What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-08-06 compared with 2024-08-07 · 95 added, 91 removed, 327 unchanged (36% of the section changed)

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compliance with existing or new legislation or regulations;

changes in, or interpretations of, existing legislation or

changes in, or interpretations of, existing legislation or regulations;

overall market, political and economic conditions, including interest rate and foreign currency trends and inflation;

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employment and wage levels;

availability of skilled associates;

availability of

skilled associates;

the impact of new acquisitions and divestitures;

the adequacy, effectiveness and success of our business transformation initiatives;

the impact of any uncertainties related to major natural disasters or catastrophic events;

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Adjusted EBIT, adjusted EBIT margin, adjusted net earnings, adjusted diluted earnings per share, adjusted effective tax rate and organic constant currency are all non-GAAP financial measures.

Please refer to the accompanying financial tables in the “Non-GAAP Financial Measures” section for a discussion of why ADP believes these measures are important and for a reconciliation of non-GAAP financial measures to their comparable GAAP financial measures.

EXECUTIVE OVERVIEW

We are a leading global provider of cloud-based Human Capital Management (“HCM”) technology solutions to employers around the world.

Our HCM solutions, which include both software and outsourcing services, are designed to help our clients manage their workforce through a dynamic business and regulatory landscape and the changing world of work.

We continuously seek to enhance our leading HCM solutions to further support our clients.

As a global leader in HR and payroll solutions, ADP continuously aims to solve complex business challenges for our clients and their workers.

Our Human Capital Management ("HCM") solutions, which include both software and outsourcing services, are designed to help our clients manage their workforce through a dynamic business and regulatory landscape and the changing world of work.

We see tremendous opportunity ahead as we focus on our three key Strategic Priorities:

Leading with Best-in-Class HCM technology, Providing Unmatched Expertise and Outsourcing Solutions, and Leveraging our Global Scale for the Benefit of our Clients.

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

During the fiscal year we made meaningful progress on our strategic priorities.

We took action to lead with best-in-class HCM technology by launching ADP Assist, our cross-platform solution powered by generative AI ("GenAI") that empowers employees and HR professionals through smart, user-centric solutions.

To lean into our unmatched expertise, we provided our service and implementation associates with new GenAI capabilities to help them deliver even better client experiences.

Finally, we leveraged our global scale by extending our global footprint and deepening our partnerships with other leading technology providers to simplify HCM processes for our clients.

During fiscal 2025, we continued to make meaningful progress on our Strategic Priorities.

We launched ADP Lyric HCM, an all-in-one solution designed to address workplace challenges with personalized experiences that meet client needs.

We acquired WorkForce Software, a premier workforce management solutions provider, and began to integrate it into our global HCM ecosystem to better serve large, global enterprises.

We enhanced our distribution network by launching an integrated payroll solution for small businesses.

We augmented our global payroll capabilities by continuing to expand our offerings in markets with exciting growth opportunities like Japan and Saudi Arabia, and by acquiring payroll businesses like PEI (Procesamiento Externo de Informacion, S.C.) in Mexico.

Lastly, we continued deploying AI tools in our products and across our sales, service, and research and development functions to improve the client experience and drive internal productivity gains.

Highlights from the year ended June 30, 2025 include:

• Revenue growth of 7% to $20,560.9 million;

6% organic constant currency

7% growth on an organic constant currency

• Earnings before income taxes margin expansion of 50 bps, and adjusted EBIT margin expansion of 50 bps

• Diluted and adjusted diluted earnings per share ("EPS") growth of 11% and 12%, to $9.10 and $9.18, respectively

• Diluted and adjusted diluted earnings per share ("EPS") growth of 10% and 9%, respectively, to $9.98 and $10.01, respectively

• Cash returned via shareholder friendly actions of $3.7B, including $2.4B of dividends and $1.3B of share repurchases

For fiscal 2024, we delivered solid revenue growth of 7%, 6% on organic constant currency.

For fiscal 2025, we delivered strong revenue growth of 7% both 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 1% for the year ended June 30, 2025 as compared to the year ended June 30, 2024.

PEO average worksite employees increased 3% for the year ended June 30, 2025, as compared to the year ended June 30, 2024.

Additionally, our strong ES new business bookings performance resulted in growth of 7% in fiscal 2024, and ES client revenue retention was 92% driven by continued improvement in our client satisfaction scores.

