Automatic Data Processing : Earnings Release

ADP Reports Second Quarter Fiscal 2021 Results

• Revenues increased 1% to $3.7 billion; raising full year guidance to up 1% to 3%
• Employer Services New Business Bookings decreased 7%; raising full year guidance to up 15% to 25%
• Net earnings decreased 1% to $648 million, and adjusted net earnings decreased 1% to $650 million
• Adjusted EBIT decreased 1% to $848 million, and adjusted EBIT margin declined 30 basis points to 22.9%
• Diluted earnings per share ("EPS") increased by 1% to $1.51 for the quarter; adjusted diluted EPS flat at $1.52
• Guidance raised on strong first half performance and improved outlook for remainder of fiscal 2021; raising full year bookings, retention, revenue, margin, and EPS guidance

ROSELAND, N.J. - January 27, 2021 - ADP (Nasdaq: ADP), a leading global technology company providing human capital management (HCM) solutions, today announced its second quarter fiscal 2021 financial results and updated its fiscal 2021 outlook.

Second Quarter Fiscal 2021 Consolidated Results

Compared to last year's second quarter, revenues increased 1% to $3.7 billion, flat on an organic constant currency basis. Net earnings decreased 1% to $648 million, and adjusted net earnings decreased 1% to $650 million. Adjusted EBIT decreased 1% to $848 million, representing an adjusted EBIT margin reduction of 30 basis points in the quarter to 22.9%, as transformation initiatives and disciplined operating expense management largely offset the effects of lower client funds interest revenue and higher depreciation and amortization. ADP's effective tax rate for the quarter was 22.2% on a reported and an adjusted basis. Diluted EPS increased by 1% to $1.51, and adjusted diluted EPS were flat at $1.52 as slightly lower net earnings were offset by a net share count reduction.

"Our momentum continued to build this quarter as economic activity continued to trend positively," said Carlos Rodriguez, President and Chief Executive Officer, ADP. "Our associates have delivered excellent service to our clients throughout the pandemic, and client satisfaction driven by our innovative products and best-in-class service has contributed towards an all-time high retention level. We are again delighted to increase our full year outlook across all key business metrics, and we are enthusiastic about our growth prospects as vaccination efforts progress and the global economy recovers."

"We are very pleased to have delivered Employer Services new business bookings year to date that nearly matches the amount we achieved in the first half of last year, before the effects of the pandemic. Strong sales and record client retention supported steadily improving revenue this quarter, which, combined with continued cost control across our segments, allowed us to deliver adjusted earnings per share ahead of our expectations, even as we accelerate growth investments and overcome continued headwinds related to employment and interest rates," said Kathleen Winters, Chief Financial Officer, ADP. "With a strong sales pipeline and coordinated product and marketing efforts in place, our confidence is high for substantial positive new business bookings growth during the second half of the year."

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Adjusted EBIT, adjusted EBIT margin, adjusted net earnings, adjusted diluted earnings per share, adjusted effective tax rate and organic constant currency are all non-GAAP financial measures. Please refer to the accompanying financial tables at the end of this release for a discussion of why ADP believes these measures are important and for a reconciliation of non-GAAP financial measures to their comparable GAAP financial measures.

Second Quarter Segment Results

Employer Services- Employer Services offers a comprehensive range of global HCM and Human Resources Outsourcing solutions. Compared to last year's second quarter:

• Employer Services revenues declined 1% on a reported basis and 2% on an organic constant currency basis
• Employer Services New Business Bookings decreased 7%
• U.S. pays per control decreased 6%
• Employer Services segment margin was unchanged

PEO Services- PEO Services provides comprehensive employment administration outsourcing solutions. Compared to last year's second quarter:

• PEO Services revenues increased 5%
• PEO Services revenues excluding zero-margin benefits pass-throughs increased 2%
• Average Worksite Employees paid by PEO Services decreased 2% to about 571,000
• PEO Services segment margin increased 100 basis points

Included within the results of our segments above:

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 most of the investment portfolio is rated AAA/AA. Compared to last year's second quarter:

• Interest on funds held for clients decreased 23% to $105 million
• Average client funds balances were flat at $25.1 billion
• The average interest yield on client funds declined 50 basis points to 1.7%

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Fiscal 2021 Outlook

Certain components of ADP's fiscal 2021 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 2020 pre-tax charges totaling $128 million related to transformation initiatives, severance charges and charges related to the settlement of certain legal matters
• Fiscal 2021 expected pre-tax charges of about $25 million related to transformation initiatives

