ADP(ADP) - 2025 Q4 - Annual Results

Financial Performance Summary This section summarizes ADP's consolidated financial performance for the fourth quarter and full fiscal year 2025, including key revenue, earnings, and margin metrics Fourth Quarter Fiscal 2025 Consolidated Results In the fourth quarter of fiscal 2025, ADP reported an 8% increase in revenues to $5.1 billion (6% organic constant currency). Net earnings grew 10% to $911 million, and adjusted diluted EPS rose 8% to $2.26. The adjusted EBIT margin expanded by 40 basis points to 23.7% Q4 FY2025 Key Financial Metrics | Metric | Value | YoY Change | | :--- | :--- | :--- | | Revenues | $5.1 billion | +8% | | Organic Constant Currency Revenue | - | +6% | | Net Earnings | $911 million | +10% | | Adjusted Net Earnings | $923 million | +8% | | Adjusted EBIT | $1.2 billion | +9% | | Adjusted EBIT Margin | 23.7% | +40 bps | | Diluted EPS | $2.23 | +10% | | Adjusted Diluted EPS | $2.26 | +8% | Full Fiscal Year 2025 Consolidated Results For the full fiscal year 2025, revenues grew 7% to $20.6 billion. Net earnings increased by 9% to $4.1 billion, while adjusted diluted EPS rose 9% to $10.01. The company achieved a 50 basis point expansion in adjusted EBIT margin to 26.0% Full Fiscal Year 2025 Key Financial Metrics | Metric | Value | YoY Change | | :--- | :--- | :--- | | Revenues | $20.6 billion | +7% | | Organic Constant Currency Revenue | - | +7% | | Net Earnings | $4.1 billion | +9% | | Adjusted Net Earnings | $4.1 billion | +8% | | Adjusted EBIT | $5.3 billion | +9% | | Adjusted EBIT Margin | 26.0% | +50 bps | | Diluted EPS | $9.98 | +10% | | Adjusted Diluted EPS | $10.01 | +9% | Management Commentary Management highlighted strong revenue and earnings growth for fiscal 2025, driven by record-high client satisfaction in both Employer Services and PEO segments. The company remains focused on delivering consistent growth and margin expansion for fiscal 2026 - CEO Maria Black attributed the strong performance to record-high client satisfaction levels and the company's commitment to meeting client needs through innovative products and services[5] - CFO Peter Hadley noted that solid execution and a resilient business model produced strong results, and the focus for fiscal 2026 is on delivering strong revenue growth and continued margin expansion[5] Segment Performance This section details the financial performance of ADP's key segments, including Employer Services, PEO Services, and Interest on Funds Held for Clients, for fiscal year 2025 Employer Services The Employer Services segment reported a 7% revenue increase for fiscal year 2025, with new business bookings growing 3% to $2.1 billion. The segment's margin expanded by 100 basis points for the full year, and client revenue retention slightly improved to 92.1% Employer Services FY2025 Performance | Metric | Q4 FY2025 Growth | Full Year FY2025 Growth | | :--- | :--- | :--- | | Revenues | +8% | +7% | | Organic Constant Currency Revenue | +6% | +6% | | New Business Bookings | N/A | +3% ($2.1B) | | Segment Margin | +50 bps | +100 bps | - Client revenue retention for the fiscal year increased to 92.1% from 92.0% in the prior year[9] - U.S. pays per control, a measure of employment levels at ADP clients, increased by 1% for both the fourth quarter and the full fiscal year[9] PEO Services PEO Services revenue grew 7% for fiscal year 2025, driven by a 3% increase in average worksite employees to approximately 748,000. However, the segment margin decreased by 60 basis points for the full year PEO Services FY2025 Performance | Metric | Q4 FY2025 Growth | Full Year FY2025 Growth | | :--- | :--- | :--- | | Revenues | +7% | +7% | | Revenues (ex. zero-margin pass-throughs) | +5% | +6% | | Average Worksite Employees | +3% (~761k) | +3% (~748k) | | Segment Margin | -20 bps | -60 bps | Interest on Funds Held for Clients For fiscal year 