We believe these results are largely attributable to improvements made to our platforms and service over multiple years.

Additionally, our ES new business bookings grew 3% in fiscal 2025, and ES client revenue retention was 92.1%.

Our strong retention stems in part from our company-wide client satisfaction scores reaching new record highs for the year.

These impressive client satisfaction results were broad-based and are a testament to the product investments we are making to improve the client experience.

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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YoY Growth, Organic Constant Currency 7 % 6 %

Revenues in fiscal 2024 increased due to new business started from New Business Bookings, an increase in zero-margin benefits pass-throughs, an increase in our pays per control, continued strong client retention, an increase in interest on funds held for clients, and an increase in pricing.

Revenues increased in fiscal 2025 due to new business started from new business bookings, strong client retention, an increase in zero-margin benefits pass-throughs, an increase in pricing, an increase in interest on funds held for clients, and the impact from the WorkForce Software acquisition.

Refer to “Analysis of Reportable Segments” for additional discussion of the changes in revenue for each of our reportable segments, Employer Services and Professional Employer Organization (“PEO”) Services.

Total revenues in fiscal 2024 include interest on funds held for clients of $1,024.7 million, as compared to $813.4 million in fiscal 2023.

Total revenues for fiscal 2025 include interest on funds held for clients of $1,189.1 million, as compared to $1,024.7 million in fiscal 2024.

The increase in interest earned on funds held for clients resulted from an increase in our average interest rate earned to 3.2% in fiscal 2025, as compared to 2.9% in fiscal 2024, coupled with an increase in our average client funds balances of 6.4% to $37.6 billion in fiscal 2025 as compared to fiscal 2024.

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For the year ended June 30:

Operating expenses increased due to an increase in our PEO Services zero-margin benefits pass-through costs to $3,975.9 million from $3,800.9 million for the years ended June 30, 2024 and 2023, respectively.

Additionally, operating expenses increased by $68.5 million due to increased service and implementation costs in support of our growing revenue, and increased $70.0 million due to less favorable actuarial loss development in workers’ compensation reserves in ADP Indemnity as compared to prior year.

Research and development expenses increased for fiscal 2024 due to increased investments and costs to develop, support, and maintain our new and existing products, and increased investments in GenAI, including the integration of GenAI in our existing products.

Depreciation and amortization expenses increased for fiscal 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 fiscal 2024 due to increased selling expenses as a result of investments in our sales organization to support increased bookings, and increased severance costs due to company-wide efforts related to workforce optimization.

Interest expense increased due to the increase i n average interest rates on commercial paper issuances and reverse repurchases to 5.3% and 5.5%, respectively, for the year ended June 30, 2024, as compared to 3.7% and 4.3%, respectively, for the year ended June 30, 2023, also coupled with a higher volume of average commercial paper and reverse repurchase borrowings, as compared to the year ended June 30, 2023 .

Operating expenses increased in fiscal 2025 due to an increase of $313.1 million of PEO Services zero-margin benefits pass-through costs to $4,289.0 million in fiscal 2025 from $3,975.9 million in fiscal 2024.

Additionally, operating expenses increased by $137.3 million due to higher service and implementation costs in support of our growing revenue and by $67.8 million due to an increase in costs related to workers' compensation coverage and state unemployment taxes for worksite employees.

Research and development expenses increased in fiscal 2025 due to increased costs to develop, support, and maintain our new and existing products and the WorkForce Software acquisition.

Depreciation and amortization increased in fiscal 2025 due to the WorkForce Software acquisition, amortization of investments in internally developed software primarily for our next-gen products, and amortization of purchased software, partially offset by lower amortization of customer contracts and lists.

Selling, general and administrative expenses increased in fiscal 2025 primarily due to increases in selling and marketing expenses of $184.4 million as a result of investments in our sales organization and an increase from acquisition related costs.

Interest expense increased in fiscal 2025 primarily due to an increase of $51.1 million related to commercial paper and reverse repurchase borrowings as a result of increases in average daily commercial paper borrowings of $0.6 billion, and average reverse repurchase outstanding balances of $1.1 billion, as compared to fiscal 2024 , offset by decreases in average interest rates on commercial paper issuances and reverse repurchases of 50 basis points and 70 basis points, respectively, as compared to fiscal 2024.

Additionally, interest expense increased by $37.9 million related to the issuance of $1.0 billion of senior notes during the first quarter ended September 30, 2024.

