- Revenues increased 7% to $2.9 billion for the quarter, 8% on a constant dollar basis
- Diluted earnings per share from continuing operations increased 13% to $0.81; adjusted diluted earnings per share from continuing operations increased 26% to $0.86, 26% on a constant dollar basis
- Recorded an anticipated pre-tax restructuring charge of $40 million related to the previously announced Service Alignment Initiative
- On November 1, 2016, ADP signed an agreement with WageWorks, Inc. to sell its Consolidated Omnibus Reconciliation Act (“COBRA”) and Consumer Health Spending Account (“CHSA”) businesses for $235 million
- ADP acquired 4.0 million shares of its stock for treasury at a cost of $352 million in the quarter
ROSELAND, N.J., Nov. 02, 2016 (GLOBE NEWSWIRE) — ADP® (Nasdaq:ADP), a leading global provider of Human Capital Management (HCM) solutions, today announced its first quarter fiscal 2017 financial results, and provided an update to its fiscal 2017 outlook.
Compared to last year’s first quarter, revenues grew 7% to $2.9 billion, 8% on a constant dollar basis. Net earnings from continuing operations grew 9% to $369 million, 8% on a constant dollar basis. Adjusted EBIT grew 21% to $579 million, 20% on a constant dollar basis. Adjusted EBIT margin increased about 230 basis points in the quarter to 19.8% driven by operational efficiencies and a slower growth in our selling expenses. Diluted earnings per share from continuing operations increased to $0.81, representing growth of 13%, 11% on a constant dollar basis and included a $0.03 tax benefit related to the adoption of new stock-based compensation accounting guidance. Adjusted diluted earnings per share from continuing operations increased 26% to $0.86, 26% on a constant dollar basis. Diluted earnings per share growth reflects a lower effective tax rate and fewer shares outstanding compared with last year’s first quarter.
Constant dollar, adjusted EBIT, adjusted EBIT margin and adjusted diluted earnings per share are non-GAAP financial measures. For ADP’s definition of adjusted EBIT, see the paragraph “Non-GAAP Financial Information” at the end of this release. Please refer to the accompanying financial tables for a reconciliation of non-GAAP financial measures to their comparable GAAP measures.
“We are off to a solid start in fiscal 2017, and are pleased with the strategic and operational progress we achieved during the quarter,” said Carlos Rodriguez, president and chief executive officer, ADP. “In particular, we believe efforts to align our service model to our HCM solution strategy and upgrade our clients to our strategic cloud platforms are having a positive impact on our business performance.”
“Our business performed very well in the quarter posting solid revenue growth and better than expected earnings growth,” said Jan Siegmund, chief financial officer, ADP. “New business bookings were in line with expectations and flat against a difficult compare in the first quarter of fiscal 2016 and we continue to expect growth of 4% to 6% for fiscal 2017.”
First Quarter 2017 Segment Results
Employer Services – Employer Services offers a comprehensive range of HCM and human resources outsourcing solutions.
- Employer Services revenues increased 6% compared to last year’s first quarter, 6% on a constant dollar basis.
- The number of employees on ADP clients’ payrolls in the United States increased 2.7% for the first quarter when measured on a same-store-sales basis for a subset of clients ranging from small to large businesses.
- Employer Services client revenue retention declined 100 basis points compared to last year’s first quarter which included a 100 basis point decline related to a single client loss within our CHSA business.
- Employer Services segment margin increased approximately 230 basis points compared to last year’s first quarter. This increase was primarily driven by operational efficiencies and a slower growth in our selling expenses.
PEO Services – PEO Services provides comprehensive employment administration outsourcing solutions through a co-employment relationship.
- PEO Services revenues increased 13% compared to last year’s first quarter.
- PEO Services segment margin increased approximately 90 basis points compared to last year’s first quarter, primarily driven by operational efficiencies.
- Average worksite employees paid by PEO Services increased 13% for the quarter to approximately 439,000.
Interest on Funds Held for Clients – The safety, liquidity and diversification of ADP clients’ funds are the foremost objectives of the company’s investment strategy. Client funds are invested in accordance with ADP’s prudent and conservative investment guidelines and the credit quality of the investment portfolio is predominantly AAA/AA.
- For the first quarter, interest on funds held for clients increased 2% to $89 million from $88 million a year ago.
- Average client funds balances increased 4% in the first quarter to $20.0 billion compared to $19.4 billion a year ago.
