ADP — First Quarter Fiscal 2027 Earnings Summary

Financial Performance:

• Consolidated revenues increased 6% year-over-year to $5.5 billion, with 6% organic constant currency growth.
• Net earnings increased 11% to $1.1 billion; adjusted net earnings increased 11% to $1.1 billion.
• Adjusted EBIT increased 12% to $1.5 billion, with adjusted EBIT margin expanding 130 basis points to 26.8%.
• Diluted earnings per share (EPS) increased 14% to $2.83; adjusted diluted EPS increased 13% to $2.82.
• Interest on funds held for clients increased 15% to $329 million, driven by a 6% increase in average client funds balances to $36.9 billion and a 30 basis point increase in average yield to 3.6%.
• Cash flows provided by operating activities were $651.0 million for the quarter ended September 30, 2026, compared to $642.3 million in the prior year period.
• Net cash used in investing activities was $882.4 million, primarily due to purchases of corporate and client funds marketable securities ($2.67 billion) offset by proceeds from sales and maturities ($1.96 billion).
• Net cash flows provided by financing activities were $305.0 million, including $758.8 million in repurchases of common stock and $677.0 million in dividends paid.
• Long-term debt stood at $4.97 billion as of September 30, 2026.
• Effective tax rate was 22.7% on both a reported and adjusted basis.

Guidance and Future Outlook:

• ADP raised full-year fiscal 2027 guidance for revenue and adjusted diluted EPS growth.
• Fiscal 2027 consolidated revenue growth is now expected to be approximately 6% (previously 5% to 6%).
• Fiscal 2027 adjusted diluted EPS growth is expected to be 10% to 12% (previously 9% to 11%).
• Fiscal 2027 adjusted EBIT margin expansion is expected to be 70 to 90 basis points.
• Fiscal 2027 adjusted effective tax rate is expected to be approximately 23%.
• Employer Services revenue growth is expected to be approximately 6%, with new business bookings growth of 4% to 7%.
• PEO Services revenue growth is expected to be 5% to 7%, with revenue excluding zero-margin benefits pass-throughs growing 3% to 5%.
• Interest on funds held for clients is projected to be $1.59 to $1.61 billion for fiscal 2027, based on anticipated client funds balance growth of 4% to 5% and an average yield of approximately 3.8%.

Business Segments and Product Lines:

• Employer Services: Revenues increased 6% on a reported and organic constant currency basis. Segment margin increased 130 basis points. U.S. pays per control increased 2%.
• PEO Services: Revenues increased 7%. Revenues excluding zero-margin benefits pass-throughs increased 4%. Average worksite employees paid increased 2% to approximately 771,000. Segment margin remained flat.
• Client Funds Strategy: The investment portfolio is rated AAA/AA. The strategy involves extending maturities of the investment portfolio and using short-term financing to satisfy short-term funding requirements.

Market and Competitive Landscape:

• Management noted that the complexity of work is growing faster than employers can manage alone, driving client reliance on ADP's domain expertise.
• ADP serves more than 1.1 million clients across 140+ countries.
• The company is driving its AI transformation while maintaining disciplined investment.

Risks and Challenges:

• The press release includes a standard Safe Harbor statement noting that forward-looking statements are subject to risks and uncertainties.
• Potential factors causing actual results to differ include: success in obtaining and retaining clients, pricing of products and services, success of new solutions, ability to respond to technology changes (including AI), compliance with legislation or regulations, market and economic conditions (interest rates, foreign currency, inflation), competitive conditions, credit ratings, security or cyber breaches, and employment and wage levels.

Management Commentary and Tone:

• Maria Black, President and CEO, stated the company is "off to a strong start in fiscal 2027" with results reflecting the resilience of the business model and client trust.
• Peter Hadley, CFO, noted that first-quarter results exceeded expectations across revenue growth, adjusted EBIT margin expansion, and adjusted EPS growth.
• Management emphasized a "disciplined investment approach" enabling AI transformation and strong financial results.

Other Key Points:

• Fiscal 2026 included pre-tax charges of about $91 million related to a business alignment program and net charges of about $18 million related to a legal settlement.
• Fiscal 2026 included pre-tax gains of about $5 million from a partial reversal of workforce optimization initiatives and about $8 million from ADP Ventures' investments.
• Fiscal 2027 outlook includes a pre-tax gain of about $3 million related to gains on ADP Ventures' investments.
• The company hosts a conference call for financial analysts on October 28, 2026, with a webcast available at investors.adp.com.
• Non-GAAP measures used include Adjusted EBIT, Adjusted EBIT Margin, Adjusted Net Earnings, Adjusted Diluted EPS, Adjusted Effective Tax Rate, and Organic Constant Currency.