Consolidated Fiscal 2021 Outlook

• Revenue growth of 1% to 3%
• Adjusted EBIT margin decline of (100) to (50) basis points
• Adjusted effective tax rate of 23.0%
• Diluted EPS growth of 1% to 5%
• Adjusted diluted EPS growth of (2)% to 2%

Employer Services Segment Fiscal 2021 Outlook

• Employer Services revenue growth of flat to 2%
• Employer Services margin decline of (100) to (50) basis points
• Employer Services New Business Bookings growth of 15% to 25%
• Employer Services client revenue retention increase of approximately 100 basis points
• Decrease in U.S. pays per control of (4)% to (3)%

PEO Services Segment Fiscal 2021 Outlook

• PEO Services revenue growth of 3% to 5%
• PEO Services revenue, excluding zero-margin benefits, growth of 3% to 5%
• PEO Services margin increase of 50 to 100 basis points
• PEO Services Average Worksite Employee count growth of flat to 2%

Client Funds Extended Investment Strategy Fiscal 2021 Outlook

The interest assumptions in our outlook are based on Fed Funds futures contracts and forward yield curves as of January 26, 2021. The Fed Funds futures contracts are used in the client short and corporate cash interest income outlook. The three-and-a-half and five-year U.S. government agency rates based on the forward yield curves as of January 26, 2021 were used to forecast new purchase rates for the client and corporate extended and client long portfolios, respectively.

• Interest on funds held for clients of $405 to $415 million; this is based on anticipated growth in client funds balances of (1)% to 1% from $26.0 billion in fiscal 2020, and an average yield which is anticipated to decrease about (50) basis points to 1.6% as compared to 2.1% in fiscal 2020
• Total contribution from the client funds extended investment strategy of $440 to $450 million

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Fiscal 2021 Outlook

		Fiscal 2020	October 28, 2020	January 27, 2021
		(unaudited)	Fiscal 2021 Outlook (a)	Fiscal 2021 Outlook (a)
	Revenues	$14,590M	(1) to 1%	1 to	3%
Total ADP	Adj. EBIT Margin	23.0%	(150) to (100) bps	(100) to (50) bps
Adj. Effective Tax Rate	22.6%	23.1%	23.0%
	Adj. Diluted EPS	$5.92	(7) to (3)%	(2) to 2%
	Revenues	$10,087M	(2)% to flat	Flat to 2%
Employer	Margin	30.3%	(150) to (100) bps	(100) to (50) bps
ES New Business Bookings	$1.2B	10 to 20%	15 to	25%
Services
	Client Revenue Retention	90.5%	(50) bps to flat	~100 bps
	U.S. Pays Per Control	(1.0)%	(4) to (3)%	(4) to	(3)%
	Revenues	$4,511M	Flat to 3%	3 to	5%
PEO Services	Revenues Ex Pass-throughs	$1,604M	(1) to 1%	3 to	5%
Margin	13.5%	(50) bps to flat	50 to 100 bps
	Average WSEs	571,000	(1) to 1%	Flat to 2%
	Average Client Funds Balances	$26.0B	(3) to (1)%	(1) to 1%
Client Funds	Yield on Client Funds Portfolio	2.1%	(50) bps, to 1.6%	(50) bps, to 1.6%
Interest	Client Funds Interest Revenue	$545M	$400 - $410M	$405 - $415M
	Extended Investment Strategy	$561M	$435 - $445M	$440 - $450M

(a) Outlook contemplates the impact of foreign currency in revenue and operating results.

Investor Webcast Today

As previously announced, ADP will host a conference call for financial analysts today, Wednesday, January 27, 2021 at 8:30 a.m. ET. The conference call will be webcast live on ADP's website at investors.adp.comand will be available for replay following the call. A slide presentation accompanying the webcast is also available at investors.adp.com/events-and-presentations.

Supplemental financial information including schedules of quarterly and full year reportable segment revenues and earnings for fiscal years 2019, 2020, and 2021, as well as quarterly details of the fiscal 2021 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.

About ADP (Nasdaq: ADP)

Designing better ways to work through cutting-edge products, premium services and exceptional experiences that enable people to reach their full potential. HR, Talent, Time Management, Benefits and Payroll. Informed by data and designed for people. Learn more at ADP.com.

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