Automatic Data Processing Q4 2026 Earnings Call

Good morning. My name is Michelle, and I'll be your conference operator. At this time, I would like to welcome everyone to ADP's fourth quarter fiscal 2026 earnings call. I would like to inform you that this conference is being recorded. After the prepared remarks, we will conduct a question and answer session. Instructions will be given at that time. I'll now turn the conference over to Matt Keating, Vice President, Investor Relations. Please go ahead. Thank you, Michelle, and welcome everyone to ADP's fourth quarter fiscal 2026 earnings call.

Participating today are Maria Black, our President and CEO, and Peter Hadley, our CFO. Earlier this morning, we released our results for the quarter. Our earnings materials are available on the SEC's website and our investor relations website at investors.adp.com, where you will also find the investor presentation that accompanies today's call. During our call, we will reference non-GAAP financial measures which we believe to be useful to investors and that exclude the impact of certain items. A description of these items, along with a reconciliation of non-GAAP measures to their most comparable GAAP measures, can be found in our earnings release. Today's call will also contain forward-looking statements that refer to future events and involve some risk.

We encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ materially from our current expectations. I'll now turn it over to Maria.

Thank you, Matt. This morning, we reported strong fourth quarter results, including 7% revenue growth, 140 basis points of Adjusted EBIT margin expansion, and 17% Adjusted EPS growth, capping a fiscal year that exceeded our initial expectations and reflects the tangible progress we are making across our three strategic priorities. Our results this quarter and the full fiscal year are grounded in the value we continue to deliver to our clients. They trust us to help them find smarter ways to manage work through our hands-on experience and intelligent tools. Every business we serve is wrestling with the same question right now: how do we address this defining moment for work, navigating compliance, reimagining roles, and deploying AI without losing the accuracy and trust that payroll and HR require? ADP is the answer. While some job displacement can occur during times of transition, our data shows that AI is not eliminating jobs at scale.

Instead, it's reshaping how work gets done, what roles look like, and how teams are organized. At the same time, employers are navigating an accelerating wave of new regulations and compliance requirements as they increase their use of AI to enable and support human talent. This is a historic shift that is driving a redesign of the global workforce. ADP sits at the center of this shift. 77 years of data, deep domain expertise, and a global infrastructure built at a scale no one else can match. This has earned us the trust of our clients, the kind of trust that this era requires. What energizes me most about this moment is that it makes the work ADP does more important than ever.

The workforce is changing, the need to manage people, pay them accurately, and remain compliant is not. Before I get into our strategic progress, let me share a few business highlights for the fourth quarter and full year. Starting with Employer Services, we delivered more than $2.2 billion of new business bookings in fiscal 2026, representing 6% growth over the prior year. This reflects the strength of our solutions and the power of our unmatched distribution capabilities, which remain a competitive advantage for us. We experienced broad-based new business bookings growth with notable contributions from our small business portfolio, Employer Services, HR outsourcing, enterprise, and international businesses. Our ADP Retirement Services business achieved a major milestone of $1 billion in annual revenue for the first time. This business continues to grow quickly and now serves over 210,000 clients, supporting the retirement savings needs of millions of Americans.

Retention and client satisfaction were two other standouts from our full-year results. Employer Services retention again exceeded our expectations and remains strong at 92.1% for the fiscal year. This is the third consecutive year that our overall client satisfaction scores reached a new record high. Clients recognize the exceptional levels of client service we are delivering through the efforts of our associates and investments in our solutions. Finally, demand for both our PEO and Employer Services outsourcing solutions remained strong throughout the year as employers continued to turn to us for support in an increasingly complex operating environment. These strong results reflect deliberate decisions we made in where we invested, what we built, and how we served our clients.

With continued healthy new business pipelines and increasing adoption of AI tools across our product set, service operations, and sales, we enter fiscal 2027 confident in our ability to continue winning new deals and create operating efficiencies that will help drive Adjusted EPS growth. Let me take you through the three strategic priorities driving our performance. I'll start with what we are doing to lead with best-in-class HCM technology. What we have accomplished this year is about more than any single product or feature. It is how we are embedding AI into the very core of HCM. AI is being built into how our clients run payroll, how they are onboarded, and how we service and support them every day. That integration is what makes it real and makes it ours.

Starting with ADP Assist, since launching ADP Assist agents in January, our rollout has steadily expanded across payroll, benefits, HR, and compliance. We now have HCM agents available to nearly all of our more than 1.1 million clients. In fiscal year 2026, 3.1 million unique active users had 12 million conversations with ADP Assist. It is becoming embedded in our clients' workflows, providing real-time savings and improving accuracy. We've also seen how ADP Assist can help our clients identify and mitigate risks early on. Providing compliance insights is one example of this. Since January, ADP Assist has surfaced 45,000 compliance insights to thousands of clients so they could review and take action on tax and regulatory issues before they become a problem. That means less compliance risk and more client confidence built into our solutions. We also recently announced the availability of ADP Assist on the ADP Marketplace.

This makes it possible to seamlessly connect our solutions with client technology ecosystems through guided natural language conversations and ADP APIs. Access to ADP Assist within the ADP Marketplace helps our clients and their IT teams accelerate development and build integrations that deliver real business impact. Moving to ADP Lyric HCM. Lyric continues to gain traction in the enterprise market with our number of live clients increasing by 94% from a year ago. Our Lyric pipeline also increased 50% year-over-year, with new logos representing 70% of these opportunities, and we have made progress in international sales. This quarter, we closed deals with a digital transformation and IT consulting firm in France and two clients in the U.K., a specialty chemicals company, and a global manufacturer of accessibility solutions.

