ADP(ADP) - 2025 Q4 - Annual Report

Part I Business ADP is a global leader in Human Capital Management solutions, serving over 1.1 million clients across 140+ countries, leveraging AI and strategic acquisitions - ADP is a global leader in HR and payroll solutions, serving over 1.1 million clients and paying over 42 million workers in more than 140 countries and territories[10] - The company's three strategic priorities are: leading with best-in-class HCM technology, providing unmatched expertise and outsourcing solutions, and benefiting clients with its global scale[16] - ADP is strategically infusing AI into its products, highlighted by the rollout of ADP Assist, a generative AI-powered solution that provides actionable insights across all HR functions[23][24] - In fiscal year 2025, ADP acquired WorkForce Software to enhance its workforce management solutions and Procesamiento Externo de Información, S.C. (PEI) to strengthen its capabilities in Mexico[33] Reportable Segments Overview | Segment | Description | | :--- | :--- | | Employer Services | Offers a comprehensive range of technology-based HCM solutions, including payroll, benefits administration, talent management, and HRO solutions to clients of all sizes | | Professional Employer Organization (PEO) | Provides a full-service PEO solution called ADP TotalSource® through a co-employment model for small and mid-sized businesses | Risk Factors The company faces significant legal, compliance, cybersecurity, technology, and economic risks, including interest rate fluctuations and rapid AI advancements - Legal and Compliance Risks: Failure to comply with a wide range of U.S. and foreign laws, including privacy, data protection (GDPR, CPRA), AI regulations, anti-corruption, and anti-money laundering laws, could result in substantial costs, penalties, and reputational damage[111][116][118] - Security and Technology Risks: The business is regularly targeted by sophisticated cyber-attacks. A security breach could lead to the disclosure of confidential information, disruption of operations, and significant financial loss. System disruptions or failures in data centers could also materially harm the business[126][127][133] - Business and Industry Risks: The HCM industry is subject to rapid technological change, particularly from AI, which could render existing solutions obsolete. The business is also exposed to market risks from changes in foreign currency exchange rates, economic slowdowns, and changes in employment levels and interest rates, which can impact client fund balances and investment income[137][140][146] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[153] Cybersecurity ADP maintains an enterprise-wide cybersecurity program based on industry frameworks, overseen by CISO/CSO and the Board, to protect client data and funds - ADP has implemented a cybersecurity program based on industry frameworks like the NIST Cybersecurity Framework and ISO standards to manage risks from cybersecurity threats[156] - The program includes a global team for 24/7 monitoring and incident response, periodic external and internal assessments, threat intelligence collaboration, and a third-party risk management process[156] - Cybersecurity governance is led by the Chief Information Security Officer (CISO) and Chief Security Officer (CSO), with the Board of Directors actively engaged in oversight through regular quarterly reports and an annual third-party assessment[161][162][163] Properties ADP owns approximately 2.6 million square feet and leases 5.6 million square feet of property worldwide, deeming its facilities adequate for operations - ADP owns 6 processing/print centers and 10 other offices, including its corporate headquarters, totaling approximately 2,555,369 square feet[164] - The company leases approximately 5,640,668 square feet of space worldwide, with leases expiring at various times up to the year 2036[164] Legal Proceedings The company is subject to various legal claims and litigation, but management anticipates no material adverse impact on its financial condition or operations - The company is subject to various claims and litigation in the normal course of business[165] - Management believes the resolution of pending legal matters will not have a materially adverse impact on its financial condition or results of operations[165] Mine Safety Disclosures This item is not applicable to the company - Not applicable[166] Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities ADP's common stock trades on NASDAQ, with the company detailing Q4 FY2025 share repurchases under a $5 billion authorization and providing a performance graph - The company's common stock is principally traded on the NASDAQ Global Select Market under the symbol ADP[168] Issuer Purchases of Equity Securities (Q4 FY2025) | Period | Total Shares Purchased | Average Price Paid per Share ($) | Maximum Dollar Value Remaining for Repurchase ($) | | :--- | :--- | :--- | :--- | | April 2025 | 400,430 | $296.09 | $2,010,261,167 | | May 2025 | 333,958 | $315.74 | $1,904,817,267 | | June 2025 | 327,239 | $314.51 | $1,801,895,701 | | Total | 1,061,627 | - | - | - The share repurchase plan was approved by the Board of