Other (Income)/Expense, net

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Realized losses on available-for-sale securities, net 1.7 5.9 4.2

Impairment of assets — 2.1 2.1

Gain on sale of assets (5.0) (17.1) (12.1)

Non-service components of pension income, net (31.3) (34.2) (2.9)

Other (income)/expense, net $ (286.7) $ (183.5) $ 103.2

Interest income on corporate funds increased in fiscal 2024, as compared to fiscal 2023, due to higher average interest rates of 3.3% for the year ended June 30, 2024, as compared to 2.4% for the year ended June 30, 2023, coupled with higher average investment balances of $7.4 billion in fiscal 2024 as compared to $6.3 billion in fiscal 2023.

Other income, net $ (354.1) $ (286.7) $ 67.4

Interest income on corporate funds increased in fiscal 2025 due to higher average investment balances of $9.2 billion as compared to $7.4 billion in fiscal 2024, coupled with an increase in average interest rates of 20 basis points, as compared to fiscal 2024.

See Note 11 of our Consolidated Financial Statements for further details on non-service components of pension income, net.

In fiscal 2024, the Company recognized a gain of $17.1 million, in relation to the sale of buildings and land.

In fiscal 2025, the gain on sale of assets of $5.0 million related to sales of buildings.

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

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Adjusted EBIT Margin 26.0 % 25.5 % 50 bps

Earnings before income taxes increased due to the increases in total revenues partially offset by the increases in total expenses discussed above.

Overall margin increased due to the increases in total revenues discussed above, increased interest income on corporate funds, operating efficiencies for costs of servicing our clients on growing revenue, partially offset by increases in selling and marketing expenses, increased interest expense, less favorable actuarial loss development in workers’ compensation reserves related to ADP Indemnity, and investments and costs to develop, support, and maintain our new and existing products.

Numbers may not foot due to rounding.

Earnings before income taxes increased in fiscal 2025 due to the increases in total revenues, partially offset by the increases in total expenses discussed above.

EBIT Margin increased in fiscal 2025 due to contributions from client funds interest revenues, discussed above, and operating efficiencies for costs of servicing and implementing our clients on growing revenue, partially offset by increased interest expense and acquisition related expenses.

Adjusted EBIT and Adjusted EBIT margin exclude interest income and interest expense that are not related to our client funds

extended investment strategy, and net charges, including certain legal matters, charges related to our broad-based transformation initiative and workforce optimization.

extended investment strategy, and net charges, including certain legal matters, gain on sale of assets, and broad-based optimization initiatives, in the applicable periods.

Provision for Income Taxes

The effective tax rate in fiscal 2025 and 2024 was 23.2% and 23.0%, respectively.

The decrease in the effective tax rate is primarily due to a valuation allowance release and an intercompany transfer of certain assets offset by a lower benefit for

adjustments to prior year tax liabilities in fiscal 2024.

R efer t o Note 11, Income Taxes, within the Notes to the Consolidated Financial Statements for further discussion.

Adjusted Provision for Income Taxe s

The increase in the effective tax rate is primarily due to higher reserves for uncertain tax positions in fiscal 2025 and a valuation allowance release in fiscal 2024 offset by an increase in the excess tax benefit on stock-based compensation in fiscal 2025.

Refer to Note 12, Income Taxes, within the Notes to the Consolidated Financial Statements for further discussion.

Adjusted Provision for Income Taxes

The adjusted effective tax rate in fiscal 2025 and 2024 was 23.2% and 23.0%, respectively.

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Adjusted diluted EPS $ 10.01 $ 9.18 9 %

Adjusted net earnings and adjusted diluted EPS reflect the changes in components described above.

Diluted EPS increased as a result of the increase in net earnings and the impact of fewer shares outstanding resulting from the repurchase of approximately 5.1 million shares during fiscal 2024 and 4.9 million shares during fiscal 2023, partially offset by the issuances of shares under our employee benefit plans.

For fiscal 2025, 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 4.4 million shares during fiscal 2025 and 5.1 million shares during fiscal 2024, partially offset by the issuances of shares under our employee benefit plans.

For fiscal 2025, adjusted net earnings and adjusted diluted EPS reflect the changes in components described above.

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Employer Services

Revenues increased due to new business started from New Business Bookings, an increase in our pays per control of 2%, continued strong client retention, an increase in interest earned on funds held for clients, and an increase in pricing.

