AUTOMATIC DATA PROCESSING INC
For the period ended Dec 31, 2025. Filed Jan 29, 2026.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Dec 31, 2025 · Filed Jan 29, 2026
ADP$303.35-1.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2025-09-30; filed 2025-10-31.
0000008670-25-000047
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-12-31; filed 2026-01-29.
0000008670-26-000011
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 100 previous paragraphs and 117 current paragraphs.
59 unchanged; 39 reworded; 9 added; 2 removed; 0 previous and 10 current paragraphs rearranged.
Tables are not compared: 17 previous and 17 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (9)
Current report
During the second quarter, we made meaningful progress on our Strategic Priorities. We experienced continued new business momentum for our Next Gen solutions, including Workforce Now Next Gen and ADP Lyric HCM. We launched the ADP WorkForce Suite, our integrated workforce management solution, across our leading payroll and HCM platforms. We also introduced our first Pooled Employer Plan in our Retirement Services business, enabling employers to offer robust retirement plan benefits without adding administrative burden. Finally, we continue to enhance ADP Assist with additional persona-based agents.
Current report
•Earnings before income taxes margin expansion of 30 bps, and adjusted EBIT margin expansion of 40 bps
Current report
During the three and six months ended December 31, 2025, the Company recognized a gain of $2.2 million related to investments made through our Corporate Venture Capital arm, ADP Ventures.
Current report
Note: Numbers may not foot due to rounding.
Current report
EBIT Margin increased for the three months ended December 31, 2025 due to contributions from client funds interest revenues discussed above, decreased interest expense, the impact of foreign currency, decreased amortization and depreciation expenses, and increased interest income on corporate funds, partially offset by increased selling and marketing expenses.
Current report
EBIT Margin increased for the six months ended December 31, 2025 due to contributions from client funds interest revenues discussed above, decreased interest expense, the impact of foreign currency, and increased interest income on corporate funds, partially offset by increased selling and marketing expenses.
Current report
Employer Services' margin remained flat for the six months ended December 31, 2025, due to contributions from client funds interest revenues discussed above, partially offset by increased selling and marketing expenses and the impact from the WorkForce Software acquisition.
Current report
(b) Represents a partial reversal of the workforce optimization initiative from fiscal 2024. Severance charges/(reversals) have been taken in the past and not included as an adjustment to get to adjusted results. Unlike severance charges/(reversals) in prior periods, this specific reversal relates to a broad-based, company-wide initiative.
Current report
(c) Represents (gains)/losses on investments made through our Corporate Venture Capital arm, ADP Ventures. (Gains)/losses on these investments may result from observable price changes, changes in ownership interest, and impairment charges. These adjustments may be highly variable, are predominantly non-cash, are outside our control, and are not fundamental to the underlying operations of our business model.
Removed paragraphs (2)
Previous report
During the first quarter, we made meaningful progress on our Strategic Priorities. We continued to scale ADP Embedded Payroll to reach additional small business clients, accelerated the deployment of Workforce Now Next-Gen to a growing percentage of new mid-market clients, and experienced ongoing strong enterprise sales momentum for ADP Lyric HCM. We continued to empower our associates to leverage their HR domain expertise by providing them with AI tools that further enhanced the client and associate experience. Finally, we continued to build on our global scale by enhancing the services offered within our existing footprint of more than 140 countries and territories.
Previous report
Employer Services' margin decreased for the three months ended September 30, 2025, due to increased selling and marketing expenses, costs of servicing and implementing our clients on growing revenue, and costs to develop, support, and maintain our new and existing products, partially offset by contributions from client fund interest revenues discussed above.
Reworded paragraphs (39)
Previous wording
Highlights from the three months ended September 30, 2025 include:
Current wording
Highlights from the six months ended December 31, 2025 include:
Previous wording
•Revenue growth of 7% to $5,175.2 million; 6% growth on an organic constant currency
Current wording
•Revenue growth of 7% to $10,534.5 million; 6% growth on an organic constant currency basis
Previous wording
•Diluted and adjusted diluted earnings per share ("EPS") growth of 6% and 7%, respectively, to $2.49
Current wording
•Diluted and adjusted diluted earnings per share ("EPS") growth of 9%, to $5.12 and $5.11, respectively
Previous wording
•Cash returned via shareholder friendly actions of $1.0B, including $0.6B of dividends and $0.4B of share repurchases
Current wording
•Cash returned via shareholder friendly actions of $2.1B, including $1.3B of dividends and $0.9B of share repurchases
Previous wording
For the three months ended September 30, 2025, we delivered strong revenue growth of 7%, 6% growth on an 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, remained stable for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. PEO average worksite employees increased 2% for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024.
