Preliminary brief— based on press release only. Full analysis including management tone and Q&A will be added when the transcript is available.

ADP · Q2 2026 Earnings

Automatic Data Processing

Reported January 28, 2026

30-second summary

30-second take: ADP delivered Q2 revenue of $5.36B (+6% YoY) and adjusted EPS of $2.62, and used the print to raise FY2026 revenue growth to ~6% (from 5–6%) and adjusted EPS growth to 9–10% (from 8–10%). The bull case got concrete: Lyric is now landing two clients with 20,000+ employees and >70% new logo mix, client satisfaction printed a record, and the extended investment strategy contribution was nudged up another $10M at both ends. The offsetting honest read: PEO worksite employee growth was cut from "2–3%" to "about 2%", U.S. Pays Per Control will be flat for the year despite a +1% Q2, and retention is still guided to fall 10–30bps — management is leaning on product wins and float to carry the FY raise, not labor strength.

Headline numbers

EPS

Q2 FY2026

$2.62

Revenue

Q2 FY2026

$5.36B

+6.0% YoY

Key financials

Q2 FY2026

Metric	Q2 FY2026	YoY	Q1 FY2026	QoQ
Revenue	$5.36B	+6.0%	$5.17B	+3.6%
EPS	$2.62	—	$2.49	+5.2%

Guidance

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

New guidance

Metric	Period	Guide	YoY
Employer Services client revenue retention decrease	FY 2026	10 to 30 basis points	—
U.S. pays per control	FY 2026	approximately flat	—
PEO Services revenue excluding zero-margin benefits pass-throughs growth	FY 2026	3% to 5%	—
PEO Services average worksite employee count growth	FY 2026	about 2%	—

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
Revenue growth	FY 2026	5% to 6%	about 6%	+0.0 to +1.0 percentage points (raised to ~6% from 5-6% range)	Raised
Diluted EPS growth	FY 2026	8% to 10%	9% to 10%	+1.0 percentage point (low end raised from 8% to 9%)	Raised
Employer Services revenue growth	FY 2026	5% to 6%	about 6%	+0.0 to +1.0 percentage points (raised to ~6% from 5-6% range)	Raised
Interest on funds held for clients	FY 2026	$1.300 to $1.320 billion	$1.310 to $1.330 billion	+$0.010 billion midpoint (+0.8%)	Raised
Total contribution from client funds extended investment strategy	FY 2026	$1.260 to $1.280 billion	$1.270 to $1.290 billion	+$0.010 billion midpoint (+0.8%)	Raised

Reaffirmed unchanged this quarter: Adjusted EBIT margin expansion (50 to 70 basis points), Adjusted effective tax rate (approximately 23%), Employer Services new business bookings growth (4% to 7%), PEO Services revenue growth (5% to 7%)

Segment KPIs

Q2 FY2026

Segment	Q2 FY2026	YoY
Employer Services	$3.607B	+6.0%
PEO Services	$1.755B	+6.0%

Other KPIs

Q2 FY2026

Segment	Q2 FY2026
Adjusted EBIT Margin	26.0%
U.S. Pays Per Control Growth	1%
Average PEO Worksite Employees	758,000
PEO Worksite Employee Growth	2%
Interest on Funds Held for Clients	$308.6M
Average Client Funds Balance	$37.6B
Yield on Client Funds	3.3%
Employer Services Segment Margin	35.4%

Management tone

Bookings miss & retention reset → Reaffirmed FY with one raise → Lyric concrete & FY raise → Confident FY raise with PEO honesty

Last quarter the tone was a measured step back toward confidence; this quarter management actually raised FY revenue and EPS guides. The framing on Lyric has fundamentally changed. Maria disclosed in prepared remarks that "more than 70% of its new business bookings and overall pipeline related to new logos" and that Lyric has now sold "two companies with more than 20,000 employees, which represents two of our largest clients sold on the platform to date." Lyric has crossed from emerging to evidenced, and that is what is funding management's confidence to take FY revenue to the high end.

PEO commentary has shifted in the opposite direction. Peter conceded in Q&A "a little bit of softening in the PEO, Pays Per Control, metric in the quarter" and the WSE guide quietly stepped to "about 2%". Maria's response that ADP is "investing in our sellers…investment into things such as sales, incentives, headcount" is honest but also confirms PEO is no longer steady-state. Management is treating this as a market share fight, not a market growth story.

