Executive Summary

Q2 FY25 revenue was $5.05B, up 8% YoY; diluted EPS was $2.35, up 10% YoY; adjusted EBIT was $1.27B with margin expanding 60 bps to 25.2% .
Employer Services delivered 8% revenue growth and +90 bps segment margin expansion; PEO Services revenue grew 8% but segment margin declined 140 bps on higher zero‑margin pass‑throughs and workers’ comp/state unemployment costs .
Interest on funds held for clients rose 21% to $273M on 8% higher average client funds balances and a 30 bps yield increase to 3.1%; FY25 client funds interest revenue outlook raised to $1.14–$1.16B and net impact from extended strategy raised to $1.025–$1.045B .
FY25 guidance maintained: consolidated revenue growth 6–7%, adjusted EBIT margin expansion 30–50 bps, adjusted diluted EPS growth 7–9%; management flagged Q3 deceleration on FX headwinds and lower short rates before reacceleration in Q4 .
Board raised the quarterly dividend in November (50th consecutive year of increases), and ADP declared a $1.54 dividend payable Apr 1, 2025; ADP named to Fortune’s “World’s Most Admired Companies” for the 19th year .

What Went Well and What Went Wrong

What Went Well

“Our momentum continued into the second quarter with strong revenue and earnings growth,” supported by record client satisfaction and healthy HCM demand backdrop; CEO highlighted being a “dividend king” after the Board’s 10% dividend increase .
ES segment: solid new business bookings with record fiscal Q2 volume; ES margin +90 bps on operating leverage and client funds interest strength .
Strategic execution: announced a partnership with Fiserv (Clover and Cash Flow Central) integrated with RUN; Lyric (next‑gen global HCM) pipelines and bookings rose again Q/Q; WorkForce Software integration progressing with new enterprise opportunities .

What Went Wrong

ES pays per control growth decelerated to 1% from 2% in Q1; ES retention declined slightly YoY (though modestly beat internal expectations) .
PEO margin fell 140 bps on higher zero‑margin pass‑through revenue and increased workers’ comp/SUI costs; CFO expects PEO margin down 70–90 bps for FY25 .
Near‑term cadence: management expects revenue growth and margin expansion to be lower in Q3 than Q4 due to FX headwinds, lower short‑term rates (largest short portfolio in Q3), calendar timing (SUI), and WorkForce Software integration costs .

Financial Results

Metric	Q4 FY24	Q1 FY25	Q2 FY25
Revenue ($USD Millions)	$4,768.5	$4,832.7	$5,048.4
Diluted EPS ($)	$2.02	$2.34	$2.35
Net Earnings ($USD Millions)	$829.3	$956.3	$963.2
Adjusted EBIT ($USD Millions)	$1,110.9	$1,232.5	$1,272.0
Adjusted EBIT Margin (%)	23.3%	25.5%	25.2%
Interest on Funds Held for Clients ($USD Millions)	$276.8	$253.3	$272.8

Segment performance:

Segment Metric	Q4 FY24	Q1 FY25	Q2 FY25
Employer Services Revenue ($USD Millions)	$3,218.6	$3,261.0	$3,388.5
Employer Services Segment Margin (%)	33.0%	35.7%	34.9%
PEO Services Revenue ($USD Millions)	$1,552.3	$1,574.5	$1,663.3
PEO Services Segment Margin (%)	13.4%	14.3%	15.1%

Key KPIs:

KPI	Q4 FY24	Q1 FY25	Q2 FY25
U.S. Pays per Control (YoY change)	+2%	+2%	+1%
Avg Paid PEO Worksite Employees (000s)	742	737	746
Paid PEO WSE at End of Period (000s)	756	739	751
Zero‑Margin Benefits Pass‑Throughs ($USD Millions)	$1,012.2	$1,049.2	$1,055.2

