ADP · Q1 2026 Earnings

Neutral

Automatic Data Processing

Reported October 29, 2025

30-second summary

30-second take: ADP opened FY26 with Q1 revenue of $5.2B (+7% YoY) and adjusted EPS of $2.49, running above the +5–6% full-year revenue guide that management reaffirmed unchanged. The only forward-looking moves were small: client funds interest revenue raised $10M on each end of the range, and the PEO Services ex-zero-margin-pass-throughs growth guide (previously +3–5%) was withdrawn — a quiet disclosure retreat that masks underlying PEO organic momentum just one quarter after segment point-margin forecasts were also dropped.

Headline numbers

EPS

Q1 FY2026

$2.49

Revenue

Q1 FY2026

$5.20B

+7.0% YoY

Free cash flow

Q1 FY2026

$0.59B

Operating margin

Q1 FY2026

25.3%

Key financials

Q1 FY2026

Metric	Q1 FY2026	YoY	Q4 FY2025	QoQ
Revenue	$5.20B	+7.0%	$5.13B	+1.4%
EPS	$2.49	—	$2.26	+10.2%
Operating margin	25.3%	—	23.2%	+210bps
Free cash flow	$0.59B	—	—	—

Guidance

Paychex maintained its core FY2026 outlook for revenue growth, EPS growth, and margin expansion while modestly raising client funds-related guidance and withdrawing disclosure on PEO Services ex-pass-through growth.

Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
PEO Services revenue growth (ex zero-margin pass-throughs)	FY 2026	3% to 5%	Withdrawn — no replacement	—	Withdrawn
Interest on funds held for clients	FY 2026	$1.290 to $1.310 billion	$1.300 to $1.320 billion	+$0.010 billion at low end, +$0.010 billion at high end	Raised
Total contribution from client funds extended investment strategy	FY 2026	$1.250 to $1.270 billion	$1.260 to $1.280 billion	+$0.010 billion at low end, +$0.010 billion at high end	Raised

Reaffirmed unchanged this quarter: Revenue growth (5% to 6%), Adjusted EBIT margin expansion (50 to 70 basis points), Adjusted diluted EPS growth (8% to 10%), Employer Services revenue growth (5% to 6%), Employer Services new business bookings growth (4% to 7%), PEO Services revenue growth (5% to 7%)

Segment KPIs

Q1 FY2026

Segment	Q1 FY2026	YoY
Employer Services	$3.491B	+7.0%
PEO Services	$1.688B	+7.0%

Other KPIs

Q1 FY2026

Segment	Q1 FY2026
Interest on Funds Held for Clients	$286.8 million
Average Client Funds Balances	$34.9 billion
Average Interest Yield on Client Funds	3.3%
PEO Average Worksite Employees	754,000
U.S. Pays Per Control Growth	Approximately flat
Employer Services Segment Margin	35.2%
PEO Services Segment Margin	13.0%
Adjusted EBIT Margin	25.5%

Management tone

Q3 FY25 macro caution → Q4 FY25 bookings reset & disclosure retreat → Q1 FY26 reaffirmation with quiet visibility trim.

No transcript was captured in the source pipeline for prepared remarks, so tone reads here are drawn from Q&A and the disclosure architecture of the press release itself.

The continuation of last quarter's disclosure retreat is the most concrete tone signal. Q4 FY25 saw ADP drop point margin forecasts for ES and PEO segments. Q1 FY26 dropped the PEO ex-pass-through growth guide. Two quarters, two pieces of visibility removed. Management's framing — that they don't manage to these specific metrics — is internally coherent, but the cumulative effect is that investors now have meaningfully less ability to decompose PEO performance into organic vs. pass-through and into volume vs. margin. The pattern matters more than any single withdrawal.

Against that, Q&A confidence was high. On HCM demand, Maria characterized it as "relatively stable" with pipeline aging "normalized to pre-pandemic levels" — a notable upgrade from Q4's "delayed, not lost" framing that needed to prove out. On embedded payroll with Fiserv, despite that partner's restructuring, Maria reinforced "no change to embedded payroll targets expected from Fiserv restructuring" and noted the partnership rolled out to the backbook in October with "bulk of opportunity ahead." On pricing, Peter confirmed the ~100bps FY26 pricing benefit assumption is intact "despite macro environment shifts."

The NextGen disclosure tightened from aspirational to operational: 80% of new mid-market sales (50–150 employee range) are now on NextGen, with management citing faster implementation, higher NPS, and "meaningfully lower contact rates." This is the most quantitatively concrete progress disclosure on the platform transition to date.

Q&A highlights

Samad Samana · Jefferies

Asked about HCM demand backdrop, deal cycles, and time-to-close trends for larger customers, particularly regarding any changes in deal timelines.

Maria indicated HCM demand remains relatively stable with no meaningful changes in deal cycles or timelines observed in Q1. Pipeline aging from fiscal 25 has normalized to pre-pandemic levels. Deal dynamics remain consistent across both down-market and up-market segments.

HCM demand described as 'relatively stable'Pipeline aging normalized to pre-pandemic levelsNo meaningful changes in deal cycles observed in Q1Consistent dynamics across down-market and up-market segments

Mark Marcon · Baird

Asked which area of new bookings was most surprising, and requested details on embedded payroll penetration, scale, and business economics impact.

