ADP

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How ADP rewrote its risk factors

10-K ITEM 1A · FY2025 → FY2026

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During fiscal 2026, we made meaningful progress on our Strategic Priorities.
We continued to leverage our data advantages, domain expertise, and trusted brand to lead the HCM industry's AI transformation.
ADP Assist became increasingly embedded in our clients' workflows, delivering meaningful time savings and improved accuracy.
Since launching ADP Assist agents in January, we steadily expanded their availability across our payroll, benefits, HR, and compliance solutions, making AI-powered HCM agents accessible to nearly all of our more than 1.1 million clients.
We also launched a dedicated space within ADP Marketplace for our partners' AI agents, further expanding our AI ecosystem.
Additionally, we continued deploying AI tools across our sales, service, and research and development functions to improve the client experience and drive internal productivity gains.
During the year, we experienced strong enterprise sales momentum for ADP Lyric HCM and the ADP WorkForce Suite, as our unified global payroll, global HR, and global time solutions continued to resonate with clients.
Finally, we remained focused on delivering value through our global scale by providing compliant HCM solutions, local expertise, and trusted relationships wherever our clients operate.
Highlights from the year ended June 30, 2026 include: • Revenue growth of 7% to $21,947.4 million; 6% growth on an organic constant currency • Earnings before income taxes margin expansion of 30 bps, and adjusted EBIT margin expansion of 80 bps • Diluted and adjusted diluted earnings per share ("EPS") growth of 10% and 11%, respectively, to $10.94 and $11.12, respectively • Cash returned via shareholder friendly actions of $4.7B, including $2.6B of dividends and $2.1B of share repurchases For fiscal 2026, we delivered strong revenue growth of 7%, 6% growth on an organic constant currency basis.
Our United States pays per control metric, which represents the approximate growth in the number of employees on ADP clients' processed payrolls in the United States when measured on a same-store-sales basis for a subset of Employer Services clients ranging from small to large businesses, grew 1% for the year ended June 30, 2026 as compared to the year ended June 30, 2025.
PEO average worksite employees increased 2% for the year ended June 30, 2026, as compared to the year ended June 30, 2025.
Additionally, our ES new business bookings grew 6% in fiscal 2026, and our ES client revenue retention was 92.1%.
These results are a testament to the meaningful investments we have made in our solutions and the efforts of our associates to deliver exceptional levels of client service.
We are committed to building upon our past successes by investing in research and development to enhance our products and services and by driving continuous improvement in the way we operate.
Our financial condition remains solid at June 30, 2026 and we remain well positioned to support our associates and our clients.
RESULTS AND ANALYSIS OF CONSOLIDATED OPERATIONS Total Revenues For the year ended June 30: Years Ended June 30, 2026 2025 Total Revenues $ 21,947.4 $ 20,560.9 YoY Growth 7 % 7 % YoY Growth, Organic Constant Currency 6 % 7 % Total revenues increased in fiscal 2026 due to new business started from new business bookings, strong client revenue retention, an increase in zero-margin benefits pass-throughs of $318.3 million, an increase in pricing, a 1% year-over-year growth impact of foreign currency, and an increase in interest on funds held for clients of $165.7 million.
Total revenues for fiscal 2026 include interest on funds held for clients of $1,354.8 million, as compared to $1,189.1 million in fiscal 2025.
The increase in interest earned on funds held for clients resulted from an increase in our average client funds balances of 7.4% to $40.4 billion in fiscal 2026 as compared to fiscal 2025, coupled with an increase in our average interest rate earned to 3.4% in fiscal 2026, as compared to 3.2% in fiscal 2025.
Total Expenses Years Ended June 30, 2026 2025 % Change Costs of revenues: Operating expenses $ 10,240.6 $ 9,622.7 6 % Research and development 1,028.8 988.6 4 % Depreciation and amortization 490.8 486.0 1 % Total costs of revenues 11,760.2 11,097.3 6 % Selling, general, and administrative expenses 4,408.2 4,051.7 9 % Interest expense 459.3 455.9 1 % Total expenses $ 16,627.7 $ 15,604.9 7 % For the year ended June 30: Operating expenses increased in fiscal 2026 due to an increase of $318.3 million in PEO Services zero-margin benefits pass-through costs to $4,607.3 million in fiscal 2026 from $4,289.0 million in fiscal 2025.
Additionally, operating expenses increased by $188.9 million due to higher service and implementation costs in support of our growing revenue, $74.4 million million primarily due to higher hosting, cloud-based service, and software license costs in support of our products and solutions, and by $37.1 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 2026 due to increased costs to develop, support, and maintain our new and existing products, including the integration costs associated with the WorkForce Software acquisition.
Depreciation and amortization increased in fiscal 2026 due to the amortization of investments in internally developed software primarily for our products and solutions, intangible assets acquired in the WorkForce Software acquisition, and purchased software, partially offset by lower amortization of customer contracts and lists.
Selling, general, and administrative expenses increased in fiscal 2026 primarily due to increases in selling and marketing expenses of $241.4 million as a result of investments in our sales organization, an increase in costs related to non-recurring, broad-based, company-wide initiatives of $67.2 million and a non-recurring net legal settlement of $18.0 million.
Interest expense increased in fiscal 2026 primarily due to net increases in interest expense of $25.3 million related to the senior notes issued in fiscal 2026 and 2025, offset by the redemption of a senior note in fiscal 2025.