- The average interest yield on client funds was 1.8% which was flat compared to a year ago.
Notable Subsequent Events
On November 1, 2016, ADP signed an agreement to sell its CHSA and COBRA businesses to WageWorks for $235 million and anticipates an estimated pre-tax gain of approximately $200 million. The results of operations of these businesses were included in the Employer Services segment during the quarter and our fiscal 2017 outlook has been adjusted accordingly. The Company expects the sale to be completed during the second quarter of fiscal 2017, subject to normal and customary closing conditions.
Fiscal 2017 Outlook
Certain components of ADP’s fiscal 2017 outlook and related growth comparisons exclude the impact of the following items and are discussed on an adjusted basis where applicable. Please refer to the accompanying financial tables for a reconciliation of these adjusted amounts to their closest comparable GAAP measure.
- Fiscal 2016 first quarter pre-tax gain on sale of the AdvancedMD business of $29 million
- Fiscal 2016 second quarter pre-tax gain on sale of a building of $14 million
- Fiscal 2016 fourth quarter pre-tax workforce optimization charge of $48 million
- Fiscal 2017 pre-tax restructuring charges of approximately $90 million, $40 million of which occurred in the first quarter, with the remaining $50 million expected to occur in the latter part of the fiscal year
- Anticipated Fiscal 2017 second quarter pre-tax gain on sale of the CHSA and COBRA businesses of approximately $200 million
Subsequent to the disposition of our CHSA and COBRA businesses, ADP now forecasts full year revenue growth of 7% to 8% compared to our prior forecast of 7% to 9% growth. Foreign currency translation is not expected to have a significant impact on revenue growth in fiscal 2017. This revenue forecast still assumes growth in worldwide new business bookings of 4% to 6% compared to the $1.75 billion sold in fiscal 2016.
Reflecting the tax benefit received in the first quarter, ADP now anticipates an adjusted effective tax rate of 32.7% compared to the prior forecast of 33.3%. Subsequent to the disposition of our CHSA and COBRA businesses and the associated gain on sale, ADP now forecasts full year diluted earnings per share from continuing operations to grow 15% to 17% compared to our prior forecast of 6% to 8% growth and adjusted diluted earnings per share growth of 11% to 13% compared to our prior forecast of 10% to 12% growth. This earnings growth forecast now assumes an adjusted EBIT margin expansion of about 50 basis points compared to our prior forecast of 25 to 50 basis points. This forecast continues to assume fiscal 2017 share repurchases of $1.0 to $1.4 billion funded by existing balance sheet cash.
Reportable Segments Fiscal 2017 Forecast
- For the Employer Services segment, ADP still anticipates revenue growth of approximately 4% to 5% with pretax margin expansion of about 50 basis points.
- ADP still expects pays per control to increase 2.5% for the year.
- For the PEO Services segment, ADP continues to anticipate 14% to 16% revenue growth. ADP now expects PEO Services segment margin expansion of about 75 basis points compared to our prior forecast of 50 to 75 basis points.
Client Funds Extended Investment Strategy Fiscal 2017 Forecast
The interest assumptions in our forecasts are based on Fed Funds futures contracts and forward yield curves as of October 31, 2016. The Fed Funds futures contracts used in the client short and corporate cash interest income forecasts assumes a moderate increase in the Fed Funds near the second half of the fiscal year. The three-and-a-half and five-year U.S. government agency rates based on the forward yield curves as of October 31, 2016 were used to forecast new purchase rates for the client and corporate extended, and client long portfolios, respectively.
- Interest on funds held for clients is expected to increase $5 to $10 million, or 2% to 3%, compared to the prior forecast of up to $5 million, or about 2%. This is based on anticipated growth in average client funds balances of 2% to 4% from $22.4 billion in fiscal 2016 and an average yield which is anticipated to be about flat at 1.7% compared to the fiscal 2016 average yield.
- The total contribution from the client funds extended investment strategy is now expected to be up $5 million compared to our prior forecast of about flat compared with a year ago.
Investor Webcast Today
ADP will host a conference call for financial analysts today, Wednesday, November 2, 2016 at 8:30 a.m. EDT. The conference call will be webcast live on ADP’s website at investors.adp.com and will be available for replay following the call. A slide presentation will be available shortly before the webcast.
