Automatic Data Processing, Inc. · NASDAQ:ADP
Automatic Data Processing — Proxy Contest (October 2017)
47 slides from Automatic Data Processing's proxy contest presentation, Oct 11, 2017
Slide 1: Webcast and question submission information
The webcast will begin at 7:00PM (EDT) Following the presentation, Pershing Square CEO Bill Ackman will take questions from all shareholders. To submit questions, please email: ADPascending@persq.com Please include your first name, location and question. For additional information, visit our website
Slide 2: ADP Ascending October 10, 2017
ADP Ascending October 10, 2017
Slide 3: Disclaimer
Disclaimer The information contained in this presentation (“Information”) is based on publicly available information about Automatic Data Processing, Inc. (“ADP” or the “Company”), which has not been independently verified by Pershing Square Capital Management, L.P. ("Pershing Square"). Pershing Squ
Slide 4: Introduction to Pershing Square
Introduction to Pershing Square Pershing Square is a concentrated, research-intensive, value investor We own high-quality businesses, often with a catalyst to unlock significant value Pershing Square has a strong activist track record as a long-term, value-creating shareholder Average return on 13Ds
Slide 5: Why We Invested in ADP
Why We Invested in ADP The Human Capital Management (“HCM”) business is fundamentally attractive ADP is a great business, with a very large opportunity to improve its growth, product and service offerings, operating efficiency, and long-term shareholder value The case for change is straightforward:
Slide 6: How We Think About ADP
Employer Services (“ES”) ADP’s core business, a software and service-based delivery of payroll and a broad suite of “Beyond Payroll” HCM tools including business process outsourcing Professional Employer Organization (“PEO”) A fully-outsourced HCM solution where ADP becomes the legal co-employer of
Slide 7: ADP's Human Capital Management Business
SMB (Small Business) Mid-Market (Major Accounts) Enterprise (National Accounts) International & Multinational % of ES Revenue ~25% ~35% ~20% ~20% Client Size 1-49 50-999 1,000+ Varies Key Product Offering Payroll + Limited HCM Payroll + HCM Payroll + Full HCM Payroll + HCM Product Complexity Low Med
Slide 8: ADP Has Underperformed Its Potential
ADP Has Underperformed Its Potential
Slide 9: ADP's Efficiency Substantially Trails its Competitors
Revenue per Employee(1) ADP’s Efficiency Substantially Trails its Competitors (2) Median: $232 Smallest Largest ES: ~$153 (2) Median: $223 Smallest Largest ES: ~$153 ________________________________________________ Source: SEC public financials and/or financial press releases. Note: Based on latest
Slide 10: ADP Substantially Trails Paychex
________________________________________________ Source: SEC public financials and/or financial press releases. For both ADP and Paychex analysis excludes Client Funds and PEO pass-through costs. Paychex PEO pass-through estimated at $165m on ~$340m of gross PEO revenue. Assumes ADP has 2,500 dedica
Slide 11: Why are Paychex's Margins Higher than ADP?
Why are Paychex’s Margins Higher than ADP? Jim Cramer: “You know, Marty, I was looking at your margins versus the margins of automatic data [ADP], which does large [clients], and I noticed your margins are appreciably better…” Paychex CEO, Marty Mucci: “…[Y]ou know, the margins are strong because we
Slide 12: ADP vs. Paychex: the Gap is Widening
While Paychex historically generated similar Revenue per Employee to ADP (from 2008-2011), it has dramatically outperformed ADP since 2011 ADP vs. Paychex: the Gap is Widening Revenue per Employee(1) ($’000) Revenue Per Employee(1,3,4) ($’000) ________________________________________________ For bot
Slide 13: ADP's Sprawling and Sub-Scale Service Structure
ADP’s Sprawling and Sub-Scale Service Structure ADP has ~10 million square feet of real estate and >130 US office locations ________________________________________________ Source: ADP public website. Map generated by Google maps.
