Q3 2025 Earnings Summary
- Innovative Product Integration & Strong Pipeline: ADP’s successful integration of its workforce software and the positive market reception for its rebranded Lyric platform—with both new logo wins and existing customer conversions—underscore its ability to drive future revenue growth.
- Robust Core Business Performance: Consistently strong bookings and retention in its PEO and Employer Services segments—evidenced by steady PEO bookings, 2% worksite employee growth, and stable pays per control—support a resilient and growing revenue base.
- Strategic Partnerships & Global Expansion: The advancing Fiserv partnership and continued international expansion (e.g., through the PEI acquisition in Mexico and broader Latin America initiatives) enhance cross-selling opportunities and broaden its distribution network, further driving long-term growth potential.
- Slower Pays Per Control (PPC) Growth: The PPC rate is trending at 1%, significantly lower than the historical pre-pandemic range of 2%–3%, which may signal underlying weakness in hiring and client engagement.
- Weakness in International Bookings: Several Q&A responses pointed to soft international bookings driven by macroeconomic uncertainty and lumpy deal cycles, indicating potential risks in global revenue diversification.
- Margin Pressure from Integration and Cost Impacts: Comments on workforce software integration highlighted an expected drag of around 50 basis points on margins, which could pressure overall profitability if cost and integration issues persist.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenues | +5.7% | Total Revenues increased to $5,553.0 million in Q3 2025 from $5,253.8 million in Q3 2024, driven by continued strong performance in both Employer Services and PEO segments. This growth builds on prior period momentum—such as the 6% growth in Q2 2024 and 8% in Q2 2025—supported by robust new business bookings and pricing improvements. |
PEO Revenues | +7.3% | PEO Revenues rose to $1,785.2 million in Q3 2025 from $1,662.7 million in Q3 2024, benefitting from strong new business bookings, increased average worksite employees (reflecting continued operational momentum from previous quarters), and timing benefits such as earlier recognition of zero‐margin pass-through revenue. |
Net Earnings | +5.4% | Net Earnings climbed to $1,249.5 million in Q3 2025 compared to $1,184.9 million in Q3 2024, reflecting improved profitability driven by higher revenue, better operating margins, and stronger client funds interest revenue. Prior period improvements in Q2 earnings growth have carried forward to support this consistent net income trend. |
Basic EPS | +6.3% | Basic EPS increased to $3.07 in Q3 2025 from $2.89 in Q3 2024, driven by the rise in net earnings, improved operating efficiency, and a modest reduction in the weighted average share count. This mirrors previous period EPS gains where revenue and EBIT improvements positively impacted earnings per share. |
Operating Cash Flows | +17.3% | Operating Cash Flows improved sharply to $1,525.8 million in Q3 2025 from $1,300.6 million in Q3 2024, largely due to favorable working capital changes such as lower increases in accounts receivable and deferred contract costs, as well as higher net earnings. These factors build on efforts noted in earlier periods to enhance cash flow conversion. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Employer Services Revenue Growth | FY 2025 | 6% to 7% | 6% to 7% | no change |
New Business Bookings Growth | FY 2025 | no prior guidance | 4% to 7% | no prior guidance |
Retention | FY 2025 | Forecasted a modest decline of 10 to 30 basis points | Forecast a decline of 20 basis points to flat | no change |
ES Pays Per Control Growth | FY 2025 | 1% to 2% | 1% | lowered |
Client Funds Interest Revenue | FY 2025 | Increased full‐year forecast by $25 million | Increased by $15 million at the midpoint | lowered |
Average Client Funds Balance Growth | FY 2025 | no prior guidance | 5% to 6% | no prior guidance |
ES Margin Growth | FY 2025 | 40 to 60 basis points | 50 to 60 basis points | raised |
PEO Revenue Growth | FY 2025 | 5% to 6% | 6% to 7% | raised |
Consolidated Revenue Growth | FY 2025 | 6% to 7% | 6% to 7% | no change |
Adjusted EBIT Margin Expansion | FY 2025 | 30 to 50 basis points | 40 to 50 basis points | raised |
Effective Tax Rate | FY 2025 | around 23% | around 23% | no change |
Adjusted EPS Growth | FY 2025 | 7% to 9% | 8% to 9% | raised |
PEO Margin | FY 2025 | Expected to decrease by 70 to 90 basis points | Expected to decrease between 60 and 80 basis points | raised |
Average Worksite Employee Growth | FY 2025 | 2% to 3% | 2% to 3% | no change |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Full-Year Revenue Growth | Q3 2025 | 6% to 7% | 5.69% year-over-year from 5,253.8To 5,553.0 | Missed |
Employer Services Revenue Growth | Q3 2025 | 6% to 7% | 4.35% year-over-year from 3,270.3To 3,412.6 | Missed |
PEO Revenue Growth | Q3 2025 | 5% to 6% | 7.34% year-over-year from 1,662.7To 1,785.2 | Beat |
Adjusted EPS Growth | Q3 2025 | 7% to 9% | 6.62% year-over-year from $2.87To $3.06 | Missed |
Effective Tax Rate | Q3 2025 | ~23% | 22.96% (Provision for taxes $372.4÷ Earnings before income taxes $1,621.9) | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Product Innovation & Integration | In Q1 and Q2 2025 discussions, ADP rebranded Next Gen HCM to ADP Lyric, emphasizing its flexible, human‑centric design and integration with WorkForce Software. | Q3 2025 focused on strong new business bookings for ADP Lyric HCM and highlighted the integration progress as key to expanding the innovative portfolio. | Consistent focus with an evolving emphasis on integration success and pipeline growth. |