Supplemental financial information including schedules of quarterly and full year reportable segment revenues and earnings for fiscal years 2015 and 2016, as well as details of the first quarter fiscal 2017 results from the client funds extended investment strategy, are posted to ADP’s website at investors.adp.com. ADP news releases, current financial information, SEC filings and Investor Relations presentations are accessible at the same website.
Non-GAAP Financial Information
The company has presented certain financial data that are considered non-GAAP financial measures and are reconciled to their comparable GAAP measures in the accompanying financial tables. The adjusted EBIT performance measures include interest income earned on investments associated with our client funds extended investment strategy and interest expense on borrowings related to our client funds extended investment strategy. ADP believes these amounts to be fundamental to the underlying operations of our business model. ADP’s calculation of adjusted EBIT may differ from similarly titled measures used by other companies.
The presentation of growth rates on a constant dollar basis represent a non-GAAP measure and are calculated by restating current period results into U.S. dollars using the comparable prior period’s exchange rates.
About ADP (Nasdaq:ADP)
Powerful technology plus a human touch. Companies of all types and sizes around the world rely on ADP’s cloud software and expert insights to help unlock the potential of their people. HR. Talent. Benefits. Payroll. Compliance. Working together to build a better workforce. For more information, visit ADP.com.
| Automatic Data Processing, Inc. and Subsidiaries | |||||||||||
| Statements of Consolidated Earnings | |||||||||||
| (In millions, except per share amounts) | |||||||||||
| (Unaudited) | |||||||||||
| Three Months Ended | |||||||||||
| September 30, | |||||||||||
| 2016 | 2015 | ||||||||||
| Revenues: | |||||||||||
| Revenues, other than interest on funds held for clients and PEO revenues | $ | 2,037.4 | $ | 1,928.7 | |||||||
| Interest on funds held for clients | 89.2 | 87.8 | |||||||||
| PEO revenues (A) | 790.3 | 697.5 | |||||||||
| Total revenues | 2,916.9 | 2,714.0 | |||||||||
| Expenses: | |||||||||||
| Costs of revenues: | |||||||||||
| Operating expenses | 1,531.5 | 1,439.8 | |||||||||
| Systems development & programming costs | 154.9 | 156.1 | |||||||||
| Depreciation & amortization | 57.2 | 50.6 | |||||||||
| Total costs of revenues | 1,743.6 | 1,646.5 | |||||||||
| Selling, general & administrative expenses | 647.7 | 605.3 | |||||||||
| Interest expense | 19.9 | 4.9 | |||||||||
| Total expenses | 2,411.2 | 2,256.7 | |||||||||
| Other income, net | (23.0 | ) | (47.7 | ) | |||||||
| Earnings from continuing operations before income taxes | 528.7 | 505.0 | |||||||||
| Provision for income taxes | 160.0 | 167.5 | |||||||||
| Net earnings from continuing operations | $ | 368.7 | $ | 337.5 | |||||||
| Earnings from discontinued operations before income taxes | — | (1.4 | ) | ||||||||
| Provision for income taxes | — | (0.5 | ) | ||||||||
| Net earnings from discontinued operations | $ | — | $ | (0.9 | ) | ||||||
| Net earnings | $ | 368.7 | $ | 336.6 | |||||||
| Basic earnings per share from continuing operations | $ | 0.82 | $ | 0.73 | |||||||
| Basic earnings per share from discontinued operations | — | — | |||||||||
| Basic earnings per share | $ | 0.82 | $ | 0.73 | |||||||
| Diluted earnings per share from continuing operations | $ | 0.81 | $ | 0.72 | |||||||
| Diluted earnings per share from discontinued operations | — | — | |||||||||
| Diluted earnings per share | $ | 0.81 | $ | 0.72 | |||||||
| Dividends declared per common share | $ | 0.530 | $ | 0.490 | |||||||
| Components of Other income, net: | |||||||||||
| Interest income on corporate funds | $ | (22.9 | ) | $ | (18.6 | ) | |||||
| Realized gains on available-for-sale securities | (0.4 | ) | (0.9 | ) | |||||||