Slide 14: ADP's Sprawling Corporate Footprint
ADP’s Corporate HQ (Roseland, NJ), SMB (Florham Park, NJ), and Mid-Market (Parsippany, NJ) offices are a 15-20 minute drive from one another ADP’s Sprawling Corporate Footprint ________________________________________________ Source: Primary research based on interviews with former executives and kn
Slide 15: ADP's Sprawling Corporate Footprint (cont'd)
ADP’s Sprawling Corporate Footprint (cont’d) ADP’s business units and corporate offices are spread across the country, largely due to the historical locations of each business Mid-Market (Majors) Small Business (SMB) Corporate HQ Enterprise (National Accounts) Value-Add and Tax PEO _________________
Slide 16: ADP's operational inefficiency interferes with its ability to compete
ADP’s operational inefficiency interferes with its ability to compete effectively
Slide 17: Decelerating Employer Services Growth Profile
Decelerating Employer Services Growth Profile Growth in Employer Services has decelerated in recent years and will require an unexplained increase to meet ADP’s September 12th plan ________________________________________________ Source: ADP SEC financials, financial press releases. FY 2012 through
Slide 18: ADP Can Be Substantially Improved
ADP Can Be Substantially Improved
Slide 19: ADP Can Do Better
ADP Can Do Better ADP can significantly improve its performance and competitive position with a comprehensive transformation plan ADP’s operating efficiency and margins are well below competitors’ and ADP’s structural potential due to: Excessive layers of management and bureaucracy Siloed business u
Slide 20: ADP's Management Admits that its Margins Trail Competitors
ADP’s Management Admits that its Margins Trail Competitors Carlos Rodriguez, President & CEO “…When you look at ADP's overall pretax operating margin, it's pretty darn good, but when I stack it up against other companies that are in similar industries to us, I think there is plenty of room there. So
Slide 21: Wall Street Analysts See the Opportunity
Wall Street Analysts See the Opportunity “[Pershing Square] did break out a number of analytically sound points that can add up to a sizeable benefit… ADP has been managed for risk-averse multi-year gain, it is appropriate to ask these tough questions and expect an answer on the likelihood of settin
Slide 22: Jim Cramer – Video Clip
JIM CRAMER – VIDEO CLIP Jim Cramer – Video Clip
Slide 23: ADP's Share Price Reflects the Potential for Change
ADP’s Share Price Reflects the Potential for Change ________________________________________________ Note: Permission to use quotations throughout this presentation neither sought nor obtained. Pershing Square assumes the unaffected stock price is $97, which is ADP’s closing price as of May 9, 2017,
Slide 24: ADP's Response: The Status Quo
ADP’s Response: The Status Quo
Slide 25: ADP Management Has Affirmed the Status Quo
Instead of Embracing the Opportunity, ADP Management Has Affirmed the Status Quo On September 12th, ADP responded to Pershing Square and released its “Transformation Plan,” which: Is an affirmation of the status quo Projects no meaningful improvement despite the fact that ADP significantly trails co
Slide 26: ADP's actual TSR trails actual HCM competitors
ADP’s actual Total Shareholder Return (“TSR”) of 141% trails its actual HCM competitors’ TSR across all relevant time periods ADP Says to Shareholders That It Is Outperforming – But This is Not True ________________________________________________ Source: Capital IQ; Total Shareholder Return. Divide
Slide 27: ADP's response fails to address the substance of our arguments
ADP’s response fails to address the substance of our arguments ADP is fundamentally underperforming its potential and has an enormous margin improvement opportunity ADP’s board and management either (i) don’t recognize the magnitude of the opportunity, or (ii) are unwilling or unable to take the ste
Slide 28: ADP's Underperformance Can Be Fixed Without Increasing Risk
ADP’s Underperformance Can Be Fixed Without Increasing Risk
Slide 29: ADP's Prior Dispositions Demonstrate The Opportunity
ADP’s Prior Dispositions Demonstrate The Opportunity For Improvement CDK Global (“Dealer Services”) Solera (“Claims Services”) Following its sale in April 2006, Solera increased its operating margins from 18% to 40% within five years Focus on: operational efficiency, reducing management bureaucracy,
Slide 30: CDK Embraced the Views of Shareholders
Adj. Rev Growth (excl. F/X): Adj. EBIT Margins: CDK embraced the views of shareholders, hired a consultant to evaluate its potential, and publicly announced a transformation plan – financial results and share price performance have been consistently positive CDK: Dividend Adjusted Share Price Perfor
Slide 31: CDK Global: What Was CDK's Transformation Plan?