Current wording
For the six months ended December 31, 2025, we delivered strong revenue growth of 7%, 6% growth on an 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 Employer Services clients ranging from small to large businesses, grew 1% for the six months ended December 31, 2025 as compared to the six months ended December 31, 2024. PEO average worksite employees increased 2% for the six months ended December 31, 2025, as compared to the six months ended December 31, 2024.
Previous wording
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. We generate sufficient free cash flow to satisfy our cash dividend and our modest debt obligations, which enables us to absorb the impact of downturns and remain steadfast in our long-term strategy and commitments to shareholder friendly actions. We are committed to building upon our past successes by investing in our business through enhancements in research and development of our products and services and by driving meaningful transformation in the way we operate. Our financial condition remains solid at September 30, 2025 and we remain well positioned to support our associates and our clients.
Current wording
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. We generate sufficient free cash flow to satisfy our cash dividend and our modest debt obligations, which enables us to absorb the impact of downturns and remain steadfast in our long-term strategy and commitments to shareholder friendly actions. 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 December 31, 2025 and we remain well positioned to support our associates and our clients.
Previous wording
Total revenues increased for the three months ended September 30, 2025 due to new business started from new business bookings, strong client retention, an increase in interest on funds held for clients, the impact from the WorkForce Software acquisition, and an increase in zero-margin benefits pass-throughs.
Current wording
Total revenues increased for the three and six months ended December 31, 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, the impact of foreign currency, and an increase in interest on funds held for clients.
Previous wording
Total revenues for the three months ended September 30, 2025 include interest on funds held for clients of $286.8 million, as compared to $253.3 million for the three months ended September 30, 2024. The increase in interest earned on funds held for clients resulted from an increase in our average client funds balances of 6.5% to $34.9 billion for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, coupled with an increase in our average interest rate earned to 3.3% for the three months ended September 30, 2025, as compared to 3.1% for the three months ended September 30, 2024.
Current wording
Total revenues for the three months ended December 31, 2025 include interest on funds held for clients of $308.6 million, as compared to $272.8 million for the three months ended December 31, 2024. The increase in interest earned on funds held for clients resulted from an increase in our average client funds balances of 6.5% to $37.6 billion for the three months ended December 31, 2025 as compared to the three months ended December 31, 2024, coupled with an increase in our average interest rate earned to 3.3% for the three months ended December 31, 2025, as compared to 3.1% for the three months ended December 31, 2024.
Previous wording
Operating expenses increased for the three months ended September 30, 2025 due to an increase of $81.8 million of PEO Services zero-margin benefits pass-through costs to $1,131.0 million from $1,049.2 million for the three months ended September 30, 2024. Additionally, operating expenses increased by $67.1 million due to higher service and implementation costs in support of our growing revenue and by $10.6 million due to an increase in costs related to workers' compensation coverage and state unemployment taxes for worksite employees.
Current wording
Operating expenses increased for the six months ended December 31, 2025 due to an increase of $152.8 million of PEO Services zero-margin benefits pass-through costs to $2,257.2 million from $2,104.4 million for the six months ended December 31, 2024. Additionally, for the six months ended December 31, 2025 operating expenses increased by $109.4 million due to higher service and implementation costs in support of our growing revenue and by $13.0 million due to an increase in costs related to workers' compensation coverage and state unemployment taxes for worksite employees.
Previous wording
Research and development expenses increased for the three months ended September 30, 2025 due to increased costs to develop, support, and maintain our new and existing products, including the integration costs associated with the WorkForce Software acquisition.
Current wording
Research and development expenses increased for the six months ended December 31, 2025 due to increased costs to develop, support, and maintain our new and existing products, including the integration costs associated with the WorkForce Software acquisition.