Note on non‑GAAP: Adjusted EBIT includes interest income/expense from the client funds extended strategy and excludes “all other” interest items; reconciliations provided in the 8‑K .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Consolidated Revenue Growth (%)	FY25	6–7% (Oct 30, 2024)	6–7% (Jan 29, 2025)	Maintained
Adjusted EBIT Margin Expansion (bps)	FY25	30–50 (Oct 30, 2024)	30–50 (Jan 29, 2025)	Maintained
Adjusted Diluted EPS Growth (%)	FY25	7–9% (Oct 30, 2024)	7–9% (Jan 29, 2025)	Maintained
Adjusted Effective Tax Rate (%)	FY25	~23% (Oct 30, 2024)	~23% (Jan 29, 2025)	Maintained
ES Revenue Growth (%)	FY25	6–7% (Oct 30, 2024)	6–7% (Jan 29, 2025)	Maintained
ES Margin (bps)	FY25	+40–60 (Oct 30, 2024)	+40–60 (Jan 29, 2025)	Maintained
ES New Business Bookings Growth (%)	FY25	4–7% (Oct 30, 2024)	4–7% (Jan 29, 2025)	Maintained
ES Client Revenue Retention (bps)	FY25	(10) to (30) (Oct 30, 2024)	(10) to (30) (Jan 29, 2025)	Maintained
U.S. Pays per Control (%)	FY25	1–2% (Oct 30, 2024)	1–2% (Jan 29, 2025)	Maintained
PEO Revenue Growth (%)	FY25	5–6% (Oct 30, 2024)	5–6% (Jan 29, 2025)	Maintained
PEO Rev ex Pass‑Throughs (%)	FY25	4–5% (Oct 30, 2024)	4–5% (Jan 29, 2025)	Maintained
PEO Margin (bps)	FY25	(70) to (90) (Oct 30, 2024)	(70) to (90) (Jan 29, 2025)	Maintained
Avg PEO WSE Growth (%)	FY25	2–3% (Oct 30, 2024)	2–3% (Jan 29, 2025)	Maintained
Avg Client Funds Balances Growth (%)	FY25	3–4% (Oct 30, 2024)	4–5% (Jan 29, 2025)	Raised
Yield on Client Funds Portfolio (%)	FY25	~3.1% (Oct 30, 2024)	~3.1% (Jan 29, 2025)	Maintained
Client Funds Interest Revenue ($USD Millions)	FY25	$1,115–$1,135 (Oct 30, 2024)	$1,140–$1,160 (Jan 29, 2025)	Raised
Net Impact – Extended Strategy ($USD Millions)	FY25	$1,000–$1,020 (Oct 30, 2024)	$1,025–$1,045 (Jan 29, 2025)	Raised
Dividend (regular quarterly)	N/A	—	$1.54 declared for Apr 1, 2025 pay date	Declared/raised in Nov (50th year)

Context: Initial FY25 guide (Jul 31, 2024) was 5–6% revenue, 60–80 bps margin expansion, and 8–10% adjusted EPS growth; this was updated to 6–7% revenue and 30–50 bps margin expansion at Q1 to incorporate WorkForce Software and recent debt issuance .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 FY24, Q1 FY25)	Current Period (Q2 FY25)	Trend
AI/Technology (ADP Assist; service/sales efficiency)	Embedded gen‑AI across platforms; call summarization reduced call time; digital onboarding rising; modest ongoing investments	Continued focus on ADP Assist for products and service; minute shaved per call; sales modernization (lead prioritization, pre‑call planning) improving productivity; modest investments	Improving execution; steady investment
Product – Lyric (next‑gen global HCM)	Launch and strong interest; live clients growing; pipeline up; global reach >75 countries supported	Bookings and pipeline increased again; cited enterprise wins; early days before financial impact	Building momentum
Partnership – Fiserv (Clover, Cash Flow Central + RUN)	Not discussed prior	Announced strategic partnership; referral in place; revenue share mechanics “both” referral and rev share over time; integration underway	New growth channel
Macro/FX/Interest rates	FY25 client funds interest guided up; laddered portfolio strategy; expect average yield rises to 3.1%	Q3 deceleration expected on stronger USD and 100 bps lower short rates; largest short position in Q3; reacceleration in Q4	Near‑term headwind, then easing
Demand/Bookings across segments	Broad‑based strength; ES bookings +7% FY24; pipelines up YoY	ES record Q2 bookings; pipelines up YoY; downmarket activity solid; watch new business formations	Solid, broad‑based
Retention	Record NPS driving retention; prudent FY25 decline of 10–30 bps modeled	Retention declined slightly but modest beat; seasonal dip in Q3 expected; downmarket near normalization	Slight pressure; better than plan
PEO margin/demand	Margin pressure from workers’ comp reserves; bookings moderated late FY24; FY25 margin down 90–110 bps guide	Q2 margin down 140 bps; expects FY25 down 70–90 bps; SUI timing pulled into Q2; pays per control slower than ES	Ongoing margin pressure
M&A (WorkForce Software)	Acquired for ~$1.2B; expected EPS drag in FY25; focus on accretive adjacencies	Integration costs timed to Q3; strategic fit to enterprise/global; tuck‑ins possible; stance unchanged	Integration underway

