AUTOMATIC DATA PROCESSING INC

Automatic Data Processing, Inc. operates as a global leader in HR and payroll solutions, serving over 1.1 million clients ¹ and paying over 42 million workers ² in over 140 countries and territories ³. The company's Human Capital Management (HCM) solutions span the entire employee experience from hire to retire, addressing critical client needs including Payroll Services, Benefits Administration, Talent Management, HR Management, Workforce Management, Compliance Services, Insurance Services, and Retirement Services. The most material markets for HCM Solutions, Global Solutions, and HRO Solutions (other than PEO) are the United States, Canada, and Europe, while the PEO business offers services exclusively in the United States.

The industries in which ADP operates are highly competitive, and management believes the company is one of the largest providers of HCM solutions in the world. HCM Solutions, Global Solutions, and HRO Solutions (other than PEO) compete with other business outsourcing companies, companies providing ERP services, providers of cloud-based HCM solutions, and financial institutions. The PEO business competes with other PEOs providing similar services, as well as business outsourcing companies, companies providing ERP services, and providers of cloud-based HCM solutions. Competition is primarily based on product and service quality, reputation, ease of use and accessibility of technology, breadth of offerings, and price, and management believes that leading-edge technology together with data and commitment to service excellence distinguishes ADP from its competitors.

ADP generates revenue through a recurring revenue model characterized by long-term client relationships, with client retention estimated at approximately 13 years ⁴ in Employer Services and approximately 6 years ⁵ in PEO based on fiscal 2025 retention levels. The company's two reportable business segments are Employer Services and Professional Employer Organization (PEO), which are based on the way management reviews performance and makes decisions about the businesses. Employer Services serves clients ranging from single-employee small businesses to large enterprises with tens of thousands of employees around the world, offering a comprehensive range of technology-based HCM solutions including strategic cloud-based platforms and HRO solutions. The PEO business, called ADP TotalSource, offers a full-service PEO that provides expert guidance, user-friendly technology, comprehensive employee benefits, and a risk management, safety, and workers' compensation program as part of a co-employment arrangement.

Employer Services offers a comprehensive suite of HCM solutions powered by strategic cloud-based platforms including RUN Powered by ADP, serving over 940,000 small businesses ⁶; ADP Workforce Now, serving over 90,000 mid-sized and large businesses ⁷; and ADP Lyric HCM, serving large enterprise businesses. Outside the United States, ADP addresses the needs of over 70,000 clients ⁸ with premier global solutions including Lyric, ADP Global Payroll, and ADP iHCM. The company pays over 26 million (approximately 1 out of every 6) workers in the United States ⁹ and over 16 million workers outside the United States ¹⁰ with in-country and multi-country solutions. ADP's Compliance Solutions processed and delivered more than 78 million employee year-end tax statements ¹¹ and moved more than $3.3 trillion ¹² in client funds to clients' employees, tax authorities, and other payees in fiscal 2025. ADP Retirement Services helps over 190,000 employers ¹³ in the United States administer various types of retirement plans, and ADP's Insurance Services facilitates access to workers' compensation and group health insurance for over 260,000 small and mid-sized clients ¹⁴. ADP's Workforce Management offers a range of solutions to over 140,000 employers ¹⁵ of all sizes.

The PEO business, ADP TotalSource, serves more than 18,000 clients ¹⁶ and more than 750,000 worksite employees ¹⁷ in all 50 U.S. states, and is the largest PEO certified by the Internal Revenue Service as meeting the requirements to operate as a Certified Professional Employer Organization under the Internal Revenue Code. ADP's HR Outsourcing solutions serve over three million client employees ¹⁸. In October 2024, ADP acquired WorkForce Software, a premier workforce management solutions provider that specializes in supporting large, global enterprises, for a purchase price of $1,170.8 million ¹⁹ with a net cash disbursement of $1,158.3 million ²⁰. In February 2025, ADP acquired Procesamiento Externo de Información, S.C. (PEI), a provider of local payroll, HCM expertise, and technology solutions for Mexican businesses. ADP launched ADP Lyric HCM in September 2024, a unified global HCM solution designed for adaptability. ADP also continues to roll out ADP Assist, an award-winning cross-platform solution powered by generative AI. During fiscal 2025, the company repurchased approximately 4.4 million shares ²¹ of its common stock at an average price per share of $289.11 ²², and paid dividends of $2,398.9 million ²³.