Employer Services' revenues increased in fiscal 2025 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, the impact from the WorkForce Software acquisition, and an increase in the volume of our pays per control of 1%, as compared to fiscal 2024.

Earnings before Income Taxes

Employer Services' earnings before income taxes increased in fiscal 2024 due to increased revenues discussed above, partially offset by increases in expenses.

The increases in expenses were due to an increase in investments and costs to develop, support, and maintain our new and existing products, increases in selling and marketing expenses, and costs to service our client base in support of our growing revenue.

Employer Services' margin increased 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 investments and costs to develop, support, and maintain our new and existing products.

Employer Services' earnings before income taxes increased in fiscal 2025 due to increased revenues, including contributions from client funds interest, discussed above, and operating efficiencies for costs of servicing and implementing our clients on growing revenue, partially offset by increased selling and marketing expenses and the impact from the WorkForce Software acquisition.

Employer Services' margin increased in fiscal 2025 due to contributions from operating efficiencies for costs of servicing and implementing our clients on growing revenue, and client funds interest revenues discussed above, partially offset by acquisition related expenses.

Years Ended Change

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PEO Services' revenues excluding zero-margin benefits pass-throughs $ 2,401.4 $ 2,257.7 $ 143.7 6 %

PEO Services' revenues increased 4% for fiscal 2024 due to increases in average worksite employees of 2% for fiscal 2024, as compared to fiscal 2023, and due to an increase in zero-margin benefits pass-throughs.

PEO Services' revenues increased in fiscal 2025 due to the increase in zero-margin benefits pass-throughs, and an increase in average worksite employees of 3%, as compared to fiscal 2024.

Earnings before Income Taxes

PEO Services’ earnings before income taxes decreased 6% in fiscal 2024 due to less favorable actuarial loss development in workers’ compensation reserves in ADP Indemnity of $70.0 million as compared to prior year, increases in selling expenses, and increases in zero-margin benefits pass-through costs for the year ended June 30, 2024, partially offset by increased revenues discussed above.

PEO Services' overall margin decreased for fiscal 2024 due to less favorable actuarial loss development in workers’ compensation reserves in 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 in fiscal 2025 due to increased revenues discussed above, partially offset by increases in operating costs related to workers' compensation and state unemployment insurance, zero-margin benefits pass-through costs, and selling and marketing expenses.

PEO Services' margin decreased in fiscal 2025 due to increases in zero-margin benefits pass-through costs, operating costs related to workers' compensation and state unemployment insurance, and selling and marketing expenses, partially offset by an increase in the pre-tax benefit from 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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During fiscal 2025, ADP Indemnity paid a premium of $276 million to enter into a reinsurance arrangement with Chubb to cover substantially all losses incurred by ADP Indemnity for the fiscal 2025 policy year up to $1 million per occurrence.

ADP Indemnity recorded a pre-tax benefit of approximately $3 million in fiscal 2024 and a pre-tax benefit of approximately $73 million in fiscal 2023, which were primarily the results of less favorable actuarial loss development in workers’ compensation reserves.

ADP Indemnity recorded a pre-tax benefit of approximately $10 million in fiscal 2025 and a pre-tax benefit of approximately $3 million in fiscal 2024, which were primarily the results of more favorable actuarial loss development in workers’ compensation reserves.

ADP Indemnity paid a premium of $278 million in July 2025, to enter into a reinsurance agreement with Chubb to cover substantially all losses incurred by ADP Indemnity for fiscal 2026 policy year on terms substantially similar to the fiscal 2025 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 all other interest income and expense.

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

Non-GAAP Financial Measures

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All other interest income (a) (94.2) (97.0)

Gain on sale of assets (2.6) —

Transformation initiatives (b) 0.1 5.4

Legal settlements (c) (0.4) (4.0)

Workforce optimization (d) 42.0 —

Optimization initiatives (d) 19.3 42.0

Adjusted EBIT $ 5,347.1 $ 4,890.1 9 %

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Provision for income taxes $ 1,230.4 $ 1,120.3 10 %

Gain on sale of assets (e) (0.6) —

Transformation initiatives (e) — 1.3

Legal settlements (e) (0.1) (0.9)

Workforce optimization (e) 10.5 —

Optimization initiatives (e) 4.8 10.5

Adjusted provision for income taxes $ 1,234.5 $ 1,131.2 9 %

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Net earnings $ 4,079.7 $ 3,752.0 9 %