Management Commentary

CEO: “We achieved a major milestone in November, when our Board…approved an increase to our quarterly dividend, marking the 50th consecutive year in which we raised our dividend…With a healthy HCM demand backdrop and all‑time record client satisfaction, we are focused on continuing to deliver for our shareholders” .
CFO: “Our second quarter revenue growth and margin performance exceeded our expectations, as we benefited from solid new business bookings growth and higher client funds interest revenue” .
CFO on cadence: “We expect…strengthening U.S. dollar and…lower short‑term interest rates to result in a deceleration…in Q3 before…reaccelerate in Q4” .
CEO on Lyric: “Lyric’s new business booking volumes increased again, and its new business pipeline ended the quarter up significantly compared to last year” .
CEO on Fiserv partnership: “RUN will be embedded inside Clover and vice versa…there is a referral piece…there’s also revenue share over time” .

Q&A Highlights

Fiserv partnership economics and scope: Initially referral‑based, moving to integrated joint offering; revenue share components; potential expansion beyond RUN over time .
Demand and pipelines: Broad‑based strength across down/mid/upmarket; post‑election U.S. demand steady; watch new business formations (still elevated vs pre‑pandemic) .
PEO dynamics: Q2 SUI timing pulled into Q2; pays per control slower than ES; FY25 margin decline 70–90 bps expected; workers’ comp/SUI costs up .
Pricing: Targeting ~100 bps price increase in FY25, vs ~150 bps in FY23–FY24; competitive environment “status quo”; retention remains priority .
AI initiatives: Service agent assist productivity (call summarization saves ~1 minute); sales modernization improves productivity; investment modest near‑term, longer‑term margin benefits expected .

Estimates Context

Street consensus from S&P Global for Q2 FY25 EPS and revenue was unavailable at time of analysis due to S&P Global daily limit; therefore, comparisons to consensus estimates cannot be made reliably. Values would be retrieved from S&P Global if accessible.
Implication: Focus comparisons on YoY, sequential trends, and company guidance updates rather than “beat/miss” versus consensus for this quarter.

Key Takeaways for Investors

Quality of growth: Broad‑based revenue expansion with adjusted EBIT margin up 60 bps to 25.2%, supported by ES bookings and client funds interest; segment mix still favorable despite PEO margin pressure .
Near‑term setup: Management explicitly guided to softer Q3 on FX and short‑rate headwinds and integration costs, then reacceleration in Q4—watch client funds interest sensitivity to short rates and FX .
Strategic catalysts: Lyric momentum (enterprise/global), Fiserv partnership (SMB channel), and WorkForce Software (time/attendance adjacency) add multi‑year growth vectors and potential cross‑sell .
Cash/funds engine: Raised FY25 client funds interest revenue and extended strategy net impact—benefits from higher balances and laddered reinvestment rates; monitor yield curve path and short borrowing costs .
PEO watch‑list: Continued margin pressure from benefits pass‑throughs and workers’ comp/SUI; bookings healthy but pays per control growth likely below ES—expect margin down 70–90 bps FY25 .
Pricing/retention: Pricing at ~100 bps with “status quo” competitive backdrop; retention slightly down but modestly ahead of plan on record NPS—key for durable compounding .
Capital returns: Dividend increased (50th consecutive year) and $1.54 declared; reinforces steady capital return profile alongside disciplined M&A .

Appendix: Additional Data Points

Interest on funds held for clients Q2: $272.8M (+21% YoY), average balances $35.3B (+8%), average yield 3.1% (+30 bps) .
ES organic constant currency revenue growth Q2: 7% (reported 8%; acquisitions -1%) .
Non‑GAAP reconciliations: Adjusted net earnings $963.2M; adjusted effective tax rate 23.6% in Q2 .

S&P Global estimates for this quarter were not available at time of drafting due to API limits; thus, no estimate comparisons are included.

AUTOMATIC DATA PROCESSING INC (ADP)·Q2 2025 Earnings Summary