Automatic Data Processing’s Q3 results were met with a negative market reaction despite revenue and non-GAAP profit slightly exceeding Wall Street expectations. Management pointed to growth in new business bookings—particularly in small business retirement and insurance services—and noted an uptick in HR Outsourcing and enterprise product Lyric HCM. CEO Maria Black acknowledged, however, that client hiring remained subdued, with Employer Services pays per control rounding down to 0%, reflecting ongoing caution around headcount additions. Black stated, “Employer Services retention rate continued to exceed our expectations and only declined slightly,” but cautioned that client hiring was static amid a stable demand environment.

Is now the time to buy ADP? Find out in our full research report (it’s free for active Edge members).

While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.

Our Top 5 Analyst Questions From ADP’s Q3 Earnings Call

• Samad Samana (Jefferies) asked about deal cycles and whether there were changes in time to close. CEO Maria Black replied that deal cycles remained stable, with no material shifts observed in either small or large client segments.
• Mark Marcon (Baird) questioned embedded payroll’s contribution and mid-market Next-Gen adoption. Black noted embedded payroll is in early stages and hasn’t impacted revenue yet but Next-Gen has driven higher satisfaction and productivity.
• Jinli Chan (Wells Fargo Securities) pressed on pays per control weakness. CFO Peter Hadley said the move to flat guidance is minor and driven by hiring data in ADP’s client base, with low layoffs balancing out limited hiring.
• Kartik Mehta (Northcoast Research) asked about pricing assumptions and AI deployment in sales. Hadley confirmed no change in pricing strategy, while Black said AI tools are now used by more than 40% of the sales force, improving efficiency.
• Daniel Jester (BMO Capital Markets) inquired about international performance and Next-Gen client adoption. Black explained international results are typically uneven due to deal size, and that certain mid-market clients opt out of Next-Gen due to integration needs.

Catalysts in Upcoming Quarters

In the quarters ahead, our analysts will focus on (1) the pace at which embedded payroll and generative AI tools gain traction and influence client retention, (2) signs of improvement or further deceleration in client hiring, as reflected in pays per control metrics, and (3) the integration and cross-sell success of recent acquisitions such as Pequity. Additionally, we will watch for developments in international market momentum and the impact of any macroeconomic shifts on client demand.

ADP currently trades at $261.60, down from $279.67 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

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