Automatic Data Processing Q2 Earnings Call Highlights

Key Points

• Strong Q2 and capital returns: ADP reported a "strong" quarter with 6% revenue growth, ~80 bps adjusted EBIT margin expansion and 11% adjusted EPS growth, raised fiscal‑2026 revenue guidance to about 6% and adjusted EPS growth to 9–10%, and authorized a new $6 billion share repurchase while raising the dividend 10%.
• Product and AI momentum: Traction for Workforce Now Next Gen and Lyric drove large‑enterprise wins (including the first Next Gen sale to a >1,000‑employee client), ADP launched the integrated ADP WorkForce Suite after the WorkForce Software acquisition, and rolled out client‑facing AI "ADP Assist" agents across payroll, HR, analytics, and tax.
• Operational mix: Employer Services saw broad new‑business bookings and record client satisfaction despite a modest retention decline, while PEO revenue grew 6% but ADP lowered expected average worksite employee growth to about 2%.

Automatic Data Processing NASDAQ: ADP reported “strong” second-quarter fiscal 2026 results, highlighted by 6% revenue growth, 80 basis points of adjusted EBIT margin expansion, and 11% adjusted EPS growth, according to prepared remarks from President and CEO Maria Black.

Management said the company delivered the quarter’s performance while making progress across its three strategic priorities: best-in-class HCM technology, unmatched expertise and outsourcing solutions, and leveraging global scale.

Second-quarter performance and operational metrics

Black said Employer Services (ES) new business bookings grew in the quarter, with “broad-based strength” and the fastest growth coming from international, U.S. enterprise, and compliance businesses. She added that ADP’s small business portfolio and mid-market business also contributed to bookings growth and that the company entered the second half with “good momentum and healthy pipelines.”

Employer Services retention declined modestly and was “in line” with expectations, Black said, while emphasizing a “stable overall business environment” and “very high levels of client satisfaction.” She noted ADP recorded its “single best quarter in ADP history” for overall client satisfaction.

Employer Services pays per control growth “rounded up to 1%” in the quarter, representing a modest improvement versus the first quarter, Black said. In the PEO business, ADP posted 6% revenue growth, aided by growth in zero-margin pass-throughs and “solid new business bookings growth.” Average worksite employees rose 2% as PEO pays per control moderated.

Technology: Next-gen platforms, AI agents, and integrated workforce management

Black pointed to continued traction for Workforce Now Next Gen and ADP Lyric HCM. Workforce Now Next Gen, aimed at mid-market clients, was described as offering always-on payroll processing, generative AI functionality, and faster implementation. ADP also reached a milestone with its first Workforce Now Next Gen sale to a client with more than 1,000 employees, a Midwest logistics company that selected the platform for its underlying technology and integrated suite of payroll, HR, benefits, time and attendance, and learning.

In the enterprise market, Black said Lyric new business bookings again exceeded expectations, with the pipeline expanding rapidly. She highlighted that more than 70% of Lyric bookings and pipeline were tied to new logos, and noted wins with two companies with more than 20,000 employees, described as among ADP’s largest clients sold on the platform to date. Black also said Lyric was named a winner in the 2026 BIG Innovation Awards presented by Business Intelligence Group.

ADP also discussed the integration of its October 2024 WorkForce Software acquisition. During the quarter, ADP launched the ADP WorkForce Suite—an integrated workforce management solution—across its major payroll and HCM platforms. Black said ADP is already winning deals that include the WorkForce Suite and positioned the combined offering as a way to deliver a unified time, pay, and HR experience globally.

On AI, Black said ADP is scaling client-facing capabilities and launched new ADP Assist agents across payroll, HR, analytics, and tax. She gave examples of tax registration agents that can identify missing or incomplete tax IDs and guide clients through registration steps, and HR agents that can initiate key talent actions, such as promotions, based on typed user requests. Management emphasized that ADP’s AI approach combines proprietary workforce insights and automation with security, governance, and compliance standards.