Previous wording
Depreciation and amortization expenses increased for the three months ended September 30, 2025 due to the amortization of intangible assets acquired in the WorkForce Software acquisition, amortization of investments in internally developed software primarily for our next-gen products, partially offset by lower amortization of customer contracts and lists.
Current wording
Depreciation and amortization expenses increased for the six months ended December 31, 2025 due to the amortization of intangible assets acquired in the WorkForce Software acquisition and investments in internally developed software primarily for our next-gen products and purchased software, partially offset by lower amortization of customer contracts and lists.
Previous wording
Selling, general and administrative expenses increased for the three months ended September 30, 2025 primarily due to increases in selling and marketing expenses of $57.2 million as a result of investments in our sales organization.
Current wording
Selling, general and administrative expenses increased for the three and six months ended December 31, 2025 primarily due to increases in selling and marketing expenses of $59.6 million and $117.0 million, respectively, as a result of investments in our sales organization.
Previous wording
Interest expense decreased for the three months ended September 30, 2025 primarily due to a decrease of $15.5 million related to commercial paper and reverse repurchase borrowings as a result of a decrease in average interest rates on commercial paper issuances and reverse repurchases of 90 basis points, coupled with a decrease in average daily commercial paper borrowings of $0.3 billion, offset by an increase in average reverse repurchase outstanding balances of $0.7 billion, as compared to the three months ended September 30, 2024. This decrease was partially offset by net increases in interest expense of $12.7 million related to the senior notes issued and redeemed during the year ended June 30, 2025.
Current wording
Interest expense decreased for the six months ended December 31, 2025 primarily due to a decrease of $24.2 million related to commercial paper and reverse repurchase borrowings as a result of a decrease in average interest rates on commercial paper issuances and reverse repurchases of 80 basis points, coupled with a decrease in average daily commercial paper borrowings of $0.2 billion, offset by an increase in average reverse repurchase outstanding balances of $0.7 billion, as compared to the six months ended December 31, 2024. This decrease was partially offset by net increases in interest expense of $16.3 million related to the senior notes issued and redeemed during the year ended June 30, 2025.
Previous wording
Interest income on corporate funds increased for the three months ended September 30, 2025 due to higher average investment balances of $11.4 billion as compared to $10.7 billion for the three months ended September 30, 2024, coupled with an increase in average interest rates of 20 basis points, as compared to the three months ended September 30, 2024.
Current wording
Interest income on corporate funds increased for the three and six months ended December 31, 2025 due to higher average investment balances of $11.0 billion and $11.2 billion, respectively, as compared to $10.0 billion and $10.3 billion for the three and six months ended December 31, 2024, coupled with an increase in average interest rates of 20 and 10 basis points for the three and six months ended December 31, 2025, respectively, as compared to the three and six months ended December 31, 2024.
Previous wording
Earnings before income taxes increased for the three months ended September 30, 2025, due to the increase in total revenues, partially offset by the increase in total expenses discussed above.
Current wording
Earnings before income taxes increased for the three and six months ended December 31, 2025 due to the increase in total revenues, partially offset by the increase in total expenses discussed above.
Previous wording
extended investment strategy, and net charges, including certain legal settlements, in the applicable periods.
Current wording
extended investment strategy, and net charges, including certain legal matters, broad-based optimization initiatives, and (gains)/losses on ADP Ventures' investments, in the applicable periods.
Previous wording
The effective tax rate for the three months ended September 30, 2025 and 2024 was 22.5% and 22.6%, respectively. The decrease in the effective tax rate is primarily due to lower reserves for uncertain tax positions primarily offset by the cost of an intercompany transfer of certain assets and a lower excess tax benefit on stock-based compensation in the three months ended September 30, 2025.
Current wording
The effective tax rate for the six months ended December 31, 2025 and 2024 was 22.9% and 23.1%, respectively. The decrease in the effective tax rate is primarily due to lower reserves for uncertain tax positions partially offset by the cost of an intercompany transfer of certain assets and a lower excess tax benefit on stock-based compensation in the six months ended December 31, 2025.
