What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-01 compared with 2024-05-02 · 114 added, 133 removed, 257 unchanged (49% of the section changed)

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This document and other written or oral statements made from time to time by Automatic Data Processing, Inc., its subsidiaries and variable interest entity (“ADP” or the “Company”) may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Statements that are not historical in nature and which may be identified by the use of words like “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,” “could,” "is designed to" and other words of similar meaning, are forward-looking statements.

Statements that are not historical in nature and which may be identified by the use of words like "outlook", “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,” “could,” “is designed to” and other words of similar meaning, are forward-looking statements.

These statements are based on management’s expectations and assumptions and depend upon or refer to future events or conditions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed.

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

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:

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

We continuously aim to offer solutions that solve our clients’ complex business challenges.

As part of this approach, in October 2024, we acquired WorkForce Software, a premier workforce management solutions provider that specializes in supporting large, global enterprises.

Additionally, in September, we introduced ADP Lyric HCM, our flexible, intelligent and human-centric Global HCM platform.

This is a unique offering, combining global HR, global payroll, and global service to adapt to a variety of structures and workflows and offer employers a human-centric approach to managing their people.

Finally, we continued to invest in generative AI capabilities to enhance the experience of our clients and empower our associates.

During the first quarter, we expanded access to our robust generative AI-based service tools which are designed to bring speed to our service interactions and improve the client experience.

Highlights from the three months ended September 30, 2024 include:

• Revenue growth of 7% to $4,832.7 million;

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• Earnings before income taxes margin expansion of 140 bps, and adjusted EBIT margin expansion of 130 bps

• 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.

• Diluted and adjusted diluted earnings per share ("EPS") growth of 13%, to $2.34 and 12%, to $2.33, respectively.

• Cash returned via shareholder friendly actions of $940M, including $570M of dividends and $370M of share repurchases

• Acquired WorkForce Software for approximately $1.2 billion in cash

For the three months ended September 30, 2024, we delivered solid revenue growth of 7%, on a reported and organic constant currency basis.

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 three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

PEO average worksite employees increased 3% for the three months ended September 30, 2024, as compared to the three months ended September 30, 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 March 31, 2024 and we remain well positioned to support our clients and our associates.

Our financial condition remains solid at September 30, 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 nine months ended March 31, respectively:

Three Months Ended Nine Months Ended

March 31, March 31,

2024 2023 2024 2023

For the three months ended September 30, respectively:

Three Months Ended

September 30,

Total Revenues $ 4,832.7 $ 4,512.4

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YoY Growth, Organic Constant Currency 7 % 7 %

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 revenues for the three months ended September 30, 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 September 30, 2024 include interest on funds held for clients of $253.3 million, as compared to $201.7 million for the three months ended September 30, 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 September 30, 2024, as compared to 2.6% for the three months ended September 30, 2023, and an increase in our average client funds balances of 5.3% to $32.8 billion for the three months ended September 30, 2024.

Total Expenses

Three Months Ended Nine Months Ended

March 31, March 31,

Change 2024 2023 %

Three Months Ended

September 30,

Costs of revenues:

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Total expenses $ 3,698.2 $ 3,487.3 6 %

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.

For the three months ended September 30, 2024, operating expenses increased due to higher PEO Services zero-margin benefits pass-through costs of $976.7 million to $1,049.2 million for the three months ended September 30, 2024.

Additionally, for the three months ended September 30, 2024 operating expenses increased by $24.6 million due to higher service and implementation costs in support of our growing revenue.

Research and development expenses decreased for the three months ended September 30, 2024 due to efficiencies from workforce optimization efforts initiated in the prior year, and an increase in the capitalizable spend related to the integration of GenAI into our products as compared to the prior year.

Depreciation and amortization expenses decreased for the three months ended September 30, 2024 due to lower amortization of customer contracts and lists, partially offset by amortization of new investments in purchased software and internally developed software primarily for our next-gen products.

Selling, general and administrative expenses increased for three months ended September 30, 2024 primarily due to increases in selling and marketing expenses of $31.1 million as a result of investments in our sales organization, and an increase from acquisition and debt issuance related costs.

Interest expense increased for the three months ended September 30, 2024 primarily due to a higher volume of average commercial paper borrowings of $4.8 billion and reverse repurchase borrowings of $3.8 billion, as compared to $4.1 billion and $1.4 billion, respectively, for the three months ended September 30, 2023.

Other (Income)/Expense, net

Three Months Ended Nine Months Ended

March 31, March 31,

2024 2023 $ Change 2024 2023 $ Change

Three Months Ended

September 30,

2024 2023 $ Change

Interest income on corporate funds $ (91.7) $ (46.5) $ 45.2

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Gain on sale of assets (2.4) (14.6) (12.2)

Impairment of assets — — — — 0.3 0.3

Non-service components of pension income, net (7.8) (8.5) (0.7)

Other (income)/expense, net $ (101.7) $ (67.7) $ 34.0

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.

