Automatic Data Processing, Inc.

ADP's employer client retention rate was 92.1% in FY2025 and has exceeded 90% annually across FY2021-FY2025, including through the COVID employment shock. Payroll processing contracts auto-renew for two to three years with 60-90 day cancellation windows, providing strong multi-year forward revenue visibility.

ADP operates two reportable segments: Employer Services (payroll, HR administration, benefits, compliance) representing the large majority of revenue, and PEO Services. Both segments are exposed to the same underlying driver of U.S. employment levels, limiting the practical diversification benefit of having two named segments.

Approximately 73% of ADP's revenue originates in the United States, with the United Kingdom and France each accounting for roughly 5% of total revenue. The PEO segment is entirely domestic, reinforcing the U.S. concentration and amplifying sensitivity to domestic employment trends and regulatory changes.

ADP demonstrated consistent operating leverage across FY2021-FY2025, with adjusted EBIT margin reaching 26.0% in FY2025 and expanding an additional 80 basis points in Q2 FY2026. The PEO segment is more labor-intensive, which moderates aggregate scale economics relative to a pure-software model.

Payroll and HR compliance are mission-critical functions that employers cannot defer or substitute, creating a category of recurring, contractual revenue deeply embedded in clients' operational workflows. ADP also earns float income from client tax deposits and retirement funds held in transit, adding a relatively stable interest-income layer to the processing fee base.