2025, interest on funds held for clients increased 16% to $1.2 billion. This was driven by a 6% increase in average client funds balances to $37.6 billion and a 30 basis point increase in the average interest yield to 3.2% Client Funds FY2025 Performance | Metric | Q4 FY2025 | Full Year FY2025 | | :--- | :--- | :--- | | Interest on Funds | $308M (+11%) | $1.2B (+16%) | | Avg. Client Funds Balances | $38.1B (+6%) | $37.6B (+6%) | | Avg. Interest Yield | 3.2% (+20 bps) | 3.2% (+30 bps) | Fiscal 2026 Outlook This section provides ADP's financial guidance for fiscal year 2026, including consolidated revenue, earnings, and segment-specific projections Consolidated Fiscal 2026 Outlook ADP anticipates consolidated revenue growth of 5% to 6% for fiscal 2026. The company projects an adjusted EBIT margin expansion of 50 to 70 basis points and adjusted diluted EPS growth of 8% to 10% Consolidated FY2026 Guidance | Metric | Outlook | | :--- | :--- | | Revenue Growth | 5% to 6% | | Adjusted EBIT Margin Expansion | 50 to 70 bps | | Adjusted Effective Tax Rate | ~23% | | Adjusted Diluted EPS Growth | 8% to 10% | Segment Fiscal 2026 Outlook For fiscal 2026, Employer Services revenue is expected to grow 5% to 6%, with new business bookings growth accelerating to 4% to 7%. PEO Services revenue is projected to grow 5% to 7%, supported by a 2% to 3% increase in average worksite employees Employer Services FY2026 Guidance | Metric | Outlook | | :--- | :--- | | Revenue Growth | 5% to 6% | | New Business Bookings Growth | 4% to 7% | | Client Revenue Retention | Decrease of 10 to 30 bps | | U.S. Pays Per Control | 0% to 1% | PEO Services FY2026 Guidance | Metric | Outlook | | :--- | :--- | | Revenue Growth | 5% to 7% | | Revenue Growth (ex. zero-margin) | 3% to 5% | | Average Worksite Employee Growth | 2% to 3% | Client Funds Extended Investment Strategy Fiscal 2026 Outlook ADP forecasts interest on funds held for clients to be between $1.290 billion and $1.310 billion in fiscal 2026. This is based on anticipated growth in client funds balances of 2% to 3% and an expected increase in the average yield to approximately 3.4% Client Funds FY2026 Guidance | Metric | Outlook | | :--- | :--- | | Interest on Funds Held for Clients | $1.290B to $1.310B | | Growth in Client Funds Balances | 2% to 3% | | Average Yield | ~3.4% | | Total Contribution from Client Funds Strategy | $1.250B to $1.270B | Financial Statements This section presents ADP's consolidated financial statements, including the statements of earnings, balance sheets, and cash flows for the fiscal year 2025 Statements of Consolidated Earnings For the twelve months ended June 30, 2025, total revenues were $20.56 billion, up from $19.20 billion in the prior year. Net earnings increased to $4.08 billion from $3.75 billion, resulting in a diluted EPS of $9.98, compared to $9.10 in fiscal 2024 FY2025 vs FY2024 Income Statement Highlights (in millions) | Line Item | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Total Revenues | $20,560.9 | $19,202.6 | | Total Expenses | $15,604.9 | $14,617.0 | | Earnings Before Income Taxes | $5,310.1 | $4,872.3 | | Net Earnings | $4,079.7 | $3,752.0 | | Diluted EPS | $9.98 | $9.10 | Consolidated Balance Sheets As of June 30, 2025, ADP's total assets were $53.37 billion, a slight decrease from $54.36 billion in the prior year. Total liabilities decreased to $47.18 billion from $49.82 billion, while total stockholders' equity increased to $6.19 billion from $4.55 billion Balance Sheet Summary (in millions) | Line Item | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Total Assets | $53,369.3 | $54,362.7 | | Total Liabilities | $47,181.3 | $49,815.1 | | Total Stockholders' Equity | $6,188.0 | $4,547.6 | Statements of Consolidated Cash Flows For fiscal year 2025, net cash provided by operating activities was $4.94 billion, an increase from $4.16 billion in the prior