Automatic Data Processing 2026 Q4 Earnings Call

Good morning. My name is Michelle, and I'll be your conference operator. At this time, I would like to welcome everyone to ADP's fourth quarter fiscal 2026 earnings call. I would like to inform you that this conference is being recorded. After the prepared remarks, we will conduct a question and answer session. Instructions will be given at that time. I'll now turn the conference over to Matt Keating, Vice President, Investor Relations.

Please go ahead. Thank you, Michelle, and welcome everyone to ADP's fourth quarter fiscal 2026 earnings call.

Participating today are Maria Black, our President and CEO, and Peter Hadley, our CFO. Earlier this morning, we released our results for the quarter. Our earnings materials are available on the SEC's website and our investor relations website at investors.adp.com, where you will also find the investor presentation that accompanies today's call. During our call, we will reference non-GAAP financial measures which we believe to be useful to investors and that exclude the impact of certain items. A description of these items, along with a reconciliation of non-GAAP measures to their most comparable GAAP measures, can be found in our earnings release. Today's call will also contain forward-looking statements that refer to future events and involve some risk.

We encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ materially from our current expectations. I'll now turn it over to Maria.

Thank you, Matt. This morning, we reported strong fourth quarter results, including 7% revenue growth, 140 basis points of Adjusted EBIT margin expansion, and 17% Adjusted EPS growth, capping a fiscal year that exceeded our initial expectations and reflects the tangible progress we are making across our three strategic priorities. Our results this quarter and the full fiscal year are grounded in the value we continue to deliver to our clients. They trust us to help them find smarter ways to manage work through our hands-on experience and intelligent tools. Every business we serve is wrestling with the same question right now: how do we address this defining moment for work, navigating compliance, reimagining roles, and deploying AI without losing the accuracy and trust that payroll and HR require? ADP is the answer. While some job displacement can occur during times of transition, our data shows that AI is not eliminating jobs at scale.

Instead, it's reshaping how work gets done, what roles look like, and how teams are organized. At the same time, employers are navigating an accelerating wave of new regulations and compliance requirements as they increase their use of AI to enable and support human talent. This is a historic shift that is driving a redesign of the global workforce. ADP sits at the center of this shift. 77 years of data, deep domain expertise, and a global infrastructure built at a scale no one else can match. This has earned us the trust of our clients, the kind of trust that this era requires. What energizes me most about this moment is that it makes the work ADP does more important than ever.

The workforce is changing, the need to manage people, pay them accurately, and remain compliant is not. Before I get into our strategic progress, let me share a few business highlights for the fourth quarter and full year. Starting with Employer Services, we delivered more than $2.2 billion of new business bookings in fiscal 2026, representing 6% growth over the prior year. This reflects the strength of our solutions and the power of our unmatched distribution capabilities, which remain a competitive advantage for us. We experienced broad-based new business bookings growth with notable contributions from our small business portfolio, Employer Services, HR outsourcing, enterprise, and international businesses. Our ADP Retirement Services business achieved a major milestone of $1 billion in annual revenue for the first time. This business continues to grow quickly and now serves over 210,000 clients, supporting the retirement savings needs of millions of Americans.

Retention and client satisfaction were two other standouts from our full-year results. Employer Services retention again exceeded our expectations and remains strong at 92.1% for the fiscal year. This is the third consecutive year that our overall client satisfaction scores reached a new record high. Clients recognize the exceptional levels of client service we are delivering through the efforts of our associates and investments in our solutions. Finally, demand for both our PEO and Employer Services outsourcing solutions remained strong throughout the year as employers continued to turn to us for support in an increasingly complex operating environment. These strong results reflect deliberate decisions we made in where we invested, what we built, and how we served our clients.

With continued healthy new business pipelines and increasing adoption of AI tools across our product set, service operations, and sales, we enter fiscal 2027 confident in our ability to continue winning new deals and create operating efficiencies that will help drive Adjusted EPS growth. Let me take you through the three strategic priorities driving our performance. I'll start with what we are doing to lead with best-in-class HCM technology. What we have accomplished this year is about more than any single product or feature. It is how we are embedding AI into the very core of HCM. AI is being built into how our clients run payroll, how they are onboarded, and how we service and support them every day. That integration is what makes it real and makes it ours.

Starting with ADP Assist, since launching ADP Assist agents in January, our rollout has steadily expanded across payroll, benefits, HR, and compliance. We now have HCM agents available to nearly all of our more than 1.1 million clients. In fiscal year 2026, 3.1 million unique active users had 12 million conversations with ADP Assist. It is becoming embedded in our clients' workflows, providing real-time savings and improving accuracy. We've also seen how ADP Assist can help our clients identify and mitigate risks early on. Providing compliance insights is one example of this. Since January, ADP Assist has surfaced 45,000 compliance insights to thousands of clients so they could review and take action on tax and regulatory issues before they become a problem. That means less compliance risk and more client confidence built into our solutions. We also recently announced the availability of ADP Assist on the ADP Marketplace.

This makes it possible to seamlessly connect our solutions with client technology ecosystems through guided natural language conversations and ADP APIs. Access to ADP Assist within the ADP Marketplace helps our clients and their IT teams accelerate development and build integrations that deliver real business impact. Moving to ADP Lyric HCM. Lyric continues to gain traction in the enterprise market with our number of live clients increasing by 94% from a year ago. Our Lyric pipeline also increased 50% year-over-year, with new logos representing 70% of these opportunities, and we have made progress in international sales. This quarter, we closed deals with a digital transformation and IT consulting firm in France and two clients in the U.K., a specialty chemicals company, and a global manufacturer of accessibility solutions.

At our Investor Day in June of 2025, we talked about our unified offer of global payroll, global HR, global time, and global service. We saw more evidence of this initiative working in the fourth quarter, where we signed three deals that included Lyric, the ADP Workforce Suite, and ADP Global Payroll. In addition, our global time bookings increased significantly for the year, thanks to the continued positive reception of our workforce software time solution. Our technology investments are also accelerating what we can deliver for clients. All of our developers are now equipped with AI tools across the entire development and testing cycle, bringing new capabilities to the market faster than ever. The Zone, our proprietary AI-infused service platform, is transforming how our service teams work.

By giving associates a 360-degree view of the client, connecting data, insights, and interactions across the full client journey, The Zone equips our teams with AI-powered recommendations, case summaries, and contextual insights that improve the quality and consistency of every interaction. At the start of fiscal 2026, 10% of our service population had access to The Zone. Today, that number has grown to 48%, exceeding our end-of-year target. For those associates using The Zone, 96% of their service work is taking place on the platform. Additionally, as we scaled The Zone, we saw a 4% decrease in contacts per client in fiscal 2026. When you view this against the backdrop of the millions of client contacts we have each year, this is strong indication that our service teams are beginning to spend less time on administrative tasks and more time on tasks that add value to clients.

The Zone is now embedded in how ADP serves our clients every day and provides a scalable foundation to support stronger client engagement and retention. There's no question that products and platforms matter, but our clients also want something even more fundamental, a trusted partner who can help them execute high-stakes HR tasks amid the complexity of this workforce shift. They are looking to ADP to unlock value by helping them streamline core HR processes. That is what our second strategic priority is about, providing clients with unmatched expertise and outsourcing solutions. AI is accelerating how businesses build, manage, and deploy their workforce. As organizations pair AI capability with expert human judgment, they need HCM partners with the operational capabilities, process expertise, and technology to execute it. Payroll updates, compliance navigation, regulatory filings, people infrastructure across every jurisdiction, every workforce model, and every business size. All of that requires ADP.