Gain on sale of assets (2.6) —

Income tax provision on gain on sale of assets (e) 0.6 —

Transformation initiatives (b) 0.1 5.4

Income tax (benefit)/provision for transformation initiatives (e) (1.3) (2.2)

Income tax benefit for transformation initiatives (e) — (1.3)

Legal settlements (c) (0.4) (4.0)

Income tax (benefit)/provision for legal settlements (e) 0.9 (0.2)

Workforce optimization (d) 42.0 —

Income tax (benefit)/provision for workforce optimization (e) (10.5) —

Income tax provision for legal settlements (e) 0.1 0.9

Optimization initiatives (d) 19.3 42.0

Income tax benefit for optimization initiatives (e) (4.8) (10.5)

Adjusted net earnings $ 4,092.0 $ 3,784.5 8 %

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Legal settlements (c) (e) — (0.01)

Workforce optimization (d) (e) 0.08 —

Optimization initiatives (d) (e) 0.03 0.08

Adjusted diluted EPS $ 10.01 $ 9.18 9 %

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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 fiscal 2024, the charges include consulting costs relating to our company-wide transformation initiatives.

(d) The charges relating to workforce optimization represent severance charges.

(b) The charges in fiscal 2024 include consulting costs relating to our company-wide transformation initiatives.

(d) In fiscal 2025, there were $23.9 million of severance charges related to broad-based, company-wide initiatives, including efforts to align resources with respect to our new global HCM products, offset by a $4.6 million partial reversal of the workforce optimization initiative from fiscal 2024.

Severance charges have been taken in the past and not included as an adjustment to get to adjusted results.

Unlike severance charges in prior periods, these specific charges relate to a broad-based, company-wide workforce optimization effort.

Unlike severance charges in prior periods, these specific charges relate to broad-based, company-wide initiatives.

(e) The income tax (benefit)/provision was calculated based on the marginal rate in effect for the year ended June 30, 2025.

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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 $10.3 billion of comm itted 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 ($7.5 billion of which is available on a committed basis in the U.S.

as of June 30, 2025) , together with our $10.6 billion of comm itted 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.

See Note 9 of our Consolidated Financial Statements for a description of our short-term financing including commercial paper.

Operating, Investing and Financing Cash Flow s

Operating, Investing and Financing Cash Flows

Our cash flows from operating, investing, and financing activities, as reflected in the Statements of Consolidated Cash Flows are summarized as follows:

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Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents $ (5,031.4) $ 1,314.5 $ (6,345.9)

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 year ended June 30, 2023.

Net cash flows used in investing activities changed due to the timing of proceeds and purchases of corporate and client funds marketable securities of $1,117.5 million.

Net cash flows used in financing activities changed due to a net increase in the cash flow from client funds obligations of $13,715.7 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 June 30, 2024 to be refunded to our clients, a net increase in proceeds related to reverse repurchase agreements, offset by an increase in dividends paid, and an increase in repurchases of common stock in fiscal 2024.

Net cash flows provided by operating activities increased due to growth in our business, and net favorable changes in the components of operating assets and liabilities, as compared to fiscal 2024.

Net cash flows used in investing activities changed due to the acquisition of WorkForce Software with a net cash disbursement of $1,158.3 million and timing of the net proceeds and purchases of corporate and client funds marketable securities of $523.0 million.

Net cash flows used in financing activities changed due to a net decrease in the cash flow from client funds obligations of $9,288.1 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 distributed to our clients that was received from the Internal Revenue Service, and a net increase in payments related to reverse repurchase agreements, partially offset by net proceeds from the issuance and redemption of debt.

We purchased approximately 4.4 million shares of our common stock at an average price per share of $289.11 during fiscal 2025, as compared to purchases of 5.1 million shares at an average price per share of $244.04 during fiscal 2024.

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Capital Resources and Client Fund Obligations

We have $3.0 billion of senior unsecured notes with maturity dates in 2025, 2028, and 2030.

We may from time to time revisit the long-t erm debt market to refinance existing debt, finance investments including acquisitions for our growth, and maintain the appropriate capital structure.

We have $4.0 billion of senior unsecured no tes with maturity dates in 2028, 2030, 2032, and 2034.

We may from time to time revisit the long-term debt market to refinance existing debt, finance investments including acquisitions for our growth, and maintain the appropriate capital structure.