At our Investor Day in June of 2025, we talked about our unified offer of global payroll, global HR, global time, and global service. We saw more evidence of this initiative working in the fourth quarter, where we signed three deals that included Lyric, the ADP Workforce Suite, and ADP Global Payroll. In addition, our global time bookings increased significantly for the year, thanks to the continued positive reception of our workforce software time solution. Our technology investments are also accelerating what we can deliver for clients. All of our developers are now equipped with AI tools across the entire development and testing cycle, bringing new capabilities to the market faster than ever. The Zone, our proprietary AI-infused service platform, is transforming how our service teams work.

By giving associates a 360-degree view of the client, connecting data, insights, and interactions across the full client journey, The Zone equips our teams with AI-powered recommendations, case summaries, and contextual insights that improve the quality and consistency of every interaction. At the start of fiscal 2026, 10% of our service population had access to The Zone. Today, that number has grown to 48%, exceeding our end-of-year target. For those associates using The Zone, 96% of their service work is taking place on the platform. Additionally, as we scaled The Zone, we saw a 4% decrease in contacts per client in fiscal 2026. When you view this against the backdrop of the millions of client contacts we have each year, this is strong indication that our service teams are beginning to spend less time on administrative tasks and more time on tasks that add value to clients.

The Zone is now embedded in how ADP serves our clients every day and provides a scalable foundation to support stronger client engagement and retention. There's no question that products and platforms matter, but our clients also want something even more fundamental, a trusted partner who can help them execute high-stakes HR tasks amid the complexity of this workforce shift. They are looking to ADP to unlock value by helping them streamline core HR processes. That is what our second strategic priority is about, providing clients with unmatched expertise and outsourcing solutions. AI is accelerating how businesses build, manage, and deploy their workforce. As organizations pair AI capability with expert human judgment, they need HCM partners with the operational capabilities, process expertise, and technology to execute it. Payroll updates, compliance navigation, regulatory filings, people infrastructure across every jurisdiction, every workforce model, and every business size. All of that requires ADP.

A large global auto manufacturer has recently expanded their relationship with us as they undergo a large-scale, AI-driven workforce transformation aimed at optimizing labor allocation and creating a more efficient global operating model. As part of this initiative, the organization is introducing new workforce structures, evolving compensation frameworks, and navigating complex regulatory requirements, including country-specific labor laws, payroll regulations, statutory filings, and reporting requirements across 13 countries. On the small business end of the spectrum, we recently supported a dentist office in Las Vegas who was experiencing high turnover after they hired quickly to keep up with rapid growth. Our experts helped them revamp their recruitment process with intentional hiring strategies, structured behavioral interviews, and improved onboarding programs. That strategic shift ended up reducing turnover by 40% in just a year.

I spoke last quarter about ADP's structural advantages in the AI era, and this is what our structural advantages look like in practice. We are not a passive observer of change. We are the partner helping our clients execute it. Our massive data foundation is another significant advantage in creating deeper value for our clients. Through our research partnership with the Stanford Digital Economy Lab and using ADP's payroll data for millions of workers across roles, industries, and geographies, and millions of job postings, we are mapping how AI is actually reshaping work in the near real-time. We can break down work into granular tasks that describe what people do, not just job titles, and measure how the amount a worker is paid to do a specific task changes over time. This is a level of visibility no other HCM company can match.

By understanding the changes in the wage premium of specific tasks, we can see how the economic value of certain tasks evolve over time, likely influenced by AI and automation. Additionally, we can not only uncover what tasks are valuable, but what work is actually growing or shrinking in practice. Why is this important? This powerful workforce intelligence can help our clients navigate the workforce redesign and reskilling brought by this shift. The work is in its early stages, but here's an example. An initial look at IT workers shows that tasks like design, development, and analysis command higher wage premiums than tasks like testing, documentation, monitoring, and technical support. This suggests employers value and will pay for the tasks that require deeper thinking and human judgment.

As I said earlier, what this research continues to confirm, and what our client data shows, is that the workforce is evolving, not shrinking. It is being redefined at the task level, and for our clients, it means that the stakes of getting HCM right have never been higher. This is what ADP's service model is built for. The challenges and opportunities of workforce redesign create complex HR and compliance situations where human judgment is irreplaceable. Our associates are trusted advisors who navigate those situations with expertise that goes beyond what an AI agent can deliver. AI handles what can be automated. Our people handle what cannot. That combination is what makes the execution reliable, accurate, and compliant in every jurisdiction for every client. Trust is a core tenet of ADP's brand, and we are deepening it through our commitment to responsible AI.

Our AI governance infrastructure is grounded in principles of human oversight, privacy, bias mitigation, explainability, and data quality. As regulators across the world, including the EU and several U.S. states, move to create guidelines and policies to manage AI practices, our governance infrastructure is more than a compliance checkbox. It is a genuine advantage for ADP clients, forged through the relationships and experience we have built with these institutions over decades. Bringing me to our third priority, benefiting our clients with our global scale. ADP's scale is an advantage that becomes more valuable as work becomes more complex. The regulatory landscape is fragmenting by country, by state, by city, by municipality, each with its own requirements and nuances. ADP makes workforce management executable across more than 140 countries and numerous local jurisdictions.

That breadth is the foundation of the value we deliver to each client, from the small business running payroll for the first time, to the global enterprise managing a 30-country workforce transformation. Earlier, I covered how we're approaching The Zone for service. In addition, about half of our sellers are now equipped with it as well, helping them approach every sales conversation with better intelligence and greater precision. That is showing up in the outcomes. We saw a record high seller productivity in fiscal 2026, and we believe The Zone was a key contributor. I want to close with something I feel strongly about and something I think gets lost in the noise of the AI conversation. There's a lot of commentary right now about what AI means for HR, for the workforce, and for the future of work. Is this the right discussion? I see it differently. I believe, our data shows, that the world of work is evolving in ways that are beautifully and fundamentally human.

