hadley, CFO, ADP: Yes, it’s a good question. I think first and foremost, we are happy with how the PEO is going. Of course, we would rather be the 10%, 12%, 14% whatever it was rates of a few years ago than sort of where we’re thinking we are now, where even where we delivered in 25%, which was I think was really good. There’s a couple of things. The primary one is sort of the same store sales metric.

We are at similar levels with our PO, slightly above, but not meaningfully above, very similar to sort of what we do report for employer services and that’s quite different. We’re talking 400 ish, maybe even a little more basis points lower than where that number was 4% or five percent lower than where that number was a number of years ago when we were driving those type of growth rates. So that’s probably the main driver. Think we had some execution challenges a couple of years ago. We’ve made a number of changes including in leadership in the PEO as well as again some focus on the product and just how the way we’re addressing our clients that is certainly helping us.

So continued bookings strength and growing that bookings number is an important lever. The other one, I think, sort of depends how you look at it. Medical inflation, I guess, helps the headline revenue number in the context of the zero margin pass through stuff. As we pass through, again, we don’t take any medical underwriting risk on our books. That flows through.

It also has a bit of an impact on retention. Our retention has not been declining. I think we spoke about a moderate improvement in retention in ’25 over ’24. But certainly and by the way, this is not a base case assumption of ours that medical inflation is going to ebb meaningfully in any time too soon. It doesn’t necessarily feel like the underlying dynamics are going that way.

But that if that were to happen, we’re able to take advantage of that if you like with some sort of noticeable for us improvement in the retention rate while at the same time, pace per control, we’re returning to levels they were then lifting our growth rates perhaps to or at least in the direction of those numbers is certainly possible. Like I said before, I think our market opportunity there, have around 750,000 worksite employees. I think we sized the market at around 4,500,000, 5,000,000. And I think the PEO space I’m trying to find a friend here but I think is maybe 30%, 40%, if you like, of that 4,000,000 to 5,000,000 number. So I think there’s plenty of room for for the business to grow and the offer to take effect.

We’re very good at mining our own existing ES client base for PEO client candidates, which is not cannibalization of our revenue. We get good revenue uplift from doing that. Certainly, it’s all possible, but the biggest thing that we could benefit from in terms of lifting our growth rate up from the levels we’re talking about would be return to employment growth. But again, it’s not our base case assumption, not just this fiscal year, but it’s not our base case assumption in our medium term guide as you can tell from the six to 8% we were talking about in the medium term.

Brian Keene, Analyst, Citi: I got to ask you the popular question on rate cut potential. So 25 to 100 basis point rate cut, how do we think about that impact to the model?

Peter Hadley, CFO, ADP: Yeah. So I mean, our current year guidance contemplated the I think it was around 100 basis points that the market had baked in when we were pulling our forward curve. So we don’t come up with our own prediction of rates. We just use the forward curves that exist at the time when we give guidance. So if there is 100 basis points over our fiscal year, which again, we’re in the first quarter at the moment, then that should have no impact, if you like, on us being able to deliver our current year guidance with respect to client funds interest.

For us, we have more interest rate exposure, if you like, to the little further out on the curve than Fed funds. If you look at Fed funds, I don’t have the numbers at hand, but they’re in our 10 ks filings. A 25 basis point move is in short term rates only is single digit millions of dollars. And again, we have contemplated I think we actually explicitly said that in our prepared remarks for our last earnings call. So 100 basis point move in Fed funds, all else being equal, shouldn’t have any impact on our numbers.

And again, our exposure is a little further down the curve than Fed funds when you look at sort of our client short and our borrowing numbers. There’s somewhat of a close natural hedge there. So we’re not concerned about that. Should that happen, if anything, that might actually be a net tailwind to ADP if it does sort of help the broader economic environment should that happen. But in terms of our client fund interest, no, not expecting that those rate cuts if they materialize to have an adverse effect on the numbers that we’ve been talking about for the year.

We’re much more again, our model for those who follow it is much more the best thing you can do to look at sort of where ADP is heading in CFI, at least in the sort of this year and the next couple of years is each fourth quarter we produce in our earnings materials, we produce a schedule maturity schedule, which shows the dollars maturing in the embedded rates. That’s the biggest driver, not so much changes in absolute rates even. Because if we look this fiscal year, we we have 7,000,000,000 plus maturing at an embedded yield of 1.5%. So you can apply your rate. And again, they’re not invested in Fed funds.

They’re invested typically over durations out to ten years. So that’s what moves the needle much more for us is sort of those yields from, call it, two to seven, eight years is more what moves the needle for us and moves relative to our maturity stack than just the growth in the balances themselves. That might

Brian Keene, Analyst, Citi: be We got about sixty seconds, so I’m gonna do what every analyst always tries to do, which is cram in two two questions, long questions that you’re gonna try to answer in sixty seconds. The first one, just there’s been tremendous margin expansion at ADP over the last five years. How much more is there left and any key drivers you can point out in thirty seconds? And then I got another one.

Peter Hadley, CFO, ADP: Yes, I think more than five years, I think we’ve been we had a great track record with margin expansion. We expect that continue. Again, gave our guide many things. Again, growing the company is the most important thing in terms of delivering margin expansion. That’s what I would say.

We have plenty of opportunity, I think, with AI and other initiatives we have to make to improve our productivity. It’s important for us. We continue to invest, but growing the company is the most important thing for us in terms of margins.

Brian Keene, Analyst, Citi: And then I’ll leave you with this. You’ve been a couple months at in your CFO seat here at ADP. What surprised you the most?

Peter Hadley, CFO, ADP: Good thing is I’ve been at the company for, like I said earlier, a little over a couple of decades. So not a huge number of surprises. The transition was very well managed by the board, Maria and Don, my predecessor. So not a huge number of surprises. Just excited about the opportunity in front of us.

And plenty to do, plenty to execute on, but really looking forward to it.

Brian Keene, Analyst, Citi: Great. With that, Peter, thanks so much for being here.

Peter Hadley, CFO, ADP: Thank you, Brian. Appreciate it. Thank you, everybody.

Brian Keene, Analyst, Citi: That was great.

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