| Realized losses on available-for-sale securities | 0.3 | 0.9 | |||||||||
| Gain on sale of business | — | (29.1 | ) | ||||||||
| Total other income, net | $ | (23.0 | ) | $ | (47.7 | ) | |||||
| (A) Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes of $7,687.6 million and $6,865.3 million for the three months ended September 30, 2016 and 2015, respectively. | |||||||||||
| Automatic Data Processing, Inc. and Subsidiaries | |||||||
| Condensed Consolidated Balance Sheets | |||||||
| (In millions) | |||||||
| (Unaudited) | |||||||
| September 30, | June 30, | ||||||
| 2016 | 2016 | ||||||
| Assets | |||||||
| Cash and cash equivalents/Short-term marketable securities | $ | 2,817.6 | $ | 3,214.6 | |||
| Other current assets | 2,519.4 | 2,444.6 | |||||
| Total current assets before funds held for clients | 5,337.0 | 5,659.2 | |||||
| Funds held for clients | 24,787.2 | 33,841.2 | |||||
| Total current assets | 30,124.2 | 39,500.4 | |||||
| Property, plant and equipment, net | 701.0 | 685.0 | |||||
| Other non-current assets | 3,512.2 | 3,484.6 | |||||
| Total assets | $ | 34,337.4 | $ | 43,670.0 | |||
| Liabilities and Stockholders’ Equity | |||||||
| Other current liabilities | $ | 2,370.2 | $ | 2,515.6 | |||
| Client funds obligations | 24,349.1 | 33,331.8 | |||||
| Total current liabilities | 26,719.3 | 35,847.4 | |||||
| Long-term debt | 2,007.7 | 2,007.7 | |||||
| Other non-current liabilities | 1,360.3 | 1,333.3 | |||||
| Total liabilities | 30,087.3 | 39,188.4 | |||||
| Total stockholders’ equity | 4,250.1 | 4,481.6 | |||||
| Total liabilities and stockholders’ equity | $ | 34,337.4 | $ | 43,670.0 | |||
| Automatic Data Processing, Inc. and Subsidiaries | |||||||
| Condensed Statements of Consolidated Cash Flows | |||||||
| (In millions) | |||||||
| (Unaudited) | Three Months Ended | ||||||
| September 30, | |||||||
| 2016 | 2015 | ||||||
| Cash Flows from Operating Activities: | |||||||
| Net earnings | $ | 368.7 | $ | 336.6 | |||
| Adjustments to reconcile net earnings to cash flows provided by operating activities | 178.1 | 145.4 | |||||
| Changes in operating assets and liabilities, net of effects from acquisitions and divestitures of businesses | (217.0 | ) | (372.9 | ) | |||
| Net cash flows provided by operating activities | 329.8 | 109.1 | |||||
| Cash Flows from Investing Activities: | |||||||
| Purchases and proceeds from corporate and client funds marketable securities | (271.0 | ) | 395.5 | ||||
| Net decrease / (increase) in restricted cash and cash equivalents held to satisfy client funds obligations | 9,160.8 | (137.8 | ) | ||||
| Capital expenditures | (48.7 | ) | (55.6 | ) | |||
| Additions to intangibles | (57.2 | ) | (45.4 | ) | |||
| Other investing activities | (20.0 | ) | 162.5 | ||||
| Net cash flows provided by investing activities | 8,763.9 | 319.2 | |||||
| Cash Flows from Financing Activities: | |||||||
| Net decrease in client funds obligations | (8,928.3 | ) | (275.1 | ) | |||
| Net proceeds from debt issuance | — | 1,986.4 | |||||
| Repurchases of common stock | (328.6 | ) | (308.1 | ) | |||
| Dividends paid | (241.8 | ) | (229.0 | ) | |||
| Other financing activities | (14.9 | ) | (46.0 | ) | |||
| Net cash flows (used in) / provided by financing activities | (9,513.6 | ) | 1,128.2 | ||||
| Effect of exchange rate changes on cash and cash equivalents | 5.4 | (11.1 | ) | ||||
| Net change in cash and cash equivalents | (414.5 | ) | 1,545.4 | ||||
| Cash and cash equivalents, beginning of period | 3,191.1 | 1,639.3 | |||||
| Cash and cash equivalents, end of period | $ | 2,776.6 | $ | 3,184.7 | |||
| Supplemental disclosures of cash flow information: | |||||||
| Cash paid for interest | $ | 33.4 | $ | 2.4 | |||
| Cash paid for income taxes, net of income tax refunds | $ | 36.3 | $ | 18.7 | |||
| Automatic Data Processing, Inc. and Subsidiaries | ||||||||||||||||
| Other Selected Financial Data | ||||||||||||||||
| (Dollars in millions, except per share amounts) | ||||||||||||||||