Directors in November 2022 for $5 billion and has no expiration date[168][169] Selected Financial Data This item is not applicable to the company - Not applicable[173] Management's Discussion and Analysis of Financial Condition and Results of Operations ADP achieved strong FY2025 financial results with 7% revenue growth to $20.6 billion, 50 bps adjusted EBIT margin expansion, and 9% adjusted diluted EPS growth, maintaining solid liquidity Fiscal 2025 Financial Highlights | Metric | FY 2025 Result (in millions) | YoY Growth | | :--- | :--- | :--- | | Revenue | $20,560.9 | 7% | | Revenue (Organic Constant Currency) | - | 7% | | Diluted EPS ($) | $9.98 | 10% | | Adjusted Diluted EPS ($) | $10.01 | 9% | | Adjusted EBIT Margin | 26.0% | +50 bps | - Revenue growth was driven by new business bookings, strong client retention, increased pricing, higher interest on funds held for clients, and the acquisition of WorkForce Software[183] - The company returned $3.7 billion to shareholders in fiscal 2025, consisting of $2.4 billion in dividends and $1.3 billion in share repurchases[182] Results and Analysis of Consolidated Operations FY2025 consolidated revenues grew 7% to $20.6 billion, with EBIT margin expanding 50 bps to 25.8% and net earnings increasing 9% to $4.1 billion Consolidated Revenue (FY2025 vs FY2024) | Metric | FY 2025 (in millions) | FY 2024 (in millions) | YoY Growth | | :--- | :--- | :--- | :--- | | Total Revenues | $20,560.9 | $19,202.6 | 7% | | Organic Constant Currency Growth | - | - | 7% | - Interest on funds held for clients increased to $1,189.1 million in FY2025 from $1,024.7 million in FY2024, due to a higher average interest rate (3.2% vs 2.9%) and a 6.4% increase in average client funds balances to $37.6 billion[184] Consolidated Earnings (FY2025 vs FY2024) | Metric | FY 2025 (in millions) | FY 2024 (in millions) | YoY Growth | | :--- | :--- | :--- | :--- | | EBIT | $5,310.1 | $4,872.3 | 9% | | EBIT Margin | 25.8% | 25.4% | +50 bps | | Net Earnings | $4,079.7 | $3,752.0 | 9% | | Diluted EPS ($) | $9.98 | $9.10 | 10% | Analysis of Reportable Segments In FY2025, Employer Services revenue grew 7% to $13.9 billion with 100 bps margin expansion, while PEO Services revenue also grew 7% to $6.7 billion but saw a 60 bps margin contraction Segment Performance (FY2025) | Segment | Revenues (in millions) | YoY Growth | Earnings before Income Taxes (in millions) | YoY Growth | Margin | Margin Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Employer Services | $13,883.1 | 7% | $5,008.5 | 10% | 36.1% | +100 bps | | PEO Services | $6,690.4 | 7% | $950.5 | 3% | 14.2% | -60 bps | - Employer Services revenue growth was supported by a 1% increase in pays per control, new business, strong client retention, and the WorkForce Software acquisition[199] - PEO Services revenue growth was driven by a 3% increase in average worksite employees and an 8% increase in zero-margin benefits pass-throughs[202] Financial Condition, Liquidity and Capital Resources As of June 30, 2025, ADP maintained a strong financial position with $3.3 billion cash, $10.6 billion credit facilities, and $4.9 billion cash from operations, supporting acquisitions, repurchases, and dividends - The company ended fiscal 2025 with $3.3 billion in cash and cash equivalents[217] - ADP has access to significant liquidity through a $10.6 billion commercial paper program and $10.6 billion in committed credit facilities[218][219] Cash Flow Summary (FY2025) | Cash Flow Activity | Amount (in millions) | | :--- | :--- | | Operating Activities | $4,939.7 | | Investing Activities | ($3,035.0) | | Financing Activities | ($6,973.4) | - The company repurchased approximately 4.4 million shares of common stock for about $1.3 billion during fiscal 2025[223] Quantitative and Qualitative Disclosures About Market Risk ADP is exposed to interest rate and foreign currency risks, with a 25 bps rate change impacting pre-tax earnings by $24 million, managed through investment strategies and high-quality securities - The company's primary market risks are interest rate risk on its investment portfolio and foreign currency exchange rate risk[234][242] - A hypothetical 25 basis point change in both short-term and intermediate-term interest rates would result in an approximate $24 million impact to earnings before income taxes over the next twelve months[240] - The client funds investment strategy is designed to average through interest rate cycles by laddering maturities out to ten years, supported by short-term financing arrangements like a $10.6 billion commercial paper program and $7.5 billion in committed reverse repurchase agreements[237][238] - Credit risk is managed by investing in investment-grade securities, with minimum ratings of BBB for corporate bonds and AAA for asset-backed securities at the time of purchase[239][241] Financial Statements and Supplementary Data This section presents ADP's audited consolidated financial statements for FY2023-2025, including earnings, balance sheets, and cash flows, with auditor-identified critical audit matters - The independent auditor's report from Deloitte & Touche LLP provides an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting[256][257] - Critical