Previous wording
The adjusted effective tax rate for the three months ended September 30, 2025 and 2024 was 22.5% and 22.6%, respectively. The drivers of the adjusted effective tax rate are the same as the drivers of the effective tax rate discussed above.
Current wording
The adjusted effective tax rate for the three months ended December 31, 2025 and 2024 was 23.2% and 23.6%, respectively. The drivers of the adjusted effective tax rate are the same as the drivers of the effective tax rate discussed above.
Previous wording
In addition to the increase in net earnings, diluted EPS increased for the three months ended September 30, 2025 as a result of the impact of fewer shares outstanding resulting from the repurchase of approximately 1.2 million shares during the three months ended September 30, 2025, and 1.4 million shares during the three months ended September 30, 2024, partially offset by the issuances of shares under our employee benefit plans.
Current wording
In addition to the increase in net earnings, diluted EPS increased for the three months ended December 31, 2025 as a result of the impact of fewer shares outstanding resulting from the repurchase of approximately 1.9 million shares during the three months ended December 31, 2025, and 0.9 million shares during the three months ended December 31, 2024, partially offset by the issuances of shares under our employee benefit plans.
Previous wording
Adjusted net earnings and adjusted diluted EPS reflect the changes in the components described above for the three months ended September 30, 2025.
Current wording
Adjusted net earnings and adjusted diluted EPS reflect the changes in the components described above for the three and six months ended December 31, 2025.
Previous wording
Employer Services' revenues increased for the three months ended September 30, 2025 due to new business started from new business bookings, strong client retention, an increase in pricing, the impact from the WorkForce Software acquisition, and an increase in interest earned on funds held for clients.
Current wording
Employer Services' revenues increased for the three and six months ended December 31, 2025 due to new business started from new business bookings, strong client retention, an increase in pricing, the impact of foreign currency, an increase in interest earned on funds held for clients, and an increase in our pays per control of 1%.
Previous wording
Employer Services' earnings before income taxes increased for the three months ended September 30, 2025, due to increased revenues, including contributions from client funds interest, discussed above, partially offset by increased costs of servicing and implementing our clients on growing revenue, selling and marketing expenses, and costs to develop, support, and maintain our new and existing products.
Current wording
Employer Services' earnings before income taxes increased for the three and six months ended December 31, 2025 due to increased revenues, including contributions from client funds interest, discussed above, partially offset by increased costs of servicing and implementing our clients on growing revenue, selling and marketing expenses, and costs to develop, support, and maintain our new and existing products.
Previous wording
EBIT Margin decreased for the three months ended September 30, 2025, due to increased selling and marketing expenses and costs of servicing and implementing our clients on growing revenue, partially offset by contributions from client fund interest revenues discussed above and interest expense.
Current wording
Employer Services' margin increased for the three months ended December 31, 2025 due to contributions from client funds interest revenues discussed above, decreased amortization and depreciation expenses, and operating efficiencies for costs of servicing and implementing our clients on growing revenue, partially offset by increased selling and marketing expenses.
Previous wording
PEO Services' revenues increased for the three months ended September 30, 2025 due to the increase in zero-margin benefits pass-throughs, and an increase in average worksite employees of 2%, as compared to the three months ended September 30, 2024.
Current wording
PEO Services' revenues increased for the three and six months ended December 31, 2025 due to the increase in zero-margin benefits pass-throughs, and an increase in average worksite employees of 2% for each period, as compared to the three and six months ended December 31, 2024.
Previous wording
PEO Services' earnings before income taxes decreased for the three months ended September 30, 2025 due to increased operating costs related to state unemployment insurance and selling and marketing expenses, partially offset by increased revenues discussed above.
Current wording
PEO Services' earnings before income taxes increased for the three months ended December 31, 2025 due to increased revenues discussed above, partially offset by increases in zero-margin benefits pass-through costs and selling and marketing expenses.
Previous wording
PEO Services' margin decreased for the three months ended September 30, 2025, due to increased operating costs related to state unemployment insurance, selling and marketing expenses and zero-margin benefits pass-through costs, partially offset by increased revenues discussed above.
Current wording
PEO Services' margin decreased for the six months ended December 31, 2025, due to increased selling and marketing expenses and zero-margin benefits pass-through costs, and increased operating costs related to state unemployment insurance, partially offset by increased revenues discussed above.
