What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-02 compared with 2024-02-01 · 103 added, 103 removed, 287 unchanged (42% of the section changed)

36 unchanged sentences

Executing on our Strategic Priorities will be critical to enabling our growth in the years ahead.

Highlights from the six months ended December 31, 2023 include:

During the third quarter we continued to make meaningful progress on our strategic priorities.

On the technology front, we continued the rollout of ADP Assist, which utilizes generative AI ("GenAI") technology to proactively surface insights that enhance HR productivity, aid decision-making with data-driven insights, and streamline day-to-day tasks for our clients and their employees.

To lean into our service expertise, we extended GenAI capabilities to a broader portion of our service and implementation associates to deliver an even better client experience.

Finally, we continued to leverage our global scale to benefit our clients by requiring all partners offering AI-enabled solutions on ADP Marketplace to commit to a set of responsible AI principles based on the principles that govern our own products.

Highlights from the nine months ended March 31, 2024 include:

• Revenue growth of 7% to $14,434.1 million;

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• Earnings before income taxes margin expansion of 90 bps, and adjusted EBIT margin expansion of 60 bps

• Diluted and adjusted diluted earnings per share ("EPS") growth of 10% to $4.20, respectively.

• Cash returned via shareholder friendly actions of $1.5B, including $1.0B of dividends and $0.5B share repurchases

During the second quarter we made continued progress on our strategy with several product enhancements and partnership expansions aimed at improving the overall experience for our clients.

We continued the rollout of ADP Assist, which utilizes generative AI (GenAI) technology to proactively surface insights that enhance HR productivity, aid decision-making with data-driven insights, and streamline day-to-day tasks for our clients and their employees.

We also extended GenAI powered capabilities to a greater portion of our service associates to support greater client engagement.

Additionally, we expanded on partnerships with other leading technology providers to further simplify the payroll experience and drive more personalized interactions.

For the six months ended December 31, 2023, we delivered solid revenue growth of 7%, 6% organic constant currency.

Our pays per control metric, which represents the number of employees on ADP clients' payrolls in the United States when measured on a same-store-sales basis for a subset of clients ranging from small to large businesses, grew 2% for the six months ended December 31, 2023 as compared to the six months ended December 31, 2022.

PEO average worksite employees increased 2% for the six months ended December 31, 2023, as compared to the six months ended December 31, 2022.

• Diluted and adjusted diluted earnings per share ("EPS") growth of 12%, to $7.07 and $7.08, respectively.

• Cash returned via shareholder friendly actions of $2.4B, including $1.6B of dividends and $0.8B of share repurchases

For the nine months ended March 31, 2024, we delivered solid revenue growth of 7%, 6% organic constant currency.

Our pays per control metric, which represents the number of employees on ADP clients' payrolls in the United States when measured on a same-store-sales basis for a subset of clients ranging from small to large businesses, grew 2% for the nine months ended March 31, 2024 as compared to the nine months ended March 31, 2023.

PEO average worksite employees increased 2% for the nine months ended March 31, 2024, as compared to the nine months ended March 31, 2023.

We have a strong business model, generating significant cash flows with low capital intensity, and offer a suite of products that provide critical support to our clients’ HCM functions.

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We are committed to building upon our past successes by investing in our business through enhancements in research and development and by driving meaningful transformation in the way we operate.

Our financial condition remains solid at December 31, 2023 and we remain well positioned to support our clients and our associates.

Our financial condition remains solid at March 31, 2024 and we remain well positioned to support our clients and our associates.

RESULTS AND ANALYSIS OF CONSOLIDATED OPERATIONS

Total Revenues

For the three and six months ended December 31, respectively:

Three Months Ended Six Months Ended

December 31, December 31,

For the three and nine months ended March 31, respectively:

Three Months Ended Nine Months Ended

March 31, March 31,

2024 2023 2024 2023

2 unchanged sentences

YoY Growth, Organic Constant Currency 6 % 10 % 6 % 11 %

Revenues for the three months ended December 31, 2023 increased due to new business started from New Business Bookings, strong client retention, an increase in pricing, an increase in our pays per control, and an increase in zero-margin benefits pass-throughs.

Revenues for the six months ended December 31, 2023 increased due to new business started from New Business Bookings, strong client retention, an increase in pricing, an increase in our pays per control, an increase in zero-margin benefits pass-throughs, and a favorable impact of one percentage point from foreign currency.