Interest income on corporate funds increased due to higher average interest rates of 3.4% for the three months ended September 30, 2024, as compared to 2.6% for the three months ended September 30, 2023, coupled with higher average investment balances of $10.7 billion for the three months ended September 30, 2024, as compared to $7.1 billion for the three months ended September 30, 2023.

See Note 11 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 nine months ended March 31:

Three Months Ended Nine Months Ended

March 31, March 31,

2024 2023 YoY Growth 2024 2023 YoY Growth

For the three months ended September 30:

Three Months Ended

September 30,

2024 2023 YoY Growth

EBIT $ 1,236.2 $ 1,092.8 13 %

EBIT Margin 25.6 % 24.2 % 140 bps

26.2 % 25.4 % 90 bps

Adjusted EBIT $ 1,232.5 $ 1,093.3 13 %

Adjusted EBIT Margin 25.5 % 24.2 % 130 bps

26.2 % 25.6 % 60 bps

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.

Earnings before income taxes increased for the three months ended September 30, 2024, due to the components discussed above.

Margin increased for the three months ended September 30, 2024, due to contributions from client funds interest revenues discussed above, increased interest income on corporate funds, operating efficiencies for costs of servicing our clients on growing revenue, and a decrease in research and development costs, partially offset by increased interest 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.

Provision for Income Taxes

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.

The effective tax rate for the three months ended September 30, 2024 and 2023 was 22.6% and 21.4%, respectively.

The increase in the effective tax rate is primarily due to lower reserves for uncertain tax positions and a valuation allowance release in the three months ended September 30, 2023.

Adjusted Provision for Income Taxes

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 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.

The adjusted effective tax rate for the three months ended September 30, 2024 and 2023 was 22.6% and 21.4%, respectively.

The increase in the effective tax rate is primarily due to lower reserves for uncertain tax positions and a valuation allowance release in the three months ended September 30, 2023.

Net Earnings and Diluted EPS, Unadjusted and Adjusted

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

For the three months ended September 30:

Three Months Ended

September 30,

2024 2023 YoY Growth

Net earnings $ 956.3 $ 859.4 11 %

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Adjusted diluted EPS $ 2.33 $ 2.08 12 %

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.

For the three months ended September 30, 2024, net earnings reflect the changes described above in our earnings before income taxes and our effective tax rate.

For the three months ended September 30, 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 1.4 million shares during the three months ended September 30, 2024, and 1.0 million shares during the three months ended September 30, 2023, partially offset by the issuances of shares under our employee benefit plans.

ANALYSIS OF REPORTABLE SEGMENTS

Three Months Ended % Change Nine Months Ended % Change

March 31, March 31,

Reported Organic constant currency 2024 2023 As

Three Months Ended % Change

September 30,

Reported Organic constant currency

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PEO Services 1,574.5 1,469.6 7 % 7 %

Other (2.5) (3.3) n/m n/m (9.4) (11.6) n/m n/m

Other (2.8) (3.6) n/m n/m

$ 4,832.7 $ 4,512.4 7 % 7 %

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Three Months Ended %

Change Nine Months Ended %

March 31, March 31,

2024 2023 As Reported 2024 2023 As

September 30,

2024 2023 As Reported

Employer Services $ 1,164.3 $ 1,008.5 15 %

PEO Services 225.6 222.9 1 %

Other (111.3) (141.5) n/m (422.9) (357.6) n/m

Other (153.7) (138.6) n/m

$ 1,236.2 $ 1,092.8 13 %

Three Months Ended Nine Months Ended

March 31, March 31,

2024 2023 YoY Growth 2024 2023 YoY Growth

Three Months Ended

September 30,

2024 2023 YoY Growth

Employer Services 35.7 % 33.1 % 260 bps

35.8 % 33.7 % 200 bps

PEO Services 14.3 % 15.2 % (80) bps

15.2 % 16.5 % (130) bps

n/m - not meaningful

Employer Services

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%.

Revenues increased for the three months ended September 30, 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 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,

Employer Services' earnings before income taxes increased 15% for the three months ended September 30, 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 selling expenses.

Employer Services' margin increased for the three months ended September 30, 2024, due to contributions from client funds interest revenues discussed above, operating efficiencies for costs of servicing our clients on growing revenue, and a decrease in research and development costs.

Three Months Ended Change

September 30,

2024 2023 $ %

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PEO Services' revenues excluding zero-margin benefits pass-throughs $ 525.3 $ 492.9 $ 32.4 7 %

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.