AI is taking on the routine. What is left? The judgment calls, the complex decisions, the moments when a real expert needs to guide a business through something unprecedented. Those moments are becoming more frequent, and the value of human expertise is compounding. The conversation should be about how we address this defining moment for work. The fact is, HCM remains alive and well. The need to pay people accurately, treat workers fairly, stay compliant, and navigate change has never been greater. The organizations that get this right, that invest in the right partners, the right infrastructure, the right expertise, are the ones that will come out of this moment stronger.

That is the world ADP is built for, and I have never been more optimistic about the role we get to play in it. With that, I'll turn the call over to Peter.

Thank you, Maria. Good morning, everyone. I will start by providing some more detail on our fourth quarter and fiscal 2026 results before covering our fiscal 2027 financial outlook. This morning, we reported strong fourth quarter results that included 7% revenue growth, 140 basis points of Adjusted EBIT margin expansion, and 17% Adjusted EPS growth. These results cap a fiscal year performance at the high end of our updated guidance ranges from last quarter, with 7% revenue growth, 80 basis points of Adjusted EBIT margin expansion, and 11% Adjusted EPS growth. Both our Employer Services and PEO segments revenue growth came in at the high end of the guidance range, bringing total fiscal 2026 revenue to $21.9 billion. In FY 2026, we successfully delivered on our financial commitments while continuing to invest in the future growth of ADP, advancing our AI transformation across our products and our client-facing operations.

I will now review our segment results in more detail. Starting with Employer Services, ES segment revenues in Q4 increased 7% on a reported basis and 6% on an organic constant currency basis, with favorable FX contributing close to a point of revenue growth. As Maria shared, we were pleased with our finish to the year for both ES new business bookings and ES retention, with both metrics coming in near or at the top of our prior FY 2026 guidance ranges. Hiring trends in our client base remain consistent, with ES pays per control growing 1% in the quarter, while ES segment margins continued to perform strongly, expanding 90 basis points in Q4. For full year fiscal 2026, ES segment revenue grew 7% on a reported basis and 5% on an organic constant currency basis.

ES margins increased 60 basis points for the year, which included approximately 20 basis points of acquisition-related drag from the workforce software acquisition that anniversaried in early Q2. This margin expansion stemmed from both operational productivity improvements that we are continuing to realize across the business and the contribution from client funds interest revenue growth. We continue to be pleased with the productivity gains that we are realizing as a result of the investments we are making in AI, in service tools, and in product innovation. As I mentioned last quarter, we are only in the early innings of what we believe this can deliver in terms of operational efficiency improvements, a superior client experience, and overall business growth for ADP. Turning now to the PEO. PEO revenues grew 7% in the fourth quarter, with PEO revenues excluding zero-margin pass-throughs growing 5%.

Average worksite employees increased 2% in the quarter to 775,000, primarily driven by continued growth in PEO new business bookings, while PEO pays per control growth saw some improvement in Q4. PEO margins contracted 100 basis points in the fourth quarter, due mainly to faster growth in zero-margin pass-through revenues and higher workers' compensation and selling expenses. For full year fiscal 2026, PEO revenues grew 7%, PEO revenues excluding zero-margin pass-throughs grew 5%, average worksite employees increased 2%, and PEO margins contracted 110 basis points. PEO new business bookings growth was solid in fiscal 2026, while PEO pays per control growth saw a slight deceleration versus the prior year. We saw healthy improvement in PEO retention in fiscal 2026, driven by record client satisfaction levels.

Given continued elevated healthcare insurance costs, we were very pleased with the client satisfaction and retention results we were able to achieve, which bear testament to the enduring value proposition of our PEO offering. I will now share our fiscal 2027 outlook, which assumes a broadly stable macroeconomic environment. Beginning with Employer Services, we expect revenue growth of 5%-6%, driven by the following key assumptions. We expect ES new business bookings to grow by 4%-7%, reinforced by our investments in Salesforce headcount growth as well as AI-enabled productivity tools like The Zone. We anticipate another year of broad-based contributions with bookings growth across our portfolio from small business up to our enterprise offerings, both in the U.S. and globally. For ES retention, we forecast a 10 to 30 basis point decline from our unchanged 92.1% fiscal 2026 result.

We are encouraged by our continued strong retention and record client satisfaction results. However, we think it is prudent to start the year contemplating some small pullback in retention based on the near record levels we are operating at across our business and given the potential for out-of-business rates to increase in the down market. The contribution from price to ES revenue growth came in broadly in line with our expectations in fiscal 2026. Our forecast is for similar levels of ES revenue growth contribution from price in fiscal 2027. Importantly, we continue to employ a value-based pricing philosophy, prioritizing the lifetime value of our client relationships above short-term outcomes. With U.S. pays per control growth remaining at 1% in the fourth quarter and for fiscal 2026, our outlook assumes a flat to 1% growth for fiscal 2027.

This outlook is consistent with the U.S. labor market trends that we are observing and with the findings of ADP Research Institute and Stanford Digital Economy Lab that continue to indicate that AI is reshaping how work gets done at the task level rather than reducing overall headcount at scale. We expect FX to move to a slight headwind to revenue growth in fiscal 2027 after it provided about a point of tailwind to ES revenue growth in fiscal 2026. For client funds interest revenue. First, it is important to remember that our client funds interest revenue forecast reflects the current forward yield curves, which are likely to continue to evolve as we move through fiscal 2027.