| (Unaudited) | Three Months Ended | % Change | ||||||||||||||
| September 30, | As | Constant | ||||||||||||||
| 2016 | 2015 | Reported | Dollar Basis | |||||||||||||
| Revenues from continuing operations | ||||||||||||||||
| Employer Services | $ | 2,261.2 | $ | 2,130.8 | 6 | % | 6 | % | ||||||||
| PEO Services | 794.7 | 701.5 | 13 | % | 13 | % | ||||||||||
| Other | (139.0 | ) | (118.3 | ) | n/m | n/m | ||||||||||
| Total revenues from continuing operations | $ | 2,916.9 | $ | 2,714.0 | 7 | % | 8 | % | ||||||||
| Segment earnings from continuing operations | ||||||||||||||||
| Employer Services | $ | 656.6 | $ | 570.3 | 15 | % | 14 | % | ||||||||
| PEO Services | 107.1 | 88.3 | 21 | % | 21 | % | ||||||||||
| Other | (235.0 | ) | (153.6 | ) | n/m | n/m | ||||||||||
| Total pretax earnings from continuing operations | $ | 528.7 | $ | 505.0 | 5 | % | 4 | % | ||||||||
| Three Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| Segment margin | 2016 | 2015 | Change | |||||||||||||
| Employer Services | 29.0 | % | 26.8 | % | 2.3 | % | ||||||||||
| PEO Services | 13.5 | % | 12.6 | % | 0.9 | % | ||||||||||
| Other | n/m | n/m | n/m | |||||||||||||
| Total pretax margin | 18.1 | % | 18.6 | % | (0.5 | )% | ||||||||||
| Three Months Ended | % Change | |||||||||||||||
| September 30, | As | Constant | ||||||||||||||
| Earnings per share information: | 2016 | 2015 | Reported | Dollar Basis | ||||||||||||
| Net earnings from continuing operations | $ | 368.7 | $ | 337.5 | 9 | % | 8 | % | ||||||||
| Net earnings | $ | 368.7 | $ | 336.6 | 10 | % | 9 | % | ||||||||
| Basic weighted average shares outstanding | 452.3 | 462.4 | (2 | )% | n/a | |||||||||||
| Basic earnings per share from continuing operations | $ | 0.82 | $ | 0.73 | 12 | % | 11 | % | ||||||||
| Basic earnings per share | $ | 0.82 | $ | 0.73 | 12 | % | 11 | % | ||||||||
| Diluted weighted average shares outstanding | 455.3 | 465.7 | (2 | )% | n/a | |||||||||||
| Diluted earnings per share from continuing operations | $ | 0.81 | $ | 0.72 | 13 | % | 11 | % | ||||||||
| Diluted earnings per share | $ | 0.81 | $ | 0.72 | 13 | % | 11 | % | ||||||||
| Three Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| Key Statistics: | 2016 | 2015 | ||||||||||||||
| Internal revenue growth: | ||||||||||||||||
| Employer Services | 6 | % | 3 | % | ||||||||||||
| PEO Services | 13 | % | 18 | % | ||||||||||||
| Internal revenue growth – Constant Dollar Basis: | ||||||||||||||||
| Employer Services | 6 | % | 7 | % | ||||||||||||
| PEO Services | 13 | % | 18 | % | ||||||||||||
| Employer Services: | ||||||||||||||||
| Change in pays per control – U.S. | 2.7 | % | 2.3 | % | ||||||||||||
| Change in client revenue retention percentage – worldwide | (1.0 | ) pts | (1.6 | ) pts | ||||||||||||
| Employer Services/PEO new business bookings growth – worldwide | — | % | 13 | % | ||||||||||||
| PEO Services: | ||||||||||||||||
| Paid PEO worksite employees at end of period | 443,000 | 392,000 | ||||||||||||||
| Average paid PEO worksite employees during the period | 439,000 | 389,000 | ||||||||||||||
| Automatic Data Processing, Inc. and Subsidiaries | ||||||||||||||||
| Other Selected Financial Data, Continued | ||||||||||||||||
| (Dollars in millions, except per share amounts or where otherwise stated) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| 2016 | 2015 | Change | % Change | |||||||||||||
| Average investment balances at cost (in billions): | ||||||||||||||||
| Corporate, other than corporate extended | $ | 2.9 | $ | 1.7 | $ | 1.2 | 73 | % | ||||||||
| Corporate extended | 4.4 | 4.0 | 0.4 | 10 | % | |||||||||||
| Total corporate | 7.3 | 5.7 | 1.6 | 29 | % | |||||||||||
| Funds held for clients | 20.0 | 19.4 | 0.7 | 4 | % | |||||||||||
| Total | $ | 27.4 | $ | 25.0 | $ | 2.3 | 9 | % | ||||||||
| Average interest rates earned exclusive of realized losses (gains) on: | ||||||||||||||||
| Corporate, other than corporate extended | 0.7 | % | 0.5 | % | ||||||||||||