Total revenues for the three months ended December 31, 2023 include interest on funds held for clients of $225.3 million, as compared to $187.2 million for the three months ended December 31, 2022.

The increase in the interest earned on funds held for clients resulted from an increase in our average interest rate earned to 2.8% for the three months ended December 31, 2023, as compared to 2.2% for the three months ended December 31, 2022, partially offset by a decrease in our average client funds balances of 2.3% to $32.6 billion for the three months ended December 31, 2023.

Total revenues for the six months ended December 31, 2023 include interest on funds held for clients of $427.1 million, as compared to $328.3 million for the six months ended December 31, 2022.

The increase in the interest earned on funds held for clients resulted from an increase in our average interest rate earned to 2.7% for the six months ended December 31, 2023, as compared to 2.1% for the six months ended December 31, 2022, and an increase in our average client funds balances of 1.6% to $31.9 billion for the six months ended December 31, 2023.

Revenues for the three and nine months ended March 31, 2024 increased due to new business started from New Business Bookings, strong client retention, an increase in pricing, an increase in zero-margin benefits pass-throughs, and an increase in our pays per control.

Total revenues for the three months ended March 31, 2024 include interest on funds held for clients of $320.8 million, as compared to $249.4 million for the three months ended March 31, 2023.

The increase in the interest earned on funds held for clients resulted from an increase in our average interest rate earned to 3.1% for the three months ended March 31, 2024, as compared to 2.5% for the three months ended March 31, 2023, and an increase in our average client funds balances of 6.5% to $41.7 billion for the three months ended March 31, 2024.

Total revenues for the nine months ended March 31, 2024 include interest on funds held for clients of $747.9 million, as compared to $577.7 million for the nine months ended March 31, 2023.

The increase in the interest earned on funds held for clients resulted from an increase in our average interest rate earned to 2.8% for the nine months ended March 31, 2024, as compared to 2.3% for the nine months ended March 31, 2023, and an increase in our average client funds balances of 3.5% to $35.1 billion for the nine months ended March 31, 2024.

Total Expenses

Three Months Ended Six Months Ended

December 31, December 31,

Three Months Ended Nine Months Ended

March 31, March 31,

Change 2024 2023 %

7 unchanged sentences

Total expenses $ 3,771.8 $ 3,600.1 5 % $ 10,847.9 $ 10,208.7 6 %

For the three and six months ended December 31, 2023, operating expenses increased due to an increase in our PEO Services zero-margin benefits pass-through costs of $944.2 million to $970.7 million for the three months ended December 31, 2023, and an increase of $1,890.0 million to $1,947.5 million for the six months ended December 31, 2023.

Additionally, for the three and six months ended December 31, 2023 operating expenses increased by $26.4 million and $47.1 million, respectively, due to increased service and implementation costs in support of our growing revenue.

Research and development expenses increased for the three and six months ended December 31, 2023 due to increased investments and costs to develop, support, and maintain our new and existing products, and increased investments for integration of generative AI (gen AI) in our existing products.

Depreciation and amortization expenses increased for the three months ended December 31, 2023 due to the amortization of new investments in purchased software.

Depreciation and amortization expenses increased for the six months ended December 31, 2023 due to the amortization of internally developed software products and new investments in purchased software.

Selling, general and administrative expenses increased for the three and six months ended December 31, 2023 due to increased selling expenses as a result of investments in our sales organization.

Interest expense increased for the three months ended December 31, 2023 due to the increase in average interest rates on commercial paper issuances and reverse repurchases to 5.4% and 5.4%, respectively, for the three months ended December 31, 2023, as compared to 3.5% and 3.4%, respectively, for the three months ended December 31, 2022, coupled with a higher volume of average commercial paper and reverse repurchases borrowings, as compared to the three months ended December 31, 2022.

Interest expense increased for the six months ended December 31, 2023 due to the increase in average interest rates on commercial paper issuances and reverse repurchases to 5.3% and 5.4%, respectively, for the six months ended December 31, 2023, as compared to 2.8% and 2.9%, respectively, for the six months ended December 31, 2022, coupled with a higher volume of average reverse repurchases borrowings, as compared to the six months ended December 31, 2022.

For the three and nine months ended March 31, 2024, operating expenses increased due to an increase in our PEO Services zero-margin benefits pass-through costs of $956.3 million to $1,016.3 million for the three months ended March 31, 2024, and an increase from $2,846.3 million to $2,963.7 million for the nine months ended March 31, 2024.