PEO Services' revenue increased for the three months ended September 30, 2024, due to increase in zero-margin benefits pass-throughs, and increase in average worksite employees of 3%, as compared to the three months ended September 30, 2023.

Earnings before Income Taxes

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.

PEO Services' earnings before income taxes increased 1% for the three months ended September 30, 2024 due to increased revenues discussed above, partially offset by increases in selling expenses, and zero-margin benefits pass-through costs as compared to the three months ended September 30, 2023.

PEO Services' margin decreased for the three months ended September 30, 2024 due to increases in zero-margin benefits pass-through costs, operating costs related to workers' compensation and less favorable actuarial loss development in workers’ compensation reserves in ADP Indemnity.

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 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.

ADP Indemnity recorded a pre-tax benefit of approximately $4.8 million for the three months ended September 30, 2024, as compared to approximately $6.2 million for the three months ended September 30, 2023, which was primarily a result of less favorable actuarial loss development in workers’ compensation reserves.

In July 2024, ADP Indemnity paid a premium of $276 million t o enter into a reinsurance arrangement with Chubb to cover substantially all losses incurred by ADP Indemnity for the fiscal 2025 policy year on terms substantially similar to the fiscal 2024 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 Nine Months Ended % Change

March 31, March 31,

2024 2023 As Reported 2024 2023 As Reported

Three Months Ended % Change

September 30,

2024 2023 As Reported

Net earnings $ 956.3 $ 859.4 11 %

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All other interest income (a) (23.9) (18.2)

Transformation initiatives (b) 1.5 6.3 4.9 7.9

Legal settlements — — — (3.8)

Transformation initiatives — 0.7

Legal settlements (b) (0.3) —

Adjusted EBIT $ 1,232.5 $ 1,093.3 13 %

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Net earnings $ 956.3 $ 859.4 11 %

Transformation initiatives (b) 1.5 6.3 4.9 7.9

Transformation initiatives — 0.7

Income tax (benefit)/provision for transformation initiatives (c) — (0.2)

Legal settlements — — — (3.8)

Legal settlements (b) (0.3) —

Income tax (benefit)/provision for legal settlements (c) 0.1 —

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Diluted EPS $ 2.34 $ 2.08 13 %

Transformation initiatives (b) (c) — 0.01 0.01 0.01

Legal settlements (c) — — — (0.01)

Transformation initiatives (c) — —

Legal settlements (b) (c) — —

Adjusted diluted EPS $ 2.33 $ 2.08 12 %

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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 nine months ended March 31, 2024, transformation initiatives include consulting costs relating to our company wide transformation initiatives.

(b) Represents a reserve reversal of a legal matter from fiscal 2023 previously recorded as an adjustment to EBIT.

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

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The impact of acquisitions and dispositions is calculated by excluding the current year revenues of acquisitions until the one-year anniversary of the transaction and by excluding the prior year revenues of divestitures for the one-year period preceding the transaction.

impact of foreign currency is determined by calculating the current year result using foreign exchange rates consistent with the prior year.

The impact of foreign currency is determined by calculating the current year result using foreign exchange rates consistent with the prior year.

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

Three Months Ended Nine Months Ended

March 31, March 31,

Three Months Ended

September 30,

Consolidated revenue growth as reported 7 %

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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCE S

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 March 31, 2024 and we have sufficient liquidity.

At September 30, 2024, cash and cash equivalents were $2.1 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 $10.3 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, acquisitions and capital expenditures for the foreseeable future.

Our financial condition remains solid at September 30, 2024 and we have sufficient liquidity.

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

short-term commercial paper program and our U.S., Canadian and United Kingdom short-term reverse repurchase agreements, together with our $9.7 billion of committed credit facilities and our ability to use corporate liquidity when necessary to meet short-term funding requirements related to client funds obligations.

short-term commercial paper program and our U.S., Canadian and United Kingdom short-term reverse repurchase agreements ($7.3 billion of which is available on a committed basis in the U.S.), together with our $10.3 billion of committed credit facilities and our ability to use corporate liquidity when necessary to meet short-term funding requirements related to client funds obligations.

Please see “Quantitative and Qualitative Disclosures about Market Risk” for a further discussion of the risks related to our client funds extended investment strategy.

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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 nine months ended March 31, 2024 and 2023, respectively, are summarized as follows:

Nine Months Ended

Our cash flows from operating, investing, and financing activities, as reflected in the Statements of Consolidated Cash Flows for the three months ended September 30, 2024 and 2023, respectively, are summarized as follows:

Three Months Ended

September 30,

2024 2023 $ Change

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Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents $ (7,294.5) $ (1,809.6) $ (5,484.9)

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 provided by operating activities increased due to favorable changes in the components of working capital and an increase in growth in our business, as compared to the three months ended September 30, 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 $1,426.7 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 $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 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.