Maria noted acceleration in bookings across multiple areas including small business (retirement/insurance), HR outsourcing, and Lyric HCM. Embedded payroll is still early-stage with bulk of contribution ahead; only rolled out to partner backbook in October. NextGen adoption at 80% of mid-market new sales is driving faster implementations, better satisfaction, and improved retention prospects.

Embedded payroll rollout began October; bulk of sales ahead80% of new mid-market (50-150 employees) sales on NextGenNextGen showing faster implementation times, better implementation satisfaction, higher overall client satisfactionNextGen clients showing meaningfully lower contact rates than current-gen clients

Karthik Mehta · North Coast Research

Asked about pricing assumptions for FY26 employer services (expected ~100 bps benefit) and the rollout status of AI tools for the sales force in terms of percentage coverage.

Peter confirmed no change to pricing expectations; 100 bps benefit assumption remains intact despite macro environment shifts. Maria noted AI sales tools (Zone platform) deployed at >40% of sellers (up from 40% at Investor Day), with next iteration coming that she characterized as transformational. Noted sales leadership engagement and willingness to adopt these tools.

Pricing benefit for FY26 remains ~100 basis points (lower than post-COVID but higher than pre-COVID)No change to price assumptions due to macro environmentZone AI tool deployed to >40% of sellers (up from 40% at Investor Day)Zone includes call summarization, pre-call planning, coaching capabilities

Chenjin Huang · JP Morgan

Asked about PEO worksite employee (WSE) growth relative to peers, and whether recent corporate restructurings (e.g., at Fiserv) could impact embedded payroll partnership targets.

Maria and Peter noted PEO bookings growth continued through Q1 (though moderated slightly from Q4), retention improved slightly, and WSE growth expected to be driven by bookings momentum and retention improvements. Both emphasized strong PEO leadership and winning competitive position. Maria reinforced commitment to Fiserv partnership despite restructuring; noted embedded payroll opportunity still in early innings with bulk of contribution ahead.

PEO bookings growth continued in Q1 but moderated from Q4 finishWSE growth guidance maintained at 2-3% for FY26Q1 WSE performance slightly ahead of expectationsPEO participation rates at 4-year highs

Answers to last quarter's watch list

Q1 FY26 ES new business bookings growth — Management didn't disclose a Q1 bookings growth number directly, but reaffirmed the FY26 +4–7% bookings range and cited acceleration across small business retirement/insurance, HRO, and Lyric HCM in Q&A. Pipeline aging normalized to pre-pandemic levels.

Continue monitoring

ES client revenue retention vs. 92.1% with 10–30bps decline guide — Retention wasn't quantified in the Q1 release. In Q&A, management indicated PEO retention "improved slightly," but ES retention progression vs. the guided -10 to -30bps band was not specifically called out.

Continue monitoring

U.S. Pays Per Control growth (guide: 0% to +1%) — PPC ran "approximately flat" in Q1, which sits at the low end of the FY26 guide band. Validates last quarter's caution on the labor backdrop; no immediate guide pressure but no cushion either.

Continue monitoring

HRO deal closure cadence — "delayed, not lost" thesis — Maria's Q&A characterization of demand as "relatively stable" with pipeline aging "normalized to pre-pandemic levels" and Q1 deal cycles unchanged is consistent with the thesis playing out. No commentary suggested further deal aging.

Resolved positively

Interest on funds held for clients vs. ~$322M quarterly implied run-rate — Q1 came in at $286.8M with $34.9B average balances and 3.3% yield. The FY guide was raised $10M on each end to $1.300–1.320B, implying ~$338M average for the remaining three quarters — a meaningful step-up dependent on balance and yield holding. Status: Resolved positively (FY raise) / Continue monitoring (quarterly progression)

What to watch into next quarter

Q2 ES new business bookings growth — FY26 guide of +4–7% requires acceleration off FY25's +3%. Management has only signaled qualitative acceleration; watch for an explicit Q2 print at or above +4% to validate the guide.

PEO Services revenue growth ex-pass-throughs — With the +3–5% guide withdrawn, investors should listen for any qualitative reference to organic PEO trends. If management stops referencing the metric entirely, organic PEO health becomes a black box.

PEO Worksite Employees — sequential decline from 761K to 754K. FY26 WSE growth guide of +2–3% requires sequential improvement; another step down in Q2 would put the guide under pressure.

U.S. Pays Per Control — Q1 ran "approximately flat" at the low end of 0–1%. A negative print in Q2 would breach the guide assumption and pressure the consolidated +5–6% revenue range.

Embedded payroll (Fiserv) contribution signals — backbook rollout began October; watch for early traction metrics or any quantification of contribution in Q2.

Adjusted EBIT margin progression toward +50–70bps FY expansion — Q1 adj. EBIT margin of 25.5% (vs. FY25 26.0%) is normal seasonality, but watch the Q2 trajectory for confirmation that the +50–70bps expansion remains in reach.

Sources

ADP Q1 FY26 press release, filed 2025-10-29: https://www.sec.gov/Archives/edgar/data/8670/000000867025000042/q1fy26exhibit99.htm
ADP Q1 FY26 earnings call Q&A (Maria Black, Peter Hadley)

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