What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-01-30 compared with 2024-11-01 · 119 added, 98 removed, 273 unchanged (44% of the section changed)

36 unchanged sentences

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

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:

During the second quarter, we continued to make meaningful progress on our Strategic Priorities.

We announced a partnership that brings together Fiserv’s preeminent small business solutions, specifically Clover® and CashFlow Central℠, with RUN, our industry-leading small business payroll and HR solution.

Additionally, we started to integrate the WorkForce Software acquisition, which closed in October, into our global HCM ecosystem.

Lastly, since the first quarter introduction of ADP Lyric HCM, our flexible, intelligent, and human-centric Global HCM platform, we have experienced a meaningful increase in ADP Lyric's new business activity.

During the second quarter, we also achieved a major milestone by increasing our dividend for the 50 th consecutive year.

Highlights from the six months ended December 31, 2024 include:

• Revenue growth of 8% to $9,881.1 million;

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

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

• Diluted and adjusted diluted earnings per share ("EPS") growth of 12%, to $4.69, respectively

• Cash returned via shareholder friendly actions of $1,790M, including $1,145M of dividends and $645M 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.

• Closed the WorkForce Software acquisition in October and started the integration efforts

For the six months ended December 31, 2024, we delivered solid revenue growth of 8%, 7% 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, 2024 as compared to the six months ended December 31, 2023.

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

Our financial condition remains solid at December 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 months ended September 30, respectively:

Three Months Ended

September 30,

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

Three Months Ended Six Months Ended

December 31, December 31,

2024 2023 2024 2023

Total Revenues $ 5,048.4 $ 4,668.0 $ 9,881.1 $ 9,180.3

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YoY Growth, Organic Constant Currency 8 % 6 % 7 % 6 %

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 revenues for the three months ended December 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, an increase in our pays per control and the impact from the WorkForce Software acquisition.

Total revenues for the six months ended December 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 December 31, 2024 include interest on funds held for clients of $272.8 million, as compared to $225.3 million for the three months ended December 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 December 31, 2024, as compared to 2.8% for the three months ended December 31, 2023, and an increase in our average client funds balances of 8.1% to $35.3 billion for the three months ended December 31, 2024.

Total revenues for the six months ended December 31, 2024 include interest on funds held for clients of $526.1 million, as compared to $427.1 million for the six months ended December 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 six months ended December 31, 2024, as compared to 2.7% for the six months ended December 31, 2023, and an increase in our average client funds balances of 6.7% to $34.0 billion for the six months ended December 31, 2024.

Total Expenses

Three Months Ended

September 30,

Three Months Ended Six Months Ended

December 31, December 31,

Change 2024 2023 %

Costs of revenues:

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Total expenses $ 3,878.2 $ 3,589.0 8 % $ 7,576.4 $ 7,076.2 7 %

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.

For the three months ended December 31, 2024, operating expenses increased due to an increase of $84.5 million of PEO Services zero-margin benefits pass-through costs from $970.7 million to $1,055.2 million.

Additionally, for the three months ended December 31, 2024 operating expenses increased by $36.1 million due to higher service and implementation costs in support of our growing revenue.

For the six months ended December 31, 2024, operating expenses increased due to an increase of $156.9 million of PEO Services zero-margin benefits pass-through costs from $1,947.5 million to $2,104.4 million.

Additionally, for the six months ended December 31, 2024 operating expenses increased by $60.7 million due to higher service and implementation costs in support of our growing revenue.

Research and development expenses increased for the three and six months ended December 31, 2024 due to increased investments and costs to develop, support, and maintain our new and existing products and the impact from the WorkForce Software acquisition, partially offset by 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 increased for the three and six months ended December 31, 2024 due to the impact from the WorkForce Software acquisition and amortization of new investments in internally developed software primarily for our next-gen products and purchased software, partially offset by lower amortization of customer contracts and lists.

Selling, general and administrative expenses increased for the three and six months ended December 31, 2024 primarily due to increases in selling and marketing expenses of $39.0 million and $73.5 million, respectively, as a result of investments in our sales organization, and an increase from acquisition related costs.

