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% (from $5,253.80M to $5,553.00M) | Total Revenues increased by 5.7% YoY, reflecting ongoing strength in both Employer Services and PEO segments. This moderate growth follows higher increases in previous quarters (such as an 8% rise in Q2 2025), suggesting that while demand remains robust, the revenue momentum has moderated slightly, building on the stable client retention and new business bookings seen earlier. |
Net Earnings | +5.4% | Net Earnings grew by 5.4% YoY to $1,249.50M, indicating sustained profitability improvements. This growth builds on prior performance where strong revenue gains, improved EBIT margins, and effective cost management drove net earnings higher, reflecting the positive trend from previous periods. |
PEO Revenues | +7.4% | PEO Revenues rose by roughly 7.4% YoY to $1,785.20M, driven by factors similar to earlier quarters such as robust new business bookings, a 9% increase in zero‐margin benefits pass-throughs, and a growth in average worksite employees. The current increase mirrors prior period trends where consistent segment strength contributed to overall revenue performance. |
Interest on Funds Held for Clients | +10.8% | Interest on Funds Held for Clients increased by about 10.8% YoY to $355.20M, thanks to higher average client funds balances and an improved average yield. This development follows earlier periods where increased balances and yield adjustments were key, signifying a continuation of favorable market conditions and a prudent investment strategy. |
Basic EPS | +6.3% (from $2.89 to $3.07) | Basic EPS grew by 6.3% YoY in Q3 2025, reflecting a blend of revenue growth, margin expansion, and the beneficial impact of share repurchases from previous periods. The improvement builds on earlier strong EPS trends, where enhanced profitability and efficient capital management helped drive higher per-share earnings. |
Interest Expense | +20% (from $62.70M to $74.80M) | Interest Expense increased by approximately 20% YoY, rising to $74.80M, likely due to higher borrowing costs and increased debt volumes. This trend is consistent with earlier observations and is generally tied to rising short-term financing rates and larger average borrowing balances, even though specific new details were not provided for this period. |
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% | 5,553.0Vs. 5,253.8(≈5.7% YoY) | Missed |
Adjusted EPS Growth | Q3 2025 | 7% to 9% | 3.06Vs. 2.87(≈6.6% YoY) | Missed |
Effective Tax Rate | Q3 2025 | Around 23% | 372.40/ 1,621.90≈ 22.97% | 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. |
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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.
Research analysts covering AUTOMATIC DATA PROCESSING.