We expect that our average yield will increase from 3.4% in fiscal 2026 to 3.7% in fiscal 2027, which contemplates the market's current expectations for between 25 and 50 basis points of Fed funds rate hikes over the course of fiscal 2027. We also expect that our average client funds balances will grow 3%-4% in fiscal 2027, compared to the 7% growth experienced in fiscal 2026, driven by some moderation in wages growth. Putting this all together, we expect that our client funds interest revenue will increase from $1.35 billion in fiscal 2026 to a range of $1.54 billion-$1.56 billion in fiscal 2027. Meanwhile, we expect that the net impact from our client funds strategy will increase from $1.31 billion in fiscal 2026 to a range of $1.545 billion-$1.565 billion in fiscal 2027.

We expect ES margins to further expand in fiscal 2027, driven both by operational productivity improvements that we are continuing to realize across the business, as well as the continued contribution from client funds interest revenue growth. Moving on to the PEO segment. We expect PEO revenues to grow 5%-7% and PEO revenues excluding zero-margin pass-throughs to grow 3%-5% in fiscal 2027. Our outlook assumes average worksite employee growth of around 2%. We anticipate continued healthy PEO new business bookings growth, while PEO retention and pays per control growth to be relatively stable with FY 2026 levels. We expect PEO margins to show some further contraction in fiscal 2027, with zero-margin pass-throughs growing faster than overall PEO revenues.

Adding it all up, our consolidated revenue outlook calls for 5%-6% growth in fiscal 2027. We expect Adjusted EBIT margin expansion of 70 to 90 basis points. We expect our effective tax rate to be around 23% in fiscal 2027, Adjusted EPS growth of 9%-11%, supported by continued healthy share repurchase activity. In fiscal 2026, we repurchased 8.6 million shares, or more than 2% of our shares outstanding, for $2.1 billion. Absent major changes in market conditions, we expect share repurchases in FY 2027 to continue at the elevated levels seen in recent quarters as we continue to deploy the proceeds of our May 2026 bond offering, as well as excess cash generated from operations to share repurchases. Our current $6 billion share repurchase authorization provides the runway to sustain this level of activity.

As we explained on last quarter's call, this deliberate return of capital to shareholders comes in addition to our longstanding commitment to growing our dividend and to the levels of investment that we are making in our business to best position us for success in the future. Thank you, and I'll now turn it back to the operator for Q&A.

Thank you. If you wish to ask a question, please press star one one. If your question has been answered and you wish to remove yourself from the queue, please press star one one again. Please be aware of the allotted time for questions. Please ask one question with a brief follow-up. Our first question comes from Mark Marcon with Baird. Your line is open. Good morning, and congratulations on a strong year.

Particularly impressive in terms of all the strategic improvements and the client retention and bookings coming at the top end of the range. With regards to some of the strategic initiatives, Maria, you mentioned bookings were strong. They ended up coming in at the top end of the range. Prior to releasing the results, you were still looking at a fairly wide range. I'm assuming that the fourth quarter was particularly strong, and I'm wondering if you can talk particularly to Lyric and International. I went to the Payroll Congress and also to SHRM. When I talked to your salespeople, they all indicated that there was a lot of interest in Lyric. I'm also particularly interested in terms of what you're seeing with regards to win rates as you're going through some of these RFPs.

Sure. Good morning, Mark, and thank you. I appreciate the congratulations. We are incredibly proud of the quarter we put together, the year we put together. To start on the new business booking side, we're proud of the $2.2 billion that we delivered Employer Services bookings. That does put us at that 6% growth and at the top end of the range. You asked about the fourth quarter, it was strong, particularly in the month of June. We definitely saw 9,000 sellers, as I mentioned on the last earnings call, at the ready and ready to execute. I want to take a moment and really congratulate them on just an incredible run through the finish line and certainly the sellers and the sales leadership. I nodded to a record high average sales productivity.

Really incredibly excited to see that because it speaks volumes to everything that we've invested in, everything from the seller tools and technology that I've spoken about, to the ecosystem around them, to marketing initiatives, but also into product. That takes me to the question around how the market is receiving our various products, specifically Lyric. You asked about Lyric, you asked about International. The Lyric story actually spans both of those markets. I made a few of those comments during the prepared remarks with respect to some of the deals that we saw cross that finish line in the fourth quarter in terms of international deals and really involving that trifecta story between Global Payroll, Global HR, and Global Time. Excited to see the momentum there.

I think what you're referring to specifically that you probably would have heard from the sellers at SHRM is probably the thing I'm the most excited about with Lyric, which is, I've spoken a lot about the receptivity of Lyric as an offer in the market, and that it is the most modern platform that's out there. Clients are recognizing this, and they're turning to ADP for this. When we did the review with the Lyric sales team in terms of just the volume and the throughput of wins in the fourth quarter, the thing that excited me the most is that every single one of those conversations was anchored in an AI discussion. That, again, to me, is a direct reflection on how ADP is meeting this incredible moment during this evolving time in the workforce.

That's fantastic. Any commentary with regards to what you're seeing just in terms of win rates and how those have improved? Finally, as we're looking at fiscal 2027, the guide range for new bookings is similarly wide to last year. Just wondering the key areas, are you expecting SMB, International, and Enterprise to be the leaders there in terms of driving as you aspire to get to the top end of that range?

I'll comment quickly on the win rate side. We are definitely winning more than we were winning with our previous platform. These investments have moved the needle. I don't know that I want to go through the entire product portfolio and start giving specifics around win rates. Rest assured, we pay very close attention to win rates because that is ultimately what guides us as it relates to how the market is receiving these offerings, how well they're hunting in the land of competition. We are definitely winning more. Again, there's tremendous momentum behind Lyric as that new platform. We did see tremendous momentum in the win rates in International. International, for me, is an interesting place because I think I've spent the last four or five years on earnings calls talking about everything happening around the world and just how complicated the International space is.