Additionally, for the three and nine months ended March 31, 2024 operating expenses increased by $23.4 million and $70.5 million, respectively, due to increased service and implementation costs in support of our growing revenue, and $15.3 million and $26.0 million, respectively, due to lower releases of workers compensation reserves in ADP Indemnity as compared to prior year.

Research and development expenses increased for the three and nine months ended March 31, 2024 due to increased investments and costs to develop, support, and maintain our new and existing products, and increased investments for integration of GenAI in our existing products.

Depreciation and amortization expenses increased for the three months ended March 31, 2024 due to the amortization of internally developed software primarily for our next-gen products.

Depreciation and amortization expenses increased for the nine months ended March 31, 2024 due to the amortization of new investments in purchased software and internally developed software primarily for our next-gen products.

Selling, general and administrative expenses increased for the three and nine months ended March 31, 2024 due to increased selling expenses as a result of investments in our sales organization.

Interest expense increased for the three months ended March 31, 2024 due to the increase in average interest rates on commercial paper issuances and reverse repurchases to 5.4% and 5.4%, respectively, for the three months ended March 31, 2024, as compared to 4.5% and 4.4%, respectively, for the three months ended March 31, 2023, coupled with a higher volume of average commercial paper and reverse repurchases borrowings, as compared to the three months ended March 31, 2023.

Interest expense increased for the nine months ended March 31, 2024 due to the increase in average interest rates on commercial paper issuances and reverse repurchases to 5.3% and 5.4%, respectively, for the nine months ended March 31, 2024, as compared to 3.1% and 3.1%, respectively, for the nine months ended March 31, 2023, coupled with a higher volume of average commercial paper and reverse repurchases borrowings, as compared to the nine months ended March 31, 2023.

Other (Income)/Expense, net

Three Months Ended Six Months Ended

December 31, December 31,

Three Months Ended Nine Months Ended

March 31, March 31,

2024 2023 $ Change 2024 2023 $ Change

Interest income on corporate funds $ (55.9) $ (24.1) $ 31.8 $ (159.3) $ (82.8) $ 76.5

Realized losses/(gains) on available-for-sale securities, net 2.0 11.5 9.5 4.0 13.0 9.0

Realized losses on available-for-sale securities, net 1.2 0.9 (0.3) 5.2 13.9 8.7

Gain on sale of assets (1.2) — 1.2 (17.1) — 17.1

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Other (income)/expense, net $ (64.3) $ (36.3) $ 28.0 $ (196.8) $ (106.3) $ 90.5

Interest income on corporate funds increased due to higher average interest rates of 2.9% and 2.8% for the three and six months ended December 31, 2023, respectively, as compared to 2.0% and 1.8% for the three and six months ended December 31, 2022, respectively, coupled with higher average investment balances of $7.8 billion and $7.5 billion for the three and six months ended December 31, 2023, respectively, as compared to $5.7 billion and $6.4 billion for the three and six months ended December 31, 2022, respectively.

In the three months ended December 31, 2023, the Company recognized a gain of $1.4 million in relation to the sale of land.

In the six months ended December 31, 2023, the Company recognized a gain of $16.0 million in relation to the sale of a building and land.

Interest income on corporate funds increased due to higher average interest rates of 4.0% and 3.1% for the three and nine months ended March 31, 2024, respectively, as compared to 2.7% and 2.0% for the three and nine months ended March 31, 2023, respectively, coupled with higher average investment balances of $5.5 billion and $6.8 billion for the three and nine months ended March 31, 2024, respectively, as compared to $3.6 billion and $5.5 billion for the three and nine months ended March 31, 2023, respectively.

In the three and nine months ended March 31, 2024, the Company recognized a gain of $1.2 million and $17.1 million, respectively, in relation to the sale of building and land.

See Note 10 of our Consolidated Financial Statements for further details on non-service components of pension income, net.

Earnings Before Income Taxes ("EBIT") and Adjusted EBIT

For the three and six months ended December 31:

Three Months Ended Six Months Ended

December 31, December 31,

For the three and nine months ended March 31:

Three Months Ended Nine Months Ended

March 31, March 31,

2024 2023 YoY Growth 2024 2023 YoY Growth

5 unchanged sentences

26.2 % 25.6 % 60 bps

Earnings before income taxes increased for the three and six months ended December 31, 2023, due to the components discussed above.