Previous wording
Additionally, starting in fiscal year 2013, ADP Indemnity paid premiums to enter into reinsurance arrangements with ACE American Insurance Company, a wholly-owned subsidiary of Chubb Limited (“Chubb”), to cover substantially all losses incurred by the Company up to the$1 million per occurrence related to the workers’ compensation and employer's liability deductible reimbursement insurance protection for PEO Services' worksite employees. Each of these reinsurance arrangements limits our overall exposure incurred up to a certain limit. The Company believes the likelihood of ultimate losses exceeding this limit is remote. ADP Indemnity recorded a pre-tax benefit of approximately $4.7 million for the three months ended September 30, 2025, as compared to approximately $4.8 million for the three months ended September 30, 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.
Current wording
Additionally, starting in fiscal year 2013, ADP Indemnity paid premiums to enter into reinsurance arrangements with ACE American Insurance Company, a wholly-owned subsidiary of Chubb Limited (“Chubb”), to cover substantially all losses incurred by the Company up to the$1 million per occurrence related to the workers’ compensation and employer's liability deductible reimbursement insurance protection for PEO Services' worksite employees. Each of these reinsurance arrangements limits our overall exposure incurred up to a certain limit. The Company believes the likelihood of ultimate losses exceeding this limit is remote. ADP Indemnity recorded a pre-tax (loss)/benefit of approximately $(2.7) million and $1.9 million for the three and six months ended December 31, 2025, respectively, as compared to approximately $(0.8) million and $4.1 million for the three and six months ended December 31, 2024, respectively, which were primarily the results of less 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.
Previous wording
(b) In the three months ended September 30, 2024, this represents a reserve reversal of a legal reserve recorded during the year ended June 30, 2023.
Current wording
(d) In the six months ended December 31, 2024, this represents a reversal of a legal reserve recorded during the year ended June 30, 2023.
Previous wording
(d)The adjusted effective tax rate is calculated as our adjusted provision for income taxes divided by the sum of our adjusted net earnings plus our adjusted provision for income taxes.
Current wording
(f)The adjusted effective tax rate is calculated as our adjusted provision for income taxes divided by the sum of our adjusted net earnings plus our adjusted provision for income taxes.
Previous wording
As of September 30, 2025, cash and cash equivalents were $2.5 billion, which were primarily invested in time deposits and money market funds.
Current wording
As of December 31, 2025, cash and cash equivalents were $2.4 billion, which were primarily invested in time deposits and money market funds.
Previous wording
Our cash flows from operating, investing, and financing activities, as reflected in the Statements of Consolidated Cash Flows for the three months ended September 30, 2025 and 2024, respectively, are summarized as follows:
Current wording
Our cash flows from operating, investing, and financing activities, as reflected in the Statements of Consolidated Cash Flows for the six months ended December 31, 2025 and 2024, respectively, are summarized as follows:
Previous wording
Net cash flows provided by operating activities decreased primarily due to a net unfavorable change in the components of operating assets and liabilities partially offset by growth in our business, as compared to the three months ended September 30, 2024.
Current wording
Net cash flows provided by operating activities decreased primarily due to a net unfavorable change in the components of operating assets and liabilities primarily due to timing of payments partially offset by growth in our business, as compared to the six months ended December 31, 2024.
Previous wording
Net cash flows used in investing activities changed due to timing of net proceeds and purchases of corporate and client funds marketable securities of $203.7 million.
Current wording
Net cash flows used in investing activities changed primarily due to timing of net proceeds and purchases of corporate and client funds marketable securities of $749.3 million, offset by a net decrease in acquisitions of businesses, primarily related to the Workforce Software acquisition, with a cash disbursement of 1,160.6 million during the six months ended December 31, 2024.
Previous wording
Net cash flows provided by financing activities changed due to a net increase in the cash flow from client funds obligations of $11,443.6 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other payees, partially offset by a decrease in the net proceeds from the issuance of commercial paper and debt.
Current wording
Net cash flows provided by financing activities changed primarily due to a net increase in the cash flow from client funds obligations of $27,182.7 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other payees, partially offset by net payments of $4,769.5 million related to borrowings under the commercial paper program and a decrease in the net proceeds from the issuance of debt.