I have to say that the consistency of performance in our International space is incredible. Again, these are the largest, most transformational, complicated opportunities, and they're turning to ADP. Four out of the five last quarters, International has contributed significantly to the growth in bookings. I think overall, that gives you a picture around the win rates. Maybe, Peter, if you want to comment on the bookings guide as we step into 2027.

Thank you, Mark, for the question. I think on the guide, the number is such a large number now, as you can appreciate, $2.2 billion. Going into another year, obviously, with bookings, we start again at zero every July 1st and continue on. You can rest assured we're obviously striving to maximize the outcome every single year. At this point, I think from an investor perspective, we feel it is responsible and prudent to guide to a range and three percentage points, I think, not overly large in the context, particularly as what Maria was talking about, where we have more and more of these large deal opportunities. If I look at FY 2026, the three largest contributing units in terms of our bookings growth from a dollar growth perspective, were Lyric, the WorkForce Suite, and our Global Payroll offerings.

That can really be a relatively small handful of deals as to where we land in the range. I can assure you, as we were coming up to June 30 here this year, all hands were on deck to land the number, and I'm sure that will be the case again in FY 2027.

That's great. Thank you so much.

Thank you. Our next question comes from Jason Kupferberg with Wells Fargo. Your line is open. Hey, guys.

Good morning. Thanks for taking the question. Maria, I wanted to start with, you gave some interesting examples of how ADP, it sounds to me, is almost acting in more of a consulting and an advisory role in certain cases. You talked about a global auto company increasing their relationship with you, for example. Is this an emerging new revenue stream, or is this just more of a differentiator that enhances your traditional competitive position and the stickiness of your client relationships?

It could be a bit of both, Jason, to be candid with you. I would say that we've always played a formidable role in helping guide large transformational work at the client sites. They've always turned to ADP because we hold the key to what everyone else wants to find out in that consultant environment, if you will, or the consultancy side of it, which is we know what all the other clients are doing. I think that's not new to us, right? Clients often turn to ADP. The simplest way to think of that is if a client is trying to figure out an HR policy, such as a PTO, they're turning to us and saying, "Hey, what does everyone else do?

What do others in our industry do?" I don't know that the consultancy piece and leaning on ADP's data and expertise is necessarily new. What is new is the offerings by which we're able to meet this moment as it relates to the shift in the workforce. I think that is only amplifying our ability to help our clients navigating. As jobs evolve and roles converge and tasks start to change within given jobs, this ability for us to help our clients path across and help them with things like thinking about upskilling, reskilling, role convergence, that is an evolving space for us. I think it does make things stickier, and I do think it's allowing us to get into some of these more complicated, transformational, complex environments.

Piece of that we've spoken about already this morning, ADP Lyric, our global offer, as you think about the connectivity between time and ADP Global Payroll and global HR. In and of itself, the other call-out I made during the prepared remarks in terms of a big bookings contributor is that Employer Services, HR outsourcing, that's also, as well as the PEO, a place that we do above and beyond just the tech solution. It's the most comprehensive of all of our offers, where we really help our clients guide these HR policies, these transformations. I think it's always been there, would be my answer, Jason. Undoubtedly, as the world is getting more complicated, clients are showing up at our door and leaning on ADP to help them navigate. By the way, it isn't just clients.

When it comes to this data that we have and what we're doing with it, we're also serving the general public with our research. I think we're all well aware of the National Employment Report. Obviously, I talked about the work with the Stanford Digital Economy Lab. Whether it's economists, it's the government, it's the private sector, it's academics, and our clients are all leaning on ADP to help them navigate this time.

I think, Jason, just to the revenue element of your question. We do have discrete consulting revenues. We've had those for a number of years, professional services revenues, we call them here. The other aspect, or another aspect, if you like, of how we deliver this type of work, particularly in enterprise clients, is through the blueprinting work we do in implementations as we configure and help configure and advise our clients as we're going through the implementation process through an extensive blueprinting exercise to establish them from the get-go in terms of best practices, and again, as Maria said, we use the wealth of our experience across our more than 1.1 million clients to deliver that. Again, those services are typically charged for as part of the implementation as well.

Okay. That's helpful. Peter, just a follow-up question on the guide for FY 2027. If we look at the ES guide excluding float, it looks like 4%-5% growth. I think that's a little lower than the Street expected. The float guide is actually ahead of, I think, what the Street was anticipating, and the four to five would be a little bit below, I think, the 6% we saw in fiscal 2026. Just curious whether there's any drivers or call-outs there, because obviously bookings did come in quite solid in FY 2026. Thank you. Yeah. Sure, Jason.

I think the two main things that are shifting, if you like, between FY 2026 and FY 2027 for ES revenues. We did have some contribution in the first, because it's a while ago now, but in the first quarter, early the second quarter from the workforce software acquisition before that anniversary. There was about 30 basis points or so of revenue growth contribution from that. We also had some pretty strong tailwinds last fiscal year when it comes to FX, we're expecting, as I think I mentioned in my prepared remarks, some slight headwinds on FX this year. The float is continuing to be very durable and perform strongly on this basis of strong balances, good wage growth, and obviously the move through the interest rate curve that our laddering strategy delivers for us.

I think on the underlying drivers, call it X float, XFX, we're not really anticipating any slowdown. Obviously, we provide a range of outcomes with respect to guidance that investors can rely upon. No obvious slowdown factors when I think of other drivers like, as you mentioned, bookings, retention, pays per control, price, those sorts of things. We're not contemplating any meaningful change. We're at the beginning of the fiscal year, and obviously things can develop and evolve as we go through the year.

Sure. Thanks again. Thank you.