Margin increased for the three months ended December 31, 2023, due to contributions from client funds interest revenues discussed above, operating efficiencies for costs of servicing our clients on growing revenue, partially offset by increased interest expense, increased investments and costs to develop, support and maintain our new and existing products, and increased selling expense.

Margin increased for the six months ended December 31, 2023, due to contributions from client funds interest revenues discussed above, operating efficiencies for costs of servicing our clients on growing revenue, and a gain on sale of assets, partially offset by increased interest expense, increased investments and costs to develop, support and maintain our new and existing products, and increased selling expense.

Adjusted EBIT and Adjusted EBIT margin exclude interest income and interest expense that are not related to our client funds extended investment strate gy, legal settlements, and net charges related to our broad-based transformation initiatives and the impact of net severance charges, as applicable, in the respective periods.

Earnings before income taxes increased for the three and nine months ended March 31, 2024, due to the components discussed above.

Margin increased for the three months ended March 31, 2024, due to contributions from client funds interest revenues discussed above, increased interest income on corporate funds, and operating efficiencies for costs of servicing our clients on growing revenue, partially offset by increased interest expense, increased investments and costs to develop, support and maintain our new and existing products, changes in our estimated losses related to ADP Indemnity, and increased selling expense.

Margin increased for the nine months ended March 31, 2024, due to contributions from client funds interest revenues discussed above, operating efficiencies for costs of servicing our clients on growing revenue, and a gain on sale of assets, partially offset by increased interest expense, increased selling expense, increased investments and costs to develop, support and maintain our new and existing products, and changes in our estimated losses related to ADP Indemnity.

Adjusted EBIT and Adjusted EBIT margin exclude interest income and interest expense that are not related to our client funds extended investment strate gy, legal settlements, and charges related to our broad-based transformation initiatives and the impact of net severance charges, as applicable, in the respective periods.

Provision for Income Taxes

The effective tax rate for the three months ended December 31, 2023 and 2022 was 23.2%.

The rate remained flat due to a lower state income tax rate and a lower benefit for adjustments to prior year tax liabilities in the three months ended December 31, 2023.

The effective tax rate for the six months ended December 31, 2023 and 2022 was 22.3% and 23.0%, respectively.

The decrease is primarily due to lower reserves for uncertain tax positions and a valuation allowance release offset by a lower excess tax benefit on stock-based compensation in the six months ended December 31, 2023.

The effective tax rate for the three months ended March 31, 2024 and 2023 was 23.4% and 23.5%, respectively.

The decrease in the effective tax rate is primarily due to an intercompany transfer of certain assets in the three months ended March 31, 2024 offset by an increased benefit for Research and Development Tax Credits in the three months ended March 31, 2023.

The effective tax rate for the nine months ended March 31, 2024 and 2023 was 22.7% and 23.2%, respectively.

The decrease in the effective tax rate is primarily due to lower reserves for uncertain tax positions, a lower state income tax rate and a valuation allowance release offset by a lower benefit for adjustments to prior year tax liabilities in nine months ended March 31, 2024.

Adjusted Provision for Income Taxes

The adjusted effective tax rate for the three months ended December 31, 2023 and 2022 was 23.2%.

The adjusted effective tax rate for the three months ended March 31, 2024 and 2023 was 23.4% and 23.5%, respectively.

The drivers of the adjusted effective tax rate are the same as the drivers of the effective tax rate discussed above.

The adjusted effective tax rate for the six months ended December 31, 2023 and 2022 was 22.3% and 23.0%, respectively.

The adjusted effective tax rate for the nine months ended March 31, 2024 and 2023 was 22.7% and 23.2%, respectively.

The drivers of the adjusted effective tax rate are the same as the drivers of the effective tax rate discussed above.

Net Earnings and Diluted EPS, Unadjusted and Adjusted

For the three and six months ended December 31:

Three Months Ended Six Months Ended

December 31, December 31,

For the three and nine months ended March 31:

Three Months Ended Nine Months Ended

March 31, March 31,

2024 2023 YoY Growth 2024 2023 YoY Growth

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Adjusted diluted EPS $ 2.88 $ 2.52 14 % $ 7.08 $ 6.34 12 %

For the three and six months ended December 31, 2023, net earnings reflect the changes described above in our earnings before income taxes and our effective tax rate.

For the three months ended December 31, 2023, in addition to the increase in net earnings, diluted EPS increased as a result of the impact of fewer shares outstanding resulting from the repurchase of approximately 1.1 million shares during the three months ended December 31, 2023, and 0.9 million shares during the three months ended December 31, 2022, partially offset by the issuances of shares under our employee benefit plans.