Interest expense increased for the three months ended December 31, 2024 primarily due to a higher volume of average commercial paper borrowings of $4.5 billion and reverse repurchase borrowings of $3.7 billion, as compared to $3.9 billion and $2.4 billion, respectively, for the three months ended December 31, 2023, partially offset by a decrease in average interest rates of 60 basis points for commercial paper and reverse repurchase borrowings.

Interest expense increased for the six months ended December 31, 2024 primarily due to a higher volume of average commercial paper borrowings of $4.7 billion and reverse repurchase borrowings of $3.7 billion, as compared to $4.0 billion and $1.9 billion, respectively, for the six months ended December 31, 2023, partially offset by a decrease in average interest rates of 30 basis points for commercial paper and reverse repurchase borrowings.

Other (Income)/Expense, net

Three Months Ended

September 30,

2024 2023 $ Change

Three Months Ended Six Months Ended

December 31, December 31,

2024 2023 $ Change 2024 2023 $ Change

Interest income on corporate funds $ (83.9) $ (56.9) $ 27.0 $ (175.5) $ (103.4) $ 72.1

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Other (income)/expense, net $ (91.1) $ (64.8) $ 26.3 $ (192.8) $ (132.5) $ 60.3

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.

Interest income on corporate funds increased due to higher average investment balances of $10.0 billion and $10.3 billion for the three and six months ended December 31, 2024, respectively, as compared to $7.8 billion and $7.5 billion for the three and six months ended December 31, 2023, respectively, coupled with higher average interest rates of 3.4% for each period, as compared to 2.9% and 2.8% for the three and six months ended December 31, 2023, respectively.

See Note 12 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 months ended September 30:

Three Months Ended

September 30,

2024 2023 YoY Growth

For the three and six months ended December 31:

Three Months Ended Six Months Ended

December 31, December 31,

2024 2023 YoY Growth 2024 2023 YoY Growth

EBIT $ 1,261.3 $ 1,143.8 10 % $ 2,497.5 $ 2,236.6 12 %

EBIT Margin 25.0 % 24.5 % 50 bps

25.3 % 24.4 % 90 bps

Adjusted EBIT $ 1,272.0 $ 1,147.1 11 % $ 2,504.5 $ 2,240.4 12 %

Adjusted EBIT Margin 25.2 % 24.6 % 60 bps

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.

25.3 % 24.4 % 90 bps

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

EBIT Margin increased for the three and six months ended December 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 and acquisition related expenses.

Provision for Income Taxes

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.

The effective tax rate for the three months ended December 31, 2024 and 2023 was 23.6% and 23.2%, respectively.

The increase in the effective tax rate is primarily due to a benefit for adjustments to prior year tax liabilities in the three months ended December 31, 2023, partially offset by a higher excess tax benefit on stock-based compensation in the three months ended December 31, 2024.

The effective tax rate for the six months ended December 31, 2024 and 2023 was 23.1% and 22.3%, respectively.

The increase in the effective tax rate is primarily due to a benefit for adjustments to prior year tax liabilities, lower reserves for uncertain tax positions and a valuation allowance release in the six months ended December 31, 2023.

Adjusted Provision for Income Taxes

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.

The adjusted effective tax rate for the three months ended December 31, 2024 and 2023 was 23.6% 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 six months ended December 31, 2024 and 2023 was 23.1% and 22.3%, 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 months ended September 30:

Three Months Ended

September 30,

2024 2023 YoY Growth

For the three and six months ended December 31:

Three Months Ended Six Months Ended

December 31, December 31,

2024 2023 YoY Growth 2024 2023 YoY Growth

Net earnings $ 963.2 $ 878.4 10 % $ 1,919.5 $ 1,737.8 10 %

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Adjusted diluted EPS $ 2.35 $ 2.13 10 % $ 4.69 $ 4.20 12 %

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.