However, there can be no assurance that volatility in the global capital and credit markets would not impair our ability to access these markets on terms acceptable to us, or at all.

See Note 10 of our Consolidated Financial Statements for a description of our senior unsecured notes.

short-term funding requirements related to client funds are sometimes obtained on an unsecured basis through the issuance of commercial paper, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securiti es.

In June 2024, the company increased its U.S.

short-term commercial paper program to provide for the issuance of up to $10.3 billion from $9.7 billion in aggregate maturity value.

Our c ommercial paper program is rated A-1+ by Standard and Poor’s, Prime-1 (“P-1”) by Moody’s and F1+ by Fitch.

This commercial paper program provides for the issuance of up to $10.6 billion in aggregate maturity value.

Our commercial paper program is rated A-1+ by Standard and Poor’s, Prime-1 (“P-1”) by Moody’s and F1+ by Fitch.

These ratings denote the highest quality commercial paper securities.

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

At June 30, 2024 and 2023, we had no commercial paper borrowing outstanding.

As of June 30, 2025, the Company had $4.8 billion of commercial paper outstanding, which was

repaid in early July 2025.

A s of June 30, 2024, the Company had no co mmercial paper borrowing outstanding.

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

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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 obligations.

We have $7.3 billion available to us on a committed basis under these reverse repurchase agreements.

At June 30, 2024 and 2023, there were $385.4 million and $105.4 million, respectively, of outstanding obligations related to the reverse repurchase agreements.

As of June 30, 2025, we had $7.5 billion available to us on a committed basis under the U.S.

reverse repurchase agreements.

As of June 30, 2025 and 2024, there were $38.4 million and $385.4 million, respectively, of outstanding obligations related to the reverse repurchase agreements.

Details of the reverse repurchase agreements are as follows:

Years ended June 30, 2025 2024

Average outstanding balances $ 1,828.6 $ 1,279.9

Average outstanding balances (in billions)

Weighted average interest rates 4.8 % 5.5 %

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We have a $4.6 billion, 364-day credit agreement that matures in June 2026 with a one-year term-out option.

In addition, we have a five-year $2.25 billion credit facility and a five-year $3.5 billion credit facility maturing in June 2028 and June 2029, respectively, each

with an accordion feature under which the aggregate com mitment can be increased by $ 500 million , subject to the availability of additional commitments.

In addition, we have a five-year $3.5 billion credit facility and a five-year $2.5 billion credit facility maturing in June 2029 and June 2030, respectively, each with an accordion feature under which the aggregate commitment can be increased by $500 million, subject to the availability of additional commitments.

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 June 30, 2025 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 a vailable to us under the revolving credit agreements.

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 $10.6 billion available to us under the revolving credit agreements.

See Note 9 of our Consolidated Financial Statements for a description of our short-term financing including credit facilities.

Our investment portfolio does not contain any asset-backed securities with underlying collateral of sub-prime mortgages, alternative-A mortgages, sub-prime auto loans or sub-prime home equity loans, collateralized debt obligations, collateralized loan obligations, credit default swaps, derivatives, auction rate securities, structured investment vehicles or non-investment grade fixed-income securities.

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

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

All collateral on asset-backed securities is performing as expected through June 30, 2025.

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See Note 5 of our Consolidated Financial Statements for a description of our corporate investments and funds held for clients.

Capital expenditures for fiscal 2024 were $211.7 million, as compared to $206.0 million for fiscal 2023.

Capital expenditures in fiscal 2025 were $176.8 million, as compared to $211.7 million in fiscal 2024.

We expect capital expenditures in fiscal 2026 to be between $225.0 million and $250.0 million.

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In addition to the obligations described above, we had obligations for the remittance of funds relating to our payroll and payroll tax filing services.

As of June 30, 2024, the obligations relating to these matters, which are expected to be paid in fiscal 2025, total $39,503.9 million, and were recorded in client funds obligations on our Consolidated Balance Sheets.

As of June 30, 2025, the obligations relating to these matters, which are expected to be paid in fiscal 2026,

total $31,343.3 million, and were recorded in client funds obligations on our Consolidated Balance Sheets.

We had $30,985.7 million of cas h and cash e quivalents and marketable securities to satisfy such obligations recorded in funds held for clients on our Consolidated Balance Sheets as of June 30, 2025.