Workforce Software Acquisition Integration & Cost Impact | Q1 2025 described early integration plans and cross‑selling opportunities, while Q2 2025 highlighted integration progress with initial higher expenses; Q4 2024 did not address this topic. | Q3 2025 provided detailed updates on integration progress and noted a modest 50‐basis‑point margin drag, indicating managed cost pressures alongside strategic value creation. | Improved integration execution with ongoing short‑term cost pressures but anticipated long‑term benefits. |
Bookings Growth | Q1, Q2, and Q4 2024 earnings calls detailed record or exceptional growth in Employer Services and strong PEO bookings, with consistent full‐year guidance (4%–7% for ES) and robust pipelines. | Q3 2025 reported continued solid new business bookings in ES and strong, though slightly decelerated, PEO performance, meeting guidance expectations. | Robust demand maintained; steady performance with minor deceleration in the PEO segment. |
Pays Per Control Growth and Margin Pressure | Q1 2025 noted higher (around 2%) PPC growth, Q2 2025 reported 1%–2% growth, and Q4 2024 showed a 2% increase for the quarter with forecasts moderating to 1%–2% for fiscal 2025. | Q3 2025 highlighted softer 1% PPC growth across ES and PEO, alongside margin pressure from integration costs and a generally softer hiring environment. | A gradual moderation in PPC growth is evident, with continuing margin pressure concerns across periods. |
Strategic Partnerships and International Expansion | Q1 2025 underscored global expansion and integration of WorkForce Software; Q2 2025 focused on the Fiserv partnership for U.S. small businesses; Q4 2024 emphasized ADP’s broad global footprint and regional acquisitions. | Q3 2025 amplified the Fiserv partnership—with embedded product integrations and shared referral initiatives—and expanded international efforts via key acquisitions (e.g., in Mexico) and global events. | Growing emphasis on strategic partnerships (notably Fiserv) while sustaining robust international expansion. |
Pricing Strategy | Q1, Q2, and Q4 2024 calls provided detailed discussions on notable price increases (historically 150 basis points, moderating toward 100 basis points) with attention to client retention and competitive positioning. | Q3 2025 did not specifically mention pricing strategy, indicating a shift in focus this quarter. | Not discussed in Q3; however, previous periods indicate a managed shift to moderate, controlled pricing adjustments. |
Client Retention and Satisfaction | Q1 and Q4 2024 saw record client satisfaction scores and strong retention metrics, with Q1 noting all‑time highs in satisfaction and Q4 cautioning on potential normalization in small‑business retention. | Q3 2025 again reported record client satisfaction scores and improved retention guidance in both ES and PEO segments, reinforcing strong client loyalty despite slight declines in certain areas. | Consistently high satisfaction and retention with a cautious outlook for possible normalization in certain segments. |
Competition from SMB and Mid‑Market Players | Q4 2024 painted a “status quo” competitive landscape with no significant price compression, while Q2 2025 noted consolidation trends among some SMB players; Q1 2025 mentioned strong demand in these segments without deep focus on competition. | Q3 2025 emphasized that while competition remains constant in the small‑business and mid‑market segments, ADP’s robust product offerings, partner ecosystem (including Fiserv), and high retention provide a competitive edge. | The competitive landscape remains steady; ADP continues to leverage best‑in‑class products and partnerships to maintain its advantage. |
Macroeconomic Uncertainty and FX Headwinds | Q2 2025 discussed FX headwinds (strengthening U.S. dollar) and noted a strong U.S. economy; Q4 2024 highlighted anticipated macro moderation and a shift from FX tailwinds to slight headwinds; Q1 2025 offered broader expectations on stability. | Q3 2025 noted macroeconomic uncertainty impacting international bookings and some client hesitancy for large, multi‑country deals, while FX headwinds were present but expected to ease in Q4. | Persistent macroeconomic and FX challenges remain, with evolving impacts—particularly more focus on international uncertainty in Q3. |
-
Margin Outlook
Q: Will margins recover next year?
A: Management explained that while some margin recovery is expected from integration, 50bps drag from intangible amortization and financing costs will remain, so full recovery is not anticipated. -
Hiring Outlook
Q: Any change to hiring plans?
A: The team confirmed that with stable business flows, they see no change to hiring expectations going forward. -
International Bookings
Q: How much international booking share?
A: They noted that approximately 88% of revenue is domestic, with the remaining portion coming from international markets, reflecting a balanced pipeline. -
PEI Acquisition
Q: What about the Mexico acquisition?
A: Management described the acquisition as a sub-$10 million deal that strengthens local payroll expertise in Mexico, with opportunities to expand further in Latin America. -
Retention vs PPC
Q: Why is retention strong despite low PPC?
A: They highlighted robust client satisfaction driving strong retention, even though pays per control has settled at around 1%, reflecting a shift in client mix. -
GenAI Progress
Q: What is the update on GenAI?
A: The leadership expressed excitement about initiatives like ADP Assist and a broader generative AI strategy, noting early promising progress in integrating AI into their products. -
Client Funds Increase
Q: Why did client fund balances rise similarly?
A: Management attributed the increase in client funds to a strong bonus season and higher wage levels, which boosted balances despite similar incremental increases across related measures.