| Corporate extended | 1.6 | % | 1.7 | % | ||||||||||||
| Total corporate | 1.3 | % | 1.3 | % | ||||||||||||
| Funds held for clients | 1.8 | % | 1.8 | % | ||||||||||||
| Total | 1.6 | % | 1.7 | % | ||||||||||||
| Net unrealized gain position at end of period | $ | 438.7 | $ | 269.9 | ||||||||||||
| Average short-term financing (in billions): | ||||||||||||||||
| U.S. commercial paper borrowings | $ | 4.1 | $ | 3.5 | ||||||||||||
| U.S. & Canadian reverse repurchase agreement borrowings | 0.4 | 0.5 | ||||||||||||||
| $ | 4.4 | $ | 4.0 | |||||||||||||
| Average interest rates paid on: | ||||||||||||||||
| U.S. commercial paper borrowings | 0.4 | % | 0.2 | % | ||||||||||||
| U.S. & Canadian reverse repurchase agreement borrowings | 0.6 | % | 0.4 | % | ||||||||||||
| Interest on funds held for clients | $ | 89.2 | $ | 87.8 | $ | 1.4 | 2 | % | ||||||||
| Corporate extended interest income (B) | 18.1 | 16.6 | 1.5 | 9 | % | |||||||||||
| Corporate interest expense-short-term financing (B) | (4.9 | ) | (1.9 | ) | (3.1 | ) | (161 | )% | ||||||||
| $ | 102.4 | $ | 102.6 | $ | (0.2 | ) | — | % | ||||||||
| (B) While “Corporate extended interest income” and “Corporate interest expense-short-term financing,” related to our client funds investment strategy, are non-GAAP measures, management believes this information is beneficial to reviewing the financial statements of ADP. Management believes this information is beneficial as it allows the reader to understand the extended investment strategy for ADP’s client funds assets, corporate investments, and short-term borrowings. A reconciliation of the non-GAAP measures to GAAP measures is as follows: | ||||||||||||||||
| Three Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| 2016 | 2015 | |||||||||||||||
| Corporate extended interest income | $ | 18.1 | $ | 16.6 | ||||||||||||
| All other interest income | 4.8 | 2.0 | ||||||||||||||
| Total interest income on corporate funds | $ | 22.9 | $ | 18.6 | ||||||||||||
| Corporate interest expense-short-term financing | $ | 4.9 | $ | 1.9 | ||||||||||||
| All other interest expense | 15.0 | 3.0 | ||||||||||||||
| Total interest expense | $ | 19.9 | $ | 4.9 | ||||||||||||
| Automatic Data Processing, Inc. and Subsidiaries | |||||||||||||||||
| Consolidated Statement of Adjusted / Non-GAAP Financial Information | |||||||||||||||||
| (in millions, except per share amounts) | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| Within the tables, we use the term “constant dollar basis” so that certain financial measures can be viewed without the impact of foreign currency fluctuations to facilitate period-to-period comparisons of business performance. The financial results on a “constant dollar basis” are determined by calculating the current year result using foreign exchange rates consistent with the prior year. We believe “constant dollar basis” provides information that isolates the actual growth of our operations. Our constant dollar results are not measures of performance calculated in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and should not be considered in isolation from, as a substitute for, or superior to the U.S. GAAP measures presented. | |||||||||||||||||
| The table reconciles our reported results to adjusted results which exclude one or more of the following: our provision for income taxes, certain interest amounts, the charges related to our Service Alignment Initiative, and the gain on the sale of our AMD business in fiscal 2016. We use certain adjusted results, among other measures, to evaluate our operating performance in the absence of certain items and for planning and forecasting of future periods. We believe that the exclusion of these items helps us reflect the fundamentals of our underlying business model and analyze results against our expectations, against prior period, and to plan for future periods by focusing on our underlying operations. We believe that these adjusted results provide relevant and