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ADP · Q4 2025
ADP · Q2 2026

ADP · Q1 2026 Earnings

Neutral

Automatic Data Processing

Reported October 29, 2025

30-second summary

30-second take: ADP opened FY2026 with Q1 revenue of $5.18B (+7% YoY), running a full point above the high end of the reaffirmed 5–6% FY guide, with both Employer Services and PEO Services growing 7%. Management raised the FY2026 client funds interest line by $10M at both ends and reaffirmed every other component of the FY outlook, including PEO Services revenue ex zero-margin pass-throughs at +3–5%. Retention "slight improvements" and PEO WSE growth of 2% suggest the FY25 exit softness hasn't worsened, but management's decision to reaffirm 5–6% FY revenue despite a 7% Q1 implies they expect deceleration from here. Adjusted EBIT margin was flat YoY at 25.5% in Q1, with the FY26 +50–70bps expansion guide (off a 26.0% FY25 base) unchanged.

Headline numbers

EPS

Q1 FY2026

$2.49

Revenue

Q1 FY2026

$5.17B

+7.0% YoY

Free cash flow

Q1 FY2026

$0.60B

Operating margin

Q1 FY2026

25.3%

Key financials

Q1 FY2026
MetricQ1 FY2026YoYQ4 FY2025QoQ
Revenue$5.17B+7.0%$5.13B+0.9%
EPS$2.49—$2.26+10.2%
Operating margin25.3%—23.2%+210bps
Free cash flow$0.60B———

Guidance

Raised FY2026 client funds guidance; Q1 revenue beat across both segments offset by withdrawal of PEO ex-benefits metric.

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

Actuals vs prior guidance

MetricPeriodPrior guideActualΔResult
RevenueQ1 FY20265% to 6% YoY growth7% YoY+1 percentage point above high end of guideBeat
Employer Services RevenueQ1 FY20265% to 6% YoY growth7% YoY+1 percentage point above high end of guideBeat
PEO Services RevenueQ1 FY20265% to 7% YoY growth7% YoYAt high end of guideBeat
Adjusted EBIT MarginQ1 FY2026Not explicitly guided for Q125.5%No prior Q1-specific guide availableBeat

New guidance

MetricPeriodGuideYoY
Diluted EPS Growth (GAAP)FY20268% to 10%—
Adjusted Effective Tax RateFY2026approximately 23%—

Changes to prior guidance

MetricPeriodPrior guideNew guideΔResult
Interest on Funds Held for Clients
FY2026
$1.290 to $1.310 billion$1.300 to $1.320 billion+$0.010B at midpoint (low: +$0.010B, high: +$0.010B)Raised
Total Contribution from Client Funds Extended Investment Strategy
FY2026
$1.250 to $1.270 billion$1.260 to $1.280 billion+$0.010B at midpoint (low: +$0.010B, high: +$0.010B)Raised
PEO Services Revenue (ex zero-margin pass-throughs)
FY2026
3% to 5%Withdrawn — no replacement—Withdrawn

Segment KPIs

Q1 FY2026
SegmentQ1 FY2026YoY
Employer Services$3.491B+7.0%
PEO Services$1.688B+7.0%

Other KPIs

Q1 FY2026
SegmentQ1 FY2026
Adjusted EBIT Margin25.5%
Interest on Funds Held for Clients$286.8M
Average Client Funds Balances$34.9B
Average Interest Yield on Client Funds3.3%
PEO Average Worksite Employees754,000
PEO Worksite Employee Growth2%
U.S. Pays Per Control ChangeFlat
Employer Services Segment Margin35.2%

Management tone

The defensive posture from Q4 — bookings miss, retention guided down, segment margin forecasts withdrawn — has been replaced by a measured but more confident operating tone. The clearest evidence is in Q&A: management told Jefferies that pipeline aging has "normalized to pre-pandemic levels" and that deal cycles showed "no meaningful changes" in Q1. This is a notable shift from Q4's "delayed, not lost" framing of HRO deals; the implication is that the deferred decisions either closed or the pipeline isn't decaying further.

On retention, the Q4 guide for a 10–30bps decline from 92.1% has been characterized in Q&A as showing "slight improvements" continuing — directionally better than the guided range, though management didn't quantify. Combined with PEO health benefits participation at four-year highs (no buy-down behavior at July 1 enrollment), the underlying client health signals are firmer than Q4's commentary suggested.

The AI narrative is more concrete. Last quarter AI was framed generically; this quarter management cited Zone AI tool deployment to >40% of sellers (up from ~40% at Investor Day) and described the next generative AI iteration in sales tools as "way ahead of its time." Workforce Now NextGen is at 80% of new 50–150 employee mid-market sales with measurably lower client contact volume and record mid-market promoter scores. Product transition metrics are now being volunteered, not just discussed defensively.

What hasn't changed: management reaffirmed the 5–6% FY revenue range despite a 7% Q1 print, signaling explicit expectation of deceleration. The PEO segment margin -140bps print is worth watching for whether it persists once the called-out timing items roll off.

Q&A highlights

Samad Samana · Jefferies

Deal cycle dynamics and timeline changes for enterprise deals, particularly larger customers; confidence in guidance given headwinds in USPPC and retention

Management indicated relatively stable HCM demand backdrop with pipeline aging back to pre-pandemic normal; no meaningful changes in deal cycles observed in Q1. On guidance confidence: cited offsetting factors (USPPC guidance reduction offset by client funds interest increase and FX favorability); maintained full-year ranges despite modest sequential declines.

