Automatic Data Processing, Inc. Q2 FY2026 earnings call

Key managerial messages include leading with best-in-class HCM technology, with strong traction for Workforce Now and ADP Lyric HCM platforms, milestones like first sale of Workforce Now NextGen to a large client, and acquisitions like Workforce Software. Providing unmatched expertise and outsourcing solutions, including introduction of first pooled employer plan in retirement services. Executing on global scale, with strong international performance including win of a large European bank and enhancements to global payroll platform. Also, strong client satisfaction results and recognition as one of the world's most admired companies.

Employer services segment revenue in Q2 increased 6% on a reported basis and 5% on an organic constant currency basis, with FX contributing about a point of revenue growth. PEO revenue increased 6% in the quarter, helped by growth in zero-margin pass-throughs and solid new business bookings growth. PEO revenue growth, excluding zero-margin pass-throughs, was 3% in the quarter. ES new business bookings were solid and broad-based. ES retention was in line with forecast, declining modestly. ES pays per control growth improved slightly to 1% for Q2. Client funds interest revenue increased more than anticipated, leading to increased forecast for average client funds balance growth and client funds interest revenue.

Fiscal 2026 consolidated revenue outlook increased to about 6% growth. Adjusted EBIT margin expansion forecasted at 50 to 70 basis points. Effective tax rate expected around 23%. Adjusted EPS growth forecast raised to 9% to 10%. Maintained new business bookings growth guidance of 4% to 7% for ES. Retention outlook of 10 to 30 basis point decline unchanged. Increased client funds interest revenue forecast by $10 million to $1.31 to $1.33 billion. Raised expected net impact from extended investment strategy by $10 million to $1.27 to $1.29 billion. Anticipated adjusted EBIT margin ramp in back half, more in Q4 than Q3.

Q: Mark Marcon asked about international opportunity, profitability of international vs US, and PEO growth.

A: Maria Black discussed strong international performance and product offerings, Peter Hadley touched on margin impact.

Q: Tien-Tsin Huang asked about margin cadence and AI impacts on labor market.

A: Peter Hadley talked about margin cadence and no discernible AI impact on labor market from data.

Q: Scott Wurtzel asked about bookings environment and AI impacts on hiring.

A: Maria Black spoke about broad-based bookings growth, Peter Hadley said no discernible AI impact.

Q: Bryan Bergin asked about ES PPC and international vs US ES.

A: Peter Hadley discussed broad-based ES PPC and international ES growth.

Q: Ramsey El-Assal asked about margin cadence confidence and pricing environment.

A: Peter Hadley talked about confidence in margin expansion and pricing environment.

Q: Ashish Sabadra asked about revenue per client and PEO softness.

A: Maria Black and Peter Hadley said no lower revenue per client and broad-based PEO performance.

Q: Kartik Mehta asked about PEO client trends and AI impact on sales.

A: Maria Black talked about consistent PEO client trends, Peter Hadley said AI makes salespeople more productive.

Q: Daniel Jester asked about Lyric deals and customer feedback vs retention.

A: Maria Black discussed Lyric deals and retention in line with expectations.

Q: Bryan Keane asked about PEO revenue ex pass-throughs and guidance.

A: Peter Hadley explained drivers of PEO revenue difference and reiterated guidance.

Q: Dan Dolev asked about Cash Flow Central partnership and long-term AI impact.

A: Maria Black talked about Cash Flow Central partnership and long-term AI adaptability