For the six months ended December 31, 2023, in addition to the increase in net earnings, diluted EPS increased as a result of the impact of fewer shares outstanding resulting from the repurchase of approximately 2.1 million shares during the six months ended December 31, 2023, and 2.3 million shares during the six months ended December 31, 2022, partially offset by the issuances of shares under our employee benefit plans.

For the three and nine months ended March 31, 2024, net earnings reflect the changes described above in our earnings before income taxes and our effective tax rate.

For the three months ended March 31, 2024, in addition to the increase in net earnings, diluted EPS increased as a result of the impact of fewer shares outstanding resulting from the repurchase of approximately 1.2 million shares during the three months ended March 31, 2024, and 1.2 million shares during the three months ended March 31, 2023, partially offset by the issuances of shares under our employee benefit plans.

For the nine months ended March 31, 2024, in addition to the increase in net earnings, diluted EPS increased as a result of the impact of fewer shares outstanding resulting from the repurchase of approximately 3.3 million shares during the nine months ended March 31, 2024, and 3.5 million shares during the nine months ended March 31, 2023, partially offset by the issuances of shares under our employee benefit plans.

ANALYSIS OF REPORTABLE SEGMENTS

Three Months Ended % Change Six Months Ended % Change

December 31, December 31,

Three Months Ended % Change Nine Months Ended % Change

March 31, March 31,

Reported Organic constant currency 2024 2023 As

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Three Months Ended %

Change Six Months Ended %

December 31, December 31,

Change Nine Months Ended %

March 31, March 31,

2024 2023 As Reported 2024 2023 As

3 unchanged sentences

$ 1,546.3 $ 1,364.0 13 % $ 3,783.0 $ 3,432.0 10 %

Three Months Ended Six Months Ended

December 31, December 31,

Three Months Ended Nine Months Ended

March 31, March 31,

2024 2023 YoY Growth 2024 2023 YoY Growth

5 unchanged sentences

Employer Services

Revenues increased for the three and six months ended December 31, 2023 due to new business started from New Business Bookings, strong client retention, an increase in pricing, an increase in interest earned on funds held for clients, an increase in our pays per control of 2%, respectively, and a favorable impact of one percentage point from foreign currency.

Revenues increased for the three and nine months ended March 31, 2024 due to new business started from New Business Bookings, strong client retention, an increase in pricing, an increase in interest earned on funds held for clients, and an increase in our pays per control of 2%.

Earnings before Income Taxes

Employer Services' earnings before income taxes increased 14% and 15% for the three and six months ended December 31, 2023, respectively, due to contributions from client funds interest revenues discussed above, and operating efficiencies for costs of servicing our clients on growing revenue, partially offset by increased investments and costs to develop, support, and maintain our new and existing products, and increased selling expenses.

Employer Services' margin increased for the three and six months ended December 31, 2023 due to contributions from client funds interest revenues discussed above, and operating efficiencies for costs of servicing our clients on growing revenue, partially offset by increased investments and costs to develop, support and maintain our new and existing products, and increased selling expenses.

Three Months Ended Change Six Months Ended Change

December 31, December 31,

Employer Services' earnings before income taxes increased 14% and 15% for the three and nine months ended March 31, 2024, respectively, due to contributions from client funds interest revenues discussed above, and operating efficiencies for costs of servicing our clients on growing revenue, partially offset by increased investments and costs to develop, support, and maintain our new and existing products, and increased selling expenses.

Employer Services' margin increased for the three and nine months ended March 31, 2024, due to contributions from client funds interest revenues discussed above, and operating efficiencies for costs of servicing our clients on growing revenue, partially offset by increased investments and costs to develop, support and maintain our new and existing products.

Three Months Ended Change Nine Months Ended Change

March 31, March 31,

2024 2023 $ % 2024 2023 $ %

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PEO Services' revenues excluding zero-margin benefits pass-throughs $ 649.3 $ 635.7 $ 13.6 2 % $ 1,717.5 $ 1,678.4 $ 39.1 2 %

PEO Services' revenue increased for the three and six months ended December 31, 2023, due to increases in zero-margin benefits pass-throughs, and increases in average worksite employees of 2%, as compared to the three and six months ended December 31, 2022.

