Automatic Data Processing Citi’s 2026 Global TMT Conference

I am Bryan Keane. I cover the payments processors and IT services here at Citi, and we are excited to have ADP here for a fireside chat. We have Peter Hadley, who is the CFO and a long time ADPer.

True. I think it has been over 20 years, I think, at ADP.

He can tell us all the secrets of what goes in and out of ADP. I got a list of questions that I will run through, and then, if you got any questions you can just raise your hand and we can get a mic to you, or I can ask the question for you. With that, Peter, thanks for being here.

Thank you, Bryan. Good to be here.

Thank you. I got to start with the obligatory question about the macro, and since you guys have an incredible holistic view, what could you call out or what appears to be kind of the strengths you are seeing in the macro versus the weaknesses?

Anything in particular that maybe your data sees that kind of are interesting insights over the last several months?

Yeah, sure. It is a super interesting macro environment. Obviously, lots going on. Oil prices, I think, I haven't been watching during the day, but I think over $100 a barrel now, and inflation rates north of 3%, at least in the most recent print. But for ADP, the main factors that drive our business are actually pretty stable. So employment situation being the predominant one. Very much still a low hire, low fire environment. I think layoffs and we get a lot of questions about layoffs that you hear announced in the news, many of them technology companies and is AI driving this. I think the real information we see in the macro environment with respect to employment at least is a stable environment, continuing to hire.

We reported our internal metric of pays per control growth, which represents the number of pays on a same store basis for client employee hiring grew at 1% last year, again, with very low sort of layoff levels and relatively low new hiring levels. But the net of all of that, around 1% consistent with the year before. We're expecting flat to 1% again in our FY 2027, of which we're now in just started month three. So, overall, a very sort of consistent environment. Other things going on, in some of our businesses, so medical inflation, or medical healthcare inflation in our PEO business continues to be high. We see that as each year as we go through the renewal process. So a lot going on in that area. Yields too. In our client funds portfolio, we've been benefiting from continued high yields on the fixed income side of things.

So, overall, I would say the environment, not a lot of natural tailwinds to our business model, not a lot of natural headwinds. It is really quite a stable environment. And most importantly for us, the demand environment for our services continues to be healthy. And as you can probably appreciate, the level of compliance, rigor, regulation and so on with respect to employment is not in any way diminishing, and I think that helps in terms of continued demand for our services.

But even pays per control for you guys doesn't have a wild swing on the revenues. I don't know if you guys used to give the stat of 1% in pays control only determines this amount of revenue. Do you guys still have that, quote that number?

Yeah, it's around 25 to 30 basis points of our Employer Services segment revenue, is impacted, if you like. Or that's the impact on Employer Services revenue from around 1% pays per control growth. So in our growth algorithm, bookings and retention, are much more important drivers, if you like, than pays per control.

Yeah. It gets a lot of the headlines, but it doesn't drive the buck, per se.

It does get headlines. Yeah. It doesn't drive a huge amount of revenue, but it is high margin revenue. Movement in employee volumes, it doesn't really tend to meaningfully impact the cost to serve, so whether they're going up or down tends to be, maybe more of a driver on the margin, candidly, than on the revenues.

Got it. Got it. I wanted to talk about the big AI debate, and there was some misperceptions on maybe some of the AI risk in your guys' business, in payroll in particular. So, the big question was, can AI automate processes to disintermediate ADP, and why not? Maybe you can just start there.