For the fiscal year ended June 30, 2025, total revenues were $20,560.9 million ²⁴, representing growth of 7% ²⁵ compared to $19,202.6 million ²⁶ in fiscal 2024, with 7% growth on an organic constant currency basis ²⁷. Net earnings were $4,079.7 million ²⁸, up 9% ²⁹ from $3,752.0 million ³⁰ in fiscal 2024. Diluted earnings per share grew 10% ³¹ to $9.98 ³² from $9.10 ³³ in the prior year. Earnings before income taxes (EBIT) were $5,310.1 million ³⁴ with an EBIT margin of 25.8% ³⁵, expanding 50 basis points ³⁶ from 25.4% ³⁷ in fiscal 2024. Adjusted EBIT margin also expanded 50 basis points ³⁸ to 26.0% ³⁹. The company generated strong cash flows from operating activities of $4,939.7 million ⁴⁰ and returned $3.7 billion ⁴¹ to shareholders through dividends of $2.4 billion ⁴² and share repurchases of $1.3 billion ⁴³.

However, management stated that they expect capital expenditures in fiscal 2026 to be between $225.0 million and $250.0 million ⁴⁴.

ADP is focused on three strategic priorities: Lead with Best-in-Class HCM Technology, Provide Unmatched Expertise and Outsourcing Solutions, and Benefit our Clients with Global Scale. The company sees meaningful opportunities to leverage its strength in global payroll and expand HR and workforce management solutions to support global and multinational clients. ADP continues to build more relationships with partners through the ADP Marketplace, which offers access to over 800 partner solutions ⁴⁵, and intends to grow its sales organization and continue to invest in best-in-class sales technology. The company is also pursuing multiple paths to innovation, including leveraging its unique data to provide differentiated insights, collaborating with or investing in organizations with complementary products, and purchasing solutions that add to its strong foundation.

ADP's AI strategy is to deliver AI agents for all major HCM roles that clients have, with a goal to deliver AI agents that continue to automate tedious, time-heavy tasks and deliver value to individuals to do more strategic activities. The company intends to deliver AI role-based agents to internal associates such as sales, software engineering, testing, product management, service, and implementation. ADP continues to roll out ADP Assist, its award-winning cross-platform solution powered by generative AI that transforms data into credible and actionable insights. The company also extended AI tools to all of its product developers for coding, testing, and documentation. ADP's corporate venture capital arm and innovation lab, ADP Ventures, is focused on enhancing and strengthening ADP's core business, creating offerings in new adjacent segments and geographies, and developing new assets to monetize markets and segments beyond HCM.

Management highlighted that earnings before income taxes margin expanded 50 basis points ⁴⁶ in fiscal 2025, and adjusted EBIT margin expanded 50 basis points ⁴⁷. The EBIT Margin increase was due to contributions from client funds interest revenues and operating efficiencies for costs of servicing and implementing clients on growing revenue, partially offset by increased interest expense and acquisition related expenses. Employer Services' margin increased 100 basis points ⁴⁸ to 36.1% ⁴⁹ due to contributions from operating efficiencies and client funds interest revenues, partially offset by acquisition related expenses. PEO Services' margin decreased 60 basis points ⁵⁰ to 14.2% ⁵¹ due to increases in zero-margin benefits pass-through costs, operating costs related to workers' compensation and state unemployment insurance, and selling and marketing expenses, partially offset by an increase in the pre-tax benefit from ADP Indemnity.

ADP's global team of associates consisted of approximately 67,000 persons ⁵² as of June 30, 2025. The company continues to invest in research and development, with investments of approximately $1.388 billion ⁵³ in fiscal 2025, $1.276 billion ⁵⁴ in fiscal 2024, and $1.195 billion ⁵⁵ in fiscal 2023. These investments include expenses for the development of new products, maintenance expenses associated with existing technologies, investments in generative AI, purchases of new software and software licenses, and additions to software resulting from business combinations. Capital expenditures in fiscal 2025 were $176.8 million ⁵⁶, compared to $211.7 million ⁵⁷ in fiscal 2024.