CDK Global: What Was CDK’s Transformation Plan? Under ADP’s Ownership / Post-Spin CDK Transformation Plan Segments Sales R&D “We’re committed to an avg. 40-50 BPS of margin improvement over the next five years” (10) ________________________________________________ CDK 8K (May 23, 2016). Q3’2016 Earn
Slide 32: The driving force behind CDK's improvements: operational efficiency
The driving force behind the improvements at CDK has been its focus on operational efficiency The CDK transformation includes many cultural and operational efficiency initiatives that can be applied to ADP Restructuring the corporate organization to reduce business complexity, improve efficiency, an
Slide 33: By adopting a CDK-like approach, ADP can become more efficient
By adopting a CDK-like approach, ADP can become a more competitive and efficient company for the benefit of all stakeholders. This will drive improved long-term growth, margins, and earnings for ADP
Slide 34: ADP Should Deliver On Its Potential
ADP Should Deliver On Its Potential Executing on our proposed Transformation Plan would allow ADP’s Employer Services business to achieve its potential, accelerate revenue growth from approximately 5% to 7%+ and increase profitability / operating margins from 19% to 35%+ Employer Services Revenue Gr
Slide 35: ADP Can Create Significant Long-Term Value for Shareholders
ADP Can Create Significant Long-Term Value for Shareholders ADP will be challenged to re-accelerate Employer Services revenue growth No material improvement in margins Pershing Square Plan – Achieve Potential Management – Status Quo Our proposed Transformation Case for ADP should lead to more robust
Slide 36: The Nominees for ADP's Transformation
The Nominees for ADP’s Transformation
Slide 37: The Choice for Shareholders
The Choice for Shareholders The choice for shareholders is clear – support the status quo or support ADP in achieving its potential Pershing Square Plan – Achieve Potential Management – Status Quo “No material change to the financial outlook for the company”(1) Nominal margin expansion (but signific
Slide 38: What We are NOT Seeking
What We are NOT Seeking We are not seeking control of the company We are seeking to add three independent directors (out of 10) We do not plan to alter the company’s dividend policy Acceleration of profits under our plan will allow for larger dividends We do not plan to alter the company’s investmen
Slide 39: What This Proxy Contest Is About
What This Proxy Contest Is About You can send a message that ADP can do better than the status quo Our goal is to generate long-term value for all shareholders by improving ADP’s performance and competitive position through improved operational efficiency and greater technology leadership To fulfill
Slide 40: The Nominees Bring Relevant Skills and Fresh Perspectives
Director since 2007 (10 years) Has overseen ADP’s underperformance relative to its peers and its potential No technology / HCM experience beyond ADP board role Divested assets which promptly doubled margins – didn’t see the opportunity As Audit Committee Chair, has presided over significant reductio
Slide 41: Pershing Square Has Extensive Experience Driving Operational Transformations
________________________________________________ Note: All trademarks are the property of their respective owners. Excludes Chipotle, an ongoing investment, in its early stages. Each of the above case studies did not involve any significant change in strategy, they were premised on executing the exi
Slide 42: A Vote for The Nominees for ADP's Transformation
A Vote for The Nominees for ADP’s Transformation The election of The Nominees for ADP’s Transformation would add to the board: A major shareholder’s voice Fresh perspectives Relevant expertise in business transformation and operating efficiency Directors who are ADP shareholders with significant “sk
Slide 43: The right to vote your shares is one of the most important rights
The right to vote your shares is one of the most important rights you have as a shareholder Individual investors own ~28% of ADP and can decide the outcome of this election ü ü
Slide 44: How to vote with the GOLD Proxy Card
You can vote by Internet, telephone or by signing, dating and returning the GOLD Proxy Card or GOLD Voting Instruction Form today. Shareholders are urged NOT to use any white proxy card received from ADP and are strongly encouraged to discard the white proxy card. If you previously voted ADP’s white
Slide 45: How to Vote – Video Clip
HOW TO VOTE – VIDEO CLIP How to Vote – Video Clip
Slide 46: Proxy solicitor contact information
If you did not receive a GOLD Proxy Card or GOLD Voting Instruction Form OR If you have any questions on voting your shares, please contact our proxy solicitor: D.F. King at (866) 342-1635
Slide 47: Q&A
Q&A To submit a question, please email: ADPascending@persq.com Please include your first name, location and question
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