Previous wording
We purchased approximately 1.2 million shares of our common stock at an average price per share of $302.10 during the three months ended September 30, 2025, as compared to purchases of 1.4 million shares at an average price per share of $259.47 during the three months ended September 30, 2024. From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase program. The Company considers several factors in determining when to execute share repurchases, including, among other things, actual and potential acquisition activity, cash balances and cash flows, issuances due to employee benefit plan activity, and market conditions.
Current wording
We purchased approximately 3.2 million shares of our common stock at an average price per share of $280.09 during the six months ended December 31, 2025, as compared to purchases of 2.4 million shares at an average price per share of $274.42 during the six months ended December 31, 2024. From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase program. The Company considers several factors in determining when to execute share repurchases, including, among other things, actual and potential acquisition activity, cash balances and cash flows, issuances due to employee benefit plan activity, and market conditions.
Previous wording
Our U.S. 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 securities. 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. As of September 30, 2025 and June 30, 2025 the Company had $5.2 billion and $4.8 billion of commercial paper outstanding, which were repaid in early October 2025 and July 2025, respectively. Details of the borrowings under the commercial paper program are as follows:
Current wording
Our U.S. 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 securities. 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. As of December 31, 2025 the Company had no commercial paper outstanding. As of June 30, 2025 the Company had $4.8 billion of commercial paper outstanding, which was repaid in early July 2025. Details of the borrowings under the commercial paper program are as follows:
Previous wording
Our U.S., Canadian, and United Kingdom short-term funding requirements related to client funds obligations are sometimes obtained on a secured basis through the use of reverse repurchase agreements, which are collateralized principally by government and government agency securities, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. These agreements generally have terms ranging from overnight to up to five business days. 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. As of September 30, 2025, we had $7.5 billion available to us on a committed basis under the U.S. reverse repurchase agreements. As of September 30, 2025 and June 30, 2025, the Company had $247.4 million and $38.4 million of outstanding obligations related to reverse repurchase agreements, respectively. Details of the reverse repurchase agreements are as follows:
Current wording
Our U.S., Canadian, and United Kingdom short-term funding requirements related to client funds obligations are sometimes obtained on a secured basis through the use of reverse repurchase agreements, which are collateralized principally by government and government agency securities, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. These agreements generally have terms ranging from overnight to up to five business days. 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. As of December 31, 2025, we had $7.5 billion available to us on a committed basis under the U.S. reverse repurchase agreements. As of December 31, 2025 and June 30, 2025, the Company had $45.8 million and $38.4 million of outstanding obligations related to reverse repurchase agreements, respectively. Details of the reverse repurchase agreements are as follows:
Previous wording
Capital expenditures for the three months ended September 30, 2025 were $44.9 million, as compared to$55.6 million forthe three months ended September 30, 2024. We expect capital expenditures in fiscal 2026 to be between $225.0 million and $250.0 million, as compared to $176.8 million in fiscal 2025.
Current wording
Capital expenditures for the six months ended December 31, 2025 were $73.2 million, as compared to$98.2 million forthe six months ended December 31, 2024. We expect capital expenditures in fiscal 2026 to be between $225.0 million and $250.0 million, as compared to $176.8 million in fiscal 2025.
Previous wording
We are exposed to interest rate risk in relation to securities that mature, as the proceeds from maturing securities are reinvested. Factors that influence the earnings impact of interest rate changes include, among others, the amount of invested funds and the overall portfolio mix between short-term and long-term investments. This mix varies during the fiscal year and is impacted by daily interest rate changes. The annu alized interest rate earned on our entire portfolio increased from 3.2% for the three months ended September 30, 2024 to 3.4% for the three months ended September 30, 2025. A hypothetical change 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 $22 million impact to earnings before income taxes over the ensuing twelve-month period ending September 30, 2026. A hypothetical change in only short-term interest rates of 25 basis points applied to the estimated average short-term investment balances and any related short-term borrowings would result in approximately an $7 million impact to earnings before income taxes over the ensuing twelve-month period ending September 30, 2026.