year. The company used $3.04 billion in investing activities and $6.97 billion in financing activities, which included $2.40 billion in dividends paid and $1.28 billion in stock repurchases FY2025 Cash Flow Summary (in millions) | Cash Flow Activity | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $4,939.7 | $4,157.6 | | Net Cash used in Investing Activities | ($3,035.0) | ($1,389.0) | | Net Cash used in Financing Activities | ($6,973.4) | ($1,431.7) | - Key financing activities included $2.40 billion in dividend payments and $1.28 billion in common stock repurchases[22] Supplemental Financial Data and Non-GAAP Reconciliations This section provides additional financial details by segment, client funds strategy information, and reconciliations of GAAP to non-GAAP financial measures Selected Financial Data by Segment For fiscal year 2025, Employer Services generated $13.88 billion in revenue and $5.01 billion in segment earnings, with a margin of 36.1%. PEO Services had revenues of $6.69 billion and earnings of $950.5 million, with a margin of 14.2% FY2025 Segment Performance (in millions) | Segment | Revenues | % Change | Earnings | % Change | Margin | | :--- | :--- | :--- | :--- | :--- | :--- | | Employer Services | $13,883.1 | 7% | $5,008.5 | 10% | 36.1% | | PEO Services | $6,690.4 | 7% | $950.5 | 3% | 14.2% | Client Funds Strategy Supplemental Information In fiscal 2025, the net impact from the Client Funds Strategy was $1.07 billion, a 22% increase from the prior year. This was driven by a 6% rise in average client fund balances to $37.6 billion and higher interest rates earned on these funds FY2025 Client Funds Strategy Performance (in millions) | Metric | FY 2025 | FY 2024 | % Change | | :--- | :--- | :--- | :--- | | Avg. Funds Held for Clients (billions) | $37.6 | $35.4 | 6% | | Interest on Funds Held for Clients | $1,189.1 | $1,024.7 | 16% | | Net Impact from Client Funds Strategy | $1,073.3 | $879.0 | 22% | Reconciliation of GAAP to Non-GAAP Financial Measures ADP provides non-GAAP measures like Adjusted EBIT and Adjusted Diluted EPS to offer a clearer view of underlying business performance. For fiscal 2025, GAAP Net Earnings of $4.08 billion were adjusted to $4.09 billion. GAAP Diluted EPS of $9.98 was adjusted to $10.01, primarily accounting for optimization initiatives - The company uses adjusted results to evaluate operating performance by excluding items like optimization initiatives, legal settlements, and gains on asset sales, which are not considered fundamental to underlying operations[26] FY2025 GAAP to Non-GAAP Reconciliation (in millions) | Metric | GAAP | Adjustments | Non-GAAP (Adjusted) | | :--- | :--- | :--- | :--- | | Net Earnings | $4,079.7M | +$12.3M | $4,092.0M | | Diluted EPS | $9.98 | +$0.03 | $10.01 | - The reconciliation for the Fiscal 2026 outlook shows that the guided 50 to 70 bps of Adjusted EBIT margin expansion is derived from a GAAP earnings before income taxes margin expansion of 60 to 80 bps[35] Safe Harbor Statement This section outlines the forward-looking nature of the report's statements and the inherent risks and uncertainties that could impact actual future results Forward-Looking Statements This report contains forward-looking statements regarding future performance, which are subject to risks and uncertainties. Key factors that could cause actual results to differ include client retention, pricing, technological changes like AI, regulatory shifts, and overall economic conditions - The document contains forward-looking statements identified by words like 'outlook,' 'expects,' and 'anticipates,' which are based on current management expectations and are not guarantees of future performance[36] - Material risks include success in client retention, competitive conditions, ability to respond to technological changes (including AI), interest rate trends, and security breaches[36]