Net cash flows used in financing activities changed due to a net decrease in the cash flow from client funds obligations of $9,495.6 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other payees, along with a net decrease in cash received from the Internal Revenue Service as of September 30, 2024, to be refunded to our clients, offset by proceeds from commercial paper borrowing and issuance of debt.

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

The Company considers several factors in determining when to execute share repurchases, including, among other things, actual and potential acquisition activity, cash balances and cash flows, issuances due to employee benefit plan activity, and market conditions.

We purchased approximately 1.4 million shares of our common stock at an average price per sha re o f $259.47 duri ng the three months ended September 30, 2024, as compared to purchases of 1.0 million shares at an average price per share of $242.26 during the three months ended September 30, 2023.

Capital Resources and Client Funds Obligations

8 unchanged sentences

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

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

At September 30, 2024, the Company had $4.4 billion of commercial paper outstanding, which was repaid in early October 2024.

At June 30, 2024, 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 Nine Months Ended

March 31, March 31,

2024 2023 2024 2023

Three Months Ended

September 30,

Average daily borrowings (in billions) $ 4.8 $ 4.1

Weighted average interest rates 5.3 % 5.3 %

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

Weighted average maturity (approximately in days) 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 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.

We have $7.3 billion available to us on a committed basis under the U.S.

reverse repurchase agreements.

At September 30, 2024 and June 30, 2024, the Company had $679.1 million and $385.4 million of outstanding obligations related to reverse repurchase agreements which were fully paid in early October 2024 and early July 2024, respectively.

Details of the reverse repurchase agreements are as follows:

Three Months Ended Nine Months Ended

March 31, March 31,

2024 2023 2024 2023

Average outstanding balances $ 634.4 $ 343.2 $ 1,482.0 $ 811.2

Three Months Ended

September 30,

Average outstanding balances (in billions) $ 3.8 $ 1.4

Weighted average interest rates 5.3 % 5.3 %

3 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 March 31, 2024 under the credit facilities.

We had no borrowings through September 30, 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 $10.3 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 March 31, 2024.

All collateral on asset-backed securities has performed as expected through September 30, 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 nine months ended March 31, 2024 were $151.6 million, as compared to $142.8 million for the nine months ended March 31, 2023.

Capital expenditures for the three months ended September 30, 2024 were $55.6 million, as compared to $42.2 million for the three months ended September 30, 2023.

We expect capital expenditures in fiscal 2025 to be between $200 million and $225 million, as compared to $211.7 million in fiscal 2024.

16 unchanged sentences

However, our investments are made with the safety of principal, liquidity, and diversification as the primary goals to minimize the risk of not having sufficient funds to satisfy all of our client funds obligations.

We also believe we have significantly reduced the risk of not having sufficient funds to satisfy our client funds obligations by consistently maintaining access to other sources of liquidity, including our corporate cash balances, available borrowings under our $9.7 billion commercial paper program (rated A-1+ by Standard and Poor’s, P-1 by Moody’s, and F1+ by Fitch, the highest possible short-term credit ratings), and our ability to engage in reverse repurchase agreement transactions and available borrowings under our $9.7 billion committed credit facilities.

We also believe we have significantly reduced the risk of not having sufficient funds to satisfy our client funds obligations by consistently maintaining access to other sources of liquidity, including our corporate cash balances, available borrowings under our $10.3 billion commercial paper program (rated A-1+ by Standard and Poor’s, P-1 by Moody’s, and F1+ by Fitch, the highest possible short-term credit ratings), and our ability to engage in reverse repurchase agreement transactions ($7.3 billion of which is available on a committed basis in the U.S.) and available borrowings under our $10.3 billion committed credit facilities.

The reduced availability of financing during periods of economic turmoil, even to borrowers with the highest credit ratings, may limit our ability to access short-term debt markets to meet the liquidity needs of our business.

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Details regarding our overall investment portfolio are as follows:

Three Months Ended Nine Months Ended

March 31, March 31,

2024 2023 2024 2023

Three Months Ended

September 30,

Average investment balances at cost:

8 unchanged sentences

Net realized losses on available-for-sale securities $ 0.2 $ 1.9

March 31, 2024 June 30, 2023

September 30, 2024 June 30, 2024

Net unrealized pre-tax losses on available-for-sale securities $ (651.2) $ (1,515.8)

3 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 2.2% for the nine months ended March 31, 2023 to 2.9% for the nine months ended March 31, 2024.

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 March 31, 2025.

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.

The annu alized interest rate earned on our entire p ortfolio increased from 2.6% for the three months ended September 30, 2023 to 3.2% for the three months ended September 30, 2024.

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 $15 million impact to earnings before income taxes over the ensuing twelve-month period ending September 30, 2025.

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 September 30, 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