What Automatic Data Processing (ADP) Said on Its Q1 Earnings Call

Key Points

• ADP exceeded first-quarter expectations, with revenue up 6%, adjusted EBIT margin expanding 130 basis points and adjusted EPS rising 13%. The company raised its fiscal 2027 revenue-growth outlook to about 6% and now expects adjusted EPS growth of 10% to 12%.
• Employer Services revenue grew 6% and PEO revenue increased 7%, while pays per control exceeded expectations. ADP also raised its client-funds interest revenue forecast by $50 million to $1.59 billion-$1.61 billion, supported by higher balances and yields.
• AI adoption and product expansion remain strategic priorities: ADP Assist added 100,000 clients, The Zone reached 60% of its service population, and AI-driven interviews cut related time spent by 75%. ADP also launched a payroll partnership with PNC Bank and expanded Lyric HCM into major European markets.

Automatic Data Processing NASDAQ: ADP reported fiscal first-quarter results that exceeded its expectations, citing revenue growth, margin expansion, higher adjusted earnings per share and continued demand across its payroll, human-capital-management and compliance offerings.

Chief Financial Officer Peter Hadley said revenue increased 6% in the quarter, adjusted EBIT margin expanded 130 basis points and adjusted EPS rose 13%. The company raised its fiscal 2027 outlook for consolidated revenue growth to about 6% and now expects adjusted EPS growth of 10% to 12%, while maintaining its forecast for adjusted EBIT margin expansion of 70 to 90 basis points.

“These results were ahead of our expectations for the quarter,” Hadley said, pointing to underlying revenue growth, productivity improvements and a stronger outlook for client-funds interest income.

Employer Services and PEO Performance

Employer Services revenue rose 6% both as reported and on an organic constant-currency basis. ADP recorded another first-quarter record for new business bookings in the segment, with notable contributions from retirement services, insurance services, HR outsourcing offerings and compliance solutions, Hadley said.

The company said global offerings had a softer start following a strong finish to fiscal 2026, though management said pipelines remain healthy. ADP retained its forecast for Employer Services bookings growth of 4% to 7% for the full fiscal year.

Employer Services revenue retention improved slightly from a year earlier and came in ahead of the company’s expectations. Still, ADP maintained its outlook for a 10- to 30-basis-point decline in full-year retention.

Pays per control in Employer Services grew 2% during the quarter, exceeding ADP’s expectations. The company raised its fiscal-year forecast for the measure to approximately 1% growth, compared with its prior range of 0% to 1%.

Hadley said ADP’s clients continue to hire at a steady pace, describing the employment backdrop as a “relatively low hire, low fire environment.” He said payroll growth was broadly based across industries, with strength in trade and transportation, healthcare and education, and financial services, while leisure and hospitality showed some softening.

Professional Employer Organization revenue increased 7%, while PEO revenue excluding zero-margin pass-throughs grew 4%. Average worksite employees increased 2%. ADP kept its fiscal 2027 PEO outlook unchanged, including expectations for total PEO revenue growth of 5% to 7% and average worksite employee growth of about 2%.

Higher Client-Funds Interest Outlook

Client-funds interest revenue increased 15% in the first quarter, driven primarily by stronger average client-funds balances. ADP lifted its expectation for average client-funds balance growth to 4% to 5% for fiscal 2027 and increased its expected average yield on the client-funds portfolio to about 3.8%.

As a result, the company increased its full-year forecast for client-funds interest revenue by $50 million to a range of $1.59 billion to $1.61 billion. It also raised its outlook for the net impact from its extended investment strategy by $45 million to the same range.

Hadley said foreign exchange remains a headwind to Employer Services revenue growth, with ADP now expecting nearly a half-point of FX headwind in fiscal 2027, compared with an approximately one-point tailwind in fiscal 2026.

AI Deployment and Product Expansion

President and Chief Executive Officer Maria Black emphasized ADP’s expanding use of artificial intelligence in its products and internal operations. She said ADP Assist added 100,000 clients since the fiscal fourth quarter and has moved from early adoption to broader usage.

Black highlighted the company’s Recruiting AI Interviewer Agent within ADP Lyric, which handles calls, scheduling and note-taking. More than 4,400 AI interviews have been completed since the start of September, she said, reducing interview-related time spent by 75%. More than half of those interviews were conducted after business hours.

ADP said it has about 50 AI agents generally available. Hadley said the company’s proprietary AI-enabled service platform, called The Zone, was deployed to 60% of its service population at the end of the first quarter, up from 48% at the end of fiscal 2026.

In ADP’s downmarket core HR and payroll business, where The Zone has been fully deployed among service associates, contacts per client handled by service teams declined 7% year over year in the first quarter. That followed an 8% reduction for the same team in fiscal 2026.

Management said it intends to use AI both to improve customer experiences and reduce its cost to serve. Black said ADP expects The Zone to reach all North American sales personnel by the end of fiscal 2027.

PNC Partnership and Global Lyric Expansion

ADP also announced a partnership with PNC Bank to provide payroll and HR capabilities within PNC’s digital banking platform. The offering, called PNC Payroll by ADP, will provide small-business banking customers access to payroll, HR, time tracking, insurance and retirement services.

Black said the partnership extends ADP’s embedded strategy and gives the company an opportunity to offer not only payroll technology but also additional services to businesses using PNC’s digital channels. She added that ADP sees further opportunities in its partnership pipeline.

The company expanded ADP Lyric HCM availability to organizations headquartered in the United Kingdom, France, Germany and the Netherlands. Black said the platform includes localized payroll compliance, labor-law, tax and data-privacy capabilities.

During the question-and-answer session, management said the integration of WorkForce Software, now called the WorkForce Suite, has been completed across ADP’s platforms, including Workforce Now. ADP also said larger Lyric and global payroll wins from fiscal 2026 are expected to contribute more meaningfully to revenue later in fiscal 2027 and, for some larger implementations, into fiscal 2028.

About Automatic Data Processing (NASDAQ:ADP)

Automatic Data Processing, Inc NASDAQ: ADP is a global provider of human capital management and business outsourcing solutions. The company helps employers manage payroll, human resources, workforce administration, benefits, tax compliance, time and attendance, talent management, and related employment processes.

ADP offers cloud-based platforms and services designed for businesses of various sizes, from small enterprises to large organizations. Its portfolio includes payroll processing, human resources management, employee benefits administration, retirement services, workforce management, data analytics, and professional employer organization services through ADP TotalSource.

Founded in 1949, ADP serves businesses in the United States and international markets.

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