Thank you. Our next question comes from Samad Samana with Jefferies. Your line is open. Hi.

Good morning. Thanks for taking my question, and good to see the strong close to the fiscal year. Just maybe as I think about the bookings composition in fiscal 2026 versus the assumption for 2027, I'm just curious if you think about FY 2026, it sounds like SMB was strong. How are you thinking about the different components of the portfolio in that FY 2027 guidance, and where do you think Do you think the same factors will drive the strength in fiscal 2027, or are you expecting a different composition, especially with Lyric ramping?

Yeah. Good morning, Samad. Thanks for the question. I mentioned in my prepared remarks, we're anticipating sort of broad-based contribution in FY 2027. I feel we had broad-based contribution in 2026 as well. Maria called out a number of areas. We can't call out necessarily every area to become a little monotonous perhaps. Generally speaking, we were very pleased with the broad-based contribution across the board. Real strength in some of the downmarket offerings, retirement services, Insurance Services in particular, ES HRO. If you remember this time last year, we had had a little bit of a softer finish on ES HRO. That really rebounded very strongly, both in Q4 and throughout FY 2026. We're expecting similar in 2027. The assumptions at this point in time really are a continued broad-based contribution across the portfolio.

Great. Maybe just as a follow-up, I know at the Analyst Day last year, you guys gave the long-term framework with a certain pricing assumption, right? What the contribution of pricing would be. How was that in fiscal 2026, and are you able to capture that? Do you believe that you'll be able to capture that amount that you guys thought that you would at the Analyst Day, and is that the underlying assumption for fiscal 2027? Thank you again for taking my questions.

Yeah. No, of course. We actually finished the year a little ahead. At Analyst Day, if I remember correctly, we were talking around 100 basis points of revenue growth contribution to ES from price. I mentioned last quarter, we were more at 130 basis points. We came in slightly ahead of where we were expecting. Call it a little north of 130 basis points in FY 2026, and our outlook for FY 2027 contemplates similar to FY 2026. Again, a little ahead of what we were talking about, what is that? 13, 14 months ago at Investor Day.

Thank you. Our next question comes from Bryan Keane with Citi. Your line is open. Hi, guys.

Good morning. Thanks for taking the questions. Maria, maybe you could just give us your latest thoughts on how AI will evolve in the pricing model and how ADP gets paid, and maybe some revenue opportunities AI provides for you guys, kind of as we go into the future here.

Absolutely. Thanks, Bryan, and good morning. Happy to talk about AI and kind of monetization and obviously welcome Peter weighing in as well. I think the first thing I would say, because I spoke a lot about AI during the prepared remarks, would be that AI is in the fabric of everything we do at ADP at this time. It is definitely fueling, from a revenue perspective, sales productivity. It's fueling call volumes coming down. It's fueling efficiency as a result of that. I think it's contributing to bookings, it's contributing to retention, it's contributing to EBIT. It's in the fabric of everything we do. I think that was the summary of the message that I tried to lay forth during the prepared remarks.

I think we're really optimistic about the impact. As it relates to monetization, I would say some of that monetization comes through things like bookings and further retention. As it relates to discrete monetization, I don't know, Peter, if you want to make a couple comments around how we're thinking about it through next year or in the out years. I think it's, call it early days as some of these things continue to bring value and evolve for us.

Yeah. Some of it, Brian, is we capture, we believe, through our pricing. I was just talking to Samad a moment ago about pricing, value-based pricing methodology. We deliver incremental value features, functionality. We take price for that. We have other elements of the business, such as our ADP Marketplace and ADP API Central, where we have consumption-based pricing for API calls and interactivity between agents on the ADP Marketplace and ADP. It is a bit of a mixed bag between discrete pricing and line items, so to speak, on the invoice versus inherent in the pricing equation we have with our clients. Certainly, monetization is obviously important and something that occupies our thoughts as we are continuing to deploy these technologies and build our strategies around them.

Got it. Just on the flip side, you talked about productivity and obviously lowering the cost of delivery. How is AI going to help drive future margin expansion? Is there room for further push on the margins as a result of some of these processes and tasks being automated?

Yeah, absolutely. We spoke about that last quarter as we lifted our guide, and we are pleased to deliver at the high end of our guide for 2026. I think that is implicit also in our guide. There is obviously many things going on in the margin. Float clearly is one of them, contribution from AI and productivity. Not just AI, there is also product innovation and things we are doing, some of the tools we are deploying, which again, as Maria said, are AI-infused. It is in the fabric of what we do to the sales force and to our operations teams. It is an important element in terms of contributing to the margin. I think we are, as I mentioned in my remarks, we are still in the early innings, so I think more to come with that.

I spoke at length about it last quarter and would reiterate what I said then now, which is we definitely see a path to this delivering at an accelerated level of margin delivery, and I think we have started realizing that in 2026, and we are out of the gate a little higher than where we thought we would be maybe a year or so ago in FY 2027, if I reference back to Investor Day. We will see what comes beyond that. We are certainly bullish and excited about the opportunity on many fronts, margins being one of them.

Great. Thanks so much. You're welcome.

Thank you. Our next question comes from Tien-tsin Huang with J.P. Morgan. Your line is open.

Hi, good morning. Thanks a lot. You're executing really well clearly here. I'm just curious, Maria or Peter, just thinking about the fiscal 2027 outlook. A lot of questions already, but it's very similar to what you initially guided in fiscal 2026, except for looks like slightly lower employment growth and a little bit more margin expansion. I know you answered this a little bit with Jason's question, but how would you see the key differences in composition or maybe visibility of fiscal 2027 growth or this year versus last year? Where do you maybe see a little bit more execution risk in changing your priorities, that kind of thing, Maria?