ADP has a strong capital allocation framework. The company invested approximately $1.388 billion ⁵⁸ in research and development during fiscal 2025. Capital expenditures in fiscal 2025 were $176.8 million ⁵⁹, and management expects capital expenditures in fiscal 2026 to be between $225.0 million and $250.0 million ⁶⁰. The company repurchased approximately 4.4 million shares ⁶¹ of its common stock at an average price per share of $289.11 ⁶² during fiscal 2025, and paid dividends of $2,398.9 million ⁶³. The Board of Directors approved in November 2022 to repurchase $5 billion ⁶⁴ of its common stock, with no expiration date for the common stock repurchase authorization. As of June 30, 2025, the maximum approximate dollar value of shares that may yet be purchased under the common stock repurchase plan was $1,801,895,701 ⁶⁵.

ADP faces structural headwinds from a slowdown in the economy or other negative changes, including in employment levels, the level of interest rates, or the level of inflation, which may have a negative impact on its businesses. Clients may react to worsening conditions by reducing their spending on HCM services or renegotiating their contracts. The company's client funds investment strategy is subject to general market, interest rate, credit, and liquidity risks, which may be exacerbated during periods of unusual financial market volatility. A reduction in the availability of short-term financing during periods of disruption in the financial markets may increase borrowing costs and/or require the company to sell available-for-sale securities in funds held for clients, potentially resulting in the recognition of losses and reduced interest income.

ADP is subject to a wide range of complex U.S. and foreign laws and regulations, including privacy, data protection, AI, and cybersecurity-related laws such as the EU's General Data Protection Regulation (GDPR), the California Privacy Rights Act of 2020 (CPRA), and the Department of Justice's Data Security Program. Changes in laws or regulations, or changes in their interpretation, may decrease revenues and earnings and may require the company to change the manner in which it conducts some aspects of its business. For example, a change in regulations either decreasing the amount of taxes to be withheld or allowing less time to remit taxes to government authorities would adversely impact average client balances and thereby adversely impact interest income from investing client funds. Changes in U.S. or foreign tax laws, regulations, or rulings could adversely affect the company's effective tax rate and net income.

ADP faces material risks from cybersecurity threats given the large amounts of personal and business information and client funds it handles; the company is regularly targeted by unauthorized parties and while no identified incidents have been material to date, a future breach could result in loss of confidential information, theft of client or ADP funds, litigation, regulatory sanctions, or loss of client confidence. The company is subject to a wide range of complex U.S. and foreign laws and regulations, including privacy, data protection, AI, and cybersecurity laws such as the GDPR, CPRA, and the EU Artificial Intelligence Act, and failure to comply could result in substantial costs, suspension or revocation of licenses, or civil and criminal penalties. Changes in laws or regulations, such as those decreasing the amount of taxes to be withheld or allowing less time to remit taxes, would adversely impact average client balances and interest income from investing client funds. The company's client funds investment strategy exposes it to liquidity, interest rate, and credit risks; a hypothetical change in both short-term and intermediate-term interest rates of 25 basis points applied to estimated average investment balances and related short-term borrowings would result in approximately a $24 million ⁶⁶ impact to earnings before income taxes over the ensuing twelve-month period. The company's PEO business faces risk from clients failing to remit payments for wages and taxes, which could be magnified during significant financial disruptions or bank failures, and as of June 30, 2025, ADP Indemnity had total assets of $725.4 million ⁶⁷ to satisfy actuarially estimated unpaid losses of $665.7 million ⁶⁸ for policy years since July 1, 2003.

Management's message in the Executive Overview emphasizes that ADP sees tremendous opportunity ahead as it focuses on its three key Strategic Priorities: Leading with Best-in-Class HCM technology, Providing Unmatched Expertise and Outsourcing Solutions, and Leveraging Global Scale for the Benefit of Clients. During fiscal 2025, management highlighted meaningful progress on these priorities, including the launch of ADP Lyric HCM, the acquisition of WorkForce Software, the enhancement of the distribution network by launching an integrated payroll solution for small businesses, the augmentation of global payroll capabilities by expanding offerings in markets like Japan and Saudi Arabia and acquiring PEI in Mexico, and the continued deployment of AI tools across products and internal functions. Management noted that the company delivered strong revenue growth of 7% ⁶⁹ both on a reported and organic constant currency basis, with diluted EPS growth of 10% ⁷⁰ to $9.98 ⁷¹ and adjusted diluted EPS growth of 9% ⁷² to $10.01 ⁷³. Management emphasized that the company has a strong business model generating significant cash flows with low capital intensity, and that the financial condition remains solid at June 30, 2025, with sufficient liquidity to support associates and clients.