Automatic Data Processing, Inc. Q2 FY26 Earnings Analysis

- Full-year revenue growth guidance raised to 6% to 7% for fiscal 2026, with increased outlook due to strong Q3 performance. - PEO revenue (excluding zero-margin pass-throughs) growth outlook increased to 4% to 5%. - Employer Services (ES) revenue grew 7% in Q3; organic constant currency growth at 5%. - International and compliance segments show notable strength driving bookings growth. - Bookings remain strong, with a 50-50 mix between new logos and upsells. - Pipeline remains healthy heading into Q4, although outcomes remain sensitive with about $20M impact per 1% variance. - Pay per control growth in ES maintained around 1%; PEO employee growth forecasted at ~2%. - Client funds balances growth outlook increased to about 6%, boosting client funds interest revenue forecast. - Continued AI-driven productivity gains expected to enhance margins and client experience. - Fiscal 2027 plans focus on further margin expansion and sustained revenue growth, leveraging AI and product innovation.

- Fiscal 2026 revenue growth guidance raised to 6% to 7%. - PEO revenue growth (excluding zero-margin pass-throughs) outlook increased to 4% to 5%. - Adjusted EBIT margin expansion forecast raised to 70-80 basis points for fiscal 2026. - Adjusted EPS growth forecast increased to 10% to 11%, supported by share repurchases. - Fiscal 2027 planning aims to continue margin expansion acceleration through AI-driven productivity benefits. - Increased client funds balances growth forecast to ~6%, contributing to higher client funds interest revenue. - Ongoing investments in AI and product innovation expected to drive sustainable revenue growth, margin expansion, and shareholder returns. - Elevated share repurchase activity planned through fiscal 2027, alongside dividend growth and business investments.

- ADP is making disciplined investments focusing on AI transformation across products, internal tools, and service delivery while maintaining financial commitments (Page 4). - Continued and increased investment in AI initiatives to improve product offerings, internal efficiencies, and service operations, including deployment of AI-powered tools like RAM platform and ADP Assist agents (Pages 4, 7, 13). - Capital investments include scaling implementation capacity internally and through partnerships with system integrators (e.g., Accenture, KPMG) especially around the Lyric platform that integrates global payroll and global time solutions (Page 8). - Innovation and development efforts centered on expanding ADP Marketplace and integrating AI agents securely and ethically to meet evolving client needs (Page 14). - Ongoing M&A activity is considered strategically, focusing on additive acquisitions that enhance the ADP model and growth opportunities, particularly internationally (Page 13).

- The transcript does not mention any current or planned new fundraising through debt or equity. - There is no discussion of issuing new shares or taking on new debt during the call. - The company emphasizes continued share repurchases at elevated levels in fiscal 2026 and 2027, indicating a focus on returning capital to shareholders rather than raising new capital. - Investments and AI transformation are being funded through disciplined internal resources and operational efficiency. - No reference is made to capital raises or fundraising plans in the provided pages.

- ADP reported solid bookings momentum in Q3, building on the first half of the year. - Strength was seen in international, compliance, and small business portfolios (insurance, retirement services). - The bookings mix remains balanced at approximately 50% new logos and 50% upsells/expansions. - Pipelines going into Q4 are healthy with all sellers equipped and motivated. - The outlook for Q4 bookings remains cautious with a wide range, reflecting typical year-end variability. - Sensitivity to bookings equates to about $20-21 million revenue per 1% change. - Overall, ADP is confident in executing bookings growth but acknowledges a lot remains to be done in Q4.