Current wording
We are exposed to interest rate risk in relation to securities that mature, as the proceeds from maturing securities are reinvested. Factors that influence the earnings impact of interest rate changes include, among others, the amount of invested funds and the overall portfolio mix between short-term and long-term investments. This mix varies during the fiscal year and is impacted by daily interest rate changes. The annu alized interest rate earned on our entire portfolio increased from 3.2% for the six months ended December 31, 2024 to 3.3% for the six months ended December 31, 2025. A hypothetical change 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 a $23 million impact to earnings before income taxes over the ensuing twelve-month period ending December 31, 2026. A hypothetical change in only short-term interest rates of 25 basis points applied to the estimated average short-term investment balances and any related short-term borrowings would result in approximately an $8 million impact to earnings before income taxes over the ensuing twelve-month period ending December 31, 2026.
Rearranged current paragraphs (10)
Current report — wording carried from elsewhere
Total revenues for the six months ended December 31, 2025 include interest on funds held for clients of $595.5 million, as compared to $526.1 million for the six months ended December 31, 2024. The increase in interest earned on funds held for clients resulted from an increase in our average client funds balances of 6.5% to $36.2 billion for the six months ended December 31, 2025 as compared to the six months ended December 31, 2024, coupled with an increase in our average interest rate earned to 3.3% for the six months ended December 31, 2025, as compared to 3.1% for the six months ended December 31, 2024.
Current report — wording carried from elsewhere
Operating expenses increased for the three months ended December 31, 2025 due to an increase of $71.0 million of PEO Services zero-margin benefits pass-through costs to $1,126.2 million from $1,055.2 million for the three months ended December 31, 2024. Additionally, for the three months ended December 31, 2025 operating expenses increased by $42.3 million due to higher service and implementation costs in support of our growing revenue.
Current report — wording carried from elsewhere
Research and development expenses increased for the three months ended December 31, 2025 due to increased costs to develop, support, and maintain our new and existing products.
Current report — wording carried from elsewhere
Depreciation and amortization expenses decreased for the three months ended December 31, 2025 due to lower amortization of customer contracts and lists, partially offset by amortization of investments in internally developed software primarily for our next-gen products and purchased software.
Current report — wording carried from elsewhere
Interest expense decreased for the three months ended December 31, 2025 primarily due to a decrease of $8.7 million related to commercial paper and reverse repurchase borrowings as a result of a decrease in average interest rates on commercial paper issuances and reverse repurchases of 70 and 60 basis points, respectively, coupled with a decrease in average daily commercial paper borrowings of $0.1 billion, offset by an increase in average reverse repurchase outstanding balances of $0.6 billion, as compared to the three months ended December 31, 2024. This decrease was partially offset by net increases in interest expense of $3.7 million related to the senior notes issued and redeemed during the year ended June 30, 2025.
Current report — wording carried from elsewhere
The effective tax rate for the three months ended December 31, 2025 and 2024 was 23.2% and 23.6%, respectively. The decrease in the effective tax rate is primarily due to lower reserves for uncertain tax positions and a benefit for adjustments to prior year tax liabilities partially offset by a lower excess tax benefit on stock-based compensation in the three months ended December 31, 2025.
Current report — wording carried from elsewhere
The adjusted effective tax rate for the six months ended December 31, 2025 and 2024 was 22.9% and 23.1%, respectively. The drivers of the adjusted effective tax rate are the same as the drivers of the effective tax rate discussed above.
Current report — wording carried from elsewhere
In addition to the increase in net earnings, diluted EPS increased for the six months ended December 31, 2025 as a result of the impact of fewer shares outstanding resulting from the repurchase of approximately 3.2 million shares during the six months ended December 31, 2025, and 2.4 million shares during the six months ended December 31, 2024, partially offset by the issuances of shares under our employee benefit plans.
Current report — wording carried from elsewhere
PEO Services' earnings before income taxes decreased for the six months ended December 31, 2025 due to increases in zero-margin benefits pass-through costs and selling and marketing expenses, partially offset by increased revenues discussed above.
Current report — wording carried from elsewhere
PEO Services' margin decreased for the three months ended December 31, 2025, due to increased selling and marketing expenses and zero-margin benefits pass-through costs, partially offset by increased revenues discussed above.