In addition, as of June 30, 2024, we held approximately $622.0 million of funds received from the Internal Revenue Service that will be refunded to our clients in fiscal 2025.

This obligation is recorded in accrued expenses and other current liabilities on our Consolidated Balance Sheets.

Separately, ADP Indemnity paid a p remium of $278.0 million in July 2025 to enter into a reinsurance agreement with Chubb to cover substantially all losses incurred by ADP Indemnity for the fiscal 2026 policy year.

At June 30, 2024, ADP Indemnity had total assets of $684.4 million to satisfy the actuarially estimated unpaid losses of $611.5 million for the policy years since July 1, 2003.

As of June 30, 2025, ADP Indemnity had total assets of $725.4 million to satisfy the actuarially estimated unpaid losses of $665.7 million for the policy years since July 1, 2003.

ADP Indemnity paid claims of $6.3 million and $1.1 million, net of insurance recoveries, in fiscal 2025 and 2024, respectively.

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Quantitative and Qualitative Disclosures about Market Risk

Our overall investment portfolio is comprised of corporate investments (cash and cash equivalents, marketable securities) and client funds assets (funds that have been collected from clients but have not yet been remitted to the applicable tax authorities, client employees or other payees).

Our overall investment portfolio is comprised of corporate investments (cash and cash equivalents, and marketable securities) and client funds assets (funds that have been collected from clients but have not yet been remitted to the applicable tax authorities, client employees or other payees).

Our corporate investments are invested in cash and cash equivalents and highly liquid, investment-grade marketable securities.

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As part of our client funds investment strategy, we use the daily collection of funds from our clients to satisfy other unrelated client funds obligations, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities.

In circumstances where we experience a reduction in employment levels due to a slowdown in the economy, we may make tactical decisions to sell certain securities in order to reduce the size of the funds held for clients to correspond to client funds obligations.

In circumstances where we experience a reduction in employment levels due to a slowdown in the economy, we may make tactical decisions to sell certain securities or not reinvest maturing securities in order to reduce the size of the funds held for clients to correspond to client funds obligations.

We attempt to minimize the risk of not having funds collected from a client available at the time such client’s obligation becomes due by generally impounding the client's funds by the time we pay such client’s obligation.

When we don’t impound client funds in advance of paying such client obligations, we are at risk of not recovering such funds or experiencing a material delay in such recovery.

Through our clients funds investment strategy and client impounding processes, we have consistently maintained the required level of liquidity to satisfy all of our obligations.

When we don't impound client funds in advance of paying such client obligations, we are at risk of not recovering such funds or material delay in such recovery.

Through our client funds investment strategy and client impounding processes, we have consistently maintained the required level of liquidity to satisfy all of our obligations.

There are inherent risks and uncertainties involving our investment strategy relating to our client funds assets.

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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 o ur $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), our ability to engage in reverse repurchase agreement transaction s ($7.3 billion of which is available on a committed basis), and available borrowings under our $10.3 billion committe d 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 o ur $10.6 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), our ability to engage in reverse repurchase agreement transaction s ($7.5 billion of which is available on a committed basis in the U.S.

as of June 30, 2025), and available borrowings under our $10.6 billion committe d 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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This mix varies during the fiscal year and is impacted by daily interest rate changes.

The annualized interest rate earned on our entire portfolio increased from 2.4% for fiscal 2023 to 3.0% for fiscal 2024.

The annualized interest rate earned on our entire portfolio increased from 3.0% in fiscal 2024 to 3.2% in fiscal 2025.

A hy pothetical chan ge 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 an $24 million impact to earnings before income taxes over the ensuing twelve-month period ending June 30, 2026.

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While the Company considers all of its tax positions fully supportable, the Company is occasionally challenged by various tax authorities regarding the amount of taxes due.

If certain pending tax matters settle within the next twelve months, the total

amount of unrecognized tax benefits may increase or decrease for all open tax years and jurisdictions.

If certain pending tax matters settle within the next twelve months, the total amount of unrecognized tax benefits may increase or decrease for all open tax years and jurisdictions.

As of June 30, 2025 and 2024, the Company's liabilities for unrecognized tax benefits, which include interest and penalti es, were $163.0 million and $126.9 million, respectively.

Quantitative and Qualitative Disclosures About Market Risk

The information called for by this item is provided under the caption “Quantitative and Qualitative Disclosures About Market Risk” under “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

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-K

Item 7. Management’s Discussion and Analysis