Automatic Data Processing (ADP) is a $97 bn human resources management software company listed on Nasdaq. Danyal Hussain joined the firm in 2018 as senior director of IR, becoming vice president and head of IR in February 2020.
Prior to that, he was a vice president on the equity research team at Morgan Stanley, covering payment and processing names as well as fintech stocks. Before that, he co-founded the power generation consultancy Asyad Energy in Riyadh, Saudi Arabia. He also worked at Ernst & Young and Johnson & Johnson. He has an MBA in finance from NYU Stern School of Business and a BS in accounting from Rutgers University.
Matthew Keating, senior director of IR, joined ADP in 2022. In July 2024, Hussain will become senior vice president of financial planning and analysis, while Keating will assume the role of vice president of IR.
How has ADP changed since you started working there?
From day one, we were involved in a high-profile proxy fight (Pershing Square held a stake in ADP from 2017 until 2019). That was a catalyst for a lot of change within the company and how we engage with our shareholders so that’s one major change I’ve experienced over these six years.
Separately, we now have more public competitors than ever and more analysts who cover our sector. And the third change I would point to is how we engage with investors, because I joined with an outside perspective; previous IROs had come from within ADP. We’ve taken a more proactive approach to engaging with both our sell-side analysts and our investors in terms of our willingness to participate in conferences and roadshows, as well as being more ‘out there’ as active participants in the capital markets.
Technically, ADP is now classified in the industrials or business services sector rather than technology – is this an issue?
It’s a recent change and it drives me mad. The Global Industry Classification Standard (GICS) sector we sit in changed a year ago: the logic was that everyone wants to be a tech company or wants to be valued as a tech company, so ultimately what the GICS committee tried to do was push companies out of tech to align with the end-markets they serve. Because ADP serves all companies, it classified us in the professional services/business services sector, which sits within industrials.
One of the challenges we’ve always had with ADP is that we have a unique business model and for a long time we were one of only two public companies in this space. Therefore, we don’t fit cleanly in any coverage universe. We were always a hybrid of payments and software services. We are almost under-covered by the folks who really get deep on any one sector. It’s been a challenge for us for a long time.
It’s changed a little in the last few years, as the analysts who cover us now tend to be more software or tech-oriented. A large part of that is because software has become such a large universe that now you have more teams [covering it] and they can go deeper on subsectors, like human capital management in our case. Also, we now have more public competitors. So it’s getting better, but we are still covered by a hodgepodge of analysts with different levels of expertise.
How do you convince investors that ADP is worth its premium or valuation?
That’s a tough argument to counter as it is subjective. There is no clear set of comparisons you can use for ADP. A simple analysis versus, for example, the S&P 500 is a good place to start. Historically, ADP has always had a premium valuation in the market relative to other companies of similar growth profile. Therefore, investors have shown they’re willing to pay that premium as long as we can maintain our growth profile and all the other characteristics that people have come to appreciate about us: transparency, quality, good governance, and so on. And we are firmly committed to all of those. Usually, convincing a new investor that we are worthy does take time. Investors have to understand why this company has always traded at a premium and continues to do so.
What do you say to those who perceive ADP as a sleepy 75-year-old company?
In our history, there have been parts of our business that absolutely needed to be overhauled and reinvented, but you don’t become a 75-year-old company in a competitive industry without being able to reinvent yourself. Another change is that we now have a few key public competitors that like to talk loudly about how they’re doing versus ADP, which is something we have addressed – and have done so well – in recent years. The other thing we now do is demonstrate just how far our products have come. Investors want to know what the products look and feel like, and how they differ from competitors’ products, so demos validate what we’re saying and, when we do that, investors tend to be very impressed. The onus is on us to be able to go out and show investors that our products are not 75 years old; in many cases they’re only a few years old and may be on the most modern product and technology stack within the market. We create value by making a product that enables HR practitioners and personnel to function day to day.
How important is it to you to be a ‘dividend aristocrat’ – a company that pays a consistent and growing dividend?
This year, if all goes well and our board approves a dividend increase in November, we will hit 50 years of consecutive dividend increases, which would make us a dividend king or queen [a company with at least 50 years of growing dividend payments]. When we hit that milestone, we will be the first technology company to have such enduring and consistent growth.
How has having a new CEO and CFO impacted your IR activities?
I’ve been fortunate enough to help bring on two CFOs and one CEO. I think the opportunity is greatest when you’re bringing in an outsider because there’s an opportunity to help explain a large, complex business like ADP, which takes everybody a while to grasp. Those who already know ADP incredibly well need to learn how to better interact with investors and sell-siders and specifically how to articulate things in a way that will appeal to stakeholders. It’s almost more of an executive coach role.
Why do you think ADP has such a strong culture?
I think it comes both from the top end (CEO and board level) and from the core of what we do. And the average tenure of a CEO is 10 years, which helps. Also, we are fortunate in that we deliver something for the world that is unambiguously good. We help companies with something that is noble, which is to help them be better employers for their workers, and our associates know that what they’re doing creates value in the world. We all feel good about what we do, and we all operate in a client-centric organization. We know that if we don’t deliver an excellent experience for our clients, we won’t win in the market. I think a client-centric culture attracts a certain type of personality that is just a joy to work with. So from the bottom up we have tens of thousands of people who take joy in delivering value for clients; from the top down, we have been fortunate to have leaders who are empathetic and visionary and stick around for long enough to see their vision through.
How are you handling Matt’s transition to a vice president of IR role?
Well, the good news is I’m not leaving the company. I’ll be around to help Matt as much as he needs me. Also, Matt has worked in IR – both within ADP and externally – and is very experienced, so we expect the transition to be as seamless as it can possibly be.
This interview appeared in IR Magazine.
John Renwick, VP of Investor Relations & Corporate Planning at Kellanova (formerly Kellogg) has spent 23 years at the company. He initially joined in 2000 as VP of IR & Competitive Analysis and then held a number of operational roles in – Kuala Lumpur, Malaysia, Toronto, Canada, Queretaro Area, Mexico before returning to Battle Creek, MI and reprising and expanding his role as VP of IR & Corporate Planning in 2016.