useful information for investors because it allows investors to view performance in a manner similar to the method used by management and improves their ability to understand and assess our operating performance. Generally, the nature of these exclusions are for specific items that are not fundamental to our underlying business operations. Specifically, we have excluded the impact of certain interest expense and certain interest income from adjusted earnings from continuing operations before interest and income taxes (“Adjusted EBIT”). We continue to include the interest income earned on investments associated with our client funds investment strategy and interest expense on borrowings related to our client funds extended investment strategy as we believe these amounts to be fundamental to the underlying operations of our business model. The amounts included as adjustments in the table below represent the interest income and interest expense that is not related to our client funds extended investment strategy and are labeled as “All other interest expense” and “All other interest income.” The majority of charges related to our Service Alignment Initiative represent severance charges. Severance charges have been taken in the past and not included as an adjustment to get to adjusted results. Unlike severance charges in prior periods, these specific charges relate to a broad-based, company-wide Service Alignment Initiative effort. Since Adjusted EBIT, Adjusted provision for income taxes, Adjusted net earnings from continuing operations, Adjusted diluted earnings per share (“Adjusted diluted EPS”) from continuing operations and Adjusted EBIT margin are not measures of performance calculated in accordance with U.S. GAAP, they should not be considered in isolation from, as a substitute for, or superior to earnings from continuing operations before income taxes, provision for income taxes, net earnings from continuing operations and diluted EPS from continuing operations and they may not be comparable to similarly titled measures used by other companies. | |||||||||||||||||
| Three Months Ended | |||||||||||||||||
| September 30, | % Change | ||||||||||||||||
| 2016 | 2015 | As Reported | Constant Dollar Basis |
||||||||||||||
| Net earnings from continuing operations | $ | 368.7 | $ | 337.5 | 9 | % | 8 | % | |||||||||
| Adjustments: | |||||||||||||||||
| Provision for income taxes | 160.0 | 167.5 | |||||||||||||||
| All other interest expense | 15.0 | 3.0 | |||||||||||||||
| All other interest income | (4.8 | ) | (2.0 | ) | |||||||||||||
| Gain on sale of AMD | — | (29.1 | ) | ||||||||||||||
| Service Alignment Initiative | 39.9 | — | |||||||||||||||
| Adjusted EBIT | $ | 578.8 | $ | 476.9 | 21 | % | 20 | % | |||||||||
| Adjusted EBIT Margin | 19.8 | % | 17.6 | % | |||||||||||||
| Provision for income taxes | $ | 160.0 | $ | 167.5 | (4 | )% | (5 | )% | |||||||||
| Adjustments: | |||||||||||||||||
| Gain on sale of AMD (a) | — | (7.3 | ) | ||||||||||||||
| Service Alignment Initiative (b) | 15.1 | — | |||||||||||||||
| Adjusted provision for income taxes | $ | 175.1 | $ | 160.2 | 9 | % | 8 | % | |||||||||
| Adjusted effective tax rate (c) | 30.8 | % | 33.7 | % | |||||||||||||
| Net earnings from continuing operations | $ | 368.7 | $ | 337.5 | 9 | % | 8 | % | |||||||||
| Adjustments: | |||||||||||||||||
| Gain on sale of AMD | — | (29.1 | ) | ||||||||||||||
| Service Alignment Initiative | 39.9 | — | |||||||||||||||
| Provision for income taxes on gain on sale of AMD (a) | — | 7.3 | |||||||||||||||
| Income tax benefit for Service Alignment Initiative (b) | (15.1 | ) | — | ||||||||||||||
| Adjusted net earnings from continuing operations | $ | 393.5 | $ | 315.7 | 25 | % | 24 | % | |||||||||
| Diluted earnings per share from continuing operations | $ | 0.81 | $ | 0.72 | 13 | % | 11 | % | |||||||||
| Adjustments: | |||||||||||||||||
| Gain on sale of AMD | — | (0.05 | ) | ||||||||||||||
| Service Alignment Initiative | 0.05 | — | |||||||||||||||
