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  "docSlug": "1c9c0f306991",
  "documentTitle": "Automatic Data Processing (ADP) (ADP)",
  "authorId": "01_Pershing_Square",
  "authorName": "William Ackman",
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  "presentationDate": "2017-08-17 00:00:00",
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  "pageNumber": 68,
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  "notes": "The slide uses a 'build-up' logic to justify a target margin range based on competitor benchmarks.",
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      "kind": "callout",
      "text": "Our analysis suggests that Mid-Market should have operating margins of 35% to 45%",
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      "text": "Layering ADP’s current operating expense burden of ~39% on competitor gross margins of 73% – 85% yields operating margins of 34% – 46%",
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      "text": "Small Competitors Exhibit Structurally Attractive Gross Profit Margins (1)",
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      "text": "Mid-Market is ADP's largest sub-segment at ~35% – 40% of Employer Service revenue. ADP is by far the #1 market leader, ~10x public competitors, and enjoys massive scale. Small regional competitors (Paycom, Paylocity) report recurring operational gross margins of 73% – 85%. Layering ADP's current operating expense burden of ~39% on competitor gross margins of 73% – 85% yields operating margins of 34% – 46%. Multiple former ADP executives have articulated their belief that Mid-Market has the highest structural margin potential.",
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      "text": "operating margin: 35% to 45%",
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      "text": "Source: SEC filings. (1) Adjusted to exclude float income and to strip out D&A (expensed below the line) for consistent comparisons to ADP.",
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      "text": "Mid-Market: Structural Margin Potential ~35% to 45%",
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      "evidence": "Comparing ADP's cost structure against competitor gross margins to derive potential operating margins.",
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