Yeah, absolutely. You're absolutely right as it relates to the guide for 2027 being broadly aligned to the guide for 2026, minus some of the things that I think Peter already discussed in terms of assumptions around workforce software, things of that nature. I think, generally in line with how we thought about stepping into 2027 is how we feel about 2026. I think the macro backdrop feels largely aligned as it relates to whether it's on the booking side, the retention side. It's hard to even remember what was happening a year ago. I would say generally speaking, we feel optimistic stepping into the 2027 with respect to a constructive backdrop to execute against the plan. I think in terms of any of the assumption differences, I don't know, Peter, if you want to talk about where we see potential opportunities or risk as we step in.

Broadly speaking, I would say the feeling sitting here at this table is that we feel constructive and strong stepping into 2027 and largely in line with how we felt stepping into 2026.

Yeah, I think obviously there's some movements. I was referencing them earlier, as you said, Tien-tsin, on things like FX and the inorganic contribution and what have you. In terms of relative confidence, if you like, or certainty visibility on the outlook, I think probably the one thing that makes me feel more comfortable now than maybe a year ago is the bookings finish that we had in FY 2026. Strong bookings finish. Obviously, some of that is already live through the downmarket type business, but our backlogs are in a little bit better position as you go into the mid and upmarket, than where they were a year ago. ES HRO, again, stronger backlogs than where we were a year ago. It becomes then obviously an execution play, and obviously we need to continue that growth.

There's still plenty to do, but I think maybe a slight nod to a little bit more relative certainty in terms of our ability to execute this year than maybe where we were 12 months ago, mainly as a result of that bookings finish.

Good. Yeah, look, visibility, stability, that's the hallmark of ADP. Glad to hear it. Maybe my quick follow-up, with Workforce Software being anniversaried, any thoughts on M&A appetite to do deals, or is this more of an organic year given the trust and AI comments that you shared?

I'll start by saying. I welcome Peter's thoughts as well. Listen, we're always open for business. We're always looking. We're looking at things always across the entire portfolio. We're really excited about how we've executed. It's hard to believe it's been almost two years, but when I look back at everything we've accomplished with respect to Workforce Software, from integrating the sales go-to-market motion, to integrating the offer, to now winning significant deals in this space, as I called out during the prepared remarks. We know that this, call it the inorganic, can be a great growth contributor, and we've built tremendous muscle here at ADP on the heels of what was and is the largest acquisition to date. We're always open for business.

That's not to suggest we have any well-laid plans, rather whether it's things such as Workforce Software or it's other things that we've done in the past, like the roll-ups of in-country partners, things of that nature that we tend to do in a given year. We're always reviewing things. We have a deal pipeline at all times. I would say we're always open for business. Peter, maybe if you want to comment about how it is that we approach that pipeline and the things that make sense to us and don't make sense to us.

Yeah, no, I would fully agree. The success of the integration of Workforce Software, as we now refer to it, Workforce Suite, would say to me, Tingjun, again, I'm not foreshadowing deals, would say to me that there's no need for us, we've not designated this year as sort of an organic-only year. We would only ever do that if we felt that we were in the midst of a deep integration project on a recently completed deal. As Maria said, I'd say we're open for business. Deals need to make sense, obviously, strategically, most importantly, and then secondarily, from a valuation perspective as well as sort of compliance, and fit with ADP and fit with culture. As she mentioned, we're always actively looking.

We are quite picky in terms of what we think would make sense for ADP and selective, and we'll continue to do that. Certainly, as Maria said, open for business. Just on the last piece from me, I guess, is in terms of our ability and our balance sheet, as you know, we have a very strong balance sheet and capability to fund most of the type of deals that we'd want to look at. Definitely open for business. Yeah, that's clear.

Well done. Thank you. Thank you.

Thank you. Thank you. Our next question comes from Dan Dolev with Mizuho.

Your line is open. Oh, hey, Maria.

Hey, Peter. Congrats on a great year. Just wanted to go back to the AI software question. I think earlier in the year, there was obviously a lot more worry about software pricing, et cetera. I think we discussed how strong the moat is around ADP, both domestically and internationally, and how localized everything is. Can you maybe share some of the recent conversations you've had with clients and just to make the point on the resiliency of the software offering, et cetera? I think that would help a lot with the investor conversations. Thank you. Thanks, Dan. I'm glad you asked.

It is a great conversation, this dialogue that we have consistently been having, whether it's with the investment community, our associates, the broader market, or certainly our clients around ADP structural advantages, is an important one. We have many, as it relates to the things that are durable through this shift in the work environment and the workforce. I think the first thing that I would say is that our results substantiate the reality of those structural advantages. If you look at the bookings result, you look at the overall results of this quarter and also of the fiscal year, I think they speak volumes. To me, words matter, but so do the results, and I think the results in and of themselves really prove that structural advantage that ADP has at this time.

The few that I would call out, if you will, the first is our data. We often talk about AI is only as good as the data that it's built upon. Certainly, we've talked today and throughout the prepared remarks around the strength of our data, spanning 1.1 million clients across the entire workforce as it relates to the segment. Whether you're a small business or the most complicated enterprise customer with 1 million employees that you're paying on a given payday, we span the entire market, 42 million wage earners across the globe, one in six wage earners in the U.S. that we pay. This is incredible data, and it's not just that data, as I mentioned in the prepared remarks, it's the wage data by tasks that is a clear separator for ADP.