PEO Services' revenue increased for the three and nine months ended March 31, 2024, due to increases in zero-margin benefits pass-throughs, and increases in average worksite employees of 3% and 2%, respectively, as compared to the three and nine months ended March 31, 2023.

Earnings before Income Taxes

PEO Services' earnings before income taxes remained flat for the three months ended December 31, 2023 due to a change of $(2.3) million in our estimated losses related to ADP Indemnity compared to prior year, increases in zero-margin benefits pass-through costs of $26.5 million, and increases in selling expenses for the three months ended December 31, 2023, partially offset by increased revenues discussed above.

PEO Services' earnings before income taxes decreased 2% for the six months ended December 31, 2023 due to a change of $(10.7) million in our estimated losses related to ADP Indemnity compared to prior year, increases in zero-margin benefits pass-through costs of $57.5 million, and increases in selling expenses for the six months ended December 31, 2023, partially offset by increased revenues discussed above.

PEO Services' margin decreased for the three and six months ended December 31, 2023 due to increases in selling expenses, and changes in our estimated losses related to ADP Indemnity, partially offset by increased revenues discussed above.

PEO Services' earnings before income taxes decreased 10% for the three months ended March 31, 2024 due to lower releases of workers compensation reserves in ADP Indemnity of $15.3 million as compared to prior year, and increases in selling expenses for the three months ended March 31, 2024, partially offset by increased revenues discussed above.

PEO Services' earnings before income taxes decreased 4% for the nine months ended March 31, 2024 due to lower releases of workers compensation reserves in ADP Indemnity of $26.0 million as compared to prior year, and increases in selling expenses for the nine months ended March 31, 2024, partially offset by increased revenues discussed above.

PEO Services' margin decreased for the three months ended due to changes in our estimated losses related to ADP Indemnity, and increases in zero-margin benefits pass-through costs, partially offset by increased revenues discussed above.

PEO Services' margin decreased for the nine months ended March 31, 2024 due to changes in our estimated losses related to ADP Indemnity, increases in selling expenses, and increases in zero-margin benefits pass-through costs, partially offset by increased revenues discussed above.

ADP Indemnity provides workers’ compensation and employer’s liability deductible reimbursement insurance protection for PEO Services’ worksite employees up to $1 million per occurrence.

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The Company believes the likelihood of ultimate losses exceeding this limit is remote.

ADP Indemnity recorded a pre-tax (loss)/benefit of approximately $(1.7) million and $4.5 million for the three and six months ended December 31, 2023, respectively, as compared to approximately $0.6 million and $15.2 million for the three and six months ended December 31, 2022, respectively, which was primarily a result of changes in our estimated actuarial losses.

In July 2023, ADP Indemnity paid a premium of $269 million t o enter into a reinsurance arrangement with Chubb

Limited to cover substantially all losses incurred by ADP Indemnity for the fiscal 2024 policy year on terms substantially similar to the fiscal 2023 reinsurance policy.

ADP Indemnity recorded a pre-tax benefit of approximately $1.6 million and $6.1 million for the three and nine months ended March 31, 2024, respectively, as compared to approximately $16.9 million and $32.1 million for the three and nine months ended March 31, 2023, respectively, which was primarily a result of changes in our estimated actuarial losses.

July 2023, ADP Indemnity paid a premium of $269 million t o enter into a reinsurance arrangement with Chubb Limited to cover substantially all losses incurred by ADP Indemnity for the fiscal 2024 policy year on terms substantially similar to the fiscal 2023 reinsurance policy.

The primary components of “Other” are certain corporate overhead charges and expenses that have not been allocated to the reportable segments, including corporate functions, costs related to our transformation office, severance costs, non-recurring gains and losses, the elimination of intercompany transactions, and other interest income and expense.

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GAAP measures, and they may not be comparable to similarly titled measures at other companies.

Three Months Ended % Change Six Months Ended % Change

December 31, December 31,

Three Months Ended % Change Nine Months Ended % Change

March 31, March 31,

2024 2023 As Reported 2024 2023 As Reported

24 unchanged sentences

The adjustments in the table above represent the interest income and interest expense that are not related to our client funds extended investment strategy and are labeled as “All other interest expense” and “All other interest income.”

(b) In the three and six months ended December 31, 2023, transformation initiatives include consulting costs relating to our company wide transformation initiatives.

(b) In the three and nine months ended March 31, 2024, transformation initiatives include consulting costs relating to our company wide transformation initiatives.