Audit Matters identified were the valuation of Goodwill for the Employer Services segment, particularly concerning forecasts for the next-gen platform, and the accuracy and completeness of Client Funds Obligations due to high transaction volume and complexity[261][264] Statements of Consolidated Earnings FY2025 consolidated earnings show total revenues of $20.6 billion and net earnings of $4.1 billion, or $9.98 per diluted share Consolidated Earnings Summary (in millions, except per share amounts) | Metric | FY 2025 | FY 2024 | FY 2023 | | :--- | :--- | :--- | :--- | | Total Revenues | $20,560.9 | $19,202.6 | $18,012.2 | | Earnings Before Income Taxes | $5,310.1 | $4,872.3 | $4,437.6 | | Net Earnings | $4,079.7 | $3,752.0 | $3,412.0 | | Diluted EPS ($) | $9.98 | $9.10 | $8.21 | Consolidated Balance Sheets As of June 30, 2025, ADP's balance sheet shows $53.4 billion in total assets, $47.2 billion in total liabilities, and $6.2 billion in total stockholders' equity Consolidated Balance Sheet Summary (in millions) | Account | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Total Current Assets | $43,252.2 | $45,542.5 | | Funds held for clients | $30,985.7 | $37,996.1 | | Total Assets | $53,369.3 | $54,362.7 | | Total Current Liabilities | $41,278.3 | $45,080.0 | | Client funds obligations | $31,343.3 | $39,503.9 | | Long-Term Debt | $3,974.7 | $2,991.3 | | Total Liabilities | $47,181.3 | $49,815.1 | | Total Stockholders' Equity | $6,188.0 | $4,547.6 | Statements of Consolidated Cash Flows FY2025 cash flows show $4.9 billion from operations, $3.0 billion used in investing, and $7.0 billion used in financing, primarily for client funds, dividends, and share repurchases Consolidated Cash Flow Summary (in millions) | Cash Flow Activity | FY 2025 | FY 2024 | FY 2023 | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $4,939.7 | $4,157.6 | $4,207.6 | | Net Cash from Investing Activities | ($3,035.0) | ($1,389.0) | ($2,517.3) | | Net Cash from Financing Activities | ($6,973.4) | ($1,431.7) | ($15,680.7) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - None[432] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2025, with an unqualified auditor opinion - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[434] - Based on an assessment using the COSO framework, management determined that ADP's internal control over financial reporting was effective as of June 30, 2025[438] - There were no changes in internal control over financial reporting during the fourth quarter of fiscal 2025 that materially affected, or are reasonably likely to materially affect, these controls[440] Other Information The company disclosed a separation agreement for Don McGuire effective September 30, 2025, and reported no Rule 10b5-1 trading plan changes by officers or directors - Don McGuire entered into a separation agreement and release on August 1, 2025, related to his departure from the company on September 30, 2025[447] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - None[448] Part III Directors, Executive Officers and Corporate Governance This section lists executive officers and incorporates information on directors, the audit committee, and corporate governance from the 2025 Proxy Statement - Provides a list of executive officers, including CEO Maria Black, CFO Peter Hadley, and CAO Michael A. Bonarti, along with their professional backgrounds[450] - Information regarding Directors and the Audit Committee is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Stockholders[460][463] Executive Compensation Information regarding executive compensation, including the Compensation Discussion and Analysis, is incorporated by reference from the 2025 Proxy Statement - All information regarding executive compensation is incorporated by reference from the Proxy Statement for the Company's 2025 Annual Meeting of Stockholders[464] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership by beneficial owners and management, and equity compensation plans, is incorporated by reference from the 2025 Proxy Statement - All information regarding security ownership and equity compensation plans is incorporated by reference from the Proxy Statement for the Company's 2025 Annual Meeting of Stockholders[465] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2025 Proxy Statement - All information regarding related transactions and director independence is incorporated by reference from the Proxy Statement for the Company's 2025 Annual Meeting of Stockholders[466] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the 2025 Proxy Statement - Information regarding principal accounting fees and services is incorporated by reference from the Proxy Statement for the Company's 2025 Annual Meeting of Stockholders[467] Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K, including governance documents and material contracts - Lists all financial statements and schedules included in the filing, such as the Report of Independent Registered Public Accounting Firm and the Consolidated Financial Statements[469] - Provides a detailed index of all exhibits filed with the report, including governance documents, material contracts, and certifications by the CEO and CFO[471]