Outsourcing and global scale: Retirement plan offering and international wins

As part of its outsourcing strategy, Black said ADP introduced its first pooled employer plan (PEP) in Retirement Services during the quarter. She described a PEP as a single 401(k) plan that allows unrelated employers to participate together, shifting many compliance and oversight responsibilities from employers to the pooled plan provider. ADP’s “save for retirement” pooled employer plan was positioned as offering scale-driven cost savings, reduced administrative work, and lower fiduciary risk.

On international scale, Black said ADP serves more than 70,000 clients outside the U.S., paying more than 16 million wage earners across more than 140 countries. She highlighted a second-quarter win with a large European bank with more than 75,000 employees and said ADP has also enhanced its global payroll platform with more intuitive dashboards and easier navigation. ADP’s international investments were also cited as being recognized in the HRM Asia Readers’ Choice Awards, where it won two golds in 2025 for Best HR Tech, Outsourcing, and Payroll Solution.

In Q&A, CFO Peter Hadley said international operations are “a little bit lower margin than some of the domestic businesses,” but he emphasized very high retention and said the lifetime value contribution is “very much comparable” to U.S. businesses. He added that enterprise margins are also lower than down-market and mid-market, but retention supports similar ultimate value over time.

Updated outlook: Higher revenue and EPS growth guidance

Hadley said consolidated revenue growth, adjusted EBIT margin, and adjusted EPS growth came in “slightly ahead” of expectations. Employer Services segment revenue rose 6% reported and 5% on an organic constant-currency basis, with foreign exchange contributing about one point of growth.

• Employer Services: ADP maintained its fiscal 2026 ES new business bookings growth guidance of 4% to 7% and kept its outlook for a 10 to 30 basis point full-year decline in retention. The company continues to forecast “about flat” pays per control growth for the year. ADP raised its forecast for average client funds balance growth to 4% to 5%, maintained an expected average yield of about 3.4%, and increased its client funds interest revenue forecast by $10 million to $1.31 billion to $1.33 billion. It also raised the expected net impact from the extended investment strategy by $10 million to $1.27 billion to $1.29 billion. ES revenue growth outlook was increased to “about 6%” for the year.
• PEO: PEO revenue rose 6% in the quarter, while PEO revenue excluding zero-margin pass-throughs grew 3%. ADP said PEO bookings were solid but “slightly below” expectations, and further moderation in pays per control weighed on average worksite employee growth. Management lowered expected average worksite employee growth for fiscal 2026 to “about 2%,” while keeping PEO revenue growth guidance at 5% to 7% and PEO revenue excluding pass-throughs at 3% to 5%.
• Company-wide: ADP increased its fiscal 2026 consolidated revenue outlook to “about 6%” growth and maintained adjusted EBIT margin expansion guidance of 50 to 70 basis points. It raised adjusted EPS growth guidance to 9% to 10% and reiterated an expected effective tax rate of around 23%.

Hadley also said ADP expects margin expansion to ramp in the back half of the year, with more expansion expected in the fourth quarter than the third quarter. In Q&A, he cited timing of expenses and a comparison headwind tied to lower short-portfolio yields in the third quarter versus last year, while stressing that underlying margin expansion from revenue growth and cost management remains a key lever.

ADP’s board authorized a new $6 billion share repurchase program that replaces the company’s 2022 $5 billion authorization, Hadley said. He also referenced a recent 10% dividend increase as part of ADP’s capital allocation strategy to return excess cash to shareholders.

Management reiterated that it has not seen evidence of lower revenue per client or weakening attach trends, and said pricing has been “thoughtful” and consistent with prior commentary, expecting around 100 basis points of contribution from price in fiscal 2026.

About Automatic Data Processing NASDAQ: ADP

Automatic Data Processing, Inc (ADP) is a global provider of cloud-based human capital management (HCM) and payroll solutions. Founded in 1949 and headquartered in Roseland, New Jersey, ADP began as a payroll processing company and has evolved into a diversified provider of workforce management, HR, benefits administration, tax and compliance services, and analytics for employers of all sizes.

ADP's product portfolio includes payroll processing and tax filing, time and attendance systems, benefits administration, talent management, and HR outsourcing.

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