(c) The income tax (benefit)/provision was calculated based on the annualized marginal rate in effect during the quarter of the adjustment.

4 unchanged sentences

The PEO segment is not impacted by acquisitions, dispositions or foreign currency.

Three Months Ended Six Months Ended

December 31, December 31,

Three Months Ended Nine Months Ended

March 31, March 31,

Consolidated revenue growth as reported 7 % 7 %

6 unchanged sentences

Employer Services revenue growth, organic constant currency 7 % 8 %

Numbers may not foot due to rounding.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCE S

At December 31, 2023, cash and cash equivalents were $1.6 billion, which were primarily invested in time deposits and money market funds.

At March 31, 2024, cash and cash equivalents were $3.3 billion, which were primarily invested in time deposits and money market funds.

For corporate liquidity, we expect existing cash, cash equivalents, marketable securities, cash flow from operations together with our $9.7 billion of co mmitted credit facilities and our ability to access both long-term and short-term debt financing from the capital markets will be adequate to meet our operating, investing, and financing activities such as regular quarterly dividends, share repurchases, and capital expenditures for the foreseeable future.

Our financial condition remains solid at December 31, 2023 and we have sufficient liquidity.

Our financial condition remains solid at March 31, 2024 and we have sufficient liquidity.

For client funds liquidity, we have the ability to borrow through our financing arrangements under our U.S.

3 unchanged sentences

Operating, Investing and Financing Cash Flows

Our cash flows from operating, investing, and financing activities, as reflected in the Statements of Consolidated Cash Flows for the six months ended December 31, 2023 and 2022, respectively, are summarized as follows:

Six Months Ended

Our cash flows from operating, investing, and financing activities, as reflected in the Statements of Consolidated Cash Flows for the nine months ended March 31, 2024 and 2023, respectively, are summarized as follows:

Nine Months Ended

2024 2023 $ Change

5 unchanged sentences

Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents $ 11,353.3 $ (4,742.4) $ 16,095.7

Net cash flows provided by operating activities decreased due to a net unfavorable change in the components of operating assets and liabilities, primarily due to timing on collections of accounts receivable, offset by growth in our underlying business (net income adjusted for non-cash adjustments), as compared to the six months ended December 31, 2022.

Net cash flows provided by operating activities decreased due to timing on collections of accounts receivable, offset by an increase in growth in our underlying business (net income adjusted for non-cash adjustments), as compared to the nine months ended March 31, 2023.

Net cash flows used in investing activities changed due to the timing of purchases and proceeds of corporate and client funds marketable securities of $848.6 million.

Net cash flows provided by/used in financing activities changed due to a net increase in the cash flow from client funds obligations of $13,518.7 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other payees, and a decrease in the net payments related to reverse repurchase agreements.

Net cash flows provided by/used in financing activities changed due to a net increase in the cash flow from client funds obligations of $14,411.9 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other payees, a net increase in cash received from the Internal Revenue Service as of March 31, 2024, to be refunded to our clients, and a decrease in the net payments related to reverse repurchase agreements.

These were offset by an increase in dividends paid.

We purchased approximately 2.1 million shares of our common stock at an average price per sha re o f $238.29 duri ng the six months ended December 31, 2023, as compared to purchases of 2.3 million shares at an average price per share of $234.87 during the six months ended December 31, 2022.

We purchased approximately 3.3 million shares of our common stock at an average price per sha re o f $242.02 duri ng the nine months ended March 31, 2024, as compared to purchases of 3.5 million shares at an average price per share of $231.45 during the nine months ended March 31, 2023.

From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase program.

10 unchanged sentences

Maturities of commercial paper can range from overnight to up to 364 days.

At December 31, 2023 and June 30, 2023, the Compa ny had no comm ercial paper borrowing outstanding.

At March 31, 2024 and June 30, 2023, the Compa ny had no comm ercial paper borrowing outstanding.

Details of the borrowings under the commercial paper program are as follows:

Three Months Ended Six Months Ended

December 31, December 31,

Three Months Ended Nine Months Ended

March 31, March 31,

2024 2023 2024 2023

1 unchanged sentence

Weighted average interest rates 5.4 % 4.5 % 5.3 % 3.1 %

Weighted average maturity (approximately in days) 2 days 2 days 2 days 2 days

Weighted average maturity (approximately in days) 2 days 1 day 2 days 2 days

Our U.S., Canadian, and United Kingdom short-term funding requirements related to client funds obligations are sometimes obtained on a secured basis through the use of reverse repurchase agreements, which are collateralized principally by government and government agency securities, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities.