We're leveraging all of this data to ingest AI into the fabric of how we service our clients, into the fabric of how we service, or how we bring efficiency into our company. That's the data piece. The other is the domain expertise. As I mentioned earlier, clients want more than tech. They want more than just the data. They want to know what to do about it. They want to know how to create that blueprint, as Peter mentioned. They want to know how to go through a transformation. They want to know how to navigate with human judgment and human complexity, rationalization, how to navigate an HR issue, a payroll issue. We have this in droves across ADP's 67,000 employees. The deep domain expertise that we have in process intelligence and HCM is unparalleled.

The third is our, in my mind, is our distribution. I think our distribution is shining as we speak. I nodded to the 9,000 sellers out there. That is a piece of our distribution, but our distribution and our reach and our scale is so much more than that. It's the reach across all of those clients. It's the ecosystem around our sellers, be it CPAs, banks, brokers, system integrators. Our distribution is, again, a complete competitive advantage and structural advantage at this time. I think the other is trust, and maybe I'll end with that because I could go on and on about our structural advantages.

Highlighting the one that I think matters more than anything right now, it is trust, ADP is proving itself to be that trusted, reliable source that clients, again, economists, academics, everyone is turning to, part of that is because we've been doing this for a very long time, and we've built a brand and a trusted brand. It's also everything I mentioned in the prepared remarks around our approach to responsible and ethical AI. It comes hand-in-hand with the three letters ADP in terms of how we think about our responsibility to the world and our responsibility to the workers and their data. I think trust is everything right now in this world that is evolving so quickly with respect to AI.

I think all of these things categorically put ADP at the front of that HCM software category, that is why I'm so optimistic about our future. I think in general, on behalf of the industry, I would say that HCM in and of itself is unique in the land of software, it's great to be at the tip of the spear of that category.

We agree. Well, very helpful. Thank you so much, and congrats.

Thank you, Dan. Much appreciated.

Thank you. Our next question comes from Daniel Jester with BMO Capital Markets. Your line is open. Great.

Thank you for taking my question. I appreciate the update on The Zone and beating your expectations in terms of the ramp-out there. If I remember correctly, I think it was only in something like 20% of the service employee base in March, and so to get to almost half in a couple of months is a big acceleration. Maybe can you just share about what that ramp looks like, the change management you're doing internally? As we think about fiscal 2027, should we expect 100% penetration, or how should we expect the ramp? Thank you. Absolutely. We have high aspirations for the Zone.

I appreciate the commentary around the progress we've made. You're absolutely right. Whether it's the Zone that's deployed across the seller ecosystem or the Zone that's across the seller ecosystem, both of them made meaningful strides. By the way, it's one Zone, actually, just to be clear. We are deploying them with purpose in each of the groups. It is about going broad and deep and measuring at every level the efficiency and the, call it the motion of work in the before and after. We have made significant progress, and that progress has yielded efficiency, service quality that has led us to that record NPS, the retention results that are incredible this year again.

I would say to you, we've made significant strides, and we're very pleased with it, and that is exactly the intent as we step into fiscal 2027. Our goal is to be broadly deployed across the entire ADP landscape, with respect to sales through fiscal 2027 and with respect to the U.S. service population throughout fiscal 2027. We have high aspirations, we have a high bar, but we're also thoughtful and methodical and measuring to ensure that we are getting the return on this significant investment, both in certainly the AI tools, but also in the change management, because this is ensuring that on the other side, things are better for our associates and better for our clients, and that's exactly what's happening.

That's why we're so excited to talk about it and call out the efficiency, and we will continue to measure that as we step into 2027 to make sure that we continue to deliver those incredible client satisfaction rates.

Appreciate it. Just maybe a quick follow-up on that, since you commented about record productivity and you talked a little bit about how much this has improved the sales and the service process for your customers. Has this translated to a change yet in terms of how you're thinking about headcount investment, maybe over the medium term? Thank you. Thanks, Dan. I'll take that one.

Again, I mentioned earlier in the prepared remarks our 67,000 associates. We finished last year, being FY 2025, also at 67,000. We'd had some questions prior to that about the growth we'd had coming out of the pandemic. We've leveled off in terms of our headcount in FY 2026 at the same time as continuing to invest and add headcount in certain targeted areas, such as sales and marketing, such as product and technology. The counter to that, so to speak, is some of the headcount efficiencies and reductions that we've been able to achieve in service and operations. The Zone is a part of that. Some of the AI tools in addition, either delivered through or in addition to The Zone, are a part of that.

We don't really have headcount numbers that we guide to a necessary target to resource against the business opportunity in front of us. My general expectation, if you're looking for some sort of perspective, is we'd be probably relatively flat overall, but with additions in targeted areas and efficiencies being realized through headcount in other areas.

Thank you very much. You're welcome.

Thank you. This concludes our question and answer portion for today. I am pleased to hand the program over to Maria Black for closing remarks.

Thanks, Michelle. I want to close by thanking our 67,000 ADP associates. Every single thing that Peter and I reported today, everything that we talked about today, is because of our ADP associates. This is truly their story. I am just the lucky one that gets to get on an earnings call with Peter and share it with all of you. The performance in fiscal 2026 is one I am very proud of. It is a visible outcome of something that is often referred to as invisible, which I believe is ADP's biggest strength, which is our culture, our people, and our culture. Our culture is anchored and fueled by the same founder's fire that started this great company back in 1949, which was really anchored in making sure that we solve real problems for real people and real businesses.

That is exactly what our associates are doing and continuing to prioritize as they put our clients first. I would be remiss if I didn't thank them for their incredible run through a great fourth quarter, an incredible fiscal year. In times of transformation, I have to say that people, the human element, and culture are more important than they've ever been, and that is the power of ADP. That is the power of ADP's people, anchored with great innovation, and it is truly what we are built for. Thank you to all the ADPers out there listening. I truly am honored to represent all of you.

Thank you for your participation. This does conclude the program. You may now disconnect. Everyone, have a great day.