Deal cycles showing no meaningful changes in Q1Pipeline aging normalized to pre-pandemic levelsUSPPC guidance narrowed to low end of range (tens of basis points movement)Client funds interest revenue increased by $10 million

Mark Marcon · Baird

Most surprising area in new bookings; embedded payroll penetration and economics; Workforce Now NextGen client satisfaction and retention impact

No surprises, but pleased with acceleration: retirement/insurance and HR outsourcing highlighted. Embedded payroll still very early (launched October), bulk of bookings ahead. NextGen at 80% of new mid-market 50-150 employee sales; seeing faster implementations, better satisfaction, lower client contacts, lower profitability lift expected.

NextGen comprising 80% of new mid-market (50-150 employee) salesEmbedded payroll launched October, minimal Q1 contribution, bulk of opportunity aheadNextGen clients show faster time-to-implementation and better implementation satisfactionNextGen clients have meaningfully lower contact volume than legacy solutions

Karthik Mehta · North Coast Research

Pricing expectations given economic environment change; AI rollout percentage for sales force

No change to pricing assumption: expecting ~100 bps benefit (lower than post-COVID, higher than pre-COVID), with 'zone' AI tool deployment now north of 40% of sellers (was ~40% at Investor Day). Next iteration of generative AI in tools described as 'way ahead of its time' and game-changing.

Pricing benefit guidance maintained at ~100 basis pointsZone AI tool deployed to >40% of sellers (was ~40% at Investor Day)No change in receptivity to pricing in marketNext generation AI enhancements in sales tools coming but timeline not specified

Jared Levine · TD Cowan

PEO WSE performance versus peers; July 1 enrollment period results (participation, buy-down behavior)

WSEs came in ~10 bps above expectations. PEO bookings growth continued but moderated from Q4. Enrollment period executed well; health participation rates at highest levels in 4 years (no buy-down observed). Leadership focused on bookings and retention growth to drive WSE expansion.

PEO WSE growth came in 10 bps above expectationsHealth benefits participation rates at 4-year highsPEO bookings continued growth in Q1 (though moderated from Q4)Slight retention improvements continue

Daniel Jester · BMO Capital Markets

US versus international market differences; Workforce Now NextGen adoption gaps for 20% of customers not choosing it

International described as 'lumpy' not 'choppy' due to large complex deals; Q1 softer after Q4 strength, but pipeline solid. On NextGen: 20% non-adoption mainly due to customer knockouts (acquisitions, location additions); not expecting to reach 100% because clients need multiple versions for portfolio management.

International market characterized as lumpy due to deal complexityQ1 international softer post-Q4 strengthInternational pipeline described as solid80% NextGen adoption rate for new 50-150 employee mid-market sales

Answers to last quarter's watch list

Q1 FY2026 Employer Services new business bookings growth — Management did not disclose a specific Q1 bookings figure, but Q&A commentary characterized acceleration with retirement/insurance and HR outsourcing called out as bright spots, and pipeline aging normalized to pre-pandemic levels. The FY2026 +4–7% bookings guide was reaffirmed unchanged.
Continue monitoring
Sequential progression of ES client revenue retention vs. 10–30bps guided decline — Management indicated "slight improvements" in retention continued through Q1, directionally better than the Q4 guide of -10–30bps from 92.1%. No specific Q1 retention figure disclosed.
Resolved positively
U.S. Pays Per Control growth — Came in flat, the bottom of the 0–1% FY guide. Management acknowledged in Q&A that USPPC has narrowed toward the low end of the range (tens of basis points of pressure), offset elsewhere. Not negative, but the soft side of the band.
Resolved negatively
HRO deal closure cadence — testing Maria's "delayed, not lost" thesis — Management told Jefferies that deal cycles showed no meaningful changes in Q1 and pipeline aging is back to pre-pandemic normal. While ADP didn't explicitly confirm Q4-deferred deals closed, the pipeline normalization commentary directly supports the prior thesis.
Resolved positively
Interest on funds held for clients vs. forward curve — Q1 came in at $286.8M on $34.9B average balances at 3.3% yield. FY2026 guide raised $10M at both ends to $1.300–1.320B, implying ~$338M average for remaining quarters — the forward curve is cooperating.
Resolved positively

What to watch into next quarter

U.S. Pays Per Control re-acceleration off Q1 flat print — management has guided 0–1% for FY2026 and conceded narrowing to the low end. A negative Q2 print would invalidate the offset math holding the FY revenue guide together.

PEO segment margin trajectory — Q1 -140bps was attributed to a mix of selling expense, SUI timing, zero-margin pass-through growth, and a one-time ERTC-related cost. Whether the margin compression narrows in Q2 as those timing items roll off is the cleanest read on underlying PEO health.

Q2 ES new business bookings growth — last quarter's +3% FY25 exit needs to step up to +4–7% for FY2026. Q2 laps the prior-year extra processing day. A sub-4% Q2 print would put the bookings guide at risk.

PEO worksite employee count progression — Q1 came in at 754k, down from Q4's 761k. Some of that is seasonal, but the YoY +2% sits at the bottom of management's 2–3% guide. Watch whether Q2 reverses or trends further toward the low end.

Embedded payroll early traction — launched October with minimal Q1 contribution. Management positioned this as material growth optionality; any quantification of pipeline, partner count, or early bookings would shift the FY27 setup.

Sources

  1. ADP Q1 FY2026 press release, filed 2025-10-29: https://www.sec.gov/Archives/edgar/data/8670/000000867025000042/q1fy26exhibit99.htm
  2. ADP Q1 FY2026 earnings call Q&A (Samana/Jefferies, Marcon/Baird, Mehta/North Coast, Levine/TD Cowen, Jester/BMO)

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