1 unchanged sentence

We have successfully borrowed through the use of reverse repurchase agreements on an as-needed basis to meet short-term funding requirements related to client funds obligatio ns.

At December 31, 2023 and June 30, 2023, the Company had $21.6 million and $105.4 million, respectively, of outstanding obligations related to reverse repurchase agreement.

At March 31, 2024, the Company had no outstanding obligations related to reverse repurchase agreements.

At June 30, 2023, the Company had $105.4 million of outstanding obligations related to reverse repurchase agreements.

Details of the reverse repurchase agreements are as follows:

Three Months Ended Six Months Ended

December 31, December 31,

Three Months Ended Nine Months Ended

March 31, March 31,

2024 2023 2024 2023

5 unchanged sentences

The primary uses of the credit facilities are to provide liquidity to the commercial paper program and funding for general corporate purposes, if necessary.

We had no borrowings through December 31, 2023 under the credit facilities.

We had no borrowings through March 31, 2024 under the credit facilities.

We believe that we currently meet all conditions set forth in the revolving credit agreements to borrow thereunder and we are not aware of any conditions that would prevent us from borrowing part or all of the $9.7 billion available to us under the revolving credit agreements.

2 unchanged sentences

We own AAA-rated senior tranches of primarily fixed rate auto loan, credit card, and equipment lease receivables, secured predominantly by prime collateral.

All collateral on asset-backed securities has performed as expected through December 31, 2023.

All collateral on asset-backed securities has performed as expected through March 31, 2024.

In addition, we own U.S.

3 unchanged sentences

See Note 6 of our Consolidated Financial Statements for a description of our corporate investments and funds held for clients.

Capital expenditures for the six months ended December 31, 2023 were $94.0 million, as compared to $91.2 million for the six months ended December 31, 2022.

Capital expenditures for the nine months ended March 31, 2024 were $151.6 million, as compared to $142.8 million for the nine months ended March 31, 2023.

We expect capital expenditures in fiscal 2024 to be between $200 million and $225 million, as compared to $206.0 million in fiscal 2023.

25 unchanged sentences

Details regarding our overall investment portfolio are as follows:

Three Months Ended Six Months Ended

December 31, December 31,

Three Months Ended Nine Months Ended

March 31, March 31,

2024 2023 2024 2023

8 unchanged sentences

Total 3.2 % 2.6 % 2.9 % 2.2 %

Net realized losses/(gains) on available-for-sale securities $ 2.0 $ 11.5 $ 4.0 $ 13.0

December 31, 2023 June 30, 2023

Net unrealized pre-tax (losses)/gains on available-for-sale securities $ (1,493.1) $ (2,206.9)

Net realized losses on available-for-sale securities $ 1.2 $ 0.9 $ 5.2 $ 13.9

March 31, 2024 June 30, 2023

Net unrealized pre-tax losses on available-for-sale securities $ (1,582.9) $ (2,206.9)

Total available-for-sale securities at fair value $ 31,096.4 $ 29,764.9

2 unchanged sentences

This mix varies during the fiscal year and is impacted by daily interest rate changes.

The annu alized interest rate earned on our entire p ortfolio increased from 2.0% for the six months ended December 31, 2022 to 2.7% for the six months ended December 31, 2023.

A hypothetical change in both short-term interest rates (e.g., overnight interest rates or the federal funds rate) and intermediate-term interest rates of 25 basis points applied to the estimated average investment balances and any related short-term borrowings would result in approximately a $19 million impact to earnings before income taxes over the ensuing twelve-month period ending December 31, 2024.

A hypothetical change in only short-term interest rates of 25 basis points applied to the estimated average short-term investment balances and any related short-term borrowings would result in approximately a $7 million impact to earnings before income taxes over the ensuing twelve-month period ending December 31, 2024.

The annu alized interest rate earned on our entire p ortfolio increased from 2.2% for the nine months ended March 31, 2023 to 2.9% for the nine months ended March 31, 2024.

A hypothetical change in only short-term interest rates of 25 basis points applied to the estimated average short-term investment balances and any related short-term borrowings would result in approximately a $9 million impact to earnings before income taxes over the ensuing twelve-month period ending March 31, 2025.

We are exposed to credit risk in connection with our available-for-sale securities through the possible inability of the borrowers to meet the terms of the securities.

17 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis