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    ADP
    Earnings call· Jun 2026(Q4 FY26)

    AUTOMATIC DATA PROCESSING Q4 FY26 earnings call ADP

    Jul 29, 2026 Source

    Executive summary

    Automatic Data Processing, Inc. Q4 FY26 — Strong Bookings and Margin Expansion Driven by AI Adoption

    ADP capped a strong fiscal year with robust Q4 results, driven by strategic investments in AI and product innovation. The company continues to leverage its data, domain expertise, and global scale to navigate the evolving workforce landscape, with AI reshaping work at the task level rather than eliminating jobs at scale. Management is optimistic about future growth and efficiency gains from AI integration across products and operations, while acknowledging PEO margin pressures and a slight anticipated dip in ES retention.

    Highlights

    5

    • Q4 revenue grew 7%, capping a fiscal year that exceeded initial expectations.

    • Adjusted EBIT margin expanded 140 basis points in Q4, contributing to 80 basis points expansion for the full fiscal year.

    • Adjusted EPS grew 17% in Q4 and 11% for the full fiscal year.

    • Employer Services new business bookings grew 6% over the prior year to over $2.2 billion in FY26.

    • Employer Services retention remained strong at 92.1% for FY26, with client satisfaction reaching a new record high.

    Concerns

    3

    • PEO margins contracted 100 basis points in Q4 and 110 basis points for FY26, mainly due to faster growth in zero-margin pass-through revenues and higher workers' compensation and selling expenses.

    • Employer Services retention is forecast to decline 10 to 30 basis points in FY27 from near record levels, anticipating potential increases in out-of-business rates.

    • FX is expected to be a slight headwind to revenue growth in fiscal 2027, after providing a 1-point tailwind in fiscal 2026.

    Guidance & targets

    17
    CategoryTargetConfidence
    Employer Services new business bookings growth
    4% to 7%
    high materiality
    Medium
    Employer Services retention
    10 to 30 basis point decline
    medium materiality
    Medium
    U.S. pays per control growth
    flat to 1%
    medium materiality
    Medium
    Client funds average yield
    3.7%
    high materiality
    Medium
    Client funds average balances growth
    3% to 4%
    high materiality
    Medium
    Client funds interest revenue
    $1.54 billion to $1.56 billion
    high materiality
    Medium
    Net impact from client fund strategy
    $1.545 billion to $1.565 billion
    high materiality
    Medium
    Employer Services margins
    further expand
    medium materiality
    Medium
    PEO revenues growth
    5% to 7%
    medium materiality
    Medium
    PEO revenues excluding zero-margin pass-throughs growth
    3% to 5%
    medium materiality
    Medium
    PEO average worksite employee growth
    around 2%
    medium materiality
    Medium
    PEO margins
    some further contraction
    medium materiality
    Medium
    Consolidated revenue growth
    5% to 6%
    high materiality
    Medium
    Adjusted EBIT margin expansion
    70 to 90 basis points
    high materiality
    Medium
    Effective tax rate
    around 23%
    low materiality
    Medium
    Adjusted EPS growth
    9% to 11%
    high materiality
    Medium
    Share repurchases
    continue at elevated levels
    medium materiality
    Medium

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Employer Services
    FY26 ES segment revenue grew 7% reported and 5% organic constant currency. ES margins increased 60 bps for FY26, including ~20 bps acquisition-related drag from Workforce software. Margin expansion driven by operational productivity improvements and client funds interest revenue growth.
    New business bookings: $2.2 billion (FY26)New business bookings growth: 6% (FY26)Retention: 92.1% (FY26)Pays per control growth: 1% (Q4)
    		$21.9 billion (total company FY26)7% (Q4 reported), 6% (Q4 organic constant currency)—90 bps expansion (Q4)
    PEO
    PEO margins contracted 110 bps for FY26. Contraction due to faster growth in zero-margin pass-through revenues and higher workers' compensation and selling expenses. PEO pays per control growth saw slight deceleration versus prior year in FY26.
    Revenue excluding zero-margin pass-throughs growth: 5% (Q4), 5% (FY26)Average worksite employees: 775,000 (Q4)Average worksite employees growth: 2% (Q4)New business bookings: solid (FY26)Retention: healthy improvement (FY26)
    		—7% (Q4), 7% (FY26)—100 bps contraction (Q4)

    Operational metrics

    8
    FX contribution to ES revenue growth
    close to 1 pointtailwind
    FY26

    Expected to move to a slight headwind in FY27.

    Workforce software acquisition-related drag on ES margin
    approximately 20 basis points
    FY26

    Anniversaried in early Q2 FY26.

    Contacts per client decrease
    4%
    FY26

    For associates using The Zone, indicating service teams spend less time on administrative tasks.

    Seller productivity
    record high
    FY26

    The Zone was a key contributor.

    Share repurchases
    $2.1 billion
    FY26

    Supported by a $6 billion share repurchase authorization.

    Share repurchase authorization remaining
    $6 billion
    current

    Provides runway to sustain elevated levels of activity.

    Total associates
    67,000flat YoY
    end of FY26

    Headcount remained flat compared to end of FY25, with additions in targeted areas (sales, marketing, product, technology) offset by efficiencies in service and operations.

    Price contribution to ES revenue growth
    a little north of 130 basis pointsahead of expectations
    FY26

    Outlook for FY27 contemplates similar levels to FY26. Value-based pricing philosophy prioritizes lifetime value of client relationships.

    Industry KPIs

    5
    MetricValueDetails
    Peo metrics775,000employees
    Retention rate92.1%%
    Pays per control1%%
    Client funds balances yield3.4% (FY26 average yield); 7% (FY26 average balance growth); $1.35 billion (FY26 interest revenue); $1.31 billion (FY26 net impact)
    New business bookings growth$2.2 billionUSD

    Product announcements

    5
    ProductTypeDetails
    ADP Assist agentsexpansion
    ADP Lyric HCMmilestone
    ADP Global payrollmilestone
    ADP Global time bookingsmilestone
    The Zoneexpansion

    Deals & partnerships

    4
    Global auto manufacturerExpanded relationship for large-scale AI-driven workforce transformation

    Aimed at optimizing labor allocation and creating a more efficient global operating model. Involves introducing new workforce structures, evolving compensation frameworks, and navigating complex regulatory requirements across 13 countries.

    Digital transformation and IT consulting firmDeal for HCM solutions

    Located in France. Deal included Lyric, the ADP Workforce Suite, and ADP Global payroll.

    Specialty chemicals companyDeal for HCM solutions

    Located in the U.K. Deal included Lyric, the ADP Workforce Suite, and ADP Global payroll.

    Global manufacturer of accessibility solutionsDeal for HCM solutions

    Located in the U.K. Deal included Lyric, the ADP Workforce Suite, and ADP Global payroll.

    Risks & headwinds

    4
    PEO margin contractionQ4 FY26, FY26

    100 basis points in Q4, 110 basis points in FY26

    Mitigation: Continued focus on client satisfaction and retention to maintain value proposition despite elevated healthcare insurance costs.

    Faster growth in zero-margin pass-through revenues and higher workers' compensation and selling expensesQ4 FY26, FY26

    Primary drivers of PEO margin contraction

    Mitigation: Not explicitly stated, but implies ongoing management of these cost components.

    Potential decline in Employer Services retentionFY27

    10 to 30 basis point decline forecast

    Mitigation: Prudent to contemplate given near record levels and potential for out-of-business rates to increase in a down market; continued focus on client satisfaction and service quality.

    FX headwind to revenue growthFY27

    slight headwind

    Mitigation: Not explicitly stated, but implies natural currency fluctuations impacting reported revenue.

    What to watch in Q1 FY27

    5

    Employer Services new business bookings growth

    next quarter
    Current6% (FY26)
    Target4% to 7% (FY27 guide)

    Why it matters

    Bookings are a key indicator of future revenue growth and market penetration, especially with investments in sales force and AI tools.

    We expect ES new business bookings to grow by 4% to 7%, reinforced by our investments in sales force head count growth as well as AI-enabled productivity tools like the Zone.

    Q&A highlights

    5

    Can you elaborate on the strong Q4 bookings, particularly for Lyric and international, and comment on win rates? Also, what are the key drivers for the FY27 bookings guide?

    Maria confirmed strong Q4 bookings, especially in June, driven by record seller productivity. Lyric is gaining significant traction, with all sales conversations anchored in AI, and international deals are consistently contributing to growth. Win rates have improved with the new platform. Peter added that the FY27 bookings guide is prudent given the large deal opportunities, with Lyric, Workforce Suite, and global payroll being key contributors.

    “I don't know that I want to go through the entire product portfolio and start giving specifics around win rates. But rest assured, we pay very close attention to win rates because that is ultimately what guides us as it relates to how the market is receiving these offerings, how well they're hunting and the land of competition. And we are definitely winning more.”

    asked by Mark Marcon · answered by Maria Black

    2 min read5 chapters

    Detailed Narrative

    01

    AI Integration and Impact on HCM

    ADP is deeply embedding AI into the core of Human Capital Management (HCM). ADP Assist, launched in January, is now available to nearly all of ADP's 1.1 million clients, facilitating 12 million conversations with 3.1 million unique active users in FY26. This tool has serviced 45,000 compliance insights, helping clients proactively address tax and regulatory issues. The Zone, ADP's proprietary AI-infused service platform, is transforming service operations, now accessible to 48% of service associates and leading to a 4% decrease in contacts per client in FY26.

    02

    Strategic Priorities and Client Value Proposition

    ADP's performance is driven by three strategic priorities: leading with best-in-class HCM technology, providing unmatched expertise and outsourcing solutions, and leveraging global scale. The company acts as a trusted partner, helping clients navigate complex HR tasks, compliance, and workforce redesign. An example includes assisting a global auto manufacturer with an AI-driven workforce transformation across 13 countries, involving new workforce structures, compensation frameworks, and regulatory compliance.

    03

    Workforce Redesign and Data Insights

    Through a research partnership with the Stanford Digital Economy Lab, ADP is mapping how AI is reshaping work using payroll data from millions of workers and job postings. This research indicates that the workforce is evolving, not shrinking, with AI redefining tasks. Initial findings show IT tasks requiring deeper thinking (e.g., design, development, analysis) command higher wage premiums, suggesting employers value human judgment in complex areas. This intelligence helps clients navigate workforce redesign and reskilling.

    04

    Sales Productivity and Global Reach

    The integration of AI tools, such as the Zone, has significantly boosted sales productivity, contributing to a record high in FY26. ADP's global scale is a key advantage in managing workforce complexities across over 140 countries and numerous local jurisdictions. This breadth allows ADP to deliver value to a diverse client base, from small businesses to large global enterprises, by providing localized expertise and solutions.

    05

    PEO Segment Performance and Outlook

    The PEO segment reported 7% revenue growth in Q4 and FY26, with average worksite employees increasing 2% to 775,000. PEO revenues, excluding zero-margin pass-throughs, grew 5% for both periods. Despite margin contraction of 100 basis points in Q4 and 110 basis points for FY26 due to faster growth in pass-throughs and higher workers' compensation/selling expenses, PEO retention improved, driven by record client satisfaction levels.

    AI-generated summary of the company’s earnings call. Not investment advice.