For the three and six months ended December 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 December 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 0.9 million shares during the three months ended December 31, 2024, and 1.1 million shares during the three months ended December 31, 2023, partially offset by the issuances of shares under our employee benefit plans.

For the six months ended December 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 2.4 million shares during the six months ended December 31, 2024, and 2.1 million shares during the six months ended December 31, 2023, partially offset by the issuances of shares under our employee benefit plans.

ANALYSIS OF REPORTABLE SEGMENTS

Three Months Ended % Change

September 30,

Three Months Ended % Change Six Months Ended % Change

December 31, December 31,

Reported Organic constant currency 2024 2023 As

Reported Organic constant currency

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PEO Services 1,663.3 1,546.1 8 % 8 % 3,237.8 3,015.7 7 % 7 %

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

Other (3.4) (3.3) n/m n/m (6.2) (7.0) n/m n/m

$ 5,048.4 $ 4,668.0 8 % 8 % $ 9,881.1 $ 9,180.3 8 % 7 %

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Three Months Ended %

September 30,

2024 2023 As Reported

Change Six Months Ended %

December 31, December 31,

2024 2023 As Reported 2024 2023 As

Employer Services $ 1,183.0 $ 1,061.9 11 % $ 2,347.3 $ 2,070.4 13 %

PEO Services 251.7 255.0 (1) % 477.3 477.9 — %

Other (153.7) (138.6) n/m

Other (173.4) (173.1) n/m (327.1) (311.7) n/m

$ 1,261.3 $ 1,143.8 10 % $ 2,497.5 $ 2,236.6 12 %

Three Months Ended

September 30,

2024 2023 YoY Growth

Three Months Ended Six Months Ended

December 31, December 31,

2024 2023 YoY Growth 2024 2023 YoY Growth

Employer Services 34.9 % 34.0 % 90 bps

35.3 % 33.5 % 180 bps

PEO Services 15.1 % 16.5 % (140) bps

14.7 % 15.8 % (110) bps

n/m - not meaningful

Employer Services

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%.

Revenues increased for the three and six months ended December 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, an increase in our pays per control of 1% and 2%, respectively, and the impact from the WorkForce Software acquisition.

Earnings before Income Taxes

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,

Employer Services' earnings before income taxes increased 11% and 13% for the three and six months ended December 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 selling expenses.

Employer Services' margin increase for the three and six months ended December 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 acquisition related expenses.

Three Months Ended Change Six Months Ended Change

December 31, December 31,

2024 2023 $ % 2024 2023 $ %

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PEO Services' revenues excluding zero-margin benefits pass-throughs $ 608.1 $ 575.4 $ 32.7 6 % $ 1,133.4 $ 1,068.2 $ 65.2 6 %

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.

PEO Services' revenue increased for the three and six months ended December 31, 2024, due to the increase in zero-margin benefits pass-throughs, and an increase in average worksite employees of 3% for each period, as compared to the three and six months ended December 31, 2023.

Earnings before Income Taxes

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.

PEO Services' earnings before income taxes decreased 1% and remained flat for the three and six months ended December 31, 2024, respectively, due to increased revenues discussed above, partially offset by increases in zero-margin benefits pass-through costs, operating costs related to workers' compensation and state unemployment insurance, and selling expenses, as compared to the three and six months ended December 31, 2023.

PEO Services' margin decreased for the three and six months ended December 31, 2024 due to increases in zero-margin benefits pass-through costs, operating costs related to workers' compensation and state unemployment insurance, and selling expenses.

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 $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.

ADP Indemnity recorded a pre-tax (loss)/benefit of approximately $(0.8) million and $4.1 million for the three and six months ended December 31, 2024, respectively, as compared to approximately $(1.7) million and $4.5 million for the three and six months ended December 31, 2023, respectively.

The pre-tax loss for the three months ended December 31, 2024 was primarily a result of more favorable actuarial loss development in workers’ compensation reserves as compared to December 31, 2023.

The pre-tax benefit for the six months ended December 31, 2024 was primarily a result of less favorable actuarial loss development in workers’ compensation reserves as compared to December 31, 2023.

