Automatic Data Processing Earnings Call Nuggets: Impact of Healthcare Reform and Vantage HCM
Automatic Data Processing (NASDAQ:ADP) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.
Impact of Healthcare Reform
Sara Gubins – Bank of America Merrill Lynch: First question regarding healthcare reform. Could you probably talk about the expected impact and specifically, I am wondering, if PEOs can continue to provide some more businesses with lower healthcare costs in an environment where there are the state run healthcare exchanges?
Carlos Rodriguez – President and CEO: I actually spent some time a few months ago with the folks from our PEO and exactly the question on healthcare reform and the impact on the PEO and we’re feeling pretty good about our ability to continue to deliver value to clients through our PEO even in the phase of healthcare reform. The profile of our clients tends to be slightly higher average wage and more white collar, which will probably have a less impact and the client average size in our PEO tends to be also slightly larger than the typical PEO. I believe the average clients lies somewhere in the 30 employee range or 40 employee range and that’s the average. So we tend to not have a lot of clients in our PEO that are under 10. Generally speaking where there would be the most of potential for migration is clients that are very small and clients that have lower average wage in terms of their client base. But as you can imagine we have – we don’t know for sure what the full impact will be of healthcare reform and the behavior of buyers and small clients or large clients, but I walked away from that meeting feeling pretty good that our value proposition was still quite strong and they we were going to be able to hold up and in fact be able to provide value to our clients during healthcare reform because there is going to be a lot of compliance requirements and a lot of changes as a result of healthcare reform that I think small businesses will also need help with. But I think it’s something that we are watching carefully. Our sales so far have been relatively stable in terms of — on the PEO side, our retention rates actually are quite strong on a year-to-date basis. So I think right now, I think we’re keeping an eye on it and we will continue to I think report back on a regular basis if we see anything di
Jan Siegmund – Corporate VP and CFO: Carlos if I add a follow on to it. In up market solutions you will know that ADP has a strong market position and benefit administration services for our mid and up market clients and we do see a healthy interest of those clients into our solutions leveraging ADP’s strength in the compliance and overall understanding of the healthcare reform. So we think there could be a positive impact on mid and upmarket business due to the healthcare reform and pending buying decisions.
Carlos Rodriguez – President and CEO: Yes. We are quite excited. I think I’m glad Jan jumped in on the second half year question because we are in the mid and upper end of the market quite excited about our opportunity to help our clients with healthcare reform. We think this is as you can imagine a daunting task for employers to be able to (indiscernible). So obviously in the upper end and in the mid-market we have a lot of solutions that help in a coordinated fashion with compliance. We have time and attendance solutions that will help measure whether an employee is full time or part time which is one of the determinants of eligibility for healthcare. We will be able to help clients with eligibility management in terms of sending out notices to employees, notifying them that they are eligible which will be another requirement of healthcare reform. So there are a number of changes coming down the road that I think we are going to be able to help our clients with. So I think our benefits administration business is quite excited about the opportunity over the next year or two.
Sara Gubins – Bank of America Merrill Lynch: Just on a separate note, the pace of acquisitions has slowed a bit recently. Would you expect it to pick up, are there particular areas that you are focused on expanding?
Carlos Rodriguez – President and CEO: I think that our stance on acquisitions really hasn’t changed. So we have some parts of our business that are lumpy. I would say acquisitions, is the part of our business where you have the most lumpiness because we don’t really force ourselves to make acquisitions in any particular timeframe. We make them when I think they make sense and when the valuations are right and when there’s a fit. So we continue to be actively looking. We’ve actually looked at quite a number of things. We’ve had a lot of discussions over the last three to six months, but we are where we are and we would love to be able to find things that fit well into our product portfolio and help us with our growth plans. But we are also quite disciplined, which I think we’ve always been, but no change in our approach to acquisitions.
David Togut – Evercore Partners: Could you quantify new Employer Services and PEO global bookings growth by small majors in nationals? In connection with that, can you update us on the timeline for general release for Vantage HCM?
Carlos Rodriguez – President and CEO: So in terms of the – we don’t give specific percentages by each segment but I can give you just tone. Tone wise, as I think we tried to give you in our opening remarks. I think we did feel some of the uncertainty if you will about the fiscal cliff and the tax policy and so forth and people delaying decisions; although as you can imagine, it’s very hard to quantify and find any kind of percentage to it. But the reason we think that is that we were on a pace of delivering double-digit sales growth for several quarters and we slowed a little bit into the fourth. Now part of that – into this quarter, part of that is the fact that last year’s second quarter was already quite strong at 14% growth, but some of it was probably some of this uncertainty in the marketplace. So, I think the sales results were frankly consistent across the board with one exception being national accounts where we have a still quite robust sales results. Again there, this maybe a rationalization, but momentum in the national account sales process, once it gets going, it tends to carry through and we have definitely seen a pick-up in momentum there in the last two or three quarters, and I think deals just continue to get done despite some of this uncertainty, but it does appear that in other parts of the business that there were some delay in decision-making and that the sales results were fairly pretty much in line with the overall results that we reported, which is 5% growth for the quarter. What was the second part David?
David Togut – Evercore Partners: The second part was updated timeline for general availability of Vantage HCM and whether you had any granularity on Vantage HCM bookings in the quarter?
Carlos Rodriguez – President and CEO: I think that the general release for Vantage is scheduled for September, and I think right now we have 40 deals sold, so signed contracts. I believe we have just under 10 that are actually live and we expect to have a little over 20 live by the end of our fiscal year. So, it’s still great progress, great momentum, a lot of excitement, but very small impact to revenues for a business of our size.