These increases were partially offset by a decrease of $22.8 million related to commercial paper and reverse repurchase borrowings as a result of decreases in average interest rates on commercial paper issuances and reverse repurchases of 80 and 70 basis points, respectively, offset by an increase in average daily commercial paper borrowings and average reverse repurchase outstanding balances of $0.1 billion and $0.6 billion, respectively, as compared to fiscal 2025.
Other (Income)/Expense, net Years ended June 30, 2026 2025 $ Change Interest income on corporate funds $ (371.0) $ (319.5) $ (51.5) Realized (gains)/losses on available-for-sale securities, net (2.9) 1.7 (4.6) Gain on sale of assets — (5.0) 5.0 Non-service components of pension income, net (28.3) (31.3) 3.0 Net (gain)/loss on ADP Ventures' investments (8.4) — (8.4) Other income, net $ (410.6) $ (354.1) $ (56.5) Interest income on corporate funds increased in fiscal 2026 due to higher average investment balances of $10.4 billion as compared to $9.2 billion in fiscal 2025, coupled with an increase in average interest rates of 10 basis points, as compared to fiscal 2025.
In fiscal 2026, the Company recognized a net gain of $8.4 million related to investments made through its Corporate Venture Capital arm, ADP Ventures.
Earnings Before Income Taxes ("EBIT") and Adjusted EBIT For the year ended June 30: Years Ended June 30, 2026 2025 YoY Growth EBIT $ 5,730.3 $ 5,310.1 8 % EBIT Margin 26.1 % 25.8 % 30 bps Adjusted EBIT $ 5,874.6 $ 5,347.1 10 % Adjusted EBIT Margin 26.8 % 26.0 % 80 bps Earnings before income taxes increased in fiscal 2026 due to the increase in total revenues, partially offset by the increase in total expenses discussed above.
EBIT Margin increased in fiscal 2026 due to contributions from client funds interest revenues, increased interest income on corporate funds, lower amortization of client contracts and lists, and lower interest expense related to commercial paper and reverse repurchase borrowings, partially offset by increased selling and marketing expenses and costs related to non-recurring, broad-based, company-wide initiatives.
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, non-recurring, broad-based, company-wide initiatives, gain on sale of assets, and (gains)/losses on ADP Ventures' investments, in the applicable periods.
Provision for Income Taxes The effective tax rate in fiscal 2026 and 2025 was 23.0% and 23.2%, respectively.
The decrease in the effective tax rate is primarily due to a decrease in uncertain tax positions and an increase in tax credits, partially offset by a lower benefit for adjustments to prior year tax liabilities and a lower excess tax benefit on stock-based compensation for fiscal 2026 as compared to fiscal 2025.
Adjusted Provision for Income Taxes The adjusted effective tax rate in fiscal 2026 and 2025 was 23.0% and 23.2%, respectively.
Net Earnings and Diluted EPS, Unadjusted and Adjusted For the year ended June 30, respectively: Years Ended June 30, 2026 2025 YoY Growth Net earnings $ 4,413.5 $ 4,079.7 8 % Diluted EPS $ 10.94 $ 9.98 10 % Adjusted net earnings $ 4,485.4 $ 4,092.0 10 % Adjusted diluted EPS $ 11.12 $ 10.01 11 % In addition to the increase in net earnings, diluted EPS increased in fiscal 2026 as a result of the impact of fewer shares outstanding resulting from share repurchases under our authorized share repurchase program, partially offset by the issuances of shares under our employee benefit plans.
The Company repurchased 8.6 million and 4.4 million shares in fiscal 2026 and 2025, respectively.
For fiscal 2026, adjusted net earnings and adjusted diluted EPS reflect the changes in the components described above.
ANALYSIS OF REPORTABLE SEGMENTS Revenues Years Ended June 30, % Change 2026 2025 As Reported Organic Constant Currency Employer Services $ 14,831.4 $ 13,883.1 7 % 5 % PEO Services 7,128.1 6,690.4 7 % 7 % Intercompany eliminations (12.1) (12.6) n/m n/m $ 21,947.4 $ 20,560.9 7 % 6 % Earnings before Income Taxes Years Ended June 30, % Change 2026 2025 As Reported Employer Services $ 5,436.8 $ 5,008.5 9 % PEO Services 936.1 950.5 (2) % Other (a) (642.6) (648.9) n/m $ 5,730.3 $ 5,310.1 8 % Margin Years Ended June 30, 2026 2025 YoY Growth Employer Services 36.7 % 36.1 % 60 bps PEO Services 13.1 % 14.2 % (110) bps (a) Other represents certain corporate overhead charges and expenses that have not been allocated to the reportable segments, including corporate functions, legal settlements, company-wide severance initiatives, non-recurring gains and losses, the elimination of intercompany transactions, and interest income and expense. n/m - not meaningful Employer Services Revenues Employer Services' revenues increased in fiscal 2026 due to new business started from new business bookings, strong client revenue retention, an increase in pricing, a 1% year-over-year growth impact of foreign currency, an increase in interest earned on funds held for clients of $164.1 million, and an increase in our pays per control when measured on a same-store-sales basis of 1%.
Earnings before Income Taxes Employer Services' earnings before income taxes increased in fiscal 2026 due to the increase in revenues, including contributions from client funds interest, discussed above, partially offset by increases in expenses, including $188.6 million in selling and marketing expenses and $159.7 million in costs of servicing and implementing our clients on growing revenue.
Margin Employer Services' margin increased in fiscal 2026 due to contributions from client funds interest revenues, operating efficiencies for costs of servicing and implementing our clients on growing revenue, and lower amortization of client contracts and lists, partially offset by increased selling and marketing expenses and the impact from the WorkForce Software acquisition in October 2024.
PEO Services Revenues PEO Revenues Years Ended Change June 30, 2026 2025 $ % PEO Services' revenues $ 7,128.1 $ 6,690.4 $ 437.7 7 % Less: PEO zero-margin benefits pass-throughs 4,607.3 4,289.0 318.3 7 % PEO Services' revenues excluding zero-margin benefits pass-throughs $ 2,520.8 $ 2,401.4 $ 119.4 5 % PEO Services' revenues increased in fiscal 2026 due to an increase in zero-margin benefits pass-throughs of $318.3 million, and growth in average worksite employees of 2% coupled with increases in average wages and state unemployment taxes per worksite employee, as compared to fiscal 2025.

