ADP — Automatic Data Processing, Inc.

ADP Q2 2026 Earnings Call Summary

1. Key Financial Results and Metrics:

• Revenue growth of 6% year-over-year.
• Adjusted EBIT margin expanded by 80 basis points.
• Adjusted EPS grew by 11%.
• Employer Services (ES) segment revenue increased by 6% (5% organic constant currency).
• PEO revenue growth was 6%, with 3% growth excluding zero-margin pass-throughs.
• Client funds interest revenue forecast raised to $1.31 to $1.33 billion, reflecting higher average client funds balance growth of 4% to 5%.
• Adjusted EPS growth forecast increased to 9% to 10%.

2. Strategic Updates and Business Highlights:

• Strong new business bookings growth in employer services, particularly in international, US enterprise, and compliance sectors.
• Record client satisfaction results, marking the best quarter in ADP's history.
• Continued success with Workforce Now and ADP Lyric HCM platforms, including significant sales to large clients.
• Launch of the ADP Workforce Suite, integrating various HR and payroll functions.
• Investment in AI technology, including the rollout of ADP Assist for payroll, HR, and tax processes.
• Introduction of a pooled employer plan (PEP) in retirement services to ease compliance burdens for clients.

3. Forward Guidance and Outlook:

• Maintaining new business bookings growth guidance of 4% to 7% for fiscal 2026.
• ES revenue growth outlook increased to about 6% for the full year.
• PEO revenue growth forecast remains at 5% to 7%, with a slight adjustment in average worksite employee growth expectations to about 2%.
• Anticipated adjusted EBIT margin expansion of 50 to 70 basis points for the year.

4. Bad News, Challenges, or Points of Concern:

• A modest decline in employer services retention rates, with a forecasted decline of 10 to 30 basis points for the full year.
• PEO new business bookings growth was solid but slightly below expectations, contributing to a moderation in average worksite employee growth.
• Decline in PEO pays per control growth, which may indicate pressure in the PEO segment.
• Competitive pressures in the market, particularly regarding pricing and client retention.

5. Notable Q&A Insights:

• Management expressed confidence in the international growth opportunities, highlighting a recent large win with a European bank.
• Discussions around the PEO segment revealed concerns about slower growth, with management emphasizing ongoing investments in sales and product capabilities to drive future growth.
• AI's impact on employment was discussed, with management asserting that while AI is changing workflows, the human-centric nature of their services remains critical.
• The pricing environment was characterized as stable, with expectations of around 100 basis points of contribution from pricing in fiscal 2026.

Overall, ADP reported a strong quarter with solid financial performance and strategic advancements, while also acknowledging some challenges in the PEO segment and retention rates. The company remains optimistic about future growth driven by technology and client satisfaction.