| Adjusted diluted earnings per share from continuing operations | $ | 0.86 | $ | 0.68 | 26 | % | 26 | % | |||||||||
| (a) – The tax on the gain on the sale of the AMD business was calculated based on the marginal rate of the Company in effect during the quarter of the adjustment adjusted for a book vs. tax basis difference primarily due to a previously recorded non tax-deductible goodwill impairment charge. (b) – The tax provision on the Service Alignment Initiative was calculated based on the annualized marginal rate of the Company in effect during the quarter of the adjustment. (c) – The Adjusted effective tax rate is calculated as our Adjusted provision for income taxes divided by our Adjusted net earnings from continuing operations plus our Adjusted provision for income taxes. |
|||||||||||||||||
| Automatic Data Processing, Inc. and Subsidiaries | |||||||||||||
| Fiscal 2017 GAAP to Non-GAAP Guidance Reconciliation | |||||||||||||
| (Unaudited) | |||||||||||||
| Twelve Months Ended | Fiscal 2017 | ||||||||||||
| June 30, 2016 | Forecast | ||||||||||||
| Earnings from continuing operations before income taxes margin (GAAP) | $ | 2,234.7 | 19.2 | % | ~+140bps | ||||||||
| Adjustments: | |||||||||||||
| All other interest expense | 47.9 | +40bps | +5bps | a | |||||||||
| All other interest income | (13.6 | ) | (10)bps | – | b | ||||||||
| Gain on sale of AMD – 1Q F16 | (29.1 | ) | (25)bps | +25bps | c | ||||||||
| Gain on sale of building – 2Q F16 | (13.9 | ) | (10)bps | +10bps | d | ||||||||
| Workforce optimization effort – 4Q F16 | 48.2 | +40bps | (40)bps | e | |||||||||
| Service Alignment Initiative – F17 | - | - | ~+70bps | f | |||||||||
| Gain on sale of COBRA and CHSA businesses – 2Q F17 | - | - | ~(160)bps | g | |||||||||
| Adjusted EBIT margin (Non-GAAP) | $ | 2,274.2 | 19.5 | % | +~50 bps | ||||||||
| Effective tax rate (GAAP) | 33.2 | % | 33.2 | % | |||||||||
| Adjustments: | |||||||||||||
| Gain on sale of AMD – 1Q F16 | +0.11 | % | - | ||||||||||
| Gain on sale of building – 2Q F16 | (0.03 | %) | - | ||||||||||
| Workforce optimization effort – 4Q F16 | +0.02 | % | - | ||||||||||
| Service Alignment Initiative – F17 | - | +0.2 | % | ||||||||||
| Gain on sale of COBRA and CHSA businesses – 2Q F17 | - | (0.7 | %) | ||||||||||
| Adjusted effective tax rate (Non-GAAP) | 33.3 | % | 32.7 | % | |||||||||
| Diluted earnings per share from continuing operations (GAAP) | $ | 3.25 | 12 | % | 15% – 17% | ||||||||
| Adjustments: | |||||||||||||
| Gain on sale of AMD – 1Q F16 | (0.05 | ) | (1 | %) | +1 | % | c | ||||||
| Gain on sale of building – 2Q F16 | (0.02 | ) | (1 | %) | +1 | % | d | ||||||
| Workforce optimization effort – 4Q F16 | 0.07 | +2 | % | (2 | %) | e | |||||||
| Service Alignment Initiative – F17 | - | - | ~+4 | % | f | ||||||||
| Gain on sale of COBRA and CHSA businesses – 2Q F17 | - | - | ~(8 | %) | g | ||||||||
| Adjusted diluted earnings per share from continuing operations (Non-GAAP) | $ | 3.26 | 13 | % | 11% – 13% | ||||||||
| a) No material impact is expected from change in all other interest expense in fiscal 2017 | |||||||||||||
| b) No material impact is expected from change in all other interest income in fiscal 2017 | |||||||||||||
| c) First quarter fiscal 2016 gain on sale of AdvancedMD business will not recur in fiscal 2017 | |||||||||||||
| d) Second quarter fiscal 2016 gain on sale of building is not expected to recur in fiscal 2017 | |||||||||||||
| e) Fourth quarter fiscal 2016 impact of workforce optimization effort not expected to recur in fiscal 2017 | |||||||||||||
| f) Impact of Fiscal 2017 charges in connection with the Service Alignment Initiative: ~$40 million incurred in 1Q F17, ~$50 million expected in the latter part of the fiscal year | |||||||||||||
| g) Expected gain on the sale of COBRA and CHSA businesses to occur in second quarter fiscal 2017 | |||||||||||||
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Source: Software