AI framing in prepared remarks emphasized that "unlike generic AI solutions, ADP's approach combines proprietary workforce insights with advanced automation to solve real workforce challenges while maintaining the security, governance, and compliance standards companies trust." The implicit competitive thesis is that Lyric's 70% new-logo rate is partly because ADP's data depth and compliance posture differentiate against generic AI offerings. This is a sharper, more strategic claim than the productivity-tool framing of prior quarters.

Recurring themes management leaned on this quarter:

Enterprise Lyric momentum and new logo penetrationInternational expansion with large multinational winsAI-centric product strategy and agent-based automationPEO growth moderation requiring increased sales investmentFloat optimization and extended investment strategy driving margin expansionClient satisfaction at record levels despite retention normalization

Risks management surfaced:

Out-of-business rate normalization returning toward pre-pandemic levels weighing on retentionPEO bookings slightly below expectations and pays-per-control softeningLarge enterprise deal timing risk—material bookings but long onboarding to revenueFloating portfolio yield pressure in Q3 due to lower Fed rates vs. prior year (75 basis point headwind)Wage growth moderation in PEO base in Q2, though attributed to one-time dynamics

Answers to last quarter's watch list

U.S. Pays Per Control re-acceleration off Q1 flat print — PPC came in at +1% in Q2, above the FY "approximately flat" guide and a step up from Q1's flat. The FY guide itself was held at approximately flat — management is choosing not to bank the Q2 strength for the back half. Offset math under the FY raise is no longer carried by PPC; it is now carried by Lyric/ES revenue and float.

Resolved positively

PEO segment margin trajectory — PEO segment margin decreased 70bps YoY in Q2, driven by zero-margin pass-through growth and higher selling expenses. Management's Q&A commentary on increased PEO investment (sellers, incentives, headcount) signals near-term margin pressure persists.

Continue monitoring

Q2 ES new business bookings growth — ADP did not disclose a Q2 bookings growth figure but reaffirmed the FY +4–7% bookings guide. Maria's commentary that enterprise and international (Lyric, global payroll) were "a larger contributor to the bookings narrative than perhaps in previous" is directionally positive but unquantified.

Continue monitoring

PEO worksite employee count progression — Q2 average WSE came in at 758,000 (+2% YoY), with end-of-period at 762,000 at Dec 31. The FY guide was tightened from "2–3%" to "about 2%" — a quiet cut to the low end of the prior band.

Resolved negatively

Embedded payroll early traction — No quantification provided. Maria highlighted the December embedding of Fiserv's Cashflow Central into RUN, but no client or revenue metrics.

Continue monitoring

What to watch into next quarter

Whether the FY revenue guide moves above ~6% — Q1 printed +7% and Q2 printed +6%; the implied 1H is running at ~6.5%. Management raising only to "about 6%" implies they expect 2H deceleration. A Q3 print at or above +6% would set up another raise; a sub-6% print would validate the deceleration view.

ES client revenue retention vs the -10 to -30bps FY guide — Maria called Q2 retention "in line with our forecast, declining modestly" and flagged ADP's best-ever client satisfaction quarter. Watch whether Q3 commentary continues to lean positive against a still-cautious guide.

Lyric enterprise win count and revenue conversion timing — two 20,000+ employee wins is the new high-water mark. The risk is conversion lag: Peter explicitly noted large international/enterprise deals "take quite some time to come through to revenue generation." Track whether ADP discloses cumulative Lyric enterprise wins and any revenue contribution disclosure.

PEO bookings inflection and WSE growth — WSE was tightened to ~2%, PPC softened, and management is investing in PEO sales. Watch whether Q3 WSE reverses Q2's modest improvement back toward the low end, and any quantified bookings commentary.

Q3 adj. EBIT margin trajectory — Peter explicitly flagged "expecting to deliver more of this margin expansion in Q4 than in Q3" and an ~75bps yield headwind on the short portfolio in Q3 from prior-year Fed cuts. A Q3 margin print flat-to-down YoY is the explicit plan; anything worse is a problem.

Sources

ADP Q2 FY2026 press release, filed 2026-01-28: https://www.sec.gov/Archives/edgar/data/8670/000000867026000006/q2fy26exhibit99.htm
ADP Q2 FY2026 earnings call prepared remarks and Q&A (Maria Black, Peter Hadley)

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