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Gone since FY2025

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; 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 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 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 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 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 June 30, 2025 and we remain well positioned to support our associates and our clients.
RESULTS AND ANALYSIS OF CONSOLIDATED OPERATIONS Total Revenues For the year ended June 30, respectively: Years Ended June 30, 2025 2024 Total Revenues $ 20,560.9 $ 19,202.6 YoY Growth 7 % 7 % YoY Growth, Organic Constant Currency 7 % 6 % 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 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.
Total Expenses Years Ended June 30, 2025 2024 % Change Costs of revenues: Operating expenses $ 9,622.7 $ 9,050.1 6 % Research and development 988.6 955.7 3 % Depreciation and amortization 486.0 470.9 3 % Total costs of revenues 11,097.3 10,476.7 6 % Selling, general and administrative expenses 4,051.7 3,778.9 7 % Interest expense 455.9 361.4 26 % Total expenses $ 15,604.9 $ 14,617.0 7 % For the year ended June 30: 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 Years ended June 30, 2025 2024 $ Change Interest income on corporate funds $ (319.5) $ (241.3) $ 78.2 Realized losses on available-for-sale securities, net 1.7 5.9 4.2 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, 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.
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 For the year ended June 30, respectively: Years Ended June 30, 2025 2024 YoY Growth EBIT $ 5,310.1 $ 4,872.3 9 % EBIT Margin 25.8 % 25.4 % 50 bps Adjusted EBIT $ 5,347.1 $ 4,890.1 9 % Adjusted EBIT Margin 26.0 % 25.5 % 50 bps Note: 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, 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.
Adjusted Provision for Income Taxes The adjusted effective tax rate in fiscal 2025 and 2024 was 23.2% and 23.0%, respectively.
Net Earnings and Diluted EPS, Unadjusted and Adjusted For the year ended June 30, respectively: Years Ended June 30, 2025 2024 YoY Growth Net earnings $ 4,079.7 $ 3,752.0 9 % Diluted EPS $ 9.98 $ 9.10 10 % Adjusted net earnings $ 4,092.0 $ 3,784.5 8 % Adjusted diluted EPS $ 10.01 $ 9.18 9 % 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.
ANALYSIS OF REPORTABLE SEGMENTS Revenues Years Ended June 30, % Change 2025 2024 As Reported Organic Constant Currency Employer Services $ 13,883.1 $ 12,980.8 7 % 6 % PEO Services 6,690.4 6,233.6 7 % 7 % Other (12.6) (11.8) n/m n/m $ 20,560.9 $ 19,202.6 7 % 7 % Earnings before Income Taxes Years Ended June 30, % Change 2025 2024 As Reported Employer Services $ 5,008.5 $ 4,555.5 10 % PEO Services 950.5 921.5 3 % Other (648.9) (604.7) n/m $ 5,310.1 $ 4,872.3 9 % Margin Years Ended June 30, 2025 2024 YoY Growth Employer Services 36.1 % 35.1 % 100 bps PEO Services 14.2 % 14.8 % (60) bps n/m - not meaningful Employer Services Revenues 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 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.
Margin 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.
PEO Services Revenues PEO Revenues Years Ended Change June 30, 2025 2024 $ % PEO Services' revenues $ 6,690.4 $ 6,233.6 $ 456.8 7 % Less: PEO zero-margin benefits pass-throughs 4,289.0 3,975.9 313.1 8 % PEO Services' revenues excluding zero-margin benefits pass-throughs $ 2,401.4 $ 2,257.7 $ 143.7 6 % 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 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.

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Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2025 ↗, FY2026 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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