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.

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

Three Months Ended % Change

September 30,

2024 2023 As Reported

Three Months Ended % Change Six Months Ended % Change

December 31, December 31,

2024 2023 As Reported 2024 2023 As Reported

Net earnings $ 963.2 $ 878.4 10 % $ 1,919.5 $ 1,737.8 10 %

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

Three Months Ended

September 30,

Three Months Ended Six Months Ended

December 31, December 31,

Consolidated revenue growth as reported 8 % 8 %

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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCE S

At September 30, 2024, cash and cash equivalents were $2.1 billion, which were primarily invested in time deposits and money market funds.

At December 31, 2024, cash and cash equivalents were $2.2 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.

Our financial condition remains solid at December 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.

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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 three months ended September 30, 2024 and 2023, respectively, are summarized as follows:

Three Months Ended

September 30,

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, 2024 and 2023, respectively, are summarized as follows:

Six Months Ended

2024 2023 $ Change

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Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents $ 6,518.2 $ 5,107.8 $ 1,410.4

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 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.

Net cash flows used in investing activities changed due to the acquisition of Workforce Software with a cash disbursement of $1,160.6 million and the timing of purchases and proceeds of corporate and client funds marketable securities of $1,664.3 million.

Net cash flows used in financing activities changed due to a net increase in the cash flow from client funds obligations of $3,668.5 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other payees, along with proceeds from the issuance of debt, offset by a net decrease in cash distributed from the Internal Revenue Service as of December 31, 2024, which was refunded to our clients, repurchases of common stock, dividends paid, and proceeds related to reverse repurchase agreements.

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.

We purchased approximately 2.4 million shares of our common stock at an average price per sha re o f $274.42 duri ng the six months ended December 31, 2024, as compared to purchases of 2.1 million shares at an average price per share of $238.29 during the six months ended December 31, 2023.

Capital Resources and Client Funds Obligations

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

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.

At December 31, 2024 and 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

September 30,

Three Months Ended Six Months Ended

December 31, December 31,

2024 2023 2024 2023

Average daily borrowings (in billions) $ 4.5 $ 3.9 $ 4.7 $ 4.0

Weighted average interest rates 4.8 % 5.4 % 5.1 % 5.3 %

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

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

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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.

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

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

Details of the reverse repurchase agreements are as follows:

Three Months Ended

September 30,

Three Months Ended Six Months Ended

December 31, December 31,

2024 2023 2024 2023

Average outstanding balances (in billions) $ 3.7 $ 2.4 $ 3.7 $ 1.9

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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 September 30, 2024 under the credit facilities.

We had no borrowings through December 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 $10.3 billion available to us under the revolving credit agreements.

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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 September 30, 2024.

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

In addition, we own U.S.

3 unchanged sentences

See Note 7 of our Consolidated Financial Statements for a description of our corporate investments and funds held for clients.

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.

Capital expenditures for the six months ended December 31, 2024 were $98.2 million, as compared to $94.0 million for the six months ended December 31, 2023.

We expect capital expenditures in fiscal 2025 to be between $180 million and $200 million, as compared to $211.7 million in fiscal 2024.

25 unchanged sentences

Details regarding our overall investment portfolio are as follows:

Three Months Ended

September 30,

Three Months Ended Six Months Ended

December 31, December 31,

2024 2023 2024 2023

Average investment balances at cost:

8 unchanged sentences

Net realized losses on available-for-sale securities $ 0.6 $ 2.0 $ 0.8 $ 4.0

September 30, 2024 June 30, 2024

December 31, 2024 June 30, 2024

Net unrealized pre-tax losses on available-for-sale securities $ (1,074.5) $ (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 2.6% 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.

The annu alized interest rate earned on our entire p ortfolio increased from 2.7% for the six months ended December 31, 2023 to 3.2% for the six months ended December 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 $20 million impact to earnings before income taxes over the ensuing twelve-month period ending December 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 December 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